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Bank of Georgia Hldg (BGEO)

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Wednesday 14 August, 2013

Bank of Georgia Hldg

Half Yearly Report

RNS Number : 6310L
Bank of Georgia Holdings PLC
14 August 2013
 

                                                               

     

 

HIGHLIGHTS

                                                                                                                                                                                  

Bank of Georgia Holdings PLC (LSE: BGEO LN), the holding company of JSC Bank of Georgia (the "Bank") Georgia's leading bank representing the Bank's subsidiaries making up a group of companies ("the Group"), announced today the Group's 1H 2013 and Q2 2013 consolidated results reporting a record half-year profit for 1H 2013 of GEL 95.1 million, (US$57.6 million/GBP 37.8 million) or record earnings per share of GEL 2.70 (US$1.64 per share/GBP 1.07 per share). The Bank also reported a record quarterly profit in Q2 2013 of GEL 53.1 million (US$32.2 million/GBP 21.1 million), or GEL 1.51 per share (US$0.91 per share/GBP 0.60 per share). Unless otherwise mentioned, comparisons are with the first half of 2012. The results are based on IFRS and are unaudited and derived from management accounts.

 

Record Q2 2013 profit drives robust first half performance

 

·  Positive operating leverage maintained with strong profitability

Net Interest Margin (NIM) of 7.7%, compared to 8.2% in 1H 2012

§ Q2 2013 NIM of 7.9%, compared to 7.6% in Q1 2013

Revenue increased by GEL 23.7 million, or 9.9% y-o-y, to GEL 262.7 million; Revenue adjusted for one-off foreign currency gain* increased by 11.3% to GEL 262.7 million

§ Q2 2013 revenue grew 13.6% q-o-q to GEL 139.7 million

Positive operating leverage maintained at 9.4% in 1H 2013, as operating expenses stayed largely flat at GEL 109.6 million

§ Q2 2013 y-o-y operating leverage of 13.3%

Cost to Income ratio improved to 41.7% compared to 45.6% in 1H 2012

§ Q2 2013 Cost to Income ratio reached a record low of 39.9% compared to 43.8% in Q1 2013 and 45.5% Q2 2012

Profit for the period increased by GEL 9.1 million, or 10.5% y-o-y, to GEL 95.1 million

Earnings per share (basic) increased by 5.1% to a record GEL 2.70, compared to GEL 2.57 in 1H 2012

Return on Average Assets (ROAA) stood at 3.4%, compared to 3.7%

§ Q2 2013 ROAA stood at 3.8%, compared to 3.1% in Q1 2013

Return on Average Equity (ROAE) stood at 17.6%, from 19.6%

§ Q2 2013 ROAE stood at 19.3%, compared to 15.9% in Q1 2013

·  Strong balance sheet supported by solid capital position and declining cost of funds

Net loan book increased by 6.8% y-o-y, while client deposits increased by 3.5% y-o-y

Cost of client deposits decreased from 7.7% in 1H 2012 to 6.2% in 1H 2013; Q2 2013 cost of client deposits stood at 5.9%

Q2 2013 loan book grew 5.7% q-o-q, while client deposits increased 1.1% q-o-q

§ Retail Banking net loans grew 5.3% q-o-q, while client deposits increased 7.0% q-o-q

§ Corporate Banking net loans grew 4.8% q-o-q, while client deposits decreased 3.1% q-o-q, reflecting targeted outflow of high-interest paying deposits

Cost of risk in Q2 2013 remained largely flat at 1.5% compared to 1.4% in Q1 2013. 1H 2013 cost of risk of 1.5% compares to 0.9% in 1H 2012. The year-on-year increase was attributed to both Retail Banking and Corporate Banking loan portfolios

High liquidity maintained with 26.8% assets made up of cash and cash equivalents, NBG CDs, Georgian government treasury bills and bonds and other high quality liquid assets as of 30 June 2013. The National Bank of Georgia (NBG) liquidity ratio of 44.8% compared to 35.2% a year ago and to 30% minimum requirement by the regulator

Excellent funding position with a Net Loans to Customer Funds ratio of 109.6%, down from 114.8% YE 2012 and up from 102.7% in 1H 2012. As of 30 June 2013, Net Loans to Customer Funds and Long-Term DFI Funding ratio was 90.0%

BIS Tier 1 capital adequacy ratio improved to 22.9%

Book value per share increased by 12.9% y-o-y to GEL 30.9 (US$18.72/GBP 12.28)

Balance Sheet leverage at 4.1 times as of 30 June 2013, compared to 4.2 times

 

*One-off foreign currency gain by BNB in Q1 2012, the Bank's subsidiary in Belarus

 

·  Business highlights

o Retail Banking continues to deliver strong franchise growth, supported by the successful roll-out of the Express Banking strategy in 2012, adding 649 new Express Pay terminals and 115,000 Express cards in 1H 2013. Retail Banking loan book grew 14.6% y-o-y.

o Corporate Banking loan book increased by 4.8% q-o-q in Q2 2013 after a slow-down in Q1 2013.  Cost efficiency of Corporate Banking improved markedly as Cost to Income declined from 32.1% in 1H 2012 to 25.9% in 1H 2013

o Investment Management (formerly Asset and Wealth Management) continued to expand its franchise with Assets under Management (AUM) increasing by 18.0% to GEL 624.2 million in 1H 2013. Since the launch of the Certificate of Deposit (CD) programme in January 2013, the amount of CDs issued to Investment Management clients reached GEL 103.2 million, as of 30 June 2013

o Aldagi, the Group's Insurance and Healthcare business, reported a 1H 2013 profit of GEL 11.4 million, up from GEL 6.5 million in 1H 2012

o Affordable Housing pre-sold 68% of the apartments of its second housing project, currently in the construction process. In 1H 2013, Affordable Housing segment posted its first half year profit of GEL 4.4 million

 

 

STATEMENT OF CEO

 

"I am pleased to report Bank of Georgia's record 1H 2013 profit and earnings per share, predominantly driven by the strong broad-based performance of Q2 2013. This was a quarter marked by a record high in both revenue and profit and a record low cost to income ratio. A further decrease in the cost of funding and an improved NIM, notwithstanding our high levels of liquidity were among the main contributors to the improved Cost to Income ratio. We succeeded in decreasing our one year US$ denominated deposit rate from 8% to 5% level, which is historically the lowest rate in the country and this was done without compromising our deposit growth. I am also delighted to report that our Express Strategy contributed significantly to these efficiency improvements while boosting client acquisition. In Q2 2013 approximately 70,000 new clients started to use our banking services, bringing the total number of our clients to approximately 1.2 million, up by 25.0% y-o-y. Our synergistic businesses were key contributors to the strong growth of non-interest income, driving our non-interest income to total revenue ratio to 44.2% in Q2 2013. As a result of these developments, we achieved a return on average equity for the quarter of 19.3%, one of our key performance metrics.

Our Q2 2013 revenue grew 13.6% quarter-on-quarter to a record  GEL 139.7 million, which through our positive operating leverage, resulted in an increase of 26.4% q-o-q in profit to a record GEL 53.1 million. Benefiting from continuously decreasing cost of funds and markedly improved efficiency over the past year, our first half 2013 revenue amounted to record GEL 262.7 million, up 11.3% y-o-y (adjusted for one-off foreign currency gains), while our profit for the period reached record GEL 95.1 million, or record GEL 2.70 per share, up from GEL 2.57 per share in the same period last year.

I would like touch upon the key highlights of the reporting period. They confirm in our belief that our chosen strategy is sound and will, combined with the execution capabilities of our management team, strengthen the foundations we have laid for resilient long-term growth. 

I will start with the successful implementation of our Express banking strategy, which is one of the most focal drivers of our continuously improving cost efficiency and client acquisition. In the first half of 2013, our Express Banking franchise grew impressively as added 649 new Express Pay terminals, issued 115,000 contactless cards and attracted  118,000 new, mostly emerging client base that translate into more than  125,000 retail current accounts opened during the period. More gratifying is that this growth was achieved on the back of improving cost efficiency, in particular in Q2 2013, as 8.2% year-on-year growth in revenue compares to 5.1% reduction in operating expenses for the same period, recording one of the high operating leverages achieved by the group. Respectively, the Q2 2013 Cost to Income ratio stood at 39.9%, its historical low, and in recent quarters our Express strategy has been a key driver of our continuously improving cost efficiency.

The growth in clients and cards helped to boost Retail Banking current account balances that grew 37.3% y-o-y to GEL 202.8 million. This growth has supported our continuing efforts to improve the quality and cost of our funding. Several rounds of deposit rate cuts, have translated into a reduction in the interest rate on US dollar denominated deposits by 300 basis points since the beginning of the year without compromising the growth of client deposit balances. Our current term deposit contractual rates are at 5.0%, the lowest rate ever offered by any bank in Georgia. While the most recent reduction in rates in June 2013 haven't been reflected in our current results, I am very pleased to report our cost of deposits at 5.9% in Q2 2013, or 150 bps lower than Q2 2012. Reflecting this significant reduction of cost of funds and notwithstanding excess liquidity of GEL 491.7 million, our NIM in Q2 2013 grew to 7.9%, compared to 7.6% in the previous quarter.

I am also pleased to note that since the end of the first quarter 2013, our loan book increased by 5.7%, more than offsetting the 4.4% decline in the net loan book in Q1 2013 compared to Q4 2012. Both our retail and corporate loan books contributed to the growth in the second quarter of 2013, which was also marked by a healthy trend of de-dollarisation of the loan book, supported by a new repo programme from the NBG which began in May 2013. Under the NBG programme, in May and June alone we issued Lari denominated loans totaling GEL 17.7 million. As of end of June 2013, Lari denominated loans accounted for 33.3% of the total net loan book, compared to 31.4% last year.

 

Overall, our balance sheet remains strong, ending the first half of the year with a strong Tier I ratio of 22.9%. The Group's loan to customer funds and DFIs ratio stood at 90.0% and, leverage was only 4.1 times.

This year we more than doubled our dividend payment compared to last year. In June 2013 we paid a 2012 annual dividend of GEL 1.5 per share (GBP 0.58), translating into a dividend payout ratio of 28.7%, well within the range of 25%-40%, which we announced as our target payout ratio range going forward.

Our strategy, which was launched at the end of 2010 with an aim to further diversify revenue base by increasing non-interest income sources, is now paying-off. Our insurance and Healthcare and Affordable Housing businesses contributed 16.1% to our profit in 1H 2013, thus becoming key drivers in increasing the ratio of non-interest income to total revenue to 44.2% in Q2 2013 up from 40.6% in 2010. Synergistic businesses were the main contributors in the growth of non-interest income, which reached GEL 112.2 million in 1H 2013, up 10.7% y-o-y.

Our insurance and healthcare subsidiary, Aldagi completed the roll-out of healthcare facilities in 1H 2013 and as the country's largest healthcare provider is well positioned to benefit from the healthcare reform that envisages universal coverage for the entire population. Further potential reforms of the insurance sector are also being discussed which could further benefit Aldagi's position in the Georgian insurance market.

Our Affordable Housing business is gaining momentum. Having completed the first housing project with the Internal Rate of Return (IRR) of 34% and with 68% of the apartments of its second housing project pre-sold, m2 RE is gearing up for next two housing projects. In May 2013, m2 RE secured the financing for these projects from IFC for up to US$14 million, becoming the first Georgian real estate company to cooperate with IFC to develop a housing project in Tbilisi. The US$14 million revolving loan includes up to US$4 million from the IFC-Canada Climate Change Programme. Access to capital is one of the Bank of Georgia Group's key advantages on the local market and once again m2 RE demonstrated this.

 

Our next step in terms of revenue diversification efforts is to further expand our Investment Management business and export our Express Pay systems internationally. Our asset and wealth management business has been renamed as Investment Management to better reflect the broadened scope of the activities and product offerings that we aim to achieve with a view to capitalising on the opportunities that Georgia and its neighbouring countries offer. To this end we have combined our advisory, brokerage, research and asset and wealth management under Investment Management that will aim to develop and expand fee generating business for the Bank. On the Express Pay side we can offer payments solutions in countries where it is needed most, which is expected to contribute to the further growth of our fee business. Our strategy in revenue diversification is simple: we want to leverage our knowledge of the region and expertise in business directions where we have demonstrated an impeccable track record and we intend to achieve this with minimal capital commitment.

I am also happy to note the completion of management reorganisation with the most recently announced appointment of Giorgi Chiladze as Chief Risk Officer (CRO), the position of which has been vacant since May 2013 when Sulkhan Gvalia, former CRO for eight years at the Bank, moved to become Deputy CEO in charge of Corporate Banking. Archil Gachechiladze, who previously managed the Bank's corporate business, is now in charge of Investment Management, one of our main strategic priorities. We believe the new structure will better serve the Bank's evolving needs and the execution of our strategy going forward.

In the second half of the year we aim to deliver strong profitability and a return on average equity of approximately 20%, which we intend to achieve on the back of diversified revenue growth and further strong cost discipline. With our leadership in payment systems, and the strength of our brand and franchise, we are well-positioned to continue benefiting from economies of scale and keep delivering positive operating leverage. Liability management will continue to be a key priority in 2013, as we believe we have flexibility to further improve our costs of both client deposits and international funding. We are also committed to prudent capital management with the view of maintaining Tier I Capital ratio of approximately 20%.

Despite the pick-up in credit demand in the second quarter of 2013, loan growth across the industry continues to be soft, reflecting the cautious stance mostly by the Georgian corporate sector. The most recently published Supplementary Analysis for Georgia by S&P estimates that real GDP growth in 2013 will slow to 3.5% before returning to average growth rates of more than 5% in the following years. While a pick-up in economic activity is expected in the second half of the year, the real GDP growth rate of only 1.8% in the first half of 2013 is lower than we expected. We remain mindful of the possibility of subdued credit demand in the second half of the year, which may translate into lower than expected loan book growth for 2013. With high liquidity levels, we remain extremely well positioned for the increase in business activity and loan demand that is anticipated by the Georgian government in the second half of 2013 and beyond" commented Irakli Gilauri, Chief Executive Officer of Bank of Georgia Holdings PLC and JSC Bank of Georgia.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL SUMMARY

 

 

 

BGH (Consolidated, Unaudited, IFRS-based)




Income Statement Summary



Change 

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Revenue1

262,676

238,985

9.9%

Operating expenses

(109,621)

(109,064)

0.5%

Operating income before cost of credit risk

153,055

129,921

17.8%

Cost of credit risk2

(36,261)

(13,947)

160.0%

Net operating income

116,794

115,974

0.7%

Net non-operating expense

(5,453)

(12,393)

-56.0%

Profit

95,102

86,039

10.5%

Earnings per share (basic)

2.70

2.57

5.1%

 

 

 

BGH (Consolidated, Unaudited, IFRS-based)






Income Statement Summary



Change 


Change

GEL thousands, unless otherwise noted

Q2 2013

Q2 2012

Y-O-Y

Q1 2013

Q-O-Q







Revenue1

139,700

129,142

8.2%

122,976

13.6%

Operating expenses

(55,740)

(58,754)

-5.1%

(53,880)

3.5%

Operating income before cost of credit risk

83,960

70,388

19.3%

69,096

21.5%

Cost of credit risk2

(18,984)

(6,568)

189.0%

(17,278)

9.9%

Net operating income

64,976

63,820

1.8%

51,818

25.4%

Net non-operating expense

(4,089)

(7,994)

-48.8%

(1,365)

199.6%

Profit

53,105

46,276

14.8%

41,997

26.4%

Earnings per share (basic)

1.51

1.33

13.5%

1.19

26.9%

 

 

BGH (Consolidated, Unaudited, IFRS-based)



Change


Change

Statement of Financial Position

30 June 2013

30 June 2012

Y-O-Y 

31 March 2013

Q-O-Q







Total assets

5,671,694

4,935,014

14.9%

5,533,858

2.5%

Net loans3

3,122,916

2,923,140

6.8%

2,954,724

5.7%

Customer funds4

2,850,234

2,846,263

0.1%

2,817,677

1.2%

Tier I Capital Adequacy Ratio (BIS)5

22.9%

21.9%


23.2%


Total Capital Adequacy Ratio (BIS)5

27.8%

28.1%


28.2%


NBG Tier I Capital Adequacy Ratio6

15.4%

15.0%


16.8%


NBG Total Capital Adequacy Ratio6

16.3%

17.8%


17.1%


Leverage (times)7

4.1

4.2


4.0








GEL/US Exchange Rate (period-end)

1.6509

1.6451


1.6577


GEL/GBP Exchange Rate (period-end)

2.5160

2.5677


2.5189


 

 

 

 

 

 

 

 

 

 

 

 

1 Revenue includes net interest income, net fee and commission income, net insurance revenue, net healthcare revenue and other operating non-interest income

2 Cost of credit risk includes impairment charge (reversal of impairment) on: loans to customers, finance lease receivables and other assets and provisions

3 Net loans equal to net loans to customers and net finance lease receivables

4 Customer funds equal amounts due to customers

5 BIS Tier I Capital Adequacy Ratio equals consolidated Tier I Capital as of the period end divided by total consolidated risk weighted assets as of the same date. BIS Total
 
Capital Adequacy Ratio equals total consolidated capital as of the period end divided by total consolidated risk weighted assets. Both ratios are calculated in accordance with the requirements of Basel Accord I

6 NBG Tier I Capital and Total Capital Adequacy Ratios are calculated in accordance with the requirements of the National Bank of Georgia

7 Leverage (times) equals Total Liabilities divided by Total Equity

 

 

 

 

DISCUSSION OF RESULTS

 

Revenue




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Loans to customers

              260,047

             244,965

6.2%

Investment securities8

                17,642

               17,806

-0.9%

Amounts due from credit institutions9

                  4,945

                 9,624

-48.6%

Finance lease receivables

                  3,208

                 4,133

-22.4%

Interest income

            285,842

           276,528

3.4%

Amounts due to customers

               (85,538)

           (103,765)

-17.6%

Amounts due to credit institutions, of which

               (49,625)

             (34,047)

45.8%

  Eurobonds

(16,191)

(930)

NMF

  Subordinated debt

(11,144)

(14,397)

-22.6%

  Loans and deposits from other banks

(22,291)

(18,720)

19.1%

Interest expense

           (135,163)

         (137,812)

-1.9%

Net interest income before interest rate swaps

            150,679

           138,716

8.6%

Net loss from interest rate swaps

                    (185)

               (1,053)

-82.4%

Net interest income

            150,494

           137,662

9.3%

Fee and commission income

                54,898

               51,477

6.6%

Fee and commission expense

               (12,622)

               (9,944)

26.9%

Net fee and commission income

               42,276

             41,533

1.8%

Net insurance premiums earned

                64,289

               32,383

98.5%

Net insurance claims incurred

               (41,565)

             (20,426)

103.5%

Net insurance revenue

               22,724

             11,957

90.0%

Healthcare revenue

                27,489

               22,587

21.7%

Cost of healthcare services

               (18,498)

             (13,391)

38.1%

Net healthcare revenue10

                 8,991

               9,196

-2.2%

Net gain from trading and investment securities

                  2,590

                    953

171.8%

Net gain from revaluation of investment property

                  4,842

                      -  

-

Net gain from foreign currencies, adjusted for one-off foreign currency gain11

                21,677

23,242

-6.7%

Other operating income

                  9,082

               11,492

-21.0%

Other operating non-interest income

               38,191

             35,687

7.0%

Revenue, adjusted for one-off foreign currency gain

            262,676

           236,036

11.3%

One-off foreign currency gain11

-

2,949

-100.0%

Revenue

            262,676

           238,985

9.9%

 

8   Primarily consist of Georgian government treasury bills and bonds and National Bank of Georgia's Certificates of Deposits (CDs)

9   Time deposits with credit institutions with less than 90 days maturity included in cash and cash equivalents

10 For net healthcare revenue disclosures please see Insurance and Healthcare segment discussion

11One-off foreign currency gain by BNB

 

Revenue continued to be broadly based in the first half of 2013 with growth coming from all the main revenue items and increasing by 9.9% y-o-y to GEL 262.7 million. Adjusting for the one-off foreign currency gain by BNB in Q1 2012, the Bank's subsidiary in Belarus, revenue increased by 11.3% y-o-y. Net interest income increased 9.3% y-o-y to GEL 150.5 million and the combined revenue of GEL 31.7 million from insurance and healthcare businesses contributed 12.1% to the consolidated revenue, up from 8.9% contributed in 1H 2012.

 

Interest income growth of 3.4% was driven by a 6.2% increase in interest income from loans to customers, which was partly offset by lower interest income from other interest earning assets. The decline in interest income due from credit institutions was due to the decrease in interbank deposit rates in line with the reduction of NBG's refinancing rates from 5.75% as of 30 June 2012 to 4.0% as of 30 June 2013 to tackle inflationary pressures in the country. However, on the back of declining rates, debt securities owned by the Bank that are classified as available-for-sale and carried at fair value, have appreciated resulting in an unrealised net gain of GEL 2.5 million for 1H 2013, recognised in other comprehensive income directly to the balance sheet. Overall, liquid assets accounted for 26.8% of the Bank's total assets, compared to 22.9% in 1H 2012.

 

Interest expense decreased by 1.9% as a result of the substantial reduction in cost of funds from 7.9% in 1H 2012 to 6.4% in 1H 2013, with the decline mostly driven by the significant reduction in cost of client deposits. Cost of client deposits during the period decreased by 150 bps y-o-y reflecting significant deposit rate cuts on the back of continuous deposit inflows throughout the period. Contractual deposit rates decreased to 5.0% from 8.0% a year ago (on US$ denominated deposits) and to 9.0%, from 12.0% (on GEL deposits), in June 2013. The most recent rate cuts occurred in June 2013 and therefore have not been fully reflected in Q2 2013 and 1H 2013 results. As a result of the foregoing, in 1H 2013 interest expense on amounts due to customers (customer funds) decreased by 17.6% y-o-y compared to the same period last year. The impact of this decrease was partly offset by higher interest expense due to credit institutions, which increased despite lower average funding costs due to a 68.5% increase in the balance of amounts due to credit institutions following the issuance of Eurobond in July 2012.

  

 

Net Interest Margin (NIM)




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net interest income

              150,494

             137,663

9.3%

Net Interest Margin

7.7%

8.2%


Average interest earning assets12

           3,931,547

          3,394,269

15.8%

Average interest bearing liabilities12

           4,243,520

          3,557,381

19.3%

Excess liquidity13

491,666

171,799

186.2%

Loan yield

16.8%

17.8%


Cost of funds

6.4%

7.9%


 

12 Monthly averages are used for calculation of average interest earning assets and average interest bearing liabilities

13 Excess liquidity is the excess amount of the liquid assets, as defined per NBG, which exceeds the minimal amount of the same liquid assets for the purposes of the minimal 30%
 
liquidity ratio per NBG definitions

 

1H 2013 NIM stood at a healthy 7.7%, benefiting from the strong Q2 2013 NIM of 7.9%, up from 7.6% in the previous quarter.  On a year-on-year basis, 1H 2013 NIM declined 50 bps compared to 1H 2012, reflecting an almost threefold increase in excess liquidity during the period. Adjusting the 1H 2013 NIM to the same liquidity level of 1H 2012 would result in the NIM of 8.4%. The 1H 2013 NIM was supported by the significant decline in cost of funds, which dropped by 150 bps and compares to a more moderate decrease of loan yield of 100 bps during the period.

 

 

Net fee and commission income




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Fee and commission income

54,898

       51,477

6.6%

Fee and commission expense

(12,622)

(9,944)

26.9%

Net fee and commission income

42,276

41,533

1.8%

 

Net fee and commission income grew by GEL 0.7 million, or 1.8%, to GEL 42.3 million as a result of growth in the Bank's settlement operations, driven by the expansion of the Bank's Express Banking service, through which it delivers cost effective self-service transactional and remote banking facilities.

 

Net insurance revenue and net healthcare revenue




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net insurance premiums earned

64,289

32,383

98.5%

Net insurance claims incurred

(41,565)

(20,426)

103.5%

Net insurance revenue

22,724

11,957

90.0%

Healthcare revenue

27,489

22,587

21.7%

Cost of healthcare services, of which:

(18,498)

(13,391)

38.1%

  Salaries and other employee benefits

(10,682)

(9,466)

12.8%

  Depreciation expenses

(1,564)

-

-

  Other operating expenses

(6,252)

(3,925)

59.3%

Net healthcare revenue14

8,991

9,196

-2.2%

 

14 For the net healthcare revenue disclosures please see the Insurance and Healthcare segment discussion

 

The Group's insurance and healthcare businesses posted yet another record revenue and contributed 12.1% to total revenue compared to 8.9% last year. Net insurance revenue increased 90.0% as net insurance premiums nearly doubled during the period, reflecting the growth of the business. During the six months ended 30 June 2013, total inter-company claims transactions between the Group's insurance and healthcare businesses amounted to GEL 6.5 million compared to GEL 2.3 million during the same period in 2012, which is in line with the Group's strategy of increasing concentration of the claims expenditure within the Group. While inter-company claims represent an expense for the insurance business, such claims are also revenues for the healthcare business, on a standalone basis. (During accounting consolidation the inter-company claims are eliminated.)

 

The resulting expansion of business operations drove the 21.7% y-o-y increase in Healthcare revenue to GEL 27.5 million. The 38.1% growth of healthcare services costs was a result of accounting reclassification of additional depreciation and utility expenses including in this item in 2013, which in prior years were included in operating expenses. (Please see more details under Insurance and Healthcare segment discussion)

 

Other operating non-interest income




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net gain from trading and investment securities

2,590

953

171.8%

Net gain from revaluation of investment property

4,842

-

NMF

Net gain from foreign currencies, adjusted for one-off foreign currency gain15

21,677

23,242

-6.7%

Other operating income16

9,082

11,492

-21.0%

Other operating non-interest income, adjusted for one-off currency gain

38,191

35,687

7.0%

One-off currency gain

-

2,949

NMF

Other operating non-interest income

38,191

38,636

-1.2%

 

15 One-off foreign currency (FX) gain by BNB

16 Other operating income includes net revenue from the sale of goods of the Bank's non-banking subsidiaries

 

Other operating non-interest income, adjusted for the one-off foreign currency gain, increased by 7.0%, driven by an increase in net gain from trading and investment securities, consisting of NBG CDs, government treasury bills and treasury bonds. The revaluation of the investment property earmarked for two real estate development projects to be commenced in Q3 2013 by the Bank's real estate subsidiary m2 RE, resulted in the net gain from revaluation of investment property of GEL 4.8 million in 1H 2013 (please see Affordable Housing segment discussion for the information on financing of the real estate projects). Net gains for foreign currencies, adjusted for one-off foreign currency gain decreased by 6.7% as a result of slower economic activity in the first half of the year in particular.

 

 

 

Net operating income, cost of credit risk, profit for the period




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Salaries and other employee benefits

(65,077)

(57,829)

12.5%

General and administrative expenses

(29,764)

(33,762)

-11.8%

Depreciation and amortization expenses

(13,339)

(13,919)

-4.2%

Other operating expenses

(1,441)

(3,554)

-59.5%

Operating expenses

(109,621)

(109,064)

0.5%

Operating income before cost of credit risk

153,055

129,921

17.8%

Cost of credit risk

(36,261)

(13,947)

160.0%

Net operating income

116,794

115,974

0.7%

Net non-operating expense

(5,453)

(12,393)

-56.0%

Profit before income tax expense

111,341

103,581

7.5%

Income tax expense

(16,239)

(17,542)

-7.4%

Profit

95,102

86,039

10.5%

 

As the Group continues to exercise a firm grip on costs, operating expenses stayed broadly flat increasing by only 0.5% y-o-y. Within this figure, salaries and other employment benefits increased by 12.5% reflecting an increase in headcount by 810 new employees to service the Group's growing customer base. General and administrative expenses, however, decreased by 11.8% as a result of further progress made on cost containment initiatives across the business, efficiency gains from Express Banking strategy and the effects of economies of scale. Cost to Income ratio fell to 41.7% compared to 45.6% in 1H 2012 and adjusted Cost to Income ratio of 46.2% in 1H 2012. Operating leverage amounted to 9.4% in 1H 2013 and operating leverage adjusted for one-off currency gain reached 10.8% compared to 6.6% in 1H 2012. Operating leverage of 10.8% compares to 5.2%, on an adjusted basis during the same period last year. The improvement in cost efficiency was especially attributed to Q2 2013, when the Cost to Income ratio declined to 39.9%, from 43.8% in Q1 2013 and 45.5% in Q2 2012.

 

As a result, operating income before cost of credit risk increased by 17.8% to GEL 153.1 million.

 

Cost of credit risk increased by 160.0%, which largely represents impairment charges related to both the Retail Banking and Corporate Banking loan portfolios, translating into an annualised cost of risk of 1.5%. Allowance for loan impairment was GEL 117.6 million or 3.6% of total gross loans as of 1H 2013.

 

The Bank's non-performing loans (NPLs), defined as the principal and interest on the overdue loans for more than 90 days and additional potential losses estimated by management, increased by GEL 5.6 million year-to-date to GEL 132.0 million as of 30 June 2013. The Bank's NPLs to total gross loans ratio stood at 4.1% in 1H 2013 compared to 3.3% as of 30 June 2012. The Bank maintained its conservative NPL Coverage ratio at 89.1%, which compares to 115.2% as of 30 June 2012 and 87.5% as of 31 December 2012. NPL coverage adjusted for the discounted value of collateral was 117.4% as of 30 June 2013.

 

In 1H 2013, the Bank's net operating income totalled GEL 116.8 million, up 0.7% year-on-year. The Bank's net non-operating expense for the period totalled GEL 5.5 million, down 56.0%, mostly reflecting the absence of the tender offer and premium listing expenses incurred in 1H 2012.

 

As a result, profit before income tax from continuing operations in the first half of 2013 totalled GEL 111.3 million, an increase of GEL 7.8 million, or 7.5%. After income tax expense of GEL 16.2 million, the Bank's 1H 2013 profit for the period stood at GEL 95.1 million, up by GEL 9.1 million, or 10.5%, compared to the first half of 2012.

 

 

Balance Sheet highlights

 

The Bank continued to be disciplined in its focus on sustaining its strong balance sheet, which remains highly capitalised. The Bank remains predominantly deposit funded and we continued to see good inflow of client deposits in 1H 2013, up 3.5% YTD to GEL 2,838.2 million. Significant interest rate cuts drove the cost of client deposits to 5.9% in Q2 2013. Contractual deposit rates on 12 month maturity US$ denominated deposits declined from 8.0% as of 30 June 2012 to its historical low of 5.0% at the end of Q2 2013. The decline of interest rates was more pronounced on foreign currency deposits, which led to the increase in the proportion of GEL denominated deposits from 31.3% at the end of December 2012 to 34.4% as of 30 June 2013. Amounts due to credit institutions increased by 68.5% to GEL 1,457.7 million as a result of Eurobond issued in 2H 2012 and the replacement of some costly borrowings with lower cost international funding. As a result, in 1H 2013, cost of amounts due to credit institutions decreased 150 bps y-o-y to 7.0%.

 

Demand in loans picked up during the second quarter of the year, increasing 5.7% q-o-q, 6.8% y-o-y and 1.0% YTD. The growth in the loan book was driven by strong growth in retail loans which grew by 14.6% y-o-y (up by GEL 184.6 million) or by 7.2% YTD (GEL 97.0 million), and was also supported by the pick-up in the corporate lending demand, which increased 1.1% y-o-y. On a quarterly basis, Corporate Banking loan book grew 4.8% q-o-q, almost completely recovering the 6.2% decline in corporate loans in Q1 2013 since the beginning of the year.

 

Currency denomination of selected balance sheet items

 


GEL


Foreign Currency (FC)

GEL thousands, unless otherwise noted 

30 June 2013

30 June  2012

Change


30 June 2013

30 June 2012

Change




Y-O-Y




Y-O-Y









Loans to customers and finance lease receivables, net

1,040,816

917,594

13.4%


2,082,100

2,005,546

3.8%

Amounts due to customers, of which:

977,181

869,486

12.4%


1,873,053

1,976,777

-5.2%

Client deposits

977,181

868,257

12.5%


1,860,972

1,874,344

-0.7%

Promissory notes

-

1,229

-100.0%


12,081

102,433

-88.2%









 

Our intensified efforts to de-dollarise the balance sheet have started to pay off in 1H 2013 when compared to the same period last year. A sharp decrease in US$ deposit rates has translated into a decrease of foreign currency denominated deposits (mostly US$) by 0.7% y-o-y compared to a 12.5% increase in client deposits denominated in local currency. On the asset side, 3.8% y-o-y growth in foreign currency denominated loans compare to a 13.4% y-o-y growth in loans denominated in GEL. As a result of the foregoing, the proportion of loans denominated in local currency increased to 33.3% as of 30 June 2013 from 31.4% a year ago. Our efforts to de-dollarise the balance sheet also benefited from the Lari lending support programme of the NBG, which entails providing financing to the Georgian banks for GEL denominated loans linked to the NBG's refinancing rate. Since the first loan was issued within the framework of the NBG Lari lending programme in May 2013, the Bank issued 204 Lari denominated mortgage and SME loans worth GEL 17.7 million of Lari loans as of 30 June 2013.

 

Liquidity, funding and capital management




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Amounts due to credit institutions, of which:

1,475,686

875,928

68.5%

   Eurobonds

424,854

-

NMF

   Subordinated debt

208,236

235,701

-11.7%

   Loans and deposits from other banks

842,596

640,227

31.6%

Customer Funds

2,850,234

2,846,263

0.1%

Client deposits, of which

2,838,153

2,742,601

3.5%

     CDs

113,973

-

-

Promissory notes

12,081

103,662

-88.3%

Net Loans / Customer Funds

109.6%

102.7%


Net Loans/Customer Funds + DFIs

90.0%

86.5%


Liquid assets

1,520,214

1,132,508

34.2%

Liquid assets as percent of total assets

26.8%

22.9%


Liquid assets as percent of total liabilities

33.3%

28.5%


NBG liquidity ratio

44.8%

35.2%


Excess liquidity

491,666

171,799

186.2%

 

The Bank's liquidity position remained well-above regulatory requirements. The liquidity ratio, as per the requirements of the National Bank of Georgia, stood at 44.8% against a required minimum of 30%, while liquid assets, comprising of cash and cash equivalents, investment securities, government treasuries and bonds and interbank deposits increased 34.2% y-o-y reaching GEL 1,520.2 million and accounting for 26.8% of total assets and 33.3% of total liabilities. Effective 1 July 2013, NBG introduced a transitional amendment to its existing liquidity ratio, entailing additional liquidity requirement relating to non-resident deposits. Applying the new liquidity requirement to our 30 June 2013 results, would result in a 41.4% liquidity ratio per the NBG amended regulation, which compares to the actual 44.8% per previous regulation. This would translate into the decline of excess liquidity by GEL 114.1 million, resulting in the excess liquidity of GEL 377.6 million compared to the actual GEL 491.7 million as of 30 June 2013.

Net Loans to Customer Funds and DFIs ratio remained stable at 90.0% as of 30 June 2013 compared to 91.9% at the YE 2012 and 86.5% a year ago. The Bank's Tier I Capital ratio (BIS) stood at 22.9% an improvement from 22.0% at the end of 2012 and 21.9% a year ago.

 

As a result of the foregoing, the Bank's total assets stood at GEL 5,671.7 million as of 30 June 2013, an increase of 0.3% since the beginning of the year and 14.9% compared to 30 June 2012. Total liabilities amounted to GEL 4,568.8 million, down 0.6% year-to-date and up 14.9% y-o-y, while shareholders' equity reached GEL 1,048.6 million, a 3.7% increase since the beginning of the year and 14.9% increase from the same period last year

 

The Bank's Book value per share on 30 June 2013 stood at GEL 30.90 (US$18.72/GBP 12.28) compared to GEL 27.37 (US$16.64/GBP 10.66) as of 30 June 2012 and GEL 30.33 (US$18.31/GBP 11.38) as of 31 December 2012.

 

RESULTS BY QUARTER

 

 

Revenue

 




Change


Change

GEL thousands, unless otherwise noted

Q2  2013

Q2 2012

Y-O-Y

Q1 2013

Q-O-Q







Loans to customers

130,589

126,541

3.2%

129,458

0.9%

Investment securities

9,634

7,983

20.7%

8,007

20.3%

Amounts due from credit institutions

2,330

5,411

-56.9%

2,615

-10.9%

Finance lease receivables

1,709

2,120

-19.4%

1,500

13.9%

Interest income

144,262

142,055

1.6%

141,580

1.9%

Amounts due to customers

(41,620)

(49,931)

-16.6%

(43,918)

-5.2%

Amounts due to credit institutions

(24,636)

(15,339)

60.6%

(24,990)

-1.4%

    Eurobonds

(8,213)

-


(7,977)

3.0%

    Subordinated debt

(4,924)

(6,322)

-22.1%

(6,220)

-20.8%

    Loans and deposits from other banks

(11,498)

(9,017)

27.5%

(10,793)

6.5%

Interest expense

(66,255)

(65,269)

1.5%

(68,908)

-3.9%

Net interest income before interest rate swaps

78,007

76,786

1.6%

72,672

7.3%

Net loss from interest rate swaps

(109)

(285)

-61.8%

(76)

43.4%

Net interest income

77,898

76,501

1.8%

72,596

7.3%

Fee and commission income

28,337

27,355

3.6%

26,562

6.7%

Fee and commission expense

(6,558)

(5,537)

18.4%

(6,066)

8.1%

Net fee and commission income

21,779

21,818

-0.2%

20,496

6.3%

Net insurance premiums earned

32,545

19,896

63.6%

31,744

2.5%

Net insurance claims incurred

(21,547)

(12,613)

70.8%

(20,018)

7.6%

Net insurance revenue

10,998

7,283

51.0%

11,726

-6.2%

Healthcare revenue

14,419

12,327

17.0%

13,070

10.3%

Cost of healthcare services

(9,319)

(7,908)

17.8%

(9,179)

1.5%

Net healthcare revenue17

5,100

4,419

15.4%

3,891

31.1%

Net gain from trading and investment securities

1,306

157

NMF

1,284

1.7%

Net gain from revaluation of investment property

4,842

-

-

-

-

Net gain from foreign currencies

12,225

11,833

3.3%

9,452

29.3%

Other operating income

5,552

7,131

-22.1%

3,531

57.2%

Other operating non-interest income

23,925

19,121

25.1%

14,267

67.7%

Revenue

139,700

129,142

8.2%

122,976

13.6%

 

17 For the net healthcare revenue disclosures please see the Insurance and Healthcare segment discussion

 

In Q2 2013, the Bank posted revenue of GEL 139.7 million, up 8.2% y-o-y and 13.6% q-o-q. On a quarterly basis, the growth was largely driven by substantial reduction in cost of client deposits, which resulted in interest expense on amounts due to customers plummeting by 5.2% q-o-q and strongly contributing to a 7.3% growth in net interest income, also supported by the pick-up in loan book growth in Q2 2013. The improved operating environment during the quarter is also reflected in 6.3% q-o-q net fee and commission growth and a 31.1% increase in net healthcare revenue in Q2 2013.

 

On a year-on-year basis, net interest income grew by 1.8%, reflecting a significant reduction in cost of funds in the past 12 months (by 150 bps y-o-y) and in Q2 2013 in particular (by 50 bps q-o-q). The significant reduction in cost of funds year-on-year was attributed to the 16.6% decline in cost of client deposits compared to the same period last year. The net loan book growth of 6.8% y-o-y, translated into a 3.2% y-o-y growth in interest income from loans to customers, which was partially offset by y-o-y decline in interest income from amounts due to credit institutions, attributed to lower yields on the Bank's liquid assets. The Group's insurance business posted another quarter of strong results in Q2 2013, with net insurance revenue of GEL 11.0 million for the quarter increasing by 51.0% y-o-y. Net healthcare revenue increased by 15.4% y-o-y, as a result of the growth of healthcare business.

 

 

Net Interest Margin




Change


Change

GEL thousands, unless otherwise noted

Q2  2013

Q2 2012

Y-O-Y

Q1 2013

Q-O-Q







Net interest income

77,898

76,501

1.8%

72,596

7.3%

Net Interest Margin

7.9%

9.0%

 

7.6%

 

Average interest earning assets18

3,959,352

3,422,197

15.7%

3,873,126

2.2%

Average interest bearing liabilities18

4,266,321

3,524,065

21.1%

4,203,717

1.5%

Excess liquidity19

491,666

171,799

186.2%

475,708

3.4%

Loan yield

16.9%

18.0%


16.9%


Cost of funds

6.2%

7.5%


6.7%


 

 

18 Monthly averages are used for calculation of average interest earning assets and average interest bearing liabilities

19 Excess liquidity is the excess amount of the liquid assets, as defined per NBG, which exceeds the minimal amount of the same liquid assets for the purposes of the minimal 30% liquidity ratio per NBG definitions. 

 

The Q2 2013 NIM grew from 7.6% in Q1 2013 to 7.9%, the growth driven by the loan book increase translating into healthy q-o-q net interest income growth of 7.3%, well above the 2.2% increase in average interest earning assets during the quarter. Loan yield remained flat at 16.9% compared to the previousquarter, while cost of deposits declined by 50 bps q-o-q to 5.9% in Q2 2013. Contractual rates have been reduced to a historic low of 5.0% on 12 month US$ denominated deposits and 9.0% on Georgian Lari denominated deposits as of June 2013, the effects of the deposit rate cuts have not been fully reflected in Q2 2013 net interest income and the NIM.

On a year-on-year basis, as a result of the decline in yields on interest earning assets, net interest income increased by a relatively low rate of 1.8% compared to 15.7% rise in average interest earning assets. Year-on year, loan yield declined by 100 bps, while yields on the investment securities portfolio, which predominantly includes government securities went down by 230 bps as a result of deflationary pressures in the country. The lower loan yields compared to prior year and excess liquidity reaching GEL 491.7 million in Q2 2012 (up from GEL 171.8 million in Q2 2012), resulted in a 110 basis point decline in Q2 2013 NIM compared to the same period last year. Adjusting Q2 2013 NIM to the same liquidity level as Q2 2012, would result in a NIM of 8.8%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income, cost of credit risk, profit for the period

 




Change


Change

GEL thousands, unless otherwise noted

Q2 2013

Q2 2012

Y-O-Y

Q1 2013

Q-O-Q







Salaries and other employee benefits

(32,575)

(32,000)

1.8%

(32,501)

0.2%

General and administrative expenses

(15,707)

(17,997)

-12.7%

(14,057)

11.7%

Depreciation and amortization expenses

(6,747)

(7,155)

-5.7%

(6,593)

2.3%

Other operating expenses

(711)

(1,602)

-55.6%

(729)

-2.5%

Operating expenses

(55,740)

(58,754)

-5.1%

(53,880)

3.5%

Operating income before cost of credit risk

83,960

70,388

19.3%

69,096

21.5%

Cost of credit risk

(18,984)

(6,568)

189.0%

(17,278)

9.9%

Net operating income

64,976

63,820

1.8%

51,818

25.4%

Net non-operating expense

(4,089)

(7,994)

-48.8%

(1,365)

199.6%

Profit before income tax expense

60,887

55,826

9.1%

50,453

20.7%

Income tax expense

(7,782)

(9,495)

-18.0%

(8,456)

-8.0%

Profit from continuing operations

53,105

46,331

14.6%

41,997

26.4%

Net loss from discontinued operations

-

(55)

-100.0%

-

-

Profit

53,105

46,276

14.8%

41,997

26.4%

 

 

In Q2 2013, the Bank's operating expenses totalled GEL 55.7 million, a 3.5% increase compared to the previous quarter and a 5.1% decline compared to same period last year. The improvement on a year-on-year basis was as a result of ongoing measures to keep tight grip on costs, predominantly as a result of largely stable cost of salaries and other employment benefits and a 12.7% y-o-y decrease in general and administrative expenses. Net non-operating expenses increased from GEL 1.4 million in Q1 2013 to GEL 4.1 million in Q2 2013 predominantly as a result of a write down of an investment through the Bank's subsidiary Liberty Consumer. 

 

Cost of credit risk for the quarter increased by GEL 1.7 million to GEL 19.0 million.  

 

As a result of the foregoing, in Q2 2013, the Bank's net operating income totalledGEL 65.0 million, up 1.8% y-o-y and up 25.4% q-o-q. The Bank's net non-operating expense returned to normalised levels and amounted to GEL 4.1 million, down 48.8% y-o-y, reflecting the absence of costs mostly associated with the premium listing tender offer in Q2 2012. Profit before income tax from continuing operations in Q2 2013 reached GEL 60.9 million, up 9.1% y-o-y. After income tax expense of GEL 7.8 million, the Bank's Q2 2013 profit for the period stood at GEL 53.1 million, up 14.8% y-o-y and up 26.4% q-o-q.

 

 

 

SEGMENT RESULTS

 

 

Strategic Businesses Segment Result Discussion

 

Segment result discussion is presented for the Bank of Georgia's Retail Banking (RB), Corporate Banking (CB) and Investment Management, Insurance and Healthcare (Aldagi), Affordable Housing (m2 RE) in Georgia and BNB in Belarus, excluding inter-company eliminations.

 

 

 

 

 

Retail Banking (RB)




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net interest income

91,065

83,226

9.4%

Net fee and commission income

25,321

25,504

-0.7%

Net gain from foreign currencies

7,063

6,229

13.4%

Other operating non-interest income

2,657

2,895

-8.2%

Revenue

126,106

117,854

7.0%

Operating expenses

(60,514)

(55,263)

9.5%

Operating income before cost of credit risk

65,592

62,591

4.8%

Cost of credit risk

(17,470)

(11,139)

56.8%

Net non-operating expense

(539)

(3,869)

-86.1%

Profit before income tax expense

47,583

47,583

0.0%

Income tax expense

(6,015)

(7,389)

-18.6%

Profit from continuing operations

41,568

40,194

3.4%

Net gain from discontinued operations

-

2

-100.0%

Profit

41,568

40,196

3.4%

Net loans, standalone

1,445,324

1,260,715

14.6%

Client deposits, standalone

925,779

734,885

26.0%

  Loan yield

20.5%

21.1%


  Cost of deposits

5.7%

6.3%


  Cost / income ratio

48.0%

46.9%


 

 

Retail Banking provides consumer loans, mortgage loans, overdrafts, credit card facilities and other credit facilities as well as funds transfer and settlement services and handling customer deposits for both individuals and legal entities, encompassing the mass affluent segment, retail mass markets, SME and micro businesses.

 

Retail Banking posted robust 1H 2013 results, driven by strong Retail Banking net loan book growth in Q2 2013. Net interest income in the first half of the year reached GEL 91.1 million, an increase of 9.4% y-o-y, reflecting the 14.6% y-o-y growth of the Retail Banking loan book to GEL 1,445.3 million, up 5.3% q-o-q and 7.2% YTD. Net fees and commission income stayed largely flat at GEL 25.3 million, while net gains from foreign currencies were up 13.4% y-o-y to GEL 7.1 million, the growth attributed to increased foreign currency transactions by Retail Banking clients.  

 

Retail Banking expenses grew by 9.5% y-o-y, reflecting the growth of the Bank's Retail Banking operations, in particular the expansion of our Express Banking footprint during the period. Cost of credit risk of Retail Banking in 1H 2013 amounted to GEL 17.5 million, compared to GEL 11.1 million same period last year. The increase was mostly a result of low cost of risk in 1H 2012 due to strong recoveries. Retail Banking profit reached GEL 41.6 million in 1H 2013, up 3.4% y-o-y.

 

The contractual rates on US$ denominated one year term Retail Banking deposits declined to 5.0% in Q2 2013 from 7.5% in Q1 2013 and 8.0% in Q2 2012. The contractual rates on GEL denominated one year term deposits also declined from 12.0% in Q2 2012 to 9.0% in Q2 2013. Notwithstanding the continuously declining deposit rates throughout the last twelve months, deposits from Retail Banking clients continued to grow, resulting in a 7.0% q-o-q  increase of deposits from Retail Banking clients reaching GEL 925.8 million (up 13.4% YTD and up 26.0% y-o-y) as of 30 June 2013. As a result of the foregoing, the cost of retail client deposits declined 70 bps q-o-q to 5.4% in Q2 2013. The effects of the deposit rate cuts in Q2 2013 have not been fully reflected in Q2 2013 deposit costs as the latest cut in rates took place in June 2013. In 1H 2013, the cost of Retail Banking deposits was 5.7%, down by 60 bps y-o-y.

 

The cheapest source of funding for the Bank, current account balances in Retail Banking grew by GEL 55.1 million y-o-y to GEL 202.8 million as of 30 June 2013, the increase a result of the rollout of our Express banking strategy aimed at attracting emerging mass market customers and the unbanked population.

 

Highlights

 

§ Increased number of Express Pay terminals to 870 from 124 in 1H 2012. Express Pay terminals are used for bank transactions such as credit card and consumer loan payments, utility bill payments and mobile telephone top-ups.

§ Stepped up the issuance of Express cards, first contactless cards in Georgia, which also serve as a metro and bus transport payment card and offer loyalty programmes to clients.

§ Since the launch on 5 September 2012, 308,354 Express cards have been issued in essence replacing pre-paid metro cards in circulation since July 2009. As of 30 June 2012, approximately 1.3 million metro cards still remained outstanding and are expected to be gradually replaced with Express cards.

§ Issued 261,358 debit cards, including Express cards, in 1H 2013 bringing the total debit cards outstanding to 797,492 up 32.8% y-o-y.

§ Issued 32,272 credit cards of which 28,538 were American Express cards in 1H 2013. A total of 184,923 American Express cards have been issued since the launch in November 2009. The total number of outstanding credit cards amounted to 111,817 (of which 100,660 were American Express Cards).

§ Outstanding number of Retail Banking clients totalled 1,172,652 up 25.6% y-o-y and by 6.4% (70,311 clients) q-o-q.

§ Acquired 887 new clients in the Solo business line, the Bank's mass affluent sub-brand, in 1H 2013. As of 30 June 2013, the number of Solo clients reached 6,032.

§ Increased the number of corporate clients using the Bank's payroll services from 3,149 as of 30 June 2012 to 3,651 as of 30 June 2013. As of the period end, the number of individual clients serviced through the corporate payroll programmes administered by the Bank amounted to 227,005, compared to 194,407 as of 30 June 2012.

§ Increased Point of Sales (POS) footprint: as of 30 June 2013, 238 desks at 592 contracted merchants, up from 197 desks and 408 merchants as of 30 June 2012. GEL 41.0 million POS loans were issued in 1H 2013, compared to GEL 22.6 million during the same period last year. POS loans outstanding amounted to GEL 39.8 million, up 73.9% over one year period.

§ POS terminals outstanding reached 4,259, up 31.7% y-o-y. The volume of transactions through the Bank's POS terminals grew 28.2% y-o-y to GEL 186.2 million, while the number of POS transactions increased by 1.0 million y-o-y from 2.0 million in 1H 2012 to 3.0 million in Q1 2013.

§ Added a new product on the market, whereby a client can activate a pre-approved overdraft limit upon making a purchase through any Bank of Georgia POS terminal. Since the launch in March 2013, 1,571 pre-approved POS loans were issued, worth GEL 1.3 million.

§ Consumer loan originations of GEL 269.6 million resulted in consumer loans outstanding totalling GEL 392.1 million as of 30 June 2013, up 21.7% y-o-y and up 11.9% year-to-date. 

§ Micro loan originations of GEL 203.9 million resulted in micro loans outstanding totalling GEL 301.1 million as of 30 June 2013, up 23.4% y-o-y and up 16.8% year-to-date.

§ SME loan originations of GEL 83.6 million resulted in SME loans outstanding totalling GEL 117.9 million as of 30 June 2013, up 37.7% y-o-y and up 10.6% year-to-date.

§ Mortgage loans originations of GEL 73.9 million resulted in mortgage loans outstanding of GEL 388.7 million as of 30 June 2013, up 5.2% y-o-y and flat year-to-date.

§ RB loan yield amounted to 20.6% in Q2 2013 (21.8% in Q2 2012) and RB deposit cost declined to 5.4% in Q2 2013 (6.2% in Q2 2012).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Banking (CB)




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net interest income

50,460

45,668

10.5%

Net fee and commission income

14,372

14,469

-0.7%

Net gain from foreign currencies

12,536

16,035

-21.8%

Other operating non-interest income

3,256

2,665

22.2%

Revenue

80,624

78,837

2.3%

Operating expenses

(20,854)

(25,337)

-17.7%

Operating income before cost of credit risk

59,770

53,500

11.7%

Cost of credit risk

(17,191)

(1,541)

NMF

Net non-operating expense

(1,017)

(4,568)

-77.7%

Profit before Income tax expense

41,562

47,391

-12.3%

Income tax expense

(5,973)

(7,822)

-23.6%

Profit from continuing operations

35,589

39,569

-10.1%

Net loss from discontinued operations

-

(3)

-100.0%

Profit

35,589

39,566

-10.1%

Net loans, standalone

1,668,041

1,650,487

1.1%

Letters of credit and guarantees*, standalone

471,802

593,701

-20.5%

Client deposits, standalone

1,234,963

1,467,251

-15.8%

Loan yield

13.2%

14.7%


Cost of deposits

5.5%

7.7%


Cost / Income ratio

25.9%

32.1%


 

*Off-balance sheet items

 

Corporate Banking business in Georgia comprises of loans and other credit facilities to the country's large corporate clients as well as other legal entities, excluding SME and micro businesses. The services include fund transfers and settlements services, currency conversion operations, trade finance service, trade finance services and documentary operations as well as handling savings and term deposits for corporate and institutional customers. Corporate Banking business also includes finance lease facility provided by the Bank's leasing operations (Georgian Leasing Company).

 

1H 2013 Corporate Banking results reflect solid net interest income growth and significantly improved cost efficiency. Corporate Banking revenue grew 2.3% in 1H 2013 driven by a 10.5% increase in net interest income to GEL 50.5 million. Net fees and commission income stayed largely flat at GEL 14.4 million, while net gains from foreign currencies declined to GEL 12.5 million from GEL 16.0 million in 1H 2012. Operating expenses decreased markedly by 17.7% as a result of greater cost control measures, which resulted in a significant decline in the Cost to Income ratio from 32.1% in 1H 2012 to 25.9% in 1H 2013.

 

Cost of credit risk rose to GEL 17.2 million from GEL 1.5 million in 1H 2012. As a result of the foregoing, the 1H 2013 profit of the Corporate Banking business amounted to GEL 35.6 million down 10.1% y-o-y.

 

1H 2013 Corporate Banking net loan book grew 1.1% y-o-y, driven by a 4.8% growth of the net loan book in Q2 2013 compared to the previous quarter, when the Bank reported a 6.2% decline in its corporate loan book due to the slow-down of the corporate activity in the post-election period and the pre-payment by a large corporate client in March 2013. Corporate Banking client deposits decreased 15.8% y-o-y and 3.1% q-o-q, as a result of aggressive re-pricing of the corporate deposit rates that led to a reduction of in the cost of corporate deposits by 220 bps y-o-y to 5.3% in Q2 2013 compared to a 150 bps y-o-y reduction in the loan yield to 13.2%. The contractual rates on US$ denominated one year term Corporate Banking deposits declined from 8.0% in Q2 2012 to 5.0% in Q2 2013. 

 

 

 

 

 

 

 

 

Investment Management*




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net interest income

                  4,553

                 6,550

-30.5%

Net fee and commission income

                     284

                    230

23.5%

Net gain from foreign currencies

                     774

                    380

103.7%

Other operating non-interest income

                       28

                      40

-30.0%

Revenue

                 5,639

               7,200

-21.7%

Operating expenses

                 (2,659)

              (1,924)

38.2%

Operating income before cost of credit risk

                 2,980

               5,276

-43.5%

Cost of credit risk

                     262

                        1

NMF

Net non-operating expense

                      (26)

               (126)

-79.4%

Profit before income tax expense

                 3,216

               5,151

-37.6%

Income tax expense

                    (402)

                 (799)

-49.7%

Profit

                 2,814

               4,352

-35.3%

Net loans, standalone

                16,698

               47,219

-64.6%

Client deposits, standalone

              624,207

             528,882

18.0%

Cost of deposits

8.1%

9.1%


 

*Formerly known as Asset and Wealth Management

 

The Bank's Investment Management business provides private banking services to resident and non-resident clients by ensuring an individual approach and exclusivity in providing banking services such as holding the clients' savings and term deposits, fund transfers, currency exchange and settlement operations. In addition, Investment Management involves providing services to its clients through a wide range investment opportunities and specifically designed investment products.

 

Investment Management client deposits increased 18.0% y-o-y to GEL 624.2 million, despite a 100 bps y-o-y decline in cost of deposits. Net interest income declined 30.5% to GEL 4.6 million predominantly as a result of a change in the internal transfer pricing rates within the segments (from Investment Management to RB and CB). As a result, profit of the segment declined 35.3% to GEL 2.8 million.

 

Highlights

 

§ The Investment Management business currently serves over 1,445 clients from more than 60 countries. Client funds attracted by Investment Management have grown at a compound annual growth rate (CAGR) of 55.1% over the last four year period to GEL 624.2 million as of 30 June 2013.

§ Bank of Georgia Research unit, previously under Corporate Banking, has moved under Investment Management.

§ Since its launch in June 2012, Bank of Georgia Research has initiated research coverage of Georgian Agricultural Sector, Georgian Electricity Sector, Georgian Oil and Gas Corporation, Georgian Railway, and issued notes on Georgian State Budget and the Tourism Sector as of the date of this report. The Bank of Georgia research platform is aimed at supporting the growth of the Bank's fee generating business.

§ Established a Joint Venture with the Georgian Energy Development Fund (the "HPP Joint Venture") to attract financing for the construction of seven hydropower plants with the total capacity of 180MW. The construction is to be financed by funds attracted from investors in international markets following the completion of the feasibility studies of the respective plants.

§ Bank of Georgia started a Certificates of Deposit (CD) Programme in December 2012 (official launch January 2013). CDs are tradable securities offering attractive yields to investors in both local and foreign currencies. As of 30 June 2013, the amount of CDs issued to Investment Management clients reached GEL 103.2 million.

 

 

 

 

 

 

 

Insurance and Healthcare (Aldagi)  

 


1H 2013

1H 2012

Change

Y-O-Y


Insurance

Healthcare

Elimination

Total

Insurance

Healthcare

Elimination

Total

Insurance

Healthcare

Total

Gross premiums written

64,588

-

-

64,588

48,829

-

-

48,829

32.3%

-

32.3%

Net insurance revenue, of which:

17,670

-

6,320

23,990

10,663

-

2,327

12,990

65.7%

-

84.7%

Net insurance premiums earned

65,713

-

(158)

65,555

33,416

-

-

33,416

96.7%

-

96.2%

Net insurance claims incurred

(48,043)

-

6,478

(41,565)

(22,753)

-

2,327

(20,426)

111.2%

-

103.5%

Net healthcare revenue (loss), of which:

-

15,469

(6,477)

8,992

-

11,524

(2,327)

9,197

-

34.2%

-2.2%

Healthcare revenue

-

45,020

(17,530)

27,490

-

28,173

(5,586)

22,587

-

59.8%

21.7%

Cost of healthcare services

-

(29,551)

11,053

(18,498)

-

(16,649)

3,259

(13,390)

-

77.5%

38.1%

Net interest income (expenses)

1,357

(6,267)

-

(4,910)

489

(2,245)

-

(1,756)

177.5%

179.2%

179.6%

Net fee and commission income (expenses)

87

(188)

-

(101)

-

-

-

-

-

-

-

Net gain (loss) from foreign currencies

(205)

238

-

33

111

1

-

112

NMF

NMF

-70.5%

Other operating non-interest income

396

869

-

1,265

(716)

613

-

(103)

NMF

41.8%

NMF

Revenue

19,305

10,121

(157)

29,269

10,547

9,893

-

20,440

83.0%

2.3%

43.2%

Operating expenses

(8,035)

(6,566)

157

(14,444)

(6,520)

(7,314)

-

(13,834)

23.2%

-10.2%

4.4%

Operating income before cost of credit risk

11,270

3,555

-

14,825

4,027

2,579

-

6,606

179.9%

37.8%

124.4%

Cost of credit risk

(631)

(789)

-

(1,420)

(238)

-

-

(238)

165.1%

-

NMF

Profit before income tax expense

10,639

2,766

-

13,405

3,789

2,579

-

6,368

180.8%

7.3%

110.5%

Income tax expense

(1,733)

(224)

-

(1,957)

(564)

(374)

-

(938)

NMF

-40.1%

108.6%

Profit from continuing operations

8,906

2,542

-

11,448

3,225

2,205

-

5,430

176.2%

15.3%

110.8%

Net gain from discontinued operations

-

-

-

-

-

-

-

-

-

-

-

Profit

8,906

2,542

-

11,448

3,225

2,205

-

5,430

176.2%

15.3%

110.8%













 

Aldagi, the Bank's wholly-owned subsidiary, provides life and non-life insurance and healthcare products and services in Georgia. A leader in the Georgian life and non-life insurance markets, with a market share of 31.8% as of 31 December 2012 based on gross insurance premium revenue, Aldagi cross-sells its insurance products with the Bank's Retail Banking, Corporate Banking and Investment Management products. Aldagi's healthcare business consists of My Family Clinic (MFC) and Unimed, Georgia's leading healthcare providers in which Aldagi holds 51% and 100% stakes, respectively. MFC and Unimed operate a chain of healthcare centres in Georgia, in line with the Bank's strategy of vertically integrating its insurance and healthcare businesses.

 

In 1H 2013, insurance and healthcare revenue increased to GEL 29.3 million from GEL 20.4 million in 1H 2012, reflecting the growth of both the insurance and healthcare businesses through organic growth as well as acquisitions. Gross premiums written increased by 32.3% to GEL 64.6 million. As a result, net insurance revenues increased by 84.7% y-o-y to GEL 24.0 million. Operating expenses increased by just 4.4% y-o-y, resulting in total operating income before the cost of credit risk of GEL 14.8 million up 124.4% y-o-y.

 

As a result, the Insurance and Healthcare segment (Aldagi) posted a profit before income tax expense of GEL 13.4 million up from GEL 6.4 million the year before.

 

 

 

 

 

 

 

 

 

 

 

The following income statements are presented on a standalone basis, before applying inter-company eliminations, for Insurance segment and Healthcare segment.

 

Insurance standalone income statement




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Gross premiums written

64,588

48,829

32.3%

Net insurance revenue, of which:

17,670

10,663

65.7%

   Net premiums earned

65,713

33,416

96.7%

   Net claims incurred

(48,043)

(22,753)

111.2%

Net interest income

1,357

489

177.5%

Net fee and commission income (expense)

87

-

-

Net loss from foreign currencies

(205)

111

NMF

Other operating non-interest income

396

(716)

NMF

Revenue

19,305

10,547

83.0%

Operating expenses

(8,035)

(6,520)

23.2%

Operating income before cost of credit risk

11,270

4,027

179.9%

Cost of credit risk

(631)

(238)

165.1%

Profit before income tax (expense) benefit

10,639

3,789

180.8%

Income tax (expense) benefit

(1,733)

(564)

NMF

Profit

8,906

3,225

176.2%

 

 

Healthcare pro-forma20standalone income statement




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net healthcare revenue, of which:

18,042

11,524

56.6%

   Healthcare revenue

45,020

28,173

59.8%

   Cost of healthcare services

(26,978)

(16,649)

62.0%

Net interest expense

(6,267)

(2,245)

179.2%

Net fee and commission income

(188)

-

-

Net loss from foreign currencies

238

1

NMF

Other operating non-interest income

869

613

41.8%

Revenue

12,694

9,893

28.3%

Operating expenses

(9,139)

(7,314)

25.0%

Operating income before cost of credit risk

3,555

2,579

37.8%

Cost of credit risk

(789)

-

-

Profit (loss) before income tax (expense) benefit

2,766

2,579

7.3%

Income tax (expense) benefit

(224)

(374)

-40.1%

Profit

2,542

2,205

15.3%

 

20In 2013, compared to 2012, additional direct operating expenses of the Healthcare business (such as, direct depreciation and other administrative expenses) were netted off against
 
net healthcare revenues through reclassification to cost of healthcare services. No similar reclassifications were applied in 2012. In the pro-forma version of the healthcare income statement, 1H 2013 has been normalised for these additional net-offs, by reversing them and making 1H 2013 more comparable to 1H 2012.

 

 

Highlights

 

§ Aldagi's market share stood at 31.8% as of 31 December 2012.

§ In Q2 2013, Aldagi completed rebranding by changing its name from Aldagi BCI and the colour of its logo from orange to green. The decision to rebrand the company was based on extensive marketing research analysis on brand recognition and awareness of the company.

§ Nearly doubled number of insurance clients to 710,603 from 420,000 a year ago.

§ Aldagi Healthcare business completed the roll-out of hospital and clinics, predominantly in Western Georgia. As of 30 June 2013, Aldagi operated 23 hospitals and 4 clinics with a total of 1,231 beds.

 

 

 

 

 

 

Affordable Housing

 

GEL thousands, unless otherwise noted

Jun-13

Jun-12

Change, Y-O-Y


      m2      Mortgages        Total

         m2   Mortgages         Total

    m2    Mortgages           Total

Net interest income (expenses)

624

412

1,036

(1,431)

68

(1,363)

NMF

NMF

NMF

Net fee and commission expenses

(18)

-

(18)

-

-

-

-

-

-

Net loss from foreign currencies

(44)

-

(44)

(107)

-

(107)

-58.9%

-

-58.9%

Other operating non-interest income

5,641

-

5,641

1,040

-

1,040

NMF

-

NMF

Revenue

6,203

412

6,615

(498)

68

(430)

NMF

NMF

NMF

Operating expenses

(1,103)

-

(1,103)

(1,861)

-

(1,861)

-40.7%

-

-40.7%

Operating income (loss) before cost of credit risk

5,100

412

5,512

(2,359)

68

(2,291)

NMF

NMF

NMF

Cost of credit risk

(185)

251

66

-

(68)

(68)

-

NMF

NMF

Net non-operating expenses

(493)

-

(493)

(2)

-

(2)

NMF

-

NMF

Profit (loss) before income tax benefit (expense)

4,422

663

5,085

(2,361)

-

(2,361)

NMF

-

NMF

Income tax benefit (expense)

(662)

-

(662)

354

-

354

NMF

-

NMF

Profit (loss) from continuing operations

3,760

663

4,423

(2,007)

-

(2,007)

NMF

-

NMF

Net gain from discontinued operations

-

-

-

-

-

-

-

-

-

Profit (loss)

3,760

663

4,423

(2,007)

-

(2,007)

NMF

-

NMF

 

 

The Affordable Housing business consists of the Bank's wholly-owned subsidiary m2 RE, which holds investment properties repossessed by the Bank from previously defaulted borrowers. With the aim to improve the liquidity of these repossessed real estate assets and stimulate the Bank's mortgage lending business capitalising on the market opportunity in the affordable housing segment in Georgia, the Bank develops and leases such real estate assets through m2 RE. m2 RE outsources the construction and architecture works and focuses on project management and sales of apartments and mortgages through its well-established branch network and sales force, thus representing a synergistic business for the Bank's mortgage business.

 

Other operating non-interest income reached GEL 5.6 million, as a result of the revaluation of the two investment properties, which resulted in the net gain from revaluation of GEL 4.8 million. The remainder came from the sale of apartments in the second project as well as rentals. Total revenue as a result totalled GEL 6.6 million compared to GEL 0.4 million loss during the same period last year. As a result, profit for the period totalled GEL 4.4 million compared to a GEL 2.0 million loss in 1H 2012. 

 

 

Highlights

§ Secured US$14.0 million financing from IFC to finance three housing development projects of m2 RE. The revaluation of the respective properties have resulted in GEL 4.8 million revaluation gain for the Group. The development of the new housing projects are planned to commence in the second half 2013.

§ Construction of a second project of a 522 apartment building with a total buildable area of 63,247 square meters is in progress. As of 30 June 2013, 356 or 68% of apartments have been pre-sold, of which 95 units were sold in Q2 2013. The total sales from this project amounted to GEL 46.7 million as of 30 June 2013.

§ Total sales from the first project amounted to US$9.3 million and IRR of 33.6%

§ Number of mortgages sold in both projects totalled 214, amounting to GEL 22.5 million.

§ Net cash balance* of m2 Real Estate as of 30 June 2013 amounted to GEL 8.3 million.

 

 

 

 

 

 

 

 

 

 

 

*cash and cash equivalents and amounts due from credit institution less debt

 

Non-Core Businesses

 

The Group's non-core businesses that accounted for 5.1% of total assets and 6.3% of total revenue in 1H 2012, predominantly comprise BNB, our Belarus banking operation and Liberty Consumer, a Georgia focused investment company in which the Bank holds a 68% stake. In order to focus on its strategic businesses, the Bank has announced its intention to exit from its non-core operations. As of 30 June 2013, the Bank still held Teliani Valley, a Georgian wine producer, through Liberty Consumer. The Bank intends to sell this remaining asset in the due course.

 

 

BNB




Change

GEL thousands, unless otherwise noted

1H 2013

1H 2012

Y-O-Y





Net interest income

                 8,370

            5,494

52.3%

Net fee and commission income

                 2,802

            1,494

87.6%

Net gain from foreign currencies, adjusted for one of fx gain

                 1,388

            812

70.9%

Other operating non-interest income

                      43

92

-53.3%

Revenue, adjusted for one-off currency gain

12,603

7,984

59.7%

One-off foreign currency gain

-

2,949

-100.0%

Revenue

             12,603

        10,841

16.3%

Operating expenses

               (6,688)

          (4,738)

41.2%

Operating income before cost of credit risk

               5,915

          6,103

-3.1%

Cost of credit risk

                  (626)

          (1,265)

-50.5%

Net non-operating expense

                  (790)

             (210)

NMF

Profit before Income tax expense

               4,499

          4,628

-2.8%

Income tax expense

               (1,239)

          (1,152)

7.6%

Profit

               3,260

          3,476

-6.2%

Cost to Income ratio

53.1%

43.7%


 

Through BNB, the Bank provides Retail Banking and Corporate Banking services in Belarus. BNB reported solid net interest income and net fee and commission income, up 52.3% y-o-y and 87.6% y-o-y, respectively. As a result, revenue adjusted for one off foreign currency gain increased by 59.7% y-o-y to GEL 12.6 million. BNB's net loan book more than doubled to GEL 157.1 million compared to the same period last year, while client deposits increased 24.8% y-o-y to GEL 100.6 million. As of 30 June 2013, BNB's total assets stood at GEL 230.3 million, net loan book at GEL 157.1 million, client deposits at GEL 100.6 million and equity at GEL 49.6 million, representing 4.1%, 5.0%, 3.5% and 4.5% of the Bank's total assets, loan book, client deposits and equity, respectively.

    

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SELECTED FINANCIAL INFORMATION

 

CONSOLIDATED INCOME STATEMENT

 

 

 


1H 2013

1H 2012

Change

GEL thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y









Loans to customers

260,047

244,965

6.2%

Investment securities

17,642

17,806

-0.9%

Amounts due from credit institutions

4,945

9,624

-48.6%

Finance lease receivables

3,208

4,133

-22.4%

Interest income

285,842

276,528

3.4%

Amounts due to customers

(85,538)

(103,765)

-17.6%

Amounts due to credit institutions

(49,625)

(34,047)

45.8%

Interest expense

(135,163)

(137,812)

-1.9%

Net interest income before interest rate swaps

150,679

138,716

8.6%

Net loss from interest rate swaps

(185)

(1,053)

-82.4%

Net interest income

150,494

137,663

9.3%

Fee and commission income

54,898

51,477

6.6%

Fee and commission expense

(12,622)

(9,944)

26.9%

Net fee and commission income

42,276

41,533

1.8%

Net insurance premiums earned

64,289

32,383

98.5%

Net insurance claims incurred

(41,565)

(20,426)

103.5%

Net insurance revenue

22,724

11,957

90.0%

Healthcare revenue

27,489

22,587

21.7%

Cost of healthcare services

(18,498)

(13,391)

38.1%

Net healthcare revenue

8,991

9,196

-2.2%

Net gain from trading and investment securities

2,590

953

171.8%

Net gain from revaluation of investment property

4,842

-

-

Net gain from foreign currencies

21,677

26,191

-17.2%

Other operating income

9,082

11,492

-21.0%

Other operating non-interest income

38,191

38,636

-1.2%

Revenue

262,676

238,985

9.9%

Salaries and other employee benefits

(65,077)

(57,829)

12.5%

General and administrative expenses

(29,764)

(33,762)

-11.8%

Depreciation and amortization expenses

(13,339)

(13,919)

-4.2%

Other operating expenses

(1,441)

(3,554)

-59.5%

Operating expenses

(109,621)

(109,064)

0.5%

Operating income before cost of credit risk

            153,055

           129,921

17.8%

Cost of credit risk

(36,261)

(13,947)

160.0%

Net operating income

116,794

115,974

0.7%

Net non-operating expense

(5,453)

(12,393)

-56.0%

Profit before income tax expense

111,341

103,581

7.5%

Income tax expense

(16,239)

(17,542)

-7.4%

Profit

95,102

86,039

10.5%

Attributable to:




- shareholders of the Group

91,735

84,212

8.9%

- non-controlling interests

3,367

1,827

85.1%





Earnings per share (basic)

2.70

2.57

5.1%

Earnings per share (diluted)

2.70

2.52

7.1%

 

 

 

CONSOLIDATED INCOME STATEMENT

 

 

 


Q2 2013

Q2 2012

Change

Q1 2013

Change

GEL thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q







Loans to customers

130,589

126,541

3.2%

129,458

0.9%

Investment securities

9,634

7,983

20.7%

8,007

20.3%

Amounts due from credit institutions

2,330

5,411

-56.9%

2,615

-10.9%

Finance lease receivables

1,709

2,120

-19.4%

1,500

13.9%

Interest income

144,262

142,055

1.6%

141,580

1.9%

Amounts due to customers

(41,620)

(49,931)

-16.6%

(43,918)

-5.2%

Amounts due to credit institutions

(24,636)

(15,339)

60.6%

(24,990)

-1.4%

Interest expense

(66,255)

(65,269)

1.5%

(68,908)

-3.9%

Net interest income before interest rate swaps

78,007

76,786

1.6%

72,672

7.3%

Net loss from interest rate swaps

(109)

(285)

-61.8%

(76)

43.4%

Net interest income

77,898

76,501

1.8%

72,596

7.3%

Fee and commission income

28,337

27,355

3.6%

26,562

6.7%

Fee and commission expense

(6,558)

(5,537)

18.4%

(6,066)

8.1%

Net fee and commission income

21,779

21,818

-0.2%

20,496

6.3%

Net insurance premiums earned

32,545

19,896

63.6%

31,744

2.5%

Net insurance claims incurred

(21,547)

(12,613)

70.8%

(20,018)

7.6%

Net insurance revenue

10,998

7,283

51.0%

11,726

-6.2%

Healthcare revenue

14,419

12,327

17.0%

13,070

10.3%

Cost of healthcare services

(9,319)

(7,908)

17.8%

(9,179)

1.5%

Net healthcare revenue

5,100

4,419

15.4%

3,891

31.1%

Net gain from trading and investment securities

1,306

157

NMF

1,284

1.7%

Net gain from revaluation of investment property

4,842

-

-

-

-

Net gain from foreign currencies

12,225

11,833

3.3%

9,452

29.3%

Other operating income

5,552

7,131

-22.1%

3,531

57.2%

Other operating non-interest income

23,925

19,121

25.1%

14,267

67.7%

Revenue

139,700

129,142

8.2%

122,976

13.6%

Salaries and other employee benefits

(32,575)

(32,000)

1.8%

(32,501)

0.2%

General and administrative expenses

(15,707)

(17,997)

-12.7%

(14,057)

11.7%

Depreciation and amortization expenses

(6,747)

(7,155)

-5.7%

(6,593)

2.3%

Other operating expenses

(711)

(1,602)

-55.6%

(729)

-2.5%

Operating expenses

(55,740)

(58,754)

-5.1%

(53,880)

3.5%

Operating income before cost of credit risk

83,960

70,388

19.3%

69,096

21.5%

Cost of credit risk

(18,984)

(6,568)

189.0%

(17,278)

9.9%

Net operating income

64,976

63,820

1.8%

51,818

25.4%

Net non-operating expense

(4,089)

(7,994)

-48.8%

(1,365)

199.6%

Profit before income tax expense

60,887

55,826

9.1%

50,453

20.7%

Income tax expense

(7,782)

(9,495)

-18.0%

(8,456)

-8.0%

Profit from continuing operations

53,105

46,331

14.6%

41,997

26.4%

Net loss from discontinued operations

-

(55)

-100.0%

-

-

Profit

53,105

46,276

14.8%

41,997

26.4%

Attributable to:






- shareholders of the Group

51,138

45,072

13.5%

40,597

26.0%

- non-controlling interests

1,967

1,204

63.4%

1,400

40.5%







Earnings per share (basic)

1.51

1.33

13.5%

1.19

26.9%

Earnings per share (diluted)

1.51

1.33

13.5%

1.19

26.9%

 

 

 

 

CONSOLIDATED BALANCE SHEET

 

 


Jun 13

Jun 12

Change

Mar 13

Change

 GEL thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q







Cash and cash equivalents

547,404

374,995

46.0%

696,590

-21.4%

Amounts due from credit institutions

326,537

342,145

-4.6%

349,196

-6.5%

Investment securities

644,237

414,584

55.4%

511,450

26.0%

Loans to customers and finance lease receivables

3,122,916

2,923,140

6.8%

2,954,724

5.7%

Investments in associates

-

2,865

-100.0%

2,441

-100.0%

Investment property

169,722

138,639

22.4%

163,458

3.8%

Property and equipment

447,205

407,428

9.8%

439,941

1.7%

Goodwill

45,657

45,291

0.8%

45,657

0.0%

Intangible assets

24,039

20,313

18.3%

22,916

4.9%

Income tax assets

15,941

23,889

-33.3%

17,889

-10.9%

Prepayments

30,205

36,321

-16.8%

32,219

-6.3%

Other assets

297,831

205,404

45.0%

297,377

0.2%

Total assets

5,671,694

4,935,014

14.9%

5,533,858

2.5%







Amounts due to customers, of which:

2,850,234

2,846,263

0.1%

2,817,677

1.2%

  Client deposits

2,838,153

2,742,601

3.5%

2,807,064

1.1%

  Promissory notes

12,081

103,662

-88.3%

10,613

13.8%

Amounts due to credit institutions

1,475,686

875,928

68.5%

1,355,027

8.9%

Income tax liabilities

57,411

55,762

3.0%

55,447

3.5%

Provisions

483

460

5.0%

991

-51.3%

Other liabilities

184,975

199,207

-7.1%

194,901

-5.1%

Total liabilities

4,568,789

3,977,620

14.9%

4,424,043

3.3%







Share capital

903

922

-2.1%

905

-0.2%

Additional paid-in capital

19,645

-

-

19,765

-0.6%

Treasury shares

(50)

(66)

-24.2%

(47)

6.4%

Other reserves

39,209

11,511

NMF

14,421

171.9%

Retained earnings

988,885

899,934

9.9%

1,022,301

-3.3%

Total equity attributable to shareholders of the Group

1,048,592

912,301

14.9%

1,057,345

-0.8%

  Non-controlling interests

54,313

45,093

20.4%

52,470

3.5%

Total equity

1,102,905

957,394

15.2%

1,109,815

-0.6%

Total liabilities and equity

5,671,694

4,935,014

14.9%

5,533,858

2.5%







Book value per share

30.90

27.37

12.9%

31.04

-0.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 

 


USD


        GBP



1H 2013

1H 2012

Change


1H 2013

1H 2012

Change

 Thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y


Unaudited

Unaudited

Y-O-Y









Loans to customers

157,518

148,906

5.8%


103,357

95,403

8.3%

Investment securities

10,686

10,824

-1.3%


7,012

6,935

1.1%

Amounts due from credit institutions

2,995

5,850

-48.8%


1,965

3,748

-47.6%

Finance lease receivables

1,944

2,512

-22.6%


1,276

1,609

-20.7%

Interest income

173,143

168,092

3.0%


113,610

107,695

5.5%

Amounts due to customers

(51,813)

(63,075)

-17.9%


(33,998)

(40,412)

-15.9%

Amounts due to credit institutions

(30,059)

(20,696)

45.2%


(19,724)

(13,260)

48.7%

Interest expense

(81,872)

(83,771)

-2.3%


(53,722)

(53,672)

0.1%

Net interest income before interest rate swaps

91,271

84,321

8.2%


59,888

54,023

10.9%

Net loss from interest rate swaps

(112)

(640)

-82.5%


(73)

(410)

-82.2%

Net interest income

91,159

83,681

8.9%


59,815

53,613

11.6%

Fee and commission income

33,253

31,291

6.3%


21,820

20,048

8.8%

Fee and commission expense

(7,645)

(6,045)

26.5%


(5,017)

(3,873)

29.6%

Net fee and commission income

25,608

25,246

1.4%


16,803

16,175

3.9%

Net insurance premiums earned

38,942

19,685

97.8%


25,552

12,612

102.6%

Net insurance claims incurred

(25,177)

(12,417)

102.8%


(16,520)

(7,955)

107.7%

Net insurance revenue

13,765

7,268

89.4%


9,032

4,657

93.9%

Healthcare revenue

16,651

13,730

21.3%


10,926

8,797

24.2%

Cost of healthcare services

(11,205)

(8,140)

37.7%


(7,352)

(5,216)

41.0%

Net healthcare revenue

5,446

5,590

-2.6%


3,574

3,581

-0.2%

Net gain from trading and investment securities

1,569

579

171.0%


1,029

371

177.4%

Net gain from revaluation of investment property

2,933

-

-


1,924

-

-

Net gain from foreign currencies

13,130

15,921

-17.5%


8,616

10,200

-15.5%

Other operating income

5,501

6,986

-21.3%


3,609

4,477

-19.4%

Other operating non-interest income

23,133

23,486

-1.5%


15,178

15,048

0.9%

Revenue

159,111

145,271

9.5%


104,402

93,074

12.2%

Salaries and other employee benefits

(39,419)

(35,152)

12.1%


(25,865)

(22,522)

14.8%

General and administrative expenses

(18,029)

(20,523)

-12.2%


(11,830)

(13,149)

-10.0%

Depreciation and amortization expenses

(8,080)

(8,461)

-4.5%


(5,302)

(5,421)

-2.2%

Other operating expenses

(873)

(2,160)

-59.6%


(572)

(1,384)

-58.7%

Operating expenses

(66,401)

(66,296)

0.2%


(43,569)

(42,476)

2.6%

Operating income before cost of credit risk

92,710

78,975

17.4%


60,833

50,598

20.2%

Cost of credit risk

(21,964)

(8,478)

159.1%


(14,412)

(5,432)

165.3%

Net operating income

70,746

70,497

0.4%


46,421

45,166

2.8%

Net non-operating expense

(3,303)

(7,534)

-56.2%


(2,168)

(4,826)

-55.1%

Profit before income tax expense

67,443

62,963

7.1%


44,253

40,340

9.7%

Income tax expense

(9,837)

(10,663)

-7.7%


(6,454)

(6,832)

-5.5%

Profit

57,606

52,300

10.2%


37,799

33,508

12.8%

Attributable to:








- shareholders of the Group

55,567

51,189

8.5%


36,461

32,796

11.2%

- non-controlling interests

2,039

1,111

84.4%


1,338

712

89.0%









Earnings per share (basic)

1.64

1.56

5.1%


1.07

1.00

7.0%

Earnings per share (diluted)

1.64

1.53

7.2%


1.07

0.98

9.2%

 

 

 

CONSOLIDATED INCOME STATEMENT

 




USD






GBP




Q2 2013

Q2 2012

Change

Q1 2013

Change


Q2 - 2013

Q2 - 2012

Change

Q1 - 2013

Change

Thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q


Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q













Loans to customers

79,102

76,920

2.8%

78,095

1.3%


51,903

49,282

5.3%

51,395

1.0%

Investment securities

5,836

4,853

20.3%

4,830

20.8%


3,829

3,109

23.2%

3,179

20.4%

Amounts due from credit institutions

1,411

3,289

-57.1%

1,577

-10.5%


926

2,107

-56.1%

1,038

-10.8%

Finance lease receivables

1,035

1,288

-19.6%

905

14.4%


680

826

-17.7%

595

14.3%

Interest income

87,384

86,350

1.2%

85,407

2.3%


57,338

55,324

3.6%

56,207

2.0%

Amounts due to customers

(25,210)

(30,351)

-16.9%

(26,493)

-4.8%


(16,542)

(19,446)

-14.9%

(17,435)

-5.1%

Amounts due to credit institutions

(14,923)

(9,324)

60.0%

(15,075)

-1.0%


(9,792)

(5,974)

63.9%

(9,921)

-1.3%

Interest expense

(40,133)

(39,675)

1.2%

(41,568)

-3.5%


(26,333)

(25,419)

3.6%

(27,356)

-3.7%

Net interest income before interest rate swaps

47,251

46,676

1.2%

43,839

7.8%


31,004

29,905

3.7%

28,851

7.5%

Net loss from interest rate swaps

(66)

(174)

-62.1%

(46)

43.5%


(43)

(111)

-61.3%

(30)

43.3%

Net interest income

47,185

46,502

1.5%

43,793

7.7%


30,961

29,794

3.9%

28,821

7.4%

Fee and commission income

17,165

16,628

3.2%

16,023

7.1%


11,263

10,654

5.7%

10,545

6.8%

Fee and commission expense

(3,973)

(3,366)

18.0%

(3,659)

8.6%


(2,607)

(2,157)

20.9%

(2,408)

8.3%

Net fee and commission income

13,192

13,262

-0.5%

12,364

6.7%


8,656

8,497

1.9%

8,137

6.4%

Net insurance premiums earned

19,713

12,094

63.0%

19,149

2.9%


12,935

7,749

66.9%

12,602

2.6%

Net insurance claims incurred

(13,051)

(7,667)

70.2%

(12,075)

8.1%


(8,564)

(4,913)

74.3%

(7,947)

7.8%

Net insurance revenue

6,662

4,427

50.5%

7,074

-5.8%


4,371

2,836

54.1%

4,655

-6.1%

Healthcare revenue

8,734

7,493

16.6%

7,884

10.8%


5,731

4,801

19.4%

5,189

10.4%

Cost of healthcare services

(5,645)

(4,807)

17.4%

(5,537)

2.0%


(3,704)

(3,080)

20.3%

(3,644)

1.6%

Net healthcare revenue

3,089

2,686

15.0%

2,347

31.6%


2,027

1,721

17.8%

1,545

31.2%

Net gain from trading and investment securities

791

95

NMF

775

2.1%


519

61

NMF

510

1.8%

Net gain from revaluation of investment property

2,933

-

-

-

-


1,924

-

-

-

-

Net gain from foreign currencies

7,405

7,193

2.9%

5,702

29.9%


4,859

4,608

5.4%

3,752

29.5%

Other operating income

3,364

4,336

-22.4%

2,130

57.9%


2,208

2,778

-20.5%

1,401

57.6%

Other operating non-interest income

14,493

11,624

24.7%

8,607

68.4%


9,510

7,447

27.7%

5,663

67.9%

Revenue

84,621

78,501

7.8%

74,185

14.1%


55,525

50,295

10.4%

48,821

13.7%

Salaries and other employee benefits

(19,732)

(19,452)

1.4%

(19,606)

0.6%


(12,947)

(12,463)

3.9%

(12,903)

0.3%

General and administrative expenses

(9,514)

(10,940)

-13.0%

(8,480)

12.2%


(6,243)

(7,009)

-10.9%

(5,581)

11.9%

Depreciation and amortization expenses

(4,087)

(4,349)

-6.0%

(3,977)

2.8%


(2,682)

(2,787)

-3.8%

(2,617)

2.5%

Other operating expenses

(431)

(974)

-55.7%

(440)

-2.0%


(283)

(623)

-54.6%

(289)

-2.1%

Operating expenses

(33,764)

(35,715)

-5.5%

(32,503)

3.9%


(22,155)

(22,882)

-3.2%

(21,390)

3.6%

Operating income before cost of credit risk

50,857

42,786

18.9%

41,682

22.0%


33,370

27,413

21.7%

27,431

21.7%

Cost of credit risk

(11,499)

(3,992)

188.1%

(10,423)

10.3%


(7,545)

(2,558)

195.0%

(6,859)

10.0%

Net operating income

39,358

38,794

1.5%

31,259

25.9%


25,825

24,855

3.9%

20,572

25.5%

Net non-operating expense

(2,477)

(4,859)

-49.0%

(823)

NMF


(1,625)

(3,113)

-47.8%

(542)

199.8%

Profit before Income tax expense

36,881

33,935

8.7%

30,436

21.2%


24,200

21,742

11.3%

20,030

20.8%

Income tax expense

(4,714)

(5,772)

-18.3%

(5,102)

-7.6%


(3,093)

(3,698)

-16.4%

(3,357)

-7.9%

Profit from continuing operations

32,167

28,163

14.2%

25,334

27.0%


21,107

18,044

17.0%

16,673

26.6%

Net loss from discontinued operations

-

(33)

-100.0%

-

-


-

(22)

-100.0%

-

-

Profit

32,167

28,130

14.4%

25,334

27.0%


21,107

18,022

17.1%

16,673

26.6%

Attributable to:












- shareholders of the Group

30,976

27,398

13.1%

24,489

26.5%


20,325

17,553

15.8%

16,117

26.1%

- non-controlling interests

1,191

732

62.7%

845

40.9%


782

469

66.7%

556

40.6%













Earnings per share (basic)

0.91

0.81

12.3%

0.72

26.4%


0.60

0.52

15.4%

0.47

27.7%

Earnings per share (diluted)

0.91

0.81

12.3%

0.72

26.4%


0.60

0.52

15.4%

0.47

27.7%

 

 

 

CONSOLIDATED BALANCE SHEET

 

 




USD






  GBP



Thousands, unless otherwise noted

Jun-13

Jun-12

Change

Mar-13

Change


Jun-13

Jun-12

Change

Mar-13

Change


Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q


Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q













Cash and cash equivalents

331,579

227,947

45.5%

420,215

-21.1%


217,569

146,043

49.0%

276,545

-21.3%

Amounts due from credit institutions

197,793

207,978

-4.9%

210,651

-6.1%


129,784

133,250

-2.6%

138,630

-6.4%

Investment securities

390,234

252,011

54.8%

308,530

26.5%


256,056

161,461

58.6%

203,045

26.1%

Loans to customers and finance lease receivables

1,891,645

1,776,877

6.5%

1,782,424

6.1%


1,241,223

1,138,427

9.0%

1,173,022

5.8%

Investments in associates

-

1,742

-100.0%

1,473

-100.0%


-

1,116

-100.0%

969

-100.0%

Investment property

102,806

84,274

22.0%

98,605

4.3%


67,457

53,993

24.9%

64,893

4.0%

Property and equipment

270,886

247,662

9.4%

265,392

2.1%


177,744

158,674

12.0%

174,656

1.8%

Goodwill

27,656

27,531

0.5%

27,542

0.4%


18,147

17,639

2.9%

18,126

0.1%

Intangible assets

14,561

12,348

17.9%

13,824

5.3%


9,554

7,911

20.8%

9,098

5.0%

Income tax assets

9,656

14,521

-33.5%

10,791

-10.5%


6,336

9,304

-31.9%

7,102

-10.8%

Prepayments

18,296

22,078

-17.1%

19,436

-5.9%


12,005

14,145

-15.1%

12,791

-6.1%

Other assets

180,404

124,857

44.5%

179,392

0.6%


118,375

79,996

48.0%

118,057

0.3%

Total assets

3,435,516

2,999,826

14.5%

3,338,275

2.9%


2,254,250

1,921,959

17.3%

2,196,934

2.6%













Amounts due to customers, of which:

1,726,473

1,730,146

-0.2%

1,699,751

1.6%


1,132,844

1,108,488

2.2%

1,118,614

1.3%

  Client deposits

1,719,155

1,667,133

3.1%

1,693,349

1.5%


1,128,042

1,068,116

5.6%

1,114,401

1.2%

  Promissory notes

7,318

63,013

-88.4%

6,402

14.3%


4,802

40,372

-88.1%

4,213

14.0%

Amounts due to credit institutions

893,868

532,447

67.9%

817,414

9.4%


586,521

341,133

71.9%

537,944

9.0%

Income tax liabilities

34,776

33,896

2.6%

33,448

4.0%


22,818

21,717

5.1%

22,012

3.7%

Provisions

293

280

4.6%

598

-51.0%


192

179

7.3%

393

-51.1%

Other liabilities

112,044

121,090

-7.5%

117,573

-4.7%


73,519

77,581

-5.2%

77,376

-5.0%

Total liabilities

2,767,454

2,417,859

14.5%

2,668,784

3.7%


1,815,894

1,549,098

17.2%

1,756,339

3.4%













Share capital

547

560

-2.3%

546

0.2%


359

359

0.0%

359

0.0%

Additional paid-in capital

11,900

-

-

11,923

-0.2%


7,808

-

-

7,847

-0.5%

Treasury shares

(30)

(40)

-25.0%

(28)

7.1%


(20)

(26)

-23.1%

(19)

5.3%

Other reserves

23,749

6,998

NMF

8,700

173.0%


15,583

4,483

NMF

5,726

172.1%

Retained earnings

598,998

547,039

9.5%

616,698

-2.9%


393,039

350,483

12.1%

405,852

-3.2%

Total equity attributable to shareholders of the Group

635,164

554,557

14.5%

637,839

-0.4%


416,769

355,299

17.3%

419,765

-0.7%

Non-controlling interests

32,898

27,410

20.0%

31,652

3.9%


21,587

17,562

22.9%

20,830

3.6%

Total equity

668,062

581,967

14.8%

669,491

-0.2%


438,356

372,861

17.6%

440,595

-0.5%

Total liabilities and equity

3,435,516

2,999,826

14.5%

3,338,275

2.9%


2,254,250

1,921,959

17.3%

2,196,934

2.6%













Book Value per share

18.72

16.64

12.5%

18.72

0.0%


12.28

10.66

15.2%

12.32

-0.3%

 

 

 

 

 

 

 

 

 

 

 

 

ALDAGI INCOME STATEMENT

 

 


1H 2013

1H 2012

Change

GEL thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y





Gross premiums written (GPW)

64,588

48,829

32.3%

Gross premiums earned

72,549

41,540

74.6%





Net insurance premiums earned

65,556

33,387

96.4%

Net insurance claims incurred

(41,565)

(20,426)

103.5%

Net insurance revenue

23,991

12,961

85.1%

Healthcare revenue

27,489

22,587

21.7%

Cost of healthcare services

(18,498)

(13,391)

38.1%

Net healthcare revenue

8,991

9,196

-2.2%

Net interest expense and other

(3,713)

(400)

NMF

Revenue

29,269

21,757

34.5%

Operating expenses

(14,444)

(13,835)

4.4%

Operating income before cost of credit risk

14,825

7,922

87.1%

Cost of credit risk

(1,420)

(237)

NMF

Profit before Income tax expense

13,405

7,685

74.4%

Income tax expense

(1,958)

(1,153)

69.8%

Profit

11,447

6,532

75.2%

 

 

 


Q2 2013

Q2 2012

Change

Q1 2013

Change

GEL thousands, unless otherwise noted

Unaudited

Unaudited

Y-O-Y

Unaudited

Q-O-Q







Gross premiums written (GPW)

26,761

28,937

-7.5%

37,827

-29.3%

Gross premiums earned

36,338

25,105

44.7%

36,211

0.4%







Net insurance premiums earned

33,042

20,404

61.9%

32,514

1.6%

Net insurance claims incurred

(21,547)

(11,727)

83.7%

(20,018)

7.6%

Net insurance revenue

11,495

8,677

32.5%

12,496

-8.0%

Healthcare revenue

14,419

12,327

17.0%

13,070

10.3%

Cost of healthcare services

(9,319)

(7,908)

17.8%

(9,179)

1.5%

Net healthcare revenue

5,100

4,419

15.4%

3,891

31.1%

Net interest expense and other

(1,724)

(2,702)

-36.2%

(1,989)

-13.3%

Revenue

14,871

10,394

43.1%

14,398

3.3%

Operating expenses

(7,060)

(5,853)

20.6%

(7,384)

-4.4%

Operating income before cost of credit risk

7,811

4,541

72.0%

7,014

11.4%

Cost of credit risk

(561)

(193)

190.7%

(859)

-34.7%

Net non-operating income

-

72

-100.0%

-

-

Profit before Income tax expense

7,250

4,420

64.0%

6,155

17.8%

Income tax expense

(1,031)

(596)

73.0%

(927)

11.2%

Profit

6,219

3,824

62.6%

5,228

19.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KEY RATIOS

1H 2013

1H 2012




Profitability



ROAA, Annualised1

3.4%

3.7%

ROAE, Annualised2

17.6%

19.6%

Net Interest Margin, Annualised3

7.7%

8.2%

Loan Yield, Annualised4

16.8%

17.8%

Cost of Funds, Annualised5

6.4%

7.9%

Cost of Client Deposits, Annualised

6.2%

7.7%

Cost of Amounts Due to Credit Institutions, Annualised

7.0%

8.5%

Operating Leverage, Y-O-Y6

9.4%

6.6%

Efficiency



Cost / Income7

41.7%

45.6%

Liquidity



NBG Liquidity ratio8

44.8%

35.2%

Liquid Assets To Total Liabilities9

33.3%

28.5%

Net Loans To Customer Funds

109.6%

102.7%

Net Loans To Customer Funds + DFIs10

90.0%

86.5%

Leverage (Times)11

4.1

4.2

Asset Quality:



NPLs (in GEL)

131,960

100,121

NPLs To Gross Loans To Clients

4.1%

3.3%

NPL Coverage ratio12

89.1%

115.2%

NPL Coverage ratio (adjusted for discounted value of collateral) 13

117.4%

148.0%

Cost of risk, Annualised14

1.5%

0.9%

Capital Adequacy:



BIS Tier I Capital Adequacy ratio, consolidated15

22.9%

21.9%

BIS Total Capital Adequacy ratio, consolidated16

27.8%

28.1%

NBG Tier I Capital Adequacy ratio17

15.4%

15.0%

NBG Total Capital Adequacy ratio18

16.3%

17.8%

Per Share Values:



Basic EPS (GEL)19

2.70

2.57

Diluted EPS (GEL)

2.70

2.52

Book Value per share (GEL)20

30.90

27.37

Ordinary shares outstanding - weighted average, basic21

34,030,799

32,807,562

Ordinary share outstanding - weighted average, diluted22

34,030,799

33,866,108

Ordinary shares outstanding - period end, basic23

33,936,007

33,332,636

Treasury shares outstanding - period end24

(1,973,376)

(2,576,747)

Selected Operating Data:



Full Time Employees, Group, Of Which:

11,507

10,538

  - Full Time Employees, BOG Stand-Alone

3,692

3,533

  - Full time employees, Aldagi Insurance

617

656

 - Full time employees, Aldagi Healthcare

6,027

5,318

 - Full time employees, BNB

365

280

 - Full time employees, Other

806

751

Total Assets Per FTE, BOG Stand-Alone (in GEL thousands)

1,536

1,397

Number Of Active Branches, Of Which:

197

179

 - Flagship branches

34

34

 - Standard branches

100

95

 - Express Branches (including Metro)

63

50

Number Of ATMs

481

459

Number Of Cards Outstanding, Of Which:

909,309

745,295

 - Debit cards

797,492

600,431

 - Credit cards

111,817

144,864

Number Of POS Terminals

4,259

3,233

 

 

 

 

 

OTHER RATIOS

1H 2013

1H 2012




Profitability Ratios:



ROE, Annualised,

17.6%

18.6%

Interest Income / Average Int. Earning Assets, Annualised25

14.7%

16.4%

Net F&C Inc. To Av. Int. Earn. Ass., Annualised

2.0%

2.2%

Net Fee And Commission Income To Revenue

16.1%

17.4%

Operating Leverage, Y-O-Y

9.4%

6.6%

Revenue to Total Assets, Annualised

9.3%

9.7%

Recurring Earning Power, Annualised26

5.5%

5.6%

Profit To Revenue

36.2%

36.0%

Efficiency Ratios:



Operating Cost to Av. Total Ass., Annualised

4.0%

4.7%

Cost to Average Total Assets, Annualised

4.2%

5.2%

Personnel Cost to Revenue

24.8%

24.2%

Personnel Cost to Operating Cost

59.4%

53.0%

Personnel Cost to Average Total Assets, Annualised

2.3%

2.5%

Liquidity Ratios:



Liquid Assets To Total Assets

26.8%

22.9%

Net Loans to Total Assets

55.1%

59.2%

Average Net Loans to Average Total Assets

54.4%

57.7%

Interest Earning Assets to Total Assets

78.2%

79.8%

Average Interest Earning Assets/Average Total Assets

78.0%

80.2%

Net Loans to Client Deposits

110.0%

106.6%

Average Net Loans to Av. Client Deposits

109.9%

105.0%

Net Loans to Total Deposits

99.5%

99.1%

Net Loans to (Total Deposits + Equity)

73.6%

74.8%

Net Loans to Total Liabilities

68.4%

73.5%

Total Deposits to Total Liabilities

68.7%

74.2%

Client Deposits to Total Deposits

90.4%

92.9%

Client Deposits to Total Liabilities

62.1%

69.0%

Total Deposits to Total Assets

55.3%

59.8%

Client Deposits to Total Assets

50.0%

55.6%

Client Deposits to Total Equity (Times)

                     2.6

                       2.9

Total Equity to Net Loans

35.3%

32.8%

Asset Quality:



Reserve For Loan Losses to Gross Loans to Clients27

3.6%

3.8%

% of Loans to Clients collateralised

88.4%

86.9%

Equity to Average Net Loans to Clients

35.3%

32.8%

 

 

 

 

KEY RATIOS ALDAGI








ROAA, Annualised

6.9%

6.2%


ROAE, Annualised

24.3%

25.6%


Loss Ratio28

70.1%

63.8%


Combined Ratio29

86.3%

89.5%




 

KEY RATIOS

Q2 2013

Q2 2012

Q1 2013





Profitability




ROAA, Annualised1

3.8%

4.0%

3.1%

ROAE, Annualised2

19.3%

20.0%

15.9%

Net Interest Margin, Annualised3

7.9%

9.0%

7.6%

Loan Yield, Annualised4

16.9%

18.0%

16.9%

Cost of Funds, Annualised5

6.2%

7.5%

6.7%

Cost of Client Deposits, Annualised

5.9%

7.4%

6.4%

Cost of Amounts Due to Credit Institutions, Annualised

6.9%

7.7%

7.1%

Operating Leverage, Y-O-Y6

13.3%

-3.6%

4.9%

Efficiency




Cost / Income7

39.9%

45.5%

43.8%

Liquidity




NBG Liquidity Ratio8

44.8%

35.2%

44.1%

Liquid Assets To Total Liabilities9

33.3%

28.5%

35.2%

Net Loans To Customer Funds

109.6%

102.7%

104.9%

Net Loans To Customer Funds + DFIs10

90.0%

86.5%

85.2%

Leverage (Times)11

4.1

4.2

4.0

Asset Quality:




NPLs (in GEL)

131,960

100,121

131,631

NPLs To Gross Loans To Clients

4.1%

3.3%

4.3%

NPL Coverage Ratio12

89.1%

115.2%

86.5%

NPL Coverage Ratio (adjusted for discounted value of collateral) 13

117.4%

148.0%

111.1%

Cost of Risk, Annualised14

1.5%

0.9%

1.4%

Capital Adequacy:




BIS Tier I Capital Adequacy Ratio, Consolidated15

22.9%

21.9%

23.2%

BIS Total Capital Adequacy Ratio, Consolidated16

27.8%

28.1%

28.2%

NBG Tier I Capital Adequacy Ratio17

15.4%

15.0%

16.8%

NBG Total Capital Adequacy Ratio18

16.3%

17.8%

17.1%

Per Share Values:




Basic EPS (GEL)19

1.51

1.33

1.19

Diluted EPS (GEL)

1.51

1.33

1.19

Book Value per share (GEL)20

30.90

27.37

31.04

Ordinary Shares Outstanding - Weighted Average, Basic21

33,829,260

33,829,260

34,061,344

Ordinary Shares Outstanding - Weighted Average, Diluted22

33,829,260

33,829,260

34,061,344

Ordinary Shares Outstanding - Period End, Basic23

33,936,007

33,332,636

34,061,344

Treasury Shares Outstanding - Period End24

(1,973,376)

(2,576,747)

(1,848,039)

Selected Operating Data:




Full time employees, Group, Of Which:

11,507

10,538

11,515

 - Full time employees, BOG Stand-Alone

3,692

3,533

3,750

 - Full time employees, Aldagi Insurance

617

656

625

 - Full time employees, Aldagi Healthcare

6,027

5,318

6,013

 - Full time employees, BNB

365

280

332

 - Full time employees, Other

806

751

795

Total Assets Per FTE, BOG Stand-Alone (in GEL thousands)

1,536

1,397

1,476

Number Of Active Branches, Of Which:

197

179

194

 - Flagship Branches

34

34

34

 - Standard Branches

100

95

98

 - Express Branches (including Metro)

63

50

62

Number Of ATMs

481

459

479

Number Of Cards Outstanding, Of Which:

909,309

745,295

838,610

 - Debit cards

797,492

600,431

727,019

 - Credit cards

111,817

144,864

111,591

Number Of POS Terminals

4,259

3,233

3,899

 

 

 

 

 

OTHER RATIOS

Q2 2013

Q2 2012

Q1 2013





Profitability Ratios:




ROE, Annualised,

19.6%

19.9%

15.6%

Interest Income / Average Int. Earning Assets, Annualised25

14.6%

16.7%

14.8%

Net F&C Inc. To Av. Int. Earn. Assets, Annualised

2.0%

2.3%

1.9%

Net Fee And Commission Income To Revenue

15.6%

16.9%

16.7%

Operating Leverage, Q-O-Q

10.1%

0.8%

-4.0%

Revenue to Total Assets, Annualised

9.9%

10.5%

9.0%

Recurring Earning Power, Annualised26

6.0%

6.0%

5.1%

Profit To Revenue

38.0%

35.8%

34.2%

Efficiency Ratios:




Operating Cost to Av. Total Ass., Annualised

4.0%

5.0%

3.9%

Cost to Average Total Assets, Annualised

4.3%

5.7%

4.1%

Personnel Cost to Revenue

23.3%

24.8%

26.4%

Personnel Cost to Operating Cost

58.4%

54.5%

60.3%

Personnel Cost to Average Total Assets, Annualised

2.3%

2.7%

2.4%

Liquidity Ratios:




Liquid Assets To Total Assets

26.8%

22.9%

28.2%

Net Loans to Total Assets

55.1%

59.2%

53.4%

Average Net Loans to Average Total Assets

53.8%

58.9%

54.8%

Interest Earning Assets to Total Assets

78.2%

79.8%

77.6%

Average Interest Earning Assets/Average Total Assets

77.7%

79.8%

78.2%

Net Loans to Client Deposits

110.0%

106.6%

105.3%

Average Net Loans to Av. Client Deposits

107.2%

107.2%

111.5%

Net Loans to Total Deposits

99.5%

99.1%

99.8%

Net Loans to (Total Deposits + Equity)

73.6%

74.8%

72.6%

Net Loans to Total Liabilities

68.4%

73.5%

66.8%

Total Deposits to Total Liabilities

68.7%

74.2%

66.9%

Client Deposits to Total Deposits

90.4%

92.9%

94.8%

Client Deposits to Total Liabilities

62.1%

69.0%

63.5%

Total Deposits to Total Assets

55.3%

59.8%

53.5%

Client Deposits to Total Assets

50.0%

55.6%

50.7%

Client Deposits to Total Equity (Times)

                     2.6

                         2.9

                     2.5

Total Equity to Net Loans

35.3%

32.8%

37.6%

Asset Quality:




Reserve For Loan Losses to Gross Loans to Clients27

3.6%

3.8%

3.7%

% of Loans to Clients collateralized

88.4%

86.9%

87.8%

Equity to Average Net Loans to Clients

35.3%

32.8%

37.6%

 

 

KEY RATIOS ALDAGI








ROAA, Annualised

7.4%

6.3%

6.4%

ROAE, Annualised

24.9%

23.9%

23.8%

Loss Ratio28

71.5%

62.4%

68.8%

Combined Ratio29

85.8%

88.6%

82.0%

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO KEY RATIOS

 

1 Return On Average Total Assets (ROAA) equals Profit for the period divided by monthly Average Total Assets for the same period;

2 Return On Average Total Equity (ROAE) equals Profit for the period attributable to shareholders of the Bank divided by monthly Average Equity attributable to shareholders of the Bank for the same period;

3 Net Interest Margin equals Net Interest Income of the period (adjusted for the gains or losses from revaluation of interest rate swaps) divided by monthly Average Interest Earning Assets Excluding Cash for the same period; Interest Earning Assets Excluding Cash include: Amounts Due From Credit Institutions, Debt Investment and Trading Securities and Net Loans To Customers And Net Finance Lease Receivables;

4 Loan Yield equals Interest Income From Loans To Customers And Finance Lease Receivables divided by monthly Average Gross Loans To Customers And Finance Lease Receivables;

5 Cost Of Funds equals Interest Expense of the period (adjusted for the gains or losses from revaluation of interest rate swaps) divided by monthly Average Interest Bearing Liabilities; Interest Bearing Liabilities Include: Amounts Due To Credit Institutions and Amounts Due To Customers;

6 Operating Leverage equals percentage change in Revenue less percentage change in Operating expenses;

7 Cost / Income Ratio equals Operating expenses divided by Revenue;

8 Average liquid assets during the month (as defined by NBG) divided by selected average liabilities and selected average off-balance sheet commitments (both as defined by NBG);

9 Liquid Assets include: Cash And Cash Equivalents, Amounts Due From Credit Institutions, Investment Securities and Trading Securities;

10 Net loans divided by Customer Funds and Amounts Owned to Developmental Financial Institutions

11Leverage (Times) equals Total Liabilities divided by Total Equity;

12 NPL Coverage Ratio equals Allowance For Impairment Of Loans And Finance Lease Receivables divided by NPLs;

13 Cost Of Risk equals Impairment Charge for Loans To Customers And Finance Lease Receivables for the period divided by monthly average Gross Loans To Customers And Finance Lease Receivables over the same period;

14 NPL Coverage Ratio equals Allowance For Impairment Of Loans And Finance Lease Receivables divided by NPLs (Discounted value of collateral is added back to allowance for impairment);

15 BIS Tier I Capital Adequacy Ratio equals Tier I Capital divided by Risk Weighted Assets, both calculated in accordance with the requirements of Basel Accord I;

16 BIS Total Capital Adequacy Ratio equals Total Capital divided by Risk Weighted Assets, both calculated in accordance with the requirements of Basel Accord I;

17 NBG Tier I Capital Adequacy Ratio equals Tier I Capital divided by Risk Weighted Assets, both calculated in accordance with the requirements the National Bank of Georgia;

18 NBG Total Capital Adequacy Ratio equals Total Capital divided by Risk Weighted Assets, both calculated in accordance with the requirements of the National Bank of Georgia;

19 Basic EPS equals Profit for the period attributable to shareholders of the Bank divided by the weighted average number of outstanding ordinary shares, net of treasury shares over the same period;

20 Book Value per share equals Total Equity attributable to shareholders of the Bank divided by Net Ordinary Shares Outstanding at period end; Net Ordinary Shares Outstanding equals total number of Ordinary Shares Outstanding at period end less number of Treasury Shares at period end;

21 Weighted average number of ordinary shares equal average of monthly outstanding number of shares less monthly outstanding number of treasury shares;

22 Weighted average number of diluted ordinary shares equals weighted average number of ordinary shares plus weighted average number of dilutive shares during the same period;

23 Number of outstanding ordinary shares at period end;

24 Number of outstanding ordinary shares at period end less number of treasury shares;

25 Average Interest Earning Assets are calculated on a monthly basis; Interest Earning Assets Excluding Cash include: Amounts Due From Credit Institutions, Debt Investment and Trading Securities and Net Loans To Customers And Net Finance Lease Receivables;

26 Recurring Earning Power equals Operating Income Before Cost of Credit Risk for the period divided by monthly average Total Assets of the same period;

27 Reserve For Loan Losses To Gross Loans equals Allowance For Impairment Of Loans To Customers And Finance Lease Receivables divided by Gross Loans And Finance Lease Receivables;

28 Loss ratio is defined as net insurance claims incurred divided by net insurance premiums earned;

29 Combined ratio is sum of net insurance claims incurred and operating expenses divided by net insurance premiums earned.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal Risk and Uncertainties

 

The following discussion sets forth certain risks and uncertainties that the Group believes are material. If any of the following risks actually occur, the Group's business, financial condition, results of operations or prospects could be materially affected. The risks and uncertainties described below may not be the only ones the Group faces. Additional risks and uncertainties, including those that the Group is currently not aware of or deems immaterial, may also result in decreased revenues, incurred expenses or other events that could result in a decline in the value of the Group's securities.

 

Macroeconomic risks and political risks related to Georgia

 

Difficult global economic conditions have had, and may continue to have, a material adverse effect on the Group

 

The Group conducts its operations mainly in Georgia, where most of its customers and assets are located. Nevertheless, the Group's business and performance are affected by global macroeconomic and market conditions. In 2008, the global economy entered the most severe downturn in 80 years, with the financial services industry facing unprecedented turmoil. A shortage of liquidity, limited availability of funding, pressure on capital, deteriorating asset quality and significant price volatility across a wide range of asset classes put financial institutions, including the Group under considerable pressure. Many developed economies entered into recession and growth slowed in many emerging economies, including Georgia.

 

The financial crisis was accompanied by a number of related developments, including an erosion of confidence in financial institutions, increased currency volatility, increased counterparty risk and the risk of systemic failures. Such circumstances have caused disruptions in financial markets worldwide, leading to liquidity and funding difficulties in the international banking system. Access to capital, the credit markets, foreign direct investment ("FDI") and other forms of liquidity was significantly impaired and the cost of financing for financial institutions increased considerably. As a result, the cost of borrowing in the wholesale debt markets increased for the Group, the debt capital markets were effectively closed or severely restricted to banks in emerging markets and certain international financial institutions owned by national governments, including the EBRD and the IFC, became the principal source of long-term funding for the Group. The financial crisis also had a significant adverse effect on the valuation of assets and the capital position of many financial institutions globally.

 

Although global markets showed signs of improvement in 2010, during 2011 there was turmoil in the European banking system and a deterioration of sovereign credit of a number of European countries including Greece, Ireland, Italy, Spain, Portugal and Cyprus. In addition, during 2012 and in the first half of 2013, there were concerns that these countries may experience "double-dip" or prolonged recessions and economic conditions continued to be volatile. These developments have created an unfavourable environment for the banking sector globally and in Georgia and could have a material adverse effect on the Group's business, financial condition and results of operations.

 

Regional tensions could have an adverse effect on the local economy and the Group

 

Georgia, which is bordered by Russia, Azerbaijan, Armenia and Turkey, could be adversely affected by political unrest within its borders and in surrounding countries. In particular, Georgia has had ongoing disputes in the breakaway regions of Abkhazia and the Tskhinvali Region/South Ossetia and with Russia since the restoration of its independence in 1991. These disputes have led to sporadic violence and breaches of peace-keeping operations. Most recently, in August 2008, the conflict in the Tskhinvali Region/South Ossetia escalated as Georgian troops engaged with local militias and Russian forces that crossed the international border, and Georgia declared a state of war (the "2008 Conflict"). Although Georgia and Russia signed a French-brokered ceasefire that called for the withdrawal of Russian forces later that month, Russia recognised independence of the breakaway regions and Russian troops continue to occupy Abkhazia and the Tskhinvali Region/South Ossetia and tensions continue. In addition, relations between Georgia's neighbours, Azerbaijan and Armenia, remain tense and there are sporadic instances of violence between these two countries. Russia is opposed to the eastward enlargement of the North Atlantic Treaty Organisation, potentially including ex-Soviet republics, such as Georgia. The Georgian government has taken certain steps towards improving relations with Russia, however these have not currently resulted in any formal or legal changes in the relationship between the two countries. Any future deterioration or worsening of Georgia's relationship with Russia, including in relation to border and territorial disputes, any major changes in Georgia's relations with Western governments and institutions (in particular in terms of national security), any changes in Georgia's importance to Western energy supplies, any changes in the amount of aid granted to Georgia or the ability of Georgian manufacturers to access world export markets, or a significant deterioration in relations between Azerbaijan and Armenia, may have a negative effect on the political and economic stability of Georgia, which could have an adverse effect on the Group.

 

 

As most of the Group's businesses operate only within Georgia, the Group's success is dependent on a number of economic, political and other factors affecting Georgia that are beyond its control

 

For the six months ended 30 June 2013, 96.6% of the Group's total consolidated profit was derived from its business in Georgia. Therefore, macroeconomic factors relating to Georgia, such as gross domestic product ("GDP"), inflation, interest and currency exchange rates, as well as unemployment, personal income and the financial condition of companies, have a material impact on loan losses, margins and customer demand for the Group's products and services, which materially affects the Group's business, financial condition and results of operations.

 

Georgia's main economic activities include tourism, transit services, agriculture, mining, metals, machinery and chemicals. The global economic downturn and the 2008 Conflict led to a decline in public spending and Georgia experienced a 57.9% reduction in FDI in 2009, compared to 2008, real GDP in Georgia declined by 3.8% in 2009 compared with growth of real GDP by 2.3% in 2008 (each according to Geostat) due to the global economic crisis, which led to deterioration in the employment market in Georgia and, in turn, contributed to a decrease in loans and a slowdown in the rate of growth of deposits in the Georgian banking sector. In addition, the Georgian banking sector began to experience a shortage of liquidity in the second half of 2008, which continued into the first half of 2009, increasing competition for retail deposits.

 

The economic slowdown in Georgia reduced the growth rate of the Group's portfolio of retail and corporate loans. This in turn affected the Group's net fee and commission income (and, to a certain extent, the Group's net interest income, although net interest income was predominantly affected by a reduction in the size of the Group's securities portfolio). Moreover, financing costs increased due to both the limited availability of funding on the inter-bank market, mainly driven by credit risk aversion, and increasing interest rates on bank deposits resulting from increasing competition in the deposit market, which also had a negative impact on the net interest income earned by the Group. In addition, the quality of the Group's loan portfolio deteriorated as a result of the economic slowdown, which resulted in an increase in the Group's loans past due more than 90 days. NPLs, defined as loans past due more than 90 days and any additional losses estimated by the management declined from GEL 100.9 million at 30 June 2011 to GEL 100.1 million as at 30 June 2012 and then increased to GEL 132.0 million as at 30 June 2013. FDI decreased by 22.6% year-on-year to US$0.9 billion for 2012 compared to 2011, and decreased by 16.0% year-on-year in the first quarter of 2013. The FDI figures published by Geostat for 2012 and the first quarter of 2013 are preliminary. The Georgian economy grew at a healthy rate in 2010, 2011 and 2012 with real GDP growth of 6.3%, 7.2% and 6.1%, respectively. However, the economy started to show signs of slowdown in the first half of 2013, growing just 1.8% according to the preliminary figures. There can be no assurance that the Georgian economy will recover or that it will not undergo a further deterioration.

 

Market turmoil and economic deterioration in Georgia could also have a material adverse effect on the liquidity, businesses or financial condition of the Group's borrowers, which could in turn, increase the Group's NPL ratios, impair its loans and other financial assets and result in decreased demand for the Group's products. In such an environment, consumer spending may decline and the value of assets used as collateral for the Group's secured loans, including real estate, could also decrease significantly which could reduce recoveries on defaulting loans. Any of these conditions could have a material adverse effect on the Group's business, financial condition and results of operations.

 

In addition, the Georgian economy is highly dollarised. Prior to 2008, the dollarisation rate of the banking system (defined as foreign currency deposits as a share of total deposits) had declined with foreign currency deposits accounting for approximately 64.4% of all client deposits as at 1 January 2008. As a result of the combined effects of the 2008 Conflict and the global financial crisis, however, the dollarisation rate increased to approximately 73.6% as at 1 January 2009, although it has since decreased to approximately 68.8% as at 1 January 2010, 67.0% as at 1 January 2011, 59.2% as at 1 January 2012 and increased to 63.8% as at 1 January 2013. As of 1 July 2013, the dollarisation rate decreased to 61.5%. Although the NBG has adopted measures to support the development of Georgia's domestic money markets, the dollarisation rate could adversely impact on the effectiveness of the implementation of the NBG's monetary and exchange rate policies, which could negatively impact the purchasing power of the Lari, restrict future growth in the GDP of Georgia and depress Georgia's investment climate. Any of these effects could, in turn, have a material adverse effect on the Georgian economy and therefore an adverse effect on the Group.

 

Instability or a lack of growth in the domestic currency market may have an adverse effect on the development of Georgia's economy and, in turn, have an adverse effect on the Group

 

Although the Lari is a fully convertible currency, there is generally no market outside Georgia for the exchange of Lari. A market exists within Georgia for the conversion of Lari into other currencies, but it is limited in size. According to the NBG, in 2012, the total volume of trading turnover in the Lari-US dollar and Lari-Euro markets (excluding activities of the NBG) amounted to US$14.4 billion and €5.0 billion, respectively. According to the NBG, the NBG had US$2.8 billion in gross official reserves as at 30 June 2012 and US$3.0 billion as at 30 June 2013. While the Government of Georgia has stated that these reserves will be sufficient to sustain the domestic currency market in the short term, a lack of growth of this currency market may hamper the development of Georgia's economy, which could have a material adverse effect on the businesses of the Group's corporate customers and, in turn, a material adverse effect on the Group.

 

In addition, a lack of stability in the currency market may adversely affect Georgia's economy. There was significant instability in the Lari to US dollar exchange rate following the Russian financial crisis of August 1998 and again following the 2008 Conflict. In November 2008, the NBG devalued the Lari by 16.1%, a measure aimed at alleviating the negative impact of the global financial crisis on the Georgian economy. While the Lari generally appreciated against the US dollar and other major international currencies from 2001 to 2008, the Lari then generally depreciated against the US dollar and other major international currencies until April 2011, since then the exchange rate has remained stable. The Lari/US dollar exchange rate was 1.7728 as at 31 December 2010, 1.6703 as at 31 December 2011, 1.6567 as at 31 December 2012 and 1.6509 as at 30 June 2013. The ability of the Government of Georgia and the NBG to limit any volatility of the Lari will depend on a number of political and economic factors, including the NBG's and the Government's ability to control inflation, the availability of foreign currency reserves and FDI and other currency inflows. Any failure to do so, or a major depreciation or further devaluation of the Lari, could adversely affect Georgia's economy. According to the information provided by Geostat, annual inflation in Georgia, as measured by the end-of-period CPI in Georgia was -1.4% in 2012, 2.0% in 2011 and 11.2% in 2010. Inflation rose in the first half of 2011, reaching 14.3% at 31 May 2011, but then decreased to 2.0% at 31 December 2011. This declining trend continued throughout 2012 with inflation turning into 1.4% deflation at 31 December 2012. As of 30 June 2013, inflation was 0.2%. There is no guarantee that the country will continue to remain unaffected by global increases in food prices. High and sustained inflation could lead to market instability, a financial crisis, a reduction in consumer purchasing power and erosion of consumer confidence. On the other hand, deflation, whilst increasing the purchasing power of the Lari, can adversely affect foreign investment and the Group's profitability in its lending activities. Any of these events could lead to a deterioration in the performance of Georgia's economy and negatively affect the businesses of the Group's customers which could, in turn, have an adverse effect on the Group.

 

Political and governmental instability in Georgia could have a material adverse effect on the local economy and the Group

 

Since the restoration of its independence in 1991, Georgia has experienced an ongoing substantial political transformation from a constituent republic in a federal socialist state to an independent sovereign democracy.

 

At the most recent Georgian Parliamentary elections (which were held on 1 October 2012) the Georgian Dream coalition won the election by a majority of seats. The Georgian Dream coalition is generally seen to be business and investor friendly and to date, has remained committed to major economic and fiscal policies in place that are designed to liberalise the Georgian economy. The Georgian Dream coalition is led by Bidzina Ivanishvili, who was officially approved by the Parliament of Georgia (the "Parliament") as the country's new Prime Minister on 25 October 2012. Although the Georgian Dream Coalition won the 2012 Parliamentary elections and Bidzina Ivanishvili is the Prime Minister and head of government, the leader of the United National Movement Party, Mikheil Saakashvili, is President of Georgia and head of state. Pursuant to the provisions of Georgia's constitution (the "Constitution"), the Georgian President currently has the ability to veto legislation adopted by the Parliament. Georgia faces several challenges, one of which is the need to implement further economic and political reforms. However, there can be no assurance that these business and investor friendly reforms will continue or will not be reversed or that such reforms and economic growth will not be hindered as a result of any changes affecting the continuity or stability of the Georgian Dream coalition government or as a result of a rejection of reform policies by the President, the Parliament or otherwise.

 

Mikheil Saakashvili has served as President of Georgia for two terms, having first been elected in January 2004. The next presidential elections are scheduled to be held on 27 October 2013. However, pursuant to the provisions of the Constitution, President Saakashvili cannot stand for a third term in office and a new President of Georgia will therefore be elected in the forthcoming elections. If a single presidential candidate fails to win over 50% of the votes at the 27 October 2013 elections, the two candidates with the highest votes would compete against each other in a second round election process, which would likely be concluded within two weeks of the first round of elections. Should any protests or criticism arise in relation to the conduct or outcome of the 2013 Presidential election this may lead to political instability or disruption within Georgia.

 

Additionally, on 15 October 2010, the Parliament approved amendments to the Constitution which are intended to enhance the primary governing responsibility of the Parliament, increase the powers of the Prime Minister and reduce the powers of the Presidency. It is currently anticipated that the majority of these amendments to the Constitution will become effective after the 2013 Presidential election. It is also expected that further amendments to the Constitution will be made prior to the 2013 Presidential election. Currently, the State Constitutional Commission of Georgia has started discussions on amendments that are designed to further reduce the powers of the Prime Minister and increase those of the Parliament, as well as decrease the threshold of votes necessary for further amendments to the Constitution. Although in March 2013 the Parliament unanimously adopted certain amendments to the constitution thus limiting the powers of the President, there can be no assurance that changes to Georgian Parliamentary, Presidential or Prime Ministerial powers will not create political disruptions or political instability or otherwise negatively affect the political climate in Georgia.

 

The Georgian Dream coalition government has adopted amendments to the Labour Code, amending, among other things, the maximum working hours, the circumstances under which fixed term employment contracts are permitted, the grounds for terminating employment with cause and the amount of compensation payable for the termination of employment. As a result of such amendments to the Labour Code, the Group may be required to adjust its policies and procedures to comply with the amended requirements.

 

Changes in governmental policy, including changes in the implementation or approach of previously announced government initiatives, could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

 

The Group may experience increases in its income taxes

 

The corporation income tax rate in Georgia is 15%. This tax rate is generally lower than the tax rate applicable to other of the Group's peer companies, particularly those operating in more developed Western countries. Furthermore, by virtue of the Economic Liberty Act passed by Parliament in July 2011 which enters into force on 1 January 2014 subject to certain exceptions, referenda are required to be held before raising taxes and tax rates. However, no assurance can be given that there will not in the future be an increase in corporate income tax in Georgia. Any significant increase in the rate of corporate income tax in Georgia or other changes in taxation policy could have a material adverse effect on the Group's business, financial condition and results of operations.

 

Risks relating to the Group's lending activities

 

The Group may not be able to maintain the quality of its loan portfolio

 

The quality of the Group's loan portfolio is affected by changes in the creditworthiness of its customers, the ability of customers to repay their loans on time, the statutory priority of claims against customers and the Group's ability to enforce its security interests on customers' collateral should such customers fail to repay their loans and whether the value of such collateral is sufficient to cover the full amounts of those loans. In addition, the quality of the Group's loan portfolio may deteriorate due to various other reasons, such as any negative developments in Georgia's economy resulting in the financial distress or bankruptcy of the Group's customers or the unavailability or limited availability of credit information concerning certain customers, and other factors, such as a failure of the Group's risk management procedures or a rapid expansion of the Group's loan portfolio. For example, during 2008 and 2009, the Group's loan book quality was negatively affected by the economic slowdown in Georgia, Ukraine and Belarus, as well as by the 2008 Conflict. The Group's cost of credit risk amounted to GEL 36.3 million in the first half of 2013 compared to GEL 14.0 million in first half of 2012 and GEL 8.3 million in the first half of 2011. Also, as at 30 June 2013, 2012 and 2011, loans past-due more than 90 days accounted for 3.9%, 2.9% and 3.0% of total gross loans, respectively. NPLs accounted for 4.1% of gross loans as at 30 June 2013, 3.3% as at 30 June 2012 and 3.9% as at 30 June 2011. Loans that would otherwise be overdue or impaired whose terms (including as to principal and interest payment) have been renegotiated due to the borrower's existing or possible inability to pay ("Renegotiated Loans") accounted for 3.2% of total gross loans as at 31 December 2012 as compared to 4.4% as at 31 December 2011. For more information regarding the credit quality of Renegotiated Loans, see "The Group's risk management methods may prove ineffective at mitigating credit risk." Although, the Board does not believe that there is a material risk that the Group's loan portfolio quality will deteriorate in the next six months, there can be no assurance that in the longer term the Group's loan portfolio quality will not deteriorate and that the Group's loan impairment charges will not increase, which could, in turn, have an adverse effect on the Group's business, financial condition and results of operations.

 

The Group's loan portfolio for its Corporate Banking segment is concentrated, with the Group's top ten corporate borrowers accounting for 16.2% of the Group's total loan portfolio as at 30 June 2013 (gross of allowance for impairment). To the extent that the Group grows its loan portfolio by entering into additional arrangements with existing counterparties, it will increase its credit and general counterparty risk with respect to those counterparties.

 

Collateral values may decline

 

As at 30 June 2013, the Group held collateral against gross loans (excluding finance lease receivables) amounting to GEL 2,866.1 million, corresponding to 88.4% of the Group's total gross loans. The main forms of collateral taken by the Group in its corporate lending are charges over real estate, equipment, inventory and trade receivables. The main form of collateral taken by the Group in its retail lending is a mortgage over residential property. In respect of mortgage loans which are secured by real estate, the Group imposes a loan-to-value (based on a market value of the collateral) ratio of between 60% and 90% at the time the loan is advanced, depending on the value of the collateral. Downturns in the residential and commercial real estate markets or a general deterioration of economic conditions in the industries in which the Group's customers operate, such as occurred during 2008 and 2009, may result in illiquidity and a decline in the value of the collateral securing the Group's loans, including a decline to levels below the outstanding principal balance of those loans.

In addition, declining or unstable prices of collateral in Georgia may make it difficult for the Group to accurately value collateral held by it. If the fair value of the collateral held by the Group declines significantly in the future, the Group could be required to record additional provisions and could experience lower than expected recovery levels on collateralised loans past due more than 90 days which could, in turn, have a material adverse effect on the Group.

 

Significant changes or volatility in the Group's net interest margin could have an adverse effect on the Group

 

The Group derives the majority of its total net income from net interest income. As a result, the Group's operations are affected by fluctuations in its net interest margin. In particular, the Group's banking operations depend on the management of key factors which affect the Group's net interest margin, such as interest rates, competition for loans and deposits, customer demand and costs of funding. These key factors are influenced by factors beyond the Group's control, such as global and local economic conditions, the resources of the Group's competitors and consumer confidence. Interest rates are highly sensitive to many factors beyond the Group's control, including monetary policies and domestic and international economic and political conditions and the reserve policies of the NBG.

 

A mismatch of interest-earning assets and interest-bearing liabilities in any given period resulting from changes in any of the key factors outlined above, or otherwise, could reduce the Group's net interest margin. The Group's NIM was 7.7%, 8.2% and 7.9% in the six months ended 30 June 2013, 2012 and 2011, respectively. The decrease in the Group's NIM in the first half of 2013 as compared to the first half of 2012 was primarily due to excess liquidity as a result of the slowdown in loan demand in the fourth quarter of 2012 and the first half of 2013 as well as the decline in loan yield from 17.8% in the first half of 2012 to 16.8% in the first half of 2013. Any reduction in the Group's NIM caused by changes in the key factors outlined above otherwise could have a material adverse effect on the Group's net interest income, which could, in turn, have a material adverse effect on the Group.

 

In addition, any increase in interest rates may result in an increase in the installment amounts paid by the Group's customers. Such an increase may result in difficulties related to the repayment of the assumed loans, which in turn may lead to a decrease in the quality of the Group's loan portfolio and an increase in impairment provisions for loans extended to the Group's customers, which could have a material adverse effect on the Group's business, financial condition and results of operations.

 

Currency fluctuations have affected, and may continue to affect, the Group

 

A substantial portion of the total assets of the Group, especially its loan portfolio (66.2% of its gross loans to customers as at 30 June 2013), is denominated in foreign currencies, primarily US dollars, while the majority of customers who have their loans denominated in foreign currencies earn their income in Lari. Those customers are usually not protected against the fluctuations of the exchange rates of the Lari against the currency of the loan. Consequently, any depreciation of the Lari against the currency of the loan may result in difficulties in repayment of the loans, which may lead to a decrease in the quality of the Group's loan portfolio and an increase in impairment provisions for loans extended to the Group's customers, which may have a material adverse effect on the Group's business, financial condition and results of operations.

 

In addition, the Group's operations are affected by the Lari to Belarusian Rouble exchange rates as these affect the value of the Group's equity interests in BNB, its Belarusian subsidiary, on a consolidated basis.

 

Depreciation of the Belarusian Rouble against the Lari has the effect of reducing BNB's contribution to the Group's consolidated capital. As a result of the Belarusian Rouble devaluation in 2011 (178.3% against the US dollar), the regulatory capital of BNB decreased below the minimum regulatory capital required to accept retail deposits (being €25 million, as required by the National Bank of Republic of Belarus). Accordingly, the regulatory capital of BNB decreased to €14.6 million (GEL 31.6 million) as at 31 December 2011. In 2012, the Belarusian Rouble devalued further (2.6% against the US dollar), but remained stable in the first half of 2013. As at 1 January 2013, the regulatory capital of BNB was €17.3 million (GEL 37.8 million). As at 30 June 2013, the regulatory capital of BNB was €19.8 million (GEL 42.8 million). The NBRB has granted a temporary waiver of the minimum regulatory capital requirement until 1 January 2014. The NBRB has also set a limit on the amount of deposits from individuals at GEL 49.5 million (which is the value of deposits from individuals of BNB as at 1 February 2013) until BNB regulatory capital reaches minimum required level of €25 million. As at 31 December 2011, as a result of the devaluation of the Belarusian Rouble, the Group recognised a write down of GEL 23.4 million, representing the full amount of BNB's goodwill.

 

Any subsequent devaluation of the Belarusian Rouble could result in further declines in BNB's regulatory capital. Although the Group seeks to minimise its open foreign currency positions through limits on the Group's foreign currency positions in accordance with NBG regulations and through swap agreements, there can be no assurance that these measures will protect against foreign exchange risks since any additional depreciation of the Belarusian Rouble may lead to further erosion of the Group's equity and pressure on its capital adequacy ratios. The Group is subject to counterparty risk in respect of its swap agreements (including its currency swap agreement with the NBRB), as the Group's counterparties may not honour their obligations under the relevant swap agreement.

 

If the Lari exchange rate against the US dollar or the Belarusian Rouble exchange rate against the Euro fluctuates, or any of the Group's counterparties default on their obligations, this could lead to the Group suffering losses which could, in turn, have a material adverse effect on the Group's business, financial condition and results of operations.

 

The Group's risk management methods may prove ineffective at mitigating credit risk

 

Losses relating to credit risk may arise if the risk management policies, procedures and assessment methods implemented by the Group to mitigate credit risk and to protect against credit losses prove less effective than expected. The Group employs qualitative tools and metrics for managing risk that are based on observed historical market behaviour. These tools and metrics may fail to predict future risk exposures, especially in periods of increased volatility or falling valuations or in periods in which there is a rapid expansion of the Group's loan portfolio. In addition, even though the Group requires regular financial disclosure by its corporate customers', customer financial statements may not always present a complete and accurate picture of each customer's financial condition. Furthermore, some of the Group's corporate customers may not have extensive or externally-verified credit histories, and their accounts may not be audited by a reputable external auditor. Therefore, notwithstanding the Group's credit risk evaluation procedures, the Group may be unable to evaluate effectively the current financial condition of each prospective corporate borrower and to evaluate the ability of such corporate borrower to repay its loans when due. Similarly, the financial condition of some private individuals transacting business with the Group is difficult to assess and predict, as some retail borrowers have no or very limited credit history. Accordingly, the risk management systems employed by the Group may prove insufficient in measuring and managing risks and this may have a material adverse effect on the Group's business, financial condition and results of operations.

 

Additional risks arising principally from the Group's banking activities

 

The Group faces liquidity risk

 

The Group becomes exposed to liquidity risk when the maturities of its assets and liabilities do not coincide. Liquidity risk is inherent in banking operations and can be heightened by a number of factors, including an over-reliance on, or an inability to access, a particular source of funding, changes in credit ratings or market-wide phenomena such as financial market instability and natural disasters. The Group seeks to manage its liquidity risk by, among other things, maintaining a diverse funding base comprising short-term sources of funding (including retail and corporate customer deposits, inter-bank borrowing and borrowing from the NBG) and longer-term sources of funding (including borrowing from international credit institutions, sales and purchases of securities and long-term debt securities). The Group's current liquidity may be affected by unfavourable financial market conditions. If assets held by the Group in order to provide liquidity become illiquid or their value drops substantially, the Group may therefore be required, or may choose, to rely on other sources of funding to finance its operations and expected future growth. However, there is only a limited amount of funding available on the Georgian inter-bank market and the Group's recourse to other funding sources may pose additional risks, including the possibility that other funding sources may be more expensive and less flexible. In addition, the Group's ability to access such external funding sources is directly connected with the level of credit lines available to the Group, and this in turn is dependent on the Group's financial and credit condition, as well as general market liquidity.

 

As at 30 June 2013, 2012 and 2011, 69.2%, 74.5%, and 78.0%, respectively, of the Group's amounts due to customers had maturities of one year or less while 23.5%, 13.2% and 13.2%, respectively, were payable on demand. As at the same dates, the Group's ratio of net loans to amounts due to customers was 109.6%, 102.7%, and 109.5%, respectively. In terms of current and short-term liquidity, the Group is exposed to the risk of unexpected, rapid withdrawal of deposits by its customers in large volumes. Circumstances in which customers are more likely to rapidly withdraw deposits in large volumes include a severe economic downturn, a loss in consumer confidence, an erosion of trust in financial institutions, or a period of social, economic or political instability. By way of example, the Group experienced a higher than usual volume of customer withdrawals in the period following the 2008 Conflict. See "Political and governmental instability in Georgia could have an adverse effect on the local economy and the Group". If a substantial portion of the Group's customers rapidly or unexpectedly withdraw their demand or term deposits or do not roll over their term deposits upon maturity, this could have a material adverse effect on the Group.

 

The Group is subject to certain regulatory ratios

 

The Bank, like all regulated financial institutions in Georgia, is required to comply with certain capital adequacy and regulatory ratios set by the NBG. Although in the past, the Bank's investments to equity and investment plus fixed assets to equity financial ratios have been below the level set by the NBG, the NBG confirmed on 31 December 2009 that it would not impose any sanctions on the Bank as a result and the Bank has been in compliance with both of these financial ratios since February 2011.

 

In December 2010, the Basel Committee on Banking Supervision published the Basel III rules setting out certain changes to capital requirements applicable to banks. Implementation of the new, combined regulation based on Basel II and Basel III takes place at a national level. The NBG is currently in the process of implementing Basel II and Basel III in Georgia. On 17 January 2013, the NBG published a draft regulation for capital adequacy based on Basel II and Basel III, which makes adjustments to certain Basel II and Basel III rules, including those relating to foreign currency additional risk weights, specific measurements and risk estimates. As notified by the NBG, the Group expects the implementation of Basel II and Basel III on 1 January 2014. The NBG is expected to publish an updated implementation schedule in due course. As the implementation of Basel II and Basel III will be subject to the rules that have yet to be adopted in Georgia, the Group cannot predict the impact such rules will have on the Group's overall capital requirements.

 

In addition, BNB is licensed by the NBRB and is required to comply with certain capital adequacy ratios and minimum share capital requirements set by the NBRB. Although BNB has the minimum level of regulatory capital required by NBRB to conduct banking operations in Belarus (the minimum level for this purposes is set at the equivalent of €5 million and, as at 30 June 2013, the regulatory capital of BNB was €19.8 million), BNB has not had the minimum level of regulatory capital required by NBRB in order to hold deposits from individuals (set at the equivalent of €25 million for this purpose) since May 2011. Although BNB has received a temporary waiver effective until 1 January 2014 in respect of this breach, there is no assurance that BNB will be able to comply with the minimum level of regulatory capital required by NBRB by 1 January 2014, or that it will be able to obtain a further waiver from the NBRB thereafter. For further information see "Currency fluctuation have affected, and may continue to affect, the Group". If BNB's level of regulatory capital remains below the minimum level required by the NBRB after the temporary waiver expires and no new waiver is obtained, the NBRB may revoke BNB's license to accept retail deposits. As at 30 June 2013, BNB had GEL 47.7 million in deposits from individuals, representing 1.7% of the Group's total customer deposits and 1.0% of total liabilities.

 

Save for BNB not having the minimum level of regulatory capital required by the NBRB in order to hold retail deposits, the Group is not in breach of any applicable capital adequacy or regulatory ratios and the Board believes that the Group overall has adequate capital for at least the next 12 to 18 months. However, the Group's ability to comply with applicable capital adequacy and regulatory ratios could be affected by a number of factors, some of which are beyond the Group's control, including:

-      an increase of the Bank's risk-weighted assets; - the Group's ability to raise capital;

-      losses resulting from a deterioration in the Group's asset quality, a reduction in income levels, an increase in expenses or a combination of all of the above;

-      a decline in the values of the Group's securities portfolio; - changes in accounting rules or in the guidelines regarding the calculation of the capital adequacy ratios; and

-      increases in minimum capital adequacy ratios imposed by the NBG.

Failure to maintain the minimum capital adequacy and other regulatory ratios may have a material adverse effect on the Group. Moreover, a breach of regulatory requirements relating to the minimum capital adequacy and other regulatory ratios may result in entities in the Group being subject to regulatory or administrative sanctions, which could impact the Group's ability to conduct its business, result in an increase in the operating costs of the Group and loss of reputation which could have a material adverse effect on the Group's financial condition.

 

The Group's businesses are subject to substantial regulation and oversight and future changes in regulation, fiscal or other policies are unpredictable

 

Currently, the Bank is required to comply with Georgian banking regulations. In addition to mandatory capital adequacy ratios, the NBG is authorised to set lending limits and other economic ratios in Georgia, with which the Bank is required to comply. Under Georgian banking regulations, the Bank is required to, among other things, comply with minimum reserve requirements and mandatory financial ratios and file periodic reports. In addition to its banking operations, the Group also provides other regulated financial services and offers financing products, including brokerage and pension fund operations, as well as insurance and healthcare products through its insurance and healthcare subsidiary and services that are subject to governmental supervision. In addition, the Group may become subject to additional rules and regulations at a national, international or supranational level, which may impact the Group's operations. Additionally, the business, financial condition and results of operations of the Group's activities in Belarus are affected by legal regulations, instructions and recommendations, including those issued by the NBRB and the NBG, including those which seek to implement Basel III into national law. See "The Group is subject to certain regulatory ratios".

 

In July 2013, the Parliament considered the enactment of a law which, among other things, sought to establish a moratorium on enforcement measures over the residential properties owned by individuals which are secured as collateral in financing transactions. The Government of Georgia, as well as business sector criticised and opposed such initiative. After significant negotiation, the Parliament has postponed further consideration of the law until September 2013. Many members of the Parliament, as well as the Government have indicated that if the law is adopted at all, it shall not restrict enforcement actions in respect of residential properties pledged as collateral in favour of commercial banks and microfinance organizations. However, there is no assurance that if the above mentioned law is adopted, it will not affect the enforcement actions by the banks and microfinance organizations, or that the Parliament will not, in the future, enact laws or regulations which may restrict the ability of the Group to enforce security granted by its customers or otherwise impair the value of such collateral.   

 

In addition, the Georgian Dream coalition government is also in the process of preparing and finalising a range of new initiatives, including anti-monopoly regulations and changes to the regulation of the healthcare sector. Certain of the Government's proposals, including the proposal to establish a state insurance company to provide basic insurance package for every Georgian citizen, could have a material impact on the business and results of operations of the Group's insurance subsidiary, Aldagi. For further details, see "Risks affecting the Group's non-banking activities - The Group's insurance subsidiary, Aldagi, is subject to the risks inherent in the insurance industry" below.

 

Future changes in regulation, fiscal or other policies are unpredictable and there is often a delay between the announcement of a change and the publication of detailed rules relating to such change. For example, the NBG has indicated that it is considering introducing a new liquidity framework in Georgia but has yet to confirm the details or timing for the implementation of such liquidity framework. There can be no assurance that the current regulatory environment in which the Group operates will not be subject to significant change in the future, including change as a result of a change in government in Georgia or Belarus, or that the Group will be able to comply with any or all resulting regulations. See "Political and governmental stability in Georgia could have an adverse effect on the local economy and the Group".

 

The Group is subject to operational risk inherent in its business activities

 

The Group is subject to the risk of incurring losses or undue costs due to the inadequacies or failure of internal processes or systems or human error, or from errors made during the execution or performance of operations, clerical or record-keeping errors, business disruptions (caused by various factors such as software or hardware failures and communication breakdowns), failure to execute outsourced activities, criminal activities (including credit fraud and electronic crimes), unauthorised transactions, robbery and damage to assets.

 

Although the Board believes that the Group's risk management policies and procedures (which are designed to identify and analyse relevant risks to the Group's business, prescribe appropriate limits to various risk areas and monitor the level and incidence of such risks on an on-going basis) are adequate and that the Group is currently in compliance in all material respects with all laws, standards and recommendations applicable to the Group, any failure of the Group's risk management system to detect unidentified or unanticipated risks, or to correct operational risks, or any failure of third parties adequately to perform outsourced activities could have a material adverse effect on the Group's business, financial condition and results of operations.

 

Risks affecting the Group's non-banking activities

 

The Group's insurance subsidiary, Aldagi, is subject to the risks inherent in the insurance industry.

 

Aldagi, operates in the property and casualty, life and health insurance industry. In the ordinary course of business, Aldagi  seeks to reduce losses that may arise from catastrophes or other events through reinsurance. Under such reinsurance arrangements, reinsurers assume a portion of the losses and related expenses, however, Aldagi remains liable as the direct insurer on all risks reinsured. Consequently, ceded reinsurance arrangements do not eliminate Aldagi's obligation to pay under its insurance policy for losses insured, which could cause a material increase in Aldagi's liabilities and a reduction in its profitability. Moreover, Aldagi is subject to its reinsurers' credit risk and solvency and their willingness to make payments under the terms of reinsurance arrangements with respect to its ability to recover amounts due from them.

 

Although Aldagi adheres to strict reinsurance policies and periodically evaluates the financial condition of its reinsurers to minimise its exposure to significant losses from reinsurer insolvencies, reinsurers may become financially unsound by the time their financial obligations become due. The inability of any reinsurer to meet its financial obligations to Aldagi could negatively impact Aldagi's financial condition and results of operations. In addition, the availability, amount and cost of reinsurance depend on general market conditions which may fluctuate. Reinsurance may not be available to Aldagi at commercially reasonable rates, or at all, and any decrease in the amount of Aldagi's reinsurance will increase its risk of loss.

 

In accordance with industry practices and accounting regulatory requirements, Aldagi establishes reserves for reported claims, incurred but not reported claims and unearned premiums. Reserves do not represent an exact calculation of liability, but instead represent estimates of what the ultimate settlement and administration of claims will cost based on an assessment of facts and circumstances then known, review of historical settlement patterns, estimates of trends in claims severity, frequency of claims, legal theories of liability and other factors. There can be no assurance that actual claims will not materially exceed its claims reserves and have a material effect on its financial condition and results of operations.

 

The Government of Georgia is currently in the process of preparing and finalising a range of new initiatives on the regulation of the healthcare sector in Georgia. In particular, under the state-funded Universal Health Care Programme, the Government of Georgia has announced an intention to establish a state insurance company to provide basic insurance package for every Georgian citizen who is not already covered by private insurance. The Group's insurance subsidiary, Aldagi, currently provides Government-funded insurance coverage to certain groups such as the socially vulnerable, pensioners, students and children. The establishment of a state insurance company to provide such insurance coverage could lead to a material reduction in the Government-funded insurance policies that Aldagi provides thereby materially reducing the revenues of Aldagi and Aldagi's ability to acquire new insurance customers.

The Group's real estate subsidiary, m2 Real Estate, is subject to the risks of developing and selling real estate

 

The Group's real estate subsidiary m2 Real Estate, is primarily engaged in developing affordable residential properties for sale and rent. Real estate property investments are subject to varying degrees of risk which affect the level of income from the value of properties including:

 

-      changes in the Georgian economic climate;

-      local conditions such as a surplus of similar properties or a reduction in demand for the property;

-      the attractiveness of the property to tenants and purchasers;

-      laws, governmental regulations, including environmental regulation, tax laws and insurance; and

-      acts of nature, such as earthquakes, floods and other extreme weather events that may damage the property.

In addition, m2 Real Estate's projects are subject to the general risks associated with construction and development, including:

-      cost overruns due to increased material, labour or other costs, which could make completion of the project unprofitable;

-      the inability to obtain, or delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorisations, which could result in increased costs and could require m2 Real Estate to abandon a project entirely; and

-      m2 Real Estate may be unable to complete construction and leasing of a property on schedule.

Any of these factors could have a material adverse effect on the financial condition and operating results of m2 Real Estate which may have an adverse effect on the Group's financial condition and results of operations.

 

Other risks affecting the Group

 

The Group may not successfully implement its strategy

 

The Group aims to achieve long-term sustainable growth and profitability through a secure, modern and universal banking model, as well as to maintain and enhance its leading market position in Georgia. In addition, the Group's strategy is to diversify its business through the addition of businesses and services that have strong synergies with its banking operations. Furthermore, the Bank is concentrating on the Georgian market and the Bank's subsidiary, Joint Stock Company BG Capital ("BG Capital"), has exited from its brokerage operations in Ukraine and Belarus. In addition, the Group intends to exit from its other non-core operations, including through the sale of Liberty Consumer and its interest in BNB. In addition, from time to time, the Group may seek to pursue selective acquisitions in Georgia.

 

There can be no assurance that the Group will be able to achieve its major strategic objectives, including in respect of its synergistic businesses, such as insurance and healthcare, which may be affected by market conditions, potential legal and regulatory impediments and other factors, or that it will be able to exit from its non-core operations at a satisfactory price, or at all. Any failure by the Group to achieve its strategic objectives could have a material adverse impact on the Group's reputation, business, financial condition and results of operations.

 

The Group faces competition

 

In recent years the Georgian banking sector has become increasingly competitive. According to the NBG, as at June 2013 there were 20 commercial banks, of which 18 are foreign controlled. The Group competes with a number of these banks, including TBC Bank, ProCredit Bank, Bank Republic and VTB Georgia. In particular, as ProCredit Bank has a large market share in respect of SME and micro finance loans, the Group faces competition from ProCredit Bank in relation to SME and micro financing in Georgia. TBC Bank and Bank Republic are the Bank's principal competitors in the corporate sector. In addition, both the mortgage market and the market for the provision of financial services to high net worth individuals are highly competitive in Georgia, with some competitors in the mortgage market implementing aggressive pricing policies in order to retain or build their market share. Additionally, in Belarus, the Group competes with a wide range of local (including state-owned) and international banks.

 

There can be no assurance that the current regulatory environment in which the Group operates in respect of competition and anti-monopoly matters will not be subject to significant change in the future. Anti-monopoly matters with respect to banking services sector are currently handled by the NBG. However, as part of the Georgian Government's anti-monopoly policies, it may, in the future, seek to legislate or regulate competition and anti-monopoly matters in the Georgian banking industry and as part of any such changes, it is possible that anti-monopoly regulation could be enforced by a governmental agency other than the NBG. The Group cannot predict whether Parliament will seek to do this, or if they did, what such laws or regulations would be. In addition, the Group cannot predict whether it would be able to comply with any or all such laws or regulations.

 

In addition, although there are currently no anti-monopoly regulations in Georgia that establish market share limits, there can be no assurance that such anti-monopoly limitations will not be introduced in Georgia in the future. Given the current high market share maintained by the Group, the introduction of any anti-monopoly restrictions may have an effect on the growth rates of the Group, restrict the Group's ability to make future acquisitions, or lead to the Group being compulsorily required to sell some of its assets or exit or reduce business areas.

 

Increased competition may have a negative impact on the Group's ability to sustain its margin and fee levels, particularly if the Group's competitors possess greater financial resources (especially in the case of banks with foreign capital investment or banks which are branches or subsidiaries of non-resident foreign banks, by way of access to funding from foreign capital or their parent entity), access to lower-cost funding and a broader offering of products than the Group, or if the Group's competitors merged to significantly enhance their financial resources, access to funding and product offerings. Unlike most of its competitors, the Group has a relatively wide shareholder base and does not have an international financial institution as a majority shareholder. In 2008 and 2009, the Group's financing costs increased (which in turn had a negative impact on the net interest income earned by the Group) due to, among other things, increasing interest rates on bank deposits resulting from increasing competition in the deposit market. In addition, increasing competition could lead to significant pressure on the Group's market share. Increasing competition in the banking industry has already led to and may, in the future, continue to lead to increased pricing pressures on the Group's products and services, which could have a material adverse effect on the Group's business financial condition and results of operations.

 

The Group depends on its key management and qualified personnel

 

The Group's current senior management team includes a number of persons that the Board believes contribute significant experience and expertise in the banking and other industries in which the Group operates. The Group's ability to continue to retain, motivate and attract qualified and experienced banking and management personnel is vital to the Group's business. There can be no assurance that the Group will be able to successfully recruit and retain the necessary qualified personnel. The loss or diminution in the services of members of the Group's senior management team or an inability to recruit, train or retain necessary personnel could have a material adverse effect on the Group.

 

The Group's insurance policies may not cover, or fully cover, certain types of losses

 

The Group generally maintains insurance policies covering its assets, operations and certain employees in line with general business practices in Georgia. The Group seeks to insure against a range of risks including fire, lightning, flooding, theft, vandalism and third-party liability. The Group also maintains Bankers' Blanket Bond and directors' and officers' liability insurance. However, there can be no assurance that all types of potential losses are insured or that policy limits would be adequate to cover them. Any uninsured loss or a loss in excess of insured limits could adversely affect the Group's existing operations and could have an adverse effect on the Group's financial condition and results of operations.

 

The Group faces certain risks associated with conducting international operations

 

The Group has historically made investments in Ukraine and Belarus. The Group's financial results in 2009 were adversely affected by a goodwill write-down in the amount of GEL 73.1 million, predominantly due to the write-off of the entire goodwill associated with BG Bank, as a result of a weak economic environment in Ukraine and high loan and finance lease receivables impairment charges in respect of BG Bank in 2008 and 2009. In February 2011, the Group disposed of its 80% interest in BG Bank. The Group's financial results in 2011 were adversely affected by a goodwill write down in the amount of GEL 23.4 million, due to the write off of the entire goodwill associated with BNB, as a result of a material devaluation of the Belarusian Rouble. For further information, see "Currency fluctuations have affected and may continue to affect the Group".

 

As part of its revised strategy to concentrate on the Georgian market the Group disposed of an 80% equity interest in BG Bank (in respect of which the remaining GEL 7.6 million (US$4.6 million)) installment of the purchase price has been fully provisioned and written off as of 31 December 2012. The Group will continue to seek to exit from its international operations (including its interest in BG Bank and, in due course, BNB) at an appropriate time. While it holds these assets, the Group will continue to be subject to risks relating to these operations including certain political and economic risks, compliance risks and foreign currency exchange risks, as well as the risk of failure to market adequately to potential customers in other countries. Any failure to manage such risks may cause the Group to incur increased liabilities which could have a material adverse effect on the Group's business, financial condition and results of operations.

 

If the Group fails to comply with any applicable regulations relating to, or the Group is associated with, money laundering or terrorist financing, this could have an adverse effect on the Group

 

The Group has implemented comprehensive anti-money laundering ("AML"), "know-your-customer", "know your corresponding bank" and "know your employee" policies and is in the process of implementing such policies throughout its financial subsidiaries (including insurance and brokerage subsidiaries). Compliance with these policies is monitored by the Group's AML Compliance Department and the Group seeks to adhere to all requirements under applicable legislation in relation to money laundering. However, there can be no assurance that these measures will be effective. If the Group fails to comply with timely reporting requirements or other AML regulations or is associated with money laundering or terrorist financing, this could have a material adverse effect on the Group's business, financial condition and results of operations. In addition, involvement in such activities may carry criminal or regulatory fines and sanctions.

 

The uncertainties of the judicial system in Georgia, or any arbitrary or discriminatory state action taken in Georgia in the future, may have a material adverse effect on the local economy, which could and in turn, have an adverse effect on the Group

 

Georgia is still developing an adequate legal framework required for the proper functioning of a market economy. For example, in Georgia, several fundamental civil, criminal, tax, administrative and commercial laws have only recently become effective. The recent nature of much of Georgian legislation and the rapid evolution of the Georgian legal system place the quality and the enforceability of laws in doubt and result in ambiguities and inconsistencies in their application.

In addition, the court system in Georgia is understaffed and has been undergoing significant reforms. Judges and courts in Georgia are generally less experienced in the area of business and corporate law than is the case in certain other countries, particularly in Europe and the United States. Most court decisions are not easily available to the general public, and enforcement of court judgments may, in practice, be difficult in Georgia. The uncertainties of the Georgian judicial system could have a negative effect on the Georgian economy, could have a material adverse effect on the Group's business, financial condition and results of operations. In addition, to varying degrees, the same uncertainties of the judicial system in Georgia as discussed above apply to Belarus.

 

Uncertainties in the tax system in Georgia may result in the Group facing tax adjustments or fines in the future and there may be changes in current tax laws and policies

 

In Georgia, tax laws have not been in force for significant periods of time compared to more developed market economies, and often result in unclear or non-existent implementing regulations. Moreover, such tax laws are subject to frequent changes and amendments, which can result in unusual complexities for the Group and its business generally. A new Tax Code was adopted in Georgia on 17 September 2010 and came into effect on 1 January 2011. Differing opinions regarding the interpretation of various provisions exist both among and within governmental ministries and organisations, including the tax authorities, creating uncertainties, inconsistencies and areas of conflict. While the new Tax Code provides for the Georgian tax authorities to provide advance tax rulings on tax issues raised, thereby reducing the uncertainty regarding interpretation, it is possible that the relevant authorities could take differing positions with regard to interpretative issues, which may result in the Group facing tax adjustments or fines. In addition, there can be no assurance that the current tax laws or government tax policies will not be subject to change in the future, including any changes introduced as a result of a change of government. See "Political and governmental instability in Georgia could have an adverse effect on the local economy and the Group". Such changes could include the introduction of new taxes, an increase in the tax rates applicable to the Group or its customers or the introduction of a bank levy. Any such changes in the tax laws or governmental tax policies may have a material adverse effect on the Group. In addition, to varying degrees, the same uncertainties of the tax system in Georgia apply to Belarus.

 

There are additional risks associated with investing in emerging markets such as Georgia

 

Emerging markets may have higher volatility, limited liquidity, a narrower export base and are subject to more frequent changes in the political, economic, social, legal and regulatory environment than more mature markets. Emerging economies are subject to rapid change and are particularly vulnerable to market conditions and economic downturns elsewhere in the world.

 

In addition, international investors' reactions to events occurring in one emerging market country or region sometimes appear to demonstrate a contagion effect, in which an entire region or class of investment is disfavoured by investors. If such a contagion effect occurs, Georgia could be adversely affected by negative economic or financial developments in other emerging market countries. Georgia has been adversely affected by contagion effects in the past, including following the 1998 Russian financial crisis and the more recent global financial crisis. No assurance can be given that it will not be affected by similar effects in the future.

 

Financial or political instability in emerging markets also tends to have a material adverse effect on the capital markets of emerging economies and the wider economy as investors generally move their money to more developed markets, which may be considered to be more stable. These risks may be compounded by incomplete, unreliable, unavailable or untimely economic and statistical data on Georgia.

 

 

 

 

 

  

RESPONSIBILITY STATEMENTS

 

We confirm that to the best of our knowledge:

 

·      The interim condensed consolidated financial statements have been

prepared in accordance with International Accounting Standard

(IAS) 34 "Interim Financial Reporting", as adopted by the European Union;

 

·      The Interim Report 2013 includes a fair review of the information required by

Disclosure and Transparency Rule 4.2.7R (indication of important events during

the first six months and description of principal risks and uncertainties for the

remaining six months of the year); and

 

·      The Interim Report 2013 includes fair review of the information required by

Disclosure and Transparency Rule 4.2.8R (disclosure of related parties'

transactions and changes therein).

 

By order of the board

 

Neil Janin                             Irakli Gilauri

 

Chairman                               Chief Executive

 

13 August 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

 

REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Interim condensed consolidated statement of financial position

Interim condensed consolidated income statement

Interim condensed consolidated statement of comprehensive income

Interim condensed consolidated statement of changes in equity

Interim condensed consolidated statement of cash flows

 

SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.      Principal Activities

2.      Basis of Preparation

3.      Summary of Selected Significant Accounting Policie

4.      Segment Information

5.      Cash and Cash Equivalents

6.      Amounts Due from Credit Institutions

7.      Investment Securities Available-for-sale

8.      Loans to Customers

9.      Investment Properties

10.    Amounts Due to Customers

11.    Amounts Due to Credit Institutions

12.    Equity

13.    Commitments and Contingencies

14.    Net Fee and Commission Income

15.    Impairment Charge on Other Assets and Provisions

16.    Financial Instruments

17.    Maturity Analysis of Financial Assets and Liabilities

18.    Related Party Disclosures

19.    Capital Adequacy

 


INDEPENDENT REVIEW REPORT TO BANK OF GEORGIA HOLDINGS PLC

 

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows and related notes 1 to 19. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

Ernst & Young LLP

London

13 August 2013


INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As At 30 June 2013

(Thousands of Georgian Lari)

 

 

 

 

 

 


As at


Notes

30 June

2013

31 December

2012



Unaudited


Assets




Cash and cash equivalents

5

547,404

762,827

Amounts due from credit institutions

6

326,537

396,559

Investment securities available-for-sale

7

644,237

463,960

Loans to customers

8

3,095,684

3,020,634

Finance lease receivables


27,232

71,686

Investments in associates


-

2,441

Investment properties

9

169,722

160,353

Property and equipment


447,205

430,877

Intangible assets


24,039

23,078

Goodwill


45,657

45,657

Current income tax assets


1,707

944

Deferred income tax assets


14,234

14,352

Prepayments


30,205

41,147

Other assets


297,831

221,080

Total assets


5,671,694

5,655,595





Liabilities




Amounts due to customers

10

2,850,234

2,693,025

Amounts due to credit institutions

11

1,475,686

1,657,162

Current income tax liabilities


6,242

13,818

Deferred income tax liabilities 


51,169

46,184

Provisions


483

683

Other liabilities


184,975

185,211

Total liabilities


4,568,789

4,596,083





Equity

12



Share capital


903

957

Additional paid-in capital


19,645

14,767

Treasury shares


(50)

(69)

Other reserves


39,209

14,097

Retained earnings


988,885

981,322

Total equity attributable to shareholders of the Group


1,048,592

1,011,074

Non-controlling interests


54,313

48,438

Total equity


1,102,905

1,059,512



 

 

Total liabilities and equity


5,671,694

5,655,595

 

 

 

Signed and authorised for release on behalf of the Board of Directors of the Group:

 

Irakli Gilauri                                                                                                                                           Chief Executive Officer

 

13 August 2013


INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2013

(Thousands of Georgian Lari)



For the six months ended

30 June


Notes

2013

2012



Unaudited

Unaudited

Interest income




Loans to customers


260,047

244,965

Investment securities - available-for-sale


17,642

17,806

Amounts due from credit institutions


4,945

9,624

Finance lease receivables


3,208

4,133



285,842

276,528

Interest expense




Amounts due to customers


(85,538)

(103,765)

Amounts due to credit institutions


(49,625)

(34,047)

   


(135,163)

(137,812)

Net interest income before net losses from interest rate swaps


150,679

138,716





Net losses from interest rate swaps


(185)

(1,053)



 

 

Net interest income


150,494

137,663





Fee and commission income


54,898

51,477

Fee and commission expense


(12,622)

(9,944)

Net fee and commission income

14

42,276

41,533





Net insurance premiums earned


64,289

32,383

Net insurance claims incurred


(41,565)

(20,426)

Net insurance revenue


22,724

11,957





Healthcare revenue


27,489

22,587

Cost of healthcare services


(18,498)

(13,391)

Net healthcare revenue


8,991

9,196





Revenue from sale of goods


16,564

11,785

Cost of sales


(11,486)

(6,425)

Net revenue from sale of goods


5,078

5,360





Net gains from trading securities and investment securities available-for-sale


2,590

953

Net gains from revaluation of investment properties


4,842

-

Net gains from foreign currencies:




- dealing


21,134

17,187

- translation differences


543

9,004

Other operating income


4,004

6,132

Other operating non-interest income


33,113

33,276





Revenue


262,676

238,985





Salaries and other employee benefits


(65,077)

(57,829)

General and administrative expenses


(29,764)

(33,762)

Depreciation and amortization


(13,339)

(13,919)

Other operating expenses


(1,441)

(3,554)

Operating expenses


(109,621)

(109,064)





Operating income before cost of credit risk


153,055

129,921






INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (CONTINUED)

For the six months ended 30 June 2013

(Thousands of Georgian Lari)



For the six months ended

30 June


Notes

2013

2012



Unaudited

Unaudited





Operating income before cost of credit risk


153,055

129,921





Impairment charge on loans to customers


(20,271)

(13,001)

Impairment charge on finance lease receivables


(2,704)

(241)

Impairment charge on other assets and provisions

15

(13,286)

(705)

Cost of credit risk


(36,261)

(13,947)





Net operating income


116,794

115,974





Net non-operating expenses


(5,453)

(12,393)





Profit before income tax expense


111,341

103,581





Income tax expenses


(16,239)

(17,542)





Profit for the period


95,102

86,039





Attributable to:




- shareholders of the Group


91,735

84,212

- non-controlling interests


3,367

1,827



95,102

86,039





Earnings per share:

12



- basic earnings per share


2.6956

2.5668

- diluted earnings per share


2.6956

2.5196

 


INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2013

(Thousands of Georgian Lari)

 


For the six months ended

30 June


2013

2012


Unaudited

Unaudited

Profit for the period

95,102

86,039




Other comprehensive income to be reclassified to profit or loss in subsequent periods:



 - Revaluation of investment securities available-for-sale

2,544

(195)

 - Realised gain on investment securities available-for-sale reclassified to the consolidated income statement

(2,514)

(844)

 - Loss from currency translation differences

(12,186)

(5,607)

Income tax benefit relating to components of other comprehensive income

1,919

830

Net other comprehensive income to be reclassified to profit or

loss in subsequent periods

(10,237)

(5,816)




Total comprehensive income for the period

84,865

80,223




Attributable to:



                - shareholders of the Group

82,097

78,898

                - non-controlling interests

2,768

1,325


84,865

80,223

 

 

 


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2013

(Thousands of Georgian Lari)



Attributable to shareholders of the Group

Non-controlling interests

Total equity


Share capital

Additional paid-in capital

Treasury shares

Other reserves

Retained earnings

Total










31 December 2011

32,878

473,732

(3,146)

14,478

254,588

772,530

40,073

812,603

Total comprehensive income (loss) for the six months ended 30 June 2012 (unaudited)

-

-

-

(2,093)

80,991

78,898

1,325

80,223

Depreciation of revaluation reserve, net of tax

-

-

-

(297)

297

-

-

-

Increase in share capital arising from share-based payments

-

24,108

602

-

-

24,710

-

24,710

Issue of share capital (Note 12)

3,635

70,313

-

-

-

73,948

-

73,948

Conversion of shares following the Tender Offer (Note 12)

(35,570)

23,983

2,507

(497)

(4,589)

(14,166)

14,166

-

Effect of translation of equity components to presentation currency (Note 12)

(21)

(5,833)

(1)

-

6,169

314

(314)

-

Transactions costs recognised directly in equity

-

(3,325)

-

-

-

(3,325)

-

(3,325)

Dividends to shareholders of the Group (Note 12)

-

-

-

-

(23,618)

(23,618)

-

(23,618)

Acquisition of additional interest in existing subsidiary by non-controlling shareholders

-

-

-

-

-

-

749

749

Acquisition of non-controlling interests in existing subsidiaries

-

-

-

(83)

3,707

3,624

(11,156)

(7,532)

Non-controlling interests arising on acquisition of subsidiary

-

-

-

-

-

-

254

254

Sale of treasury shares

-

89

5

-

-

94

-

94

Purchase of treasury shares

-

(679)

(33)

-

-

(712)

-

(712)

Reduction of capital (Note 12)

-

(582,388 )

-

-

582,388

-

-

-

30 June 2012 (unaudited)

922

-

(66)

11,508

899,933

912,297

45,097

957,394




















 

 

 

 

 

 

 

 

31 December 2012

957

14,767

(69)

14,097

981,322

1,011,074

48,438

1,059,512

Total comprehensive income for the six months ended 30 June 2013 (unaudited)

-

-

-

25,441

56,656

82,097

2,768

84,865

Depreciation of revaluation reserve, net of tax

-

-

-

(267)

267

-

-

-

Increase in share capital arising from share-based payments

-

9,708

19

-

-

9,727

-

9,727

Effect of translation of equity components to presentation currency (Note 12)

(54)

-

3

(72)

123

-

-

-

Dividends to shareholders of the Group (Note 12)

-

-

-

-

(49,483)

(49,483)

-

(49,483)

Dilution of interests in subsidiaries, through issuance of new shares

-

-

-

-

-

-

150

150

Acquisition of non-controlling interests in existing subsidiaries

-

-

-

10

-

10

2,957

2,967

Purchase of treasury shares

-

(4,830)

(3)

-

-

(4,833)

-

(4,833)

30 June 2013 (unaudited)

903

19,645

(50)

39,209

988,885

1,048,592

54,313

1,102,905


INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2012

(Thousands of Georgian Lari)

 



For the six months ended 30 June


Notes

2013

2012



Unaudited

Unaudited

Cash flows from (used in) operating activities




Interest received


276,486

267,803

Interest paid


(131,716)

(130,405)

Fees and commissions received


54,898

51,477

Fees and commissions paid


(12,622)

(9,944)

Insurance premiums received


64,289

32,383

Insurance claims paid


(41,565)

(20,426)

Healthcare revenue received


27,489

22,587

Cost of healthcare services paid


(18,498)

(13,391)

Revenue received from sale of goods


16,564

11,785

Cost of sales of goods


(11,486)

(6,425)

Net realised gains from trading securities


76

109

Net realised gains from investment securities available-for-sale


2,514

844

Net realised gains from foreign currencies


21,134

17,187

Recoveries of previously written off loans to customers and finance lease receivables


17,033

16,028

Other operating expense paid


(515)

(3,573)

Salaries and other employee benefits paid


(62,773)

(61,247)

General and administrative expenses paid


(38,798)

(41,347)

Cash flows from operating activities before changes in operating
assets and liabilities


162,510

133,445





Net (increase) decrease in operating assets




Amounts due from credit institutions


69,869

(45,626)

Loans to customers


(131,045)

(360,192)

Finance lease receivables


(517)

(3,342)

Prepayments and other assets


(22,362)

(19,304)





Net increase (decrease) in operating liabilities




Amounts due to credit institutions


(181,579)

(3,737)

Amounts due to customers


153,680

101,668

Other liabilities


7,512

(18,132)

Net cash flows from operating activities before income tax


58,068

(215,220)





Income tax paid


(16,624)