TIDMBGEO
RNS Number : 8330C
Bank of Georgia Group PLC
13 February 2020
Bank of Georgia
Group PLC
4(th) quarter and full year 2019
preliminary 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 Group comprises: a) retail banking and payment services, and
b) corporate and investment banking and wealth management
operations in Georgia, and c) banking operations in Belarus
("BNB"). JSC Bank of Georgia ("Bank of Georgia", "BOG" or the
"Bank"), the leading universal bank in Georgia, is the core entity
of the Group. The Group targets to benefit from superior growth of
the Georgian economy through both its retail banking and corporate
and investment banking services and aims to deliver on its
strategy, which is based on at least 20% ROAE and c.15% growth of
its loan book.
4Q19 AND FY19 PRELIMINARY RESULTS CONFERENCE CALL DETAILS
Bank of Georgia Group PLC has today published its 4(th) quarter
and full year 2019 preliminary financial results at 07:00 London
time. This results announcement is also 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 13 February 2020, 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 Pass code for replays / Conference
ID: 6476095 ID: 6476095
International Dial-in: +44 (0) International Dial in: +44 (0)
2071 928000 3333009785
UK: 08445718892 UK Local Dial In: 08445718951
US: 16315107495 UK Free Call Dial In: 08082380667
Austria: 019286559 USA Free Call Dial In: 1 (866)
Belgium: 024009874 331-1332
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
CONTENTS
5 4Q19 and FY19 results highlights
7 Chief Executive Officer's statement
9 Discussion of results
13 Discussion of segment results
13 Retail Banking
17 Corporate and Investment Banking
20 Selected financial and operating information
25 Glossary
26 Company information
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 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 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 Bank of Georgia
Group PLC's 2Q19 and 1H19 results announcement and in Annual Report
and Accounts 2018. No part of this document constitutes, or shall
be taken to constitute, an invitation or inducement to invest in
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. 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.
ABOUT THIS ANNOUNCEMENT
Bank of Georgia Group PLC announces the Group's fourth quarter
2019 and full year 2019 consolidated preliminary results. Unless
otherwise noted, numbers are for 4Q19 and comparisons are with
4Q18. The results are based on International Financial Reporting
Standards ("IFRS") as adopted by the European Union, are unaudited
and derived from management accounts.
The information in this Announcement in respect of full year
2019 preliminary results, which was approved by the Board of
Directors on 12 February 2020, does not constitute statutory
accounts as defined in Section 435 of the UK Companies Act 2006.
Company and Bank of Georgia Group PLC's financial statements for
the year ended 31 December 2018 were filed with the Registrar of
Companies, and the audit reports were unqualified and contained no
statements in respect of Sections 498 (2) or (3) of the UK
Companies Act 2006. Bank of Georgia Group PLC's financial
statements for the year ended 31 December 2019 will be included in
the Annual Report and Accounts to be published in March 2020 and
filed with the Registrar of Companies in due course.
Group Demerger
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". The Group and Banking Business detailed
financials, as well as Discontinued Operations and inter-business
eliminations for previous periods are presented on pages 20-22.
Throughout this announcement, the discussion is focused on the
Banking Business results, which represents the continuing business
of the Group since the demerger.
Restatement of previously reported 1Q19-3Q19 periods
Since the fourth quarter 2018, the Group started to enter into
certain cross-currency swap agreements to hedge net interest rate
risk on Euro-denominated lending. Considering that during 2019 such
contracts reached significant volume, the Group revisited the
presentation of the effects of these agreements in its income
statement. As a result, the Group concluded that certain
reclassification is required to better reflect the risk management
objective of the Group. In particular, effects of unwinding the
locked-in interest differential was reclassified from net foreign
currency gain to interest expense line in the income statement in
the previously reported quarterly results of the year 2019. The
Group did not restate the fourth quarter 2018 period as the impact
was immaterial. The detailed reclassified income statement for 1Q
-3Q periods of 2019, as well as effected and restated ratios are
presented on page 22 of this announcement. The reclassification
impact for the first nine months of 2019 amounted to GEL 29mln. The
Group believes that such presentation provides better information
to the users of the Group's financial statements regarding the
Group's risk management strategy.
4Q19 AND FY19 RESULTS HIGHLIGHTS
Continued strong momentum - excellent quarterly growth and
outstanding profitability
Change Change Change
GEL thousands 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
Banking Business Income
Statement
Highlights(1)
Net interest income 207,091 187,438 10.5% 200,992 3.0% 789,419 739,604 6.7%
Net fee and commission income 46,558 41,344 12.6% 48,009 -3.0% 180,014 153,182 17.5%
Net foreign currency gain 37,177 53,358 -30.3% 32,233 15.3% 119,363 129,437 -7.8%
Net other income / (expense) 18,439 (9,073) NMF 3,728 NMF 21,474 7,815 NMF
Operating income 309,265 273,067 13.3% 284,962 8.5% 1,110,270 1,030,038 7.8%
Operating expenses (121,545) (100,857) 20.5% (107,917) 12.6% (419,946) (378,517) 10.9%
Profit from associates 153 318 -51.9% 194 -21.1% 789 1,339 -41.1%
Operating income before cost
of risk 187,873 172,528 8.9% 177,239 6.0% 691,113 652,860 5.9%
Cost of risk (14,232) (40,778) -65.1% (15,223) -6.5% (107,584) (160,225) -32.9%
Net operating income before
non-recurring items 173,641 131,750 31.8% 162,016 7.2% 583,529 492,635 18.5%
Net non-recurring items (1,591) (2,185) -27.2% (5,019) -68.3% (10,723) (22,643) -52.6%
Profit before income tax expense
and one-off costs 172,050 129,565 32.8% 156,997 9.6% 572,806 469,992 21.9%
Income tax expense (15,515) (10,888) 42.5% (22,697) -31.6% (58,619) (34,948) 67.7%
Profit adjusted for one-off
costs 156,535 118,677 31.9% 134,300 16.6% 514,187 435,044 18.2%
One-off termination costs
of former CEO and executive
management (after tax), one-off
demerger related expenses
(after tax) and one-off impact
of re-measurement of deferred
tax balances - (3,861) NMF - - (14,236) (56,402) -74.8%
Profit 156,535 114,816 36.3% 134,300 16.6% 499,951 378,642 32.0%
GEL thousands Dec-19 Dec-18 Change Sep-19 Change
y-o-y q-o-q
Banking Business Balance Sheet
Highlights
Liquid assets 5,559,500 4,540,032 22.5% 5,099,111 9.0%
Cash and cash equivalents 2,153,624 1,215,799 77.1% 1,369,194 57.3%
Amounts due from credit institutions 1,619,072 1,305,216 24.0% 1,834,195 -11.7%
Investment securities 1,786,804 2,019,017 -11.5% 1,895,722 -5.7%
Loans to customers and finance
lease receivables(2) 11,931,262 9,397,747 27.0% 11,339,745 5.2%
Property and equipment 379,788 344,059 10.4% 364,405 4.2%
Total assets 18,569,497 14,798,303 25.5% 17,540,692 5.9%
Client deposits and notes 10,076,735 8,133,853 23.9% 9,613,718 4.8%
Amounts owed to credit institutions 3,934,123 2,994,879 31.4% 3,437,718 14.4%
Borrowings from DFIs 1,486,044 1,302,679 14.1% 1,355,426 9.6%
Short-term loans from NBG 1,551,953 1,118,957 38.7% 1,271,027 22.1%
Loans and deposits from commercial
banks 896,126 573,243 56.3% 811,265 10.5%
Debt securities issued 2,120,064 1,730,414 22.5% 2,175,820 -2.6%
Total liabilities 16,418,589 13,000,030 26.3% 15,500,833 5.9%
Total equity 2,150,908 1,798,273 19.6% 2,039,859 5.4%
Banking Business Key Ratios 4Q19 4Q18 3Q19 2019 2018
ROAA1 3.4% 3.3% 3.2% 3.1% 3.2%
ROAE(1) 29.9% 27.0% 26.8% 26.1% 26.4%
Net interest margin 5.4% 6.0% 5.4% 5.6% 6.5%
Liquid assets yield 3.7% 3.8% 3.2% 3.5% 3.8%
Loan yield 11.4% 12.8% 11.5% 11.7% 13.5%
Cost of funds 4.7% 5.0% 4.5% 4.6% 5.0%
Cost / income(3) 39.3% 36.9% 37.9% 37.8% 36.7%
NPLs to Gross loans to clients 2.1% 3.3% 2.9% 2.1% 3.3%
NPL coverage ratio 80.9% 90.5% 85.3% 80.9% 90.5%
NPL coverage ratio, adjusted
for discounted value of collateral 139.6% 129.9% 129.3% 139.6% 129.9%
Cost of credit risk ratio 0.2% 1.1% 0.5% 0.9% 1.6%
NBG (Basel III) CET1 capital
adequacy ratio 11.5% 12.2% 11.1% 11.5% 12.2%
NBG (Basel III) Tier I capital
adequacy ratio 13.6% 12.2% 13.3% 13.6% 12.2%
NBG (Basel III) Total capital
adequacy ratio 18.1% 16.6% 16.8% 18.1% 16.6%
(1) The full year 2019 income statement adjusted profit excludes
GEL 14.2mln one-off employee costs (net of income tax) related to
former CEO and executive management termination benefits. The
amount is comprised of GEL 12.4mln (gross of income tax) excluded
from salaries and other employee benefits and GEL 4.0mln (gross of
income tax) excluded from non-recurring items. The income statement
adjusted profit in 4Q18 excludes GEL 3.9mln one-off employee costs
(net-off income tax) related to the former CEO termination
benefits, which is comprised of GEL 4.4mln (gross of income tax)
excluded from non-recurring items. In addition to this GEL 3.9mln
one-off employee costs in 4Q18, the full year 2018 income statement
adjusted profit excludes GEL 52.5mln demerger related expenses (net
of income tax) and one-off impact of re-measurement of deferred tax
balances. ROAE and ROAA have been adjusted accordingly for all
periods presented. Full IFRS income statement is presented on pages
20 and 21. Management believes that one-off costs do not relate to
underlying performance of the Group, and hence, adjusted results
provide the best representation of the Group's performance
(2) Throughout this announcement, the gross loans to customers
and respective allowance for impairment are presented net of
expected credit loss (ECL) on contractually accrued interest
income. These do not have an effect on the net loans to customers
balance. Management believes that netted-off balances provide the
best representation of the Group's loan portfolio position
(3) The full year 2019 cost/income ratio is adjusted for GEL
12.4mln one-off employee costs (gross of income tax) related to
termination benefits of the former executive management
4Q19 AND FY19 RESULTS HIGHLIGHTS
-- Outstanding quarterly performance. Profit adjusted for
one-off costs totalled GEL 156.5mln in 4Q19 (up 31.9% y-o-y and up
16.6% q-o-q) and GEL 514.2mln in 2019 (up 18.2% y-o-y), with
profitability reaching 29.9% ROAE(4) in 4Q19 and 26.1% in 2019
-- Loan book growth totalled 27.0% y-o-y and 5.2% q-o-q at 31
December 2019. Growth on a constant-currency basis was 22.0% y-o-y
and 7.1% q-o-q. Retail Banking loan book share in the total loan
portfolio was 66.0% at 31 December 2019 (69.8% at 31 December 2018
and 65.8% at 30 September 2019)
-- Strong asset quality. The cost of credit risk ratio improved
to 0.2% in 4Q19 (down 90bps y-o-y and down 30bps q-o-q) and to 0.9%
in 2019 (down 70bps y-o-y), primary reflecting our increasing focus
on lending in the higher quality mortgage segment and to SME
clients, as well as the recovery of several mid- to low-sized
corporate loans. NPLs to gross loans ratio decreased to 2.1% at 31
December 2019 (down from 3.3% at 31 December 2018 and down from
2.9% at 30 September 2019), while the NPL coverage ratio stood at
80.9% and the NPL coverage ratio adjusted for discounted value of
collateral to 139.6% (129.9% at 31 December 2018 and 129.3% at 30
September 2019)
-- Dollarisation of the loan book and client deposits. Loan book
in local currency accounted for 41.5% of the total loan book at 31
December 2019 (38.3% a year ago and 41.1% in 3Q19). The shift of
the loan portfolio was partially driven by the Government's
de-dollarisation initiatives and our goal to increase the share of
local currency loans in our portfolio. Currently, the part of the
loan portfolio which is most sensitive to foreign currency risk is
largely de-dollarised. 72.6% of Retail Banking loans were issued in
local currency during 2019. Client deposits in local currency
represented 30.7% of the total deposit portfolio at 31 December
2019 (32.5% a year ago and 30.7% at 30 September 2019)
-- Strong capital position. Basel III CET1, Tier 1 and Total
Capital Adequacy ratios stood at 11.5%, 13.6% and 18.1%,
respectively, at 31 December 2019, all comfortably above the
minimum required levels of 10.1%, 12.2% and 17.1%, respectively
-- In December 2019, the Bank signed a ten-year US$ 107mln
subordinated syndicated loan agreement arranged by FMO - Dutch
entrepreneurial development bank in collaboration with other
participating lenders. The facility is expected to be treated as a
Bank Tier 2 capital instrument (upon disbursement and approval of
the National Bank of Georgia) under the Basel III framework, which
will help to further improve the Bank's capital position. US$ 52mln
was already drawn-down by the Bank and the regulatory approval on
classification was received in December 2019. The rest of the
facility is expected to be utilised within 6 months of 2020
-- Retail Banking ("RB") continued to deliver solid net interest
income, coupled with net fee and commission income generation
during 2019. The Retail Banking net loan book reached GEL
7,427.7mln at 31 December 2019, up 18.5% y-o-y and up 4.9% q-o-q.
The growth was predominantly driven by mortgage and MSME lending.
At the same time, RB client deposits increased to GEL 5,712.5mln at
31 December 2019, up 31.7% y-o-y and up 6.1% q-o-q. The Retail
Banking net interest margin stabilised at 5.7% in the fourth
quarter and at 6.1% on a twelve months basis in 2019
-- Corporate and Investment Banking ("CIB") demonstrated
outstanding growth in 4Q19, generating strong net interest income
and net fee and commission income, coupled with strong asset
quality. CIB's net loan book reached GEL 3,804.4mln at 31 December
2019, up 45.3% y-o-y and up 6.0% q-o-q. The growth on a
constant-currency basis was 37.4% y-o-y and 8.7% q-o-q. The top 10
CIB client concentration was 9.9% at 31 December 2019 (9.8% at 31
December 2018 and 9.4% at 30 September 2019)
-- Assets Under Management ("AUM") within the Group's Investment
Management business, increased to GEL 2,567.2mln at 31 December
2019, up 13.0% y-o-y and up 0.8% q-o-q, reflecting an increase in
client assets and bond issuances at Galt & Taggart, our
brokerage subsidiary
-- Digital channels. We have actively continued the further
development of our digital strategy:
-- The Bank continued to introduce new features to our mobile
banking application and our internet bank for individual customers.
As a result, the number of active internet and mobile banking users
(largely flat and up 53.9% y-o-y, respectively), as well as the
number and volume of transactions through our mobile and internet
banking continued to expand (91.2% y-o-y increase in number of
transactions and 73.3% y-o-y increase in volume of transactions
during 2019). In total, more than 93% of daily transactions were
executed through digital channels during 2019
-- In 1Q19, the Bank released a new business internet banking
platform (Business iBank) for MSME and corporate clients, which
comes with many features designed to make its use an intuitive and
smooth experience. We focused our efforts on making the Business
iBank even more useful for business transactions, which should
further incentivise offloading client activity to digital channels.
As a result, we already saw a significant increase in the number
and volume of transactions through Business iBank during 2019 (up
57.6% and up 31.7% y-o-y, respectively). More than 93% of daily
transactions of legal entities were executed through the internet
bank during 2019
-- Digital ecosystem developments. In order to enhance our
client-centric offering, we have developed a digital ecosystem with
a number of integrated platforms aimed at providing the value-added
solutions to our clients in addition to the traditional financial
services. Currently, our digital ecosystem rests on two pillars:
retail and MSME. Under the retail pillar, we launched a
cutting-edge full-service real estate digital platform, area.ge in
1Q19 and acquired a leading Georgian e-commerce platform, extra.ge
in 2Q19. Under the MSME pillar, in September 2019, we launched
Optimo - a digital solution for our MSME customers to run their
business sales and solutions. For more details on these platforms,
please see page 16
(4) The full year 2019 ROAE is adjusted for GEL 14.2mln one-off
employee costs (net of income tax) related to termination benefits
of the former CEO and executive management
CHIEF EXECUTIVE OFFICER'S STATEMENT
2019 was a year of significant progress for Bank of Georgia
Group. The Group delivered excellent customer lending growth,
strong profitability and a 32.0% increase in net profit to GEL 500
million, while substantially improving our customer positioning in
many key areas. In all of the most recent surveys and data points,
Bank of Georgia clearly comes out "top of mind" and is regarded as
the most trusted financial institution throughout all age groups of
the Georgian population.
In the fourth quarter of 2019, the Group delivered another
period of strong balance sheet and fee income growth, combined with
superior profitability, achieved as a result of excellent customer
franchise growth, good cost management in both the Retail and
Corporate and Investment Banking businesses, whilst continuing to
invest in core capabilities, and achieving continued improvements
in asset quality. During the fourth quarter 2019, the Group
delivered operating income of GEL 309.3 million, up 13.3%
year-on-year and up 8.5% quarter-on-quarter, and this, combined
with a low cost of risk, led to net profit adjusted for one-off
items for the quarter of GEL 156.5 million, an increase of 31.9%
year-on-year and 16.6% compared to the third quarter of 2019. The
Return on Average Equity in the fourth quarter 2019 increased to
29.9%, and earnings per share increased by 37.5% year-on-year, to
GEL 3.30 in 4Q19.
For the full year 2019, operating income totalled GEL 1,110.3
million, an increase of 7.8%, and profit before income tax and
one-off costs increased by 21.9% to GEL 572.8 million. The Group's
capability to deliver strong Return on Average Equity continues,
and profitability exceeded 26% for the full year 2019.
The last 12 months have been important in a number of ways and I
would like to highlight a number of key messages:
1) the new management team has started to execute the Group's
new strategy, which we outlined in June 2019, and this is being
reflected throughout the business as we are delivering strong
profitability, while investing in our future digital and IT
capabilities, the renovation of our branch network, and our brand
franchise. The results of these investments are already starting to
deliver significant earnings growth, as well as improved client
satisfaction and higher employee engagement scores;
2) we have also demonstrated clear progress in adapting to the
new banking regulatory environment. In 2019, we exceeded our
lending growth expectations and delivered strong profitability, in
a banking sector that now has lower systemic credit risk and
improving capital efficiency.
Given the significant changes in the regulatory environment over
the last 12 months, 2019 was a year of transition which provides an
excellent base for our future growth. The high-yield, higher-risk
unsecured consumer loan portfolio has matured out of our balance
sheet and has been replaced with a lower-risk, higher-volume
portfolio, leading to lower overall sector systemic risk. This is a
new environment with a lower net interest margin and lower cost of
credit risk. As a consequence, we successfully reshuffled the
Retail Banking portfolio composition towards more secured mortgage
and MSME lending and yet delivered net interest income growth of
6.7% y-o-y, while net fee and commission income generation showed
17.5% y-o-y growth during 2019. We are also starting to experience
some stabilisation in the net interest margin. Net of credit risk
costs, the net interest margin has remained very resilient.
Some of the benefits of the lower-risk portfolio are now being
reflected in a lower cost of credit risk, which was down 70 basis
points y-o-y to 0.9% in 2019, and 90 basis points to 0.2% in the
fourth quarter of 2019. We have also made significant progress in
reducing our non-performing loans, and the ratio of NPLs to gross
loans now stands at 2.1%, compared to 3.3% twelve months ago. The
historical cost of credit risk on the rebalanced portfolio mix is
c.1-1.2%, and going forward we expect the net interest margin to
remain broadly stable.
We also continued to deliver strong progress in the Corporate
and Investment Banking (CIB) business. Customer lending in CIB, on
a constant currency basis, grew by 37.4% year-on-year, and 8.7%
quarter-on-quarter as at 31 December 2019.
During the year, we clearly established our new mission: we are
here to help people achieve more of their potential. In this
context, a new brand platform has been adopted and our first new
brand campaign was launched in the beginning of October 2019. Bank
of Georgia is the brand that stands for taking action and doing
something about it; we are here to empower and support our
customers and employees. Bank of Georgia is the general sponsor of
the Georgian Olympic Committee and has recently become general
sponsor of the Paralympic Committee in Georgia. We are here to
support and celebrate people who strive to succeed, regardless of
their challenges. This is all of us. This is what Bank of Georgia
stands for.
Our new Corporate Social Responsibility strategy has been
aligned with our new mission - to help people achieve more of their
potential. We do this through focusing on three main pillars:
education, employment and MSME development.
The success of our new strategy depends on two main directions:
customer satisfaction and employee engagement. We have revised the
KPIs of the top management to include Net Promoter Score (NPS) and
Employee Net Promoter Score (ENPS). There are very encouraging
signs throughout the business lines showing improved customer
satisfaction (CSAT) and higher employee engagement scores. Not to
stop there, we have invested in the leading customer experience
management platform, Medallia, which will help us capture and
prioritise large amounts of customer feedback. It was first rolled
out throughout the Bank's digital channels and we are planning to
expand it to the call center and branches in 2020.
The new management team has come together and we are all
benefiting from helping each other to take on challenges, or
upsides as we refer to them internally. The entire team is working
towards the common goal, and we are seeing strong numbers across
all business lines, especially in Corporate and Investment Banking,
SME and mortgages, growing at 33.1%(5) , 43.9%(5) and 15.2% y-o-y,
respectively, on a constant currency basis at 31 December 2019.
While other loan products have delivered slower growth due to the
new regulations, the overall loan book grew by 22.0% y-o-y at 31
December 2019 and by 7.1% in the fourth quarter alone on a constant
currency basis.
We continue to benefit from our ongoing investment in our IT,
digital and data capabilities, with the planned doubling of our
digital staff over the 12-month period to June 2020. Whilst this
has contributed to higher operating expenses, up 10.9% y-o-y in
2019 excluding one-off costs, I am delighted by how this investment
is translating into results - in terms of both strong franchise
growth and strong profitability. As an example, this has already
been reflected in a significantly higher number of mobile banking
transactions, which more than doubled during the year to 35.9
million transactions in 2019, as we continue to see a shift towards
mobile banking from other channels. Overall, more than 93% of daily
transactions are now performed through digital channels. Going
forward we expect to continue investing in building these
capabilities, but also further improve our cost to income ratio
towards our targeted 35% level.
The Group's capital and funding position remains strong. Our
capital ratios are comfortably ahead of our regulatory minimum
requirements and we continue to generate high levels of internal
capital as a result of both the Bank's high return on average
equity, and the improved risk asset intensity of our lending
growth. Over the medium term, we will continue to focus on managing
our CET1 and Tier 1 capital adequacy ratios c.200 basis points over
our minimum regulatory requirements.
At the 2020 Annual General Meeting, the Board intends to
recommend an annual dividend for 2019 of GEL 2.67 per share payable
in British Pounds Sterling at the prevailing rate. This represents
a payout ratio of 26%, in the range of our dividend payout ratio
target of 25-40%, and a 4.7% increase over last year's dividend per
share.
The Georgian economy continued to deliver strong real growth
numbers, estimated at 5.2% for 2019. Overall tourist numbers
continued to increase, despite a reduction in the number of
tourists from Russia following the direct flight ban introduced in
July 2019. The country's current account deficit reduced
significantly to estimated 4.1% of GDP in 2019, down from the 2016
highs of 12.4%, reflecting healthy growth in exports and lower
imports; trends that we expect to see continued. While the impact
of fewer Russian tourists on the economy has been small, the
negative expectations have partly resulted in the 6.0% depreciation
of the GEL vs US Dollar exchange rate since 20 June 2019, before
strengthening in December and early 2020. This did however have an
impact on headline inflation, which increased to 7.0% in December
2019. To curb this inflation, the National Bank of Georgia
increased the monetary policy rate from 6.5% to 9.0% in the second
half of 2019.
We remain very positive on the Georgian economy however.
Business confidence remains strong and, in October 2019, S&P
Global Ratings upgraded Georgia's sovereign credit rating by one
notch to BB, a testament to the positive changes as a result of the
Government's recent reforms. With a ranking of 7(th) , Georgia
remains in the top 10 of best places in the world to do business in
2020 according to the World Bank's ranking. Most notably, the
recent corporate income tax reform has resulted in Georgian
corporates having more equity which is starting to be leveraged and
invested.
In summary, the new management team has started to successfully
execute on the Group's new strategy, resulting in strong growth and
profitability in the significantly lower risk regulatory
environment. Most importantly, the pace of positive change is
accelerating and very encouraging - and the Group is very well
positioned to continue to deliver excellent momentum and strong
returns.
Archil Gachechiladze,
CEO, Bank of Georgia Group PLC
12 February 2020
(5) The growth figures are presented excluding the
reclassification of GEL 120mln loan portfolio from SME to CIB
during the second quarter 2019
DISCUSSION OF RESULTS
The Group's business is composed 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 and mass retail and mass
affluent segments, together with small and medium enterprises and
micro businesses. (2) Corporate and 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.
OPERATING INCOME
GEL thousands, unless
otherwise Change Change Change
noted 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
Interest income 393,480 345,760 13.8% 366,721 7.3% 1,437,161 1,327,085 8.3%
Interest expense (186,389) (158,322) 17.7% (165,729) 12.5% (647,742) (587,481) 10.3%
Net interest income 207,091 187,438 10.5% 200,992 3.0% 789,419 739,604 6.7%
Fee and commission income 77,472 62,350 24.3% 76,166 1.7% 284,193 229,670 23.7%
Fee and commission expense (30,914) (21,006) 47.2% (28,157) 9.8% (104,179) (76,488) 36.2%
Net fee and commission
income 46,558 41,344 12.6% 48,009 -3.0% 180,014 153,182 17.5%
Net foreign currency gain 37,177 53,358 -30.3% 32,233 15.3% 119,363 129,437 -7.8%
Net other income /
(expense) 18,439 (9,073) NMF 3,728 394.6% 21,474 7,815 174.8%
Operating income 309,265 273,067 13.3% 284,962 8.5% 1,110,270 1,030,038 7.8%
Net interest margin 5.4% 6.0% 5.4% 5.6% 6.5%
Average interest earning
assets 15,314,640 12,496,355 22.6% 14,643,443 4.6% 14,054,063 11,312,219 24.2%
Average interest bearing
liabilities 15,886,722 12,562,852 26.5% 14,704,688 8.0% 14,203,556 11,814,475 20.2%
Average net loans and
finance
lease receivables,
currency
blended 11,762,692 9,095,309 29.3% 10,984,723 7.1% 10,563,962 8,331,812 26.8%
Average net loans and
finance
lease receivables, GEL 4,844,367 3,529,999 37.2% 4,425,551 9.5% 4,229,668 3,336,575 26.8%
Average net loans and
finance
lease receivables, FC 6,918,325 5,565,310 24.3% 6,559,172 5.5% 6,334,294 4,995,237 26.8%
Average client deposits and
notes, currency blended 9,986,276 7,946,145 25.7% 9,276,227 7.7% 9,076,632 7,441,616 22.0%
Average client deposits
and notes, GEL 3,093,464 2,654,640 16.5% 2,891,726 7.0% 2,904,441 2,557,565 13.6%
Average client deposits
and notes, FC 6,892,812 5,291,505 30.3% 6,384,501 8.0% 6,172,191 4,884,051 26.4%
Average liquid assets,
currency
blended 5,287,479 4,481,396 18.0% 4,808,233 10.0% 4,767,599 4,395,537 8.5%
Average liquid assets,
GEL 2,207,009 2,142,122 3.0% 2,081,990 6.0% 2,106,672 1,971,407 6.9%
Average liquid assets,
FC 3,080,470 2,339,274 31.7% 2,726,243 13.0% 2,660,927 2,424,130 9.8%
Liquid assets yield,
currency
blended 3.7% 3.8% 3.2% 3.5% 3.8%
Liquid assets yield, GEL 7.3% 6.8% 6.4% 6.6% 6.9%
Liquid assets yield, FC 1.3% 1.0% 0.8% 1.1% 1.2%
Loan yield, currency
blended 11.4% 12.8% 11.5% 11.7% 13.5%
Loan yield, GEL 16.3% 19.7% 16.5% 17.0% 20.4%
Loan yield, FC 7.9% 8.3% 8.2% 8.1% 8.8%
Cost of funds, currency
blended 4.7% 5.0% 4.5% 4.6% 5.0%
Cost of funds, GEL 7.5% 7.2% 6.7% 7.0% 7.2%
Cost of funds, FC 3.0% 3.7% 3.2% 3.2% 3.6%
Cost / income(6) 39.3% 36.9% 37.9% 37.8% 36.7%
(6) The full year 2019 cost/income ratio is adjusted for GEL
12.4mln one-off employee costs (gross of income tax) related to
termination benefits of the former executive management
Performance highlights
-- Strong operating income of GEL 309.3mln in 4Q19 (up 13.3%
y-o-y and up 8.5% q-o-q), ending the year 2019 with operating
income of GEL 1,110.3mln (up 7.8% y-o-y). Y-o-y operating income
growth in 4Q19 and FY19 was primarily driven by an increase in net
interest income (up 10.5% y-o-y in 4Q19 and up 6.7% y-o-y in 2019),
which resulted from strong loan book growth during the year.
Additionally, net fee and commission income and net other income
contributed to y-o-y growth of operating income. The latter was
primarily driven by the GEL 12.8mln gain recorded as a result of
revaluation of investment property in the fourth quarter 2019
-- Our NIM was 5.4% in 4Q19 and 5.6% in 2019. During the fourth
quarter 2019, NIM was down 60bps y-o-y due to the 140bps y-o-y
decrease in loan yield, largely reflecting our shift towards a
higher quality, finer margin product mix on the back of tighter
regulatory conditions for unsecured consumer lending, partially
offset by 30bps y-o-y decline in cost of funds. On a twelve month
basis, loan yield was down 180bps y-o-y, while cost of funds
decreased by 40bps y-o-y, causing NIM to decline by 90bps y-o-y.
The y-o-y decline in NIM was also partially driven by the increased
minimum reserve requirements mandated by NBG as discussed in more
detail later. On a q-o-q basis, loan yield decreased by 10bps and
cost of funds increased by 20bps. However, liquid assets yield
increased significantly by 50bps q-o-q, resulting in flat q-o-q
4Q19 NIM
-- Loan yield. Currency blended loan yield was 11.4% in 4Q19
(down 140bps y-o-y and down 10bps q-o-q) and 11.7% in 2019 (down
180bps y-o-y). The y-o-y and q-o-q decline in loan yields during
the fourth quarter and on a twelve month basis in 2019 was
attributable to a decrease in both local and foreign currency loan
yields, which primarily reflected the change in product mix in our
loan portfolio
-- Liquid assets yield. Currency blended liquid assets yield was
3.7% in 4Q19 (down 10bps y-o-y and up 50bps q-o-q) and 3.5% in 2019
(down 30bps y-o-y). The y-o-y decline in liquid assets yield in
4Q19 despite the increase both in local and foreign currency
denominated liquid assets yields, was primarily driven by the
decline in the portion of higher yielding local currency liquid
assets in the total liquid assets portfolio in 2019. The local
currency denominated liquid assets yield movement (up 50bps y-o-y
and up 90bps q-o-q in 4Q19 and down 30bps y-o-y in 2019) directly
reflected the NBG monetary policy rate movements during the year.
As for the foreign currency denominated liquid assets yields (up
30bps y-o-y and up 50bps q-o-q in 4Q19 and down 10bps y-o-y in
2019), it reflected a) an increase in obligatory reserves with NBG,
primarily driven by the changes in minimum reserve requirements
mandated by NBG since September 2018, whereby the foreign currency
funds raised by local banks carried up to a 25% reserve requirement
depending on maturity, and further increase of this requirement up
to 30% since May 2019 (although the mandatory reserve requirements
on funds attracted in foreign currency was reduced to 25% in
October 2019); b) starting from 12 July 2018, NBG reduced interest
rates on foreign currency obligatory reserves from US Fed rate
upper bound minus 50bps to Fed rate upper bound minus 200bps,
floored at zero for US Dollar reserves, and from ECB rate minus
50bps to ECB rate minus 200bps, floored at negative 60bps for EUR
denominated reserves (however, starting from 3 October 2019,
following rates are in place - US Fed rate upper bound minus 50bps
for US Dollar reserves, and ECB rate minus 20bps for EUR
denominated reserves)
-- Cost of funds. Cost of funds stood at 4.7% in 4Q19 (down
30bps y-o-y and up 20bps q-o-q) and 4.6% in 2019 (down 40bps
y-o-y). Y-o-y decline in cost of funds in 4Q19 and 2019 was
primarily due to a decline in the cost of client deposits and notes
(down 40bps y-o-y in 4Q19 and down 50bps y-o-y in 2019), coupled
with the decline in cost of amounts owed to credit institutions
(down 50bps y-o-y in 4Q19 and down 20bps y-o-y in 2019), on the
back of decrease in Libor rate and lower average NBG monetary
policy rate in 2019, as well as the repayment of US$ 65mln
subordinated debt in April 2019. Furthermore, starting from 2019,
the Bank entered into certain cross-currency swap agreements to
hedge net interest rate risk on Euro lending, which contributed to
the reduction of all components of cost of funds y-o-y. This
decline in 4Q19 y-o-y was partially offset by the 10bps increase in
cost of debt securities issued as a result of the issuance of
inaugural US$ 100 million Additional Tier 1 capital perpetual
subordinated notes at the end of March 2019. On a q-o-q basis, the
20bps q-o-q increase of cost of funds in 4Q19 was primarily due to
cost of amounts owed to credit institutions on the back of
increased NBG monetary policy rate in the fourth quarter 2019 (up
150bps since 25 September 2019)
-- Net fee and commission income. Net fee and commission income
reached GEL 46.6mln in 4Q19 (up 12.6% y-o-y) and GEL 180.0mln in
2019 (up 17.5% y-o-y). Growth was mainly driven by the strong fees
and commission income generation from guarantees and letters of
credit issued by our Corporate and Investment Banking business
-- Net foreign currency gain. In line with currency volatility,
client-driven flows, as well as robust interest from foreign
financial institutions in local currency, the net foreign currency
gain was up 15.3% q-o-q and down 30.3% y-o-y in 4Q19
-- Net other income. Significant y-o-y and q-o-q increase in net
other income both in 4Q19 and 2019 was largely driven by GEL
12.8mln net gains recorded as a result of the revaluation of
investment property in the fourth quarter of 2019
NET OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF RISK; PROFIT
GEL thousands, unless
otherwise Change Change Change
noted (7) 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
Salaries and other
employee
benefits (61,504) (58,331) 5.4% (59,539) 3.3% (231,443) (215,816) 7.2%
Administrative expenses (35,131) (30,010) 17.1% (26,251) 33.8% (106,157) (113,264) -6.3%
Depreciation, amortisation
and impairment (23,815) (11,365) 109.5% (21,320) 11.7% (78,118) (45,442) 71.9%
Other operating expenses (1,095) (1,151) -4.9% (807) 35.7% (4,228) (3,995) 5.8%
Operating expenses (121,545) (100,857) 20.5% (107,917) 12.6% (419,946) (378,517) 10.9%
Profit from associate 153 318 -51.9% 194 -21.1% 789 1,339 -41.1%
Operating income before
cost
of risk 187,873 172,528 8.9% 177,239 6.0% 691,113 652,860 5.9%
Expected credit loss /
impairment
charge on loans to
customers (7,985) (25,783) -69.0% (13,617) -41.4% (94,155) (139,499) -32.5%
Expected credit loss /
impairment
charge on finance lease
receivables 451 514 -12.3% (333) NMF (885) (164) NMF
Other expected credit loss
/ impairment charge on
other
assets and provisions (6,698) (15,509) -56.8% (1,273) NMF (12,544) (20,562) -39.0%
Cost of risk (14,232) (40,778) -65.1% (15,223) -6.5% (107,584) (160,225) -32.9%
Net operating income
before
non-recurring items 173,641 131,750 31.8% 162,016 7.2% 583,529 492,635 18.5%
Net non-recurring items (1,591) (2,185) -27.2% (5,019) -68.3% (10,723) (22,643) -52.6%
Profit before income tax
expense
and one-off costs 172,050 129,565 32.8% 156,997 9.6% 572,806 469,992 21.9%
Income tax expense (15,515) (10,888) 42.5% (22,697) -31.6% (58,619) (34,948) 67.7%
Profit adjusted for
one-off
costs 156,535 118,677 31.9% 134,300 16.6% 514,187 435,044 18.2%
One-off termination costs
of former CEO and
executive
management (after tax),
one-off
demerger related expenses
(after tax) and one-off
impact
of re-measurement of
deferred
tax balances - (3,861) NMF - - (14,236) (56,402) -74.8%
Profit 156,535 114,816 36.3% 134,300 16.6% 499,951 378,642 32.0%
(7) The full year 2019 adjusted profit in the table excludes GEL
14.2mln one-off employee costs (net of income tax) related to the
former CEO and executive management termination benefits. The
amount is comprised of GEL 12.4mln (gross of income tax) excluded
from salaries and other employee benefits and GEL 4.0mln (gross of
income tax) excluded from non-recurring items. The income statement
adjusted profit in 4Q18 excludes GEL 3.9mln one-off employee costs
(net-off income tax) related to the former CEO termination
benefits, which is comprised of GEL 4.4mln (gross of income tax)
excluded from non-recurring items. In addition to this GEL 3.9mln
one-off employee costs in 4Q18, the full year 2018 income statement
adjusted profit excludes GEL 52.5mln demerger related expenses (net
of income tax) and one-off impact of re-measurement of deferred tax
balances
-- Operating expenses adjusted for one-off employee costs
related to termination benefits of former executive management
members (acceleration of share-based compensation) were GEL
121.5mln in 4Q19 (up 20.5% y-o-y and up 12.6% q-o-q) and GEL
419.9mln in 2019 (up 10.9% y-o-y). The increase in salaries and
other employee benefit expenses was mainly driven by increased
investments in IT related resources as part of the Agile
transformation process, focus on digitalisation, investments in
marketing and branch network
-- The y-o-y decline in administrative expenses and increase in
depreciation, amortisation and impairment expenses in 2019 is
primarily driven by the adoption of a new standard IFRS 16, Leases
replacing IAS 17, Leases effective 1 January 2019. As a result of
the adoption of the standard the Group recorded on its balance
sheet assets related to the right to use the rented properties
together with corresponding liabilities for respective payments
under the lease contracts. Excluding this impact, the increase in
depreciation, amortisation and impairment expenses was due to
increased investments during 2019
-- Improved asset quality. The cost of credit risk ratio was
0.2% in 4Q19 (down 90bps y-o-y and down 30bps q-o-q) and 0.9% on a
twelve months basis in 2019 (down 70bps y-o-y). RB's cost of credit
risk ratio was 0.2% in 4Q19 (down 150bps y-o-y and down 70bps
q-o-q) and 1.2% in 2019 (down 90bps y-o-y), while CIB's cost of
credit risk ratio stood at 0.5% in 4Q19 (up from a net credit of
0.2% in 4Q18 and 3Q19) and 0.2% in 2019 (down 60bps y-o-y). The
y-o-y and q-o-q decrease in RB's cost of credit risk ratio
reflected improved loan portfolio quality due to our increasing
focus on lending in the mortgage segment and to SME clients, while
CIB's cost of credit risk ratio improvement during the year was
primarily driven by the recovery of several mid- to low-sized
corporate loans in 4Q18 and first nine months of 2019
-- Quality of our loan book remained strong in 4Q19 as evidenced
by the following closely monitored metrics. The improvement in NPLs
to gross loans was primarily driven by write-off and recovery of
several non-performing corporate loans during 4Q19. The NPL
coverage ratio was also down due to write-offs during the fourth
quarter 2019. That said, NPL coverage ratio adjusted for the
discounted value of collateral improved both y-o-y and q-o-q at 31
December 2019:
GEL thousands, unless otherwise noted Dec-19 Dec-18 Change Sep-19 Change
y-o-y q-o-q
Non-performing loans
NPLs 252,695 318,356 -20.6% 339,118 -25.5%
NPLs to gross loans 2.1% 3.3% 2.9%
NPLs to gross loans, RB 1.5% 2.1% 1.8%
NPLs to gross loans, CIB 3.0% 5.6% 5.0%
NPL coverage ratio 80.9% 90.5% 85.3%
NPL coverage ratio adjusted for the
discounted value of collateral 139.6% 129.9% 129.3%
-- BNB - the Group's banking subsidiary in Belarus - continues
to remain strongly capitalised, with capital adequacy ratios well
above the requirements of the National Bank of the Republic of
Belarus ("NBRB"). At 31 December 2019, total capital adequacy ratio
was 15.0%, above the 10% minimum requirement, while Tier I capital
adequacy ratio was 9.1%, above NBRB's 7% minimum requirement. ROAE
was 16.7% in 4Q19 (19.5% in 4Q18 and 18.1% in 3Q19) and 14.5% in
2019 (14.6% in 2018). For detailed financial results of BNB, please
see page 23
-- Net non-recurring items. Net non-recurring expenses adjusted
for one-off costs amounted to GEL 1.6mln in 4Q19 (GEL 2.2mln in
4Q18 and GEL 5.0mln in 3Q19) and GEL 10.7mln in 2019 (GEL 22.6mln
in 2018), largely reflecting legal fees incurred during 2019
-- Income tax expense. Income tax expense amounted to GEL
15.5mln in 4Q19 (up 42.5% y-o-y and down 31.6% q-o-q) and GEL
58.6mln in 2019 (up 67.7% y-o-y). The q-o-q decline in 4Q19 was
primarily driven by a one-off GEL 8.5mln additional tax expense
posted in 3Q19 as a result of reassessment of deferred tax
balances, in relation to changes in the assumptions made in June
2018 relating to the amendments to the corporate taxation model
applicable to financial institutions, as applicable for the period
starting from 1 January 2019
-- Overall, profit adjusted for one-off costs totalled GEL
156.5mln in 4Q19 (up 31.9% y-o-y and up 16.6% q-o-q) and GEL
514.2mln in 2019 (up 18.2% y-o-y), while ROAE(8) was 29.9% in 4Q19
(27.0% in 4Q18 and 26.8% in 3Q19) and 26.1% on twelve month basis
in 2019 (26.4% in 2018)
(8) The full year 2019 ROAE is adjusted for GEL 14.2mln one-off
employee costs (net of income tax) related to termination benefits
of the former CEO and executive management. 4Q18 ROAE is adjusted
for GEL 3.9mln one-off employee costs (net of income tax) related
to termination benefits of the former CEO. In addition to this GEL
3.9mln one-off employee costs in 4Q18, the full year 2018 ROAE is
adjusted for GEL 52.5mln demerger related expenses (net of income
tax) and one-off impact of re-measurement of deferred tax
balances
BALANCE SHEET HIGHLIGHTS
GEL thousands, unless otherwise Dec-19 Dec-18 Change Sep-19 Change
noted y-o-y q-o-q
Liquid assets 5,559,500 4,540,032 22.5% 5,099,111 9.0%
Liquid assets, GEL 2,245,740 2,283,812 -1.7% 2,136,320 5.1%
Liquid assets, FC 3,313,760 2,256,220 46.9% 2,962,791 11.8%
Net loans and finance lease receivables 11,931,262 9,397,747 27.0% 11,339,745 5.2%
Net loans and finance lease receivables,
GEL 4,946,387 3,597,826 37.5% 4,655,533 6.2%
Net loans and finance lease receivables,
FC 6,984,875 5,799,921 20.4% 6,684,212 4.5%
Client deposits and notes 10,076,735 8,133,853 23.9% 9,613,718 4.8%
Amounts owed to credit institutions 3,934,123 2,994,879 31.4% 3,437,718 14.4%
Borrowings from DFIs 1,486,044 1,302,679 14.1% 1,355,426 9.6%
Short-term loans from central banks 1,551,953 1,118,957 38.7% 1,271,027 22.1%
Loans and deposits from commercial
banks 896,126 573,243 56.3% 811,265 10.5%
Debt securities issued 2,120,064 1,730,414 22.5% 2,175,820 -2.6%
Dec-19 Dec-18 Sep-19
Liquidity and CAR ratios
Net loans / client deposits and
notes 118.4% 115.5% 118.0%
Net loans / client deposits and
notes + DFIs 103.2% 99.6% 103.4%
Liquid assets / total assets 29.9% 30.7% 29.1%
Liquid assets / total liabilities 33.9% 34.9% 32.9%
NBG liquidity ratio 31.1% 31.9% 36.8%
NBG liquidity coverage ratio 136.7% 120.1% 118.5%
NBG (Basel III) CET1 capital adequacy
ratio 11.5% 12.2% 11.1%
NBG (Basel III) Tier I capital adequacy
ratio 13.6% 12.2% 13.3%
NBG (Basel III) Total capital adequacy
ratio 18.1% 16.6% 16.8%
Our balance sheet remains highly liquid (NBG liquidity coverage
ratio of 136.7%) and strongly capitalised (NBG Basel III Tier I
capital adequacy ratio of 13.6%) with a well-diversified funding
base (client deposits and notes to total liabilities of 61.4%).
-- Liquidity. Liquid assets stood at GEL 5,559.5mln at 31
December 2019, up 22.5% y-o-y and up 9.0% q-o-q. The notable
increase over the year was in obligatory reserves with NBG,
combined with excess liquidity deployed with credit institutions.
The NBG Liquidity coverage ratio was 136.7% at 31 December 2019
(120.1% at 31 December 2018 and 118.5% at 30 September 2019), well
above the 100% minimum requirement level
-- Loan book. Our net loan book and finance lease receivables
reached GEL 11,931.3mln at 31 December 2019, up 27.0% y-o-y and up
5.2% q-o-q. As of 31 December 2019, the retail loan book
represented 66.0% of the total loan portfolio (69.8% at 31 December
2018 and 65.8% at 30 September 2019). Both local and foreign
currency portfolios experienced strong y-o-y growth of 37.5% and
20.4%, respectively. Furthermore, local currency denominated loan
portfolio was up 6.2% q-o-q, while foreign currency denominated
loan book grew by 4.5% q-o-q. The local currency loan portfolio
growth was partially driven by the Government's de-dollarisation
initiatives and our goal to increase the share of local currency
loans in our portfolio
-- Dollarisation of our loan book and client deposits. The
retail client loan book in foreign currency accounted for 43.7% of
the total RB loan book at 31 December 2019 (50.3% at 31 December
2018 and 43.9% at 30 September 2019), while retail client foreign
currency deposits comprised 68.0% of total RB deposits at 31
December 2019 (69.7% at 31 December 2018 and 69.2% at 30 September
2019). At 31 December 2019, 81.1% of CIB's loan book was
denominated in foreign currency (82.3% at 31 December 2018 and
82.1% at 30 September 2019), while 65.9% of CIB deposits were
denominated in foreign currency (61.2% at 31 December 2018 and
64.1% at 30 September 2019)
-- 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 103.2% at 31 December 2019 (99.6% at
31 December 2018 and 103.4% at 30 September 2019)
-- Diversified funding base. Debt securities issued grew by
22.5% y-o-y at 31 December 2019. The y-o-y increase was primarily
driven by the issuance of US$ 100 million Additional Tier 1 capital
notes in March 2019 (see details below)
-- Capital Adequacy requirements. At 31 December 2019, the Basel
III Common Equity Tier 1, Tier 1 and Total capital adequacy ratios
stood at 11.5%, 13.6% and 18.1%, respectively, all comfortably
above the minimum required levels of 10.1%, 12.2% and 17.1%,
respectively
- In March 2019, the Bank issued its inaugural US$ 100 million
11.125% Additional Tier 1 capital perpetual subordinated notes
callable after 5.25 years and on every subsequent interest payment
date, subject to prior consent of the National Bank of Georgia at
an issue price of 100.00% (the "Notes"). The Notes are listed on
the Irish Stock Exchange and rated B- (Fitch). The issuance was the
first international offering of Additional Tier 1 Capital Notes
from Georgia and the South Caucasus region. The regulatory approval
on the classification of the Notes as Additional Tier 1 instruments
was received in April 2019
- In December 2019, the Bank signed a ten-year US$ 107mln
subordinated syndicated loan agreement arranged by FMO - Dutch
entrepreneurial development bank in collaboration with other
participating lenders (the Bank's existing and new partner
financial institutions). The facility is expected to be treated as
a Bank Tier 2 capital instrument (upon disbursement and approval of
the National Bank of Georgia) under the Basel III framework, which
will help to further improve the Bank's capital position. Of the
total facility, US$ 52mln was already drawn-down by the Bank and
the regulatory approval on classification was received in December
2019. The undrawn part of the facility is expected to be utilised
as needed within six months of 2020
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 represented by the following
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
otherwise Change Change Change
noted 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
INCOME STATEMENT
HIGHLIGHTS(9)
Net interest income 134,839 136,895 -1.5% 142,202 -5.2% 545,701 546,873 -0.2%
Net fee and commission
income 32,775 32,915 -0.4% 36,696 -10.7% 136,510 118,858 14.9%
Net foreign currency gain 14,795 24,047 -38.5% 14,410 2.7% 51,009 56,357 -9.5%
Net other income / (expense) 9,233 (5,420) NMF 581 NMF 8,230 1,372 NMF
Operating income 191,642 188,437 1.7% 193,889 -1.2% 741,450 723,460 2.5%
Salaries and other employee
benefits (39,683) (37,052) 7.1% (37,732) 5.2% (147,982) (138,635) 6.7%
Administrative expenses (22,593) (21,620) 4.5% (17,585) 28.5% (70,968) (84,323) -15.8%
Depreciation, amortisation
and impairment (20,383) (9,857) 106.8% (17,973) 13.4% (66,136) (39,134) 69.0%
Other operating expenses (625) (639) -2.2% (379) 64.9% (2,286) (2,332) -2.0%
Operating expenses (83,284) (69,168) 20.4% (73,669) 13.1% (287,372) (264,424) 8.7%
Profit from associate 153 318 -51.9% 194 -21.1% 789 1,339 -41.1%
Operating income before cost
of risk 108,511 119,587 -9.3% 120,414 -9.9% 454,867 460,375 -1.2%
Cost of risk (7,118) (37,486) -81.0% (16,831) -57.7% (89,879) (130,715) -31.2%
Net operating income before
non-recurring items 101,393 82,101 23.5% 103,583 -2.1% 364,988 329,660 10.7%
Net non-recurring items 68 (779) NMF (575) NMF (846) (13,529) -93.7%
Profit before income tax
expense and one-off costs 101,461 81,322 24.8% 103,008 -1.5% 364,142 316,131 15.2%
Income tax expense (8,910) (6,155) 44.8% (14,060) -36.6% (35,396) (21,389) 65.5%
Profit adjusted for one-off
costs 92,551 75,167 23.1% 88,948 4.1% 328,746 294,742 11.5%
One-off termination costs
of former CEO and executive
management (after tax),
one-off
demerger related expenses
(after tax) and one-off
impact
of re-measurement of
deferred
tax balances - (2,939) NMF - - (10,142) (36,483) -72.2%
Profit 92,551 72,228 28.1% 88,948 4.1% 318,604 258,259 23.4%
BALANCE SHEET HIGHLIGHTS
Net loans, currency blended 7,427,721 6,267,071 18.5% 7,083,432 4.9% 7,427,721 6,267,071 18.5%
Net loans, GEL 4,181,192 3,117,454 34.1% 3,974,913 5.2% 4,181,192 3,117,454 34.1%
Net loans, FC 3,246,529 3,149,617 3.1% 3,108,519 4.4% 3,246,529 3,149,617 3.1%
Client deposits, currency
blended 5,712,535 4,338,712 31.7% 5,384,371 6.1% 5,712,535 4,338,712 31.7%
Client deposits, GEL 1,829,133 1,314,902 39.1% 1,657,025 10.4% 1,829,133 1,314,902 39.1%
Client deposits, FC 3,883,402 3,023,810 28.4% 3,727,346 4.2% 3,883,402 3,023,810 28.4%
of which:
Time deposits, currency
blended 3,221,741 2,430,311 32.6% 3,074,292 4.8% 3,221,741 2,430,311 32.6%
Time deposits, GEL 817,879 566,490 44.4% 753,198 8.6% 817,879 566,490 44.4%
Time deposits, FC 2,403,862 1,863,821 29.0% 2,321,094 3.6% 2,403,862 1,863,821 29.0%
Current accounts and demand
deposits, currency blended 2,490,794 1,908,401 30.5% 2,310,079 7.8% 2,490,794 1,908,401 30.5%
Current accounts and demand
deposits, GEL 1,011,254 748,412 35.1% 903,827 11.9% 1,011,254 748,412 35.1%
Current accounts and demand
deposits, FC 1,479,540 1,159,989 27.5% 1,406,252 5.2% 1,479,540 1,159,989 27.5%
KEY RATIOS
ROAE(9) 31.4% 28.4% 30.7% 28.6% 30.3%
Net interest margin,
currency
blended 5.7% 6.7% 6.1% 6.1% 7.5%
Cost of credit risk ratio 0.2% 1.7% 0.9% 1.2% 2.1%
Cost of funds, currency
blended 5.3% 5.7% 4.9% 5.2% 5.8%
Loan yield, currency blended 12.4% 14.2% 12.8% 12.9% 15.1%
Loan yield, GEL 16.7% 20.7% 17.0% 17.6% 21.5%
Loan yield, FC 6.8% 7.4% 7.5% 7.3% 7.9%
Cost of deposits, currency
blended 2.5% 2.9% 2.6% 2.6% 2.9%
Cost of deposits, GEL 5.1% 5.0% 5.0% 5.1% 4.9%
Cost of deposits, FC 1.4% 2.1% 1.5% 1.5% 2.0%
Cost of time deposits,
currency
blended 3.8% 4.2% 3.8% 3.9% 4.2%
Cost of time deposits, GEL 8.6% 8.7% 8.4% 8.6% 8.7%
Cost of time deposits, FC 2.2% 2.9% 2.3% 2.3% 2.9%
Current accounts and demand
deposits, currency blended 0.9% 1.2% 1.0% 1.0% 1.1%
Current accounts and demand
deposits, GEL 2.2% 2.1% 2.2% 2.2% 2.0%
Current accounts and demand
deposits, FC 0.1% 0.7% 0.1% 0.2% 0.6%
Cost / income ratio(10) 43.5% 36.7% 38.0% 38.8% 36.6%
(9) The full year 2019 income statement adjusted profit excludes
GEL 10.1mln one-off employee costs (net of income tax) related to
the former CEO and executive management termination benefits. The
amount is comprised of GEL 8.6mln (gross of income tax) excluded
from salaries and other employee benefits and GEL 2.9mln (gross of
income tax) excluded from non-recurring items. The income statement
adjusted profit in 4Q18 excludes GEL 2.9mln one-off employee costs
(net-off income tax) related to the former CEO termination
benefits, which is comprised of GEL 3.3mln (gross of income tax)
excluded from non-recurring items. In addition to this GEL 2.9mln
one-off employee costs in 4Q18, the full year 2018 income statement
adjusted profit excludes GEL 33.5mln demerger related expenses (net
of income tax) and one-off impact of re-measurement of deferred tax
balances. The ROAE has been adjusted accordingly for all respective
periods presented
(10) The full year 2019 cost/income ratio is adjusted for GEL
8.6mln one-off employee costs (gross of income tax) related to
termination benefits of the former executive management
Performance highlights
-- Retail Banking delivered solid quarterly results in each of
its major segments and generated operating income of GEL 191.6mln
in 4Q19 (up 1.7% y-o-y) and GEL 741.5mln in 2019 (up 2.5%
y-o-y)
-- RB's net interest income was down 1.5% y-o-y and down 5.2%
q-o-q in 4Q19, and largely flat on a twelve months basis in 2019,
primarily driven by the regulations introduced by the National Bank
of Georgia on consumer lending in 2018. Net interest income still
benefits from the growth of the local currency loan portfolio,
which generated 9.9ppts and 10.3ppts higher yields than the foreign
currency loan portfolio in 4Q19 and 2019, respectively
-- Retail Banking net loan book reached GEL 7,427.7mln at 31
December 2019, up 18.5% y-o-y and up 4.9% q-o-q. On a constant
currency basis retail loan book increased by 15.1% y-o-y and by
6.3% q-o-q in 4Q19. Local currency denominated loan book increased
by 34.1% y-o-y and by 5.2% q-o-q, while the foreign currency
denominated loan book grew by 3.1% y-o-y and by 4.4% q-o-q. As a
result, the local currency denominated loan book accounted for
56.3% of the Retail Banking loan book at 31 December 2019 (49.7% at
31 December 2018 and 56.1% at 30 September 2019). The shift of the
loan portfolio was partially driven by the Government's
de-dollarisation initiatives and our goal to increase the share of
local currency loans in our portfolio. Currently, the part of the
loan portfolio which is most sensitive to foreign currency risk is
largely de-dollarised
-- The loan portfolio composition reflects the shift towards a
higher quality, finer margin product mix on the back of tighter
lending conditions for unsecured consumer lending. The y-o-y and
q-o-q loan book growth reflected continued strong loan origination
levels in MSME and mortgage segments. The y-o-y decline in the
mortgage loan originations is reflective of the consumer lending
regulation change in 2018 becoming effective from 1 January 2019,
which drove higher demand on this product in the second half of
2018 on the back of upcoming regulation expectations. Furthermore,
the GEL devaluation since June 2019 has also contributed to slow
down of originations:
Retail Banking loan book by products
GEL million, unless Change Change Change
otherwise noted 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
Loan originations
Consumer loans 412.5 436.5 -5.5% 396.4 4.1% 1,523.0 1,492.1 2.1%
Mortgage loans 411.1 555.1 -25.9% 365.0 12.6% 1,438.4 1,814.6 -20.7%
Micro loans 421.0 341.6 23.3% 281.9 49.4% 1,313.4 1,144.2 14.8%
SME loans 365.9 223.8 63.5% 273.9 33.6% 1,093.7 697.8 56.7%
POS loans 28.1 32.4 -13.2% 20.9 34.4% 81.9 137.0 -40.2%
Outstanding balance
Consumer loans 1,549.0 1,379.7 12.3% 1,505.0 2.9% 1,549.0 1,379.7 12.3%
Mortgage loans 3,042.5 2,539.3 19.8% 2,948.5 3.2% 3,042.5 2,539.3 19.8%
Micro loans 1,492.0 1,246.3 19.7% 1,427.1 4.5% 1,492.0 1,246.3 19.7%
SME loans(11) 1,031.5 758.7 36.0% 899.1 14.7% 1,031.5 758.7 36.0%
POS loans 43.4 58.6 -25.8% 37.1 17.2% 43.4 58.6 -25.8%
(11) SME portfolio was up 43.9% y-o-y on a constant currency
basis excluding the GEL 120mln loan portfolio reclassification from
SME to CIB in the second quarter of 2019
-- Retail Banking client deposits increased to GEL 5,712.5mln as
at 31 December 2019, up 31.7% y-o-y and up 6.1% q-o-q. The
dollarisation level of our deposits stood at 68.0% at 31 December
2019, compared to 69.7% at 31 December 2018 and 69.2% at 30
September 2019. The cost of foreign currency denominated deposits
was down 70bps y-o-y and down 10bps q-o-q in 4Q19 and was down
50bps y-o-y in 2019, while the cost of local currency denominated
deposits increased by 10bps y-o-y and q-o-q in 4Q19 and increased
by 20bps y-o-y in 2019. The spread between the cost of RB's client
deposits in GEL and foreign currency widened to 3.7ppts during 4Q19
(GEL: 5.1%; FC: 1.4%) compared to 2.9ppts in 4Q18 (GEL: 5.0%; FC:
2.1%) and 3.5ppts in 3Q19 (GEL: 5.0%; FC: 1.5%). On a twelve months
basis, the spread widened to 3.6ppts in 2019 (GEL: 5.1%; FC: 1.5%)
compared to 2.9ppts in 2018 (GEL: 4.9%; FC: 2.0%). Local currency
denominated deposits increased at a faster pace to GEL 1,829.1mln
(up 39.1% y-o-y and up 10.4% q-o-q), as compared to foreign
currency denominated deposits that grew to GEL 3,883.4mln (up 28.4%
y-o-y and up 4.2% q-o-q)
-- Retail Banking NIM was 5.7% in 4Q19 (down 100bps y-o-y and
down 40bps q-o-q) and 6.1% in 2019 (down 140bps y-o-y). The y-o-y
decline in NIM in 4Q19 and 2019 was attributable to lower loan
yields (down 180bps y-o-y in 4Q19 and down 220bps y-o-y in 2019),
mainly driven by the change in the Retail Banking loan portfolio
product mix, with the lower yield-lower risk products share
increasing in the total RB loan portfolio. Meanwhile, the cost of
funds decreased by 40bps y-o-y in 4Q19 and by 60bps y-o-y in 2019,
primarily on the back of decrease in Libor rate and lower average
NBG monetary policy rate during 2019, as well as net gains recorded
in 2019 as a result of cross-currency swap agreements signed to
hedge net interest rate risk on Euro lending. On a
quarter-on-quarter basis, 40bps decline in loan yields were coupled
by 40bps increase in cost of funds (NBG increased monetary policy
rate by cumulative of 150bps since 25 September 2019), resulting in
40bps q-o-q decline in NIM in 4Q19
-- Strong growth in Retail Banking net fee and commission
income. The strong y-o-y growth in net fee and commission income
during 2019 was driven by an increase in settlement operations and
the strong underlying growth in our Solo, mass retail and MSME
segments
-- RB's asset quality improved significantly in 4Q19 reflecting
our increasing focus on lending in the mortgage segment and to
finer margin SME clients. Cost of credit risk ratio was 0.2% in
4Q19 (down from 1.7% in 4Q18 and from 0.9% in 3Q19) and 1.2% in
2019 (down from 2.1% in 2018)
-- Our Retail Banking business continued to deliver solid growth
as we further develop our strategy towards continuous
digitalisation, as demonstrated by the following performance
indicators:
Retail Banking performance indicators
Volume information Change Change Change
in GEL thousands 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
Retail Banking
customers
Number of new
customers 55,303 54,975 0.6% 42,534 30.0% 178,857 202,386 -11.6%
Number of customers 2,540,466 2,440,754 4.1% 2,500,826 1.6% 2,540,466 2,440,754 4.1%
Cards
Number of cards
issued 230,540 243,843 -5.5% 176,922 30.3% 766,653 833,807 -8.1%
Number of cards
outstanding 2,145,060 2,177,273 -1.5% 2,121,830 1.1% 2,145,060 2,177,273 -1.5%
Express Pay terminals
Number of Express Pay
terminals 3,217 3,115 3.3% 3,231 -0.4% 3,217 3,115 3.3%
Number of
transactions
via Express Pay
terminals 27,434,540 27,924,360 -1.8% 26,644,743 3.0% 108,329,849 108,240,230 0.1%
Volume of
transactions
via Express Pay
terminals 2,334,579 1,848,746 26.3% 2,193,261 6.4% 8,244,816 6,741,247 22.3%
POS terminals
Number of desks 15,592 10,009 55.8% 15,185 2.7% 15,592 10,009 55.8%
Number of contracted
merchants 7,519 5,575 34.9% 7,545 -0.3% 7,519 5,575 34.9%
Number of POS
terminals 21,869 16,870 29.6% 21,088 3.7% 21,869 16,870 29.6%
Number of
transactions
via POS terminals 24,073,703 16,932,793 42.2% 21,646,160 11.2% 83,054,544 62,110,165 33.7%
Volume of
transactions
via POS terminals 742,067 537,668 38.0% 707,049 5.0% 2,555,076 1,937,392 31.9%
Internet banking
Number of active
users(12) 294,081 295,226 -0.4% 268,053 9.7% 294,081 295,226 -0.4%
Number of
transactions
via internet bank 1,268,672 1,541,779 -17.7% 1,273,318 -0.4% 5,302,066 5,892,493 -10.0%
Volume of
transactions
via internet bank 641,560 620,273 3.4% 579,426 10.7% 2,269,103 2,029,599 11.8%
Mobile banking
Number of active
users(12) 513,677 333,698 53.9% 448,176 14.6% 513,677 333,698 53.9%
Number of
transactions
via mobile bank 11,541,763 5,506,212 109.6% 9,516,173 21.3% 35,938,168 15,676,447 129.2%
Volume of
transactions
via mobile bank 1,564,891 697,296 124.4% 1,265,778 23.6% 4,646,167 1,961,108 136.9%
(12) The users that log-in in internet and mobile bank at least
once in three months
-- Growth in the client base was due to the increased offering
of cost-effective remote channels. The increase to 2,540,466
customers as at 31 December 2019 (up 4.1% y-o-y and up 1.6% q-o-q)
reflects 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 in 2019
-- The number of outstanding cards decreased by 1.5% y-o-y and
increased by 1.1% q-o-q at 31 December 2019 primarily due to
Express cards which have been declining in line with the recently
introduced regulations on consumer lending. Excluding the Express
cards, total number of cards outstanding as at 31 December 2019
increased by 23.3% y-o-y and 6.8% q-o-q. The number of Loyalty
programme Plus+ cards, launched in July 2017 as part of RB's
client-centric approach, reached 858,707 as at 31 December 2019, up
44.9% y-o-y and up 8.4% q-o-q
-- Digital channels. We have actively continued the further
development of our digital strategy. The Bank continued introducing
new features to our mobile banking application and our internet
bank and introducing dedicated digital spaces in our branches to
incentivise offloading client activity to digital channels. As a
result of investments, the number of active internet and mobile
banking users, as well as the number and volume of transactions
through our mobile and internet banking continued to expand
- mBank digital penetration growth. For our mobile banking
application, the number of transactions (up 109.6% y-o-y and up
21.3% q-o-q in 4Q19 and up 129.2% y-o-y in 2019) and the volume of
transactions (up 124.4% y-o-y and up 23.6% q-o-q in 4Q19 and up
136.9% y-o-y in 2019) continue to show outstanding growth. Since
its launch on 29 May 2017, 1,263,162 downloads have been made by
the Bank's customers. During the same period approximately 55.0
million transactions were performed using the application
- Significant growth in loans issued and deposits opened through
Internet and Mobile Bank of individual customers. In 2017, we
started actively offering loans and deposit products to our clients
through the Internet Bank. In 2019, 22,605 loans were issued with a
total value of GEL 34.5mln, and 14,811 deposits were opened with a
total value of GEL 42.2mln through Internet Bank. Starting from
2018, our customers have been able to apply for a loan and open a
deposit account via mBank as well. In 2019, 77,232 loans were
issued with a total value of GEL 80.3mln, and 52,980 deposit
accounts were opened with a total deposited amount of GEL 60.4mln
using the mobile banking application. As a result, more than 93% of
total daily transactions were executed through digital channels
during 4Q19 and 2019
- The utilisation of Express Pay terminals continued to grow in
4Q19. The volume of transactions increased by 26.3% y-o-y and by
6.4% q-o-q in 4Q19 and increased by 22.3% y-o-y in 2019, while the
number of transactions slightly decreased by 1.8% y-o-y and
increased by 3.0% q-o-q in 4Q19 and increased by 0.1% y-o-y in
2019. The decline in number of transactions was primarily due to
the migration of customers to mobile and internet banking
platforms. The fees charged to clients for transactions executed
through express pay terminals amounted to GEL 6.1mln in 4Q19 (up
7.8% y-o-y and up 7.7% q-o-q) and GEL 23.0mln in 2019 (up 4.3%
y-o-y)
-- Digital ecosystem developments:
- In 1Q19, the Group launched a cutting-edge full-service real
estate digital platform, area.ge. The platform is unique on the
Georgian real estate market and is the first platform to be fully
integrated with the Bank to provide its users a "one-click" live
credit limit appraisal and mortgage application experience. The
Group aims to boost its mortgage portfolio by gaining access to a
new clientèle, and simultaneously offering value-added services to
real estate developers and agencies. During 2019, more than
1,500,000 unique visitors and over 600 developers and real estate
agencies were registered, and mortgage leads with a value of more
than GEL 80 million have been generated through the platform since
its launch in March 2019
- In 2Q19, the Group acquired a leading Georgian e-commerce
platform, extra.ge. Previously, the platform facilitated
consumer-to-consumer (C2C) sales through its website and social
media channels. Since the acquisition in May 2019, the extra.ge is
being upgraded to support the marketplace with business-to-consumer
(B2C) and business-to-business (B2B) sales, already having a
network of the 100+ largest vendors onboard supporting its new
strategy. As a result, the platform has grown to 109,000 registered
users and up to two million unique visitors. The Group is in
process of transforming the platform into a vibrant and dynamic
full-scale digital marketplace and the full-scale re-launch is
planned in the first quarter of 2020. The revamped extra.ge will
facilitate consumer-to-consumer (C2C), business-to-consumer (B2C),
and business-to-business (B2B) sales through its website and social
media channels. In 2020, we target up to 600,000 unique visitors
per month buying and selling c.100,000 unique products and services
via the platform. The clients will be able to access their Bank of
Georgia banking products in a fully integrated way: extra.ge will
be integrated with the Bank's current flexible single sign-on and
payment system and will offer the Bank's pre-approved instant
installment loans to enable its customers to purchase selected
products. The Bank's retail and MSME clients will enjoy the
excellent opportunities of a new consumer experience and doing
business in a dynamic and flexible digital marketplace
- In September 2019, the Group launched Optimo - a digital
solution for our MSME customers to run their business sales and
solutions. The platform is designed to address the needs of micro,
small and medium sized enterprises in optimising their day-to-day
operations and better managing their businesses in general. Optimo
challenges the status quo on the Georgian market, committing to the
goal to change the MSME business environment by uniting the
fragmented players under one community via providing access to
technology, knowledge and services that were previously accessible
only for big market players. Optimo's cutting-edge digital
inventory management and POS solution, with integrated software and
a rich variety of functions and analytical tools, enables
businesses to easily manage sales and inventory, as well as access
their most recent data on sales transactions, inventory, revenues
and profitability, anytime and anywhere, and make timely decisions
with relevant information at hand
-- Solo, our premium banking brand, continues its strong growth
and investment in its lifestyle brand. We have now 12 Solo lounges,
of which 9 are located in Tbilisi, the capital of Georgia, and 3 in
major regional cities of Georgia. The number of Solo clients
reached 54,542 at 31 December 2019 (44,292 at 31 December 2018 and
51,692 at 30 September 2019). Solo is targeting doubling profit in
3 years to GEL 112mln through excellence in customer service,
higher digitalisation and tailor-made bundled offerings. In 4Q19,
the product to client ratio for the Solo segment was 5.1, compared
to 2.1 for our retail franchise. While Solo clients currently
represent 2.1% of our total retail client base, they contributed
29.7% to our retail loan book, 38.8% to our retail deposits, 22.5%
and 24.0% to our net retail interest income and to our net retail
fee and commission income in 4Q19, respectively. The fee and
commission income from the Solo segment reached GEL 6.4mln in 4Q19
(GEL 5.6mln in 4Q18 and GEL 6.7mln in 3Q19) and GEL 25.5mln in 2019
(GEL 21.2mln in 2018). Solo Club, a membership group within Solo
which offers exclusive access to Solo products and offers ahead of
other Solo clients at a higher fee, continued to increase its
client base. At 31 December 2019, Solo Club had 5,482 members, up
43.3% y-o-y and up 6.4% q-o-q
-- MSME banking delivered strong growth. The number of MSME
segment clients reached 220,603 at 31 December 2019, up 13.0% y-o-y
and up 0.5% q-o-q. MSME's loan portfolio reached GEL 2,697.4mln at
31 December 2019 (up 23.9% y-o-y and up 7.9% q-o-q) and client
deposits and notes increased to GEL 807.7mln (up 21.6% y-o-y and up
6.5% q-o-q). The MSME segment generated operating income of GEL
55.8mln in 4Q19 (up 12.9% y-o-y and down 2.4% q-o-q) and GEL
208.4mln in 2019 (up 25.9% y-o-y)
-- Retail Banking profit adjusted for one-off costs (see details
in footnotes on page 13) was GEL 92.6mln in 4Q19 (up 23.1% y-o-y
and up 4.1% q-o-q) and GEL 328.7mln in 2019 (up 11.5% y-o-y).
Retail Banking continued to deliver an outstanding ROAE(13) of
31.4% in 4Q19 (28.4% in 4Q18 and 30.7% in 3Q19) and 28.6% in 2019
(30.3% in 2018)
(13) The full year 2019 ROAE is adjusted for GEL 10.1mln one-off
employee costs (net of income tax) related to termination benefits
of the former CEO and executive management. 4Q18 ROAE is adjusted
for GEL 2.9mln one-off employee costs (net of income tax) related
to termination benefits of the former CEO. In addition to this GEL
2.9mln one-off employee costs in 4Q18, the full year 2018 ROAE is
adjusted for GEL 33.5mln demerger related expenses (net of income
tax) and one-off impact of re-measurement of deferred tax
balances
CORPORATE AND 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 in Georgia and internationally
through representative offices in Tbilisi, London, Budapest,
Istanbul and Tel Aviv.
GEL thousands, unless
otherwise Change Change Change
noted 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
INCOME STATEMENT
HIGHLIGHTS(14)
Net interest income 65,642 43,696 50.2% 51,827 26.7% 217,874 165,723 31.5%
Net fee and commission
income 11,928 6,939 71.9% 9,826 21.4% 37,018 26,680 38.7%
Net foreign currency gain 14,341 23,984 -40.2% 13,510 6.2% 49,355 54,702 -9.8%
Net other income / (expense) 9,212 (3,451) NMF 3,300 179.2% 13,506 6,699 101.6%
Operating income 101,123 71,168 42.1% 78,463 28.9% 317,753 253,804 25.2%
Salaries and other employee
benefits (15,495) (14,645) 5.8% (15,304) 1.2% (57,975) (54,792) 5.8%
Administrative expenses (8,989) (4,921) 82.7% (5,866) 53.2% (22,886) (17,409) 31.5%
Depreciation, amortisation
and impairment (2,387) (1,122) 112.7% (2,416) -1.2% (8,437) (4,945) 70.6%
Other operating expenses (295) (347) -15.0% (241) 22.4% (1,042) (1,175) -11.3%
Operating expenses (27,166) (21,035) 29.1% (23,827) 14.0% (90,340) (78,321) 15.3%
Operating income before cost
of risk 73,957 50,133 47.5% 54,636 35.4% 227,413 175,483 29.6%
Cost of risk (7,389) (3,408) 116.8% 1,239 NMF (14,548) (25,888) -43.8%
Net operating income before
non-recurring items 66,568 46,725 42.5% 55,875 19.1% 212,865 149,595 42.3%
Net non-recurring items (217) (619) -64.9% (3) NMF (293) (6,597) -95.6%
Profit before income tax
expense and one-off costs 66,351 46,106 43.9% 55,872 18.8% 212,572 142,998 48.7%
Income tax expense (5,344) (3,570) 49.7% (7,444) -28.2% (19,819) (10,014) 97.9%
Profit adjusted for one-off
costs 61,007 42,536 43.4% 48,428 26.0% 192,753 132,984 44.9%
One-off termination costs
of former CEO and executive
management (after tax),
one-off
demerger related expenses
(after tax) and one-off
impact
of re-measurement of
deferred
tax balances - (922) NMF - - (4,094) (13,846) -70.4%
Profit 61,007 41,614 46.6% 48,428 26.0% 188,659 119,138 58.4%
BALANCE SHEET HIGHLIGHTS
Net loans and finance lease
receivables, currency
blended 3,804,448 2,618,489 45.3% 3,588,099 6.0% 3,804,448 2,618,489 45.3%
Net loans and finance
lease
receivables, GEL 720,375 464,397 55.1% 640,555 12.5% 720,375 464,397 55.1%
Net loans and finance
lease
receivables, FC 3,084,073 2,154,092 43.2% 2,947,544 4.6% 3,084,073 2,154,092 43.2%
Client deposits, currency
blended 3,824,667 3,473,054 10.1% 3,720,322 2.8% 3,824,667 3,473,054 10.1%
Client deposits, GEL 1,305,230 1,347,754 -3.2% 1,337,082 -2.4% 1,305,230 1,347,754 -3.2%
Client deposits, FC 2,519,437 2,125,300 18.5% 2,383,240 5.7% 2,519,437 2,125,300 18.5%
Time deposits, currency
blended 1,349,969 1,337,112 1.0% 1,321,057 2.2% 1,349,969 1,337,112 1.0%
Time deposits, GEL 366,847 491,622 -25.4% 411,438 -10.8% 366,847 491,622 -25.4%
Time deposits, FC 983,122 845,490 16.3% 909,619 8.1% 983,122 845,490 16.3%
Current accounts and demand
deposits, currency blended 2,474,698 2,135,942 15.9% 2,399,265 3.1% 2,474,698 2,135,942 15.9%
Current accounts and
demand
deposits, GEL 938,383 856,132 9.6% 925,644 1.4% 938,383 856,132 9.6%
Current accounts and
demand
deposits, FC 1,536,315 1,279,810 20.0% 1,473,621 4.3% 1,536,315 1,279,810 20.0%
Letters of credit and
guarantees,
standalone (off-balance
sheet
item) 1,376,196 1,035,630 32.9% 1,282,865 7.3% 1,376,196 1,035,630 32.9%
Assets under management 2,567,177 2,271,543 13.0% 2,547,604 0.8% 2,567,177 2,271,543 13.0%
RATIOS
ROAE(14) 28.5% 28.5% 24.6% 25.6% 22.8%
Net interest margin,
currency
blended 3.8% 3.2% 3.2% 3.6% 3.3%
Cost of credit risk ratio 0.5% -0.2% -0.2% 0.2% 0.8%
Cost of funds, currency
blended 4.0% 4.6% 4.4% 4.1% 4.6%
Loan yield, currency blended 9.2% 9.8% 8.9% 9.1% 10.2%
Loan yield, GEL 12.5% 12.8% 11.5% 12.0% 13.1%
Loan yield, FC 8.5% 9.2% 8.4% 8.6% 9.6%
Cost of deposits, currency
blended 3.3% 4.0% 3.2% 3.3% 4.1%
Cost of deposits, GEL 6.1% 6.2% 5.6% 5.8% 6.4%
Cost of deposits, FC 1.7% 2.3% 1.8% 1.8% 2.4%
Cost of time deposits,
currency
blended 5.4% 5.9% 5.3% 5.4% 6.1%
Cost of time deposits,
GEL 7.6% 7.8% 7.1% 7.2% 7.9%
Cost of time deposits, FC 4.2% 4.4% 4.4% 4.3% 4.5%
Current accounts and demand
deposits, currency blended 2.1% 2.3% 1.9% 2.1% 2.6%
Current accounts and
demand
deposits, GEL 5.3% 4.9% 4.7% 4.9% 5.2%
Current accounts and
demand
deposits, FC 0.2% 0.6% 0.3% 0.3% 0.9%
Cost / income ratio(15) 26.9% 29.6% 30.4% 28.4% 30.9%
Concentration of top ten
clients 9.9% 9.8% 9.4% 9.9% 9.8%
(14) The full year 2019 income statement adjusted profit
excludes GEL 4.1mln one-off employee costs (net-off income tax)
related to the former CEO and executive management termination
benefits. The amount is comprised of GEL 3.8mln (gross of income
tax) excluded from salaries and other employee benefits and GEL
1.1mln (gross of income tax) excluded from non-recurring items. The
income statement adjusted profit in 4Q18 excludes GEL 0.9mln
one-off employee costs (net-off income tax) related to the former
CEO termination benefits, which is comprised of GEL 1.1mln (gross
of income tax) excluded from non-recurring items. In addition to
this GEL 0.9mln one-off employee costs in 4Q18, the full year 2018
income statement adjusted profit excludes GEL 12.9mln demerger
related expenses (net of income tax) and one-off impact of
re-measurement of deferred tax balances. The ROAE has been adjusted
accordingly for all respective periods presented
(15) The full year 2019 cost/income ratio is adjusted for GEL
3.8mln one-off employee costs (gross of income tax) related to
termination benefits of the former executive management
Performance highlights
-- Corporate and Investment Banking delivered strong quarterly
results. CIB continued further growth during the fourth quarter of
2019 and generated strong net interest income and net fee and
commission income during the period, coupled with efficient cost
discipline and improved asset quality, resulting in outstanding
profitability during the quarter and full year
-- CIB delivered strong net interest income during the fourth
quarter 2019 (up by 50.2% y-o-y and up by 26.7% q-o-q in 4Q19, and
up by 31.5% y-o-y in 2019). CIB NIM was 3.8% in 4Q19 (up 60bps
y-o-y and q-o-q) and 3.6% in 2019 (up 30bps y-o-y). Increase in NIM
y-o-y both in 4Q19 and in 2019 was due to a decrease in cost of
funds (down 60bps y-o-y in 4Q19 and down 50bps y-o-y in 2019),
partially offset by a decline in currency blended loan yields (down
60bps y-o-y in 4Q19 and down 110bps y-o-y in 2019). On a q-o-q
basis, 60bps increase in NIM in 4Q19 was driven by 30bps increase
in loan yields, coupled with 40bps decline in cost of funds
-- CIB's net fee and commission income reached GEL 11.9mln in
4Q19, up 71.9% y-o-y and up 21.4% q-o-q, ending the twelve months
of 2019 with GEL 37.0mln net fee and commission income, up 38.7%
y-o-y. The outstanding growth in net fee and commission income in
all periods presented was largely driven by increased fees from
guarantees and letters of credit issued and higher placement fees
during 2019
-- CIB's loan book and de-dollarisation. CIB loan portfolio
reached GEL 3,804.4mln at 31 December 2019, up 45.3% y-o-y and up
6.0% q-o-q. On a constant currency basis, CIB loan book was up
37.4% y-o-y and up 8.7% q-o-q (up 33.1% y-o-y excluding the GEL
120mln loan portfolio reclassification from SME to CIB in the
second quarter 2019). The concentration of the top 10 CIB clients
stood at 9.9% at 31 December 2019 (9.8% at 31 December 2018 and
9.4% at 30 September 2019). Foreign currency denominated net loans
represented 81.1% of CIB's loan portfolio at 31 December 2019,
compared to 82.3% a year ago and 82.1% at 30 September 2019. At 31
December 2019, 41.5% of total gross CIB loans were issued in
foreign currency with exposure to foreign currency risk in regards
of income, while 39.8% of total gross CIB loans were issued in
foreign currency with no or minimal exposure to foreign currency
risk
-- Dollarisation of CIB deposits increased to 65.9% at 31
December 2019 from 61.2% a year ago and from 64.1% at 30 September
2019. A y-o-y increase in foreign currency denominated deposits was
partially due to local currency depreciation in 2019. Despite the
y-o-y decline in interest rates on local currency deposits in 4Q19
and 2019, the cost of deposits in local currency still remained
well above the cost of foreign currency deposits
-- Net other income. Significant y-o-y and q-o-q increase in net
other income both in 4Q19 and 2019 was largely driven by net gains
recorded as a result of the revaluation of investment property in
the fourth quarter of 2019
-- Cost of credit risk. CIB's cost of credit risk ratio remained
well-controlled and stood at 0.5% in 4Q19 (compared to net credit
of 0.2% both in 4Q18 and 3Q19) and at 0.2% in the twelve months of
2019 (down 60bps y-o-y), primarily driven by the improved quality
of the CIB loan portfolio and the recovery of several mid- to
low-sized corporate loans during 4Q18 and first nine months of
2019. At the same time, CIB's NPL coverage ratio was down to 62.0%
at 31 December 2019 (90.3% as at 31 December 2018 and 78.5% at 30
September 2019), primarily driven by the write-off of several
non-performing loans during the fourth quarter 2019
-- As a result, CIB's profit adjusted for one-off costs (see
details in footnotes on page 17) was GEL 61.0mln in 4Q19, up 43.4%
y-o-y and up 26.0% q-o-q, and GEL 192.8mln in 2019, up 44.9% y-o-y.
CIB ROAE(16) was 28.5% in 4Q19 (28.5% a year ago and 24.6% in 3Q19)
and 25.6% in 2019 (compared to 22.8% in 2018)
(16) The full year 2019 ROAE is adjusted for GEL 4.1mln one-off
employee costs (net of income tax) related to termination benefits
of the former CEO and executive management. 4Q18 ROAE is adjusted
for GEL 0.9mln one-off employee costs (net of income tax) related
to termination benefits of the former CEO. In addition to this GEL
0.9mln one-off employee costs in 4Q18, the full year 2018 ROAE is
adjusted for GEL 12.9mln demerger related expenses (net of income
tax) and one-off impact of re-measurement of deferred tax
balances
Performance highlights of investment management operations
-- The Investment Management's AUM increased to GEL 2,567.2mln
as at 31 December 2019, up 13.0% y-o-y and up 0.8% 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 increase in client assets and bond issuance
activity at Galt & Taggart
-- Wealth Management deposits reached GEL 1,404.8mln as at 31
December 2019, up 10.8% y-o-y and up 1.6% q-o-q, growing at a
compound annual growth rate (CAGR) of 11.8% over the last five-year
period. The cost of deposits was 3.2% in 4Q19, flat y-o-y and
q-o-q, and 3.2% in 2019, down 10bps y-o-y
-- We served 1,557 wealth management clients from 77 countries
as at 31 December 2019, compared to 1,528 clients as at 31 December
2018 and 1,537 clients as at 30 September 2019
-- In January 2019, Bank of Georgia opened a new office in the
centre of Tbilisi, dedicated to serving its wealth management
clients. The office resides in a historic 19th century building,
which originally used to house the First Credit Society of Georgia
and is considered to be the first residence of a local banking
institution. The design concept was derived from the integration of
Georgian culture with western values, while the artistic expression
of the building has been left intact. The new office coincides with
a creation of a new brand identity of the Bank's wealth management
business and is in line with its strategy to become the regional
hub for private banking
-- 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 2019 Galt & Taggart acted as a:
- lead manager for several international finance institutions
(IFIs) facilitating placement of c.GEL 320mln local public and
private bond issuances denominated in Georgian Lari
- lead manager for several Georgian corporates and microfinance
organisations facilitating placement of c.GEL 205mln local public
bond issuances denominated both in Georgian Lari and US$
- co-manager of Bank of Georgia's inaugural US$ 100mln
international Additional Tier 1 bond issuance, in March 2019
- buy-side advisor for Bank of Georgia Group on acquisition of
extra.ge online platform, in May 2019
- sole sell-side advisor of Linnaeus Capital Partners B.V. on a
sale of 100% shareholding in Lilo1- logistics center, in June
2019
-- In February 2019, Global Finance Magazine named Galt &
Taggart Best Investment Bank in Georgia for the fifth consecutive
year
-- In May 2019, Galt & Taggart participated in a competitive
tender process and won a three year exclusive mandate to manage the
private pension fund of a large Georgian corporate client
-- Galt and Taggart Research - "G&T Industry Series"
- In February 2019, Galt & Taggart together with JSC Bank of
Georgia organised a conference to discuss the findings of Galt
& Taggart's research on Georgia's energy sector with an
emphasis on ongoing reforms and their impact on the sector
development. The conference gathered together all stakeholders
including high level representatives from the Government, private
sector and IFIs. A follow-up conference was held in April 2019 due
to high interest from the Government and private sector
participants. The Deputy Minister of Economy and Sustainable
Development, Head of energy regulatory commission and Head of
Georgian Energy Development Fund presented the Government's vision
of the reform process, while Galt & Taggart focused on the
reform vision from private sector perspective. Presentations were
followed by panel discussions with key market players affected by
the reform process
- In July 2019, Galt & Taggart and JSC Bank of Georgia in
cooperation with the Tbilisi City Hall organised a seminar for
tourism sector representatives to discuss the effects of Russia's
direct flight ban on tourism industry and the desired measures to
mitigate consequences
- In July 2019, Galt & Taggart published initiation report of Georgia's Auto Business sector
- In July 2019, Galt & Taggart published Georgia's Wine
& Spirits sector report, followed by a conference, which
gathered wine producers and other sector players
- In December 2019, Galt & Taggart organised a conference to
discuss the findings of Galt & Taggart's research on Tbilisi
Real Estate market, covering residential real estate, as well as
retail, office and hotels. The conference gathered together all
stakeholders and presentation was followed by panel discussion,
with the participation of private sector representatives and
vice-president of National Bank of Georgia.
SELECTED FINANCIAL AND OPERATING INFORMATION
INCOME STATEMENT (QUARTERLY) Bank of Georgia Group Consolidated
GEL thousands, unless otherwise Change Change
noted 4Q19 4Q18 y-o-y 3Q19 q-o-q
Interest income 393,480 345,760 13.8% 366,721 7.3%
Interest expense (186,389) (158,322) 17.7% (165,729) 12.5%
Net interest income 207,091 187,438 10.5% 200,992 3.0%
Fee and commission income 77,472 62,350 24.3% 76,166 1.7%
Fee and commission expense (30,914) (21,006) 47.2% (28,157) 9.8%
Net fee and commission income 46,558 41,344 12.6% 48,009 -3.0%
Net foreign currency gain 37,177 53,358 -30.3% 32,233 15.3%
Net other income 18,439 (9,073) NMF 3,728 NMF
Operating income 309,265 273,067 13.3% 284,962 8.5%
Salaries and other employee benefits (61,504) (58,331) 5.4% (59,539) 3.3%
Administrative expenses (35,131) (30,010) 17.1% (26,251) 33.8%
Depreciation, amortisation and
impairment (23,815) (11,365) 109.5% (21,320) 11.7%
Other operating expenses (1,095) (1,151) -4.9% (807) 35.7%
Operating expenses (121,545) (100,857) 20.5% (107,917) 12.6%
Profit from associates 153 318 -51.9% 194 -21.1%
Operating income before cost of
risk 187,873 172,528 8.9% 177,239 6.0%
Expected credit loss / impairment
charge on loans to customers (7,985) (25,783) -69.0% (13,617) -41.4%
Expected credit loss / impairment
charge on finance lease receivables 451 514 -12.3% (333) NMF
Other expected credit loss / impairment
charge on other assets and provisions (6,698) (15,509) -56.8% (1,273) NMF
Cost of risk (14,232) (40,778) -65.1% (15,223) -6.5%
Net operating income before non-recurring
items 173,641 131,750 31.8% 162,016 7.2%
Net non-recurring items (excluding
one-offs) (1,591) (2,185) -27.2% (5,019) -68.3%
One-off termination costs of former
CEO (1) - (4,401) NMF - -
Net non-recurring items (1,591) (6,586) -75.8% (5,019) -68.3%
Profit before income tax expense 172,050 125,164 37.5% 156,997 9.6%
Income tax expense (excluding one-offs) (15,515) (10,888) 42.5% (22,697) -31.6%
Income tax benefit related to one-off
termination costs of former CEO
(2) - 540 NMF - -
Income tax expense (15,515) (10,348) 49.9% (22,697) -31.6%
Profit 156,535 114,816 36.3% 134,300 16.6%
One-off items (1)+(2) - (3,861) NMF - -
Profit attributable to:
- shareholders of the Group 155,823 114,240 36.4% 133,687 16.6%
- non-controlling interests 712 576 23.6% 613 16.2%
Earnings per share (basic) 3.30 2.40 37.5% 2.81 17.4%
Earnings per share (diluted) 3.29 2.40 37.1% 2.81 17.1%
INCOME STATEMENT (FULL Bank of Georgia Banking Business Discontinued Operations Eliminations
YEAR) Group Consolidated
GEL thousands, unless 2019 2018 Change 2019 2018 Change 2019 2018 Change 2019 2018 Change
otherwise y-o-y y-o-y y-o-y y-o-y
noted
Interest income 1,437,161 1,322,297 8.7% 1,437,161 1,327,085 8.3% - - - - (4,788) NMF
Interest expense (647,742) (580,544) 11.6% (647,742) (587,481) 10.3% - - - - 6,937 NMF
Net interest income 789,419 741,753 6.4% 789,419 739,604 6.7% - - - - 2,149 NMF
Fee and commission
income 284,193 228,769 24.2% 284,193 229,670 23.7% - - - - (901) NMF
Fee and commission
expense (104,179) (76,107) 36.9% (104,179) (76,488) 36.2% - - - - 381 NMF
Net fee and commission
income 180,014 152,662 17.9% 180,014 153,182 17.5% - - - - (520) NMF
Net foreign currency
gain 119,363 128,762 -7.3% 119,363 129,437 -7.8% - - - - (675) NMF
Net other income /
(expense) 21,474 7,262 NMF 21,474 7,815 NMF - - - - (553) NMF
Operating income 1,110,270 1,030,439 7.7% 1,110,270 1,030,038 7.8% - - - - 401 NMF
Salaries and other
employee
benefits (excluding
one-offs) (231,443) (214,761) 7.8% (231,443) (215,816) 7.2% - - - - 1,055 NMF
One-off termination
costs of
former executive
management
(1) (12,412) - NMF (12,412) - NMF - - - - - -
Salaries and other
employee
benefits (243,855) (214,761) 13.5% (243,855) (215,816) 13.0% - - - - 1,055 NMF
Administrative
expenses (106,157) (112,654) -5.8% (106,157) (113,264) -6.3% - - - - 610 NMF
Depreciation,
amortisation
and impairment (78,118) (45,442) 71.9% (78,118) (45,442) 71.9% - - - - - -
Other operating
expenses (4,228) (3,995) 5.8% (4,228) (3,995) 5.8% - - - - - -
Operating expenses (432,358) (376,852) 14.7% (432,358) (378,517) 14.2% - - - - 1,665 NMF
Profit from associates 789 1,339 -41.1% 789 1,339 -41.1% - - - - - -
Operating income
before cost
of risk 678,701 654,926 3.6% 678,701 652,860 4.0% - - - - 2,066 NMF
Expected credit loss /
impairment
charge on loans to
customers (94,155) (139,499) -32.5% (94,155) (139,499) -32.5% - - - - - -
Expected credit loss /
impairment
charge on finance
lease receivables (885) (164) NMF (885) (164) NMF - - - - - -
Other expected credit
loss
/ impairment charge
on other
assets and provisions (12,544) (20,562) -39.0% (12,544) (20,562) -39.0% - - - - - -
Cost of risk (107,584) (160,225) -32.9% (107,584) (160,225) -32.9% - - - - - -
Net operating income
before
non-recurring items 571,117 494,701 15.4% 571,117 492,635 15.9% - - - - 2,066 NMF
Net non-recurring
items (excluding
one-offs) (10,723) (22,471) -52.3% (10,723) (22,643) -52.6% - - - - 172 NMF
One-off termination
costs of
former CEO, one-off
demerger
related expenses (2) (3,985) (34,685) -88.5% (3,985) (34,685) -88.5% - - - - - -
Net non-recurring
items (14,708) (57,156) -74.3% (14,708) (57,328) -74.3% - - - - 172 NMF
Profit before income
tax expense
from continuing
operations 556,409 437,545 27.2% 556,409 435,307 27.8% - - - - 2,238 NMF
Income tax expense
(excluding
one-offs) (58,619) (34,948) 67.7% (58,619) (34,948) 67.7% - - - - - -
Income tax benefit
related
to one-off
termination costs,
one-off demerger
related expenses
and one-off impact
of re-measurement
of deferred tax
balances (3) 2,161 (21,717) NMF 2,161 (21,717) NMF - - - - - -
Income tax expense (56,458) (56,665) -0.4% (56,458) (56,665) -0.4% - - - - - -
Profit from continuing
operations 499,951 380,880 31.3% 499,951 378,642 32.0% - - - - 2,238 NMF
Profit from
discontinued
operations - 107,898 NMF - - - - 110,136 NMF - (2,238) NMF
Profit 499,951 488,778 2.3% 499,951 378,642 32.0% - 110,136 NMF - - -
One-off items
(1)+(2)+(3) (14,236) (56,402) -74.8% (14,236) (56,402) -74.8% - - - - - -
Profit attributable
to:
- shareholders of
the Group 497,664 468,996 6.1% 497,664 377,075 32.0% - 91,921 NMF - - -
- non-controlling
interests 2,287 19,782 -88.4% 2,287 1,567 45.9% - 18,215 NMF - - -
Profit from continuing
operations
attributable to:
- shareholders of
the Group 497,664 379,313 31.2% 497,664 377,075 32.0% - - - - 2,238 NMF
- non-controlling
interests 2,287 1,567 45.9% 2,287 1,567 45.9% - - - - - -
Profit from
discontinued
operations
attributable to:
- shareholders of
the Group - 89,683 NMF - - - - 91,921 NMF - (2,238) NMF
- non-controlling
interests - 18,215 NMF - - - - 18,215 NMF - - -
Earnings per share
(basic) 10.45 10.78 -3.1%
- earnings per share
from continuing
operations 10.45 8.72 19.8%
- earnings per share - 2.06 NMF
from discontinued
operations
Earnings per share
(diluted) 10.42 10.71 -2.7%
- earnings per share
from continuing
operations 10.42 8.66 20.3%
- earnings per share - 2.05 NMF
from discontinued
operations
BALANCE SHEET Bank of Georgia Group Consolidated
GEL thousands, unless otherwise Dec-19 Dec-18 Change Sep-19 Change
noted y-o-y q-o-q
Cash and cash equivalents 2,153,624 1,215,799 77.1% 1,369,194 57.3%
Amounts due from credit
institutions 1,619,072 1,305,216 24.0% 1,834,195 -11.7%
Investment securities 1,786,804 2,019,017 -11.5% 1,895,722 -5.7%
Loans to customers and finance
lease receivables 11,931,262 9,397,747 27.0% 11,339,745 5.2%
Accounts receivable and
other loans 3,489 2,849 22.5% 4,475 -22.0%
Prepayments 42,632 44,294 -3.8% 43,795 -2.7%
Inventories 12,297 13,292 -7.5% 11,257 9.2%
Right-of-use assets 96,095 - NMF 106,130 -9.5%
Investment property 225,073 151,446 48.6% 193,499 16.3%
Property and equipment 379,788 344,059 10.4% 364,405 4.2%
Goodwill 33,351 33,351 0.0% 33,351 0.0%
Intangible assets 106,290 83,366 27.5% 95,829 10.9%
Income tax assets 282 19,451 -98.6% 7,682 -96.3%
Other assets 143,154 126,008 13.6% 202,426 -29.3%
Assets held for sale 36,284 42,408 -14.4% 38,987 -6.9%
Total assets 18,569,497 14,798,303 25.5% 17,540,692 5.9%
Client deposits and notes 10,076,735 8,133,853 23.9% 9,613,718 4.8%
Amounts owed to credit institutions 3,934,123 2,994,879 31.4% 3,437,718 14.4%
Debt securities issued 2,120,064 1,730,414 22.5% 2,175,820 -2.6%
Lease liabilities 94,616 - NMF 105,285 -10.1%
Accruals and deferred income 52,471 47,063 11.5% 41,521 26.4%
Income tax liabilities 37,918 28,855 31.4% 39,251 -3.4%
Other liabilities 102,662 64,966 58.0% 87,520 17.3%
Total liabilities 16,418,589 13,000,030 26.3% 15,500,833 5.9%
Share capital 1,618 1,618 0.0% 1,618 0.0%
Additional paid-in capital 492,072 480,555 2.4% 498,593 -1.3%
Treasury shares (64) (51) 25.5% (53) 20.8%
Other reserves (7,481) 30,515 NMF 28,472 NMF
Retained earnings 1,655,256 1,277,732 29.5% 1,502,248 10.2%
Total equity attributable
to shareholders of the Group 2,141,401 1,790,369 19.6% 2,030,878 5.4%
Non-controlling interests 9,507 7,904 20.3% 8,981 5.9%
Total equity 2,150,908 1,798,273 19.6% 2,039,859 5.4%
Total liabilities and equity 18,569,497 14,798,303 25.5% 17,540,692 5.9%
Book value per share 45.36 37.59 20.7% 42.69 6.3%
RESTATED QUARTERLY INCOME STATEMENT LINES AND RATIOS
RESTATED INCOME STATEMENT LINES
(QUARTERLY)
GEL thousands, unless otherwise
noted 1Q19 2Q19 3Q19 4Q19
Interest income 334,735 342,224 366,721 393,480
Interest expense (144,754) (150,870) (165,729) (186,389)
Net interest income 189,981 191,354 200,992 207,091
Net foreign currency gain 22,985 26,968 32,233 37,177
RESTATED RATIOS 1Q19 2Q19 3Q19 4Q19
Net interest margin 6.0% 5.7% 5.4% 5.4%
Cost of funds 4.6% 4.5% 4.5% 4.7%
Cost of client deposits and notes 3.1% 3.1% 2.9% 3.0%
Cost of amounts owed to credit institutions 7.4% 6.9% 6.8% 7.4%
Cost of debt securities issued 7.5% 7.6% 7.7% 7.9%
BELARUSKY NARODNY BANK (BNB)
Change Change Change
INCOME STATEMENT, HIGHLIGHTS 4Q19 4Q18 y-o-y 3Q19 q-o-q 2019 2018 y-o-y
GEL thousands, unless
otherwise stated
Net interest income 7,194 6,471 11.2% 7,447 -3.4% 27,586 25,894 6.5%
Net fee and commission
income 1,602 1,356 18.1% 1,956 -18.1% 7,169 7,805 -8.1%
Net foreign currency
gain 6,548 5,261 24.5% 5,405 21.1% 20,688 16,605 24.6%
Net other income 92 332 -72.3% 57 61.4% 463 745 -37.9%
Operating income 15,436 13,420 15.0% 14,865 3.8% 55,906 51,049 9.5%
Operating expenses (9,493) (8,785) 8.1% (9,135) 3.9% (35,366) (32,261) 9.6%
Operating income before
cost of risk 5,943 4,635 28.2% 5,730 3.7% 20,540 18,788 9.3%
Cost of risk (7) 670 NMF 293 NMF (2,691) (3,069) -12.3%
Net non-recurring items (46) (7) NMF (1) NMF (110) (717) -84.7%
Profit before income
tax expense 5,890 5,298 11.2% 6,022 -2.2% 17,739 15,002 18.2%
Income tax expense (1,261) (1,163) 8.4% (1,193) 5.7% (3,404) (3,545) -4.0%
Profit 4,629 4,135 11.9% 4,829 -4.1% 14,335 11,457 25.1%
BALANCE SHEET, HIGHLIGHTS Dec-19 Dec-18 Change Sep-19 Change
y-o-y q-o-q
GEL thousands, unless
otherwise stated
Cash and cash equivalents 212,777 110,340 92.8% 170,787 24.6%
Amounts due from credit
institutions 12,742 19,664 -35.2% 22,534 -43.5%
Investment securities 81,573 67,734 20.4% 101,511 -19.6%
Loans to customers and
finance lease receivables 580,876 432,657 34.3% 556,541 4.4%
Other assets 55,102 50,155 9.9% 59,397 -7.2%
Total assets 943,070 680,550 38.6% 910,770 3.5%
Client deposits and notes 608,777 389,001 56.5% 588,647 3.4%
Amounts owed to credit
institutions 144,621 162,823 -11.2% 132,648 9.0%
Debt securities issued 69,438 38,163 82.0% 72,931 -4.8%
Other liabilities 11,038 5,300 108.3% 8,239 34.0%
Total liabilities 833,874 595,287 40.1% 802,465 3.9%
Total equity 109,196 85,263 28.1% 108,305 0.8%
Total liabilities and
equity 943,070 680,550 38.6% 910,770 3.5%
BANKING BUSINESS KEY RATIOS 4Q19 4Q18 3Q19 2019 2018
Profitability
ROAA, annualised(17) 3.4% 3.3% 3.2% 3.1% 3.2%
ROAA, annualised (unadjusted) 3.4% 3.2% 3.2% 3.1% 2.8%
ROAE, annualised(17) 29.9% 27.0% 26.8% 26.1% 26.4%
RB ROAE(17) 31.4% 28.4% 30.7% 28.6% 30.3%
CIB ROAE(17) 28.5% 28.5% 24.6% 25.6% 22.8%
ROAE, annualised (unadjusted) 29.9% 26.2% 26.8% 25.4% 22.9%
Net interest margin, annualised 5.4% 6.0% 5.4% 5.6% 6.5%
RB NIM 5.7% 6.7% 6.1% 6.1% 7.5%
CIB NIM 3.8% 3.2% 3.2% 3.6% 3.3%
Loan yield, annualised 11.4% 12.8% 11.5% 11.7% 13.5%
RB Loan yield 12.4% 14.2% 12.8% 12.9% 15.1%
CIB Loan yield 9.2% 9.8% 8.9% 9.1% 10.2%
Liquid assets yield, annualised 3.7% 3.8% 3.2% 3.5% 3.8%
Cost of funds, annualised 4.7% 5.0% 4.5% 4.6% 5.0%
Cost of client deposits and
notes, annualised 3.0% 3.4% 2.9% 3.0% 3.5%
RB Cost of client deposits
and notes 2.5% 2.9% 2.6% 2.6% 2.9%
CIB Cost of client deposits
and notes 3.3% 4.0% 3.2% 3.3% 4.1%
Cost of amounts owed to credit
institutions, annualised 7.4% 7.9% 6.8% 7.1% 7.3%
Cost of debt securities issued 7.9% 7.8% 7.7% 7.7% 7.8%
Operating leverage, y-o-y(18) -7.3% 3.8% -5.2% -3.2% 2.9%
Operating leverage, q-o-q(18) -4.1% -2.3% 1.2% 0.0% 0.0%
Efficiency
Cost / Income(18) 39.3% 36.9% 37.9% 37.8% 36.7%
RB Cost / Income(18) 43.5% 36.7% 38.0% 38.8% 36.6%
CIB Cost /Income(18) 26.9% 29.6% 30.4% 28.4% 30.9%
Cost / Income (unadjusted) 39.3% 36.9% 37.9% 38.9% 36.7%
Liquidity
NBG liquidity ratio (minimum
requirement 30%) 31.1% 31.9% 36.8% 31.1% 31.9%
NBG liquidity coverage ratio
(minimum requirement 100%) 136.7% 120.1% 118.5% 136.7% 120.1%
Liquid assets to total liabilities 33.9% 34.9% 32.9% 33.9% 34.9%
Net loans to client deposits
and notes 118.4% 115.5% 118.0% 118.4% 115.5%
Net loans to client deposits
and notes + DFIs 103.2% 99.6% 103.4% 103.2% 99.6%
Leverage (times) 7.6 7.2 7.6 7.6 7.2
Asset quality:
NPLs (in GEL) 252,695 318,356 339,118 252,695 318,356
NPLs to gross loans to clients 2.1% 3.3% 2.9% 2.1% 3.3%
NPL coverage ratio 80.9% 90.5% 85.3% 80.9% 90.5%
NPL coverage ratio, adjusted
for discounted value of collateral 139.6% 129.9% 129.3% 139.6% 129.9%
Cost of credit risk, annualised 0.2% 1.1% 0.5% 0.9% 1.6%
RB Cost of credit risk 0.2% 1.7% 0.9% 1.2% 2.1%
CIB Cost of credit risk 0.5% -0.2% -0.2% 0.2% 0.8%
Capital adequacy:
NBG (Basel III) CET1 capital
adequacy ratio 11.5% 12.2% 11.1% 11.5% 12.2%
Minimum regulatory requirement 10.1% 9.5% 9.5% 10.1% 9.5%
NBG (Basel III) Tier I capital
adequacy ratio 13.6% 12.2% 13.3% 13.6% 12.2%
Minimum regulatory requirement 12.2% 11.4% 11.6% 12.2% 11.4%
NBG (Basel III) Total capital
adequacy ratio 18.1% 16.6% 16.8% 18.1% 16.6%
Minimum regulatory requirement 17.1% 15.9% 16.1% 17.1% 15.9%
Selected operating data:
Total assets per FTE 2,515 1,995 2,402 2,515 1,995
Number of active branches,
of which: 272 276 276 272 276
- Express branches (including
Metro) 162 165 167 162 165
- Bank of Georgia branches 98 99 97 98 99
- Solo lounges 12 12 12 12 12
Number of ATMs 933 876 911 933 876
Number of cards outstanding,
of which: 2,145,060 2,177,273 2,121,830 2,145,060 2,177,273
- Debit cards 1,749,524 1,630,235 1,674,105 1,749,524 1,630,235
- Credit cards 395,536 547,038 447,725 395,536 547,038
Number of POS terminals 21,870 16,870 21,088 21,870 16,870
FX Rates:
GEL/US$ exchange rate (period-end) 2.8677 2.6766 2.9552
GEL/GBP exchange rate (period-end) 3.7593 3.3955 3.6319
Dec-19 Dec-18 Sep-19
Full time employees (FTE),
of which: 7,383 7,416 7,304
- Full time employees, BOG
standalone 5,879 5,828 5,706
- Full time employees, BNB 565 669 584
- Full time employees, BB
other 939 919 1,014
Shares outstanding Dec-19 Dec-18 Sep-19
Ordinary shares 47,210,876 47,626,147 47,574,153
Treasury shares 1,958,552 1,543,281 1,595,275
Total shares outstanding 49,169,428 49,169,428 49,169,428
(17) 4Q18 and the full year 2019 ratios are adjusted for one-off
employee costs related to termination benefits of the former CEO
and executive management. The full year 2018 ratios are adjusted
for one-off employee costs related to termination benefits of the
former CEO, demerger related expenses and one-off impact of
re-measurement of deferred tax balances
(18) The full year 2019 results are adjusted for one-off
employee costs related to termination benefits of the former
executive management
GLOSSARY
-- Alternative performance measures (APMs) In this announcement
the management uses various 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 the Group's operating performance and make day-to-day
operating decisions;
-- Cost of funds Interest expense of the period divided by
monthly average interest bearing liabilities;
-- Cost of credit risk 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;
-- Cost to income ratio Operating expenses divided by operating
income;
-- Interest bearing liabilities Amounts owed to credit
institutions, client deposits and notes, and debt securities
issued;
-- Interest earning assets (excluding cash) Amounts due from
credit institutions, investment securities (but excluding corporate
shares) and net loans to customers and finance lease
receivables;
-- Leverage (times) Total liabilities divided by total
equity;
-- Liquid assets Cash and cash equivalents, amounts due from
credit institutions and investment securities;
-- Liquidity coverage ratio (LCR) High quality liquid assets (as
defined by NBG) divided by net cash outflows over the next 30 days
(as defined by NBG);
-- Loan yield Interest income from loans to customers and
finance lease receivables divided by monthly average gross loans to
customers and finance lease receivables;
-- NBG liquidity ratio Daily average liquid assets (as defined
by NBG) during the month divided by daily average liabilities (as
defined by NBG) during the month;
-- NBG (Basel III) Common Equity Tier I (CET1) capital adequacy
ratio Common Equity Tier I capital divided by total risk weighted
assets, both calculated in accordance with the requirements of the
National Bank of Georgia instructions;
-- NBG (Basel III) Tier I capital adequacy ratio Tier I capital
divided by total risk weighted assets, both calculated in
accordance with the requirements of the National Bank of Georgia
instructions;
-- NBG (Basel III) Total capital adequacy ratio Total regulatory
capital divided by total risk weighted assets, both calculated in
accordance with the requirements of the National Bank of Georgia
instructions;
-- Net interest margin (NIM) Net interest income of the period
divided by monthly average interest earning assets excluding cash
for the same period;
-- Non-performing loans (NPLs) The principal and interest on
loans overdue for more than 90 days and any additional potential
losses estimated by management;
-- NPL coverage ratio Allowance for expected credit
loss/impairment loss of loans and finance lease receivables divided
by NPLs;
-- NPL coverage ratio adjusted for discounted value of
collateral Allowance for expected credit loss/impairment loss of
loans and finance lease receivables divided by NPLs (discounted
value of collateral is added back to allowance for expected credit
loss/impairment loss);
-- Operating leverage Percentage change in operating income less
percentage change in operating expenses;
-- Return on average total assets (ROAA) Profit for the period
divided by monthly average total assets for the same period;
-- Return on average total equity (ROAE) 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;
-- NMF Not meaningful
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
FR KKBBBFBKDQBD
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February 13, 2020 02:00 ET (07:00 GMT)
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