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JSC Bank of Georgia (BGEO)

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Monday 26 April, 2010

JSC Bank of Georgia

Annual Financial Report Part 2

Annual Financial Report Part 2

Bank of Georgia

JSC Bank of Georgia and Subsidiaries

Consolidated Financial Statements

Year ended 31 December 2009
Together with Independent Auditors’ Report

CONTENTS

INDEPENDENT AUDITORS’ REPORT

Consolidated statement of financial position
Consolidated income statementConsolidated income statement
Consolidated statement of comprehensive incomeConsolidated statement of comprehensive income
Consolidated statement of changes in equityConsolidated statement of changes in equity
Consolidated statement of cash flowsConsolidated statement of cash flows

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Principal Activities
2. Basis of Preparation2. Basis of Preparation
3. Summary of Significant Accounting Policies3. Summary of Significant Accounting Policies
4. Significant Accounting Judgments and Estimates4. Significant Accounting Judgments and Estimates
5. Business Combinations5. Business Combinations
6. Segment Information6. Segment Information
7. Cash and Cash Equivalents7. Cash and Cash Equivalents
8. Amounts Due from Credit Institutions8. Amounts Due from Credit Institutions
9. Loans to Customers9. Loans to Customers
10. Finance Lease Receivables10. Finance Lease Receivables
11. Investment Securities11. Investment Securities
12. Investments in Associates12. Investments in Associates
13. Investment properties13. Investment properties
14. Property and Equipment14. Property and Equipment
15. Goodwill and Other Intangible Assets15. Goodwill and Other Intangible Assets
16. Taxation16. Taxation
17. Other Impairment Allowance and Provisions17. Other Impairment Allowance and Provisions
18. Other Assets and Other Liabilities18. Other Assets and Other Liabilities
19. Amounts Due to Credit Institutions19. Amounts Due to Credit Institutions
20. Amounts Due to Customers20. Amounts Due to Customers
21. Equity21. Equity
22. Commitments and Contingencies22. Commitments and Contingencies
23. Net Fee and Commission Income23. Net Fee and Commission Income
24. Net Insurance Revenue24. Net Insurance Revenue
25. Salaries and Other Employee Benefits, and General and Administrative Expenses25. Salaries and Other Employee Benefits, and General and Administrative Expenses
26. Share-based Payments26. Share-based Payments
27. Risk Management27. Risk Management
28. Fair Values of Financial Instruments28. Fair Values of Financial Instruments
29. Maturity Analysis of Financial Assets and Liabilities29. Maturity Analysis of Financial Assets and Liabilities
30. Related Party Disclosures30. Related Party Disclosures
31. Capital Adequacy31. Capital Adequacy
32. Events After the Reporting Date 32. Events After the Reporting Date

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of JSC Bank of Georgia –

We have audited the accompanying consolidated financial statements of JSC Bank of Georgia and its Subsidiaries which comprise the consolidated statement of financial position as at 31 December 2009, and the consolidated income statement, consolidated statement of comprehensive income, of changes in equity and of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of JSC Bank of Georgia and its Subsidiaries as at 31 December 2009, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

15 March 2010

JSC Bank of Georgia and Subsidiaries       Consolidated Financial Statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

(Thousands of Georgian Lari)

  Notes   2009   2008
Assets
Cash and cash equivalents 7 337,372 397,591
Amounts due from credit institutions 8 85,137 99,633
Loans to customers 9 1,661,331 2,039,022
Finance lease receivables 10 16,896 41,605
Investment securities:
– available-for-sale 11 19,590 33,737
– held-to-maturity 11 249,196 22,845
Investments in associates 12 10,323 16,716
Investment properties 13 79,509 47,289
Property and equipment 14 278,729 301,784
Goodwill and other intangible assets 15 85,442 152,459
Current income tax assets 16 7,997 8,095
Deferred income tax assets 16 15,487 4,691
Prepayments 18,140 18,319
Other assets 18 48,280 75,121
Total assets 2,913,429 3,258,907
 
Liabilities
Amounts due to customers 20 1,272,470 1,193,124
Amounts due to credit institutions 19 928,615 1,216,722
Current income tax liabilities 16 574 779
Deferred income tax liabilities 16 24,661 23,615
Provisions 17,22 2,126 4,263
Other liabilities 18 86,566 101,555
Total liabilities 2,315,012 2,540,058
 
Equity 21
Share capital 31,306 31,253
Additional paid-in capital 478,779 468,732
Treasury shares (1,677) (2,018)
Other reserves 24,387 26,201
Retained earnings 46,163 141,491
Total equity attributable to shareholders of the Bank 578,958 665,659
Minority interest 19,459 53,190
Total equity 598,417 718,849
 
Total liabilities and equity 2,913,429 3,258,907

Signed and authorised for release on behalf of the Management Board of the Bank

Irakli Gilauri                       Chief Executive Officer    
 
 
 
 
David Vakhtangishvili Chief Financial Officer

15 March 2010

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2009

(Thousands of Georgian Lari)

  Notes   2009   2008
Interest income
Loans to customers 361,176 363,013
Finance lease receivables 5,844 7,010
Investment securities – held-to-maturity 5,725 16,457
Amounts due from credit institutions 5,037 10,732
Investment securities – available-for-sale 1,276 6,727
379,058 403,939
Interest expense
Amounts due to customers (96,749) (85,358)
Amounts due to credit institutions (91,582) (97,035)
Debt securities issued (186) (706)
(188,517) (183,099)
Net interest income before impairment charge

on interest-earning assets

190,541 220,840
Impairment charge on loans to customers 9 (118,882) (122,812)
Impairment charge on finance lease receivables 10 (6,859) (1,335)
Net interest income after impairment charge 64,800 96,693
 
Fee and commission income 64,599 63,503
Fee and commission expense (9,574) (13,534)
Net fee and commission income 23 55,025 49,969
 
Net gains (losses) from for trading securities 2,763 (5,447)
Net gains from investment securities available-for-sale 174 513
Net losses from derivative financial instruments (6,266)
Net losses from revaluation of investment properties 13 (4,087) (389)
Net gains from foreign currencies:
– dealing 25,945 39,443
– translation differences 2,821 7,691
Net insurance premiums earned 24 45,477 35,911
Share of loss of associates 12 (2,649) (713)
Other operating income 17,908 14,747
Other non-interest income 82,086 91,756
 
Depreciation, amortization and impairment 14, 15 (101,700) (20,532)
Salaries and other employee benefits 25 (100,505) (108,767)
General and administrative expenses 25 (57,339) (68,649)
Net insurance claims incurred 24 (30,102) (26,895)
Impairment charge on other assets and provisions 17 (6,431) (4,551)
Other operating expenses (11,740) (9,828)
Other non-interest expenses (307,817) (239,222)
 
Loss before income tax benefit (105,906) (804)
Income tax benefit 16 6,998 978
(Loss) profit for the year (98,908) 174

Attributable to:

– shareholders of the Bank

 (91,370)

3,897

– minority interest

 (7,538)

(3,723)

(98,908)

174

Earnings per share:

21

– basic earnings per share

 (2.996)

0.129

– diluted earnings per share

 (2.996)

0.129

 

JSC Bank of Georgia and Subsidiaries Consolidated Financial Statements

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009

(Thousands of Georgian Lari)

  Note   2009   2008
 
(Loss) profit for the year (98,908) 174
 
Other comprehensive income
– Revaluation of property, plant & equipment (1,842) (10,455)
– Revaluation of available-for-sale securities 7,533 (9,687)
– Realized losses on available-for-sale securities reclassified to the consolidated income statement (174) (513)
– Losses from currency translation differences (12,145) (22,435)
– Unrealized gain from acquiring shares in existing subsidiaries 7,624
Income tax relating to components of other comprehensive income 16 (704) 3,189
Other comprehensive income (loss) for the year, net of tax 292 (39,901)
Total comprehensive loss for the year (98,616) (39,727)

Attributable to:

– shareholders of the Bank

(91,078)

(36,004)

– minority interest

 (7,538)

(3,723)

(98,616)

(39,727)

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2009

(Thousands of Georgian Lari)

     
Attributable to shareholders of the Bank Minority interests Total

equity

Share capital   Additional paid-in capital   Treasury shares   Other
reserves
  Retained earnings   Total
 
31 December 2007 27,155 315,415 (1,737) 67,354 136,342 544,529 13,462 557,991
Total comprehensive income (loss) (39,901) 3,897 (36,004) (3,723) (39,727)
Depreciation of revaluation reserve,
net of taxnet of tax
(1,252) 1,252
Issuance of shares arising from business combination (Note 21) 89 573 662 662
Increase in share capital arising from share-based payments (Note 21) 9 8,590 341 8,940 8,940
Share offering costs adjustment (357) (357) (357)
Increase in share capital from issuance of GDRs (Note 21) 4,000 146,594 150,594 150,594
Acquisition of additional interests in existing subsidiaries by minority shareholders 31,278 31,278
Minority interests arising on acquisition of subsidiary 12,173 12,173
Sale of treasury shares 5,544 256 5,800 5,800
Purchase of treasury shares (7,627) (878) (8,505) (8,505)
31 December 2008 31,253 468,732 (2,018) 26,201 141,491 665,659 53,190 718,849
Total comprehensive income (loss) 1,563 (92,641) (91,078) (7,538) (98,616)
Depreciation of revaluation reserve,
net of taxnet of tax
(3,377) 3,377
Increase in share capital arising from share-based payments (Note 21) 53 2,523 153 2,729 2,729
Share offering costs adjustment 306 306 306
Equity component of compound financial instrument 9,769 9,769 9,769
Acquisition of additional interests in existing subsidiaries by minority shareholders (6,064) (6,064) (1,479) (7,543)
Acquisition of minority interests in existing subsidiaries (24,730) (24,730)
Minority interests arising on acquisition of subsidiary 16 16
Sale of treasury shares 1,154 642 1,796 1,796
Purchase of treasury shares (3,705) (454) (4,159) (4,159)
31 December 2009 31,306 478,779 (1,677) 24,387 46,163 578,958 19,459 598,417

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2009

(Thousands of Georgian Lari)

  Notes   2009   2008
Cash flows from operating activities
Interest received 377,043 384,802
Interest paid (205,054) (173,534)
Fees and commissions received 64,599 63,503
Fees and commissions paid (9,574) (13,534)
Net realized gains (losses) from trading securities 587 (5,432)
Net realized gains from investments securities 174 498
Net realized gains from foreign currencies 25,945 39,443
Recoveries of loans to customers 9 32,579 11,176
Insurance premiums received 31,319 24,262
Insurance claims paid (16,801) (11,095)
Other operating income received 22,022 11,499
Salaries and other employee benefits paid (88,365) (106,605)
General and administrative and operating expenses paid (80,026) (62,174)
Cash flows from operating activities before
changes in operating assets and liabilities
154,448 162,809
 
Net (increase) decrease in operating assets
 
Amounts due from credit institutions 12,646 62,312
Loans to customers 239,093 (488,574)
Finance lease receivables 12,448 3,722
Prepayments and other assets (28,696) (3,678)
 
Net increase (decrease) in operating liabilities
Amounts due to credit institutions (276,916) 339,654
Amounts due to customers 81,713 (211,774)
Other liabilities 455 (9,813)
Net cash flows from (used in) operating activities before income tax 195,191 (145,342)
 
Income tax paid (1,275) (19,580)
Net cash flows from (used in) from operating activities 193,916 (164,922)
 
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired 5 (2,970) (41,740)
Purchase of additional interests by minority shareholders (1,479) 31,794
Proceeds from sale of investment securities: available-for-sale 25,323 166,175
Purchase of investment securities: held-to-maturity (226,804)
Purchase of investments in associates 12 (13,355)
Proceeds from sale of investments in associates 12 24 860
Purchase of investment properties 13 (495) (12,613)
Proceeds from sale of investment properties 13 755
Purchase of property and equipment and intangible assets 14,15 (24,524) (122,881)
Net cash used in investing activities (230,170) 8,240
 
Cash flows from financing activities
Proceeds from increase in share capital 306 150,594
Purchase of treasury shares (4,159) (8,505)
Sale of treasury shares 1,796 5,800
Purchase of additional interests in existing subsidiaries, net of cash acquired (24,730)
Redemption of debt securities issued (4,988)
Net cash (used in) from financing activities (26,787) 142,901
 
Effect of exchange rates changes on cash and cash equivalents 2,822 5,602
   
Net decrease in cash and cash equivalents (60,219) (8,179)
 
Cash and cash equivalents, beginning 397,591 405,770
Cash and cash equivalents, ending 7 337,372 397,591
 
 

The accompanying notes are an integral part of these consolidated financial statements.

1. Principal Activities

JSC Bank of Georgia (the “Bank”) was established on 21 October 1994 as a joint stock company (“JSC”) under the laws of Georgia, and was formerly known as State Bank Binsotsbanki. The Bank operates under a general banking license issued by the National Bank of Georgia (“NBG”; the Central Bank of Georgia) on 15 December 1994. The Bank is the ultimate parent of a group of companies (the “Group”) incorporated in Georgia, Ukraine, Belarus and Cyprus, primary business activities include providing banking, leasing, insurance, brokerage and wealth management services, to corporate and individual customers. The list of companies included in the Group is provided in Note 2. The Bank is the Group’s main operating unit and accounts for most of the Group’s activities.

The Bank accepts deposits from the public and extends credit, transfers payments in Georgia and international and exchanges currencies. Its main office is in Tbilisi, Georgia. At 31 December 2009 the Bank has 141 operating outlets in all major cities of Georgia (2008: 151). The Bank’s registered legal address is 3 Pushkin Street, Tbilisi 0105, Georgia.

As of 31 December 2009 and 2008 the following shareholders owned more than 4% of the outstanding shares of the Bank. Other shareholders individually owned less than 4% of the outstanding shares.

Shareholder   31 December 2009,
%
  31 December 2008,
%
Bank of New York (Nominees), Limited 88.86% 77.45%
East Capital Financial Institutions 4.36% 4.37%
Firebird Avrora Fund 4.68%
Firebird Republics Fund 4.58%
Others (less than 4% individually) 6.78% 8.92%
Total 100.00% 100.00%

As of 31 December 2009, the members of the Supervisory Board and Board of Directors owned 612,962 shares and Global Depositary Receipts (“GDRs”) (1.96%; 2008: 468,827 shares and GDRs 1.50%) of the Bank. Interests of the members of the Supervisory Board and Management Board were as follows:

Shareholder   31 December 2009, shares held   31 December 2008, shares held
Irakli Gilauri 216,230 136,303
Sulkhan Gvalia 136,049 166,907
Nicholas Enukidze 122,259 75,377
Allan Hirst 46,772 10,685
Avto Namicheishvili 29,999 12,489
Irakli Burdiladze 23,035 10,036
Kakha Kiknavelidze 15,027 4,938
Mikheil Gomarteli 9,916
David Morisson 7,342
Giorgi Chiladze 6,333
Ramaz Kukuladze* 52,092
Total 612,962 468,827

In addition to shares held, the members of the Supervisory Board and Management Board were awarded 463,912 and 198,139 Global Depository Receipts (“GDR”) in 2009 and 2008, respectively. The awards are subject to three-year vesting. As of 31 December 2009 419,814 GDRs owned by the members of the Supervisory Board and Management Board vested and comprised as follows (in 2008: 313,330):

Member of the Supervisory Board and/or Management Board   31 December 2009, GDRs vested   31 December 2008, GDRs vested
Irakli Gilauri 214,643 134,716
Nicholas Enukidze 122,259 74,332
Avto Namicheishvili 29,999 11,667
Irakli Burdiladze 22,665 9,666
Sulkhan Gvalia 13,999 26,857
Mikheil Gomarteli 9,916
Giorgi Chiladze 6,333
Kakha Kiknavelidze 4,000
Ramaz Kukuladze* 52,092
Total 419,814 313,330

* Resigned from the Management Board of the Bank on 15 November 2009.

2. Basis of Preparation

General

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The Bank and its Georgian-based subsidiaries are required to maintain their records and prepare their financial statements for regulatory purposes in Georgian Lari in accordance with IFRS, while Subsidiaries established outside of Georgia are in their respective local currencies. These consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of financial assets and liabilities held for trading, available-for-sale securities, investment properties and revalued property and equipment.

These consolidated financial statements are presented in thousands of Georgian Lari (“GEL”), except per share amounts and unless otherwise indicated.

Subsidiaries

The consolidated financial statements as of 31 December 2009 and 2008 include the following direct and indirect subsidiaries:

Subsidiaries   Ownership / voting, %   Country of incorporation   Industry   Date of incorporation   Date of acquisition
31 December 2009   31 December 2008
JSC BG Bank 99.4% 99.4% Ukraine Banking 26/01/1994 1/10/2007
Valimed, LLC 100.0% 100.0% Belarus Investment 14/09/2000 3/6/2008
  • Proscale M, UE
100.0% Belarus Business servicing 15/05/2003 4/12/2009
  • JSC Belarusky Narodny Bank
99.98% 70.0% Belarus Banking 16/04/1992 3/6/2008
  • BNB Leasing, LLC
76.0% 76.0% Belarus Leasing 30/03/2006 3/6/2008
JSC BG Capital (Georgia) (formerly known as JSC Galt and Taggart Securities) 100.0% 100.0% Georgia Brokerage and asset management 19/12/1995 28/12/2004
  • Benderlock Investments Limited
100.0% Cyprus Investments 12/5/2009 13/10/2009
  • BG Tax Advisory, LLC (formerly known as Galt and Taggart Tax Advisory, LLC)
100.0% 100.0% Georgia Tax consulting 25/09/2007
  • BG Commodities (Georgia), LLC
100.0% Georgia Commodity Trading 16/4/2009
  • BG Commodities (Ukraine), LLC
100.0% Ukraine Commodity Trading 24/11/2009
  • Galt and Taggart Holdings Limited
100.0% 100.0% Cyprus Investment 3/7/2006
  • BG Trading Limited (formerly known as Galt and Taggart Trading Limited)
100.0% 100.0% Cyprus Investment 26/03/2007
  • JSC Galt and Taggart Securities, SA (Moldova) (e)
95.1% 95.1% Moldova Investment 7/7/2008
  • BG Capital (Ukraine), LLC (formerly known as Galt and Taggart Securities (Ukraine), LLC)
100.0% 100.0% Ukraine Brokerage 23/10/2006
  • BG Capital (Belarus), LLC (formerly known as Galt and Taggart Securities (Belarus), LLC)
100.0% 100.0% Belarus Brokerage 19/02/2008
  • Brooksby Investments Limited
100.0% 100.0% Cyprus Investments 4/3/2008 18/06/2008
  • Galt & Taggart Securities MMC, LLC
(a) 75.0% Azerbaijan Investment banking and brokerage services 30/06/2008
  • GTAM Limited
(a) 80.0% Cyprus Investment activity 23/10/2007
  • Galt and Taggart Asset Management, LLC
(a) 100.0% Georgia Asset management 31/05/2007
  • JSC Belorussian Investments
(a) 100.0% Georgia Consumer goods production & distribution 14/05/2008
  • JSC Liberty Financial Opportunities
(a) 100.0%

Georgia

Investment 3/9/2008

2. Basis of Preparation (continued)

Subsidiaries (continued)

Subsidiaries

  Ownership / voting, %   Country of incorporation   Industry   Date of incorporation   Date of acquisition
December 31, 2009   December 31, 2008
JSC Insurance Company Aldagi BCI 100.0% 100.0% Georgia Insurance 22/06/2007
  • JSC My Family Clinic
100.0% 100.0% Georgia Healthcare 3/10/2005
  • JSC Kutaisi St. Nicholas Surgery Hospital
55.0% 55.0% Georgia Medical services 3/11/2000 20/05/2008
Georgian Leasing Company, LLC 100.0% 100.0% Georgia Leasing 29/10/2001 31/12/2004
  • JSC DBL.ge
100.0% 100.0% Georgia Investment 23/04/2007
  • JSC DBL Capital
100.0% 100.0% Georgia Brokerage 27/04/2007
GC Holdings, LLC 100.0% 100.0% Georgia Investment 29/10/2007
  • GC Ukraine, LLC
100.0% 100.0% Ukraine Card processing 30/07/2008
  • JSC Georgian Card
55.8% 55.7% Georgia Card processing 17/01/1997 20/10/2004
  • JSC Nova Technology
(a) 51.0% Georgia Electronic payment services 19/03/2007 11/11/2007
  • Direct Debit Georgia, LLC
100.0% 100.0% Georgia Electronic payment services 7/3/2006
JSC SB Real Estate 61.4% 52.1% Georgia Real estate 27/09/2006
JSC Liberty Consumer 65.3% 65.4% Georgia Investment 24/05/2006
  • Vere+, LLC
(c) 100.0% Georgia Real estate 22/05/1996 6/2/2007
  • Alegro, LLC
(d) 100.0% Georgia Commercial 9/9/1996 12/3/2008
  • JSC SB Outdoor & Indoor
100.0% 100.0% Georgia Advertising 9/6/2006
  • JSC Intertour
83.6% 83.6% Georgia Travel agency 29/03/1996 25/04/2006
  • Holiday Travel, LLC
100.0% 100.0% Georgia Travel agency 11/2/2005 4/9/2006
  • JSC Prime Fitness
100.0% 100.0% Georgia Fitness centre 3/7/2006
  • MetroNet, LLC
100.0% 100.0% Georgia Communication services 23/04/2007
  • Planeta Forte, LLC
51.0% Georgia Newspaper Retail 31/10/1995 1/1/2009
JSC Galt and Taggart Holdings (Georgia) 100.0% 100.0% Georgia Investment 4/11/2008
  • JSC Club 24 (b)
100.0% 100.0% Georgia Entertainment 27/11/2007
  • Metro Service +, LLC
100.0% 100.0% Georgia Business servicing 10/5/2006
  • SB Transport, LLC
(b) 100.0% Georgia Transportation 20/02/2007
  • JSC SB Trade
(b) 100.0% Georgia Import and distribution 26/02/2007
  • Georgia Financial Investments, LLC
100.0% Israel Information Sharing and Market Research 9/2/2009
  • Real Estate Brokerage-Presto, LLC
100.0% 100.0% Georgia Real estate brokerage 16/11/2007
  • JSC SB Immobiliare
100.0% 100.0% Georgia Real estate, Construction 12/3/2008
  • JSC SB Iberia
100.0% 49.0% Georgia Real estate, Construction 13/12/2007 19/08/2009
  • JSC SB Iberia 2
100.0% 49.0% Georgia Real estate, Construction 28/3/2008 19/08/2009
JSC United Securities Registrar of Georgia 100.0% 100.0% Georgia Registrar 25/01/199 30/09/2006

(a) No longer Group subsidiary due to sale in 2009.

(b) JSC Galt and Taggart Holdings (Georgia) contributed its investments in JSC SB Trade and SB Transport, LLC to the capital of Club 24, LLC. Both of these companies merged to Club 24, LLC, subsequently reorganized into a joint stock company.

(c) Liquidated in 2009.

(d) Transferred to JSC Caucasus Energy and Infrastructure (former subsidiary of the Group sold in 2008) in 2009 in exchange of a loan payable.

(e) Dormant.

3. Summary of Significant Accounting Policies

Adoption of new or revised standards and interpretations

The Group has adopted the following amended IFRS and new IFRIC Interpretations during the year. The principal effects of these changes are as follows:

Improvements to IFRS

In May 2008, the IASB issued amendments to IFRS, which resulted from the IASB’s annual improvements project. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or after 1 January 2009, with earlier application permitted. Amendments included in May 2008 “Improvements to IFRS” did not have any impact on the accounting policies, financial position or performance of the Group.

IAS 1 Presentation of Financial Statements (Revised)

A revised IAS 1 was issued in September 2007, and became effective for annual periods beginning on or after 1 January 2009. This revised Standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The revised standard also requires that the income tax effect of each component of comprehensive income be disclosed. In addition, it requires entities to present a comparative statement of financial position as at the beginning of the earliest comparative period when the entity has applied an accounting policy retrospectively, makes a retrospective restatement, or reclassifies items in the financial statements.

The Group has elected to present comprehensive income in two separate statements: income statement and statement of comprehensive income. The Group has not provided a restated comparative statement of financial position for the earliest comparative period, as it has not adopted any new accounting policies retrospectively, or has made a retrospective restatement, or retrospectively reclassified items in the consolidated financial statements.

IFRS 7 “Financial Instruments: Disclosures”

The amendments to IFRS 7 were issued in March 2009, to enhance fair value and liquidity disclosures. With respect to fair value, the amendments require disclosure of a three-level fair value hierarchy, by class, for all financial instruments recognised at fair value and specific disclosures related to the transfers between levels in the hierarchy and detailed disclosures related to level 3 of the fair value hierarchy. In addition, the amendments modify the required liquidity disclosures with respect to derivative transactions and assets used for liquidity management.

IAS 23 “Borrowing Costs”(Revised)

A revised IAS 23 Borrowing costs was issued in March 2007, and became effective for financial years beginning on or after 1 January 2009. The standard has been revised to require capitalisation of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the Standard, the Group adopted this as a prospective change. No changes were made for borrowing costs incurred to 1 January 2009 that have been expensed.

3. Summary of Significant Accounting Policies (continued)

Adoption of new or revised standards and interpretations (continued)

IAS 24 “Related party disclosures” (Revised)

The revised IAS 24, issued in November 2009, simplifies the disclosure requirements for government-related entities and clarifies the definition of a related party. Previously, an entity controlled or significantly influenced by a government was required to disclose information about all transactions with other entities controlled or significantly influenced by the same government. The revised standard requires disclosure about these transactions only if they are individually or collectively significant. The revised IAS 24 is effective for annual periods beginning on or after 1 January 2011, with earlier application permitted.

Amendments to IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements” – Puttable Financial Instruments and Obligations Arising on Liquidation

These amendments were issued in February 2008, and became effective for annual periods beginning on or after 1 January 2009. The amendments require puttable instruments that represent a residual interest in an entity to be classified as equity, provided they satisfy certain conditions. These amendments did not have any impact on the Group.

Amendments to IFRS 2 “Share-based Payment”- Vesting Conditions and Cancellations

Amendment to IFRS 2 was issued in January 2008 and became effective for annual periods beginning on or after 1 January 2009. This amendment clarifies the definition of vesting conditions and prescribes the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. This amendment did not have any impact on the financial position or performance of the Group.

IFRS 8 “Operating Segments”

IFRS 8 became effective for annual periods beginning on or after 1 January 2009. This Standard requires disclosure of information about the Group’s operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of this Standard did not have any impact on the financial position or performance of the Group. The Group determined that the operating segments are the same as the business segments previously identified under IAS 14 ‘Segment Reporting”.

IFRIC 13 “Customer Loyalty Programmes”

IFRIC Interpretation 13 was issued in June 2007 and became effective for annual periods beginning on or after 1 July 2008. This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. This interpretation did not have any impact on the Group's consolidated financial statements as no such schemes currently exist.

IFRIC 15 “Agreements for the Construction of Real Estate”

IFRIC Interpretation 15 was issued in July 2008 and is applicable retrospectively for annual periods beginning on or after 1 January 2009. IFRIC 15 clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognized if an agreement between a developer and a buyer is reached before the construction of the real estate is completed. The interpretation also provides guidance on how to determine whether an agreement is within the scope of IAS 11 “Construction Contracts” or IAS 18 “Revenue” and supersedes the current guidance for real estate in the Appendix to IAS 18. This interpretation did not have any impact on the Group's consolidated financial statements.

IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”

IFRIC Interpretation 16 was issued in July 2008 and is applicable for annual periods beginning on or after 1 October 2008. This Interpretation provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of net investment, where within the group the hedging instrument can be held and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. This interpretation did not have any impact on the Group's financial statements.

3. Summary of Significant Accounting Policies (continued)

Adoption of new or revised standards and interpretations (continued)

Amendments to IFRIC 9 “Reassessment of Embedded Derivatives”

The amendments require entities to assess whether to separate an embedded derivative from a host contract in the case where the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. The amendments are applicable for annual periods ending on or after 30 June 2009. The application of the amendment did not have a significant impact on the Group’s financial statements as no reclassifications were made for instruments that contained embedded derivatives.

IFRIC 18 Transfers of Assets from Customers

IFRIC 18 was issued in January 2009 and becomes effective for transfers of assets from customers received on or after 1 July 2009 with early application permitted, provided valuations were obtained at the date those transfers occurred. This interpretation should be applied prospectively. IFRIC 18 provides guidance on accounting for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services or to do both. This interpretation did not have any impact on the financial position or performance of the Group as the Group has no transfers of assets from its customers.

Subsidiaries

Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights, or otherwise has power to exercise control over their operating and financial activities, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in full; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Acquisition of subsidiaries

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest.

The excess of purchase consideration over the Group’s share in the net fair value of the identifiable assets, liabilities and contingent liabilities is recorded as goodwill. If the cost of the acquisition is less than the Group’s share in the net fair value the difference is recognised directly in the consolidated income statement.

Minority interest is the interest in subsidiaries not held by the Group. Minority interest at the balance sheet date represents the minority shareholders' share in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary at the acquisition date and the minorities' share in movements in equity since the acquisition date. Minority interest is presented within equity.

Losses allocated to minority interest do not exceed the minority interest in the equity of the subsidiary unless there is a binding obligation of the minority to fund the losses. All such losses are allocated to the Group.

3. Summary of Significant Accounting Policies (continued)

Subsidiaries (continued)

Increases in ownership interests in subsidiaries

The differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the consideration given for such increases at the date of increase in ownership interests are charged or credited to retained earnings.

Investments in associates

Associates are entities in which the Group generally has between 20% and 50% of the voting rights, or is otherwise able to exercise significant influence, but which it does not control or jointly control. Investments in associates are accounted for under the equity method and are initially recognised at cost, including goodwill. Subsequent changes in the carrying value reflect the post-acquisition changes in the Group’s share of net assets of the associate. The Group’s share of its associates’ profits or losses is recognised in the consolidated income statement, and its share of movements in reserves is recognised in other comprehensive income. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group is obliged to make further payments to, or on behalf of, the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Financial assets

Initial recognition

Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets upon initial recognition.

Date of recognition

All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated and effective hedging instruments. Gains or losses on financial assets held for trading are recognised in the consolidated income statement.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. Investments intended to be held for an undefined period are not included in this classification. Held-to-maturity investments are subsequently measured at amortised cost. Amortised cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in the consolidated income statement when the investments are impaired, as well as through the amortisation process.

3. Summary of Significant Accounting Policies (continued)

Financial assets (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as trading securities or designated as investment securities available-for-sale. Such assets are carried at amortised cost using the effective interest method. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortised cost, gains and losses are recognised in the consolidated income statement when the investments are impaired, as well as through the amortisation process. Gains and losses are recognised in the consolidated income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition available-for sale financial assets are measured at fair value with gains or losses being recognised in other comprehensive income until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in other comprehensive income is reclassified to the consolidated income statement. However, interest calculated using the effective interest method is recognised in the consolidated income statement.

Determination of fair value

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices for long positions and ask price for short positions at the close of business on the reporting date, without any deduction for transaction costs.

For all other financial instruments where there is no active market, fair value is determined using valuation techniques. Valuation techniques include using recent arm’s length market transactions, which are determined not to be a result of a forced transaction, involuntary liquidation or distress sale, reference to the current market value of similar instrument, discounted cash flow analysis and other relevant valuation models.

Offsetting

Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, amounts due from central banks, excluding obligatory reserves with central banks, and amounts due from credit institutions that mature within ninety days of the date of origination and are free from contractual encumbrances.

3. Summary of Significant Accounting Policies (continued)

Derivative financial instruments

In the normal course of business, the Group enters into various derivative financial instruments including forwards, swaps and options in the foreign exchange and capital markets. Such financial instruments are held for trading and are initially recognised in accordance with the policy for initial recognition of financial instruments and are subsequently measured at fair value. The fair values are estimated based on quoted market prices or pricing models that take into account the current market and contractual prices of the underlying instruments and other factors. Derivatives are carried as assets when their fair value is positive and as liabilities when it is negative. Gains and losses resulting from these instruments are included in the consolidated income statement as gains less losses from trading securities or gains less losses from foreign currencies dealing, depending on the nature of the instrument.

Derivatives embedded in other financial instruments are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts, and the host contract is not itself held for trading or designated at fair value through profit and loss. The embedded derivatives separated from the host are carried at fair value on the trading portfolio with changes in fair value recognised in the consolidated income statement.

Promissory notes

Promissory notes purchased are included in trading securities, or in amounts due from credit institutions or in loans to customers or in available-for-sale securities, depending on their substance and are accounted for in accordance with the accounting policies for these categories of assets.

Borrowings

Issued financial instruments or their components are classified as liabilities, where the substance of the contractual arrangement results in the group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of each or another financial asset for a fixed number of own equity instruments. Such instruments include amounts due to credit institutions, amounts due to customers and debt securities issued. These are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the consolidated income statement when the borrowings are derecognised as well as through the amortisation process.

If the Group purchases its own debt, it is removed from the statement of financial position and the difference between the carrying amount of the liability and the consideration paid is recognized in the consolidated income statement.

Leases

i. Finance – Group as lessor

The Group recognizes finance lease receivables in the consolidated statement of financial position at value equal to the net investment in lease, starting from the date of commencement of the lease term. In calculating the present value of the minimum lease payments the discount factor used is the interest rate implicit in the lease. Initial direct costs are included in the initial measurement of the finance lease receivables. Lease payments received are apportioned between the finance income and the reduction of the outstanding lease receivable. Finance income is based on a pattern reflecting a constant periodic rate of return on the net investment outstanding.

ii. Operating – Group as lessee

Leases of assets under which the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognized as expenses on a straight-line basis over the lease term and included into other administrative and operating expenses.

iii. Operating – Group as lessor

The Group presents assets subject to operating leases in the consolidated statement of financial position according to the nature of the asset. Lease income from operating leases is recognized in the consolidated income statement on a straight-line basis over the lease term as other income. The aggregate cost of incentives provided to lessees is recognized as a reduction of rental income over the lease term on a straight-line basis. Initial direct costs incurred specifically to earn revenues from an operating lease are added to the carrying amount of the leased asset.

3. Summary of Significant Accounting Policies (continued)

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Amounts due from credit institutions and loans to customers

For amounts due from credit institutions and loans to customers carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risks characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is an objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the consolidated income statement.

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal credit grading system that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group or their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

3. Summary of Significant Accounting Policies (continued)

Impairment of financial assets (continued)

Held-to-maturity financial investments

For held-to-maturity investments the Group assesses individually whether there is objective evidence of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement.

If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognised, any amounts formerly charged are credited to the consolidated income statement.

Available-for-sale financial assets

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition coast and the current fair value, less any impairment loss on that investment previously recognised in the consolidated income statement – is reclassified from other comprehensive income to the consolidated income statement. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairment are recognised in other comprehensive income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded in the consolidated income statement. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the consolidated income statement, the impairment loss is reversed through the consolidated income statement.

Renegotiated loans

Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.

De-recognition of financial assets and liabilities

Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:

  • the rights to receive cash flows from the asset have expired;
  • the Group has transferred its rights to receive cash flows from the asset, or retained the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; and
  • the Group either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

3. Summary of Significant Accounting Policies (continued)

De-recognition of financial assets and liabilities (continued)

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the consolidated income statement.

Financial guarantees

In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the consolidated financial statements at fair value, in ‘Other liabilities’, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amortised premium and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is taken to the consolidated income statement. The premium received is recognised in the consolidated income statement on a straight-line basis over the life of the guarantee.

Taxation

The current income tax expense is calculated in accordance with the regulations in force in the respective territories that the Bank and its Subsidiaries operate.

Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred income taxes are provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes, except where the deferred income tax arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Georgia, Ukraine, Belarus and Cyprus also have various operating taxes that are assessed on the Group’s activities. These taxes are included as a component of other operating expenses.

3. Summary of Significant Accounting Policies (continued)

Investment properties

The Group holds certain properties as investments to earn rental income, generate capital appreciation or both. Investment properties are measured initially at cost, including subsequent costs. Subsequent to initial recognition, Investment properties is stated to fair value. Gains or losses arising from changes in fair values of investment properties are included in the consolidated income statement as “Net gains from revaluation of investment properties”.

Property and equipment

Property and equipment, except for buildings, are carried at cost less accumulated depreciation and any accumulated impairment in value. Such cost includes the cost of replacing part of equipment when that cost is incurred if the recognition criteria are met. Buildings are measured at fair value less depreciation and impairment charged subsequent to the date of the revaluation.

The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

Following initial recognition at cost, buildings are carried at a revalued amount, which is the fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Any revaluation surplus is credited to the revaluation reserve for property and equipment included in other comprehensive income, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the consolidated income statement, in which case the increase is recognised in the consolidated income statement. A revaluation deficit is recognised in the consolidated income statement, except that a deficit directly offsetting a previous surplus on the same asset is directly offset against the surplus in the revaluation reserve for property and equipment.

An annual transfer from the revaluation reserve for property and equipment to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the assets original cost. Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the devalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Depreciation of an asset, including assets under construction, commences from the date the asset is ready and available for use. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

  Years
Buildings 50
Furniture and fixtures 10
Computers and office equipment 5
Motor vehicles 5

The asset’s residual values, useful lives and methods are reviewed, and adjusted as appropriate, at each financial year-end.

Leasehold improvements are amortized over the life of the related leased asset. The assets residual values, useful lives and methods are reviewed, and adjusted as appropriate, at each financial year-end.

Costs related to repairs and renewals are charged when incurred and included in other operating expenses, unless they qualify for capitalization.

3. Summary of Significant Accounting Policies (continued)

Goodwill

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of acquisition. Goodwill on an acquisition of a subsidiary is included in intangible assets. Goodwill on an acquisition of an associate is included in the investments in associates. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

  • represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
  • is not larger than a segment as defined in IFRS 8 “Operating Segments”.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Other intangible assets

The Group’s other intangible assets include computer software and licenses. Computer software and licenses are recognized at cost and amortized using the straight-line method over its useful life, but not exceeding a period of ten years.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic lives of 4 to 10 years and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Amortisation periods and methods for intangible assets with finite useful lives are reviewed at least at each financial year-end.

Intangible assets with indefinite useful lives are not amortised, but tested for impairment annually either individually or at the cash-generating unit level.

Costs associated with maintaining computer software programmes are recorded as an expense as incurred. Software development costs (relating to the design and testing of new or substantially improved software) are recognised as intangible assets only when the Group can demonstrate the technical feasibility of completing the software so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete and the ability to measure reliably the expenditure during the development. Other software development costs are recognised as an expense as incurred.

3. Summary of Significant Accounting Policies (continued)

Insurance and reinsurance receivables

Insurance and reinsurance receivables are recognized based upon insurance policy terms and measured at cost. The carrying value of insurance and reinsurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with any impairment loss recorded in the consolidated statement of income.

Reinsurance receivables primarily include balances due from both insurance and reinsurance companies for ceded insurance liabilities. Premiums on reinsurance assumed are recognized as revenue in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Amounts due to reinsurers are estimated in a manner consistent with the associated reinsured policies and in accordance with the reinsurance contract. Premiums ceded and claims reimbursed are presented on a gross basis.

An impairment review is performed on all reinsurance assets when an indication of impairment occurs. Reinsurance receivables are impaired only if there is objective evidence that the Group may not receive all amounts due to it under the terms of the contract that this can be measured reliably.

Insurance liabilities

General insurance liabilities

General insurance contract liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Significant delays can be experienced in the notification and settlement of certain type of general insurance claims, particularly in respect of liability business, environmental and pollution exposures – therefore the ultimate cost of which cannot be known with certainty at the reporting date.

Provision for unearned premiums

The proportion of written premiums, gross of commission payable to intermediaries, attributable to subsequent periods is deferred as unearned premium. The change in the provision for unearned premium is taken to the consolidated income statement in order that revenue is recognized over the period of risk or, for annuities, the amount of expected future benefit payments.

Liability adequacy test

At each reporting date, a liability adequacy test is performed, to ensure the adequacy of unearned premiums net of related deferred acquisition costs. In performing the test, current best estimates of future contractual cash flows, claims handling and policy administration expenses, as well as investment income from assets backing such liabilities, are used. Any inadequacy is immediately charged to the consolidated income statement by establishing an unexpired risk provision.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of obligation can be made.

Retirement and other employee benefit obligations

The Group provides management and employees of the Group, with private pension plans. These are defined contribution pension plans covering substantially all full-time employees of the Group. The Group collects contributions from its employees. When an employee reaches the pension age, aggregated contributions, plus any earnings earned on the employee’s behalf are paid to the employee according to the schedule agreed with the employee. Aggregated amounts are distributed during the period when the employee will receive accumulated contributions.

3. Summary of Significant Accounting Policies (continued)

Share-based payment transactions

Employees (including senior executives) of the Group receive share-based remuneration, whereby employees render services as consideration for the equity instruments (‘equity settled transactions’).

Equity-settled transactions

The cost of equity settled transactions with employees is measured by reference to the fair value at the date on which they are granted.

The cost of equity settled transactions is recognized together with the corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date when the relevant employee is fully entitled to the award (‘the vesting date’). The cumulative expense recognized for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The consolidated income statement charge or credit for the period represents the movement in cumulative expense recognized as at the beginning and end of that period.

No expense is recognized for the awards that do not ultimately vest except for the awards where vesting is conditional upon market conditions (a condition linked to the price of the Bank’s shares) which are treated as vesting irrespective whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity settled award are modified, the minimum expense is recognized as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of the modification.

Where an equity-settled award is cancelled, it is treated as if it has vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However if a new award is substituted for the cancelled award, and designated as the replacement award on the date that it is granted, the cancelled and the new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

Share capital

Share capital

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction from the proceeds in equity. Any excess of the fair value of consideration received over the par value of shares issued is recognised as additional paid-in capital.

Treasury shares

Where the Bank or its subsidiaries purchases the Bank’s shares, the consideration paid, including any attributable transaction costs, net of income taxes, is deducted from total equity as treasury shares until they are cancelled or reissued. Where such shares are subsequently sold or reissued, any consideration received is included in equity. Treasury shares are stated at par value, with adjustment of premiums against additional paid-in capital.

Dividends

Dividends are recognised as a liability and deducted from equity at the reporting date only if they are declared before or on the reporting date. Dividends are disclosed when they are proposed before the reporting date or proposed or declared after the reporting date but before the consolidated financial statements are authorised for issue.

Segment reporting

The Group’s segmental reporting is based on the following operating segments: Retail banking, Corporate banking, Brokerage, Wealth Management, Asset Management, Insurance and Corporate Center.

3. Summary of Significant Accounting Policies (continued)

Contingencies

Contingent liabilities are not recognised in the consolidated statement of financial position but are disclosed unless the possibility of any outflow in settlement is remote. A contingent asset is not recognised in the consolidated statement of financial position but disclosed when an inflow of economic benefits is probable.

Income and expense recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue and expense is recognised:

Interest and similar income and expense

For all financial instruments measured at amortised cost and interest bearing securities classified as trading or available-for-sale, interest income or expense is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in carrying amount is recorded as interest income or expense.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the original effective interest rate applied to the new carrying amount.

Fee and commission income

The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

Fee income earned from services that are provided over a certain period of time

Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission incomes and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan.

Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

Dividend income

Revenue is recognised when the Bank’s right to receive the payment is established.

Insurance premium income

For non-life insurance business, premiums written are recognized at policy inception and earned on a pro rata basis over the term of the related policy coverage. Estimates of premiums written as at the reporting date but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums earned.

3. Summary of Significant Accounting Policies (continued)

Income and expense recognition (continued)

Insurance claims

General insurance claims incurred include all claim losses occurring during the year, whether reported or not, including the related handling costs and reduction for the value of salvage and other recoveries and any adjustments to claims outstanding from previous years.

Functional and reporting currencies and foreign currency translation

The consolidated financial statements are presented in Georgian Lari, which is the Bank’s presentation currency. The Bank’s functional currency is US Dollar effective 1 January 2007. Prior to 1 January 2007, Georgian Lari was its functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency, converted at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into functional currency at functional currency rate of exchange ruling at the reporting date. Gains and losses resulting from the translation of foreign currency transactions are recognised in the consolidated income statement as gains less losses from foreign currencies – translation differences. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Differences between the contractual exchange rate of a certain transaction and the NBG exchange rate on the date of the transaction are included in gains less losses from foreign currencies (dealing). The official NBG exchange rates at 31 December 2009 and 2008 were 1.6858 and 1.6670 Lari to USD 1 and 2.4195 and 2.3648 Lari to EUR 1, respectively.

As at the reporting date, the assets and liabilities of the entities whose functional currency is different from the presentation currency of the Group are translated into Georgian Lari at the rate of exchange ruling at the reporting date and, their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken to other comprehensive income. On disposal of a subsidiary or an associate whose functional currency is different from the presentation currency of the Group, the deferred cumulative amount recognised in other comprehensive income relating to that particular entity is recognised in the consolidated income statement.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing rate.

Standards and interpretations that are issued but not yet effective

Up to the date of approval of the consolidated financial statements, certain new standards, interpretations and amendments to existing standards have been published that are not yet effective for the current reporting period and which the Group has not early adopted, as follows:

Amendment to IAS 39 “Financial Instruments: recognition and measurement” - Eligible Hedged Items

The amendment to IAS 39 was issued in August 2008, and becomes effective for annual periods beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item. Management does not expect the amendment to IAS 39 to affect the Group’s consolidated financial statements as the Group has not entered into any such hedges.

3. Summary of Significant Accounting Policies (continued)

Standards and interpretations that are issued but not yet effective (continued)

IFRS 3 “Business Combinations” (revised in January 2008) and IAS 27 “Consolidated and Separate Financial Statements” (revised in January 2008)

The revised standards were issued in January 2008 and become effective for financial years beginning on or after 1 July 2009. Revised IFRS 3 introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. Revised IAS 27 requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give raise to a gain or loss. Furthermore, the revised standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by the revised Standards must be applied prospectively and will affect only future acquisitions and transactions with minority interests.

IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions

The amendment to IFRS 2 was issued in June 2009 and become effective for financial years beginning on or after 1 January 2010. The amendment clarifies the scope and the accounting for group cash-settled share-based payment transactions. This amendment also supersedes IFRIC 8 and IFRIC 11. The Group expects that this amendment will have no impact on the Group's consolidated financial statements.

IFRIC 17 “Distribution of Non-Cash Assets to Owners”

IFRIC Interpretation 17 was issued on 27 November 2008 and is effective for annual periods beginning on or after 1 July 2009. IFRIC 17 applies to pro rata distributions of non-cash assets except for common control transactions and requires that a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity; an entity should measure the dividend payable at the fair value of the net assets to be distributed; an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss. The Interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. The Group expects that this interpretation will have no impact on the Group's consolidated financial statements.

Improvements to IFRSs

In April 2009 the IASB issued the second omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. Most of the amendments are effective for annual periods beginning on or after 1 January 2010. There are separate transitional provisions for each standard. Amendments included in April 2009 “Improvements to IFRS” will have no impact on the accounting policies, financial position or performance of the Group, except the following amendments resulting in changes to accounting policies, as described below.

  • IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply if specifically required for such non-current assets or discontinued operations. The Group expects that this amendment will have no impact on the Group's consolidated financial statements.
  • IFRS 8 Operating Segment Information: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. As the Group’s chief operating decision maker does review segment assets and liabilities, the Group will continue to disclose this information.
  • IAS 7 Statement of Cash Flows: Explicitly states that only expenditure that results in recognising an asset can be classified as a cash flow from investing activities.
  • IAS 36 Impairment of Assets: The amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. The amendment will have no impact on the Group as the annual impairment test is performed before aggregation.

3. Summary of Significant Accounting Policies (continued)

Standards and interpretations that are issued but not yet effective (continued)

Amendments to IAS 32 “Financial instruments: Presentation”: Classification of Rights Issues”

In October 2009, the IASB issued amendment to IAS 32. Entities shall apply that amendment for annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment alters the definition of a financial liability in IAS 32 to classify rights issues and certain options or warrants as equity instruments. This is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, in order to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The Group expects that this amendment will have no impact on the Group's consolidated financial statements.

IFRS 9 “Financial Instruments”

In November 2009 the IASB issued the first phase of IFRS 9 Financial instruments. This Standard will eventually replace IAS 39 Financial Instrument: Recognition and Measurement. IFRS 9 becomes effective for financial years beginning on or after 1 January 2013. Entities may adopt the first phase for reporting periods ending on or after 31 December 2009. The first phase of IFRS 9 introduces new requirements on classification and measurement of financial assets. In particular, for subsequent measurement all financial assets are to be classified at amortised cost or at fair value through profit or loss with the irrevocable option for equity instruments not held for trading to be measured at fair value through other comprehensive income. The Group now evaluates the impact of the adoption of new Standard and considers the initial application date.

4. Significant Accounting Judgments and Estimates

In the process of applying the Group’s accounting policies, management uses its judgment and made estimates in determining the amounts recognized in the consolidated financial statements. The most significant use of judgments and estimates are as follows:

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.

Determination of collateral value

Management monitors market value of collateral on a regular basis. Management uses its experienced judgment or independent opinion to adjust the fair value to reflect current circumstances. The amount and type of collateral required depends on the assessment of credit risk of the counterparty.

Measurement of fair value of investment properties and property and equipment

Fair value of investment properties as well as of the property and equipment is determined by independent professionally qualified appraisers. Fair value is determined using the combination of internal capitalization method (also known as discounted future cash flow method) and sales comparison method.

The estimates described above are subject to change as new transaction data and market evidence becomes available.

4. Significant Accounting Judgments and Estimates (continued)

Allowance for impairment of loans and receivables and finance lease receivables

The Group regularly reviews its loans and receivables and finance lease receivables to assess impairment. The Group uses its judgment to estimate the amount of any impairment loss in cases where a borrower is in financial difficulties and there are few available sources of historical data relating to similar borrowers. Similarly, the Group estimates changes in future cash flows based on the observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the group of loans and receivables. The Group uses its judgment to adjust observable data for a group of loans or receivables to reflect current circumstances.

Contingent liabilities

The Group is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Group considers the likelihood of the loss or the incurrence of a liability as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Group regularly evaluates current information available to determine whether such accruals are required. As of 31 December 2009, the Group did not record any contingent liabilities.

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose an appropriate discount rate in order to calculate the present value of those cash flows.

Impairment of long-lived assets

Long-lived assets consist primarily of real estate investments, property, investments in associates, goodwill and intangible assets. The Group evaluates the long-lived assets for impairment annually or when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable.

Impairment of investments

The Group holds investments in several companies, including those that do not trade in an active market. Future adverse changes in market conditions or poor operating results could result in losses that may not be reflected in an investment’s current carrying value, thereby requiring an impairment charge in the future. The Group regularly reviews its investments to determine if there have been any indicators that the value may be impaired. These reviews require estimating the outcome of future events and determining whether factors exist that indicate impairment has occurred.

5. Business Combinations

Acquisitions in 2009

Planeta Forte, LLC

On 1 January 2009 JSC Liberty Consumer acquired 51% of “Planeta Forte, LLC”, a newspaper retailer company operating in Georgia. The fair values of identifiable assets, liabilities and contingent liabilities of Planeta Forte, LLC as of the date of acquisition were provisionally estimated at:

 

Fair value
recognized on
acquisition

  Carrying
value
 
Cash and cash equivalents 4 4
Property and equipment 55 55
Other assets 460 460
519 519
 
Other liabilities 486 486
486 486
Fair value of net assets 33 33
 
Share in fair value of net assets acquired (51%) 17
Goodwill arising on acquisition 364
Consideration paid 381
 

The net cash outflow on acquisition was as follows:

 

2009
Cash paid 381
Cash acquired with the subsidiary (4)
Net cash outflow 377

5. Business Combinations (continued)

Acquisitions in 2009 (continued)

JSC SB Iberia

On 19 August 2009 JSC SB Immobiliare, a fully owned subsidiary of the Bank acquired 100% of JSC ”SB Iberia”, a real estate developing company operating in Georgia. The fair values of identifiable assets, liabilities and contingent liabilities of JSC SB Iberia as of the date of acquisition were provisionally estimated at:

 

Fair value
recognized on
acquisition

  Carrying
value
 
Cash and cash equivalents 11 11
Investment property 4,547 4,547
Deferred income tax assets 826 826
Prepayments 102 102
Other assets 7 7
5,493 5,493
 
Amounts due to credit institutions 6,900 6,900
Accounts payable (trade & service) 2,156 2,156
Deferred income tax liabilities 12 12
9,068 9,068
Fair value of net assets (3,575) (3,575)
 
Share in fair value of net assets acquired (100%) (3,575)
Goodwill arising on acquisition 3,907
Consideration given 332
 

The net cash outflow on acquisition was as follows:

 

2009
Cash paid 332
Cash acquired with the subsidiary (11)
Net cash outflow 321

If the combination had taken place at the beginning of the year, there would be no major, material difference in the net income and revenue of the Group.

5. Business Combinations (continued)

Acquisitions in 2009 (continued)

JSC SB Iberia 2

On 19 August 2009 JSC SB Immobiliare, a fully owned subsidiary of the Bank acquired 100% of JSC ”SB Iberia 2”, a real estate developing company operating in Georgia. The fair values of identifiable assets, liabilities and contingent liabilities of JSC SB Iberia 2 as of the date of acquisition were provisionally estimated at:

 

Fair value
recognized on
acquisition

  Carrying
value
 
Cash and cash equivalents 14 14
Investment property 8,083 8,083
Deferred income tax assets 778 778
Prepayments 6 6
Other assets 64 64
8,945 8,945
 
Amounts due to credit institutions 5,913 5,913
Deferred income tax liabilities 8 8
5,921 5,921
Fair value of net assets 3,024 3,024
 
Share in fair value of net assets acquired (100%) 3,024
Goodwill arising on acquisition 744
Consideration given 3,768
 

The net cash outflow on acquisition was as follows:

 

2009
Cash paid 2,286
Cash acquired with the subsidiary (14)
Net cash outflow 2,272

If the combination had taken place at the beginning of the year, there would be no major, material difference in the net income and revenue of the Group.

5. Business Combinations (continued)

Acquisitions in 2008

JSC Belarusky Narodny Bank

On 1 July 2008 the Bank acquired 70% of JSC “Belarusky Narodny Bank”, a banking institution operating in Belarus. The fair values of identifiable assets, liabilities and contingent liabilities of JSC Belarusky Narodny Bank as of the date of acquisition were estimated at:

 

Fair value
recognized on
acquisition

  Carrying
value
 
Cash and cash equivalents 8,908 8,908
Due from credit institutions 1,022 1,022
Loans to customers 36,234 36,234
Deferred tax asset 297 297
Property and equipment 17,445 17,445
All other assets 520 520
64,426 64,426
 
Amounts due to credit institutions 9,501 9,501
Amounts due to customers 18,231 18,231
All other liabilities 513 513
28,245 28,245
Fair value of net assets 36,181 36,181
 
Share in fair value of net assets acquired (70%) 25,327
Recognized Core Deposit Intangible 843
Goodwill arising on acquisition 23,394
Consideration paid 49,564
 

The net cash outflow on acquisition was as follows:

 

2008
Cash paid 49,564
Cash acquired with the subsidiary (8,908)
Net cash outflow 40,656

If the combination had taken place at the beginning of the year, the net income of the Group would have been GEL 1,887 and the total revenue would have been GEL 367,820.

The primary factor that contributed to the cost of business combination that resulted in the recognition of goodwill was the positive synergy brought into the Group’s operations.

5. Business Combinations (continued)

Acquisitions in 2008 (continued)

JSC Kutaisi St. Nickolas Surgery Clinic

On 31 May 2008 JSC Insurance Company Aldagi BCI, a fully owned subsidiary of the Bank, acquired 55% of JSC “Kutaisi St. Nickolas Surgery Clinic”. The fair values of identifiable assets, liabilities and contingent liabilities of JSC “Kutaisi St. Nickolas Surgery Clinic” as of the date of acquisition were estimated at:

 

Fair value
recognized on
acquisition

  Carrying
value
 
Cash and cash equivalents 7 7
Property and equipment 2,802 2,802
All other assets 223 223
3,032 3,032
 
Amounts due to credit institutions 457 457
All other liabilities 791 791
1,248 1,248
Fair value of net assets 1,784 1,784
 
Share in fair value of net assets acquired (55%) 981
Goodwill arising on acquisition 288
Consideration given 1,269
 

The net cash outflow on acquisition was as follows:

 

2008
Cash paid 1,091
Cash acquired with the subsidiary (7)
Net cash outflow 1,084

If the combination had taken place at the beginning of the year, there would be no major, material difference in the net income and revenue of the Group.

The primary factor that contributed to the cost of business combination that resulted in the recognition of goodwill was the positive synergy brought into the Group’s operations.

6. Segment Information

For management purposes, the Group is organised into seven operating segments based on products and services as follows:

Retail Banking     Principally handling individual customers’ deposits, and providing consumer loans, overdrafts, credit card facilities and funds transfer facilities.
 
Corporate Banking Principally handling loans and other credit facilities and deposit and current accounts for corporate and institutional customers.
 
Brokerage

Principally providing brokerage, custody and corporate finance services to its individual as well as corporate customers. Brokerage also possesses its own proprietary book for trading as well as for non-trading purposes, comprising primarily of trading and investment securities.

 
Wealth Management Principally providing wealth management services to VIP individual customers.
 
Asset Management Principally providing asset management services to VIP corporate customers.
 
Insurance Principally providing wide-scale insurance services to corporate and individual customers.
 
Corporate Centre Principally providing back office services to all operating segments of the Bank

For purposes of presentation in these consolidated financial statements, due to the insignificance of certain operating segments to be separately shown, Management has combined Brokerage, Asset Management and Wealth Management operating segments into one. Therefore, operating segment information presented in these consolidated financial statements is classified as follows:

Retail Banking       Brokerage and Asset and Wealth Management
Insurance Corporate Centre
Corporate Banking

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured differently from profit or loss in the consolidated financial statements. Income taxes are managed on a group basis and are not allocated to operating segments.

Transactions between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group’s total revenue in 2009 or 2008.

6. Segment Information (continued)

The following tables present income and profit and certain asset and liability information regarding the Group’s operating segments for the year ended 31 December 2009:

  Retail banking   Corporate
banking
  Brokerage and Asset and wealth management   Corporate center   Insurance   Inter –
company elimination
  Total
Revenue
External operating income:
Net interest income 128,005 114,698 (5,161) (45,966) (1,035) 190,541
Net fees and commission income 31,376 19,241 3,727 (41) 722 55,025
Net foreign currency gains 1,495 4,892 1,372 20,946 61 28,766
Other external revenues 1,139 4,012 (11,470) 10,245 49,394 53,320
Operating income from other segments 519 (1,678) (7,913) (2,811) (1,352) 13,235
Total operating income 162,534 141,165 (19,445) (17,627) 47,790 13,235 327,652
 
Impairment charge on interest earning assets 53,230 49,760 2,711 21,467 (1,427) 125,741
 
Results
Segment results (21,975) 18,535 (37,711) (69,065) 2,883 1,427 (105,906)
Unallocated expenses
Loss before income tax benefit (105,906)
Income tax benefit 6,998
Loss for the year (98,908)
 
Assets and liabilities
Segment assets 1,228,861 1,392,189 162,902 103,242 48,351 (45,600) 2,889,945
Unallocated assets 23,484
Total assets 2,913,429
 
Segment liabilities 893,703 1,143,356 215,630 43,452 39,236 (45,600) 2,289,777
Unallocated liabilities 25,235
Total liabilities 2,315,012
 
Other segment information
 
Capital expenditures, of which: 11,580 11,167 6,246 2,968 982 32,943
Property, plant and equipment 9,328 9,573 1,081 2,485 960 23,427
Intangible assets 2,252 1,594 5,165 483 22 9,516
 
Depreciation and impairment 9,689 10,047 1,392 4,033 555 25,716
Amortization and impairment 41,835 28,811 4,801 518 19 75,984
 
Share of loss of associates (2,649) (2,649)

6. Segment Information (continued)

The following tables present income and profit and certain asset and liability information regarding the Group’s operating segments for the year ended 31 December 2008:

  Retail banking   Corporate
banking
  Brokerage and Asset and wealth management   Corporate center   Insurance   Inter –
company elimination
  Total
Revenue
External operating income:
Net interest income 155,290 89,724 597 (24,677) (94) 220,840
Net fees and commission income 30,317 17,047 5,684 2,259 (5,338) 49,969
Net foreign currency gains 3,918 7,471 3,259 32,486 47,134
Other external revenues 3,862 1,181 (699) 1,993 38,285 _ 44,622
Operating income from other segments (744) (284) (3,944) _ (466) 5,438 _
Total operating income 192,643 115,139 4,897 12,061 32,387 5,438 362,565
 
Impairment charge on interest earning assets 57,343 62,947 1,596 7,907 _ (5,646) 124,147
 
Results
Segment results 33,003 24,222 (14,971) (30,260) (6,951) 5,647 10,690
Unallocated expenses (11,494)
Loss before income tax benefit (804)
Income tax benefit 978
Profit for the year 174
 
Assets and liabilities
Segment assets 1,401,747 1,538,783 134,974 113,061 51,377 6,179 3,246,121
Unallocated assets 12,786
Total assets 3,258,907
 
Segment liabilities 965,078 1,275,716 135,977 80,903 57,990 2,515,664
Unallocated liabilities 24,394
Total liabilities 2,540,058
 
Other segment information
 
Capital expenditures, of which: 51,193 56,542 9,460 2,842 2,842 122,879
Property, plant and equipment 44,403 50,971 9,073 2,601 2,834 109,882
Intangible assets 6,790 5,571 387 241 8 12,997
 
Depreciation and impairment 9,263 7,583 1,388 271 409 18,914
Amortization and impairment 993 450 65 80 30

-

1,618
 
Share of loss of associates (713) (713)

Geographic information

The Group operates in three main geographical markets: (a) Georgia, (b) Ukraine and Cyprus and (c) Belarus. The following table shows the distribution of the Group’s external income, total assets and capital expenditure allocated based on the location of the Group’s assets, for the year ended 31 December 2009:

  Georgia

2009

  Ukraine and Cyprus

2009

  Belarus

2009

  Total

2009

External income
Net interest income 171,203 14,416 4,922 190,541
Net fee and commission income (expense) 50,132 3,404 1,489 55,025
Net foreign currency gains 23,660 3,480 1,626 28,766
Other non-interest income 50,522 2,372 426 53,320
Total external income 295,517 23,672 8,463 327,652
 
Total assets 2,606,676 226,739 80,014 2,913,429
 
Capital expenditures 29,338 3,214 391 32,943

6. Segment Information (continued)

Geographic information (continued)

The following table shows the distribution of the Group’s external income, total assets and capital expenditure, allocated based on the location of the Group’s assets, for the year ended 31 December 2008:

  Georgia

2008

  Ukraine and Cyprus

2008

  Belarus

2008

  Total

2008

External income
Net interest income 198,027 20,479 2,334 220,840
Net fee and commission income (expense) 44,751 6,022 (804) 49,969
Net foreign currency gains 43,348 2,257 1,529 47,134
Other non-interest income 43,582 871 169 44,622
Total external income 329,708 29,629 3,228 362,565
 
Total assets 3,096,938 113,782 48,187 3,258,907
 
Capital expenditures 113,865 8,158 856 122,879

7. Cash and Cash Equivalents

  2009   2008
Cash on hand 154,861 164,463
Current accounts with central banks, excluding obligatory reserves 23,584 25,731
Current accounts with other credit institutions 34,944 44,080
Time deposits with credit institutions up to 90 days 123,983 163,317
Cash and cash equivalents 337,372 397,591

As of 31 December 2009 GEL 127,816 (2008: GEL 222,332) was placed on current and time deposit accounts with internationally recognized OECD banks and central banks that are the counterparties of the Group in performing international settlements. The Group earned up to 0.17 % interest per annum on these deposits (2008: 1.16%).

8. Amounts Due from Credit Institutions

  2009   2008
Obligatory reserves with central banks 62,308 57,891
Time deposits with effective maturity of more than 90 days 18,599 37,414
Inter-bank loan receivables 4,230 4,328
Amounts due from credit institutions 85,137 99,633

Obligatory reserves with central banks represent amounts deposited with the NBG (“National Bank of Georgia”), the NBU (“National Bank of Ukraine”) and the NBRB (National Bank of the Republic of Belarus). Credit institutions are required to maintain an interest-earning cash deposit (obligatory reserve) with central banks, the amount of which depends on the level of funds attracted by the credit institution. The Group’s ability to withdraw these deposits is restricted by the statutory legislature. The Group earned up to 2% annual interest on obligatory reserve with NBG in 2009 and 2008.

As of 31 December 2009 GEL 10,940 (2008: GEL 3,913) was placed on current accounts and inter-bank time deposits with seven (2008: three) internationally recognised OECD banks. Those amounts were pledged to the counterparty bank as security for open commitments.

As of 31 December 2009 inter-bank loan receivables include GEL 4,215 (2008: GEL 4,328) placed with an Azerbaijani bank.

9. Loans to Customers

  2009   2008
Commercial loans 939,814 1,044,959
Residential mortgage loans 387,415 391,606
Consumer loans 332,537 496,197
Micro loans 99,981 151,313
Gold – pawn loans 62,829 46,374
Others 5,241 15,174
Loans to customers, gross 1,827,817 2,145,623
Less – Allowance for loan impairment (166,486) (106,601)
Loans to customers, net 1,661,331 2,039,022

Allowance for loan impairment

Movements of the allowance for impairment of loans to customers by class are as follows:

  Commercial loans

2009

  Consumer loans

2009

  Residential mortgage loans

2009

  Micro loans

2009

  Gold-pawn loans

2009

  Others

2009

  Total

2009

At 1 January 2009 45,755 42,153 7,969 4,921 5,803 106,601
Charge 44,357 52,839 19,023 5,981 8 (3,326) 118,882
Recoveries 17,839 8,469 2,170 2,016 11 30,505
Write-offs (24,295) (43,073) (5,209) (8,207) (8) (1) (80,793)
Interest accrued on impaired loans (1,088) (5,216) (396) (891) (7,591)
Currency translation difference (526) (183) (67) (32) (310) (1,118)
At 31 December 2009 82,042 54,989 23,490 3,788 2,177 166,486
 
Individual impairment 75,684 42,824 20,479 1,907 140,894
Collective impairment 6,358 12,165 3,011 1,881 2,177 25,592
82,042 54,989 23,490 3,788 2,177 166,486
Gross amount of loans, individually determined to be impaired, before deducting any individually assessed impairment allowance 351,835 67,345 84,448 6,731 2,037 512,396

9. Loans to Customers (continued)

Allowance for loan impairment (continued)

  Commercial loans

2008

  Consumer loans

2008

  Residential mortgage loans

2008

  Micro loans

2008

  Gold-pawn loans

2008

  Others

2008

  Total

2008

At 1 January 2008 11,120 13,158 2,757 1,676 218 28,929
Charge 53,349 50,190 7,164 5,415 6,694 122,812
Recoveries 3,265 5,088 1,327 1,496 11,176
Write-offs (17,685) (22,082) (2,724) (3,221) (45,712)
Interest accrued on impaired loans (3,067) (3,730) (199) (333) (7,329)
Currency translation difference (1,227) (471) (356) (112) (1,109) (3,275)
At 31 December 2008 45,755 42,153 7,969 4,921 5,803 106,601
 
Individual impairment 37,905 25,920 5,068 3,071 650 72,614
Collective impairment 7,850 16,233 2,901 1,850 5,153 33,987
45,755 42,153 7,969 4,921 5,803 106,601
Gross amount of loans, individually determined to be impaired, before deducting any individually assessed impairment allowance 290,561 42,338 35,280 8,505 857 377,541

Individually impaired loans

Interest income accrued on loans, for which individual impairment allowances have been recognized as at 31 December 2009 comprised GEL 17,055 (GEL 10,241 in 2008).

Collateral and other credit enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows:

  • For commercial lending, charges over real estate properties, inventory and trade receivables.
  • For retail lending, mortgages over residential properties.

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for loan impairment.

9. Loans to Customers (continued)

Concentration of loans to customers

As of 31 December 2009 concentration of loans granted by the Group to ten largest third party borrowers comprised GEL 206,981 accounting for 11% of gross loan portfolio of the Group (2008: GEL 230,733 and 11% respectively). An allowance of GEL 9,891 (2008: GEL 10,224) was established against these loans.

As of 31 December 2009 and 2008 loans are principally issued within Georgia, and their distribution by industry sector is as follows:

  2009   2008
Individuals 862,365 1,079,945
Trade and services 578,623 667,557
Construction and development 150,676 158,702
Transport and communication 81,532 52,631
Mining 62,622 34,526
Agriculture 13,730 20,134
Energy 11,667 66,145
Others 66,602 65,983
Loans to customers, gross 1,827,817 2,145,623
Less – allowance for loan impairment (166,486) (106,601)
Loans to customers, net 1,661,331 2,039,022

Loans have been extended to the following types of customers:

  2009   2008
Private companies 934,494 1,029,008
Individuals 862,365 1,079,945
State-owned entities 30,958 36,670
Loans to customers, gross 1,827,817 2,145,623
Less – allowance for loan impairment (166,486) (106,601)
Loans to customers, net 1,661,331 2,039,022

The following is a reconciliation of the individual and collective allowances for impairment losses on loans to customers:

      2009       2008
Individual impairment Collective impairment Total Individual impairment   Collective impairment   Total
2009 2009 2009 2008 2008 2008
At 1 January 72,614 33,987 106,601 9,659 19,270 28,929
Charge (reversal) for the year 105,477 13,405 118,882 73,311 49,501 122,812
Recoveries 17,237 13,268 30,505 6,690 4,486 11,176
Write-offs (49,587) (31,206) (80,793) (12,757) (32,955) (45,712)
Interest accrued on impairment loans to customers (3,801) (3,790) (7,591) (1,933) (5,396) (7,329)
Currency translation differences (1,046) (72) (1,118) (2,356) (919) (3,275)
At 31 December 140,894 25,592 166,486 72,614 33,987 106,601

10. Finance Lease Receivables

  31 December

2009

  31 December

2008

Minimum lease payments receivables 27,816 50,565
Less – Unearned finance lease income (3,776) (6,797)
24,040 43,768
Less – Allowance for impairment (7,144) (2,163)
Finance lease receivables, net 16,896 41,605

The difference between the minimum lease payments to be received in the future and the finance lease receivables represents unearned finance income.

As of 31 December 2009, concentration of investments in five largest lessees comprised GEL 16,013 or 67% of total finance lease receivables (2008: GEL 32,112 or 73.4%) and finance income received from them as of 31 December 2009 comprised GEL 1,567 or 27% of total finance income from lease (2008: GEL 3,512 or 50.1%).

Future minimum lease payments to be received after 31 December 2009 and 31 December 2008 are as follows:

  31 December

2009

  31 December

2008

Within 1 year 19,693 37,550
From 1 to 5 years 8,123 13,015
More than 5 years
Minimum lease payment receivables 27,816 50,565

Minimum lease payments to be received after 31 December 2009 and 2008 are denominated in the following currencies:

  31 December

2009

  31 December

2008

Ukrainian Hryvnas 11,376
US Dollars 9,554 41,959
Euros 5,851 5,919
Belarussian Roubles 1,035 2,687
Minimum lease payment receivables 27,816 50,565

The equipment the Group leases out at 31 December 2009 and 2008 can be segregated into the following categories:

  31 December 2009   31 December 2008
Amount   Number
of projects
Amount   Number
of projects
Construction equipment 16,372 21 8,985 46
Air and land transport 7,559 116 37,650 126
Machinery & equipment 3,885 31 3,930 46
Minimum lease
payment receivables
27,816 168 50,565 218

10. Finance Lease Receivables (continued)

Allowance for impairment of finance lease receivables

Movements of the allowance for impairment of finance lease receivables are as follows:

  Finance lease receivables 2009   Finance lease receivables 2008
At 1 January 2,163 816
Charge 6,859 1,335
Recoveries 2,074
Amounts written-off (3,689)
Currency translation difference (263) 12
At 31 December 7,144 2,163
 
Individual impairment 6,916 1,600
Collective impairment 228 563
7,144 2,163
Gross amount of lease receivables, individually determined to be impaired, before deducting any individually assessed impairment allowance 13,703 2,730

11. Investment Securities

Available-for-sale securities comprise:

  2009   2008
Corporate shares 13,418 21,723
Ministry of Finance treasury bills 4,044 5,266
Corporate bonds 2,946 6,748
20,408 33,737
Less – Allowance for impairment (Note 17) (818)
Available-for-sale securities 19,590 33,737

Corporate shares as of 31 December 2009 are primarily comprised of investments in a Georgian retail chain of GEL 2,677 (2008: GEL 9,175), a meat processing company of GEL 5,394 (2008: GEL 6,842) and a chain of drug stores of GEL 4,413 (2008: nil).

Corporate bonds as of 31 December 2009 are comprised of GEL 2,946 investments in several financial institutions in Ukraine (2008: GEL 6,748).

Nominal interest rates and maturities of these securities are as follows:

  31 December 2009   31 December 2008
%   Maturity %   Maturity
Corporate bonds 19.76% 1-2 years 14.41% 1-3 years
Ministry of Finance treasury bills 9.50% 1-2 years 11.95% 1-3 years

11. Investment Securities (continued)

Held-to-maturity securities comprise:

  2009   2008
Carrying value   Nominal value Carrying
value
  Nominal
value
Certificates of deposit of central banks 105,143 105,624 14,826 15,000
Ministry of Finance treasury bills 144,053 149,124
State debt securities 8,019 8,047
Held-to-maturity securities 249,196 254,748 22,845 23,047

Contractual interest rates and maturities of these securities are as follows:

  31 December 2009   31 December 2008
%   Maturity %   Maturity
Ministry of Finance treasury bills 6.33% 2010
Certificates of deposit of central banks 3.11% 2010 11.79% 2009
State debt securities 13.00% 2009

12. Investments in Associates

The following associates are accounted for under the equity method:

2009          
Associates Ownership / Voting, % Country Date of incorporation Industry Date of
acquisition
JSC N Tour 30.00% Georgia 1/11/2001 Travel services

29/05/2008

JSC Hotels and Restaurants Management Group – m/Group 25.00% Georgia 30/05/2005 Food retail 29/05/2008
JSC Teliani Valley 27.19% Georgia 30/06/2000 Winery 13/02/2007
JSC iCall 27.03% Georgia 22/03/2005 Call center 22/11/2006
JSC Info Georgia XXI 50.00% Georgia 26/04/2001 Business services 20/05/2008
JSC Caucasus Automotive Retail 30.00% Georgia 18/04/2008 Car retail 2/05/2008
Style +, LLC 32.45% Georgia 1/08/2005 Advertising 7/08/2008
2008          
Associates Ownership / Voting, % Country Date of incorporation Industry Date of
acquisition
JSC SB Iberia 49,00% Georgia 13/12/2007 Construction 20/03/2008
JSC SB Iberia 2 49.00% Georgia 28/03/2008 Construction
JSC Teliani Valley 27.19% Georgia 30/06/2000 Winery 13/02/2007
JSC One Team 25.00% Georgia 23/04/2007 Entertainment
JSC iCall 27.03% Georgia 22/03/2005 Call centre 22/11/2006
JSC N Tour 30.00% Georgia 1/11/2001 Travel Services 29/05/2008
JSC Hotels and Restaurants Management Group – m/Group 50.00% Georgia Food retail 29/05/2008
JSC Info Georgia XXI 50.00% Georgia 26/04/2001 Business service 20/05/2008
JSC Caucasus Automotive Retail 30.00% Georgia 18/04/2008 Car retail 2/05/2008
Style +, LLC 32.45% Georgia 1/08/2005 Advertising 7/08/2008

12. Investments in Associates (continued)

Movements in investments in associates were as follows:

  2009   2008
Investments in associates, beginning of year, gross 16,990 5,208
Purchase cost 13,355
Disposal (24) (860)
Transfers (reclassifications) (1,483)
Net share of loss (2,649) (713)
Investments in associates, end of year, gross 12,834 16,990
Less – Allowance for impairment (Note 17) (2,511) (274)
Investments in associates, end of year, net 10,323 16,716

Investments in associates at 31 December 2009 include goodwill of GEL 3,120 (2008: GEL 7,354). Reclassifications of GEL 1,483 in 2009 comprise investments in SB Iberia and SB Iberia 2. Subsequent to acquisition of controlling stakes in these companies, the Group added previous investments of GEL 1,483 to total acquisition cost of these companies and this amount affected the respective price allocation, contributing to respective goodwill arising on these acquisitions.

The following table summarises certain financial information of the associates:

Aggregated assets and liabilities of associates   2009   2008
Assets 33,861 58,171
Liabilities (18,329) (32,023)
Net assets 15,532 26,148
Aggregated revenue and profit of associates   2009   2008
Revenue 48,672 34,663
Profit (loss) 445 (1,607)

JSC Teliani Valley, an associate company, is listed on the Georgian Stock Exchange. As of 31 December 2009 the carrying value of the investment in JSC Teliani Valley was GEL 4,946 (2008: GEL 5,042) while the fair value is GEL 5,644 (2008: GEL 7,263).

13. Investment properties

  2009   2008
At 1 January 47,289 35,065
Acquisition through business combinations 12,630
Purchases 495 12,613
Disposals (755)
Net change in fair value through profit and loss (4,087) (389)
Transfers from property and equipment and other assets 23,937
At 31 December 79,509 47,289

Investment properties are stated at fair value, which has been determined based on the valuation performed by Georgian Valuation Company, an accredited independent appraiser, as at 31 December 2009. Georgian Valuation Company is an industry specialist in valuing these types of investment properties. The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction at the date of valuation, in accordance with International Valuation Standards Committee standards.

Rental income and direct operating expenses arising from investment properties comprise:

  2009   2008
Rental income 3,026 1,211
Direct operating expenses (114) (76)

The entire amount of direct operating expenses participated in the generation of rental income during the respective periods.

14. Property and Equipment

The movements in property and equipment during 2009 were as follows:

  Buildings   Furniture & fixtures   Computers & equipment   Motor vehicles   Leasehold improvements   Assets under construction   Total
Cost or revaluation
31 December 2008 147,030 76,603 36,500 7,825 8,466 58,550 334,974
Acquisition through business combinations (Note 5) 22 33 55
Additions 2,025 12,813 1,609 821 593 5,566 23,427
Disposals (4,638) (350) (3,426) (1,084) (1,896) (173) (11,567)
Transfers 588 503 222 49 653 (2,015)
Transfers to investment properties (6,387) (6,387)
Revaluation (3,205) (3,205)
Currency translation adjustment (4,095) 491 (152) (22) 54 178 (3,546)
31 December 2009 137,705 90,082 34,753 7,622 7,870 55,719 333,751
 
Accumulated impairment
31 December 2008 625 1 84 1 711
Impairment charge 2,810 261 116 13 3,200
31 December 2009 3,435 262 200 14 3,911
             
Accumulated depreciation
31 December 2008 1,049 14,168 11,867 2,593 2,802 32,479
Depreciation charge 3,380 10,257 5,579 1,681 1,619 22,516
Currency translation difference 280 26 20 15 4 345
Disposals (163) (811) (392) (1,500) (2,866)
Revaluation (246) (418) (482) (217) (1,363)
31 December 2009 4,463 23,870 16,173 3,680 2,925 51,111
 
Net book value:
31 December 2008 145,356 62,434 24,549 5,231 5,664 58,550 301,784
31 December 2009 129,807 65,950 18,380 3,928 4,945 55,719 278,729
 

The movements in property and equipment during 2008 were as follows:

  Buildings   Furniture & fixtures   Computers & equipment   Motor vehicles   Leasehold improvements   Assets under construction   Total
Cost or revaluation
31 December 2007 135,084 42,285 21,516 5,765 4,111 12,973 221,734
Acquisition through business combinations (Note 5) 18,162 696 1,095 75 219 20,247
Additions 1,174 33,398 13,215 3,416 779 57,902 109,884
Disposals (4,677) (1,934) (468) (1,491) (1,023) (1,976) (11,569)
Transfers 7,815 167 480 263 4,096 (12,821)
Revaluation (11,669) (11,669)
Currency translation adjustment 1,141 1,991 662 (203) 503 2,253 6,347
31 December 2008 147,030 76,603 36,500 7,825 8,466 58,550 334,974
 
Accumulated impairment
31 December 2007 467 467
Impairment charge 158 1 84 1 244
31 December 2008 625 1 84 1 711
             
Accumulated depreciation
31 December 2007 62 7,531 6,602 1,306 1,110 16,611
Depreciation charge 2,832 7,048 5,515 1,480 1,795 18,670
Currency translation difference (68) (116) (88) (63) 2 (333)
Disposals (563) (295) (162) (130) (105) (1,255)
Revaluation (1,214) (1,214)
31 December 2008 1,049 14,168 11,867 2,593 2,802 32,479
 
Net book value:
31 December 2007 134,555 34,754 14,914 4,459 3,001 12,973 204,656
31 December 2008 145,356 62,434 24,549 5,231 5,664 58,550 301,784

14. Property and Equipment (continued)

The Group engaged Georgian Valuation Company, an independent appraiser, to determine the fair value of its buildings. Fair value is determined by reference to market-based evidence. The most recent revaluation report for the Bank’s buildings was 31 December 2008. If the buildings were measured using the cost model, the carrying amounts of the buildings as of 31 December 2009 and 31 December 2008 would be as follows:

  2009   2008
Cost 60,797 66,917
Accumulated depreciation and impairment (10,487) (7,353)
Net carrying amount 50,310 59,564

15. Goodwill and Other Intangible Assets

Movements in goodwill and intangible assets during 2009 were as follows:

  Goodwill   Core deposit intangible   Computer software and license   Total
Cost
31 December 2008 134,238 2,499 20,791 157,528
Acquisition through business combinations (Note 5) 5,015 5,015
Additions 33 4,468 4,501
Disposals (411) (577) (988)
Currency translation difference 7 (2) (1) 4
31 December 2009 138,849 2,530 24,681 166,060
 
Accumulated amortization
and impairment
31 December 2008 5,069 5,069
Amortization charge 2,912 2,912
Charge for impairment 73,072 73,072
Disposals (404) (404)
Currency translation difference (31) (31)
31 December 2009 73,072 7,546 80,618
 
Net book value:
31 December 2008 134,238 2,499 15,722 152,459
31 December 2009 65,777 2,530 17,135 85,442

Impairment charge of Goodwill in 2009 comprise: JSC BG Bank – GEL 68,016, SB Iberia – GEL 3,907, SB Iberia 2 – GEL 744, JSC United Securities Registrar of Georgia – GEL 366 and JSC Intertour – GEL 39. In all of these instances, the main reason for impairment was insufficient future operating cash flows expected to be received per forecasts of the respective cash generating units.

15. Goodwill and Other Intangible Assets (continued)

Movements in goodwill and intangible assets during 2008 were as follows:

  Goodwill   Core deposit intangible   Computer software and license   Total
Cost
31 December 2007 110,498 1,688 7,611 119,797
Acquisition through business combinations (Note 5) 23,682 843 117 24,642
Additions 12,997 12,997
Disposals (170) (170)
Currency translation difference 58 (32) 236 262
31 December 2008 134,238 2,499 20,791 157,528
 
Accumulated amortization
and impairment
31 December 2007 426 3,382 3,808
Amortization charge 1,618 1,618
Disposals (426) (12) (438)
Currency translation difference 81 81
31 December 2008 5,069 5,069
 
Net book value:
31 December 2007 110,072 1,688 4,229 115,989
31 December 2008 134,238 2,499 15,722 152,459

As of 31 December 2009 goodwill acquired through business combinations has been allocated to the following cash-generating units for impairment testing purposes:

  • JSC Bank of Georgia
  • JSC Belarusky Narodny Bank
  • JSC BG Bank
  • JSC Insurance Company Aldagi – BCI
  • JSC My Family Clinic
  • Planeta Forte, LLC
  • JSC Intertour
  • JSC United Securities Registrar of Georgia

The recoverable amount of each cash-generating unit has been determined based on a value-in-use calculation through a cash flow projection based on the approved budget under the assumption that business will not grow and the cash flows will be stable. The discount rate applied to cash flow projections is the weighted average cost of capital (“WACC”) of each particular cash-generating unit.

Carrying amount of goodwill (less impairment) allocated to each of the cash-generating units follows:

    WACC applied for impairment   Carrying amount of goodwill

Effective annual growth rate in three-year financial budgets

31 December
2009
  31 December
2008
JSC Belarusky Narodny Bank 93.74% 16.26% 23,394 23,394
JSC Bank of Georgia 11.00% 8.70% 22,398 22,391
JSC Insurance Company Aldagi – BCI 11.00% 17.20% 18,742 18,742
JSC Intertour 11.00% 14.08% 659 698
Planeta Forte, LLC 11.00% 17.20% 364
JSC My Family Clinic 11.00% 17.20% 220 220
JSC BG Bank 10.01% 68,016
JSC United Securities Registrar of Georgia 5.00% 19.85% 366
JSC Nova Technology (disposed) N/A N/A 411
Total 65,777 134,238

15. Goodwill and Other Intangible Assets (continued)

The three-year effective growth rate indicated in the table above represents the effective average annual growth rate that is embedded into the respective three-year financial budget of the respective entity, as approved by its management, calculated individually per each respective entity. Third year operating cash flows were taken at perpetuity and zero growth-rate was applied beyond the third year.

Goodwill amount that arose from JSC Intellect Bank and JSC Tbiluniversal Bank acquisition is allocated to JSC Bank of Georgia, mainly due to the fact that JSC Bank of Georgia has utilized the assets and liabilities of the said financial institutions.

Impairment testing of goodwill and other intangible assets with indefinite lives

Goodwill acquired through business combinations with indefinite lives have been allocated to four individual cash-generating units, which are also reportable segments, for impairment testing: corporate banking, retail banking, insurance and asset & wealth management and brokerage.

The carrying amount of goodwill allocated to each of the cash-generating units is as follows:

  2009   2008
Retail banking 38,102 78,408
Insurance 18,962 18,962
Corporate banking 7,690 35,381
Brokerage and asset & wealth management 1,023 1,487
Total 65,777 134,238

Key assumptions used in value in use calculations

The recoverable amounts of the cash generating units have been determined based on a value-in-use calculation, using cash flow projections based on financial budgets approved by senior management covering from one to three-year period. Discount rates were not adjusted for either a constant or a declining growth rate beyond the three-year periods covered in financial budgets.

The following rates are used by the Bank for corporate banking and retail banking:

  Corporate Banking   Retail Banking
2009, %   2008, % 2009, %   2008, %
Discount rate 9.1% 7.5% 8.8% 7.5%

The following rates are used by the Bank for Insurance and Brokerage and Asset & Wealth Management:

Insurance Asset & wealth management and brokerage
2009, % 2008, % 2009, % 2008, %
Discount rate 17.2% 15.8% 16.45% 12% – 14%

The calculation of value-in-use for both Asset Management and Retail Banking units is most sensitive to interest margins and discount rates assumptions:

Discount rates

Discount rates reflect management’s estimate of return of capital employed (ROCE) required in each business. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. Discount rates are calculated by using WACC.

16. Taxation

The corporate income tax expense comprises:

  2009   2008
Current income tax expense 1,872 6,762
Deferred income tax benefit (8,870) (7,740)
Income tax benefit (6,998) (978)
Deferred income tax (benefit) expense recognized in other comprehensive income (704) 3,189

Deferred tax related to items charged or credited to other comprehensive income during the year is as follows:

  2009   2008
Net (losses) gains on investment securities available for sale (620) 1,530
Revaluation of buildings (7) 1,659
Other (77)
Income tax (charge) benefit to other comprehensive income (704) 3,189

The income tax rate applicable to the majority of the Group’s income is the income tax rate applicable to subsidiaries income which ranges from 15% to 26% (2008: from 15% to 26%). The tax rate for interest income on state securities changed from 10% to 7.5%, effective 1 January 2009 and further from 7.5% to 0%, effective 9 August 2009. Reconciliation between the expected and the actual taxation charge is provided below.

The effective income tax rate differs from the statutory income tax rates. As of 31 December 2009 and 2008 a reconciliation of the income tax expense based on statutory rates with actual is as follows:

  2009   2008
Loss before income tax benefit (105,906) (804)
Statutory tax rate 15% 15%
 
Theoretical income tax benefit at statutory tax rate (15,886) (121)
Tax at the domestic rates applicable to profits in the respective country (3,614) (837)
Non-deductible share-based compensation expenses 717 1,240
Other operating income (408) 207
State securities at lower tax rates (677) (1,020)
Tax effect of inter-company transactions (783)
Non-deductible expenses:
– impairment of intangible assets 10,308
– other impairment losses 2,460 171
– other 102 165
Income tax benefit (6,998) (978)

Applicable taxes in Georgia, Ukraine and Belarus include corporate income tax (profits tax), individuals’ withholding taxes, property tax and value added tax, among others. However, regulations are often unclear or nonexistent and few precedents have been established. This creates tax risks in Georgia, Ukraine and Belarus, substantially more significant than typically found in countries with more developed tax systems. Management believes that the Group is in substantial compliance with the tax laws affecting its operations. However, the risk remains that relevant authorities could take differing positions with regard to interpretative issues.

16. Taxation (continued)

As of 31 December tax assets and liabilities consist of the following:

  2009   2008
Current income tax assets 7,997 8,095
Deferred income tax assets 15,487 4,691
Income tax assets 23,484 12,786
 
Current income tax liabilities 574 779
Deferred income tax liabilities 24,661 23,615
Income tax liabilities 25,235 24,394

Deferred tax assets and liabilities as of 31 December and their movements for the respective years follows:

  2007   Origination and reversal of temporary differences   Effect of business combi-nation   2008   Origination and reversal of temporary differences   Effect of business combi-nation   2009
In the income statement   In other comprehensive income In the income statement   In other comprehensive income
Tax effect of deductible
temporary differences:
Amounts due to credit institutions 35 (35)
Investment securities: available-for-sale 296 1,530 1,826 (295) (620) 911
Loans to customers 80 390 470 9,659 10,129
Investment properties 1,604 1,604
Securities issued 55 (55)
Reinsurance assets 124 119 243 129 372
Reinsurance premiums receivables 2,073 2,073 (376) 1,697
Allowances for impairment
and provisions for other lossesand provisions for other losses
225 240 465 732 1,197
Tax losses carried forward 1,313 16,689 18,002 1,516 (26) 19,492
Finance lease receivables 7 277 284 35 319
Intangible assets 181 58 239 25 264
Property and equipment 2 (175) 1,659 297 1,783 149 289 2,221
Other assets 115 348 463 359 822
Other liabilities 302 433 735 1,190 1,925
Gross deferred tax assets 2,439 20,658 3,189 297 26,583 13,123 (357) 1,604 40,953
Unrecognized deferred tax assets (207) 207 (131) (131)
Deferred tax assets 2,232 20,865 3,189 297 26,583 13,123 (488) 1,604 40,822
 
Tax effect of taxable temporary differences:
Amounts due to credit institutions 1,710 341 2,051 (317) 1,734
Amounts due to customers 625 (117) 508 508
Securities available-for-sale 182 182 182
Loans to customers 4,491 2,612 7,103 13,776 20,879
Reinsurance assets 27 27 27
Insurance premium receivables 6 (6)
Allowances for impairment and provisions for other losses 38 1,185 1,223 (1,223)
Other insurance liabilities & pension fund obligations
Property and equipment 20,156 8,324 28,480 (6,194) 165 22,451
Investment properties 3,203 (342) 2,861 (2,313) 548
Intangible assets 1,008 1,289 2,297 87 28 2,412
Other assets 936 (595) 341 399 23 20 783
Other liabilities 434 434 38 472
Deferred tax liabilities 32,382 13,125 45,507 4,253 216 20 49,996
 
Net deferred tax assets (liabilities) (30,150) 7,740 3,189 297 (18,924) 8,870 (704) 1,584 (9,174)

17. Other Impairment Allowance and Provisions

The movements in other impairment allowances and provisions were as follows:

  Impairment allowance
for investments
in associates
  Impairment allowance for other assets   Impairment allowance for available-for-sale investment securities   Provision for guarantees and commitments   Total
31 December 2007 6 1,003 1,009
Charge / (reversal) 274 580 3,697 4,551
Write-offs (57) (437) (494)
Recoveries 20 20
31 December 2008 274 549 4,263 5,086
Charge / (reversal) 2,237 5,513 818 (2,137) 6,431
Write-offs (342) (342)
Recoveries
31 December 2009 2,511 5,720 818 2,126 11,175

Allowance for impairment of assets is deducted from the carrying amounts of the related assets. Provisions for claims, guarantees and commitments are recorded in liabilities.

18. Other Assets and Other Liabilities

Other assets comprise:

  2009   2008
Insurance premiums receivable 20,619 20,497
Reinsurance assets 4,920 21,493
Receivable from documentary operations 4,338
Accounts receivable 4,026 7,243
Settlements on operations with securities 3,027 39
Receivables from money transfers 2,508 5,208
Assets purchased for finance lease purposes 2,316
Trading securities owned 2,268 92
Receivables from sale of assets 1,420 2,317
Operating taxes receivables 1,296 1,363
Inventory 1,212 1,966
Derivative financial assets 1,129 255
Foreclosed assets 946 3,464
Operating lease receivables 426 448
Prepayments for purchase of property and equipment 344 245
Receivables from factoring operations 4,539
Assets held-for-sale 4,469
Other 3,205 2,032
54,000 75,670
Less – Allowance for impairment of other assets (Note 17) (5,720) (549)
Other assets 48,280 75,121

Foreclosed assets represent assets repossessed from the borrowers of the Bank. These assets are not used for their intended purposes and are being held for short-term purposes with intent of sale.

18. Other Assets and Other Liabilities (continued)

Other liabilities comprise:

  2009   2008
Insurance contracts liabilities 30,304 44,340
Accruals for employee compensation 21,860 14,165
Derivative financial liabilities 7,460 1,323
Accounts payable 6,269 12,803
Other insurance liabilities 6,152 9,424
Creditors 4,226 5,858
Pension benefit obligations 3,856 1,642
Other taxes payable 2,862 4,783
Debt securities issued 660 5
Dividends payable 314 314
Amounts payable for share acquisitions 254 _
Amounts payable for purchase of intangible assets 78 5,959
Accruals and deferred income 35
Other 2,236 939
Other liabilities 86,566 101,555

The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at the year end and are not indicative of the credit risk.

  2009   2008
Notional amount   Fair values Notional amount   Fair value
Asset   Liability Asset   Liability
Interest rate contracts
Forwards and Swaps – foreign 197,003 6,447
 
Foreign exchange contracts
Forwards and Swaps – domestic 24,410 288 2,501 252
Options – foreign 1,096 82
 
Equity / Commodity contracts
Put options – foreign 700 177
Call options – foreign 8,429 1,047 1,667 78
 
Embedded derivatives from investment deposits 725 1,071
Total derivative assets / liabilities 230,938 1,129 7,460 4,868 255 1,323

19. Amounts Due to Credit Institutions

Amounts due to credit institutions comprise:

  2009   2008
Borrowings from international credit institutions 913,579 1,108,014
Time deposits and inter-bank loans 12,761 91,389
Correspondent accounts 2,275 17,319
Amounts due to credit institutions 928,615 1,216,722

During 2009 the Group received short-term funds from Georgian banks in different currencies. As of 31 December 2009 the Group had an equivalent of GEL 1,566 (2008: GEL 32,795) in foreign currencies received as deposits from Georgian banks. In 2009 the Group paid up to 0.2% interest on these deposits (2008: 4.85%).

19. Amounts Due to Credit Institutions (continued)

Borrowings from international credit institutions, time deposits and inter-bank loans were comprised of:

As of 31 December 2009

 

Credit institution

  Grant
date
  Contractual maturity   Currency   Interest
rate per annum
  Facility amount in original currency   Outstanding
Balance as of
31 December 2009
in GEL (*)
BG Finance B.V. 8-Feb-07 8-Feb-12 USD 9.00% 200,000 303,164
International Financial Corporation 13-Jan-09 15-Jul-13 USD LIBOR +5.5% 50,000 85,979
European Bank for Reconstructions and Development 13-Jan-09 15-Jan-14 USD LIBOR +5.5% 50,000 85,920
Merrill Lynch International ** 17-Aug-07 17-Aug-12 USD LIBOR+5.995 35,000 59,472
Overseas Private Investment Corporation 23-Dec-08 19-Dec-18 USD 5.75% 29,000 48,602
Netherland Development Finance Company ** 18-Jul-08 15-Oct-18 USD LIBOR + 7.25% 30,000 49,570
European Bank for Reconstructions and Development** ** 13-Jan-09 15-Jan-19 USD LIBOR + 10% 23,956 42,365
International Financial Corporatation ** 13-Jan-09 15-Jan-19 USD LIBOR + 10% 23,956 42,344
European Bank for Reconstructions and Development ** 13-Jan-09 15-Jan-19 USD LIBOR +8% 26,044 40,700
International Financial Corporation ** 13-Jan-09 15-Jan-19 USD LIBOR +8% 26,044 40,694
Semper Augustos B.V. ** 31-Oct-07 25-Oct-17 USD 11.65% 15,000 25,803
Netherland Development Finance Company 22-Jan-07 15-Mar-14 USD LIBOR+3.3% 12,500 17,029
Overseas Private Investment Corporation ** 23-Dec-08 19-Dec-18 USD 7.75% 10,000 16,844
Citibank International PLC 17-Aug-07 20-Feb-10 USD LIBOR+2.75% 8,333 14,157
Citibank International PLC 17-Aug-07 20-Aug-10 USD LIBOR+2.75% 8,333 14,000
World Business Capital 17-Feb-06 1-Oct-16 USD LIBOR+2.75% 10,000 9,705
World Business Capital 29-May-07 25-Mar-17 USD LIBOR+2.75% 4,151 6,998
Commerzbank AG 30-Dec-05 30-Dec-10 USD LIBOR+1.3% 3,837 6,172
Balances less than 5,000 KGEL 16,822
Total 926,340
As of 31 December 2008

 

Credit institution

  Grant
date
  Contractual maturity   Currency   Interest
rate per annum
  Facility amount in original currency   Outstanding
Balance as of
31 December 2008
in GEL (*)
BG Finance B.V. 8-Feb-07 8-Feb-12 USD 9% 200,000 340,864
Rubrika Finance Company Netherlands B.V. 6-Jun-08 6-Jun-10 USD LIBOR+9% 140,000 230,740
Merrill Lynch International 21-Dec-07 21-Jan-09 USD LIBOR+7.65% 65,000 111,806
Citibank International PLC 17-Aug-07