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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bank Of Georgia Group Plc | LSE:BGEO | London | Ordinary Share | GB00BF4HYT85 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 265.00 | 5.41% | 5,160.00 | 5,160.00 | 5,190.00 | 5,170.00 | 4,830.00 | 4,830.00 | 77,704 | 16:29:54 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMBGEO
RNS Number : 9900X
Bank of Georgia Group PLC
16 August 2018
Bank of Georgia
Group PLC
2(nd) quarter and half-year 2018 results
Name of authorised official of issuer responsible for making notification:
Natia Kalandarishvili, Head of Investor Relations and Funding
www.bankofgeorgiagroup.com
About Bank of Georgia Group PLC
The Group: Bank of Georgia Group PLC ("Bank of Georgia Group" or the "Group" - LSE: BGEO LN) is a UK incorporated holding company, the new parent company of BGEO Group PLC. The Group combined a Banking Business and an Investment Business prior to the Group demerger on 29 May 2018, which resulted in the Investment Business's separation from the Group effective from 29 May 2018.
The Banking Business comprises: a) retail banking and payment services, b) corporate investment banking and wealth management operations, and c) banking operations in Belarus ("BNB"). JSC Bank of Georgia ("Bank of Georgia", "BOG" or the "Bank") is the core entity of the Group's Banking Business. The Banking Business targets to benefit from superior growth of the Georgian economy through both its retail banking and corporate investment banking services and aims to deliver on its strategy: (1) at least 20% ROAE, and (2) 15%-20% growth of its loan book.
FORWARD LOOKING STATEMENTS
This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although the Board of the Bank of Georgia Group PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: currency fluctuations, including depreciation of the Georgian Lari, and macroeconomic risk; regional tensions and instability; loan portfolio quality; regulatory risk; liquidity risk; operational risk, cyber security, information systems and financial crime risk; and other key factors that indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports of the Group, including the 'Principal Risks and Uncertainties' included in this announcement and in BGEO Group PLC's Annual Report and Accounts 2017. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Bank of Georgia Group PLC or any other entity within the Group, and must not be relied upon in any way in connection with any investment decision. The Bank of Georgia Group PLC and other entities within the Group undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.
CONTENT
4 2Q18 and 1H18 Results Highlights 6 Chief Executive Officer's Statement 8 Financial Summary 10 Discussion of Results 14 Discussion of Segment Results 14 Retail Banking 18 Corporate Investment Banking 21 Selected Financial and Operating Information 26 Principal Risks and Uncertainties 31 Responsibility Statement 32 Interim Condensed Consolidated Financial Statements 33 Independent Review Report 35 Interim Condensed Consolidated Financial Statements 42 Selected Explanatory Notes 77 Annex 78 2Q18 and 1H18 Results Conference Call Details 79 Company Information
Bank of Georgia Group PLC announces the Group's second quarter 2018 and first half 2018 consolidated results. Unless otherwise noted, numbers are for 2Q18 and comparisons are with 2Q17. The results are based on International Financial Reporting Standards ("IFRS") as adopted by the European Union, are unaudited and derived from management accounts.
GROUP HIGHLIGHTS
Strong results driven by outstanding profitability and balance sheet growth momentum
GEL thousands, except per share Change Change Change information 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y Group Profit 129,229 123,628 4.5% 128,559 0.5% 257,788 231,800 11.2% Basic earnings per share 2.77 3.10 -10.6% 3.08 -10.1% 5.82 5.74 1.4% Book value per share(1) 34.12 58.83 -42.0% 64.91 -47.4% 34.12 58.83 -42.0% Equity attributable to shareholders of the Group 1,630,432 2,215,053 -26.4% 2,429,515 -32.9% 1,630,432 2,215,053 -26.4% Total assets 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 13,136,463 0.6% Number of Shares Outstanding 49,169,430 39,412,320 24.8% 39,384,712 24.8% 49,169,430 39,412,320 24.8% Banking Business Revenue 252,460 212,038 19.1% 236,393 6.8% 488,852 425,827 14.8% Cost of credit risk 39,670 40,015 -0.9% 38,143 4.0% 77,813 88,036 -11.6% Profit before non-recurring items and income tax 120,021 91,632 31.0% 111,190 7.9% 231,211 180,861 27.8% Loans to customers and finance lease receivables(2) 8,078,132 6,579,996 22.8%(3) 7,792,108 3.7%(3) 8,078,132 6,579,996 22.8%(3) Client deposits and notes 7,174,234 5,655,341 26.9%(4) 7,296,110 -1.7%(4) 7,174,234 5,655,341 26.9%(4) ROAE(5) 25.2% 24.1% 25.9% 25.5% 23.9% Net interest margin 6.9% 7.3% 7.0% 7.0% 7.3% Loan yields 14.0% 14.3% 13.9% 13.9% 14.1% Cost of funds 5.0% 4.8% 4.8% 4.9% 4.7% Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1% Cost of risk 1.7% 2.2% 2.1% 1.9% 2.3% Leverage (times equity) 7.1 6.8 7.4 7.1 6.8 NBG (Basel III) Tier I Capital Adequacy Ratio 12.5% n/a 12.4% 12.5% n/a Profit from discontinued operations(6) 80,762 36,297 122.5% 29,375 NMF 110,137 61,342 79.5%
Georgian economy continues to deliver strong growth momentum
-- Economic growth in Georgia accelerated to 5.7% in 1H18, delivering its fastest pace of growth since 2012. Booming tourism, impressive growth in goods exports and remittances remain major contributors to economic expansion, while on-going growth-enhancing reforms strengthen growth outlook. Annual inflation fell to 2.2% in June 2018 and is expected to remain close to the National Bank of Georgia's 3.0% target for the full year. The Lari appreciated by 5.4% against the US Dollar during 1H18 and the foreign exchange market remained stable over the period. Georgia's US$ reserves stood at US$ 3.0 billion at 30 June 2018
Demerger Effective
-- On 29 May 2018, the demerger of Bank of Georgia Group PLC's Investment Business to Georgia Capital PLC became effective. The results of operations of the Investment Business prior to demerger, as well as the gain recorded by the Group as a result of the Investment Business distribution are classified under the "discontinued operations" line as a single amount in the 2Q18 and 1H18 consolidated income statement. In line with IFRS, comparative periods have been accordingly restated to reflect the reclassification of the Investment Business from "continuing operations" into "discontinued operations." The Investment Business was already classified as "disposal group held for distribution" in the 1Q18 consolidated financial statements, as at that date the distribution of the Investment Business to the Group's shareholders was highly probable following the approval of the demerger at the 2018 Annual General Meeting on 30 April 2018. As a result, assets and liabilities held by the Investment Business as of 31 March 2018 were presented separately in the consolidated balance sheet under "assets of disposal group held for distribution" and "liabilities of disposal group held for distribution"
Interim Dividend
-- On 31 July 2018, Bank of Georgia Group paid an interim dividend of GEL 2.44 per ordinary share (GBP 0.7585 per ordinary share) in respect of the period ended 30 June 2018 to ordinary shareholders of the Group. This implies a dividend yield of 4.0%, based on the closing price of the shares prior to the ex-dividend date (18 July 2018)
(1) The decline in Book value per share as at 30 June 2018 is driven by the demerger of Investment Business to Georgia Capital PLC on 29 May 2018 and the issuance and allotment of additional 9,784,716 Bank of Georgia Group shares (equivalent to 19.9% of Bank of Georgia Group's issued ordinary share capital) to Georgia Capital
(2) The Group completed its IFRS 9 implementation programme and adopted 'IFRS 9, Financial Instruments' standard from 1 January 2018. As allowed by IFRS 9, the Group did not restate prior-period data, therefore, comparatives are presented on an IAS 39 basis. In addition, throughout this Announcement, the gross loans to customers and respective allowance for impairment are presented net-off expected credit loss (ECL) on contractually accrued interest income. These do not have effect on the net loans to customers balance. Management believes that netted-off balances provide best representation of the Group's loan portfolio position
(3) As of 30 June 2018, loans and finance lease receivables growth on a constant currency basis was 21.5% and 2.8% on y-o-y and q-o-q basis, respectively
(4) As of 30 June 2018, client deposits and notes on a constant currency basis increased by 25.4% y-o-y and decreased by 2.6% q-o-q
(5) 2Q18 and 1H18 results adjusted for GEL 30.3mln demerger related costs, GEL 8.0mln demerger related corporate income tax gain, and GEL 30.3mln one-off impact of re-measurement of deferred tax balances (see details on page 5 and 12)
(6) Profit from discontinued operations in 2Q18 and 1H18 includes the results of operations of the Investment Business prior to demerger and GEL 90.7mln gain on Investment Business distribution
RESULTS HIGHLIGHTS
-- Strong quarterly results. Profit before non-recurring items and income tax totalled GEL 120.0mln in 2Q18 (up 31.0% y-o-y and up 7.9% q-o-q) and GEL 231.2mln during the half year 2018 (up 27.8% y-o-y), while ROAE adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances was 25.2% in 2Q18 (up 110bps y-o-y and down 70bps q-o-q) and 25.5% in 1H18 (up 160bps y-o-y)
-- Asset quality was very strong during 2Q18. NPLs to gross loans ratio decreased to 3.0% at 30 June 2018 (4.4% at 30 June 2017 and 3.1% at 31 March 2018). NPL coverage ratio stood at 110.5% at 30 June 2018 (111.4% at 31 March 2018 and 102.9% at 31 December 2017 adjusted for IFRS 9 impact), while the NPL coverage ratio adjusted for discounted value of collateral stood at 147.2% at 30 June 2018 (147.2% at 31 March 2018 and 131.5% at 30 June 2017). The asset quality improvement positively impacted the cost of risk ratio, which decreased to 1.7% in 2Q18 (2.2% in 2Q17 and 2.1% in 1Q18) and at 1.9% in 1H18 (2.3% in 1H17)
-- The loan book growth on a constant-currency basis reached 21.5% y-o-y and 2.8% q-o-q at 30 June 2018. Retail Banking loan book share in the total loan portfolio was 70.1% at 30 June 2018 (66.1% at 30 June 2017 and 69.3% at 31 March 2018)
-- Retail Banking ("RB") continued to deliver strong growth across all its business lines. Retail Banking revenue reached GEL 179.2mln in 2Q18, up 26.4% y-o-y and up 5.0% q-o-q, with half year 2018 revenue totaling GEL 349.9mln, up 23.6% y-o-y. The Retail Banking net loan book reached GEL 5,382.4mln at 30 June 2018, up 29.5% y-o-y and up 4.4% q-o-q. The growth on a constant-currency basis was 28.5% y-o-y and 3.7% q-o-q. The number of Retail Banking clients reached 2.4mln at the end of 2Q18, up 6.7% from 2.2mln at the end of 2Q17 and up 1.1% from 1Q18
-- Our Retail Banking product to client ratio increased to 2.2 in 2Q18, up from 2.0 in 2Q17. We continue to see solid growth in sales volumes and the number of products sold to our clients in our branches which have been transformed using our client-centric model, contributing to a 29.5% y-o-y growth in our retail loan book
-- Retail Banking client deposits increased to GEL 3,479.9mln at 30 June 2018, up 33.2% y-o-y and up 5.3% q-o-q. Growth on a constant-currency basis was 31.5% y-o-y and 4.2% q-o-q
-- Corporate Investment Banking ("CIB") continued further growth in 1H18 after delivering on its risk de-concentration and loan portfolio repositioning targets in 2017. CIB's net loan book amounted to GEL 2,251.8mln at 30 June 2018, up 8.9% y-o-y and flat q-o-q on constant currency basis. The top 10 CIB client concentration was 10.2% at the end of 2Q18, down from 11.1% at 30 June 2017 and 10.3% at 31 March 2018
-- Investment Management's Assets Under Management ("AUM") increased to GEL 1,993.9mln in 2Q18, up 19.7% y-o-y and up 8.6% q-o-q, reflecting higher bond issuance activity and servicing Georgia Capital by our brokerage arm Galt & Taggart
-- De-dollarisation of the loan book and clients deposits continued. Loan book in local currency accounted for 41.7% of the total book at 30 June 2018, compared to 36.8% a year ago and 41.3% in the previous quarter. The dollarisation of our loan book has decreased since last year as the demand for local currency denominated loans was stronger than the demand for foreign currency denominated loans, supported by the Government's de-dollarisation initiatives implemented at the beginning of last year and our goal to increase the share of local currency loans in our portfolio. Client deposits in local currency represented 37.9% of the total deposit portfolio at 30 June 2018, compared to 26.0% at 30 June 2017 and 33.8% at 31 March 2018
-- Bank of Georgia continued to attract local currency funding to further support the increased demand on the local currency lending and the de-dollarisation of its loan book. In 1H18, the Bank raised GEL 25mln financing with maturity of up to three years from a Swiss investment company Symbiotics to finance the Bank's micro, small and medium sized enterprises. Moreover, the Bank once again co-operated with Black Sea Trade and Development Bank and secured GEL 75mln, with tranches up to five years duration, to finance the Bank's SME lending. Finally, the Bank secured GEL 160mln local currency financing with maturity of five years from Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. (FMO) in July 2018
-- Amendment to the current corporate taxation model. On 12 June 2018, an amendment to the current corporate taxation model applicable to financial institutions, including banks and insurance businesses became effective. The change implies a zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings starting from 1 January 2023, instead of 1 January 2019 as previously enacted in 2016. The change had an immediate impact on deferred tax asset and deferred tax liability balances attributable to previously recognised temporary differences arising from prior periods. The Group re-measured its deferred tax balances at 30 June 2018 and recognised a GEL 30.3mln one-off deferred income tax expense in 2Q18. This impact is a reversal of the one-off deferred tax gain recognised by the Group in 2016
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am delighted that the Bank of Georgia Group has continued to perform strongly throughout the first half of 2018, at a time when the Group, on 29 May 2018, completed the demerger of Bank of Georgia Group PLC's Investment Business to Georgia Capital PLC. The Group is now a banking business at its core, and throughout the demerger process the Banking Business has continued on its recent strong growth, high return trajectory whilst also continuing to significantly improve asset quality in the lending portfolios.
This performance has been supported by strong economic growth in Georgia, with real GDP growth in the first half of the year an estimated 5.7%. Business confidence remains strong, exports continue to grow rapidly and tourist inflows were at unparalleled levels during the first half. Annual inflation is currently running at around 2.2%, and is expected to remain close to the National Bank of Georgia's 3% target for the year. In addition, the foreign exchange market has remained stable during the period and the Georgian Lari appreciated 5.4% against the US Dollar during the first half.
At the consolidated Bank of Georgia Group PLC level, profit during the half year totalled GEL 257.8 million, an increase of 11% on the first half of 2017. This number was however impacted by a number of one-off items, largely related to the demerger process, but also reflecting a change to the Georgian corporate taxation model. These items are discussed in more detail in the "Bank of Georgia Group Highlights" section of this report. Focusing on the core Banking Business, profit before non-recurring items and income tax totalled GEL 231.2 million during the first half of 2018, an increase of 28%. On the same basis, profit in the second quarter of 2018 totalled GEL 120.0 million, an increase of 31% year-on-year, and 8% quarter-on-quarter.
The Banking Business delivered a strong result in the second quarter, with an adjusted return on equity of 25.2%. The loan book grew 23% year-on-year, and 4% during the quarter, reflecting continued strong growth in Retail Banking, where the mortgage portfolio has increased by 50% over the last 12 months, and our renewed focus in corporate lending, which is now delivering high quality lending growth following the completion of our three year programme to reduce concentration risk at the end of last year. Whilst individual product loan yields have continued to remain stable, the banking sector's increasing focus on lending to finer margin corporate and SME clients, and in the mortgage sector, has led to a negative mix effect on the net interest margin, which was reduced by 10 basis points quarter on quarter to 6.9%. This shift in product mix, which we expect to continue, improves our asset quality metrics and we have seen stability in our net interest margin net of credit costs. Costs remain well controlled, and the Banking Business delivered positive operating leverage whilst continuing to invest in our strong customer franchise.
The Retail Banking customer franchise continues to grow strongly in all segments and delivered record quarterly net interest income of GEL 138.2 million in 2Q18. The Retail Banking product to client ratio increased to 2.2, compared to 2.0 in the first half of last year. This has been supported by increased penetration of our digital offers and the significantly increased use of our mobile banking application - mBank. In addition, we are firmly on track to deliver our targeted 40,000 Solo clients by the end of 2018, with over 39,000 clients already benefiting from Solo's concierge-style banking proposition.
Asset quality continues to improve significantly. The annualised cost of risk ratio in the first half of 2018 was 1.9%, and in the second quarter was 1.7%, now below our medium-term cost of risk expectations. This was achieved at the same time as improving other asset quality metrics, with non-performing lending reducing by 19% over the last twelve months, and the NPL Coverage ratio improving from 90% to 111% over the same period. The NPLs to Gross Loans ratio has also reduced significantly, from 4.4% to 3.0%, over the last 12 months.
The Bank's capital and funding position remains strong. The National Bank of Georgia transitioned to Basel III standards, and introduced new capital adequacy requirements in December 2017 and on the new basis, the NBG (Basel III) Total capital and Tier 1 capital adequacy ratios were 17.5% and 12.5%, respectively, at the end of the first half, significantly in excess of the Bank's minimum capital requirements. Bank of Georgia continues to have strong capital and liquidity ratios and high levels of internal capital generation.
Over the last few months, the National Bank of Georgia has been working with banking sector participants to create a greater focus on lending to corporate and SME clients, and in the mortgage sector as opposed to the unsecured consumer sector. In May 2018, NBG introduced temporary limits on retail loans disbursed with no formal proof of income whilst consultations with commercial banks take place towards the introduction of Retail Lending Guidelines, expected in early 2019. As a result of these policy changes, we anticipate growth rates in the unsecured consumer sector to moderate, while expecting continued solid growth in mortgage and SME lending. Overall, our expectations for the full year customer lending growth of 15-20% remain unchanged.
There are currently a number of macroeconomic and currency pressures affecting some of Georgia's trading partners, particularly Turkey. Georgia has a well-diversified economy and has no significant reliance on any single country or sector to drive its expected macroeconomic growth over the next few years. During 2017, Georgia's exposure to Turkey accounted for only 6.1% of GDP, through a combination of remittances, FDI, exports and tourist arrivals. The exchange rate of the Georgian Lari to the US Dollar has weakened slightly during the last month, but only to levels seen during the beginning of the year. We are currently expecting the GEL USD exchange rate to be approximately 2.70 at the end of the year. The Bank to date has not seen any impact of the regional economic turbulence on its asset quality performance or expectations, but we continue to closely monitor developments in Turkey, including spillover effects, if any, on the Georgian economy. The Bank has no material direct exposure to Turkey, while the indirect exposure is limited to GEL 180.6 million tender, performance and advance guarantees, related to road construction projects in Georgia that are cash funded by the Georgian Government and operated by Turkish contractors.
Georgia's macroeconomic growth drivers are robust, and we expect this trend to continue - supported by the Georgian Government's ongoing growth-oriented reform programme, and prudent economic and monetary policies. Bank of Georgia is well positioned to capitalise on this growth and continue to deliver solid franchise growth, strong operational and capital efficiency, and superior returns to shareholders into the second half of 2018 and over the medium-term.
Kaha Kiknavelidze,
CEO, Bank of Georgia Group PLC
15 August 2018
FINANCIAL SUMMARY
INCOME Bank of Georgia Group Consolidated Banking Business7 Discontinued Operations7 STATEMENT (QUARTERLY) GEL thousands unless otherwise Change Change Change Change Change Change noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q Net interest income 187,488 160,099 17.1% 181,114 3.5% 186,330 160,308 16.2% 180,123 3.4% - - - - - Net fee and commission income 37,652 31,027 21.4% 34,185 10.1% 37,847 31,402 20.5% 34,511 9.7% - - - - - Net foreign currency gain 25,004 18,005 38.9% 14,913 67.7% 24,577 19,282 27.5% 16,015 53.5% - - - - - Net other income 3,380 777 NMF 5,518 -38.7% 3,706 1,046 NMF 5,744 -35.5% - - - - - Revenue 253,524 209,908 20.8% 235,730 7.5% 252,460 212,038 19.1% 236,393 6.8% - - - - - Operating expenses (92,580) (79,826) 16.0% (86,279) 7.3% (93,145) (80,785) 15.3% (87,379) 6.6% - - - - - Profit from associates 376 394 -4.6% 319 17.9% 376 394 -4.6% 319 17.9% - - - - - Operating income before cost of credit risk 161,320 130,476 23.6% 149,770 7.7% 159,691 131,647 21.3% 149,333 6.9% - - - - - Cost of credit risk (39,670) (40,015) -0.9% (38,143) 4.0% (39,670) (40,015) -0.9% (38,143) 4.0% - - - - - Profit before non-recurring items and income tax 121,650 90,461 34.5% 111,627 9.0% 120,021 91,632 31.0% 111,190 7.9% - - - - - Net non-recurring items (43,875) (1,017) NMF (2,948) NMF (44,047) (1,017) NMF (2,948) NMF - - - - - Profit before income tax expense 77,775 89,444 -13.0% 108,679 -28.4% 75,974 90,615 -16.2% 108,242 -29.8% - - - - - Income tax expense (27,507) (3,284) NMF (9,058) NMF (27,507) (3,284) NMF (9,058) NMF - - - - - Profit from continuing operations 50,268 86,160 -41.7% 99,621 -49.5% 48,467 87,331 -44.5% 99,184 -51.1% - - - - - Profit from discontinued operations 78,961 37,468 110.7% 28,938 NMF - - - - - 80,762 36,297 122.5% 29,375 NMF Profit 129,229 123,628 4.5% 128,559 0.5% 48,467 87,331 -44.5% 99,184 -51.1% 80,762 36,297 122.5% 29,375 NMF Earnings per share (basic) 2.77 3.10 -10.6% 3.08 -10.1% 1.13 2.27 -50.2% 2.64 -57.2% Earnings per share (diluted) 2.74 2.98 -8.1% 2.98 -8.1% 1.12 2.18 -48.6% 2.55 -56.1% Earnings per share (basic) adjusted(8) 2.31 2.27 1.8% 2.64 -12.5% Earnings per share (diluted) adjusted(8) 2.29 2.18 5.0% 2.55 -10.2% INCOME Bank of Georgia Group Banking Business7 Discontinued Operations7 STATEMENT Consolidated (HALF-YEAR) GEL thousands unless otherwise Change Change Change noted 1H18 1H17 y-o-y 1H18 1H17 y-o-y 1H18 1H17 y-o-y Net interest income 368,602 320,434 15.0% 366,453 321,188 14.1% - - - Net fee and commission income 71,837 60,812 18.1% 72,357 61,594 17.5% - - - Net foreign currency gain 39,916 30,531 30.7% 40,591 38,982 4.1% - - - Net other income 8,898 3,561 149.9% 9,451 4,063 132.6% - - - Revenue 489,253 415,338 17.8% 488,852 425,827 14.8% - - - Operating expenses (178,858) (155,930) 14.7% (180,523) (157,839) 14.4% - - - Profit from associates 695 909 -23.5% 695 909 -23.5% - - - Operating income before cost of credit risk 311,090 260,317 19.5% 309,024 268,897 14.9% - - - Cost of credit risk (77,813) (88,036) -11.6% (77,813) (88,036) -11.6% - - - Profit before non-recurring items and income tax 233,277 172,281 35.4% 231,211 180,861 27.8% - - - Net non-recurring
items (46,823) (2,711) NMF (46,995) (2,711) NMF - - - Profit before income tax expense 186,454 169,570 10.0% 184,216 178,150 3.4% - - - Income tax expense (36,565) (7,692) NMF (36,565) (7,692) NMF - - - Profit from continuing operations 149,889 161,878 -7.4% 147,651 170,458 -13.4% - - - Profit from discontinued operations 107,899 69,922 54.3% - - - 110,137 61,342 79.5% Profit 257,788 231,800 11.2% 147,651 170,458 -13.4% 110,137 61,342 79.5% Earnings per share (basic) 5.82 5.74 1.4% 3.64 4.24 -14.2% Earnings per share (diluted) 5.76 5.51 4.5% 3.60 4.08 -11.8% Earnings per share (basic) adjusted(8) 4.92 4.24 16.0% Earnings per share (diluted) adjusted(8) 4.86 4.08 19.1%
(7) Banking Business and Discontinued Operations financials do not include inter-business eliminations. Detailed financials, including inter-business eliminations are provided on pages 21, 22 and 23
(8) 2Q18 and 1H18 results adjusted for GEL 30.3mln demerger related costs, GEL 8.0mln demerger related corporate income tax gain, and GEL 30.3mln one-off impact of re-measurement of deferred tax balances (see details on page 5 and 12)
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BALANCE SHEET Bank of Georgia Group Banking Business9 Discontinued Operations9
Consolidated
GEL thousands Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change
unless otherwise y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q
noted
Liquid assets 4,266,417 3,942,743 8.2% 4,445,452 -4.0% 4,266,417 3,775,370 13.0% 4,514,326 -5.5% - 549,426 NMF - -
Cash and cash
equivalents 1,546,863 1,454,387 6.4% 1,754,920 -11.9% 1,546,863 1,401,728 10.4% 1,754,920 -11.9% - 349,166 NMF - -
Amounts due
from
credit
institutions 993,862 1,090,259 -8.8% 941,804 5.5% 993,862 976,810 1.7% 955,175 4.1% - 152,635 NMF - -
Investment
securities 1,725,692 1,398,097 23.4% 1,748,728 -1.3% 1,725,692 1,396,832 23.5% 1,804,231 -4.4% - 47,625 NMF - -
Loans to
customers
and finance
lease
receivables 8,078,132 6,517,773 23.9% 7,727,568 4.5% 8,078,132 6,579,996 22.8% 7,792,108 3.7% - - - - -
Property and
equipment 313,627 1,418,453 -77.9% 324,810 -3.4% 313,627 303,396 3.4% 324,810 -3.4% - 1,110,722 NMF - -
Assets of
disposal
group held for
distribution - - - 2,447,592 NMF - - - - - - - - 3,841,004 NMF
Total assets 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 11,060,955 19.4% 13,166,862 0.3% - 2,527,043 NMF 3,841,004 NMF
Client deposits
and notes 7,174,234 5,319,398 34.9% 6,762,071 6.1% 7,174,234 5,655,341 26.9% 7,296,110 -1.7% - - - - -
Amounts due to
credit
institutions 2,740,595 3,077,869 -11.0% 2,521,291 8.7% 2,740,595 2,602,304 5.3% 2,642,427 3.7% - 538,533 NMF - -
Borrowings
from
DFI 1,161,120 1,343,492 -13.6% 1,191,605 -2.6% 1,161,120 1,088,054 6.7% 1,191,605 -2.6% - 255,438 NMF - -
Short-term
loans
from NBG 556,834 999,159 -44.3% 729,244 -23.6% 556,834 999,159 -44.3% 729,244 -23.6% - - - - -
Loans and
deposits
from
commercial
banks 1,022,641 735,218 39.1% 600,442 70.3% 1,022,641 515,091 98.5% 721,578 41.7% - 283,095 NMF - -
Debt securities
issued 1,527,452 1,582,431 -3.5% 1,524,600 0.2% 1,527,452 1,312,990 16.3% 1,569,404 -2.7% - 319,033 NMF - -
Liabilities of
disposal group
held for
distribution - - - 1,837,869 NMF - - - - - - - - 1,964,463 NMF
Total liabilities 11,571,235 10,628,270 8.9% 12,733,920 -9.1% 11,571,235 9,648,928 19.9% 11,596,833 -0.2% - 1,430,877 NMF 1,964,463 NMF
Total equity 1,637,586 2,508,193 -34.7% 2,740,570 -40.2% 1,637,586 1,412,027 16.0% 1,570,029 4.3% - 1,096,166 NMF 1,876,541 NMF
BANKING BUSINESS RATIOS 2Q18 2Q17 1Q18 1H18 1H17
ROAA(10) 3.1% 3.2% 3.1% 3.1% 3.2%
ROAE(10) 25.2% 24.1% 25.9% 25.5% 23.9%
Net Interest Margin 6.9% 7.3% 7.0% 7.0% 7.3%
Loan Yield 14.0% 14.3% 13.9% 13.9% 14.1%
Liquid assets yield 3.8% 3.4% 3.6% 3.7% 3.3%
Cost of Funds 5.0% 4.8% 4.8% 4.9% 4.7%
Cost of Client Deposits
and Notes 3.6% 3.6% 3.4% 3.5% 3.5%
Cost of Amounts Due to Credit
Institutions 7.2% 6.6% 6.9% 7.0% 6.4%
Cost of Debt Securities
Issued 7.7% 7.1% 7.7% 7.8% 6.5%
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
NPLs to Gross Loans to Clients 3.0% 4.4% 3.1% 3.0% 4.4%
NPL Coverage Ratio 110.5% 90.2% 111.4% 110.5% 90.2%
NPL Coverage Ratio, Adjusted
for discounted value of
collateral 147.2% 131.5% 147.2% 147.2% 131.5%
Cost of Risk 1.7% 2.2% 2.1% 1.9% 2.3%
NBG (Basel III) Tier I Capital
Adequacy Ratio 12.5% n/a 12.4% 12.5% n/a
NBG (Basel III) Total Capital
Adequacy Ratio 17.5% n/a 17.3% 17.5% n/a
(9) Banking Business and Discontinued Operations financials do not include inter-business eliminations. Detailed financials, including inter-business eliminations are provided on pages 21, 22 and 23
(10) 2Q18 and 1H18 results adjusted for GEL 30.3mln demerger related costs, GEL 8.0mln demerger related corporate income tax gain, and GEL 30.3mln one-off impact of re-measurement of deferred tax balances (see details on page 5 and 12)
DISCUSSION OF RESULTS
The Group's business is primarily comprised of three segments. (1) Retail Banking operations in Georgia principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfer and settlement services, and handling customers' deposits for both individuals as well as legal entities. Retail Banking targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses. (2) Corporate Investment Banking comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients. (3) BNB, comprising JSC Belarusky Narodny Bank, principally provides retail and corporate banking services to clients in Belarus.
REVENUE GEL thousands, unless Change Change Change otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y Interest income 329,628 272,946 20.8% 313,553 5.1% 643,181 540,068 19.1% Interest expense (143,298) (112,638) 27.2% (133,430) 7.4% (276,728) (218,880) 26.4% Net interest income 186,330 160,308 16.2% 180,123 3.4% 366,453 321,188 14.1% Fee and commission income 55,693 45,903 21.3% 51,213 8.7% 106,906 89,605 19.3% Fee and commission expense (17,846) (14,501) 23.1% (16,702) 6.8% (34,549) (28,011) 23.3% Net fee and commission income 37,847 31,402 20.5% 34,511 9.7% 72,357 61,594 17.5% Net foreign currency gain 24,577 19,282 27.5% 16,015 53.5% 40,591 38,982 4.1% Net other income 3,706 1,046 NMF 5,744 -35.5% 9,451 4,063 132.6%
Revenue 252,460 212,038 19.1% 236,393 6.8% 488,852 425,827 14.8%
Net Interest Margin 6.9% 7.3% 7.0% 7.0% 7.3%
Average interest earning
assets 10,787,812 8,799,432 22.6% 10,413,787 3.6% 10,607,869 8,852,691 19.8%
Average interest bearing
liabilities 11,468,106 9,389,773 22.1% 11,230,932 2.1% 11,326,887 9,442,232 20.0%
Average net loans
and finance lease
receivables, currency
blended 7,968,652 6,527,839 22.1% 7,749,210 2.8% 7,868,477 6,599,211 19.2%
Average net loans
and finance lease
receivables, GEL 3,305,404 2,284,483 44.7% 3,085,905 7.1% 3,192,832 2,158,329 47.9%
Average net loans
and finance lease
receivables, FC 4,663,248 4,243,356 9.9% 4,663,305 0.0% 4,675,645 4,440,882 5.3%
Average client deposits
and notes, currency
blended 7,253,758 5,713,293 27.0% 7,038,125 3.1% 7,124,489 5,736,084 24.2%
Average client deposits
and notes, GEL 2,588,111 1,513,772 71.0% 2,315,919 11.8% 2,449,970 1,455,723 68.3%
Average client deposits
and notes, FC 4,665,647 4,199,521 11.1% 4,722,206 -1.2% 4,674,519 4,280,361 9.2%
Average liquid assets,
currency blended 4,349,730 3,621,790 20.1% 4,306,271 1.0% 4,301,382 3,592,112 19.7%
Average liquid assets,
GEL 1,833,260 1,449,760 26.5% 1,804,602 1.6% 1,830,113 1,421,911 28.7%
Average liquid assets,
FC 2,516,470 2,172,030 15.9% 2,501,669 0.6% 2,471,269 2,170,201 13.9%
Liquid assets yield,
currency blended 3.8% 3.4% 3.6% 3.7% 3.3%
Liquid assets yield,
GEL 7.0% 7.1% 7.0% 6.9% 7.2%
Liquid assets yield,
FC 1.5% 0.9% 1.2% 1.3% 0.8%
Loan yield, currency
blended 14.0% 14.3% 13.9% 13.9% 14.1%
Loan yield, GEL 20.9% 22.3% 21.1% 21.0% 22.4%
Loan yield, FC 9.1% 10.0% 9.1% 9.1% 10.1%
Cost of Funds, currency
blended 5.0% 4.8% 4.8% 4.9% 4.7%
Cost of Funds, GEL 7.2% 7.0% 7.0% 7.1% 6.8%
Cost of Funds, FC 3.7% 3.7% 3.6% 3.6% 3.8%
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
Performance highlights
-- Strong revenue of GEL 252.5mln in 2Q18 (up 19.1% y-o-y and up 6.8% q-o-q), ending the half year 2018 with revenue of GEL 488.9mln (up 14.8% y-o-y). Y-o-y revenue growth was primarily driven by an increase in net interest income, which resulted from strong loan book growth. Additionally, net fee and commission income, net foreign currency gain, and net other income increased strongly in 2Q18 - all contributing to growth in revenues
-- Net interest income. Net interest income was up 16.2% y-o-y and up 3.4% q-o-q in 2Q18 and was up 14.1% y-o-y in half year 2018. The y-o-y increase was primarily driven by the strong growth of our Retail Banking loan book, which experienced 28.5% y-o-y growth on constant currency basis
-- Our NIM was 6.9% in 2Q18 and 7.0% in 1H18. 2Q18 NIM was down 40bps y-o-y due to the 30bps y-o-y decrease in loan yield, largely reflecting our shift towards a higher quality, finer margin product mix and tighter lending conditions for unsecured consumer lending, and 20bps y-o-y increase in cost of funds. On a q-o-q basis, loan yield increased by 10bps, while cost of funds also increased by 20bps, resulting in 10bps decline in 2Q18 NIM q-o-q. On a half year basis, loan yield was down 20bps and cost of funds was up 20bps y-o-y, driving 30bps y-o-y decline in 1H18 NIM
-- Loan yield. Currency blended loan yield was 14.0% in 2Q18 (down 30bps y-o-y and up 10bps q-o-q) and was 13.9% during first half of 2018 (down 20bps y-o-y). The y-o-y decline in loan yield was attributable to decrease in both local and foreign currency loan yields, primarily reflecting the change in product mix in the loan portfolio. At the same time the overall loan yield was positively impacted by a continued shift towards high-yielding local currency denominated loans in the total loan portfolio mix
-- Liquid assets yield. Our liquid assets yield was 3.8% in 2Q18 (up 40bps y-o-y and up 20bps q-o-q) and 3.7% 1H18 (up 40bps y-o-y). The foreign currency denominated liquid assets yield increased by 60bps y-o-y and 30bps q-o-q in 2Q18 and increased by 50bps y-o-y in 1H18, as a result of the Federal Open Market Committee's decisions to raise interest rates, which triggered similar increases on interest rates paid by a) The National Bank of Georgia (the "NBG") on the Bank's obligatory reserves (foreign currency only) and b) correspondent banks on deposits placed by the Bank. This increase was partially offset by decline in local currency denominated liquid assets yield, which decreased by 10bps y-o-y and remained flat q-o-q in 2Q18 and decreased by 30bps y-o-y in 1H18. However, starting from July 2018, NBG reduced interest rates on foreign currency obligatory reserves (from US Fed rate minus 50bps to Fed rate minus 200bps, floored at zero for US Dollar reserves, and from ECB rate minus 20bps to ECB rate minus 200bps, floored at negative 60bps for EUR denominated reserves)
-- Cost of funds. Cost of funds stood at 5.0% in 2Q18 (up 20bps y-o-y and q-o-q) and at 4.9% in 1H18 (up 20bps y-o-y). Y-o-y increase both in 2Q18 and 1H18 was primarily driven by increase in cost of debt securities issued following the issuance of GEL 500mln 11.0% Lari denominated notes in 2Q17 (up 60bps y-o-y in 2Q18 and up 130bps y-o-y in 1H18), coupled with increase in cost of amount due to credit institutions (up 60bps y-o-y in 2Q18 and 1H18) as a result of increased local currency denominated borrowings from DFIs and increase in Libor rate during the period. On a quarterly basis, the cost of funds increase in 2Q18 was largely driven by an increase in the cost of client deposits and notes (up 20bps q-o-q in 2Q18) attributable to significant growth in local currency deposits, both in corporate and retail segments, as well as 30bps q-o-q increase in cost of amount due to credit institutions
-- Shift to the GEL denominated loan book and client deposits continued both in Retail Banking and Corporate Investment Banking. Retail client loan book in foreign currency accounted for 45.8% of the total RB loan book at 30 June 2018 (50.8% at 30 June 2017 and 46.0% at 31 March 2018), while retail client foreign currency deposits comprised 70.6% of total RB deposits at 30 June 2018 (71.4% at 30 June 2017 and 71.0% at 31 March 2018). At 30 June 2018, 80.2% of CIB's loan book was denominated in foreign currency (80.8% at 30 June 2017 and 80.7% at 31 March 2018), while 50.7% of CIB deposits were denominated in foreign currency (72.8% at 30 June 2017 and 60.2% at 31 March 2018)
-- Net Loans to Customer Funds and DFI ratio. Our Net Loans to Customer Funds and DFI ratio, which is closely monitored by management, remained strong at 96.9% (down from 97.6% at 30 June 2017 and up from 91.8% at 31 March 2018)
-- Net fee and commission income. Net fee and commission income reached GEL 37.8mln in 2Q18 (up 20.5% y-o-y and up 9.7% q-o-q) and GEL 72.4mln during first half 2018 (up 17.5% y-o-y). The growth was mainly driven by the strong performance in our settlement operations supported by the success of our Express banking franchise
-- Net foreign currency gain. Net foreign currency gain was GEL 24.6mln in 2Q18 (up 27.5% y-o-y and up 53.5% q-o-q) and GEL 40.6mln during first half of 2018 (up 4.1% y-o-y)
-- Net other income. Net other income increased to GEL 3.7mln in 2Q18 and GEL 9.5mln during first half of 2018, largely driven by net gains from derivative financial instruments recorded in 2Q18 and 1H18, partially offset by net losses from sale of property, plant and equipment and investment properties over the same periods
OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF CREDIT RISK; PROFIT FOR THE PERIOD GEL thousands, unless Change Change Change otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y Salaries and other employee benefits (53,925) (47,507) 13.5% (49,453) 9.0% (103,378) (91,786) 12.6% Administrative expenses (26,862) (22,286) 20.5% (25,633) 4.8% (52,495) (44,805) 17.2% Depreciation and amortisation (11,392) (10,197) 11.7% (11,522) -1.1% (22,914) (19,722) 16.2% Other operating expenses (966) (795) 21.5% (771) 25.3% (1,736) (1,526) 13.8% Operating expenses (93,145) (80,785) 15.3% (87,379) 6.6% (180,523) (157,839) 14.4% Profit from associate 376 394 -4.6% 319 17.9% 695 909 -23.5% Operating income before cost of credit risk 159,691 131,647 21.3% 149,333 6.9% 309,024 268,897 14.9% Expected credit loss / impairment charge on loans to customers (35,678) (37,756) -5.5% (41,006) -13.0% (76,684) (79,097) -3.1% Expected credit loss / impairment charge on finance
lease receivables (266) (67) NMF 13 NMF (253) (207) 22.2% Other expected credit loss / impairment charge on other assets and provisions (3,726) (2,192) 70.0% 2,850 NMF (876) (8,732) -90.0% Cost of credit risk (39,670) (40,015) -0.9% (38,143) 4.0% (77,813) (88,036) -11.6% Profit before non-recurring items and income tax 120,021 91,632 31.0% 111,190 7.9% 231,211 180,861 27.8% Net non-recurring items (44,047) (1,017) NMF (2,948) NMF (46,995) (2,711) NMF Profit before income tax 75,974 90,615 -16.2% 108,242 -29.8% 184,216 178,150 3.4% Income tax expense (27,507) (3,284) NMF (9,058) NMF (36,565) (7,692) NMF Profit 48,467 87,331 -44.5% 99,184 -51.1% 147,651 170,458 -13.4%
-- Operating expenses increased to GEL 93.1mln in 2Q18 (up 15.3% y-o-y and up 6.6% q-o-q) and to GEL 180.5mln during first half of 2018 (up 14.4% y-o-y). The growth in revenues outpaced the growth in operating expenses both during 2Q18 and 1H18, leading to positive operating leverage during 1H18. Increase in salaries and employee benefits in 2Q18 and 1H18 mainly reflected the strong organic growth of Retail Banking operations. At the same time, 20.5% and 17.2% y-o-y increase in administrative expenses in 2Q18 and 1H18, respectively, was primarily driven by increased personnel training costs and legal and other professional services expenses
-- Cost of risk ratio. The cost of risk ratio was 1.7% in 2Q18, down 50bps y-o-y and down 40bps q-o-q. RB's 2Q18 cost of risk ratio was down 90bps y-o-y and down 40bps q-o-q, while CIB's cost of risk ratio was up 10bps y-o-y and down 70bps q-o-q. On a half year basis, Banking Business cost of risk ratio was 1.9% in 1H18, down 40bps y-o-y, primarily driven by 80bps y-o-y improvement in RB's cost of risk ratio, partially offset by 60bps y-o-y increase in CIB's cost of risk ratio
-- Quality of our loan book remains strong in 2Q18 as evidenced by following closely monitored metrics:
GEL thousands, unless Jun-18 Jun-17 Change Mar-18 Change otherwise noted y-o-y q-o-q Non-performing loans NPLs 247,861 304,320 -18.6% 247,335 0.2% NPLs to gross loans 3.0% 4.4% 3.1% NPLs to gross loans, RB 1.5% 1.7% 1.3% NPLs to gross loans, CIB 4.8% 8.3% 5.3% NPL coverage ratio 110.5% 90.2% 111.4% NPL coverage ratio adjusted for the discounted value of collateral 147.2% 131.5% 147.2% Past due dates Retail loans - 15 days past due rate 1.6% 1.5% 1.2% Mortgage loans - 15 days past due rate 1.0% 1.0% 0.8%
-- BNB - the Group's banking subsidiary in Belarus - generated a profit of GEL 2.0mln in 2Q18 (down 11.2% y-o-y and down 12.3% q-o-q) and GEL 4.3mln during first half of 2018 (up 46.8% y-o-y); BNB's earnings were positively impacted by decreased levels of cost of credit risk in 2Q18 and 1H18 y-o-y. While Belarus experienced weak macro-economic conditions in 2016 and 1Q17, the economy started to show signs of stabilisation during 2017. As a result, BNB's cost of credit risk significantly improved and was down 28.9% y-o-y in 2Q18 and down 65.9% y-o-y in 1H18
-- BNB's loan book reached GEL 394.5mln at 30 June 2018, up 6.7% y-o-y and up 4.5% q-o-q, mostly reflecting an increase in corporate and consumer loans. Client deposits were GEL 297.8mln at 30 June 2018, up 12.9% y-o-y and up 3.3% q-o-q. The y-o-y increase was primarily attributable to the agreement signed with BelSwissBank in June 2017, which allowed BNB to manage and service current and term deposit accounts and card operations of BelSwissBank's customers
-- BNB continues to remain strongly capitalised, with Capital Adequacy Ratios well above the requirements of its regulating Central Bank. At 30 June 2018, total CAR was 14.6%, above the 10% minimum requirement of the National Bank of the Republic of Belarus ("NBRB"), while Tier I CAR was 9.6%, above NBRB's 6% minimum requirement. Return on Average Equity ("ROAE") was 10.8% in 2Q18 (13.3% in 2Q17 and 12.3% in 1Q18) and 11.5% in 1H18 (8.7% in 1H17). Strong capitalisation and improved profitability allowed BNB to distribute dividend in the amount of GEL 1.2mln in 1Q18 (GEL 1.2mln in 2017)
-- Overall, profit before non-recurring items and income tax totalled GEL 120.0mln in 2Q18 (up 31.0% y-o-y and up 7.9% q-o-q) and GEL 231.2mln during first half of 2018 (up 27.8% y-o-y), while ROAE adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances, increased to 25.2% in 2Q18 (24.1% in 2Q17 and 25.9% in 1Q18) and 25.5% in 1H18 (23.9% in 1H17)
-- Net non-recurring items. Net non-recurring expenses amounted to GEL 44.0mln in 2Q18 (GEL 1.0mln in 2Q17 and GEL 2.9mln in 1Q18) primarily comprising of GEL 30.3mln of demerger related costs and GEL 13.5mln spending on a CSR project to support the fiber-optic broadband infrastructure development in rural Georgia, which will provide all regions across the country with full access to high speed internet and will contribute to further development of the economy and education
-- Income tax expense. Income tax expense amounted to GEL 27.5mln in 2Q18 (GEL3.3mln in 2Q17 and GEL 9.1mln in 1Q18) and GEL 36.6mln during first half of 2018 (GEL 7.7mln in 1H17). The significant increase in income tax expense both in 2Q18 and 1H18 was primarily driven by recognition of one-off impact of re-measurement of deferred tax balances in the amount of GEL 30.3mln as a result of amendment to the current corporate taxation model applicable to financial institutions in June 2018 (see details on page 5), partially offset by GEL 8.0mln demerger related corporate income tax gain
BALANCE SHEET HIGHLIGHTS
GEL thousands, unless otherwise Jun-18 Jun-17 Change Mar-18 Change
noted y-o-y q-o-q
Liquid assets 4,266,417 3,775,370 13.0% 4,514,326 -5.5%
Liquid assets, GEL 1,969,843 1,567,431 25.7% 1,740,858 13.2%
Liquid assets, FC 2,296,574 2,207,939 4.0% 2,773,468 -17.2%
Net loans and finance lease
receivables 8,078,132 6,579,996 22.8% 7,792,108 3.7%
Net loans and finance lease
receivables, GEL 3,369,952 2,423,340 39.1% 3,215,412 4.8%
Net loans and finance lease
receivables, FC 4,708,180 4,156,656 13.3% 4,576,696 2.9%
Client deposits and notes 7,174,234 5,655,341 26.9% 7,296,110 -1.7%
Amounts due to credit institutions 2,740,595 2,602,304 5.3% 2,642,427 3.7%
Borrowings from DFIs 1,161,120 1,088,054 6.7% 1,191,605 -2.6%
Short-term loans from central
banks 556,834 999,159 -44.3% 729,244 -23.6%
Loans and deposits from commercial
banks 1,022,641 515,091 98.5% 721,578 41.7%
Debt securities issued 1,527,452 1,312,990 16.3% 1,569,404 -2.7%
Liquidity and CAR ratios
Net loans / client deposits
and notes 112.6% 116.4% 106.8%
Net loans / client deposits
and notes + DFIs 96.9% 97.6% 91.8%
Liquid assets as percent of
total assets 32.3% 34.1% 34.3%
Liquid assets as percent of
total liabilities 36.9% 39.1% 38.9%
NBG liquidity ratio 30.2% 44.1% 36.5%
NBG Liquidity Coverage Ratio 129.8% n/a 135.2%
NBG (Basel III) Tier I Capital
Adequacy Ratio 12.5% n/a 12.4%
NBG (Basel III) Total Capital
Adequacy Ratio 17.5% n/a 17.3%
Our balance sheet remains highly liquid (NBG Liquidity ratio of 30.2%) and strongly capitalised (NBG Basel III Tier I ratio of 12.5%) with a well-diversified funding base (Client Deposits and notes to Total Liabilities of 62.0%).
-- Liquidity. Liquid assets increased to GEL 4,266.4mln at 30 June 2018, up 13.0% y-o-y and slightly down 5.5% q-o-q. The y-o-y growth was largely driven by an increase in local currency bonds, which are used by the Bank as collateral for short-term borrowings from the NBG, and additional proceeds as a result of the pushdown of $350mln Eurobonds of JSC BGEO Group in March 2018. Management successfully continued to deploy excess liquidity, accumulated as a result of these proceeds. The NBG average liquidity ratio was 30.2% for June 2018 (44.1% in June 2017 and 36.5% in March 2018), above the regulatory minimum requirement of 30.0%. That said, NBG liquidity ratio stood at 38.2% at 30 June 2018. At the same time, Liquidity coverage ratio was 129.8% at 30 June 2018 (135.2% at 31 March 2018), well above the 100% minimum requirement level
-- Diversified funding base. Debt securities issued grew by 16.3% y-o-y and decreased by 2.7% q-o-q. The y-o-y increase was driven by the above mentioned pushdown of $350mln Eurobonds from JSC BGEO Group in March 2018
-- Loan book. Our net loan book and finance lease receivables reached GEL 8,078.1mln at 30 June 2018, up 22.8% y-o-y and up 3.7% q-o-q. As of 30 June 2018, retail book represented 70.1% of the total loan portfolio (66.1% at 30 June 2017 and 69.3% at 31 March 2018). While both local and foreign currency portfolios experienced y-o-y growth, the local currency loan portfolio demonstrated a solid increase of 39.1% y-o-y and 4.8% q-o-q, partially driven by the Government's de-dollarisation initiatives and our goal to increase the share of local currency loans in our portfolio
-- Capital Adequacy requirements. Basel III Tier 1 and Total Capital Adequacy ratios stood at 12.5% and 17.5%, respectively, as of 30 June 2018, as compared to minimum required level of 9.9% and 15.0%, respectively (12.4% and 17.3%, respectively, at 31 March 2018)
-- Digitalisation. We actively continue the further development of our digital channels by introducing new features to both our mobile banking application and our internet bank on a quarterly basis. At the same time, we are introducing dedicated digital space in our branches to increase client penetration and incentivise offloading to digital channels. For details on digital penetration growth refer to page 16 of this announcement
Discussion of Segment Results
Retail Banking (RB)
Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and the handling of customer deposits for both individuals and legal entities (SME and micro businesses only). RB is itself represented by the following four sub-segments: (1) the emerging retail segment (through our Express brand), (2) retail mass market segment; (3) SME and micro businesses - "MSME" (through our Bank of Georgia brand), and (4) the mass affluent segment (through our Solo brand).
GEL thousands, unless Change Change Change otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y INCOME STATEMENT HIGHLIGHTS Net interest income 138,234 112,575 22.8% 135,327 2.1% 273,560 224,086 22.1% Net fee and commission income 29,152 23,970 21.6% 26,141 11.5% 55,292 46,215 19.6% Net foreign currency gain 10,158 6,060 67.6% 6,111 66.2% 16,269 12,552 29.6% Net other income 1,664 (851) NMF 3,103 -46.4% 4,768 131 NMF Revenue 179,208 141,754 26.4% 170,682 5.0% 349,889 282,984 23.6% Salaries and other employee benefits (34,640) (29,763) 16.4% (32,112) 7.9% (66,752) (57,628) 15.8% Administrative expenses (20,542) (16,084) 27.7% (19,541) 5.1% (40,084) (32,919) 21.8% Depreciation and amortisation (9,818) (8,644) 13.6% (9,902) -0.8% (19,720) (16,634) 18.6% Other operating expenses (602) (905) -33.5% (503) 19.7% (1,104) (988) 11.7% Operating expenses (65,602) (55,396) 18.4% (62,058) 5.7% (127,660) (108,169) 18.0% Profit from associate 376 394 -4.6% 319 17.9% 695 909 0.0% Operating income before cost of credit risk 113,982 86,752 31.4% 108,943 4.6% 222,924 175,724 26.9% Cost of credit risk (31,762) (31,352) 1.3% (32,783) -3.1% (64,544) (65,433) -1.4% Profit before non-recurring items and income tax 82,220 55,400 48.4% 76,160 8.0% 158,380 110,291 43.6% Net non-recurring items (27,099) (760) NMF (1,975) NMF (29,075) (1,242) NMF Profit before income tax 55,121 54,640 0.9% 74,185 -25.7% 129,305 109,049 18.6% Income tax expense (18,237) (1,776) NMF (5,836) NMF (24,072) (5,368) NMF Profit 36,884 52,864 -30.2% 68,349 -46.0% 105,233 103,681 1.5% BALANCE SHEET HIGHLIGHTS Net loans, Currency Blended 5,382,405 4,155,326 29.5% 5,155,254 4.4% 5,382,405 4,155,326 29.5% Net loans, GEL 2,914,670 2,044,087 42.6% 2,782,812 4.7% 2,914,670 2,044,087 42.6% Net loans, FC 2,467,735 2,111,239 16.9% 2,372,442 4.0% 2,467,735 2,111,239 16.9% Client deposits, Currency Blended 3,479,938 2,613,302 33.2% 3,304,319 5.3% 3,479,938 2,613,302 33.2% Client deposits, GEL 1,021,776 747,234 36.7% 959,084 6.5% 1,021,776 747,234 36.7% Client deposits, FC 2,458,162 1,866,068 31.7% 2,345,235 4.8% 2,458,162 1,866,068 31.7% of which: Time deposits, Currency Blended 1,952,610 1,505,265 29.7% 1,838,699 6.2% 1,952,610 1,505,265 29.7% Time deposits, GEL 437,120 286,649 52.5% 412,140 6.1% 437,120 286,649 52.5% Time deposits, FC 1,515,490 1,218,616 24.4% 1,426,559 6.2% 1,515,490 1,218,616 24.4% Current accounts and demand deposits, Currency Blended 1,527,328 1,108,037 37.8% 1,465,620 4.2% 1,527,328 1,108,037 37.8% Current accounts and demand deposits, GEL 584,656 460,585 26.9% 546,944 6.9% 584,656 460,585 26.9% Current accounts and demand deposits, FC 942,672 647,452 45.6% 918,676 2.6% 942,672 647,452 45.6% KEY RATIOS ROAE Retail Banking (11) 30.5% 27.1% 31.5% 30.9% 27.5% Net interest margin, currency blended 8.0% 8.6% 8.3% 8.1% 8.7% Cost of risk 2.2% 3.1% 2.6% 2.4% 3.2% Cost of funds, currency blended 5.9% 5.9% 5.8% 5.9% 5.6% Loan yield, currency blended 15.8% 16.4% 15.9% 15.8% 16.1% Loan yield, GEL 22.0% 24.2% 22.4% 22.2% 24.5% Loan yield, FC 8.2% 9.2% 8.5% 8.3% 9.2% Cost of deposits, currency blended 2.9% 3.0% 2.8% 2.9% 3.0% Cost of deposits, GEL 4.9% 4.6% 4.8% 4.8% 4.5% Cost of deposits, FC 2.1% 2.4% 2.1% 2.1% 2.5% Cost of time deposits, currency blended 4.2% 4.4% 4.3% 4.2% 4.4% Cost of time deposits, GEL 8.7% 9.0% 8.9% 8.8% 8.8% Cost of time deposits, FC 3.0% 3.4% 3.0% 3.0% 3.4% Current accounts and demand deposits, currency blended 1.1% 1.0% 1.0% 1.1% 1.0% Current accounts and demand deposits, GEL 2.0% 1.7% 1.7% 1.9% 1.6% Current accounts and demand deposits, FC 0.6% 0.6% 0.6% 0.6% 0.6% Cost / income ratio 36.6% 38.8% 36.4% 36.5% 38.2%
(11) 2Q18 and 1H18 results adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances
Performance highlights
-- Retail Banking delivered another strong quarterly result across all of its segments and generated total revenues of GEL 179.2mln in 2Q18 (up 26.4% y-o-y and up 5.0% q-o-q) and revenue of GEL 349.9mln in 1H18 (up 23.6% y-o-y)
-- RB's net interest income grew by 22.8% y-o-y and by 2.1% q-o-q in 2Q18 and by 22.1% y-o-y during first half 2018 on the back of the strong growth in the Retail Banking loan portfolio. Record quarterly net interest income also reflects the benefits from the ongoing growth of the local currency loan portfolio, which generated 13.8ppts and 13.9ppts higher yield than the foreign currency loan portfolio in 2Q18 and 1H18, respectively
-- The Retail Banking net loan book reached GEL 5,382.4mln in 2Q18, up 29.5% y-o-y and up 4.4% q-o-q. Our local currency denominated loan book grew at a faster pace (up 42.6% y-o-y and up 4.7% q-o-q) than the foreign currency denominated loan book (up 16.9% y-o-y and up 4.0% q-o-q). As a result, the local currency denominated loan book accounted for 54.2% of the total Retail Banking loan book at 30 June 2018, up from 49.2% at 30 June 2017 and 54.0% at 31 March 2018
-- The loan book growth was a product of continued strong loan origination levels delivered across all major Retail Banking segments:
Retail Banking loan book by products GEL million, unless otherwise Change Change Change noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y Loan Originations Consumer loans 346.5 348.8 -0.7% 364.2 -4.9% 710.6 651.2 9.1% Mortgage loans 349.7 225.9 54.8% 303.3 15.3% 653.0 438.8 48.8% Micro loans 248.5 236.2 5.2% 283.6 -12.4% 532.1 472.6 12.6% SME loans 152.7 132.9 15.0% 130.8 16.7% 283.6 251.8 12.6% POS loans 30.9 55.9 -44.7% 50.1 -38.3% 81.1 98.7 -17.8% Outstanding Balance Consumer loans 1,320.0 1,054.2 25.2% 1,292.1 2.2% 1,320.0 1,054.2 25.2% Mortgage loans 1,922.1 1,282.0 49.9% 1,763.3 9.0% 1,922.1 1,282.0 49.9% Micro loans 1,122.3 918.0 22.3% 1,077.2 4.2% 1,122.3 918.0 22.3% SME loans 625.0 479.7 30.3% 598.1 4.5% 625.0 479.7 30.3% POS loans 92.8 107.7 -13.8% 120.2 -22.8% 92.8 107.7 -13.8%
-- Retail Banking client deposits increased to GEL 3,479.9mln, up 33.2% y-o-y and up 5.3% q-o-q. The dollarisation level of our deposits decreased to 70.6% at 30 June 2018 from 71.4% at 30 June 2017 and from 71.0% at 31 March 2018. This is in line with the current decreasing trend of cost on foreign currency denominated deposits (down 30 bps y-o-y and flat q-o-q in 2Q18 and down 40bps y-o-y in 1H18) and an increasing trend of cost on local currency denominated deposits (up 30bps y-o-y and up 10bps q-o-q in 2Q18 and up 30bps y-o-y in 1H18). The spread between the cost of RB's client deposits in GEL and foreign currency widened to 2.8ppts during 2Q18 (GEL: 4.9%; FC: 2.1%) compared to 2.2ppts in 2Q17 (GEL: 4.6%; FC: 2.4%) and 2.7ppts in 1Q18 (GEL: 4.8%; FC: 2.1%). On a half year basis, the spread was 2.7ppts in 1H18 (GEL: 4.8%; FC: 2.1%) compared to 2.0ppts in 1H17 (GEL: 4.5%; FC: 2.5%). Local currency denominated deposits increased at a faster pace to GEL 1,021.8mln (up 36.7% y-o-y and up 6.5% q-o-q), as compared to foreign currency denominated deposits that grew to GEL 2,458.2mln (up 31.7% y-o-y and up 4.8% q-o-q)
-- Retail Banking NIM was 8.0% in 2Q18 (down 60bps y-o-y and down 30bps q-o-q) and 8.1% during first half of 2018 (down 60bps y-o-y). The decline in NIM was attributable to lower loan yields (down 60bps y-o-y and down 10bps q-o-q in 2Q18, and down 30bps y-o-y in 1H18), coupled with increased cost of funds (flat y-o-y and up 10bps q-o-q in 2Q18 and up 30bps y-o-y in 1H18), primarily due to increased local currency funding costs. The decline in loan yields was mainly driven by the change in the Retail Banking loan portfolio product mix, with the lower yield-lower risk products share increasing in total RB loan portfolio, which is already reflected in the improved RB cost of risk
-- Strong y-o-y growth in Retail Banking net fee and commission income. The growth in net fee and commission income (up 21.6% y-o-y and up 11.5% q-o-q in 2Q18 and up 19.6% y-o-y during first half of 2018) was driven by an increase in settlement operations and the strong underlying growth in our Solo and MSME platforms
-- RB asset quality improved in 2Q18. RB cost of credit risk was GEL 31.8mln in 2Q18 (up 1.3% y-o-y and down 3.1% q-o-q) and GEL 64.5mln during first half of 2018 (down 1.4% y-o-y). The cost of risk ratio improved to 2.2% in 2Q18 (down from 3.1% in 2Q17 and down from 2.6% in 1Q18) and to 2.4% in 1H18 (down from 3.2% in 1H17)
-- The number of Retail Banking clients reached c.2.4mln, up 6.7% y-o-y and up 1.1% q-o-q
-- Our Retail Banking business continues to deliver strong growth as we further develop our strategy, as demonstrated by the following performance indicators:
Retail Banking performance indicators Volume information Change Change Change in GEL thousands 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y Retail Banking Customers Number of new customers 45,213 44,478 1.7% 63,621 -28.9% 108,834 90,748 19.9% Number of customers 2,382,139 2,231,977 6.7% 2,356,294 1.1% 2,382,139 2,231,977 6.7% Cards Number of Cards issued 191,552 218,187 -12.2% 246,138 -22.2% 437,690 449,715 -2.7% Number of Cards outstanding 2,235,122 2,117,652 5.5% 2,246,396 -0.5% 2,235,122 2,117,652 5.5% Express Pay terminals Number of Express Pay terminals 2,955 2,789 6.0% 2,825 4.6% 2,955 2,789 6.0% Number of transactions via Express Pay terminals 27,479,192 26,385,633 4.1% 25,835,081 6.4% 53,314,273 51,545,366 3.4% Volume of transactions via Express Pay terminals 1,639,313 1,008,436 62.6% 1,496,169 9.6% 3,135,482 1,977,238 58.6% POS terminals Number of Desks 9,304 9,205 1.1% 9,300 0.0% 9,304 9,205 1.1% Number of Contracted Merchants 5,382 5,133 4.9% 5,112 5.3% 5,382 5,133 4.9% Number of POS terminals 12,815 11,303 13.4% 12,571 1.9% 12,815 11,303 13.4% Number of transactions via POS terminals 15,737,715 11,416,810 37.8% 13,206,872 19.2% 28,944,587 21,158,665 36.8% Volume of transactions via POS terminals 470,194 323,901 45.2% 395,100 19.0% 865,294 590,007 46.7% Internet Banking Number of Active Users 243,377 166,874 45.8% 238,618 2.0% 243,377 166,874 45.8% Number of transactions via Internet Bank 1,446,014 1,752,594 -17.5% 1,487,062 -2.8% 2,933,076 3,471,942 -15.5% Volume of transactions via Internet Bank 451,944 334,094 35.3% 427,014 5.8% 878,958 655,742 34.0% Mobile Banking Number of Active Users 228,980 127,129 80.1% 207,485 10.4% 228,980 127,129 80.1% Number of transactions via Mobile Bank 3,233,287 1,232,713 162.3% 2,817,807 14.7% 6,051,094 2,212,607 173.5% Volume of transactions via Mobile Bank 407,822 122,222 233.7% 317,381 28.5% 725,203 216,593 234.8%
- Growth in the client base was due to the increased offering of cost-effective remote channels. The increase to 2,382,139 customers in 2Q18 (up 6.7% y-o-y and up 1.1% q-o-q) reflects the sustained growth in our client base over recent periods and was one of the drivers of the increase in our Retail Banking net fee and commission income
- The number of outstanding cards increased by 5.5% y-o-y in 2Q18. The increase reflected the launch of a loyalty programme Plus+ in July 2017, which is part of RB's customer-centric approach and our efforts to increase the Mass Retail segment's product to client ratio from current 1.9 to 3.0. We had 454,650 active Plus+ cards outstanding as at 30 June 2018
- The utilisation of Express Pay terminals continued to grow in 2Q18. The volume of transactions increased to GEL 1,639.3mln in 2Q18 (up 62.6% y-o-y and up 9.6% q-o-q) and to GEL 3,135.5mln in 1H18 (up 58.6% y-o-y). The number of transactions increased by 4.1% y-o-y and by 6.4% q-o-q in 2Q18 and by 3.4% y-o-y in first half of 2018. The fees charged to clients for transactions executed through express pay terminals amounted to GEL 5.5mln in 2Q18 (up 10.0% y-o-y and up 5.8% q-o-q) and GEL 10.7mln in 1H18 (up 3.9% y-o-y)
- Digital penetration growth. For mobile banking application, the number of transactions and the volume of transactions continue to show outstanding growth. The fully-transformed, user-friendly, multi-feature mobile banking application (mBank) continues to gain popularity. Since its launch on 29 May 2017, approximately 393,912 downloads were made by the Bank's customers. During the same period approximately 9.7 million online transactions were performed using the new application
- Significant growth in loans issued and deposits opened through Internet and Mobile Bank. In 2017, we started actively offering loans and deposit products to our customers through Internet Bank. In 1H18, 14,991 loans were issued with a total value of GEL 26.2mln, and 4,576 deposits were opened with a total value of GEL 11.6mln through Internet Bank (1,896 loans with total value of GEL 5.4mln and 3,527 deposits with total value of GEL 7.2mln in 1H17). Starting from 2018, our customers are able to take a loan via mBank as well. c.8,500 loans were issued with total value of c.GEL 12.5mln using the mobile banking application during 1H18
-- Solo, our premium banking brand, continues its strong growth momentum and investment in its lifestyle brand. The number of Solo clients reached 39,030 at 30 June 2018 (24,984 at 30 June 2017 and 35,803 at 31 March 2018), up 371.3% since its re-launch in April 2015. We are on track to achieving our target of 40,000 Solo clients by the end of 2018. We have now launched 12 Solo lounges, of which 9 are located in Tbilisi, the capital of Georgia, and 3 in major regional cities of Georgia. In 2Q18, annualised profit(12) per Solo client was GEL 1,322 compared to a profit of GEL 80 and GEL 68 per Express and mass retail clients, respectively. Product to client ratio for Solo segment was 5.6, compared to 3.5 and 1.9 for Express and mass retail clients, respectively. While Solo clients currently represent 1.6% of our total retail client base, they contributed 25.3% to our retail loan book, 39.9% to our retail deposits, 14.0% and 23.1% to our net retail interest income and to our net retail fee and commission income, respectively, in 2Q18. The fee and commission income from the Solo segment reached GEL 5.5mln in 2Q18 (GEL 3.5mln in 2Q17 and GEL 4.5mln in 1Q18) and GEL 10.0mln in 1H18 (GEL 6.1mln in 1H17). Solo Club, launched in 2Q17, a membership group within Solo, which offers exclusive access to Solo products and offers ahead of other Solo clients at a higher fee, continues to increase its client base. At 30 June 2018, Solo Club had 3,219 members, up 12.9% q-o-q
-- MSME banking continued to deliver solid growth. The number of MSME segment clients reached 181,951 at 30 June 2018, up 18.3% y-o-y and up 4.4% q-o-q. MSME's loan portfolio was GEL 1,865.7mln at 30 June 2018 (up 27.0% y-o-y and up 4.8% q-o-q). MSME segment generated revenue of GEL 37.2mln in 2Q18 (up 32.2% y-o-y and up 5.0% q-o-q) and GEL 72.6mln in 1H18 (up 30.3% y-o-y)
-- As a result, Retail Banking profit before non-recurring items and income tax reached GEL 82.2mln in 2Q18 (up 48.4% y-o-y and up 8.0% q-o-q) and GEL 158.4mln during first half of 2018 (up 43.6% y-o-y). Retail Banking continued to deliver an outstanding ROAE adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances, which reached 30.5% in 2Q18 (27.1% in 2Q17 and 31.5% in 1Q18) and 30.9% in 1H18 (27.5% in 1H17)
(12) Adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances
Corporate Investment Banking (CIB)
CIB provides (1) loans and other credit facilities to Georgia's large corporate clients and other legal entities, excluding SME and micro businesses; (2) services such as fund transfers and settlements services, currency conversion operations, trade finance services and documentary operations as well as handling savings and term deposits; (3) finance lease facilities through the Bank's leasing operations arm, the Georgian Leasing Company; (4) brokerage services through Galt & Taggart; and (5) Wealth Management private banking services to high-net-worth individuals and offers investment management products internationally through representative offices in London, Budapest, Istanbul, Tel Aviv and Limassol.
GEL thousands, unless Change Change Change
otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
INCOME STATEMENT
HIGHLIGHTS
Net interest income 41,718 37,133 12.3% 38,232 9.1% 79,951 75,082 6.5%
Net fee and commission
income 6,355 5,301 19.9% 6,198 2.5% 12,554 10,967 14.5%
Net foreign currency
gain 10,259 10,409 -1.4% 6,644 54.4% 16,903 21,839 -22.6%
Net other income 2,078 1,929 7.7% 2,798 -25.7% 4,873 4,187 16.4%
Revenue 60,410 54,772 10.3% 53,872 12.1% 114,281 112,075 2.0%
Salaries and other
employee benefits (13,725) (12,974) 5.8% (12,595) 9.0% (26,320) (25,319) 4.0%
Administrative expenses (3,700) (3,516) 5.2% (3,459) 7.0% (7,159) (7,051) 1.5%
Depreciation and
amortisation (1,269) (1,263) 0.5% (1,309) -3.1% (2,578) (2,480) 4.0%
Other operating expenses (253) (188) 34.6% (144) 75.7% (396) (346) 14.5%
Operating expenses (18,947) (17,941) 5.6% (17,507) 8.2% (36,453) (35,196) 3.6%
Operating income
before cost of credit
risk 41,463 36,831 12.6% 36,365 14.0% 77,828 76,879 1.2%
Cost of credit risk (5,603) (5,030) 11.4% (4,643) 20.7% (10,246) (13,729) -25.4%
Profit before non-recurring
items and income
tax 35,860 31,801 12.8% 31,722 13.0% 67,582 63,150 7.0%
Net non-recurring
items (10,871) (259) NMF (272) NMF (11,144) (1,414) NMF
Profit before income
tax 24,989 31,542 -20.8% 31,450 -20.5% 56,438 61,736 -8.6%
Income tax expense (8,550) (1,053) NMF (2,444) NMF (10,993) (2,965) NMF
Profit 16,439 30,489 -46.1% 29,006 -43.3% 45,445 58,771 -22.7%
BALANCE SHEET HIGHLIGHTS
Net loans and finance
lease receivables,
Currency Blended 2,251,837 2,037,831 10.5% 2,222,902 1.3% 2,251,837 2,037,831 10.5%
Net loans and finance
lease receivables,
GEL 445,239 390,779 13.9% 429,126 3.8% 445,239 390,779 13.9%
Net loans and finance
lease receivables,
FC 1,806,598 1,647,052 9.7% 1,793,776 0.7% 1,806,598 1,647,052 9.7%
Client deposits,
Currency Blended 3,439,716 2,723,674 26.3% 3,661,710 -6.1% 3,439,716 2,723,674 26.3%
Client deposits,
GEL 1,695,890 740,408 129.0% 1,457,437 16.4% 1,695,890 740,408 129.0%
Client deposits,
FC 1,743,826 1,983,266 -12.1% 2,204,273 -20.9% 1,743,826 1,983,266 -12.1%
Time deposits, Currency
Blended 1,675,804 979,001 71.2% 1,351,490 24.0% 1,675,804 979,001 71.2%
Time deposits, GEL 896,482 139,747 NMF 569,850 57.3% 896,482 139,747 NMF
Time deposits, FC 779,322 839,254 -7.1% 781,640 -0.3% 779,322 839,254 -7.1%
Current accounts
and demand deposits,
Currency Blended 1,763,912 1,744,673 1.1% 2,310,220 -23.6% 1,763,912 1,744,673 1.1%
Current accounts
and demand deposits,
GEL 799,408 600,661 33.1% 887,587 -9.9% 799,408 600,661 33.1%
Current accounts
and demand deposits,
FC 964,504 1,144,012 -15.7% 1,422,633 -32.2% 964,504 1,144,012 -15.7%
Letters of credit
and guarantees, standalone* 657,902 514,079 28.0% 605,778 8.6% 657,902 514,079 28.0%
Assets under management 1,993,931 1,665,716 19.7% 1,835,873 8.6% 1,993,931 1,665,716 19.7%
RATIOS
ROAE, Corporate Investment
Banking (13) 20.0% 20.4% 19.7% 20.0% 19.5%
Net interest margin,
currency blended 3.5% 3.3% 3.2% 3.3% 3.3%
Cost of risk 0.6% 0.5% 1.3% 1.0% 0.4%
Cost of funds, currency
blended 4.6% 4.8% 4.4% 4.5% 4.9%
Loan yield, currency
blended 10.4% 10.6% 9.9% 10.1% 10.6%
Loan yield, GEL 13.2% 12.3% 12.8% 13.0% 12.4%
Loan yield, FC 9.8% 10.2% 9.4% 9.6% 10.3%
Cost of deposits,
currency blended 4.1% 4.2% 3.9% 4.0% 4.0%
Cost of deposits,
GEL 6.4% 7.4% 6.1% 6.3% 7.1%
Cost of deposits,
FC 2.4% 2.9% 2.5% 2.5% 2.9%
Cost of time deposits,
currency blended 6.1% 5.8% 5.7% 5.9% 5.7%
Cost of time deposits,
GEL 7.8% 9.6% 7.6% 7.7% 9.6%
Cost of time deposits,
FC 4.6% 5.2% 4.6% 4.6% 5.1%
Current accounts
and demand deposits,
currency blended 2.8% 3.3% 2.7% 2.8% 3.0%
Current accounts
and demand deposits,
GEL 5.3% 7.0% 5.2% 5.3% 6.6%
Current accounts
and demand deposits,
FC 1.0% 0.9% 1.2% 1.1% 0.9%
Cost / income ratio 31.4% 32.8% 32.5% 31.9% 31.4%
Concentration of
top ten clients 10.2% 11.1% 10.3% 10.2% 11.1%
(*) Off-balance sheet item
(13) 2Q18 and 1H18 results adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances
Performance highlights
-- CIB continued further growth in 2Q18 after delivering on the targets of loan portfolio risk de-concentration initiatives in 2017. Net loan book reached GEL 2,251.8mln at 30 June 2018, up 10.5% y-o-y and up 1.3% q-o-q (up 8.9% y-o-y and largely flat q-o-q on a constant currency basis). The concentration of the top 10 CIB clients stood at 10.2% at 30 June 2018, down from 11.1% at 30 June 2017 and 10.3% at 31 March 2018
-- CIB's net interest income increased by 12.3% y-o-y and by 9.1% q-o-q in 2Q18 and increased by 6.5% y-o-y during the first half of 2018. CIB NIM reached 3.5% in 2Q18, up 20bps y-o-y and up 30bps q-o-q, and remained flat y-o-y at 3.3% during the first half of 2018. The y-o-y growth in net interest income both in 2Q18 and 1H18 reflects the decline in cost of funds, which was partially offset by a decline in currency blended loan yields over the same periods. On q-o-q basis, currency blended loan yield increased significantly by 50bps in 2Q18, which was partially offset by 20bps q-o-q increase in cost of funds
-- CIB's net fee and commission income reached GEL 6.4mln in 2Q18, up 19.9% y-o-y and up 2.5% q-o-q. On a half year basis, net fee and commission income was GEL 12.6mln in 1H18, up 14.5% y-o-y. The y-o-y increase in net fee and commission income both in 2Q18 and 1H18 was largely driven by higher placement and advisory fees and higher income from guarantees and letters of credit over the same period. CIB's net fee and commission income represented 10.5% of total CIB revenue in 2Q18 compared to 9.7% in 2Q17 and represented 11.0% of total CIB revenue in 1H18 as compared to 9.8% in 1H17
-- In 2Q18, dollarisation of our CIB deposits decreased to 50.7% as at 30 June 2018 from 72.8% a year ago and 60.2% as at 31 March 2018. Y-o-y decline was partially due to the State Treasury of Georgia's decision to place part of their GEL funds on deposits with local commercial banks in 3Q17. Another driver of growth in GEL denominated deposits was further decrease in the interest rates on foreign currency deposits (2.4% in 2Q18, down from 2.9% in 2Q17 and down from 2.5% in 1Q18, and 2.5% in 1H18, down from 2.9% in 1H17). The cost of deposits in local currency also declined y-o-y, while remaining well above the yield of foreign currency deposits. Consequently, total deposits amounted to GEL 3,439.7mln, up 26.3% y-o-y and down 6.1% q-o-q. On a constant currency basis, total CIB deposits were up 25.1% y-o-y and down 6.8% q-o-q
-- Net foreign currency gain. CIB's net foreign currency gain was GEL 10.3mln in 2Q18 (down 1.4% y-o-y and up 54.4% q-o-q) and GEL 16.9mln during first half of 2018 (down 22.6% y-o-y)
-- Net other income. Net other income reached GEL 2.1mln in 2Q18 (up 7.7% y-o-y) and GEL 4.9mln during first half of 2018 (up 16.4% y-o-y). The y-o-y increase was mostly due to net gains from derivative financial instruments recorded in 2Q18 and 1H18, partially offset by net losses from sale of property, plant and equipment and investment properties over the same periods
-- Cost of credit risk. CIB's cost of risk ratio remained well-controlled and stood at 0.6% in 2Q18 (slightly up 10bps y-o-y and down 70bps q-o-q) and at 1.0% in half year 2018 (up 60bps y-o-y). At the same time, CIB's NPL coverage ratio increased to 87.3% at 30 June 2018, up from 78.6% at 30 June 2017 and 87.7% at 31 March 2018
-- As a result, Corporate Investment Banking profit before non-recurring items and income tax was GEL 35.9mln in 2Q18 (up 12.8% y-o-y and up 13.0% q-o-q) and GEL 67.6mln during first half of 2018 (up 7.0% y-o-y). CIB ROAE adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances reached 20.0% in 2Q18 (compared to 20.4% a year ago and 19.7% in 1Q18) and 20.0% in 1H18 (compared to 19.5% in 1H17)
Performance highlights of wealth management operations
-- The Investment Management's AUM increased to GEL 1,993.9mln in 2Q18, up 19.7% y-o-y and up 8.6% q-o-q. This includes a) deposits of Wealth Management franchise clients, b) assets held at Bank of Georgia Custody, c) Galt & Taggart brokerage client assets, and d) Global certificates of deposit held by Wealth Management clients. The y-o-y and q-o-q increase in AUM mostly reflected higher bond issuance activity and servicing Georgia Capital by Galt & Taggart
-- Wealth Management deposits were GEL 1,086.0mln in 2Q18, up 1.2% y-o-y and q-o-q on a constant currency basis, growing at a compound annual growth rate (CAGR) of 11.7% over the last five-year period. The cost of deposits stood at 3.5% in 2Q18 and 1H18, down 50bps y-o-y for both periods and flat q-o-q in 2Q18
-- We served 1,490 wealth management clients from 74 countries as of 30 June 2018, compared to 1,414 clients from 69 countries as of 30 June 2017 and 1,438 clients from 74 countries as of 31 March 2018
-- Galt & Taggart, which brings under one brand corporate advisory, debt and equity capital markets research and brokerage services, continues to develop local capital markets in Georgia
-- During first half of 2018 Galt & Taggart acted as a:
- co-manager of Georgia Capital's inaugural US$ 300mln international bond issuance due in 2024, in March 2018
- lead manager for Black Sea Trade and Development Bank, facilitating a public placement of GEL 75mln local bonds in March and June 2018
- lead manager for Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. (FMO), facilitating a public placement of GEL 160mln local bonds in July 2018
-- During 2Q18 Galt & Taggart renewed the agreement to manage the private pension fund of a large Georgian corporate client mandated a year ago through a competitive tender process
-- In February 2018 Global Finance Magazine named Galt & Taggart as the Best Investment Bank in Georgia for the fourth consecutive year; On 31 May 2018, Cbonds, one of the leading news agencies for financial data analysis and processing, named Galt & Taggart as the Best Investment Bank in Georgia 2018 for the third consecutive year
SELECTED FINANCIAL INFORMATION
INCOME STATEMENT Bank of Georgia Banking Business Discontinued Operations Eliminations (QUARTERLY) Group Consolidated GEL thousands, unless otherwise Change Change Change Change Change Change noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 1Q18 Interest income 327,244 271,006 20.8% 311,149 5.2% 329,628 272,946 20.8% 313,553 5.1% - - - - - (2,384) (1,940) (2,404) Interest expense (139,756) (110,907) 26.0% (130,035) 7.5% (143,298) (112,638) 27.2% (133,430) 7.4% - - - - - 3,542 1,731 3,395 Net interest income 187,488 160,099 17.1% 181,114 3.5% 186,330 160,308 16.2% 180,123 3.4% - - - - - 1,158 (209) 991 Fee and commission income 55,332 45,359 22.0% 50,673 9.2% 55,693 45,903 21.3% 51,213 8.7% - - - - - (361) (544) (540) Fee and commission expense (17,680) (14,332) 23.4% (16,488) 7.2% (17,846) (14,501) 23.1% (16,702) 6.8% - - - - - 166 169 214 Net fee and commission income 37,652 31,027 21.4% 34,185 10.1% 37,847 31,402 20.5% 34,511 9.7% - - - - - (195) (375) (326) Net foreign currency gain 25,004 18,005 38.9% 14,913 67.7% 24,577 19,282 27.5% 16,015 53.5% - - - - - 427 (1,277) (1,102) Net other income 3,380 777 NMF 5,518 -38.7% 3,706 1,046 NMF 5,744 -35.5% - - - - - (326) (269) (226) Revenue 253,524 209,908 20.8% 235,730 7.5% 252,460 212,038 19.1% 236,393 6.8% - - - - - 1,064 (2,130) (663) Salaries and other employee benefits (53,505) (47,008) 13.8% (48,818) 9.6% (53,925) (47,507) 13.5% (49,453) 9.0% - - - - - 420 499 635 Administrative expenses (26,717) (21,826) 22.4% (25,168) 6.2% (26,862) (22,286) 20.5% (25,633) 4.8% - - - - - 145 460 465 Depreciation and amortisation (11,392) (10,197) 11.7% (11,522) -1.1% (11,392) (10,197) 11.7% (11,522) -1.1% - - - - - - - - Other operating expenses (966) (795) 21.5% (771) 25.3% (966) (795) 21.5% (771) 25.3% - - - - - - - - Operating expenses (92,580) (79,826) 16.0% (86,279) 7.3% (93,145) (80,785) 15.3% (87,379) 6.6% - - - - - 565 959 1,100 Profit from associates 376 394 -4.6% 319 17.9% 376 394 -4.6% 319 17.9% - - - - - - - - Operating income
before cost of credit risk 161,320 130,476 23.6% 149,770 7.7% 159,691 131,647 21.3% 149,333 6.9% - - - - - 1,629 (1,171) 437 Expected credit loss / impairment charge on loans to customers (35,678) (37,756) -5.5% (41,006) -13.0% (35,678) (37,756) -5.5% (41,006) -13.0% - - - - - - - - Expected credit loss / impairment charge on finance lease receivables (266) (67) NMF 13 NMF (266) (67) NMF 13 NMF - - - - - - - - Other expected credit loss / impairment charge on other assets and provisions (3,726) (2,192) 70.0% 2,850 NMF (3,726) (2,192) 70.0% 2,850 NMF - - - - - - - - Cost of credit risk (39,670) (40,015) -0.9% (38,143) 4.0% (39,670) (40,015) -0.9% (38,143) 4.0% - - - - - - - - Profit before non-recurring items and income tax 121,650 90,461 34.5% 111,627 9.0% 120,021 91,632 31.0% 111,190 7.9% - - - - - 1,629 (1,171) 437 Net non-recurring items (43,875) (1,017) NMF (2,948) NMF (44,047) (1,017) NMF (2,948) NMF - - - - - 172 - - Profit before income tax 77,775 89,444 -13.0% 108,679 -28.4% 75,974 90,615 -16.2% 108,242 -29.8% - - - - - 1,801 (1,171) 437 Income tax expense (27,507) (3,284) NMF (9,058) NMF (27,507) (3,284) NMF (9,058) NMF - - - - - - - - Profit from continuing operations 50,268 86,160 -41.7% 99,621 -49.5% 48,467 87,331 -44.5% 99,184 -51.1% - - - - - 1,801 (1,171) 437 Profit from discontinued operations 78,961 37,468 110.7% 28,938 NMF - - - - - 80,762 36,297 122.5% 29,375 NMF (1,801) 1,171 (437) Profit 129,229 123,628 4.5% 128,559 0.5% 48,467 87,331 -44.5% 99,184 -51.1% 80,762 36,297 122.5% 29,375 NMF - - - Attributable to: - shareholders of the Group 123,078 117,178 5.0% 115,952 6.1% 48,324 86,962 -44.4% 98,784 -51.1% 74,754 30,216 147.4% 17,168 NMF - - - - non-controlling interests 6,151 6,450 -4.6% 12,607 -51.2% 143 369 -61.2% 400 -64.3% 6,008 6,081 -1.2% 12,207 -50.8% - - - Profit from continuing operations attributable to: - shareholders of the Group 50,125 85,791 -41.6% 99,221 -49.5% 48,324 86,962 -44.4% 98,784 -51.1% - - - - - 1,801 (1,171) 437 - non-controlling interests 143 369 -61.2% 400 -64.3% 143 369 -61.2% 400 -64.3% - - - - - - - - Profit from discontinued operations attributable to: - shareholders of the Group 72,953 31,387 132.4% 16,731 NMF - - - - - 74,754 30,216 147.4% 17,168 NMF (1,801) 1,171 (437) - non-controlling interests 6,008 6,081 -1.2% 12,207 -50.8% - - - - - 6,008 6,081 -1.2% 12,207 -50.8% - - - Earnings per share (basic) 2.77 3.10 -10.6% 3.08 -10.1% - earnings per share from continuing operations 1.13 2.27 -50.2% 2.64 -57.2% - earnings per share from discontinued operations 1.64 0.83 97.6% 0.44 NMF Earnings per share (diluted) 2.74 2.98 -8.1% 2.98 -8.1% - earnings per share from continuing operations 1.12 2.18 -48.6% 2.55 -56.1% - earnings per share from discontinued operations 1.62 0.80 102.5% 0.43 NMF INCOME STATEMENT Bank of Georgia Banking Business Discontinued Eliminations (HALF-YEAR) Group Consolidated Operations GEL thousands, unless Change Change Change Change otherwise noted 1H18 1H17 y-o-y 1H18 1H17 y-o-y 1H18 1H17 y-o-y 1H18 1H17 y-o-y Interest income 638,393 536,337 19.0% 643,181 540,068 19.10% - - - (4,788) (3,731) 28.3% Interest expense (269,791) (215,903) 25.0% (276,728) (218,880) 26.40% - - - 6,937 2,977 133.0% Net interest income 368,602 320,434 15.0% 366,453 321,188 14.1% - - - 2,149 (754) NMF Fee and commission income 106,005 88,508 19.8% 106,906 89,605 19.3% - - - (901) (1,097) -17.9% Fee and commission expense (34,168) (27,696) 23.4% (34,549) (28,011) 23.3% - - - 381 315 21.0% Net fee and commission income 71,837 60,812 18.1% 72,357 61,594 17.5% - - - (520) (782) -33.5% Net foreign currency gain 39,916 30,531 30.7% 40,591 38,982 4.1% - - - (675) (8,451) -92.0% Net other income 8,898 3,561 149.9% 9,451 4,063 132.6% - - - (553) (502) 10.2% Revenue 489,253 415,338 17.8% 488,852 425,827 14.8% - - - 401 (10,489) NMF Salaries and other employee benefits (102,323) (90,797) 12.7% (103,378) (91,786) 12.6% - - - 1,055 989 6.7% Administrative expenses (51,885) (43,885) 18.2% (52,495) (44,805) 17.2% - - - 610 920 -33.7% Depreciation and amortisation (22,914) (19,722) 16.2% (22,914) (19,722) 16.2% - - - - - - Other operating expenses (1,736) (1,526) 13.8% (1,736) (1,526) 13.8% - - - - - - Operating expenses (178,858) (155,930) 14.7% (180,523) (157,839) 14.4% - - - 1,665 1,909 -12.8% Profit from associates 695 909 -23.5% 695 909 -23.5% - - - - - - Operating income before cost of credit risk 311,090 260,317 19.5% 309,024 268,897 14.9% - - - 2,066 (8,580) NMF Expected credit loss / impairment charge on loans to customers (76,684) (79,097) -3.1% (76,684) (79,097) -3.1% - - - - - - Expected credit loss / impairment charge on finance lease receivables (253) (207) 22.2% (253) (207) 22.2% - - - - - - Other expected credit loss / impairment charge on other assets and provisions (876) (8,732) -90.0% (876) (8,732) -90.0% - - - - - - Cost of credit risk (77,813) (88,036) -11.6% (77,813) (88,036) -11.6% - - - - - - Profit before non-recurring items and income tax 233,277 172,281 35.4% 231,211 180,861 27.8% - - - 2,066 (8,580) NMF Net non-recurring items (46,823) (2,711) NMF (46,995) (2,711) NMF - - - 172 - - Profit before income tax 186,454 169,570 10.0% 184,216 178,150 3.4% - - - 2,238 (8,580) NMF Income tax expense (36,565) (7,692) NMF (36,565) (7,692) NMF - - - - - - Profit from continuing operations 149,889 161,878 -7.4% 147,651 170,458 -13.4% - - - 2,238 (8,580) NMF Profit from discontinued operations 107,899 69,922 54.3% - - - 110,137 61,342 79.5% (2,238) 8,580 NMF
Profit 257,788 231,800 11.2% 147,651 170,458 -13.4% 110,137 61,342 79.5% - - - Attributable to: - shareholders of the Group 239,030 217,609 9.8% 147,108 169,602 -13.3% 91,922 48,007 91.5% - - - - non-controlling interests 18,758 14,191 32.2% 543 856 -36.6% 18,215 13,335 36.6% - - - Profit from continuing operations attributable to: - shareholders of the Group 149,346 161,022 -7.3% 147,108 169,602 -13.3% - - - 2,238 (8,580) NMF - non-controlling interests 543 856 -36.6% 543 856 -36.6% - - - - - - Profit from discontinued operations attributable to: - shareholders of the Group 89,684 56,587 58.5% - - - 91,922 48,007 91.5% (2,238) 8,580 NMF - non-controlling interests 18,215 13,335 36.6% - - - 18,215 13,335 36.6% - - - Earnings per share (basic) 5.82 5.74 1.4% - earnings per share from continuing operations 3.64 4.24 -14.2% - earnings per share from discontinued operations 2.18 1.50 45.3% Earnings per share (diluted) 5.76 5.51 4.5% - earnings per share from continuing operations 3.60 4.08 -11.8% - earnings per share from discontinued operations 2.16 1.43 51.0% BALANCE Bank of Georgia Group Banking Business Discontinued Operations Eliminations SHEET Consolidated GEL thousands, Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Mar-18 unless otherwise y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q noted Cash and cash equivalents 1,546,863 1,454,387 6.4% 1,754,920 -11.9% 1,546,863 1,401,728 10.4% 1,754,920 -11.9% - 349,166 NMF - - - (296,507) - Amounts due from credit institutions 993,862 1,090,259 -8.8% 941,804 5.5% 993,862 976,810 1.7% 955,175 4.1% - 152,635 NMF - - - (39,186) (13,371) Investment securities 1,725,692 1,398,097 23.4% 1,748,728 -1.3% 1,725,692 1,396,832 23.5% 1,804,231 -4.4% - 47,625 NMF - - - (46,360) (55,503) Loans to customers and finance lease receivables 8,078,132 6,517,773 23.9% 7,727,568 4.5% 8,078,132 6,579,996 22.8% 7,792,108 3.7% - - - - - - (62,223) (64,540) Accounts receivable and other loans 4,878 155,463 -96.9% 3,453 41.3% 4,878 4,050 20.4% 6,537 -25.4% - 152,309 NMF - - - (896) (3,084) Insurance premiums receivable - 59,658 NMF - - - - - - - - 60,188 NMF - - - (530) - Prepayments 74,238 98,073 -24.3% 79,600 -6.7% 74,238 26,622 NMF 79,600 -6.7% - 71,702 NMF - - - (251) - Inventories 11,085 204,433 -94.6% 10,371 6.9% 11,085 9,374 18.3% 10,371 6.9% - 195,059 NMF - - - - - Investment property 218,224 306,140 -28.7% 218,142 0.0% 218,224 162,538 34.3% 218,142 0.0% - 147,937 NMF - - - (4,335) - Property and equipment 313,627 1,418,453 -77.9% 324,810 -3.4% 313,627 303,396 3.4% 324,810 -3.4% - 1,110,722 NMF - - - 4,335 - Goodwill 33,351 159,569 -79.1% 33,351 0.0% 33,351 33,453 -0.3% 33,351 0.0% - 126,116 NMF - - - - - Intangible assets 61,462 77,150 -20.3% 57,139 7.6% 61,462 52,348 17.4% 57,139 7.6% - 24,802 NMF - - - - - Income tax assets 21,792 6,453 NMF 13,189 65.2% 21,792 1,332 NMF 13,189 65.2% - 5,121 NMF - - - - - Other assets 125,615 190,555 -34.1% 113,823 10.4% 125,615 112,476 11.7% 117,289 7.1% - 83,661 NMF - - - (5,582) (3,466) Assets of disposal group held for distribution - - - 2,447,592 NMF - - - - - - - - 3,841,004 NMF - - (1,393,412) Total assets 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 11,060,955 19.4% 13,166,862 0.3% - 2,527,043 NMF 3,841,004 NMF - (451,535) (1,533,376) Client deposits and notes 7,174,234 5,319,398 34.9% 6,762,071 6.1% 7,174,234 5,655,341 26.9% 7,296,110 -1.7% - - - - - - (335,943) (534,039) Amounts due to credit institutions 2,740,595 3,077,869 -11.0% 2,521,291 8.7% 2,740,595 2,602,304 5.3% 2,642,427 3.7% - 538,533 NMF - - - (62,968) (121,136) Debt securities issued 1,527,452 1,582,431 -3.5% 1,524,600 0.2% 1,527,452 1,312,990 16.3% 1,569,404 -2.7% - 319,033 NMF - - - (49,592) (44,804) Accruals and deferred income 33,397 141,801 -76.4% 27,478 21.5% 33,397 28,639 16.6% 27,478 21.5% - 113,162 NMF - - - - - Insurance contracts liabilities - 81,446 NMF - - - - - - - - 81,446 NMF - - - - - Income tax liabilities 43,326 12,858 NMF 19,538 121.8% 43,326 11,291 NMF 19,538 121.8% - 1,567 NMF - - - - - Other liabilities 52,231 412,467 -87.3% 41,073 27.2% 52,231 38,363 36.1% 41,876 24.7% - 377,136 NMF - - - (3,032) (803) Liabilities of disposal group held for distribution - - - 1,837,869 NMF - - - - - - - - 1,964,463 NMF - - (126,594) Total liabilities 11,571,235 10,628,270 8.9% 12,733,920 -9.1% 11,571,235 9,648,928 19.9% 11,596,833 -0.2% - 1,430,877 NMF 1,964,463 NMF - (451,535) (827,376) Share capital 1,790 1,152 55.4% 1,151 55.5% 1,790 1,152 55.4% 1,151 55.5% - - - - - - - - Additional paid-in capital 463,130 140,480 NMF 64,530 NMF 463,130 - NMF - NMF - 140,480 NMF 64,530 NMF - - - Treasury shares (41) (51) -19.6% (57) -28.1% (41) (51) -19.6% (57) -28.1% - - - - - - - - Other reserves 26,268 114,822 -77.1% 101,967 -74.2% 26,268 (51,798) NMF (117,684) NMF - 166,620 NMF 797,564 NMF - - (577,913) Retained earnings 1,139,285 1,958,650 -41.8% 2,246,096 -49.3% 1,139,285 1,456,477 -21.8% 1,679,497 -32.2% - 502,173 NMF 694,686 NMF - - (128,087) Reserves of disposal group held for distribution - - - 15,828 NMF - - - - - - - - 15,828 NMF - - - Total equity attributable to shareholders
of the Group 1,630,432 2,215,053 -26.4% 2,429,515 -32.9% 1,630,432 1,405,780 16.0% 1,562,907 4.3% - 809,273 NMF 1,572,608 NMF - - (706,000) Non-controlling interests 7,154 293,140 -97.6% 311,055 -97.7% 7,154 6,247 14.5% 7,122 0.4% - 286,893 NMF 303,933 NMF - - - Total equity 1,637,586 2,508,193 -34.7% 2,740,570 -40.2% 1,637,586 1,412,027 16.0% 1,570,029 4.3% - 1,096,166 NMF 1,876,541 NMF - - (706,000) Total liabilities and equity 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 11,060,955 19.4% 13,166,862 0.3% - 2,527,043 NMF 3,841,004 NMF - (451,535) (1,533,376) Book value per share 34.12 58.83 -42.0% 64.91 -47.4%
BELARUSKY NARODNY BANK (BNB)
INCOME STATEMENT, Change Change Change
HIGHLIGHTS 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
GEL thousands,
unless otherwise
stated
Net interest
income 6,354 7,946 -20.0% 6,544 -2.9% 12,898 16,647 -22.5%
Net fee and commission
income 2,503 2,278 9.9% 2,277 9.9% 4,780 4,627 3.3%
Net foreign currency
gain 4,182 2,818 48.4% 3,277 27.6% 7,459 4,616 61.6%
Net other income 192 155 23.9% 117 64.1% 309 266 16.2%
Revenue 13,231 13,197 0.3% 12,215 8.3% 25,446 26,156 -2.7%
Operating expenses (8,184) (7,233) 13.1% (7,721) 6.0% (15,905) (13,634) 16.7%
Operating income
before cost of
credit risk 5,047 5,964 -15.4% 4,494 12.3% 9,541 12,522 -23.8%
Cost of credit
risk (2,305) (3,240) -28.9% (717) NMF (3,022) (8,874) -65.9%
Net non-recurring
items (5) 2 NMF (700) -99.3% (706) (55) NMF
Profit before
income tax 2,737 2,726 0.4% 3,077 -11.0% 5,813 3,593 61.8%
Income tax expense (721) (455) 58.5% (779) -7.4% (1,498) (654) 129.1%
Profit 2,016 2,271 -11.2% 2,298 -12.3% 4,315 2,939 46.8%
BALANCE SHEET, Jun-18 Jun-17 Change Mar-18 Change
HIGHLIGHTS y-o-y q-o-q
GEL thousands,
unless otherwise
stated
Cash and cash
equivalents 86,932 61,709 40.9% 77,403 12.3%
Amounts due from
credit institutions 10,719 4,154 158.0% 10,387 3.2%
Investment securities 38,815 99,333 -60.9% 40,819 -4.9%
Loans to customers
and finance lease
receivables 394,502 369,647 6.7% 377,680 4.5%
Other assets 40,833 24,835 64.4% 37,731 8.2%
Total assets 571,801 559,678 2.2% 544,020 5.1%
Client deposits
and notes 297,756 263,681 12.9% 288,337 3.3%
Amounts due to
credit institutions 161,332 195,466 -17.5% 144,208 11.9%
Debt securities
issued 32,453 28,334 14.5% 30,726 5.6%
Other liabilities 3,723 4,662 -20.1% 7,331 -49.2%
Total liabilities 495,264 492,143 0.6% 470,602 5.2%
Total equity 76,537 67,535 13.3% 73,418 4.2%
Total liabilities
and equity 571,801 559,678 2.2% 544,020 5.1%
BANKING BUSINESS KEY
RATIOS 2Q18 2Q17 1Q18 1H18 1H17
Profitability
ROAA, Annualised(14) 3.1% 3.2% 3.1% 3.1% 3.2%
ROAE, Annualised(14) 25.2% 24.1% 25.9% 25.5% 23.9%
RB ROAE(14) 30.5% 27.1% 31.5% 30.9% 27.5%
CIB ROAE(14) 20.0% 20.4% 19.7% 20.0% 19.5%
Net Interest Margin,
Annualised 6.9% 7.3% 7.0% 7.0% 7.3%
RB NIM 8.0% 8.6% 8.3% 8.1% 8.7%
CIB NIM 3.5% 3.3% 3.2% 3.3% 3.3%
Loan Yield, Annualised 14.0% 14.3% 13.9% 13.9% 14.1%
RB Loan Yield 15.8% 16.4% 15.9% 15.8% 16.1%
CIB Loan Yield 10.4% 10.6% 9.9% 10.1% 10.6%
Liquid Assets Yield,
Annualised 3.8% 3.4% 3.6% 3.7% 3.3%
Cost of Funds, Annualised 5.0% 4.8% 4.8% 4.9% 4.7%
Cost of Client Deposits
and Notes, Annualised 3.6% 3.6% 3.4% 3.5% 3.5%
RB Cost of Client Deposits
and Notes 2.9% 3.0% 2.8% 2.9% 3.0%
CIB Cost of Client Deposits
and Notes 4.1% 4.2% 3.9% 4.0% 4.0%
Cost of Amounts Due
to Credit Institutions,
Annualised 7.2% 6.6% 6.9% 7.0% 6.4%
Cost of Debt Securities
Issued 7.7% 7.1% 7.7% 7.8% 6.5%
Operating Leverage,
Y-O-Y 3.8% -0.1% -2.8% 0.4% 2.9%
Operating Leverage,
Q-O-Q 0.2% -5.7% 3.2% 0.0% 0.0%
Efficiency
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
RB Cost / Income 36.6% 38.8% 36.4% 36.5% 38.2%
CIB Cost / Income 31.4% 32.8% 32.5% 31.9% 31.4%
Liquidity
NBG Liquidity Ratio 30.2% 44.1% 36.5% 30.2% 44.1%
Liquid Assets To Total
Liabilities 36.9% 39.1% 38.9% 36.9% 39.1%
Net Loans To Client
Deposits and Notes 112.6% 116.4% 106.8% 112.6% 116.4%
Net Loans To Client
Deposits and Notes +
DFIs 96.9% 97.6% 91.8% 96.9% 97.6%
Leverage (Times) 7.1 6.8 7.4 7.1 6.8
Asset Quality:
NPLs (in GEL) 247,861 304,320 247,335 247,861 304,320
NPLs To Gross Loans
To Clients 3.0% 4.4% 3.1% 3.0% 4.4%
NPL Coverage Ratio 110.5% 90.2% 111.4% 110.5% 90.2%
NPL Coverage Ratio,
Adjusted for discounted
value of collateral 147.2% 131.5% 147.2% 147.2% 131.5%
Cost of Risk, Annualised 1.7% 2.2% 2.1% 1.9% 2.3%
RB Cost of Risk 2.2% 3.1% 2.6% 2.4% 3.2%
CIB Cost of Risk 0.6% 0.5% 1.3% 1.0% 0.4%
Capital Adequacy:
NBG (Basel III) Tier
I Capital Adequacy Ratio 12.5% n/a 12.4% 12.5% n/a
NBG (Basel III) Total
Capital Adequacy Ratio 17.5% n/a 17.3% 17.5% n/a
Selected Operating Data:
Total Assets Per FTE,
BOG Standalone 1,817 1,635 1,854 1,813 1,635
Number Of Active Branches,
Of Which: 284 280 282 284 280
- Express Branches
(including Metro) 168 138 156 168 138
- Bank of Georgia Branches 104 131 114 104 131
- Solo Lounges 12 11 12 12 11
Number Of ATMs 856 827 842 856 827
Number Of Cards Outstanding,
Of Which: 2,235,122 2,117,652 2,246,396 2,235,122 2,117,652
- Debit cards 1,607,087 1,342,214 1,597,662 1,607,087 1,342,214
- Credit cards 628,035 775,438 648,734 628,035 775,438
Number Of POS Terminals 12,816 11,303 12,571 12,816 11,303
FX Rates:
GEL/US$ exchange rate
(period-end) 2.4516 2.4072 2.4144
GEL/GBP exchange rate
(period-end) 3.2209 3.1192 3.3932
Jun-18 Jun-17 Mar-18
Full Time Employees,
Group, Of Which: 7,270 6,764 7,102
- Full Time Employees,
BOG Standalone 5,689 5,297 5,505
- Full Time Employees,
BNB 699 649 708
- Full Time Employees,
BB other 822 818 889
Shares Outstanding Jun-18 Jun-17 Mar-18
Ordinary Shares 47,779,684 37,652,034 37,431,257
Treasury Shares 1,389,746 1,760,286 1,953,455
Total Shares Outstanding 49,169,430 39,412,320 39,384,712
(14) 2Q18 and 1H18 results adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances
Principal risks and uncertainties
Understanding our risks
The table below outlines the principal risks and uncertainties faced by the Group and their potential impact, as well the trends and outlook associated with these risks and the mitigating actions we take to address these risks. These are the risks relating to the Banking Business that were reported in the 2017 Annual Report of the BGEO Group PLC. If any of the following risks actually occur, the Group's business, financial condition, results of operations or prospects could be materially affected. The risks and uncertainties described below may not be the only ones the Group faces. Additional risks and uncertainties, including those that the Group is currently not aware of or deems immaterial, may also result in decreased revenues, incurred expenses or other events that could result in a decline in the value of the Group's securities.
CURRENCY AND MACROECONOMIC ENVIRONMENT
PRINCIPAL Macroeconomic factors relating to Georgia,
RISK / UNCERTAINTY including depreciation of the Lari against
the US Dollar, may have a material impact
on our loan book.
-------------------------------------------------------
KEY DRIVERS The Group's operations are primarily located,
/ TRS and most of its revenue is sourced from,
Georgia. Macroeconomic factors relating
to Georgia, such as GDP, inflation and
interest rates, may have a material impact
on the quality of our loan portfolio,
loan losses, our margins and customer
demand for our products and services.
Real GDP growth estimate for the first
half of 2018 in Georgia increased to 5.7%,
compared to Real GDP growth of 5.0% in
2017 and 2.8% in 2016, according to Geostat.
Uncertain and volatile global economic
conditions could have substantial political
and macroeconomic ramifications globally
which in turn could impact the Georgian
economy.
In the first half of 2018, the Lari appreciated
against the US Dollar by 5.4%, after appreciating
by 2.1% in 2017. The volatility of Lari
against Dollar has affected, and may continue
to adversely affect, the quality of our
loan portfolio, as well as increase the
cost of credit risk and impairment provisions.
This is because our corporate, MSME and
mortgage loan books are largely US Dollar-denominated
and the majority of our customers' income
is Lari-denominated. The creditworthiness
of our customers may be adversely affected
by the depreciation of Lari against US
Dollar, which could result in them having
difficulty repaying their loans. The depreciation
of Lari may also adversely affect the
value of our customers' collateral.
As at 30 June 2018, approximately 80.2%
and 45.8% of our corporate investment
banking and retail loans, respectively,
were denominated in foreign currency (predominantly
US Dollars), while US Dollar income revenue
loans covered 6.1% of retail gross loans
and 40.3% of corporate investment banking
gross loans. Our cost of risk was 1.9%
in the first half 2018 compared to 2.3%
in the first half 2017.
-------------------------------------------------------
MITIGATION The Group continuously monitors market
conditions and reviews market changes,
and also performs stress and scenario
testing to test its position under adverse
economic conditions, including adverse
currency movements.
The Asset and Liability Management Committee
sets our open currency position limits
and the Bank's proprietary trading position
limits, which are currently more conservative
than those imposed by the National Bank
of Georgia (NBG), our regulator. The Treasury
department manages our open currency position
on a day-to-day basis. The open currency
position is also monitored by the Quantitative
Risk Management and Risk Analytics department.
In order to assess the creditworthiness
of our customers, we take into account
currency volatility when there is a currency
mismatch between the customer's loan and
revenue. We allocate 75% additional capital
to the foreign currency loans of clients,
whose source of income is denominated
in Lari.
Our Credit Committees and Credit Risk
Management department set counterparty
limits by using a credit risk classification
and scoring system for approving individual
transactions. The credit quality review
process is continuous and provides early
identification of possible changes in
the creditworthiness of customers, including
regular collateral revaluations, potential
losses and corrective actions needed to
reduce risk, which may include obtaining
additional collateral in accordance with
underlying loan agreements.
Since the beginning of 2016, we have focused
on increasing local currency lending.
We actively work with IFIs to raise long-term
Lari funding to increase our Lari-denominated
loans to customers. Furthermore, in June
2017, we completed the inaugural local
currency denominated international bond
issuance in the amount of GEL 500 million
to support local currency lending.
Applicable from the beginning of 2017,
the NBG expanded the list of assets that
banks are permitted to use as collateral
for REPO transactions, which provides
an additional funding source for our Lari-denominated
loan book.
As a result, as of 30 June 2018, our Lari-denominated
loan book increased by 39.1% y-o-y and
by 4.8% q-o-q, while our foreign currency-denominated
loan book increased by 13.3% y-o-y and
by 2.9% q-o-q.
-------------------------------------------------------
REGIONAL INSTABILITY
PRINCIPAL The Georgian economy and our business
RISK / UNCERTAINTY may be adversely affected by regional
tensions and instability.
The Group's operations are primarily located,
and most of its revenue is sourced from,
Georgia. The Georgian economy is dependent
on economies of the region, in particular
Russia, Turkey, Azerbaijan and Armenia
who are key trading partners.
There has been ongoing geopolitical tension,
political instability, economic instability
and military conflict in the region, which
may have an adverse effect on our business
and financial position.
-------------------------------------------------------
KEY DRIVERS Russian troops continue to occupy the
/ TRS Abkhazia and the Tskhinvali/South Ossetia
regions and tensions between Russia and
Georgia persist. Russia is opposed to
the eastward enlargement of NATO, potentially,
including former Soviet republics such
as Georgia. The introduction of a free
trade regime between Georgia and the EU
in September 2014 and the visa-free travel
in EU granted to Georgian citizens in
March 2017 may intensify tensions between
the countries. The Government has taken
certain steps towards improving relations
with Russia, but, as of the date of this
Announcement, these have not resulted
in any formal or legal changes in the
relationship between the two countries.
In April 2017, amendments to the Turkish
constitution were approved by voters in
a referendum. The proposed constitutional
changes were originally scheduled for
November 2019. However, in June 2018,
as a result of early parliamentary and
presidential elections the amendments
became effective. The amendments which
grant the president wider powers are expected
to transform Turkey's system of government
away from a parliamentary system and could
have a negative impact on political stability
in Turkey.
Conflict remains unabated between Azerbaijan
and Armenia.
-------------------------------------------------------
MITIGATION The Group actively monitors regional and
local market conditions and risks related
to political instability, and performs
stress and scenario tests in order to
assess our financial position. Responsive
strategies and action plans are also developed.
Despite tensions in the breakaway territories,
Russia has continued to open its export
market to Georgian exports since 2013.
While lower global commodity prices and
macroeconomic factors have affected Georgia's
regional trading partners, leading to
lower exports within the region, Georgia
has benefited from increased exports earnings
from non-traditional markets such as Switzerland,
China, Egypt, Saudi Arabia, South Korea
and Singapore.
In April 2017, the IMF approved a new
three-year US$285 million economic programme,
aimed at preserving macroeconomic and
financial stability and addressing structural
weaknesses in the Georgian economy to
support higher and inclusive growth.
During the first half of 2018, Georgia
delivered an estimated real GDP growth
of 5.7%, whilst inflation was well contained
at 2.2% in June 2018. Tourist arrivals
and remittances, a significant driver
of dollar inflows for the country, continued
to increase. Tax revenues increased 5.8%
y-o-y and were above the budgeted figure
for the first half of 2018. The Georgian
Government's fiscal position continues
to be strong.
-------------------------------------------------------
LOAN PORTFOLIO QUALITY
PRINCIPAL The Group may not be able to maintain
RISK / UNCERTAINTY the quality of its loan portfolio.
The quality of the Group's loan portfolio
may deteriorate due to external factors
beyond the Group's control such as negative
developments in Georgia's economy or in
the economies of its neighbouring countries,
the unavailability or limited availability
of credit information on certain of its
customers, any failure of its risk management
procedures or rapid expansion of its loan
portfolio.
The Group's corporate investment banking
loan portfolio is concentrated and to
the extent that such borrowers enter into
further loan arrangements with the Group,
this will increase the credit and general
counterparty risk of the Group with respect
to those counterparties and could result
in deterioration of the Group's loan portfolio
quality.
Furthermore, the collateral values that
the Group holds against the loans may
decline, which may have an adverse effect
on our business and financial position
of the Group.
-------------------------------------------------------
KEY DRIVERS During the first six months of 2018, the
/ TRS Group's cost of risk was 1.9%, as compared
to 2.3% in the first six months of 2017.
Expected credit loss / impairment charges
and, in turn, the Group's cost of credit
risk could increase if a single large
borrower defaults or a material concentration
of smaller borrowers default. As of 30
June 2018, 31 December 2017 and 2016,
the Group's non-performing loans accounted
for 3.0%, 3.8%, and 4.2% of gross loans,
respectively.
The corporate investment banking loan
portfolio is concentrated, with the Group's
top ten corporate investment banking borrowers
accounting for 10.2% of the loan portfolio
(gross of allowances for impairment) as
of 30 June 2018, as compared to 10.7%
as of 31 December 2017 and 11.8% as of
31 December 2016. The top ten corporate
investment banking borrowers accounted
for 36.2% of the corporate investment
banking gross loan portfolio as of 30
June 2018, as compared to 35.5% as of
31 December 2017 and 32.1% as of 31 December
2016.
As of 30 June 2018, the Group held collateral
against gross loans covering 83.6% of
the total gross loans. The main forms
of collateral taken in respect of corporate
investment banking loans are liens over
real estate, property plant and equipment,
corporate guarantees, inventory, deposits
and securities, transportation equipment
and gold. The most common form of collateral
accepted in retail banking loans is a
lien over residential property. Downturns
in the residential and commercial real
estate markets or a general deterioration
of economic conditions in the industries
in which the Group's customers operate
may result in illiquidity and a decline
in the value of the collateral securing
loans, including a decline to levels below
the outstanding principal balance of those
loans. In addition, declining or unstable
prices of collateral in Georgia may make
it difficult for the Group to accurately
value collateral it holds. If the fair
value of the collateral that the Group
holds declines significantly in the future,
it could be required to record additional
provisions and could experience lower
than expected recovery levels on collateralised
loans past due more than 90 days. Further
changes to laws or regulations may impair
the value of such collateral.
-------------------------------------------------------
MITIGATION The Group continuously monitors market
conditions and reviews market changes,
and also performs stress and scenario
testing to test its position under adverse
economic conditions.
Our Credit Committees and Credit Risk
Management department set counterparty
limits by using a credit risk classification
and scoring system for approving individual
transactions. The credit quality review
process is continuous and provides early
identification of possible changes in
the creditworthiness of customers, including
regular collateral revaluations, potential
losses and corrective actions needed to
reduce risk, which may include obtaining
additional collateral in accordance with
underlying loan agreements.
The Group continuously monitors the market
value of the collateral it holds against
the loans. When evaluating collateral,
the Group discounts the market value of
the assets to reflect the liquidation
value of the collateral.
In terms of corporate investment banking
loan portfolio concentration, the Group
aims to adhere strictly to the limits
set by the NBG for client exposures, monitors
the level of concentration in its loan
portfolio and the financial performance
of its largest borrowers and uses collateral
to minimise loss given default on its
largest exposures, reduces guarantee exposures
in the riskier sector and maintains a
well-diversified loan book sector concentration.
-------------------------------------------------------
REGULATORY RISK
PRINCIPAL The Group operates in an evolving regulatory
RISK / UNCERTAINTY environment and is subject to regulatory
oversight of the National Bank of Georgia,
supervising the banking sector and the
securities market in Georgia.
The financial sector in Georgia is highly
regulated. The regulatory environment
continues to evolve. We, however, cannot
predict what additional regulatory changes
will be introduced in the future or the
impact they may have on our operations.
-------------------------------------------------------
KEY DRIVERS Our banking operations must comply with
/ TRS capital adequacy and other regulatory
ratios set by our regulator, the NBG,
including reserve requirements and mandatory
financial ratios. Our ability to comply
with existing or amended NBG requirements
may be affected by a number of factors,
including those outside of our control,
such as an increase in the Bank's risk-weighted
assets, our ability to raise capital,
losses resulting from deterioration in
our asset quality and/or a reduction in
income levels and/or an increase in expenses,
decline in the value of the Bank's securities
portfolio, as well as weakening of global
and Georgian economies.
-------------------------------------------------------
MITIGATION Continued investment in our people and
processes is enabling us to meet our current
regulatory requirements and means that
we are well placed to respond to any future
changes in regulation.
In line with our integrated control framework,
we carefully evaluate the impact of legislative
and regulatory changes as part of our
formal risk identification and assessment
processes and, to the extent possible,
proactively participate in the drafting
of relevant legislation. As part of this
process, we engage in constructive dialogue
with regulatory bodies, where possible,
and seek external advice on potential
changes to legislation. We then develop
appropriate policies, procedures and controls
as required to fulfil our compliance obligations.
Our compliance framework, at all levels,
is subject to regular review by internal
audit and external assurance providers.
-------------------------------------------------------
LIQUIDITY RISK
PRINCIPAL The Group is exposed to liquidity risk
RISK / UNCERTAINTY when the maturities of its assets and
liabilities do not coincide.
Although the Group expects to have sufficient
funding over the next 18 months and beyond
to execute its strategy and to have sufficient
liquidity over the next 18 months and
beyond, liquidity risk is nevertheless
inherent in banking operations and may
be heightened by a number of factors,
including an over-reliance on, or an inability
to access, a particular source of funding,
changes in credit ratings or market-wide
phenomena, such as financial market instability.
Credit markets worldwide have in recent
years experienced, and may continue to
experience, a reduction in liquidity and
long-term funding as a result of global
economic and financial factors. The availability
of credit in emerging markets, in particular,
is significantly influenced by the level
of investor confidence and, as such, any
factors that affect investor confidence
(for example, a downgrade in credit ratings
of the Bank, the NBG or Georgia, or state
interventions or debt restructurings in
a relevant industry), could affect the
price or availability of funding for the
Group companies, operating in any of these
markets.
-------------------------------------------------------
KEY DRIVERS The Group's current liquidity may be affected
/ TRS by unfavourable financial market conditions.
If assets held by the Group in order to
provide liquidity become illiquid or their
value drops substantially, the Group may
be required, or may choose, to rely on
other sources of funding to finance its
operations and future growth. Only a limited
amount of funding, however, is available
on the Georgian inter-bank market, and
recourse to other funding sources may
pose additional risks, including the possibility
that other funding sources may be more
expensive and less flexible. In addition,
the Group's ability to access such external
funding sources depends on the level of
credit lines available to it, and this,
in turn, is dependent on the Group's financial
and credit condition, as well as general
market liquidity.
In terms of current and short-term liquidity,
the Group is exposed to the risk of unexpected,
rapid withdrawal of deposits by its customers
in large volumes. Circumstances in which
customers are more likely to withdraw
deposits in large volumes rapidly include,
among others, a severe economic downturn,
a loss in consumer confidence, an erosion
of trust in financial institutions or
a period of social, economic or political
instability. If a substantial portion
of customers rapidly or unexpectedly withdraw
their demand or term deposits or do not
roll over their term deposits upon maturity,
this could have a material adverse effect
on the Group's business, financial condition
and results of operations.
-------------------------------------------------------
MITIGATION The Group manages its liquidity risk through
the liquidity risk management framework,
which models the ability of the Group
to meet its payment obligations under
both normal conditions and crisis. The
Group has developed a model based on the
Basel III liquidity guidelines. This approach
is designed to ensure that the funding
framework is sufficiently flexible to
secure liquidity under a wide range of
market conditions.
Among other things, the Group maintains
a diverse funding base comprising of short-term
sources of funding (including retail banking
and corporate investment banking customer
deposits, inter-bank borrowings and borrowings
from the NBG) and longer-term sources
of funding (including term retail banking
and corporate investment banking deposits,
borrowing from international credit institutions,
sales and purchases of securities and
long-term debt securities).
Client deposits and notes are one of the
most important sources of funding for
the Group. As of 30 June 2018, 31 December
2017 and 31 December 2016, 91.9%, 91.4%,
and 91.5%, respectively, of client deposits
and notes had contractual maturities of
one year or less, of which 50.0%, 56.5%,
and 53.9%, respectively, were payable
on demand. However, as of the same dates,
the ratio of net loans to client deposits
and notes was 112.6%, 109.4%, and 116.1%
respectively and the NBG liquidity ratios
were 30.2%, 34.4%, and 37.7%, respectively.
-------------------------------------------------------
OPERATIONAL RISK, CYBER-SECURITY, INFORMATION SYSTEMS
AND FINANCIAL CRIME
PRINCIPAL We are at risk of experiencing cyber-security
RISK / UNCERTAINTY breaches, unauthorised access to our systems
and financial crime, or failures in our
banking activity processes or systems
or human error, which could disrupt our
customer services, result in financial
loss, have legal or regulatory implications
and/or affect our reputation.
We are highly dependent on the proper
functioning of our risk management, internal
controls and systems, and internal processes
including those related to data protection,
IT and information security in order to
manage these threats.
-------------------------------------------------------
KEY DRIVERS Cyber-security threats have increased
/ TRS y-o-y and during the first half of 2018
we saw a number of major organisations
subject to cyber-attacks, although fortunately,
our operations were not materially affected.
The external threat profile is continuously
changing and we expect threats to continue
to increase.
Over the past few years, as our operations
have expanded, we have seen an increase
in electronic crimes, including fraud,
although losses have not been significant.
Money laundering, which the bank has certain
responsibilities to guard against, has
also increased globally in recent years.
-------------------------------------------------------
MITIGATION We have an integrated control framework
encompassing operational risk management,
IT systems, corporate and other data security,
each of which is managed by a separate
department. We also have an Anti-Money
Laundering (AML) officer and controls.
We identify and assess operational risk
categories within our risk management
framework, identify critical risk areas
or groups of operations with an increased
risk level and develop policies and security
procedures to mitigate these risks.
We have security controls in place including
policies, procedures and security technologies.
We also regularly carry out IT and information
security checks internally and with the
assistance of external consultants. We
have sophisticated anti-virus protection
and firewalls to help protect against
potentially malicious software. We have
increased our internal and external penetration
testing and have back-up disaster recovery
and business continuity plans in place
across the Group. Access control and password
protections have been improved in 2016
through the implementation of "Privileged
Access Monitoring" for employees with
the highest privileged access to confidential
and customer data. We continue to invest
in technology to enhance our ability to
prevent, detect and respond to increasing
and evolving threats.
Our Internal Audit function provides assurance
on the adequacy and effectiveness of our
risk management, internal controls and
systems in place. These types of operational
risk are on the Audit Committee's regular
agenda and are also frequently discussed
at the Board level.
-------------------------------------------------------
Responsibility Statement
We, the Directors, confirm that to the best of our knowledge:
-- The interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;
-- This Results Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
-- This Results Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related parties' transactions and changes therein)
After making enquiries, the Directors considered it appropriate to adopt the going concern basis in preparing this Results Report.
The Directors of the Group are as follows:
Neil Janin
Kaha Kiknavelidze
Hanna Loikkanen
Alasdair Breach
Tamaz Georgadze
Jonathan Muir
Cecil Quillen
By order of the Board
Neil Janin Kaha Kiknavelidze
Chairman Chief Executive Officer
15 August 2018
Interim Condensed Consolidated Financial Statements
CONTENTS
INDEPENT Review Report
Interim Condensed Consolidated Statement of Financial Position.............................................................................................. 35
Interim Condensed Consolidated Income Statement.................................................................................................................... 36
Interim Condensed Consolidated Statement of Comprehensive Income.................................................................................... 38
Interim Condensed Consolidated Statement of Changes in Equity ............................................................................................ 39
Interim Condensed Consolidated Statement of Cash Flows ........................................................................................................ 40
SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Principal Activities 2. Basis of Preparation 3. Summary of Significant Accounting Policies 4. Discontinued operations 5. Segment Information 6. Cash and Cash Equivalents 7. Amounts Due from Credit Institutions 8. Investment Securities 9. Loans to Customers and Finance Lease Receivables 10. Investment Properties 11. Property and Equipment 12. Client Deposits and Notes 13. Amounts Owed to Credit Institutions 14. Debt Securities Issued 15. Equity. 16. Commitments and Contingencies 17. Net Interest Income 18. Net Fee and Commission Income 19. Net Non-recurring Items 20. Taxation 21. Fair Value Measurements 22. Maturity Analysis of Financial Assets and Liabilities 23. Related Party Disclosures 24. Capital Adequacy 25. Events after the Reporting Period
INDEPENT REVIEW REPORT TO BANK OF GEORGIA GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Income Statement, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Statement of Cash Flows and related notes 1 to 25. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
15 August 2018
Notes:
1. The maintenance and integrity of the Bank of Georgia Group PLC's web site is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
As at
--------------------------------
Notes 30 June 31 December
2018 (unaudited) 2017
------ ------------------ ------------
Assets
Cash and cash equivalents 6 1,546,863 1,582,435
Amounts due from credit
institutions 7 993,862 1,225,947
Investment securities 8 1,725,692 1,564,869
Loans to customers and
finance lease receivables 9 8,078,132 7,690,450
Accounts receivable
and other loans 4,878 38,944
Insurance premiums receivable - 30,573
Prepayments 74,238 149,558
Inventories 11,085 100,194
Investment properties 10 218,224 353,565
Property and equipment 11 313,627 988,436
Goodwill 33,351 55,276
Intangible assets 61,462 60,980
Income tax assets 21,792 2,293
Other assets 125,615 188,732
Assets of disposal group
held for sale - 1,136,417
------------------ ------------
Total assets 13,208,821 15,168,669
================== ============
Liabilities
Client deposits and
notes 12 7,174,234 6,712,482
Amounts owed to credit
institutions 13 2,740,595 3,155,839
Debt securities issued 14 1,527,452 1,709,152
Accruals and deferred
income 33,397 132,669
Insurance contract liabilities - 46,402
Income tax liabilities 43,326 20,959
Other liabilities 52,231 142,133
Liabilities of disposal
group held for sale - 516,663
------------------ ------------
Total liabilities 11,571,235 12,436,299
------------------ ------------
Equity 15
Share capital 1,790 1,151
Additional paid-in capital 463,130 106,086
Treasury shares (41) (66)
Other reserves 26,268 122,082
Retained earnings 1,139,285 2,180,415
Reserves of disposal
group held for sale - 10,934
------------------ ------------
Total equity attributable
to shareholders
of the Group 1,630,432 2,420,602
Non-controlling interests 7,154 311,768
------------------ ------------
Total equity 1,637,586 2,732,370
------------------ ------------
Total liabilities and
equity 13,208,821 15,168,669
================== ============
The financial statements on page 35 to 76 were approved by the Board of Directors on 15 August 2018 and signed on its behalf by:
Kakhaber Kiknavelidze
Chief Executive Officer
15 August 2018
Bank of Georgia Group PLC
Registered No. 10917019
For the six months
ended
---------------------------------------
Notes 30 June 30 June
2018 (unaudited) 2017 (unaudited)*
------ ------------------ -------------------
Interest income calculated
using EIR method 629,570 530,320
Other interest income 8,823 6,017
Interest income 638,393 536,337
Interest expense (267,217) (215,903)
Deposit insurance fees (2,574) -
Net interest income 17 368,602 320,434
------------------ -------------------
Fee and commission income 106,005 88,508
Fee and commission expense (34,168) (27,696)
------------------ -------------------
Net fee and commission
income 18 71,837 60,812
------------------ -------------------
Net foreign currency gain 39,916 30,531
Net other income 8,898 3,561
Revenue 489,253 415,338
------------------ -------------------
Salaries and other employee
benefits (102,323) (90,797)
Administrative expenses (51,885) (43,885)
Depreciation and amortisation (22,914) (19,722)
Other operating expenses (1,736) (1,526)
------------------ -------------------
Operating expenses (178,858) (155,930)
------------------ -------------------
Profit from associates 695 909
Operating income before
cost of credit risk 311,090 260,317
------------------ -------------------
Expected credit loss /impairment
charge on
loans to customers (76,684) (79,097)
Expected credit loss /impairment
charge on
finance lease receivables (253) (207)
Other expected credit loss 3,644 -
Impairment charge on other
assets and provisions (4,520) (8,732)
------------------ -------------------
Cost of credit risk (77,813) (88,036)
------------------ -------------------
For the six months
ended
---------------------------------------
Notes 30 June 30 June
2018 (unaudited) 2017 (unaudited)*
------ ------------------ -------------------
Net operating income before
non-recurring items 233,277 172,281
------------------ -------------------
Net non-recurring items 19 (46,823) (2,711)
------------------ -------------------
Profit before income tax
expense from continuing
operations 186,454 169,570
Income tax expense 20 (36,565) (7,692)
Profit for the period
from continuing operations 149,889 161,878
================== ===================
Profit from discontinued
operations 4 107,899 69,922
Profit for the period 257,788 231,800
================== ===================
Total profit attributable
to:
- shareholders of the
Group 239,030 217,609
- non-controlling interests 18,758 14,191
------------------ -------------------
257,788 231,800
================== ===================
Profit from continuing
operations attributable
to:
- shareholders of the
Group 149,346 161,022
- non-controlling interests 543 856
------------------ -------------------
149,889 161,878
================== ===================
Profit from discontinued
operations attributable
to:
- shareholders of the
Group 89,684 56,587
- non-controlling interests 18,215 13,335
107,899 69,922
================== ===================
Basic earnings per share: 15 5.8233 5.7354
- earnings per share from
continuing operations 3.6384 4.2440
- earnings per share from
discontinued operations 2.1849 1.4914
Diluted earnings per share: 15 5.7560 5.5085
- earnings per share from
continuing operations 3.5964 4.0761
- earnings per share from
discontinued operations 2.1596 1.4324
* Certain amounts do not correspond to the 2017 interim consolidated financial statement as they reflect the adjustments made for discontinued operations described in Note 4.
For the six months
ended
---------------------------------------
Notes 30 June 30 June
2018 (unaudited) 2017 (unaudited)*
------------------ -------------------
Profit for the period 257,788 231,800
------------------ -------------------
Other comprehensive (loss)
income from continuing operations
Other comprehensive (loss)
income from continuing operations
to be reclassified to profit
or loss in subsequent periods:
- Net change in fair value (5,280) n/a
on investments in debt instruments
measured at FVOCI
- Unrealized revaluation of
available-for-sale securities n/a 514
- Realised gain (loss) on 357 n/a
financial assets measured
at FVOCI reclassified to the
consolidated income statement
- Realised gain on available-for-sale
securities reclassified to
the consolidated income statement n/a (1,974)
-Change in allowance for expected (702) n/a
credit losses on investments
in debt instruments measured
at FVOCI reclassified to the
consolidated income statement
- Loss from currency translation
differences (5,923) (8,628)
Income tax impact (696) 28
------------------ -------------------
Net other comprehensive (loss)
income from continuing operations
to be reclassified to profit
or loss in subsequent periods (12,244) (10,060)
Other comprehensive income
from continuing operations
not to be reclassified
to profit or loss in subsequent
periods:
- Revaluation of property 3,450 -
and equipment
Net other comprehensive income 3,450 -
from continuing operations
not to be reclassified to
profit or loss in subsequent
periods
Other comprehensive (loss)
income for the year from
discontinued operations to
be reclassified to profit
or loss in subsequent periods 4 (10,881) (16,576)
Other comprehensive (loss)
income for the year, net of
tax (19,675) (26,636)
------------------ -------------------
Total comprehensive income
for the period from continuing
operations 141,095 151,818
Total comprehensive income
for the period from
discontinued operations 97,018 53,346
Total comprehensive income
for the period 238,113 205,164
================== ===================
Total comprehensive income
attributable to:
- shareholders of the Group 219,063 191,656
- non-controlling interests 19,050 13,508
------------------ -------------------
238,113 205,164
================== ===================
Total comprehensive income
from continuing operations
attributable to:
- shareholders of the Group 140,260 151,645
- non-controlling interests 835 173
------------------ -------------------
141,095 151,818
================== ===================
Total comprehensive income
from discontinued operations
attributable to:
- shareholders of the Group 78,803 40,011
- non-controlling interests 18,215 13,335
97,018 53,346
================== ===================
* Certain amounts do not correspond to the 2017 interim consolidated financial statement as they reflect the adjustments made for discontinued operations described in Note 4.
Attributable to shareholders
of the Group
--------------------------------------------------------------------------------------
Reserves
of
disposal
group
Additional held
Share paid-in Treasury Other for Retained Non-controlling Total
capital capital shares reserves sale earnings Total interests equity
------------ ----------- --------- --------- --------- ------------ ------------ ---------------- ------------
31 December
2016 1,154 183,872 (54) 74,399 - 1,872,496 2,131,867 256,346 2,388,213
============ =========== ========= ========= ========= ============ ============ ================ ============
Effect of early
adoption of
IFRS 15 - - - - (29,050) (29,050) - (29,050)
1 January 2017 1,154 183,872 (54) 74,399 - 1,843,446 2,102,817 256,346 2,359,163
============ =========== ========= ========= ========= ============ ============ ================ ============
Profit for
the six months
ended
30 June 2017
(unaudited) - - - - - 217,609 217,609 14,191 231,800
Other
comprehensive
gain (loss)
for the six
months ended
30 June 2017
(unaudited) - - - (24,620) - (1,333) (25,953) (683) (26,636)
Total
comprehensive
income for
the six
months ended
30 June 2017
(unaudited) - - - (24,620) - 216,276 191,656 13,508 205,164
Depreciation
of property
and equipment
revaluation
reserve, net
of tax - - - (429) - 429 - - -
Increase in
equity arising
from
share-based
payments - 24,632 16 - - - 24,648 1,140 25,788
Issue of share - - - - - - - - -
capital
Buyback and
cancelation
of own shares (2) (9,247) - - - - (9,249) - (9,249)
Dividends to
shareholders
of the Group - - - - - (101,501) (101,501) - (101,501)
Dilution of
interests in
subsidiaries - - - (220) - - (220) 1,358 1,138
Increase in
share capital
of subsidiaries - - - - - - - 11,855 11,855
Sale of
interests
in existing
subsidiaries - - - 70,331 - - 70,331 38,234 108,565
Acquisition
of
non-controlling
interests
in existing
subsidiaries - - - (4,639) - - (4,639) (54,045) (58,684)
Non-controlling
interests
arising
on acquisition
of subsidiary - - - - - - - 24,743 24,743
Purchase of
treasury shares - (58,777) (13) - - - (58,790) - (58,790)
------------ ----------- --------- ------------ ------------ ----------------
30 June 2017
(unaudited) 1,152 140,480 (51) 114,822 - 1,958,650 2,215,053 293,139 2,508,192
============ =========== ========= ========= ========= ============ ============ ================ ============
31 December
2017 1,151 106,086 (66) 122,082 10,934 2,180,415 2,420,602 311,768 2,732,370
============ =========== ========= ========= ========= ============ ============ ================ ============
Effect of
adoption
of IFRS 9 (Note
3) - - - 3,267 - (43,240) (39,973) (2,724) (42,697)
1 January 2018 1,151 106,086 (66) 125,349 10,934 2,137,175 2,380,629 309,044 2,689,673
============ =========== ========= ========= ========= ============ ============ ================ ============
Profit for
the six months
ended
30 June 2018
(unaudited) - - - - - 239,030 239,030 18,758 257,788
Other
comprehensive
gain (loss)
for the six
months ended
30 June 2018
(unaudited) - - - (17,575) - (2,392) (19,967) 292 (19,675)
Total
comprehensive
income for
the six
months ended
30 June 2018
(unaudited) - - - (17,575) - 236,638 219,063 19,050 238,113
Depreciation
of property
and equipment
revaluation
reserve, net
of tax - - - (333) - 333 - - -
Increase in
equity arising
from
share-based
payments - 70,681 38 - - - 70,719 1,014 71,733
Dividends to
shareholders
of the Group - - - - - (5,412) (5,412) - (5,412)
Dilution of
interests in
subsidiaries - - - - - - - 1,876 1,876
Acquisition
of
non-controlling
interests
in existing
subsidiaries - - - (5,020) - - (5,020) (8,044) (13,064)
Purchase of
treasury shares - (93,113) (13) - - - (93,126) - (93,126)
Issue of share
capital (Note
15) 4,375,378 - - - - - 4,375,378 - 4,375,378
Capital
reduction
(Note 15) (4,375,061) (196,438) - - - 196,293 (4,375,206) - (4,375,206)
Distribution
of Investment
Business to
shareholders
of the Group* 322 575,914 - (76,153) (10,934) (1,425,742) (936,593) (315,786) (1,252,379)
30 June 2018
(unaudited) 1,790 463,130 (41) 26,268 - 1,139,285 1,630,432 7,154 1,637,586
============ =========== ========= ========= ========= ============ ============ ================ ============
* Increase in additional paid in capital from distribution of Investment Business to shareholders of the Group includes Demerger costs in amount of GEL 23,170.
For the six months
ended
---------------------------------------
30 June 30 June
Notes 2018 (unaudited) 2017 (unaudited)*
------- ------------------ -------------------
Cash flows from (used in)
operating activities
Interest received 620,479 529,914
Interest paid (262,639) (209,378)
Fees and commissions received 114,976 93,467
Fees and commissions paid (33,839) (27,614)
Net realised gain from
foreign currencies 38,895 31,143
Recoveries of loans to
customers previously written
off 21,793 21,196
Other income received (expense
paid) (18,883) 9,309
Salaries and other employee
benefits paid (90,967) (79,868)
General and administrative
and operating expenses
paid (64,197) (52,501)
Cash flows from operating
activities from continuing
operations before changes
in operating assets and
liabilities 325,618 315,668
Net (increase) decrease
in operating assets
Amounts due from credit
institutions 156,427 (123,943)
Loans to customers and
Finance lease receivables (820,920) (560,002)
Prepayments and other assets (21,685) (20,736)
Net increase (decrease)
in operating liabilities
Amounts due to credit institutions 315,825 (396,948)
Debt securities issued (77,419) 475,402
Client deposits and notes 379,874 380,475
Other liabilities (9,432) (10,551)
------------------ -------------------
Net cash flows from operating
activities from continuing
operations before income
tax 248,288 59,365
Income tax paid (32,777) (293)
------------------ -------------------
Net cash flows from operating
activities from continuing
operations 215,511 59,072
------------------ -------------------
Net cash flows from operating
activities of
discontinued operations 260,166 95,496
------------------ -------------------
Net Cash flow from operating
activities 475,677 154,568
------------------ -------------------
Cash flows used in investing
activities
Net purchase of investment
securities (115,328) (111,684)
Realized gain from trading
securities - 1,856
Proceeds from sale of investment
properties 34,999 6,446
Proceeds from sale of property
and equipment and
intangible assets 3,292 464
Purchase of property and
equipment and intangible
assets (28,840) (30,470)
Net cash flows used in
investing activities from
continuing operations (105,877) (133,388)
------------------ -------------------
Net cash flows used in
investing activities of
discontinued operations (283,621) (191,187)
Net cash flows used in
investing activities (389,498) (324,575)
------------------ -------------------
30 June 30 June
Notes 2018 (unaudited) 2017 (unaudited)*
------ ------------------ -------------------
Cash flows (used in) from
financing activities
Buyback and cancelation
of own shares 15 - (9,249)
Dividends paid (5,423) (1,120)
Purchase of treasury shares (76,719) (57,744)
Purchase of additional
interests in existing subsidiaries - (16,279)
Accquisition of addition
shares in existing investments - (24,191)
Dividends received from
discontinued operations - 7,000
Cash disposed as a result (78,180) -
of Investment Business
distribution
Net cash used in financing
activities from continuing
operations (160,322) (101,583)
------------------ -------------------
Net cash from (used in)
financing activities of
discontinued operations 2,334 137,650
------------------ -------------------
Net cash used in financing
activities (157,988) 36,067
------------------ -------------------
Effect of exchange rates
changes on cash and cash
equivalents 13,789 14,717
Net increase in cash and
cash equivalents (58,020) (119,223)
------------------ -------------------
Cash and cash equivalents,
beginning of the period 6 1,582,435 1,573,610
Cash and cash equivalents 22,448 -
of disposal group held
for sale
at the beginning of the
period
Cash and cash equivalents,
end of the period 6 1,546,863 1,454,387
* Certain amounts do not correspond to the 2017 interim consolidated financial statement as they reflect the adjustments made for discontinued operations described in Note 4.
1. Principal Activities
Bank of Georgia Group PLC (the"BOGG") is a public limited liability company incorporated in England and Wales with registered number 10917019. BOGG holds 99.55% of the share capital of JSC Bank of Georgia (the "Bank") as at 30 June 2018, representing the Bank's ultimate parent company. Together with the Bank and other subsidiaries, the Group makes up a group of companies (the "Group") and provides banking, leasing, brokerage and investment management services to corporate and individual customers. The shares of BOGG ("BOGG Shares") are admitted to the premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities, effective 21 May 2018. The Bank is the Group's main operating unit and accounts for most of the Group's activities.
JSC Bank of Georgia was established on 21 October 1994 as a joint stock company ("JSC") under the laws of Georgia. The Bank operates under a general banking license issued by the National Bank of Georgia ("NBG"; the Central Bank of Georgia) on 15 December 1994.
The Bank accepts deposits from the public and extends credit, transfers payments in Georgia and internationally and exchanges currencies. Its main office is in Tbilisi, Georgia. At 30 June 2018, the Bank has 284 operating outlets in all major cities of Georgia (31 December 2017: 286). The Bank's registered legal address is 29a Gagarini Street, Tbilisi 0160, Georgia.
On 3 July 2017 BGEO Group PLC, (the "BGEO"), former ultimate holding company of the Group, announced its intention to demerge BGEO Group PLC into a London-listed banking business (the "Banking Business"), Bank of Georgia Group PLC, and a London-listed investment business (the "Investment Business"), Georgia Capital PLC.
As part of Demerger Bank of Georgia Group PLC was incorporated and on 18 May 2018 issued 39,384,712 ordinary shares in exchange for the entire issued capital of BGEO Group PLC and became the parent company of BGEO. On 29 May 2018 the demerger ("Demerger") of the Group's investment business ("Investment Business") to Georgia Capital PLC ("GCAP") become effective. As a result of Demerger, the Group distributed the investments in Investment Business with a fair value of GEL 1,441,552 thousands to the shareholders' of the Company. In addition, BOGG has issued and allotted a further 9,784,716 BOGG Shares (the "Consideration Shares", equivalent to 19.9% of BOGG's issued ordinary share capital) to GCAP in consideration for the transfer to BOGG by GCAP of GCAP's stake in the JSC Bank of Georgia and JSC BG Financial. As set out in the BOGG prospectus dated 26 March 2018, for as long as GCAP's percentage holding in BOGG is greater than 9.9%, GCAP will exercise its voting rights at BOGG general meetings in accordance with the votes cast by all other BOGG Shareholders on BOGG votes at general meetings.
As at 30 June 2018 and 31 December 2017, the following shareholders owned more than 4% of the total outstanding shares of BOGG. Other shareholders individually owned less than 3% of the outstanding shares.
As at
--------------------------------------
30 June 31 December
Shareholder 2018 (unaudited) 2017 (unaudited)
------------------ ------------------
JSC Georgia Capital 19.90% -
Harding Loevner Management
LP 6.82% 8.32%
Schroders Investment Management 3.57% 4.86%
LGM Investments Ltd 2.97% 3.28%
Norges Bank Investment Management 2.58% 3.11%
Others 64.16% 74.07%
Total* 100.00% 100.00%
================== ==================
* For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares, which includes shares held in the trust for share-based compensation purposes of the Group.
2. Basis of Preparation
General
The financial information set out in these interim condensed consolidated financial statements does not constitute Bank of Georgia Group PLC's statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements were prepared for the year ended 31 December 2017 under IFRS, as adopted by the European Union and reported on by BOGG's auditors and delivered to the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
These interim condensed consolidated financial statements of Bank of Georgia Group PLC represent continuation of consolidated financial statements of BGEO Group PLC prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ("EU").
These interim condensed consolidated financial statements for the six months ended 30 June 2018 were prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.
The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgment at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates.
Assumptions and significant estimates in these interim condensed consolidated financial statements are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2017.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at and for the year ended 31 December 2017, signed and authorized for release on 7 March 2018.
These interim condensed consolidated financial statements are presented in thousands of Georgian Lari ("GEL"), except per share amounts, which are presented in Georgian Lari, and unless otherwise noted.
The interim condensed consolidated financial statements are unaudited, reviewed by the auditors and their review conclusion is included in this report.
Going concern
The Board of Directors of BOGG has made an assessment of the Group's ability to continue as a going concern and is satisfied that it has the resources to continue in business for a period of at least twelve months from the date of approval of the interim condensed consolidated financial statements. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern for the foreseeable future. Therefore, the interim condensed consolidated financial statements continue to be prepared on the going concern basis.
3. Summary of Significant Accounting Policies
Accounting policies
The accounting policies and methods of computation applied in the preparation of these interim condensed consolidated financial statements are consistent with those disclosed in the annual consolidated financial statements of the Group as at and for the year ended 31 December 2017, except for the adoption of new standards effective as of 1 January 2018.
The nature and the effect of these changes are disclosed below.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
IFRS 9 financial instruments
IFRS 9 replaces IAS 39 for annual periods commencing on or after 1 January 2018. The Group has not restated comparative information for 2017 for financial instruments in the scope of IFRS 9. Therefore, the comparative information for 2017 is reported under IAS 39 and is not comparable to the information presented for half year 2018. Differences arising from the adoption of IFRS 9 have been recognised directly in retained earnings as of 1 January 2018 and are disclosed below.
Changes to classification and measurement
IFRS 9 requires all financial assets, except equity instruments and derivatives, to be assessed based on a combination of the Group's business model for managing the assets and the instruments' contractual cash flow characteristics. The IAS 39 measurement categories are replaced by:
- fair value through profit or loss (FVPL);
- fair value through other comprehensive income (FVOCI) with recycling to profit or loss upon disposal for debt instruments;
- fair value through other comprehensive income (FVOCI) without recycling to profit or loss for equity instruments; and
- amortised cost.
The accounting treatment for financial liabilities are largely the same as the requirements of IAS 39.
Under IFRS 9, embedded derivatives are no longer separated from a host financial asset. Instead, financial assets are classified based on the business model and their contractual terms as explained below. The accounting for derivatives embedded in financial liabilities and in non-financial host contracts has not changed.
Changes to the impairment estimation
The adoption of IFRS 9 has fundamentally changed the Group's accounting for loan loss impairment by replacing IAS 39's incurred loss approach with forward-looking expected credit loss (ECL) approach. IFRS 9 requires the Group to record ECL on all of its debt financial assets at amortised cost or FVOCI, finance lease receivables, as well as loan commitments and financial guarantees. The allowance is based on the ECL associated with the probability of default in the next 12 months unless there has been a significant increase in credit risk since origination, in which case the allowance is based on the ECL over the life of the asset. If the financial asset meets the definition of purchased or originated credit impaired, the allowance is based on the change in the lifetime ECL.
Details of the Group's impairment method and quantitative impact of applying IFRS 9 as at 1 January 2018 are disclosed below.
Classification and Measurement Implementation
From 1 January 2018, the group classifies all of its financial assets based on the business model for managing the assets and the asset's contractual terms.
Financial instruments measured at amortised cost
From 1 January 2018 the Group measures Due from credit institutions, loans to customers and other financial assets at amortized cost if both of the following conditions are met:
- The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows;
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payment of principal and interest (SPPI) on the principal amount outstanding.
The details of these conditions are outlined below.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Business model
There are three business models available under IFRS 9:
- Held to collect: It is intended to hold the asset to maturity to earn interest, collecting repayments of principal and interest form the counterparty.
- Hold to collect and sell: this model is similar to the hold to collect model, except that the entity may elect to sell some or all of the assets before maturity as circumstances change or to hold the assets for liquidity purposes.
- Other: all those models that do not meet the 'hold to collect' or 'hold to collect and sell' qualifying criteria.
The assessment of business model requires judgment based on facts and circumstances at the date of the assessment. The business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios per instrument type and is based on observable factors. The Group has considered quantitative factors (e.g,. the expected frequency and volume of sales) and qualitative factors such as how the performance of the business model and the financial assets held within that business model are evaluated and reported to the key management personnel; the risks that affect the performance of the business model and, in particular, the way those risks are managed; and how managers of the business are compensated.
Solely Payments of Principal and Interest (SPPI)
If a financial asset is held in either to a Hold to Collect or a Hold to Collect and Sell business model, then assessment to determine whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding at initial recognition is required to determine the classification. The SPPI test is performed on individual instrument basis.
Contractual cash flows, that represent solely payments of principal and Interest on the principal amount outstanding, are consistent with basic lending arrangement. Interest is consideration for the time value of money and the credit risk associated with the principal amount outstanding during a particular period of time. It can also include consideration for other basic lending risks (e.g. liquidity risk) and costs (e.g. administrative costs) associated with holding the financial asset for a particular period of time, and a profit margin that is consistent with a basic lending arrangement.
In assessing whether the contractual cash flows are SPPI, the Group considers whether the contractual terms of the financial asset contain a term that could change the timing or amount of contractual cash flows arising over the life of the instrument which could affect whether the instrument is considered to meet the SPPI.
If SPPI test is failed, such financial assets are measured at FVTPL with interest earned recognised in other interest income.
Based on the assessment of contractual cash flows at initial recognition of Financial Assets outstanding at transition that were previously classified as loans and receivables, the Group did not identify any financial instruments that would fail SPPI.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Debt instruments at FVOCI
From 1 January 2018 the Group measures debt investment securities at FVOCI when both of the following categories are met:
- The instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows, selling financial assets and holding such financial instruments for liquidity management purposes;
- The contractual terms of the financial asset meet the SPPI test.
These instruments comprise assets that had previously been classified as investment securities available-for-sale under IAS 39.
FVOCI debt investment securities are subsequently measured at fair value with gains and losses arising due to changes in fair value recognized in OCI. Interest income and foreign exchange gains and losses are recognised in profit or loss in the same manner as for financial assets measured at amortised cost. On derecognition, cumulative gains or losses previously recognised in OCI are reclassified from OCI to profit or loss.
Equity instruments at FVOCI- option
Upon initial recognition, the Group elects to classify irrevocably its equity instruments as equity instruments at FVOCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument by instrument basis.
Gains and losses on these equity instruments are never recycled to profit or loss. Dividends are recognised in profit or loss. Equity instruments at FVOCI are not subject to impairment assessment.
Financial assets at FVTPL
Group of financial assets for which business model is other than held to collect and held to collect and sell are measured at FVTPL from the date of initial application of IFRS 9.
Derivatives recorded at fair value through profit or loss
The Group enters into derivative transactions with various counterparties. These include interest rate swaps, Forwards and other similar instruments. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Net changes in the fair value of derivatives are included in net gain / loss from financial instruments measured at FVTPL excluding gain/loss on foreign exchange derivatives which are presented in net foreign currency gain.
Financial guarantees, letter of credits and other financial commitments
Financial guarantees, letter of credits and other financial commitments are initially recognised in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Group's liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the income statement and an ECL provision.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Impairment Implementation
From 1 January 2018 the Group recorded the allowance for expected credit loss for all debt instruments that are measured at amortised cost, debt instruments at FVOCI and for financial guarantees, letter of credits and other financial commitments (thereafter collectively referred to as "financial instruments"). This contrasts to the IAS 39 impairment model which was not applicable to off balance sheet financial commitments, as these were instead covered by IAS 37: Provisions, Contingent Liabilities and Contingent Assets. The Group applies simplified approach for trade, lease and other receivables and contract assets and records lifetime expected losses on them.
The determination of impairment losses and allowance moves from an incurred credit loss model whereby credit losses are recognised when a defined loss event occurs under IAS 39, to an expected credit loss model under IFRS 9, where provisions are taken upon initial recognition of the financial instruments. Under IFRS 9, the Group evaluates individually whether objective evidence of impairment exists for loans to recognise lifetime expected credit losses for significant increases in credit risk since initial recognition. Where an evidence of such significant increases in credit risk at the individual instrument level is not available, assessment is performed on collective basis by considering information that is indicative of significant increase in credit risk for a group of financial instruments with similar characteristics.
Staged Approach to the Determination of Expected Credit Losses
IFRS 9 introduces a three stage approach to impairment for Financial Instruments that are performing at the date of origination or purchase. This approach is summarised as follows:
- Stage 1: The Group recognizes a credit loss allowance at an amount equal to 12-month expected credit losses. This represents the portion of lifetime expected credit losses from default events that are expected within 12 months of the reporting date, assuming that credit risk has not increased significantly after initial recognition.
- Stage 2: The Group recognizes a credit loss allowance at an amount equal to lifetime expected credit losses (LTECL) for those Financial Instruments which are considered to have experienced a significant increase in credit risk since initial recognition. This requires the computation of ECL based on lifetime probability of default (LTPD) that represents the probability of default occurring over the remaining lifetime of the Financial Instrument. Allowance for credit losses are higher in this stage because of an increase in credit risk and the impact of a longer time horizon being considered compared to 12 months in Stage 1.
- Stage 3: The Group recognizes a loss allowance at an amount equal to lifetime expected credit losses, reflecting a Probability of Default (PD) of 100 % for those Financial Instruments that are credit-impaired.
Financial instruments within the scope of the impairment requirements of IFRS 9 are classified into one of the above three stages. Unless purchased or originated credit impaired, newly originated assets are usually classified as Stage 1 and remain in that stage unless there is considered to have been a significant increase in credit risk since initial recognition, at which point the asset is reclassified to Stage 2. The Group recognises a credit loss allowance at an amount equal to 12 month expected credit losses for Financial Instruments in stage 1. Once Financial Instruments are transferred to stage 2, ECL is recognised at an amount equal to lifetime expected credit losses. Assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3. When determining the staging of an asset, consideration is given to both the period over which the Group will be exposed to credit risk and the effect on the level of credit risk of a range of possible future economic conditions.
Purchased or originated credit-impaired (POCI) assets are financial Instruments that are credit-impaired on initial recognition. POCI assets are recorded at fair value at original recognition and interest income is subsequently recognised based on a credit adjusted EIR(CAEIR).CAEIR takes into account all contractual terms of the financial asset and expected credit losses. ECLs are only recognised or released to the extent that there is a subsequent change in the expected credit losses where ECLs are calculated based on lifetime expected credit losses.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Key judgments and estimates
The implementation of IFRS 9 required management to make a number of judgments, assumptions and estimates. A summary of the key judgments made by management is set out below.
Definition of default, credit-impaired and cure
The Group's definition of default is based on quantitative and qualitative criteria. It is consistent with the definition used for internal credit risk management purposes and it corresponds with internal financial instrument risk classification rules. A counterparty is classified as defaulted at the latest when payments of interest, principal or fees are overdue for more than 90 days or when bankruptcy, insolvency proceedings of enforced liquidation have commenced or there is other evidence that payment obligations will not be fully met.
An instrument is classified as credit-impaired if the counterparty is defaulted and/or the instrument is POCI.
Once the financial asset is classified as credit-impaired (except for POCIs) it remains as such unless all past due amounts have been rectified or there is general evidence of credit recovery. Minimum period of consecutive 6 months payment is applied as exit criteria to Financial Assets restructured due to credit risk other than corporate loan portfolio and debts instruments measured at FVOCI where exit criteria are determined as exit from bankruptcy or insolvency status, disappearance of liquidity problems or existence of other general evidence of credit recovery assessed on individual basis. For other credit-impaired financial Instruments exit criteria is determined as repayment of entire overdue amount.
Once credit-impaired financial asset meets default exit criteria, it remains in stage 2 at least for the next 12 consecutive months. After 12 consecutive payments it is transferred to stage 1
Once the Financial Asset is recognized as POCI, it retains this status until derecognized.
Significant Increase in Credit Risk
To identify significant increase in credit risk since initial recognition of the Financial Asset at individual financial instrument level, the Group is undertaking the holistic analysis of various factors including those which are specific to a particular financial instrument or to a borrower as well as those applicable to particular sub-portfolios. These criteria are:
- A quantitative test based on movements linked to internal and external credit rating grades available for particular Financial Asset or sub-portfolio. Downgrade is considered to be significant based on relative and/or absolute change in PD as compared to PD at initial recognition.;
- The days past due on individual contract level breached the threshold of 30 days.;
- Other qualitative indicators such as external market indicators of credit risk or general economic conditions.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Measurement of expected credit losses
ECL reflects an unbiased, probability-weighted estimate based on a combination of the following principal factors: probability of default (PD), loss given default (LGD) and exposure at default (EAD) which are further explained below:
PD estimation: The assessment of significant increase in credit risk and consequently whether a Financial Asset should be transferred from stage 1 to stage 2 is a relative measure, where the risk at the reporting date is compared to the risk at initial recognition. PDs have been used as part of this process. As the standard has been applied retrospectively at the initial application date, it has been necessary to source PDs at initial recognition and other risk information at 1 January 2018. . The Group estimates PD based on migration matrices which is further adjusted for macroeconomic expectations to represent the forward-looking estimators of the PD parameters. For loan portfolio other than corporate loans, PD is further adjusted considering time since financial instrument origination. The models incorporate both qualitative and quantitative information, and where practical build on information from top rating agencies, Credit Bureau or internal credit rating system. Since a Stage 3 Financial Instruments are defaulted, the probability of default is equal to 100%.
Loss given default (LGD): LGD is defined as the likely loss arising in case of a counterparty default. It provides an estimation of the exposure that cannot be recovered in a default event and therefore captures the severity of a loss. The determination of the LGD takes into account expected future cash flows from collateral and other credit enhancements, or expected pay-outs from bankruptcy proceedings for unsecured claims and where applicable time to realization of collateral and the seniority of claims. The LGD is expressed as a percentage of the EAD.
Exposure of default (EAD): The EAD represents an estimate of the exposure to credit risk at the time of a potential default occurring during the life of a financial asset. It represents the cash flows outstanding at the time of default, considering expected repayments interest payments and accruals discounted at the EIR. To calculate EAD for a Stage 1 Financial Instruments, the Group assesses the possible default events within 12 months for the calculation of the 12 months ECL. For Stage 2, Stage 3 and POCI Financial Instruments, the exposure at default is considered for events over the lifetime of the instruments. The Group determines EAD differently for products with the repayment schedules and those without repayment schedules. For Financial Instruments with repayment schedules the Group estimates forward looking EAD using the contractual cash flow approach with further corrections for expected prepayments and add-on overdue. For products without the repayment schedules the Group estimates the forward looking EAD using the limit utilisation approach.
Forward-Looking Information
Under IFRS 9, the allowance for credit losses is based on reasonable and supportable forward looking information obtainable without undue cost or effort, which takes into consideration past events, current conditions and forecasts of future economic conditions.
To incorporate forward-looking information into the Group's allowance for credit losses, the Group uses the macroeconomic forecasts provided by National Bank of Georgia. Macroeconomic variables covered by these forecasts are GDP and foreign exchange rate.
The determination of the probability weighted ECL requires evaluating a range of diverse and relevant future economic conditions. To accommodate this requirement, the Group uses three different economic scenarios in the ECL calculation: an upside (weight 0.25), a baseline (weight 0.50) and downside (weight 0.25), scenario relevant for respective portfolio. A weight is computed for each scenario by using a economic model that considers recent information as well as historical data provided by National Bank of Georgia.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Aggregation of financial instruments for collective assessment
For the purpose of a collective evaluation of impairment, financial instruments are grouped within homogeneous pools on the basis of credit risk characteristics such as asset type, industry, overdue buckets, collateralization level and other relevant factors.
Determination of expected life for revolving facilities
For revolving products the expected life of financial instrument is determined either with reference to the next renewal date or with the reference to the behavioural expected life of the financial instrument estimated based on the empirical observation of the lifetime.
De-recognition and Modification
The Group sometimes renegotiates or otherwise modifies the contractual cash flows of Financial Instruments. When this happens, the Group assesses whether or not the new terms are substantially different to the original terms based on qualitative and quantitative criteria. If the terms are substantially different, the Group derecognises the original Financial Asset and recognises a "new" POCI asset at fair value if SPPI test is met. If the terms are not substantially different, the renegotiation or modification does not result in de-recognition, and the Group recalculates the gross carrying amount based on the revised cash flows of the Financial Asset and recognises a modification gain or loss in interest income. The new gross carrying amount is calculated by discounting the modified cash flows at the original effective interest rate.
Financial assets are derecognised when the contractual right to receive the cash flows from the assets have expired or when they have been transferred. Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expired)
Write offs
The Group reduces the gross carrying amount of a Financial Asset when there is no reasonable expectation of recovery, which is materially unchanged compared to IAS 39. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amounts. Any subsequent recoveries are credited to credit loss expense.
Interest Income Recognition
For Financial Instruments in Stage 1 and Stage 2, the Group calculates interest income by applying the Effective Interest Rate (EIR) to the gross carrying amount. Interest income for financial assets in Stage 3 is calculated by applying the EIR to the amortised cost (i.e. the gross carrying amount less credit loss allowance).For Financial Instruments classified as POCI only, interest income is calculated by applying a credit adjusted EIR to the amortised cost of these POCI assets. As a result of the amendments to International Accounting Standard 1: "presentation of Financial Statements" (IAS1) following IFRS 9, the Group will present interest revenue calculated using the EIR method separately in the income statement.
Hedge Accounting
IFRS 9 incorporates new hedge accounting rules that intend to better align hedge accounting with risk management practices. Generally, some restrictions under IAS 39 rules have been removed and a greater variety of hedging instruments and hedged items become available for hedge accounting. IFRS 9 includes an accounting policy choice to defer the adoption of IFRS 9 hedge accounting and to continue with IAS 39 hedge accounting. The Group has not applied hedge accounting.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Transition disclosures
The following tables summarises the impact of adopting IFRS 9 on the statement of financial position, and retained earnings including the effect of replacing IAS 39 incurred credit loss calculations with IFRS 9's ECLs.
A reconciliation between the carrying amounts under IAS 39 to the balances reported under IFRS 9 as of 1 January 2018 is, as follows:
Reclassi-
fication Remeasurement
----------------- --------------- ---------- ------------------ --------------- ---------------
Original
Original carrying New carrying New
classification amount under amount under classification
under IAS 39 IAS 39 ECL Other IFRS 9 under IFRS 9
----------------- --------------- ---------- --------- ------- --------------- ---------------
Cash and cash Loans and
equivalents receivables 1,582,435 - (80) - 1,582,355 Amortised cost
Amounts due
from credit Loans and
institutions receivables 1,225,947 - (598) - 1,225,349 Amortised cost
Investment securities 1,564,869 - - - 1,564,869
Debt Available for
securities sale 1,563,515 - - - 1,563,515 FVOCI - debt
Corporate Available for
shares sale 1,354 - - - 1,354 FVOCI - equity
Loans to Loans and
customers receivables 7,625,144 (6,881) (30,017) - 7,588,246 Amortised cost
Loans to Loans and
customers receivables - 6,881 - - 6,881 FVTPL
Accounts
receivable and Loans and
other loans receivables 38,944 - (6,822) - 32,122 Amortised cost
Other assets -
derivative
financial
assets FVTPL 12,392 - - - 12,392 FVTPL
Other assets -
trading
securities FVTPL 3,191 - - - 3,191 FVTPL
Income tax
assets - 2,293 - - - 2,293 -
Finance lease
receivables - 65,306 - 92 - 65,398 -
All other
assets - 1,911,731 - 1 - 1,911,732 -
Assets of
disposal group
held for sale - 1,136,417 - (6,535) - 1,129,882 -
Total assets 15,168,669 - (43,959) - 15,124,710
Provisions - (5,915) - (867) - (6,782) -
Income tax
liabilities - (20,959) - - 2,129 (18,830) -
All other
liabilities - (12,409,425) - - - (12,409,425) -
--------------- ---------- --------- ------- --------------- ---------------
Total liabilities (12,436,299) - (867) 2,129 (12,435,037)
Net impact on equity due to
adopting IFRS 9 at 1 January 2018 - (44,826) 2,129
=============== ========== ========= ======= =============== ===============
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
IFRS 9 had no impact on the Group's financial liabilities.
The application of these policies resulted in reclassification set out in the table above and explained below:
a) Loans to customers
As of 1 January 2018, the Group assessed its business model for loans to customers which are mostly held to collect the contractual cash flows. The Group has identified certain group of loans issued by one of the Group entities for which business model is other than held to collect and held to collect and sell. This loan portfolio which was previously classified at amortized cost was reclassified to FVTPL from the date of initial application. Change in measurement basis did not result in material re-measurement for the Group. The reminder of the Group's loans to customers is held to collect contractual cash flows, meets SPPI criteria and therefore is measured at amortised cost.
b) Securities
Investment securities other than equity instruments and those securities held for trading
As at 1 January 2018, the Group has assessed its liquidity portfolio which had previously been classified as AFS debt instruments. The Group concluded that these instruments are managed within a business model of collecting contractual cash flows and selling the financial assets and meet SPPI criteria. Accordingly, the Group has classified these investments as debt instruments measured at FVOCI.
Equity instruments
The Group has elected to irrevocably designate investment securities of GEL 1,354 in a portfolio of non-trading equity securities at FVOCI as permitted under IFRS 9. These securities were previously classified as available for sale. The changes in fair value of such securities will no longer be reclassified to profit or loss when they are disposed of.
Securities held for trading
The Group holds an investment of GEL 3,191 in a portfolio of investment securities which are held for trading. These securities were measured at FVTPL as were managed on a fair value basis. As part of the transition to IFRS 9, these securities are part of an "other" business model and so required to be classified as FVTPL.
The impact of transition to IFRS 9 on reserves and retained earnings is, as follows:
Other reserves
and retained
earnings
---------------
Other reserves
Closing balance under IAS 39 (31
December 2017) 122,082
Recognition of expected credit
losses under IFRS 9 for debt
financial assets at FVOCI 3,350
Income tax in relation to the above (83)
Opening balance under IFRS 9 (1
January 2018) 125,349
---------------
Retained earnings
Closing balance under IAS 39 (31
December 2017) 2,180,415
Recognition of IFRS 9 ECLs including
those measured at FVOCI (see below) (45,452)
Income tax in relation to the above 2,212
Opening balance under IFRS 9 (1
January 2018) 2,137,175
Non-controlling
interests
Closing balance under IAS 39 (31
December 2017) 311,768
Recognition of IFRS 9 ECLs including
those measured at FVOCI (see below) (2,724)
Opening balance under IFRS 9 (1
January 2018) 309,044
Total change in equity due to adopting
IFRS 9 (42,697)
===============
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
The following table reconciles the aggregate opening loan loss provision allowance under IAS 39 and provisions for loan commitments and financial guarantees contracts in accordance with IAS 37 Provisions, Contingent liabilities and Contingent Assets to the ECL allowance under IFRS 9.
Loan Remeasurement ECL ECLs
loss net-off under
provision on IFRS
under accrued 9
IAS 39 interest
/ IAS
37
----------- -------------- ---------- -----------
Loans and receivables 31 Dec 1 January
(IAS 39) / Financial 2017 2018
assets at amortized
cost (IFRS 9)
Cash and cash equivalents - 80 - 80
Amounts due from credit
institutions - 598 - 598
Loans to customers 276,885 30,017 17,273 324,175
Accounts receivable
and other loans 4,003 6,822 - 10,825
Allowance of assets
of disposal group
held for sale 14,692 6,535 - 21,227
Other assets 42,225 (1) - 42,224
----------- -------------- ---------- -----------
337,805 44,051 17,273 399,129
Available for sale
financial instruments
(IAS 39) / Financial
assets at FVOCI (IFRS
9)
Investment securities - 3,350 - 3,350
----------- -------------- ---------- -----------
- 3,350 - 3,350
Finance lease receivables 2,380 (92) - 2,288
Provisions 5,915 867 - 6,782
346,100 48,176 17,273 411,549
=========== ============== ========== ===========
Re-measurement in the above table is netted-off with the effect of ECL recognition on contractually accrued interest income ("ECL gross-up"). ECL gross-up did not affect net value of the Group's loan portfolio under IFRS 9.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Amendments effective from 1 January 2018
IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. The amendments are effective for annual periods beginning on or after 1 January 2018. The amendment did not have material effect on Group's interim condensed consolidated financial statements.
IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice
The amendments clarify that:
-- An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss.
-- If an entity, that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which: (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent.
The amendments are applied retrospectively and are effective from 1 January 2018. The amendment did not have any material effect on the Group's interim condensed consolidated financial statements.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. The Interpretation is effective for annual periods beginning on or after 1 January 2018. Since the Group's current practice is in line with the Interpretation, the amendment did not have any material effect on the Group's interim condensed consolidated financial statements.
4. Discontinued operations
Given the high probability of Investment Business distribution to its shareholders as at 31 March 2018 the Group classified the Investment Business as "disposal group held for sale" and its results of operations were reported under "discontinued operations" line as a single amount in the consolidated income statement. On 29 May 2018 the Demerger became effective and the Investment Business was distributed to the shareholders of the Group. For details refer to note 1 and note 15.
In 2017 the Group classified Georgia Healthcare Group ("GHG") "disposal group held for sale" and its results of operations are reported under "discontinued operations" line as a single amount in the consolidated income statement.
Below are presented income statement line items of the Group excluding intra-group elimination attributable to discontinued operations for the periods ended 30 June 2018 and 30 June 2017:
For the six months
ended
--------------------------------------
30 June 30 June
2018 (unaudited) 2017 (unaudited)
------------------ ------------------
Net insurance premiums earned 42,954 50,468
Net insurance claims incurred (24,945) (29,673)
------------------ ------------------
Gross insurance profit 18,009 20,795
------------------ ------------------
Healthcare and pharma revenue 326,655 342,923
Cost of healthcare and pharma
services (225,159) (239,248)
------------------ ------------------
Gross healthcare and pharma
profit 101,496 103,675
------------------ ------------------
Real estate revenue 47,787 58,657
Cost of real estate (38,708) (32,768)
------------------ ------------------
Gross real estate profit 9,079 25,889
------------------ ------------------
Utility and energy revenue 53,999 57,668
Cost of utility and energy (15,635) (18,108)
------------------ ------------------
Gross utility and energy
profit 38,364 39,560
------------------ ------------------
Gross other profit 15,678 18,078
Revenue 182,626 207,997
------------------ ------------------
Salaries and other employee
benefits (54,711) (51,670)
Administrative expenses (38,109) (41,632)
Depreciation and amortisation - -
Other operating expenses (3,828) (5,274)
------------------ ------------------
Operating expenses (96,648) (98,576)
------------------ ------------------
Profit from associates - 211
Net gains from disposal of 90,653 -
investment businesses
Depreciation and amortisation (15,192) (24,257)
Net foreign currency gain
(loss) 12,421 6,465
Interest income 8,854 6,511
Interest expense (34,623) (27,845)
------------------ ------------------
Net operating income before
non-recurring items
and impairment 148,091 70,506
------------------ ------------------
Impairment charge on insurance
premiums receivable,
accounts receivable, other
assets and provisions (5,078) (3,853)
Net non-recurring items (31,690) (3,368)
------------------ ------------------
Profit before income tax
expense 111,323 63,285
Income tax (expense) benefit (1,186) (1,943)
Profit for the period 110,137 61,342
================== ==================
The difference between profit for the year and profit from discontinued operations presented in consolidated income statements is due to intra-group eliminations in amount of GEL (2,238) net income for the period ended 30 June 2018 (30 June 2017: GEL 8,580 net expense) for details refer to note 5.
4. Discontinued operations (continued)
Below are presented other comprehensive statement line items of the Group attributable to discontinued operations for the periods ended 30 June 2018 and 30 June 2017:
For the six months
ended
--------------------------------------
30 June 30 June
2018 (unaudited) 2017 (unaudited)
------------------ ------------------
Other comprehensive (loss)
income
Other comprehensive (loss)
income from continuing operations
to be
reclassified to profit or
loss in subsequent periods:
- Net change in fair value (695) n/a
on investments in debt
instruments measured at FVOCI
- Realised gain (loss) on 650 -
financial assets measured
at FVOCI
reclassified to the consolidated
income statement
- (Loss) gain from currency
translation differences (10,836) (16,576)
Net other comprehensive income
to be reclassified to profit
or loss in subsequent periods (10,881) (16,576)
Other comprehensive (loss) income for the period from discontinued
operations to be reclassified
to profit or loss in subsequent periods (10,881) (16,576)
Total comprehensive income for the period from discontinued operations 97,018 53,346
Investment Business distribution is accounted for as a deduction from equity reserves in amount of the estimated fair value of the distributed business. Fair value of the distributed business was determined to be equal to the market value of GCAP's shares on the close of the listing date reduced for any cross-holding interest. The cross-holding interest originated on demerger since the Group had further issued and allotted 9,784,716 BOGG Shares (equivalent to 19.9% of BOGG's issued ordinary share capital) to GCAP in consideration for the transfer to BOGG of GCAP's stake in the JSC Bank of Georgia and JSC BG Financial. Fair value of the cross-holding interest was determined with reference to BOGG's quoted market price on the close of the demerger date adjusted for 12% holding discount determined with reference to observable information on discounts to net assets value for listed investment funds. The gain from IB Distribution amounted 90,653 GEL reflected in profit from discontinued operations.
5. Segment Information
The Group disaggregated revenue from contracts with customers by products and services for each of our segments, as the Group believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The Group has aggregated the Investment Business Segments and presented as discontinued operations in one single segment.
For management purposes, the Group is organised into the following operating segments based on products and services as follows:
RB - Retail Banking (excluding Retail Banking of BNB) - principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfers and settlement services, and handling customers' deposits for both individuals as well as legal entities, The Retail Banking business targets the emerging retail, mass retail and mass affluent segments, together with small and medium enterprises and micro businesses;
CIB - Corporate Investment Banking - comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high net worth clients;
BNB - Comprising JSC Belarusky Narodny Bank, principally providing retail and corporate banking services in Belarus.
Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured in the same manner as profit or loss in the combined historical financial information.
Transactions between operating segments are on an arm's length basis in a similar manner to transactions with third parties.
The Group's operations are primarily concentrated in Georgia, except for BNB, which operates in Belarus.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total revenue during the six months ended 30 June 2018 and 30 June 2017.
5. Segment Information (continued)
The following tables present income statement and certain asset and liability information regarding the Group's operating segments as at and for the six months ended 30 June 2018 (unaudited):
Banking Business Group
Total
Retail Corporate BNB Other Banking Banking Investment Inter-
banking investment Banking Business Business Business Business
banking Business Eliminations Eliminations
Net interest
income 273,560 79,951 12,898 26 18 366,453 - 2,149 368,602
Net fee and
commission
income 55,292 12,554 4,780 (276) 7 72,357 - (520) 71,837
Net foreign
currency gain 16,269 16,903 7,459 (40) - 40,591 - (675) 39,916
Net other
income 4,768 4,873 309 1 (500) 9,451 - (553) 8,898
Revenue 349,889 114,281 25,449 (292) (475) 488,852 - 401 489,253
Operating
expenses (127,660) (36,453) (15,905) (980) 475 (180,523) - 1,665 (178,858)
Profit from
associates 695 - - - - 695 - - 695
Operating
income
(expense)
before cost of
credit risk 222,924 77,828 9,544 (1,272) - 309,024 - 2,066 311,090
Cost of credit
risk (64,544) (10,246) (3,023) - - (77,813) - - (77,813)
Net operating
income (loss)
before
non-recurring
items 158,380 67,582 6,521 (1,272) - 231,211 - 2,066 233,277
Net
non-recurring
(expense/loss) (29,075) (11,144) (706) (6,070) - (46,995) - 172 (46,823)
Profit (loss)
before income
tax 129,305 56,438 5,815 (7,342) - 184,216 - 2,238 186,454
Income tax
expense (24,072) (10,993) (1,500) - - (36,565) - - (36,565)
Profit (loss)
for the period
from
continuing
operations 105,233 45,445 4,315 (7,342) - 147,651 - 2,238 149,889
Profit from
discontinued
operations - - - - - - 110,137 (2,238) 107,899
Profit (loss)
for the period 105,233 45,445 4,315 (7,342) - 147,651 110,137 - 257,788
Assets and
liabilities
Total assets 8,395,009 4,305,629 571,801 68,501 (132,119) 13,208,821 - - 13,208,821
Total
liabilities 7,429,506 3,743,966 495,264 34,618 (132,119) 11,571,235 - - 11,571,235 Other segment information Property and equipment 17,058 1,967 808 - - 19,833 127,834 - 147,667 Intangible assets 9,361 1,125 458 51 - 10,995 559 - 11,554 Capital expenditure 26,419 3,092 1,266 51 - 30,828 128,393 - 159,221 Depreciation & amortisation (19,720) (2,578) (616) - - (22,914) - - (22,914) 5. Segment Information (continued)
The following tables present income statement and certain asset and liability information regarding the Group's operating segments for the six months ended 30 June 2017 (unaudited) and as at 31 December 2017:
Banking Business Group
Total
Retail Corporate BNB Other Banking Banking Investment Inter-
banking investment Banking Business Business Business Business
banking Business Eliminations Eliminations
Net interest
income 224,086 75,082 16,647 5,373 - 321,188 - (754) 320,434
Net fee and
commission
income 46,215 10,967 4,627 (215) - 61,594 - (782) 60,812
Net foreign
currency gain 12,551 21,839 4,616 (24) - 38,982 - (8,451) 30,531
Net other
income 133 4,187 266 - (523) 4,063 - (502) 3,561
Revenue 282,985 112,075 26,156 5,134 (523) 425,827 - (10,489) 415,338
Operating
expenses (108,169) (35,196) (13,634) (1,363) 523 (157,839) - 1,909 (155,930)
Profit from
associates 909 - - - - 909 - - 909
Operating
income
(expense)
before cost of
credit risk 175,725 76,879 12,522 3,771 - 268,897 - (8,580) 260,317
Cost of credit
risk (65,433) (13,729) (8,874) - - (88,036) - - (88,036)
Net operating
income (loss)
before
non-recurring
items 110,292 63,150 3,648 3,771 - 180,861 - (8,580) 172,281
Net
non-recurring
(expense/loss) (1,242) (1,414) (55) - - (2,711) - - (2,711)
Profit before
income tax
expense
from
continuing
operations 109,050 61,736 3,593 3,771 - 178,150 - (8,580) 169,570
Income tax
expense (5,368) (2,965) (654) 1,295 - (7,692) - - (7,692)
Profit (loss)
for the period
from
continuing
operations 103,682 58,771 2,939 5,066 - 170,458 - (8,580) 161,878
Profit from
discontinued
operations - - - - - - 61,342 8,580 69,922
Profit (loss)
for the period 103,682 58,771 2,939 5,066 - 170,458 61,342 - 231,800
Assets and
liabilities
Total assets 7,788,166 4,585,439 624,835 2,219 (92,981) 12,907,678 2,763,913 (502,922) 15,168,669
Total
liabilities 6,927,986 3,974,452 545,315 204 (92,981) 11,354,976 1,584,245 (502,922) 12,436,299
Other segment
information
Property and
equipment 17,406 2,476 684 73 - 20,639 126,406 - 147,045
Intangible
assets 14,008 2,028 331 - - 16,367 8,986 - 25,353
Capital
expenditure 31,414 4,504 1,015 73 - 37,006 135,392 - 172,398
Depreciation &
amortisation (16,635) (2,480) (607) - - (19,722) - - (19,722)
6. Cash and Cash Equivalents
As at
30 June 2018 (unaudited) 31 December 2017
Cash on hand 434,630 447,807
Current accounts with central banks, excluding obligatory reserves 205,721 91,692
Current accounts with credit institutions 171,710 278,978
Time deposits with credit institutions with maturities of up to 90 days 734,904 763,958
1,546,965 1,582,435
Less - Allowance for impairment (102) -
Cash and cash equivalents 1,546,863 1,582,435
As at 30 June 2018, GEL 870,940 (31 December 2017: GEL 932,030) was placed on current and time deposit accounts with internationally recognised Organization for Economic Cooperation and Development ("OECD") banks and central banks that are the counterparties of the Group in performing international settlements. The Group earned up to 2.50% interest per annum on these deposits (31 December 2017: up to 2.00%).
During the period expected credit loss recognized on cash and cash equivalents amounted GEL 35 (30 June 2017: n/a)
7. Amounts Due from Credit Institutions
As at
30 June 2018 (unaudited) 31 December 2017
Obligatory reserves with central banks 925,107 1,000,566
Time deposits with maturities of more than 90 days 62,846 218,831
Inter-bank loan receivables 6,382 6,550
994,335 1,225,947
Less - Allowance for impairment (473) -
Amounts due from credit institutions 993,862 1,225,947
Obligatory reserves with central banks represent amounts deposited with the NBG and National Bank of the Republic of Belarus (the "NBRB"). Credit institutions are required to maintain cash deposit (obligatory reserve) with the NBG and with the NBRB, the amount of which depends on the level of funds attracted by the credit institution. The Group's ability to withdraw these deposits is restricted by the statutory legislature. The Group earned 1.00% interest on obligatory reserves with NBG and NBRB for the period ended 30 June 2018 (31 December 2017: 1.00%).
During the period recovery of expected credit loss recognized on amounts due from credit institutions amounted GEL 124 (30 June 2017: n/a)
8. Investment Securities
As at
30 June 2018 (unaudited) 31 December 2017
Georgian ministry of Finance treasury bonds* 964,669 847,839
Georgian ministry of Finance treasury bills 54,741 77,460
Certificates of deposit of central banks 54,078 73,415
Other debt instruments** 649,824 564,801
Corporate shares 2,380 1,354
Investment securities 1,725,692 1,564,869
* GEL 687,677 was pledged for short-term loans from the NBG (31 December 2017: GEL 448,558).
** GEL 272,000 was pledged for short-term loans from the NBG (31 December 2017: GEL 475,735).
8. Investment Securities (continued)
Other debt instruments as at 30 June 2018 include mostly bonds issued by European Bank for Reconstruction and Development ("EBRD") of GEL 248,995 (31 December 2017: GEL 268,057), GEL denominated bonds issued by the International Finance Corporation ("IFC") of GEL 110,447 (31 December 2017:GEL 110,862), GEL denominated bonds issued by the Asian Development Bank of GEL 65,337 (31 December 2017: GEL 65,245), and GEL denominated bonds issued by the Black Sea Trade and Development Bank of GEL 136,520 (31 December 2017: GEL 60,625).
During the period recovery of expected credit loss recognized on investment securities amounted GEL 703 (30 June 2017: n/a)
9. Loans to Customers and Finance Lease Receivables
As at
30 June 2018 (unaudited) 31 December 2017
Commercial loans 2,555,345 2,594,424
Residential mortgage loans 1,930,512 1,712,515
Consumer loans 1,836,686 1,751,106
Micro and SME loans 1,880,515 1,776,044
Gold - pawn loans 77,567 67,940
Loans to customers, gross 8,280,625 7,902,029
Less - Allowance for loan impairment (285,105) (276,885)
Loans to customers, net 7,995,520 7,625,144
Finance Lease Receivables, gross 84,495 67,686
Less - Allowance for finance lease receivables impairment (1,883) (2,380)
Finance Lease Receivables , net 82,612 65,306
Loans to customers and finance lease receivables, net 8,078,132 7,690,450
Allowance for loan impairment
Gross loans and impairment by stages of impairment are as follows:
30 June 2018 (unaudited)
Purchased or Loans at
Stage 1 Stage 2 Stage 3 credit impaired FVTPL Total
Commercial
loans 1,658,785 662,522 227,028 - 7,010 2,555,345
Residential
mortgage
loans 1,781,288 83,783 62,435 3,006 - 1,930,512
Consumer loans 1,568,922 160,450 106,640 674 - 1,836,686
Micro and SME
loans 1,710,316 71,303 98,896 - - 1,880,515
Gold - pawn
loans 73,854 903 2,810 - - 77,567
Loans to
customers,
gross 6,793,165 978,961 497,809 3,680 7,010 8,280,625
30 June 2018 (unaudited)
Purchased or Loans at
Stage 1 Stage 2 Stage 3 credit impaired FVTPL Total
Commercial
loans (4,332) (3,073) (119,895) - n/a (127,300)
Residential
mortgage
loans (223) (31) (3,458) (60) n/a (3,772)
Consumer
loans (33,107) (20,125) (60,716) (41) n/a (113,989)
Micro and
SME loans (6,357) (3,115) (30,572) - n/a (40,044)
Allowance
for loan
impairment (44,019) (26,344) (214,641) (101) n/a (285,105)
9. Loans to Customers and Finance Lease Receivables (continued)
Allowance for loan impairment (continued)
As at
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Commercial loans 12,365 8,776
Consumer loans 51,480 47,873
Micro and SME loans 10,902 19,865
Residential mortgage loans 1,937 2,583
Expected credit loss /impairment charge on loans to customers 76,684 79,097
Interest income accrued on loans, for which individual impairment allowances were recognised as at 30 June 2018 comprised GEL 21,138 (31 December 2017: GEL 20,510).
Concentration of loans to customers
As at 30 June 2018, the concentration of loans granted by the Group to the ten largest third party borrowers comprised GEL 852,123, accounting for 10% of the gross loan portfolio of the Group (31 December 2017: GEL 857,582 and 11%, respectively). An allowance of GEL 22,293 (31 December 2017: GEL 43,478) was established against these loans.
As at 30 June 2018, the concentration of loans granted by the Group to the ten largest third party group of borrowers comprised GEL 1,104,028, accounting for 13% of the gross loan portfolio of the Group (31 December 2017: GEL 1,072,450 and 14%, respectively). An allowance of GEL 37,890 (31 December 2017: GEL 75,628) was established against these loans.
As at 30 June 2018 and 31 December 2017, loans were principally issued within Georgia, and their distribution by industry sector was as follows:
As at
30 June 2018 (unaudited) 31 December 2017
Individuals 4,730,948 4,297,215
Manufacturing 892,292 935,827
Trade 829,037 815,216
Real estate 403,321 432,352
Construction 324,671 368,509
Hospitality 319,494 283,527
Service 135,409 182,038
Transport & communication 121,126 114,926
Mining and quarrying 113,440 104,799
Electricity, gas and water supply 69,603 84,727
Financial intermediation 62,193 49,729
Other 279,091 233,164
Loans to customers, gross 8,280,625 7,902,029
Less - allowance for loan impairment (285,105) (276,885)
Loans to customers, net 7,995,520 7,625,144
Loans have been extended to the following types of customers:
As at
30 June 2018 (unaudited) 31 December 2017
Private companies 3,537,142 3,604,814
Individuals 4,730,948 4,297,215
State-owned entities 12,535 -
Loans to customers, gross 8,280,625 7,902,029
Less - allowance for loan impairment (285,105) (276,885)
Loans to customers, net 7,995,520 7,625,144
10. Investment Properties
2018 2017
At 1 January 353,565 288,227
Additions* 41,595 34,949
Disposals (37,186) (7,011)
Net gains from revaluation of investment property - 21,784
Demerger (149,308) -
Transfers (to) from property and equipment and other assets 20,514 (13,997)
Currency translation differences (10,956) (17,812)
At 30 June (Unaudited) 218,224 306,140
*The additions comprise foreclosed properties, no cash transactions were involved.
Investment properties are stated at fair value. The fair value represents the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The date of latest revaluation is 31 December 2017 and was carried out by professional valuers.
11. Property and Equipment
As at 30 June 2018 the property and equipment no longer includes property and equipment of demerged Investment Business which amounted GEL 661,176 at the beginning of the reporting period.
12. Client Deposits and Notes
The client deposits and notes include the following:
As at
30 June 2018 (unaudited) 31 December 2017
Time deposits 3,853,707 3,321,953
Current accounts 3,298,572 3,316,064
Promissory notes issued 21,955 74,465
Client deposits and notes 7,174,234 6,712,482
Held as security against letters of credit and guarantees (Note16) 86,635 98,399
As at 30 June 2018 and 31 December 2017 promissory notes issued by the Group comprise the notes privately held by financial institutions being effectively equivalents of certificates of deposits with fixed maturity and fixed interest rate. The average effective maturity of the notes was 5 months (31 December 2017: 23 months).
At 30 June 2018, client deposits and notes of GEL 1,227,479 (17%) were due to the 10 largest customers (31 December 2017: GEL 880,957 (13%)).
Client deposits and notes include accounts with the following types of customers:
As at
30 June 2018 (unaudited) 31 December 2017
Individuals 4,052,264 3,883,940
Private enterprises 2,238,540 2,364,255
State and state-owned entities 883,430 464,287
Client deposits and notes 7,174,234 6,712,482
12. Client Deposits and Notes (continued)
The breakdown of client deposits and notes by industry sector is as follows:
As at
30 June 2018 (unaudited) 31 December 2017
Individuals 4,052,264 3,883,940
Government services 866,586 438,492
Trade 486,478 576,524
Financial intermediation 326,697 314,081
Service 285,605 297,393
Transport & communication 276,318 257,818
Construction 267,881 257,799
Manufacturing 194,031 224,230
Real estate 99,350 103,800
Electricity, gas and water supply 62,359 93,097
Hospitality 45,545 44,241
Other 211,120 221,067
Client deposits and notes 7,174,234 6,712,482
13. Amounts Owed to Credit Institutions
Amounts due to credit institutions comprise:
As at
30 June 2018 (unaudited) 31 December 2017
Borrowings from international credit institutions 957,045 1,423,840
Short-term loans from the National Bank of Georgia 556,861 793,528
Time deposits and inter-bank loans 682,975 305,287
Correspondent accounts 137,194 204,512
2,334,075 2,727,167
Non-convertible subordinated debt 406,520 428,672
Amounts due to credit institutions 2,740,595 3,155,839
During the six months ended 30 June 2018, the Group paid up to 5.96% on USD borrowings from international credit institutions (six months ended 30 June 2017: up to 6.15%). During the six months ended 30 June 2018, the Group paid up to 9.26% on USD subordinated debt (six months ended 30 June 2017: up to 8.80%).
Some long-term borrowings from international credit institutions are received upon certain conditions (the "Lender Covenants") that the Group maintains different limits for capital adequacy, liquidity, currency positions, credit exposures, leverage and others. At 30 June 2018 and 31 December 2017 the Group complied with all the Lender Covenants of the significant borrowings from international credit institutions.
14. Debt Securities Issued
Debt securities issued comprise:
As at
30 June 2018 (unaudited) 31 December 2017
Eurobonds and notes issued 1,289,219 1,344,334
Local bonds 32,871 96,266
Certificates of deposit 205,362 268,552
Debt securities issued 1,527,452 1,709,152
15. Equity
Share capital
As at 30 June 2018, issued share capital comprised 49,169,430 common shares (31 December 2017: 39,384,712), all of which were fully paid). Each share has a nominal value of one (1) British Penny. Shares issued and outstanding as at 30 June 2018 are described below:
Number Amount
of shares of shares
Ordinary Ordinary
31 December 2016 (BGEO Group PLC) 39,500,320 1,143
Buyback and cancellation (88,000) 9
30 June 2017 (BGEO Group PLC) 39,412,320 1,152
31 December 2017 (BGEO Group PLC) 39,384,712 1,151
Replacement of BGEO as the Group's parent (39,384,712) (1,151)
Establishement and share issue by the new parent company 39,384,714 4,375,378
Capital reduction - (4,373,910)
Issue of share capital in course of demerger 9,784,716 322
30 June 2018 (Bank of Georgia Group PLC) 49,169,430 1,790
Separate share capital of Bank of Georgia Group PLC is described below:
Number Amount
of shares of shares
Ordinary Ordinary
31 December 2017 (Bank of Georgia Group PLC) 2 172
Issue of share capital 39,384,712 4,375,206
Capital reduction - (4,373,910)
Issue of share capital in course of demerger 9,784,716 322
30 June 2018 (Bank of Georgia Group PLC) 49,169,430 1,790
As part of Demerger Bank of Georgia Group PLC was established and on 18 May 2018 issued 39,384,712 additional ordinary shares at nominal value of thirty-two (32) British Pounds each in exchange for the entire issued capital of BGEO Group PLC and became the parent company of BGEO. On 23 May 2018 the Company undertook a planned reduction of capital to create distributable reserves for Bank of Georgia Group PLC.
Following the reduction of capital, the nominal value of the Company's ordinary shares was reduced to one (1) British Penny from thirty-two (32) British Pounds. As a result of the capital reduction resources which became distributable to the shareholders was fully reclassified to retained earnings. The reduction of capital was a legal and accounting adjustment without any changes in assets and liabilities of the Group.
On 29 May 2018 BOGG issued additional 9,784,716 ordinary shares at nominal value of one (1) British Penny each.
On 29 May 2018 as a result of Demerger the Company distributed its investment in investment business with a fair value of GEL 1,441,552 thousands to the shareholders' of BOGG
15. Equity (continued)
Treasury shares
Treasury shares are held by the Group solely for the employees future share-based compensation purposes.
The number of treasury shares held by the Group as at 30 June 2018 comprised 1,389,746 (31 December 2017: 2,268,313).
Nominal amount of treasury shares of GEL 41 as at 30 June 2018 comprise the Group's shares owned by the Group (31 December 2017: GEL 66).
Dividends
Shareholders are entitled to dividends in British Pounds Sterling.
In 2018 the Group distributed dividends on the shares vested and exercised during 2018.
On 1 June 2017, the Shareholders of BGEO Group PLC approved a final dividend for 2016 of Georgian Lari 2.6 per share. The currency conversion date was set at 26 June 2017, with the official GEL - GBP exchange rate of 3.0690, resulting in a GBP denominated final dividend of 0.8472 per share. Payment of the total GEL 101,501 final dividends was received by shareholders on 7 July 2017.
Earnings per share
For six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Basic earnings per share
Profit for the period attributable to ordinary shareholders
of the Group 239,030 217,609
Profit for the period from continuing operations attributable
to
ordinary shareholders of the Group 149,346 161,022
Profit for the period from discontinued operations
attributable to
ordinary shareholders of the Group 89,684 56,587
Weighted average number of ordinary shares outstanding during
the period 41,047,494 37,941,460
Basic earnings per share 5.8233 5.7354
Earnings per share from continuing operations 3.6384 4.2440
Earnings per share from discontinued operations 2.1849 1.4914
For six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Diluted earnings per share
Effect of dilution on weighted average number of ordinary
shares:
Dilutive unvested share options 479,488 1,562,952
Weighted average number of ordinary shares adjusted for the
effect of dilution 41,526,982 39,504,412
Diluted earnings per share 5.7560 5.5085
Diluted earnings per share from continuing operations 3.5964 4.0761
Diluted earnings per share from discontinued operations 2.1596 1.4324
16. Commitments and Contingencies
Legal
In the ordinary course of business, the Group and BOGG are subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group or BOGG.
Financial commitments and contingencies
As at 30 June 2018 and 31 December 2017 the Group's financial commitments and contingencies comprised the following:
30 June 2018 (unaudited) 31 December 2017
Credit-related commitments
Guarantees issued 695,151 621,267
Undrawn loan facilities 272,028 261,397
Letters of credit 35,617 40,350
1,002,796 923,014
Less - Cash held as security against letters of credit and
guarantees (Note 12) (86,635) (98,399)
Less - Provisions (2,815) (5,915)
Operating lease commitments
Not later than 1 year 18,751 22,731
Later than 1 year but not later than 5 years 40,601 54,620
Later than 5 years 23,253 25,671
82,605 103,022
Capital expenditure commitments 3,330 2,538
Financial commitments and contingencies, net 999,281 924,260
During the period expected credit loss recognized on financial guarantees and letter of credits amounted GEL 2,852 (30 June 2017: n/a)
17. Net Interest Income
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Interest income calculated using EIR method 629,570 530,320
From loans to customers measured at amortised cost 551,597 471,491
From investment securities 61,511 53,003
From amounts due from credit institutions 16,462 5,826
Other interest income 8,823 6,017
From finance lease receivable 8,170 6,017
From loans and advances to customers measured at FVTPL 653 -
Interest Income 638,393 536,337
On client deposits and notes (118,686) (98,363)
On amounts owed to credit institutions (93,518) (88,529)
On debt securities issued (55,013) (29,011)
Interest Expense (267,217) (215,903)
Deposit insurance fees (2,574) -
Net Interest Income 368,602 320,434
18. Net Fee and Commission Income
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Settlements operations 86,089 71,372
Guarantees and letters of credit 8,568 7,805
Cash operations 6,047 6,157
Currency conversion operations 185 240
Brokerage service fees 2,078 968
Advisory 955 -
Other 2,083 1,966
Fee and commission income 106,005 88,508
Settlements operations (28,339) (21,669)
Cash operations (2,229) (2,687)
Guarantees and letters of credit (742) (1,172)
Insurance brokerage service fees (2,066) (1,375)
Currency conversion operations (8) (11)
Other (784) (782)
Fee and commission expense (34,168) (27,696)
Net fee and commission income 71,837 60,812
19. Net Non-recurring Items
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Demerger related expenses* (30,284) -
Corporate social responsibility expense** (13,462) -
Termination / sign-up compensation expenses - (1,719)
Other (3,077) (992)
Net non-recurring expense/loss (46,823) (2,711)
.
* Demerger related expenses comprise of: employee compensation expenses in amount of GEL 21,141 including acceleration of share-based compensation of Investment Business Employees, Demerger Costs recognised in the consolidated income statement in amount of GEL 7,736 and other demerger related expenses in amount of GEL 1,407
** Corporate social responsibility comprise of the one-off project to support the fiber-optic broadband infrastructure development in rural Georgia.
20. Taxation
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Current income expense (4,553) (18,726)
Deferred income tax credit (expense) (33,198) 9,091
Income tax (expense) credit (37,751) (9,635)
Income tax expense attributable to continuing operations (36,565) (7,692)
Income tax expense attributable to a discontinued operation
(Note 4) (1,186) (1,943)
On 12 June 2018, an amendment to the current corporate taxation model applicable to financial institutions, including banks and insurance businesses became effective. The change implies a zero corporate tax rate on retained earnings and a 15% corporate tax rate on distributed earnings starting from 1 January 2023, instead of 1 January 2019 as previously enacted in 2016. The change had an immediate impact on deferred tax asset and deferred tax liability balances attributable to previously recognised temporary differences arising from prior periods. As at 30 June 2018, deferred tax assets and liabilities balances have been re-measured, in line with a new date for the change to be implemented. The Group has calculated the portion of deferred taxes that it expects to utilise before 1 January 2023 for financial businesses and has recognized respective portion of deferred tax assets and liabilities. During the transitional period the Group will only continue to recognize the portion of deferred tax assets and liabilities arising on items charged or credited to income statement during the same period, which it expects to utilize before 1 January 2023.
21. Fair Value Measurements
Fair value hierarchy
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed by level of the fair value hierarchy:
30 June 2018 Level 1 Level 2 Level 3 Total
Assets measured at fair value
Total investment properties - - 218,224 218,224
Land - - 29,458 29,458
Residential properties - - 94,071 94,071
Non-residential properties - - 94,695 94,695
Investment securities - 1,725,692 - 1,725,692
Other assets - derivative financial assets - 31,604 - 31,604
Other assets - trading securities owned 4,429 - - 4,429
Loans to customers at FVTPL - - 7,010 7,010
Assets for which fair values are disclosed
Cash and cash equivalents - 1,546,863 - 1,546,863
Amounts due from credit institutions - 993,862 - 993,862
Loans to customers and finance lease receivables at amortised cost - - 8,190,167 8,190,167
Liabilities measured at fair value:
Other liabilities - derivative financial liabilities - 8,250 - 8,250
Liabilities for which fair values are disclosed
Client deposits and notes - 7,180,641 - 7,180,641
Amounts owed to credit institutions - 2,378,823 361,772 2,740,595
Debt securities issued - 1,311,593 238,233 1,549,826
31 December 2017 Level 1 Level 2 Level 3 Total
Assets measured at fair value
Total investment properties - - 353,565 353,565
Land - - 122,394 122,394
Residential properties - - 66,206 66,206
Non-residential properties - - 164,965 164,965
Investment securities - 1,563,531 1,338 1,564,869
Other assets - derivative financial assets - 12,392 - 12,392
Other assets - trading securities owned 3,191 - - 3,191
Total revalued property - - 252,583 252,583
Infrastructure assets - - 252,583 252,583
Assets for which fair values are disclosed
Cash and cash equivalents - 1,582,435 - 1,582,435
Amounts due from credit institutions - 1,225,947 - 1,225,947
Loans to customers and finance lease receivables - - 7,822,351 7,822,351
Liabilities measured at fair value:
Other liabilities - derivative financial liabilities - 3,948 - 3,948
Liabilities for which fair values are disclosed
Client deposits and notes - 6,716,763 - 6,716,763
Amounts owed to credit institutions - 2,625,385 530,454 3,155,839
Debt securities issued - 1,355,930 364,818 1,720,748
21. Fair Value Measurements (continued)
Fair value hierarchy (continued)
The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.
Loans to customers at fair value through profit or loss
Loans to customers measured at fair value through profit or loss are valued using discounted cash flow model. The inputs to this model are taken from observable markets where feasible, but where this is not feasible a degree of judgment is applied when determining appropriate inputs. Judgmental considerations include adjusting inputs for variables such as market liquidity and borrower specific credit risk.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps, forward foreign exchange contracts and option contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations, as well as standard option pricing models. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and implied volatilities.
Trading securities and investment securities
Trading securities and a certain part of investment securities are quoted equity and debt securities. Investment securities valued using a valuation technique or pricing models consist of unquoted equity and debt securities. These securities are valued using models which sometimes only incorporate data observable in the market and at other times use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.
Fair value of financial assets and liabilities not carried at fair value
Set out below is a comparison by class of the carrying amounts and fair values of the Group's financial instruments that are carried in the condensed financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities, or fair values of other smaller financials assets and financial liabilities, fair values of which are materially close to their carrying values.
21. Fair Value Measurements (continued)
Fair value of financial assets and liabilities not carried at fair value (continued)
Carrying Fair value Unrecognised Carrying Fair value Unrecognised
value 2018 2018 gain (loss) 2018 value 2017 2017 loss 2017
Financial assets
Cash and cash equivalents 1,546,863 1,546,863 - 1,582,435 1,582,435 -
Amounts due from credit
institutions 993,862 993,862 - 1,225,947 1,225,947 -
Loans to customers and finance
lease receivables 8,071,122 8,190,167 119,045 7,690,450 7,822,351 131,901
Financial liabilities
Client deposits and notes 7,174,234 7,180,641 (6,407) 6,712,482 6,716,763 (4,281)
Amounts owed to credit
institutions 2,740,595 2,740,595 - 3,155,839 3,155,839 -
Debt securities issued 1,527,452 1,549,826 (22,374) 1,709,152 1,720,748 (11,596)
Total unrecognised change in
unrealised fair value 90,264 116,024
The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the condensed consolidated financial statements.
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid or have a short term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity and variable rate financial instruments.
Fixed rate financial instruments
The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.
22. Maturity Analysis of Financial Assets and Liabilities
The table below shows an analysis of financial assets and liabilities according to when they are expected to be recovered or settled.
30 June 2018
On Up to Up to Up to Up to Up to Over Total
Demand 3 Months 6 Months 1 Year 3 Years 5 Years 5 Years
Financial assets
Cash and cash
equivalents 818,150 728,713 - - - - - 1,546,863
Amounts due from credit
institutions 919,866 62,772 505 - - - 10,719 993,862
Investment securities 972,766 528,785 8,462 39,103 32,925 101,992 41,659 1,725,692
Loans to customers and
finance lease
receivables - 1,368,842 696,062 1,261,548 2,112,597 1,118,631 1,520,452 8,078,132
Total 2,710,782 2,689,112 705,029 1,300,651 2,145,522 1,220,623 1,572,830 12,344,549
Financial liabilities
Client deposits and
notes 1,250,765 1,714,365 626,044 3,000,314 507,386 41,201 34,159 7,174,234
Amounts owed to credit
institutions 137,095 1,259,022 104,610 138,599 577,339 269,419 254,511 2,740,595
Debt securities issued - 48,694 33,644 47,999 695,006 702,109 - 1,527,452
Total 1,387,860 3,022,081 764,298 3,186,912 1,779,731 1,012,729 288,670 11,442,281
Net 1,322,922 (332,969) (59,269) (1,886,261) 365,791 207,894 1,284,160 902,268
Accumulated gap 1,322,922 989,953 930,684 (955,577) (589,786) (381,892) 902,268
22. Maturity Analysis of Financial Assets and Liabilities (continued)
31 December 2017
On Up to Up to Up to Up to Up to Over Total
Demand 3 Months 6 Months 1 Year 3 Years 5 Years 5 Years
Financial assets
Cash and cash equivalents 824,629 757,806 - - - - - 1,582,435
Amounts due from credit
institutions 1,003,214 185,572 3,410 21,493 - 1,759 10,499 1,225,947
Investment securities 788,692 641,380 3,061 49,962 21,012 58,916 1,846 1,564,869
Loans to customers and
finance lease
receivables - 1,233,630 609,491 1,397,004 2,012,016 1,156,137 1,282,172 7,690,450
Total 2,616,535 2,818,388 615,962 1,468,459 2,033,028 1,216,812 1,294,517 12,063,701
Financial liabilities
Client deposits and notes 1,297,682 1,253,845 608,234 2,942,822 538,399 39,351 32,149 6,712,482
Amounts owed to credit
institutions 205,019 1,105,365 146,260 343,653 545,558 326,458 483,526 3,155,839
Debt securities issued - 42,030 122,895 130,982 719,725 693,520 - 1,709,152
Total 1,502,701 2,401,240 877,389 3,417,457 1,803,682 1,059,329 515,675 11,577,473
Net 1,113,834 417,148 (261,427) (1,948,998) 229,346 157,483 778,842 486,228
Accumulated gap 1,113,834 1,530,982 1,269,555 (679,443) (450,097) (292,614) 486,228
The Group's capability to discharge its liabilities relies on its ability to realise equivalent assets within the same period of time. In the Georgian marketplace, where most of the Group's business is concentrated, many short-term credits are granted with the expectation of renewing the loans at maturity. As such, the ultimate maturity of assets may be different from the analysis presented above. To reflect the historical stability of current accounts, the Group calculates the minimal daily balance of current accounts over the past two years and includes the amount in the less than 1 year category in the table above. The remaining current accounts are included in the on demand category. Obligatory reserves with central banks do not have contractual maturity and are allocated in the on demand category.
The Group's principal sources of liquidity are as follows:
-- deposits; -- borrowings from international credit institutions; -- inter-bank deposit agreement; -- debt issues; -- proceeds from sale of securities; -- principal repayments on loans; -- interest income; and -- fees and commissions income.
As at 30 June 2018 amounts due to customers amounted to GEL 7,174,234 (31 December 2017: GEL 6,712,482) and represented 62% (31 December 2017: 54%) of the Group's total liabilities. These funds continue to provide a majority of the Group's funding and represent a diversified and stable source of funds. As at 30 June 2018 amounts owed to credit institutions amounted to GEL 2,740,595 (31 December 2017: GEL 3,155,839) and represented 24% (31 December 2017: 25%) of total liabilities. As at 30 June 2018 debt securities issued amounted to GEL 1,527,452 (31 December 2017: GEL 1,709,152) and represented 13% (31 December 2017: 14%) of total liabilities.
The Bank was in compliance with regulatory liquidity requirements as at 30 June 2018 and 31 December 2017. In the Board's opinion, liquidity is sufficient to meet the Group's present requirements.
22. Maturity Analysis of Financial Assets and Liabilities (continued)
The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:
30 June 2018 31 December 2017
Less than More than Total Less than More than Total
1 Year 1 Year 1 Year 1 Year
Cash and cash equivalents 1,546,863 - 1,546,863 1,582,435 - 1,582,435
Amounts due from credit institutions 983,143 10,719 993,862 1,213,689 12,258 1,225,947
Investment securities 1,549,116 176,576 1,725,692 1,483,095 81,774 1,564,869
Loans to customers and finance lease receivables 3,326,452 4,751,680 8,078,132 3,240,125 4,450,325 7,690,450
Accounts receivable and other loans 4,878 - 4,878 38,810 134 38,944
Insurance premiums receivable - - - 30,538 35 30,573
Prepayments 31,613 42,625 74,238 112,122 37,436 149,558
Inventories 11,085 - 11,085 92,158 8,036 100,194
Investment properties - 218,224 218,224 - 353,565 353,565
Property and equipment - 313,627 313,627 - 988,436 988,436
Goodwill - 33,351 33,351 - 55,276 55,276
Intangible assets - 61,462 61,462 - 60,980 60,980
Income tax assets 21,670 122 21,792 1,155 1,138 2,293
Other assets 64,366 61,249 125,615 111,972 76,760 188,732
Assets of disposal group held for sale - - - 1,136,417 - 1,136,417
Total assets 7,539,186 5,669,635 13,208,821 9,042,516 6,126,153 15,168,669
Client deposits and notes 6,591,488 582,746 7,174,234 6,102,583 609,899 6,712,482
Amounts owed to credit institutions 1,639,326 1,101,269 2,740,595 1,800,297 1,355,542 3,155,839
Debt securities issued 130,337 1,397,115 1,527,452 295,907 1,413,245 1,709,152
Accruals and deffered income 24,321 9,076 33,397 104,290 28,379 132,669
Insurance contracts liabilities - - - 39,349 7,053 46,402
Income tax liabilities 847 42,479 43,326 9,617 11,342 20,959
Other liabilities 52,231 - 52,231 112,328 29,805 142,133
Liabilities of disposal group held for sale - - - 516,663 - 516,663
Total liabilities 8,438,550 3,132,685 11,571,235 8,981,034 3,455,265 12,436,299
Net (899,364) 2,536,950 1,637,586 61,482 2,670,888 2,732,370
23. Related Party Disclosures
In accordance with IAS 24 "Related Party Disclosures", parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. All transactions with related parties disclosed below have been conducted on an arm's length basis.
23. Related Party Disclosures (continued)
The volumes of related party transactions, outstanding balances at the six month end, and related expenses and income for the period are as follows:
2018 (unaudited) 2017 (unaudited)
Key Key
management management
Associates personnel* Associates personnel*
Loans outstanding at 1 January, gross 17,053 2,913 15,247 2,006
Loans issued during the period - 1,184 15,435 2,542
Loan repayments during the period - (1,836) (15,088) (4,147)
Other movements** (17,053) (1,607) (361) 1,523
Loans outstanding at 30 June, gross - 654 15,233 1,924
Less: allowance for impairment at 30 June - - - -
Loans outstanding at 30 June, net - 654 15,233 1,924
Interest income on loans 529 56 607 89
Loan impairment charge - - - 1
Deposits at 1 January 2,005 38,842 1,241 28,419
Deposits received during the period - 9,435 - 27,379
Deposits repaid during the period (763) (930) (831) (11,752)
Other movements** (502) (32,135) - 1,958
Deposits at 30 June 740 15,212 410 46,004
Interest expense on deposits (2) (222) (1) (373)
Other income - 3 - 33
* Key management personnel include members of Bank of Georgia Group PLC's and JSC BGEO Group's Board of Directors and Chief Executive Officer and Deputies of the Bank.
** Movements are mainly caused by the change in the list of respective related parties during the period due to the Demerger
Compensation of key management personnel comprised the following:
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Salaries and other benefits 4,735 3,940
Share-based payments compensation * 54,893 19,294
Cash compensations 2,273 -
Social security costs 35 36
Total key management compensation 61,936 23,270
* Share-based compensation included demerger related costs in amount of GEL 13,557 for key management personnel reflected in the non-recurring items (note 19) and GEL 23,278 reflected in discontinued operations (note 4).
Key management personnel do not receive cash settled compensation, except for fixed salaries. The major part of the total compensation is share-based. The number of key management personnel at 30 June 2018 was 13 (30 June 2017: 20).
24. Capital Adequacy
The Group maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Group's capital is monitored using, among other measures, the ratios established by the NBG in supervising the Bank.
During six months ended 30 June 2018, the Bank and the Group complied in full with all its externally imposed capital requirements.
The primary objectives of the Group's capital management are to ensure that the Bank complies with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholders' value.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years.
NBG (Basel III) capital adequacy ratio
In December 2017, the NBG adopted amendments to the regulations relating to capital adequacy requirements, including amendments to the regulation on capital adequacy requirements for commercial banks, and introduced new requirements on the determination of the countercyclical buffer rate, on the identification of systematically important banks, on determining systemic buffer requirements and on additional capital buffer requirements for commercial banks within Pillar 2. The NBG requires the Bank to maintain a minimum total capital adequacy ratio of 12.5% of risk-weighted assets, computed based on the bank's stand-alone special purpose financial statements prepared in accordance with NBG regulations and pronouncements, based on Basel III requirements. As at 30 June 2018 and 31 December 2017, the Bank's capital adequacy ratio on this basis was as follows:
As at
30 June 2018 (unaudited) 31 December 2017
Tier 1 capital 1,225,122 1,141,845
Tier 2 capital 485,145 501,689
Total capital 1,710,267 1,643,534
Risk-weighted assets 9,789,919 9,192,078
Total capital ratio 17.5% 17.9%
25. Events after the Reporting Period
Dividend
On 9 July 2018 the board of directors of Bank of Georgia Group PLC has declared an interim dividend of GEL 2.44 per ordinary share in respect of the period ended 30 June 2018.
Annex:
In this announcement the Management uses various alternative performance measures ("APMs"), which they believe provide additional useful information for understanding the financial performance of the Group. These APMs are not defined by International Financial Reporting Standards, and also may not be directly comparable with other companies who use similar measures. We believe that these APMs provide the best representation of our financial performance as these measures are used by management to evaluate our operating performance and make day-to-day operating decisions.
Glossary
1. Return on average total assets (ROAA) equals Banking Business Profit for the
period divided
by monthly average total assets for the same period;
2. Return on average total equity (ROAE) equals Banking Business Profit for the
period attributable
to shareholders of the Group divided by monthly average equity attributable to
shareholders
of the Group for the same period;
3. Net Interest Margin (NIM) equals Net Interest Income of the period divided by
monthly Average
Interest Earning Assets Excluding Cash for the same period; Interest Earning
Assets Excluding
Cash comprise: Amounts Due From Credit Institutions, Investment Securities (but
excluding
corporate shares) and net Loans To Customers And Finance Lease Receivables;
4. Loan Yield equals Interest Income from Loans To Customers And Finance Lease
Receivables
divided by monthly Average Gross Loans To Customers And Finance Lease Receivables;
5. Cost of Funds equals Interest Expense of the period divided by monthly average
interest
bearing liabilities; interest bearing liabilities include: amounts due to credit
institutions,
client deposits and notes, and debt securities issued;
6. Operating Leverage equals percentage change in revenue less percentage change
in operating
expenses;
7. Cost / Income Ratio equals operating expenses divided by revenue;
8. NBG Liquidity Ratio equals daily average liquid assets (as defined by NBG)
during the month
divided by daily average liabilities (as defined by NBG) during the month;
9. Liquid assets include: cash and cash equivalents, amounts due from credit
institutions
and investment securities;
10. Liquidity Coverage Ratio equals high quality liquid assets (as defined by NBG)
divided
by net cash outflows over the next 30 days (as defined by NBG)
11. Leverage (Times) equals total liabilities divided by total equity;
12. NPL Coverage Ratio equals allowance for impairment of loans and finance lease
receivables
divided by NPLs;
13. NPL Coverage Ratio adjusted for discounted value of collateral equals
allowance for impairment
of loans and finance lease receivables divided by NPLs (discounted value of
collateral is
added back to allowance for impairment)
14. Cost of Risk equals expected loss/ impairment charge for loans to customers
and finance
lease receivables for the period divided by monthly average gross loans to
customers and finance
lease receivables over the same period;
15. NBG (Basel III) Tier I Capital Adequacy ratio equals Tier I Capital divided by
total risk
weighted assets, both calculated in accordance with the requirements of the
National Bank
of Georgia instructions;
16. NBG (Basel III) Total Capital Adequacy ratio equals total capital divided by
total risk
weighted assets, both calculated in accordance with the requirements of the
National Bank
of Georgia instructions;
17. NMF - Not meaningful
Bank of Georgia Group PLC 2Q18 and 1H18 Results Conference Call Details
Bank of Georgia Group PLC ("Bank of Georgia Group" or the "Group") will publish its 2(nd) quarter and half-year 2018 financial results at 07:00 London time on Thursday, 16 August 2018. The results announcement will be available on the Group's website at www.bankofgeorgiagroup.com. An investor/analyst conference call, organised by the Bank of Georgia Group, will be held on, 16 August 2018, at 13:00 UK / 14:00 CET / 08:00 U.S Eastern Time. The duration of the call will be 60 minutes and will consist of a 15-minute update and a 45-minute Q&A session.
Dial-in numbers: 30-Day replay: Pass code for replays/Conference ID: 1787007 Pass code for replays / Conference ID: 1787007 International Dial-in: +44 (0) 2071 928000 International Dial in: +44 (0) 3333009785 UK: 08445718892 UK National Dial In: 08717000471 US: 16315107495 UK Local Dial In: 08445718951 Austria: 019286559 USA Free Call Dial In: 1 (866) 331-1332 Belgium: 024009874 Czech Republic: 228881424 Denmark: 32728042 Finland: 0942450806 France: 0176700794 Germany: 06924437351 Hungary: 0614088064 Ireland: 014319615 Italy: 0687502026 Luxembourg: 27860515 Netherlands: 0207143545 Norway: 23960264 Spain: 914146280 Sweden: 0850692180 Switzerland: 0315800059
COMPANY INFORMATION
Bank of Georgia Group PLC
Registered Address
84 Brook Street
London W1K 5EH
United Kingdom
www.bankofgeorgiagroup.com
Registered under number 10917019 in England and Wales
Secretary
Link Company Matters Limited
65 Gresham Street
London EC2V 7NQ
United Kingdom
Stock Listing
London Stock Exchange PLC's Main Market for listed securities
Ticker: "BGEO.LN"
Contact Information
Bank of Georgia Group PLC Investor Relations
Telephone: +44(0) 203 178 4052; +995 322 444444 (9282)
E-mail: ir@bog.ge
Auditors
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
United Kingdom
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Please note that Investor Centre is a free, secure online service run by our Registrar, Computershare,
giving you convenient access to information on your shareholdings.
Investor Centre Web Address - www.investorcentre.co.uk.
Investor Centre Shareholder Helpline - +44 (0)370 873 5866
Share price information
Shareholders can access both the latest and historical prices via the website
www.bankofgeorgiagroup.com
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR EQLBFVVFBBBV
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