TIDMBGEO
RNS Number : 8327M
Bank of Georgia Group PLC
14 May 2020
Bank of Georgia
Group PLC
1(st) quarter 2020 results
Name of authorised official of issuer responsible for making
notification:
Natia Kalandarishvili, Head of Investor Relations and
Funding
www.bankofgeorgiagroup.com
ABOUT BANK OF GEORGIA GROUP PLC
The Group: Bank of Georgia Group PLC ("Bank of Georgia Group" or
the "Group" - LSE: BGEO LN) is a UK incorporated holding company,
which comprises: a) retail banking and payment services; and b)
corporate and investment banking and wealth management operations
in Georgia; and c) banking operations in Belarus ("BNB"). JSC Bank
of Georgia ("Bank of Georgia", "BOG" or the "Bank"), the leading
universal bank in Georgia, is the core entity of the Group. In the
medium to long-term, the Group targets to benefit from superior
growth of the Georgian economy through both its retail banking and
corporate and investment banking services and aims to deliver on
its strategy, which is based on at least 20% ROAE and c.15% growth
of its loan book.
1Q20 RESULTS CONFERENCE CALL DETAILS
Bank of Georgia Group PLC announces the Group's consolidated
financial results for the first quarter of 2020. Unless otherwise
noted, numbers in this announcement are for 1Q20 and comparisons
are with 1Q19. The results are based on International Financial
Reporting Standards ("IFRS") as adopted by the European Union, are
unaudited and derived from management accounts. This results
announcement is also available on the Group's website at
www.bankofgeorgiagroup.com .
An investor/analyst conference call, organised by the Bank of
Georgia Group, will be held on 14 May 2020, at 14:00 UK / 15 :00
CEST / 09 :00 U.S Eastern Time .
Dial-in numbers: 30-Day replay:
Pass code for replays/Conference Pass code for replays / Conference
ID: 2134259 ID: 2134259
International Dial-in: +44 (0) International Dial in: +44 (0)
2071 928000 3333009785
UK: 08445718892 UK Local Dial In: 08445718951
US: 16315107495 UK Free Call Dial In: 08082380667
Austria: 019286559 USA Free Call Dial In: 1 (866)
Belgium: 024009874 331-1332
Czech Republic: 228881424
Denmark: 32728042
Finland: 0942450806
France: 0176700794
Germany: 06924437351
Hungary: 0614088064
Ireland: 014319615
Italy: 0687502026
Luxembourg: 27860515
Netherlands: 0207143545
Norway: 23960264
Spain: 914146280
Sweden: 0850692180
Switzerland: 0315800059
CONTENTS
4 1Q20 results highlights
6 Chief Executive Officer's statement
9 Discussion of results
14 Discussion of segment results
14 Retail Banking
18 Corporate and Investment Banking
21 Response to COVID-19 pandemic outbreak
25 Selected financial and operating information
29 Glossary
30 Company information
FORWARD LOOKING STATEMENTS
This announcement contains forward-looking statements,
including, but not limited to, statements concerning expectations,
projections, objectives, targets, goals, strategies, future events,
future revenues or performance, capital expenditures, financing
needs, plans or intentions relating to acquisitions, competitive
strengths and weaknesses, plans or goals relating to financial
position and future operations and development. Although Bank of
Georgia Group PLC believes that the expectations and opinions
reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations and opinions will
prove to have been correct. By their nature, these forward-looking
statements are subject to a number of known and unknown risks,
uncertainties and contingencies, and actual results and events
could differ materially from those currently being anticipated as
reflected in such statements. Important factors that could cause
actual results to differ materially from those expressed or implied
in forward-looking statements, certain of which are beyond our
control, include, among other things: macroeconomic risk, including
currency fluctuations and depreciation of the Georgian Lari; impact
of COVID-19; regional instability; loan portfolio quality;
regulatory risk; liquidity risk; operational risk, cyber security,
information systems and financial crime risk; and other key factors
that indicated could adversely affect our business and financial
performance, which are contained elsewhere in this document and in
our past and future filings and reports of the Group, including the
'Principal risks and uncertainties' included in Bank of Georgia
Group PLC's Annual Report and Accounts 2019. No part of this
document constitutes, or shall be taken to constitute, an
invitation or inducement to invest in Bank of Georgia Group PLC or
any other entity within the Group, and must not be relied upon in
any way in connection with any investment decision. Bank of Georgia
Group PLC and other entities within the Group undertake no
obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise, except to
the extent legally required. Nothing in this document should be
construed as a profit forecast.
1Q20 RESULTS HIGHLIGHTS
The COVID-19 global pandemic has had a significant impact on
people, the economy and the way we live and work. Our immediate,
and first, priority has been the health and well-being of our
employees and customers, Georgia and the protection of the Bank. In
addition, we have maintained ongoing business continuity and
operational efficiency, and ensured the long-term stability,
strength and profitability of the Group. Our first quarter
performance was robust and, unlike many banks around the world, we
have taken a significant upfront general provision to cover
expected credit losses throughout the economic cycle.
The Government of Georgia has managed the pandemic impact
remarkably well, with strong containment of the disease,
significant support packages to mitigate the economic impact, and
recently announced plans to start to ease the lockdown and re-open
the country to foreign tourists in July 2020.
While economic challenges and uncertainties remain, Bank of
Georgia entered the situation as a highly profitable bank, with a
strong market position and balance sheet, market leading digital
capabilities and excellent people. We are proud of our support of
the Government's measures to combat the disease and mitigate its
economic impact, and are confident that we will meet the ongoing
challenge to support our customers and play our full part in
helping Georgia's recovery.
Change Change
GEL thousands 1Q20 1Q19 y-o-y 4Q19 q-o-q
INCOME STATEMENT HIGHLIGHTS(1)
Net interest income 197,080 189,981 3.7% 207,091 -4.8%
Net fee and commission income 40,112 42,180 -4.9% 46,558 -13.8%
Net foreign currency gain 30,661 22,985 33.4% 37,177 -17.5%
Net other income 6,627 3,568 85.7% 18,439 -64.1%
Operating income 274,480 258,714 6.1% 309,265 -11.2%
Operating expenses (106,008) (91,927) 15.3% (121,545) -12.8%
Profit from associates 301 188 60.1% 153 96.7%
Operating income before cost of
risk 168,773 166,975 1.1% 187,873 -10.2%
Cost of risk (241,403) (42,652) NMF (14,232) NMF
Net operating (loss) / income before
non-recurring items (72,630) 124,323 NMF 173,641 NMF
Net non-recurring items (40,345) (1,575) NMF (1,591) NMF
(Loss) / profit before income tax
and one-off costs (112,975) 122,748 NMF 172,050 NMF
Income tax benefit / (expense) 13,030 (10,536) NMF (15,515) NMF
(Loss) / profit adjusted for one-off
costs (99,945) 112,212 NMF 156,535 NMF
One-off termination costs of former - (10,240) NMF - -
CEO and executive management (after
tax)
(Loss) / profit (99,945) 101,972 NMF 156,535 NMF
GEL thousands Mar-20 Mar-19 Change Dec-19 Change
y-o-y q-o-q
BALANCE SHEET HIGHLIGHTS
Liquid assets 5,379,132 4,502,390 19.5% 5,559,500 -3.2%
Cash and cash equivalents 1,507,142 1,162,168 29.7% 2,153,624 -30.0%
Amounts due from credit institutions 1,954,218 1,391,630 40.4% 1,619,072 20.7%
Investment securities 1,917,772 1,948,592 -1.6% 1,786,804 7.3%
Loans to customers and finance lease
receivables(2) 13,144,429 9,570,691 37.3% 11,931,262 10.2%
Property and equipment 380,580 349,728 8.8% 379,788 0.2%
Total assets 19,663,693 15,054,570 30.6% 18,569,497 5.9%
Client deposits and notes 10,835,918 8,393,861 29.1% 10,076,735 7.5%
Amounts owed to credit institutions 4,144,701 2,463,408 68.3% 3,934,123 5.4%
Borrowings from DFIs 1,689,610 1,309,976 29.0% 1,486,044 13.7%
Short-term loans from central banks 1,677,339 585,797 NMF 1,551,953 8.1%
Loans and deposits from commercial
banks 777,752 567,635 37.0% 896,126 -13.2%
Debt securities issued 2,294,431 2,045,428 12.2% 2,120,064 8.2%
Total liabilities 17,616,438 13,135,789 34.1% 16,418,589 7.3%
Total equity 2,047,255 1,918,781 6.7% 2,150,908 -4.8%
(1) The 1Q19 income statement adjusted profit excludes GEL
10.2mln one-off employee costs (net of income tax) related to
former CEO and executive management termination benefits. The
amount is comprised of GEL 7.8mln (gross of income tax) excluded
from salaries and other employee benefits, GEL 4.0mln (gross of
income tax) excluded from non-recurring items and GEL 1.6mln tax
benefit excluded from income tax expense. 1Q19 ROAE and ROAA have
been adjusted accordingly. Full IFRS income statement is presented
on page 25. Management believes that one-off costs do not relate to
underlying performance of the Group, and hence, adjusted results
provide the best representation of the Group's performance during
first quarter of 2019
(2) Throughout this announcement, the gross loans to customers
and respective allowance for impairment are presented net of
expected credit loss (ECL) on contractually accrued interest
income. These do not have an effect on the net loans to customers
balance. Management believes that netted-off balances provide the
best representation of the Group's loan portfolio position
KEY RATIOS 1Q20 1Q19 4Q19
ROAA(3) -2.1% 3.1% 3.4%
ROAE(3) -18.6% 24.5% 29.9%
Net interest margin 5.0% 6.0% 5.4%
Liquid assets yield 3.9% 3.8% 3.7%
Loan yield 10.8% 12.2% 11.4%
Cost of funds 4.7% 4.6% 4.7%
Cost / income(4) 38.6% 35.5% 39.3%
NPLs to Gross loans to clients 2.1% 3.3% 2.1%
NPL coverage ratio 147.2% 92.2% 80.9%
NPL coverage ratio, adjusted for
discounted value of collateral 194.9% 132.6% 139.6%
Cost of credit risk ratio 7.4% 1.7% 0.2%
NBG (Basel III) CET1 capital adequacy
ratio 8.3% 12.7% 11.5%
NBG (Basel III) Tier I capital adequacy
ratio 10.6% 12.7% 13.6%
NBG (Basel III) Total capital adequacy
ratio 15.3% 17.1% 18.1%
KEY RESULTS HIGHLIGHTS
-- Robust quarterly performance notwithstanding the COVID-19
pandemic impact. The Group generated solid operating income before
cost of risk of GEL 168.8mln during first quarter of 2020, mostly
driven by stable net interest income and net fee and commission
income, considering the slowdown in economic activity, as well as
strong net foreign currency gains generated during the quarter
-- Net one-off loss on modification of financial assets. We
recorded a GEL 38.7mln one-off net loss on modification of
financial assets in 1Q20 in relation to the three-month payment
holidays on principal and interest offered to our retail banking
clients in March 2020, in order to reduce the requirement for
customers to physically visit Bank branches and reduce the risk of
COVID-19 virus spread. Interest continues to accrue on the
outstanding principal of the loans and is distributed over the
remaining period of each loan. The modification terms do not
compound the three-month accrued interest, and have therefore,
under IFRS accounting this resulted in a one-off net loss on
modification of loans to customers. This type of restructuring
offered to our customers reflects the impact of the Bank's
immediate social response to COVID-19 in Georgia, which management
does not expect to recur. The net loss incurred as a result of
these modifications has been classified as a non-recurring item in
the income statement during the first quarter of 2020
-- Loan book growth reached 37.3% y-o-y and 10.2% q-o-q at 31
March 2020. Growth on a constant-currency basis was 21.9% y-o-y and
1.5% q-o-q. The y-o-y loan book growth reflected continued strong
loan origination levels in Corporate, MSME and mortgage segments
during the pre-COVID-19 period, while the q-o-q trend reflects the
slow-down of economic activity in March 2020 as a result of the
COVID-19 pandemic outbreak
-- Client deposits and notes increased by 29.1% y-o-y and by
7.5% q-o-q at 31 March 2020. On a constant-currency basis, client
deposits and notes grew by 12.2% y-o-y, but were down by 2.4%
q-o-q. The slight q-o-q decline in client deposits was due to
immediate outflow of customer funds as a result of the COVID-19
outbreak shock in March 2020, which quickly stabilised
-- Asset quality. The cost of credit risk ratio increased to
7.4% in 1Q20, up from 1.7% in 1Q19 and up from 0.2% in 4Q19. The
higher cost of credit risk was primary driven by the increase of
GEL 220 .2 mln in our ECL provision , created for the full economic
cycle in both the Retail and Corporate and Investment Banking
segments during the first quarter of 2020, related to adverse
macro-economic environment and expected negative impact on
creditworthiness of borrowers as a result of the COVID-19
pandemic
-- The NPL coverage ratio increased to 147.2% as at 31 March
2020 (92.2% at 31 March 2019 and 80.9% at 31 December 2019) and the
NPL coverage ratio adjusted for discounted value of collateral was
194.9% at 31 March 2020 (132.6% at 31 March 2019 and 139.6% at 31
December 2019)
-- Solid capital adequacy position. The Bank's capital adequacy
ratios have been strong, and remain comfortably above minimum
regulatory requirements. Following the measures put in place by the
NBG as part of the COVID-19 supervisory plan announced at the end
of March 2020 (see details on page 22), the Bank's Basel III Common
Equity Tier 1, Tier 1 and Total capital adequacy ratios stood at
8.3%, 10.6% and 15.3%, respectively, all well above the minimum
required levels of 6.9%, 8.7% and 13.3%, respectively, at 31 March
2020. The decline in capital ratios at 31 March 2020 was primarily
due to a GEL 400 million general provision created under the Bank's
local accounting basis in agreement with the National Bank of
Georgia (the "NBG") that covers the NBG's current expectation of
estimated credit losses on the Bank's lending book for the whole
economic cycle
-- Strong liquidity and funding position. The Bank's liquidity
and funding positions have been strong, and remaining comfortably
above minimum regulatory requirements. As at 31 March 2020, the
Bank's liquidity coverage ratio stood at 121.2% and net stable
funding ratio at 123.5%, compared to the 100% minimum required
level. In addition, the Bank has strong support from International
Financial Institutions. It has already attracted a number of new
long-term borrowings both in local and foreign currencies during
the past few months in 2020 of more than US$100 million from
International Finance Corporation, European Investment Bank and FMO
- Dutch entrepreneurial development bank (in collaboration with
other participating lenders), most of which has been drawn-down in
April 2020. Furthermore, we are actively working with our partner
financial institutions and expect to sign new long-term facilities
of around US$500 million during the next two to six months, which
will further improve our liquidity position and enable us to
support our customers and the economy in which we operate during
these unprecedented times
(3) 1Q19 ROAE and ROAA are adjusted for GEL 10.2mln one-off
employee costs (net of income tax) related to the former CEO and
executive management termination benefits
(4) 1Q19 cost/income ratio is adjusted for GEL 7.8mln one-off
employee costs (gross of income tax) related to termination
benefits of the former executive management
CHIEF EXECUTIVE OFFICER'S STATEMENT
These are unprecedented times, and I have been greatly impressed
by the response to the new daily challenges faced by the management
team and all of our colleagues and customers - which just
underlines the strength and quality of the Bank's brand and
customer franchise. Last year, we established the Bank's new
mission: we are here to help people achieve more of their
potential, and this clearly encompasses our desire to overcome all
of our challenges to support our clients through the impact of the
global pandemic and the current economic downturn.
Bank of Georgia has two clear strategic targets over time: to
achieve at least 20% return on average equity, and to deliver c.15%
growth of the loan book. These have not changed. Given our clear
Georgia focus, our performance in the short-term will inevitably
however be affected by the national state of emergency relating to
COVID-19, and these targets are no longer appropriate for 2020. We
will continue to update the market on a regular basis and as we get
greater clarity on the significant current economic uncertainties.
In the short-term, our performance and balance sheet remains very
robust, asset quality is resilient and we remain comfortable, given
our economic scenario stress-testing assumptions, with the
incremental general provision created. The Group is also very well
positioned with strong funding and liquidity, and capital
resources, and we aim to ensure that this remains the case.
The first quarter of 2020 was characterised by two distinct
periods for Bank of Georgia. During the first two months of 2020,
the Group continued its very strong momentum from 2019 with strong
growth and a performance consistent with, or slightly better than,
the Group's external guidance and strategic targets. The COVID-19
global pandemic then created economic, medical and social
challenges that are unprecedented in modern times. Whilst the full
extent of the pandemic is very difficult to assess, the outbreak in
Georgia has not been as severe as in many other countries, as the
Georgian Government took significant early actions to reduce the
spread of the virus, which included early flight bans, and school
and business closures. This early action was essential to what has,
so far, been an extremely well-managed response to the pandemic
throughout the country. We are also encouraged with the
Government's recent decision to start easing the lockdown
restrictions in Tbilisi, as part of a gradual easing of
restrictions, and to plan to re-open Georgia's borders to foreign
tourists from 1 July 2020.
Economically, there will clearly be a significant negative
impact in all areas of the economy, but, so far, this has been
significantly mitigated by the extensive support packages that have
been put in place by the Government. The anti-crisis stimulus plan
includes a social assistance package for individuals, together with
substantial support for businesses, including tax exemptions and
various funding mechanisms for businesses. The Georgian Government,
which has always had strong relations with the International
Monetary Fund (the "IMF") and other development financial agencies,
has initiated an approximately US$3 billion financing package from
IMF and other international partners - US$1.5 billion is earmarked
for the public sector and US$1.5 billion for the private sector.
This package will support a substantial economic stimulus in 2020
estimated at 11-15% of GDP. Further details of this package, which
ensures that Georgia is very well-placed to manage the economic
impact of COVID-19, and other regulatory measures taken to support
the banking sector, including an updated supervisory plan of the
National Bank of Georgia, are contained on page 22.
While there is considerable uncertainty with regard to the
macroeconomic outlook given the impact of falling exports, a
complete ban on commercial international flights leading to the
halt of tourism inflows, and lower remittances, the impact of this
is expected to be largely offset by the international support
package, lower import demand and reduced prices for imported oil.
Our base case is for Georgian GDP to fall by c.3% in 2020. Along
with most global currencies, the Georgian Lari devalued by 14.5%
against the US Dollar during the first quarter of 2020, but has
since stabilised.
Bank of Georgia's financial strength and business model has
enabled us to play a significant role in the response to the
emerging challenges. First and foremost, our priority was the
health and well-being of our staff and customers, and we
implemented a comprehensive business continuity plan to ensure that
priority, together with sustaining the long-term stability,
strength and profitability of the Group. Throughout the period of
the pandemic, all of the Bank's main branches and most express
branches have remained open, with employees working in split shifts
and, where possible, from home. In essence, we have implemented a
number of changes to reduce physical interaction to mitigate the
spread of the COVID-19 virus; in particular, the implementation of
a three-month grace period on principal and interest payments on
all retail loans has significantly reduced the requirement for
customers to physically visit branches.
Financial and balance sheet performance
There were two material impacts on our financial performance in
the quarter as a result of the COVID-19 pandemic which total a
combined GEL 258.9 million:
-- On an IFRS basis, the Bank has created a GEL 220.2 million
upfront provision for the full economic cycle in both the Retail
and Corporate and Investment Banking businesses. This COVID-19
related charge is based on our expectations of future credit losses
on our portfolio given the application of the future economic
scenarios outlined on page 11. Unlike many other banks, we have not
used IFRS 9 transitional relief and this charge reflects our full
currently expected credit losses, related to the COVID-19 impact,
over the economic cycle
-- We have recorded a one-off net loss on modification of
financial assets of GEL 38.7 million. This reflects the impact of
the three-month grace period on principal and interest offered to
our retail banking clients. Whilst interest continues to accrue,
the loan modification terms do not compound the three-month accrued
interest and, under IFRS accounting, result in a net loss on the
modification of the loans
The Bank is regulated according to the National Bank of
Georgia's local accounting basis, which generally requires higher
levels of provisioning than IFRS. In agreement with NBG, the Bank
created a GEL 400 million general provision under the Bank's local
accounting basis. This provision covers the NBG's current
expectation of estimated credit losses on the Bank's lending book
for the whole economic cycle, given current economic expectations,
and is the level of provisioning reflected in the Bank's regulatory
capital ratios. As a result, from a capital perspective, having
taken these significant upfront provisions, we now expect to see
gradual quarterly improvements in our CET1, Tier 1 and Total
capital adequacy ratios, which are already sufficiently above our
minimum regulatory requirements.
The Group's financial performance was robust during the first
quarter 2020, despite the initial impact of the COVID-19 pandemic,
with net interest income growing 3.7% and overall operating income
growing 6.1% year-on-year. Operating expenses were 15.3% higher
year-on-year in 1Q20, reflecting a combination of investments in
our IT resource and digitalisation platforms, our Agile
transformation process and increased branch network costs to manage
the significant COVID-19 changes. Operating income before cost of
risk increased by 1.1% year-on-year to GEL 168.8 million in 1Q20.
The impact of the specific GEL 258.9 million COVID-19 related
changes, neither of which is expected to recur, led to the Group
reporting a net loss for the quarter of GEL 99.9 million.
Throughout the period of the economic lockdown so far, our
balance sheet has remained broadly stable on a constant currency
basis, but grew strongly on a nominal basis reflecting the 12.7%
GEL devaluation against the US Dollar during the first quarter of
2020. The currency has since stabilised. On a constant currency
basis, our loan book grew by 1.5% in the quarter, whilst deposits
decreased by 2.4%. On a nominal basis loan book growth was 10.2% in
the quarter, with client deposits increasing 7.5%. Our net interest
margin reduced by 40 basis points in the quarter to 5.0%,
reflecting a continuing mix shift towards higher quality, lower
risk and lower margin mortgage and SME lending and the impact of
the increased NBG monetary policy rate on cost of funds, which has
subsequently started to reverse.
Asset quality
Against the backdrop of the economic lockdown, the quality of
our customer lending has so far been resilient, reflecting the
significant reduction over the last few years in the portfolio
risk. At the beginning of the pandemic lockdown our non-performing
loans were at historically low levels. The absence of high levels
of corporate leverage, and the strong Government support programmes
both to individuals and corporates is also expected to partially
mitigate the negative economic impact of COVID-19. In March 2020,
the Bank agreed with the NBG to create a general provision of GEL
400 million under the Bank's local accounting basis, which is used
for the calculation of the Bank's capital ratios. This represents
3.3% of the Bank's lending book subject to provision under the
local accounting standards. The NBG considers the Bank's capital
ratios to be sufficiently in excess of the expected minimum capital
requirements, to be able to absorb this upfront general provision
whilst maintaining a sufficiently comfortable buffer over the
required minimum capital ratios.
On an IFRS basis, the Group has similarly taken an upfront
provision, built to cover the expected credit losses in both the
Retail and Corporate and Investment Banking business for the full
economic cycle. This provision, of GEL 220.2 million, reflects
expected credit losses based on a weighted average of our
macroeconomic scenario stress-testing results, over a three-year
horizon. Our base case scenario (50% probability) assumes negative
GDP of 2.7% for 2020; our downside scenario (40% probability)
assumes negative 7.0% GDP impact in 2020; and the upside scenario
(10% probability) assumes 2.1% GDP growth in 2020. See further
details in table of assumptions on page 11.
As a result, the annualised cost of credit risk in the quarter
was 7.4%. The NPLs to gross loans ratio remained stable at 31 March
2020, at 2.1%, however, provisions coverage ratios improved during
the quarter as a result of the significant provisions created. At
31 March 2020, the NPL coverage ratio increased to 147.2%, compared
to 80.9% at 31 December 2019, and the provisions coverage ratio
adjusted for discounted value of collateral was 194.9% at 31 March
2020, compared to 139.6% at 31 December 2019.
Capital and dividend
The Group's capital position remains robust, and comfortably
above our minimum regulatory requirements. At 31 March 2020, having
absorbed the full upfront GEL 400 million local accounting general
provision, the Bank's Basel III Common Equity Tier 1, Tier 1 and
Total capital adequacy ratios stood at 8.3%, 10.6% and 15.3%
respectively, all well above the minimum required levels of 6.9%.
8.7% and 13.3%, respectively. In addition, to further improve the
Bank's capital position, in April 2020, the Bank drew down a $55
million second tranche of a Tier 2 capital instrument initially
arranged last December.
The Group has a recent track record of strong profitability and
capacity to generate high levels of internal capital. In March
2020, given the level of uncertainty with regard to the global
impact of COVID-19 and the potential length of time of that impact,
the Board of Directors decided not to recommend a dividend for the
2019 year to shareholders at the 2020 Annual General Meeting. As a
result of the ongoing uncertainties, the Board has confirmed that
the Group will not be distributing a 2019 dividend to shareholders.
At part of the NBG's COVID-19 supervisory plan, during the period
that banks partially or fully utilise Pillar 2 or conservation
buffers, they are restricted from any form of capital distribution.
Over time, the Group's dividend policy remains unchanged, and the
Board plans to return to a targeted payout ratio range of 25-40% as
soon as practically possible.
Liquidity and funding
The Bank's liquidity and funding position has remained strong,
and comfortably above minimum regulatory requirements. At 31 March
2020, the Bank's liquidity coverage ratio stood at 121.2% and net
stable funding ratio at 123.5%, compared to required minimum levels
of 100%. The Bank also has strong support from International
Financial Institutions, and has already attracted a number of new
long-term borrowings both in local and foreign currencies over the
last couple of months. These total more than US$100 million from a
combination of International Finance Corporation, European
Investment Bank and FMO - the Dutch entrepreneurial development
bank (in collaboration with other participating lenders).
Furthermore, we continue to work with our partner financial
institutions and, expect to sign new long-term facilities of around
US$500 million during the next two to six months. This will further
improve our liquidity position and enable us to proactively support
our customers and the forthcoming economic recovery.
Increasing digital presence
During the quarter we actively continued the further development
of our fully integrated digital strategy, an important focus for us
as we seek to digitise our full banking platforms. The use of our
mobile and digital platforms has substantially increased over the
period of the economic lockdown, and our market leading digital and
mobile presence is becoming a significant source of competitive
advantage, which we expect to continue. The Bank has continued to
introduce new features to our mobile banking application and
internet bank to further incentivise the migration of client
activity towards digital channels, and this focus has increased
substantially since the start of the pandemic outbreak and economic
lockdown.
Our digital channels now execute more than 94% of total daily
transaction by individuals, and we expect this digitisation to
continue at a rapid pace. The number of active mobile banking users
in the first quarter increased by nearly 50% year-on-year, and 10%
quarter-on-quarter to over 567,000 active users; the number of
active Business iBank users, for our MSME and corporate clients,
increased by 21% year-on-year; and, reflecting the impact of the
economic lockdown, the Bank's digital ecosystem business
proactively restructured its operations and commercial offerings to
adapt to the changing environment.
*******
Finally, I must re-iterate my congratulations and thanks to all
of our employees for the fantastic way in which they have responded
to these challenges with remarkable professionalism and dedication
in their focus to maintain the integrity of the banking system
throughout the country.
Our priority, in response to the COVID-19 global pandemic, was
first and foremost the health and well-being of our staff and
customers, maintaining robust business continuity and operational
efficiency, and ensuring the long-term stability, strength and
profitability of the Group. I am confident that Bank of Georgia
will emerge from this pandemic having achieved all of these
priorities. We will of course continue to monitor developing
economic trends and take appropriate actions to pro-actively manage
evolving circumstances.
Archil Gachechiladze,
CEO, Bank of Georgia Group PLC
13 May 2020
DISCUSSION OF RESULTS
The Group's business is composed of three segments. (1) Retail
Banking operations in Georgia principally provides consumer loans,
mortgage loans, overdrafts, credit cards and other credit
facilities, funds transfer and settlement services, and handling
customers' deposits for both individuals as well as legal entities.
Retail Banking targets the emerging and mass retail and mass
affluent segments, together with small and medium enterprises and
micro businesses. (2) Corporate and Investment Banking comprises
Corporate Banking and Investment Management operations in Georgia.
Corporate Banking principally provides loans and other credit
facilities, funds transfers and settlement services, trade finance
services, documentary operations support and handles saving and
term deposits for corporate and institutional customers. The
Investment Management business principally provides private banking
services to high net worth clients. (3) BNB, comprising JSC
Belarusky Narodny Bank, principally provides retail and corporate
banking services to clients in Belarus.
OPERATING INCOME
GEL thousands, unless otherwise Change Change
noted 1Q20 1Q19 y-o-y 4Q19 q-o-q
Interest income 388,326 334,735 16.0% 393,480 -1.3%
Interest expense (191,246) (144,754) 32.1% (186,389) 2.6%
Net interest income 197,080 189,981 3.7% 207,091 -4.8%
Fee and commission income 70,894 62,531 13.4% 77,472 -8.5%
Fee and commission expense (30,782) (20,351) 51.3% (30,914) -0.4%
Net fee and commission income 40,112 42,180 -4.9% 46,558 -13.8%
Net foreign currency gain 30,661 22,985 33.4% 37,177 -17.5%
Net other income 6,627 3,568 85.7% 18,439 -64.1%
Operating income 274,480 258,714 6.1% 309,265 -11.2%
Net interest margin 5.0% 6.0% 5.4%
Average interest earning assets 15,827,796 12,752,388 24.1% 15,314,640 3.4%
Average interest bearing liabilities 16,339,697 12,717,669 28.5% 15,886,722 2.9%
Average net loans and finance lease
receivables, currency blended 12,274,814 9,453,255 29.8% 11,762,692 4.4%
Average net loans and finance lease
receivables, GEL 4,988,497 3,656,912 36.4% 4,844,367 3.0%
Average net loans and finance lease
receivables, FC 7,286,317 5,796,343 25.7% 6,918,325 5.3%
Average client deposits and notes,
currency blended 10,473,930 8,278,823 26.5% 9,986,276 4.9%
Average client deposits and notes,
GEL 3,298,908 2,718,201 21.4% 3,093,464 6.6%
Average client deposits and notes,
FC 7,175,022 5,560,622 29.0% 6,892,812 4.1%
Average liquid assets, currency
blended 5,322,430 4,405,239 20.8% 5,287,479 0.7%
Average liquid assets, GEL 2,208,730 2,066,605 6.9% 2,207,009 0.1%
Average liquid assets, FC 3,113,700 2,338,634 33.1% 3,080,470 1.1%
Liquid assets yield, currency blended 3.9% 3.8% 3.7%
Liquid assets yield, GEL 8.0% 6.8% 7.3%
Liquid assets yield, FC 1.0% 1.1% 1.3%
Loan yield, currency blended 10.8% 12.2% 11.4%
Loan yield, GEL 15.6% 18.4% 16.3%
Loan yield, FC 7.5% 8.3% 7.9%
Cost of funds, currency blended 4.7% 4.6% 4.7%
Cost of funds, GEL 7.9% 7.0% 7.5%
Cost of funds, FC 2.9% 3.2% 3.0%
Cost / income(5) 38.6% 35.5% 39.3%
(5) The 1Q19 cost/income ratio is adjusted for GEL 7.8mln
one-off employee costs (gross of income tax) related to termination
benefits of the former executive management
Performance highlights
-- The Group generated operating income of GEL 274.5mln in 1Q20
(up 6.1% y-o-y and down 11.2% q-o-q). The q-o-q decline in o
perating income was driven by decrease in both interest and
non-interest income, on the back of slow-down of economic activity
due to COVID-19 pandemic outbreak in March 2020. In addition, the
q-o-q decrease was attributable to GEL 12.8mln net gains recorded
as a result of the revaluation of investment property in the fourth
quarter of 2019
-- Our NIM was 5.0% in 1Q20. During the first quarter of 2020,
NIM was down 100bps y-o-y due to the 140bps y-o-y decrease in loan
yield, coupled with 10bps y-o-y increase in cost of funds. On a
q-o-q basis, loan yield decreased by 60bps, while cost of funds
remained flat, resulting in a 40bps decline in 1Q20 NIM
-- Loan yield. Currency blended loan yield was 10.8% in 1Q20
(down 140bps y-o-y and down 60bps q-o-q). Y-o-y and q-o-q decline
in loan yield during the first quarter of 2020, was driven by the
decline in both local and foreign currency loans yields , as well
as increase in foreign currency denominated loan portfolio portion
in total loan book in 1Q20 as a result of local currency
depreciation, which generates lower yields than the local currency
denominated loan portfolio
-- Liquid assets yield. Currency blended liquid assets yield was
3.9% in 1Q20 (up 10bps y-o-y and up 20bps q-o-q). Both y-o-y and
q-o-q increase in liquid assets yield was primarily driven by
increase in local currency denominated liquid assets yields,
slightly offset by decreasing yields on foreign currency
denominated liquid assets. The local currency denominated liquid
assets yield movement (up 120bps y-o-y and up 70bps q-o-q in 1Q20)
directly reflected the NBG's monetary policy rate movements ( NBG
increased monetary policy rate by cumulative of 200bps since
September 2019 and by additional 50bps on 11 December 2019). As for
the foreign currency denominated liquid assets yields (down 10bps
y-o-y and down 30bps q-o-q in), it largely reflected decline in US
Fed rate in March 2020 (NBG accrues interest rate on US Dollar
obligatory reserves of the banks at US Fed rate upper bound minus
50bps)
-- Cost of funds. Cost of funds stood at 4.7% in 1Q20 (up 10bps
y-o-y and flat q-o-q). Y-o-y increase in cost of funds in 1Q20 was
primarily due to a 20bps increase in cost of amounts owed to credit
institutions, on the back of higher NBG monetary policy rate in
2020 ( NBG increased monetary policy rate by cumulative of 200bps
since September 2019 and by additional 50bps on 11 December 2019),
coupled with the 10bps increase in cost of debt securities issued,
as a result of the issuance of inaugural US$ 100 million Additional
Tier 1 capital perpetual subordinated notes at the end of March
2019. On a q-o-q basis, cost of funds remained flat, driven by
10bps increase in cost of client deposits and notes, coupled with
20bps increase in cost of amounts owed to credit institutions as a
result of increase in the NBG monetary policy rate in December
2019, and offset by 30bps q-o-q decrease in cost of debt securities
issued (mostly due to the increased average balance of debt
securities issued as a result of currency depreciation at the end
of first quarter 2020)
-- Net fee and commission income. Net fee and commission income
was GEL 40.1mln in 1Q20 (down 4.9% y-o-y and down 13.8% q-o-q).
Both y-o-y and q-o-q decline was mainly driven by decrease in fee
and commission income from settlement operations, as a result of
slower customer activity due to COVID-19 pandemic and temporary
removal of fees on transactions executed through our mobile and
internet banking platforms since mid-March 2020, for two-month
period, in order to decrease the customer visits to branches and
incentivise the transfer of customers' activity to digital
channels. The y-o-y decline was partially offset by the strong fees
and commission income generation from guarantees and letters of
credit issued by our Corporate and Investment Banking business in
1Q20
-- Net foreign currency gain. In line with currency volatility
and client-driven flows, the Group recorded strong net foreign
currency gain in 1Q20 (up 33.4% y-o-y and down 17.5% q-o-q)
-- Net other income. Significant q-o-q decrease in net other
income in 1Q20 was largely driven by GEL 12.8mln net gains recorded
as a result of the revaluation of investment property in the fourth
quarter of 2019
NET OPERATING (LOSS)/INCOME BEFORE NON-RECURRING ITEMS; COST OF RISK;
(LOSS)/PROFIT
GEL thousands, unless otherwise Change Change
noted (6) 1Q20 1Q19 y-o-y 4Q19 q-o-q
Salaries and other employee benefits (56,538) (52,418) 7.9% (61,504) -8.1%
Administrative expenses (27,021) (22,741) 18.8% (35,131) -23.1%
Depreciation, amortisation and impairment (21,390) (15,688) 36.3% (23,815) -10.2%
Other operating expenses (1,059) (1,080) -1.9% (1,095) -3.3%
Operating expenses (106,008) (91,927) 15.3% (121,545) -12.8%
Profit from associate 301 188 60.1% 153 96.7%
Operating income before cost of
risk 168,773 166,975 1.1% 187,873 -10.2%
Expected credit loss / impairment
charge on loans to customers (228,189) (40,117) NMF (7,985) NMF
Expected credit loss / impairment
charge on finance lease receivables (1,885) (446) NMF 451 NMF
Other expected credit loss / impairment
charge on other assets and provisions (11,329) (2,089) NMF (6,698) 69.1%
Cost of risk (241,403) (42,652) NMF (14,232) NMF
Net operating (loss) / income before
non-recurring items (72,630) 124,323 NMF 173,641 NMF
Net non-recurring items (40,345) (1,575) NMF (1,591) NMF
(Loss) / profit before income tax
and one-off costs (112,975) 122,748 NMF 172,050 NMF
Income tax benefit / (expense) 13,030 (10,536) NMF (15,515) NMF
(Loss) / profit adjusted for one-off
costs (99,945) 112,212 NMF 156,535 NMF
One-off termination costs of former - (10,240) NMF - -
CEO and executive management (after
tax)
(Loss) / profit (99,945) 101,972 NMF 156,535 NMF
(6) The 1Q19 adjusted profit in the table excludes GEL 10.2mln
one-off employee costs (net of income tax) related to the former
CEO and executive management termination benefits. The amount is
comprised of GEL 7.8mln (gross of income tax) excluded from
salaries and other employee benefits, GEL 4.0mln (gross of income
tax) excluded from non-recurring items and GEL 1.6mln tax benefit
excluded from income tax expense
-- Operating expenses amounted to GEL 106.0mln in 1Q20, up 15.3%
y-o-y and down 12.8% q-o-q. The y-o-y increase was primarily driven
by increased investments in IT related resources as part of the
Agile transformation process, focus on digitalisation, investments
in marketing and branch network. In addition, we incurred
extraordinary expenses during the first quarter of 2020 in relation
to the safety measures implemented as a response to COVID-19
outbreak
-- Asset quality. The cost of credit risk ratio increased to
7.4% in 1Q20, from 1.7% in 1Q19 and 0.2% in 4Q19. The y-o-y and
q-o-q increase in cost of credit risk ratio was driven by the
reserve builds, created for the full economic cycle in both Retail
and Corporate and Investment Banking segments in the first quarter
of 2020, primarily related to deterioration of macro-economic
environment and expected creditworthiness of borrowers as a result
of the COVID-19 pandemic impact. This reflected additional reserves
for retail customers, as well as borrowers operating across
multiple sectors of the economy, with the largest impacts in
tourism, trade, transportation, construction and real estate
industries.
The following assumptions were used to estimate the amount of
reserves required for the whole economic cycle in the first quarter
of 2020:
- In the absence of the consensus forecasts, we used macro
parameters based on Galt & Taggart Research projections, which
are similar to the expectations of the IMF. We determined three
scenarios (Baseline, Downside and Upside) with macro parameters for
a three-year horizon and assigned respective probabilities. The
weighted average of these scenario results were further considered
in estimating expected credit losses (ECL):
Baseline (50% probability) Downside (40% probability) Upside (10% probability)
------------------------------ ------------------------------ ----------------------------
2020 2021 2022 2020 2021 2022 2020 2021 2022
Real GDP
growth -2.7% 5.5% 5.0% -7.0% 2.5% 3.5% 2.1% 7.0% 6.0%
CPI Inflation 4.7% 3.5% 3.0% 7.0% 5.0% 4.5% 4.2% 3.0% 3.0%
GEL/US$ rate 3.3 2.95 2.9 3.8 3.3 3.2 3.05 2.8 2.8
- Given the unprecedented nature of the COVID-19 pandemic and
the uncertainties associated with it, we re-considered the existing
impairment model and applied management overlays to the methodology
to reflect a COVID-19 effect in ECL. In particular, granting
three-month payment holidays to borrowers was not automatically
considered as SICR event (i.e. a trigger to transfer the exposures
from Stage 1 to Stage 2). We performed a more in depth analysis of
the loan portfolio and identified pools of exposures (tourism and
hospitality sectors, among others, as well as some of the retail
customers) that were most likely to suffer from pandemic
consequences in the short to medium term and, transferred these
exposures to Stage 2
- Further, to estimate the ECL for certain borrowers, in the
downside scenario we assigned them Probability of Default (PD) of 1
and used only a stressed value of the real estate collateral as an
estimate of Loss Given Default (LGD). The ECL was calculated as a
weighted average of the scenario results
- In order to reflect the effects of increased unemployment in
the country in our ECL estimation, 12-month PD rates were amended
using management expert judgment , resulting in an increase of
12-month PD rate by 5ppts in Baseline scenario and by 10ppts in
Downside scenario. We also applied a 15% haircut in Baseline and
30% haircut in Downside scenario to real estate collateral values
and adjusted Cure and Recovery rates. Where relevant, the Bank also
used post model adjustments (credit rating override) for certain
individually significant borrowers to reflect SICR driven by
COVID-19 impact
As a result of these assumptions, we created additional reserves
of GEL 220.2mln in the first quarter of 2020. Given that we are
operating in a rapidly changing environment with a high level of
uncertainty with regards to both the length and the severity of the
COVID-19 impact, we are monitoring the new facts and circumstances
on a continuous basis and will be updating the market on any
significant changes in our assessments in the coming months
-- Quality of our loan book is closely monitored by the
following metrics. The y-o-y improvement in NPLs to gross loans was
primarily driven by write-off of several non-performing corporate
loans during 4Q19. The NPL coverage ratio and NPL coverage ratio
adjusted for the discounted value of collateral improved both y-o-y
and q-o-q at 31 March 2020, as a result of previously discussed
reserve builds, created for the full economic cycle in the first
quarter of 2020:
GEL thousands, unless otherwise Mar-20 Mar-19 Change Dec-19 Change
noted y-o-y q-o-q
NON-PERFORMING LOANS
NPLs 284,038 326,127 -12.9% 252,695 12.4%
NPLs to gross loans 2.1% 3.3% 2.1%
NPLs to gross loans, RB 1.5% 2.2% 1.5%
NPLs to gross loans, CIB 2.9% 5.7% 3.0%
NPL coverage ratio 147.2% 92.2% 80.9%
NPL coverage ratio adjusted for
the discounted value of collateral 194.9% 132.6% 139.6%
-- BNB - the Group's banking subsidiary in Belarus - continues
to remain strongly capitalised , with capital adequacy ratios well
above the requirements of the National Bank of the Republic of
Belarus ("NBRB"). At 31 March 2020, total capital adequacy ratio
was 13.8%, above the 12.5% minimum requirement, while Tier I
capital adequacy ratio was 9.4%, above NBRB's 7.0% minimum
requirement. BNB had negative 0.6% profitability in 1Q20, primarily
due to COVID-19 impact, compared to ROAE of 12.1% in 1Q19 and 16.7%
in 4Q19. For financial results highlights of BNB, see page 27
-- Net non-recurring items. We recorded a GEL 38.7mln one-off
net loss on modification of financial assets in 1Q20 in relation to
the three-month payment holidays on principal and interest offered
to our retail banking clients in March 2020, in order to reduce the
requirement for customers to physically visit Bank branches and
reduce the risk of COVID-19 virus spread. Interest continues to
accrue on the outstanding principal of the loans and is distributed
over the remaining period of each loan. The modification terms do
not compound three-month accrued interest, and have therefore,
under IFRS accounting, resulted in a one-off net loss on
modification of loans to customers. This type of restructuring
offered to our customers reflects the impact of the Bank's
immediate social response to COVID-19 in Georgia, which management
does not expect to recur. The net loss incurred as a result of
these modifications has been classified as a non-recurring item in
the income statement during the first quarter of 2020. In addition,
in 1Q20, the Bank incurred GEL 1.2mln one-off costs to finance and
donate 20,000 laboratory tests of COVID-19, 10 respirators, 50,000
face masks and 60,000 gloves to the Ministry of Health of Georgia,
to support the battle to prevent the virus spread . These costs are
also classified as non-recurring items
-- Income tax expense. The Group recorded income tax benefit of
GEL 13.0mln in 1Q20, on the back of the net loss during the first
quarter of 2020, compared to income tax expense of GEL 10.5mln in
1Q19 (adjusted for tax benefit on one-off costs) and GEL 15.5mln in
4Q19
-- Overall, the Group recorded a loss of GEL 99.9mln in 1Q20,
compared to profit of GEL 112.2mln(7) in 1Q19 and GEL 156.5mln in
4Q19. As such, the Group's profitability was negative in 1Q20,
compared to the excellent ROAE of 24.5%(7) in 1Q19 and 29.9% in
4Q19
(7) The 1Q19 profit and ROAE are adjusted for GEL 10.2mln
one-off employee costs (net of income tax) related to termination
benefits of the former CEO and executive management
BALANCE SHEET HIGHLIGHTS
GEL thousands, unless otherwise Mar-20 Mar-19 Change Dec-19 Change
noted y-o-y q-o-q
Liquid assets 5,379,132 4,502,390 19.5% 5,559,500 -3.2%
Liquid assets, GEL 2,240,367 2,005,142 11.7% 2,245,740 -0.2%
Liquid assets, FC 3,138,765 2,497,248 25.7% 3,313,760 -5.3%
Net loans and finance lease receivables 13,144,429 9,570,691 37.3% 11,931,262 10.2%
Net loans and finance lease receivables,
GEL 4,978,238 3,758,320 32.5% 4,946,387 0.6%
Net loans and finance lease receivables,
FC 8,166,191 5,812,371 40.5% 6,984,875 16.9%
Client deposits and notes 10,835,918 8,393,861 29.1% 10,076,735 7.5%
Amounts owed to credit institutions 4,144,701 2,463,408 68.3% 3,934,123 5.4%
Borrowings from DFIs 1,689,610 1,309,976 29.0% 1,486,044 13.7%
Short-term loans from central banks 1,677,339 585,797 NMF 1,551,953 8.1%
Loans and deposits from commercial
banks 777,752 567,635 37.0% 896,126 -13.2%
Debt securities issued 2,294,431 2,045,428 12.2% 2,120,064 8.2%
LIQUIDITY AND CAPITAL ADEQUACY RATIOS
Net loans / client deposits and
notes 121.3% 114.0% 118.4%
Net loans / client deposits and
notes + DFIs 104.9% 98.6% 103.2%
Liquid assets / total assets 27.4% 29.9% 29.9%
Liquid assets / total liabilities 30.5% 34.3% 33.9%
NBG liquidity coverage ratio 121.2% 133.1% 136.7%
NBG (Basel III) CET1 capital adequacy
ratio 8.3% 12.7% 11.5%
NBG (Basel III) Tier I capital adequacy
ratio 10.6% 12.7% 13.6%
NBG (Basel III) Total capital adequacy
ratio 15.3% 17.1% 18.1%
Our balance sheet remains highly liquid (NBG liquidity coverage
ratio of 121.2%) and strongly capitalised (NBG Basel III Tier I
capital adequacy ratio of 10.6%) with a well-diversified funding
base (client deposits and notes to total liabilities of 61.5%).
-- Liquidity. Liquid assets stood at GEL 5,379.1mln at 31 March
2020, up 19.5% y-o-y and down 3.2% q-o-q. The notable increase over
the year was in obligatory reserves with NBG, combined with excess
liquidity deployed with credit institutions. The NBG Liquidity
coverage ratio was 121.2% at 31 March 2020 (133.1% at 31 March 2019
and 136.7% at 31 December 2019), well above the 100% minimum
requirement level
-- Loan book . Our net loan book and finance lease receivables
reached GEL 13,144.4mln at 31 March 2020, up 37.3% y-o-y and up
10.2% q-o-q. As of 31 March 2020, the retail loan book represented
64.3% of the total loan portfolio (70.0% at 31 March 2019 and 66.0%
at 31 December 2019). Both local and foreign currency portfolios
experienced strong y-o-y growth of 32.5% and 40.5%, respectively.
The local currency loan portfolio growth was partially driven by
the Government's de-dollarisation initiatives and our goal to
increase the share of local currency loans in our portfolio. On a
q-o-q basis, local currency denominated loan portfolio was largely
flat, primarily due to the slow-down of economic activity as a
result of the COVID-19 pandemic outbreak in March 2020, while
foreign currency denominated loan book grew by 16.9% q-o-q, mostly
reflecting the local currency depreciation during the first quarter
of 2020
-- Dollarisation of our loan book and client deposits. The
retail client loan book in foreign currency accounted for 47.7% of
the total RB loan book at 31 March 2020 (48.6% at 31 March 2019 and
43.7% at 31 December 2019), while retail client foreign currency
deposits comprised 71.5% of total RB deposits at 31 March 2020
(69.4% at 31 March 2019 and 68.0% at 31 December 2019). At 31 March
2020, 82.5% of CIB's loan book was denominated in foreign currency
(83.0% at 31 March 2019 and 81.1% at 31 December 2019), while 69.4%
of CIB deposits were denominated in foreign currency (60.2% at 31
March 2019 and 65.9% at 31 December 2019)
-- Net loans to customer funds and DFI ratio . Our net loans to
customer funds and DFI ratio, which is closely monitored by
management, remained strong at 104.9% at 31 March 2020 (98.6% at 31
March 2019 and 103.2% at 31 December 2019)
-- Diversified funding base . Debt securities issued grew by
12.2% y-o-y and by 8.2% q-o-q at 31 March 2020. The y-o-y increase
was primarily driven by the issuance of US$ 100 million Additional
Tier 1 capital notes in March 2019, while q-o-q increase was
primarily attributable to local currency depreciation during the
first quarter of 2020
-- Solid capital position. At 31 March 2020, following the
measures put in place by the NBG as part of the COVID-19
supervisory plan (see details on page 22), the Bank's Basel III
Common Equity Tier 1, Tier 1 and Total capital adequacy ratios
stood at 8.3%, 10.6% and 15.3%, respectively, all comfortably above
the minimum required levels of 6.9%, 8.7% and 13.3%,
respectively
- NBG supervisory plan - COVID-19 and related impact of the
Bank's capital position. The Bank's actual capital adequacy
position at 31 March 2020 consider the additional general provision
of GEL 400mln (approximately 3.3% of the Bank's lending portfolio
subject to provision under the local accounting standards) booked
under the Bank's local accounting basis, which is used for
calculation of the Bank's capital ratios, in March 2020, reflecting
NBG's expectation of estimated credit losses on the Bank's lending
book for the whole economic cycle, given current economic
expectations
- Internal capital generation and dividends. The Group has
recent track record of strong profitability and capacity to
generate high levels of internal capital. In March 2020, given the
level of uncertainty with regard to the global impact of COVID-19
and the potential length of time of that impact, the Board of
Directors has decided not to recommend a dividend to shareholders
at the 2020 Annual General Meeting, therefore, the Group will not
be distributing 2019 dividends to shareholders this year
- Below is presented the movement in capital adequacy ratios
during the first quarter 2020 considering the recent developments,
as well as the impact of additional 10% devaluation of GEL on
different levels of capital:
1Q20 profit General Impact
(excl. provision of additional
31 December Business general - COVID-19 31 March 10% GEL
2019 growth provision) impact GEL devaluation Other 2020 devaluation
----------- -------- ----------- ----------- --------------- ----- -------- --------------
CET1 capital
adequacy ratio 11.5% -0.1% 0.5% -2.5% -0.8% -0.3% 8.3% -0.5%
Tier I capital -0. 6
adequacy ratio 13.6% -0.1% 0.5% -2.5% % -0.3% 10.6% -0.4%
Total capital
adequacy ratio 18.1% -0.1% 0.5% -2.4% -0.5% -0.3% 15.3% -0.3%
- Further strengthening capital position through Tier 2 capital
subordinated facility. In December 2019, the Bank signed a ten-year
US$ 107mln subordinated syndicated loan agreement arranged by FMO -
Dutch entrepreneurial development bank in collaboration with other
participating lenders (the Bank's existing and new partner
financial institutions). Of the total facility, US$ 52mln was
drawn-down by the Bank and the regulatory approval on
classification as a Bank Tier 2 capital instrument under the Basel
III framework was received in December 2019. The Bank drew-down the
second tranche of the facility in the amount of US$55mln and
received the regulatory approval on classification from NBG in
April 2020, which further improves the overall capitalisation of
the Bank
DISCUSSION OF SEGMENT RESULTS
RETAIL BANKING (RB)
Retail Banking provides consumer loans, mortgage loans,
overdrafts, credit card facilities and other credit facilities as
well as funds transfer and settlement services and the handling of
customer deposits for both individuals and legal entities (SME and
micro businesses only). RB is represented by the following
sub-segments: (1) the emerging and mass retail segment (through our
Express and Bank of Georgia brands), (2) SME and micro businesses -
MSME (through our Bank of Georgia brand), and (3) the mass affluent
segment (through our SOLO brand).
GEL thousands, unless otherwise Change Change
noted 1Q20 1Q19 y-o-y 4Q19 q-o-q
INCOME STATEMENT HIGHLIGHTS(8)
Net interest income 118,266 135,165 -12.5% 134,839 -12.3%
Net fee and commission income 29,398 32,435 -9.4% 32,775 -10.3%
Net foreign currency gain 21,634 9,062 138.7% 14,795 46.2%
Net other income 1,906 2,168 -12.1% 9,233 -79.4%
Operating income 171,204 178,830 -4.3% 191,642 -10.7%
Salaries and other employee benefits (40,568) (33,874) 19.8% (39,683) 2.2%
Administrative expenses (20,732) (15,796) 31.2% (22,593) -8.2%
Depreciation, amortisation and
impairment (17,889) (13,287) 34.6% (20,383) -12.2%
Other operating expenses (551) (536) 2.8% (625) -11.8%
Operating expenses (79,740) (63,493) 25.6% (83,284) -4.3%
Profit from associate 301 188 60.1% 153 96.7%
Operating income before cost of
risk 91,765 115,525 -20.6% 108,511 -15.4%
Cost of risk (142,079) (39,386) NMF (7,118) NMF
Net operating (loss) / income before
non-recurring items (50,314) 76,139 NMF 101,393 NMF
Net non-recurring items (38,929) (276) NMF 68 NMF
(Loss) / profit before income tax
and one-off costs (89,243) 75,863 NMF 101,461 NMF
Income tax benefit / (expense) 11,215 (6,101) NMF (8,910) NMF
(Loss) / profit adjusted for one-off
costs (78,028) 69,762 NMF 92,551 NMF
One-off termination costs of former - (7,075) NMF - -
CEO and executive management (after
tax)
(Loss) / profit (78,028) 62,687 NMF 92,551 NMF
BALANCE SHEET HIGHLIGHTS
Net loans, currency blended 7,950,477 6,389,631 24.4% 7,427,721 7.0%
Net loans, GEL 4,157,645 3,286,042 26.5% 4,181,192 -0.6%
Net loans, FC 3,792,832 3,103,589 22.2% 3,246,529 16.8%
Client deposits, currency blended 5,973,729 4,520,521 32.1% 5,712,535 4.6%
Client deposits, GEL 1,703,686 1,385,451 23.0% 1,829,133 -6.9%
Client deposits, FC 4,270,043 3,135,070 36.2% 3,883,402 10.0%
of which:
Time deposits, currency blended 3,520,769 2,593,744 35.7% 3,221,741 9.3%
Time deposits, GEL 865,443 637,522 35.8% 817,879 5.8%
Time deposits, FC 2,655,326 1,956,222 35.7% 2,403,862 10.5%
Current accounts and demand deposits,
currency blended 2,452,960 1,926,777 27.3% 2,490,794 -1.5%
Current accounts and demand deposits,
GEL 838,243 747,929 12.1% 1,011,254 -17.1%
Current accounts and demand deposits,
FC 1,614,717 1,178,848 37.0% 1,479,540 9.1%
KEY RATIOS
ROAE(8) -25.5% 25.3% 31.4%
Net interest margin, currency blended 4.9% 6.6% 5.7%
Cost of credit risk ratio 7.4% 2.4% 0.2%
Cost of funds, currency blended 5.8% 5.4% 5.3%
Loan yield, currency blended 11.8% 13.6% 12.4%
Loan yield, GEL 15.7% 19.3% 16.7%
Loan yield, FC 6.8% 7.7% 6.8%
Cost of deposits, currency blended 2.6% 2.7% 2.5%
Cost of deposits, GEL 5.7% 5.2% 5.1%
Cost of deposits, FC 1.3% 1.6% 1.4%
Cost of time deposits, currency
blended 3.9% 4.0% 3.8%
Cost of time deposits, GEL 9.3% 8.8% 8.6%
Cost of time deposits, FC 2.0% 2.5% 2.2%
Current accounts and demand deposits,
currency blended 0.9% 1.0% 0.9%
Current accounts and demand deposits,
GEL 2.3% 2.2% 2.2%
Current accounts and demand deposits,
FC 0.0% 0.3% 0.1%
Cost / income ratio(9) 46.6% 35.5% 43.5%
(8) The 1Q19 income statement adjusted profit excludes GEL
7.1mln one-off employee costs (net of income tax) related to the
former CEO and executive management termination benefits. The
amount is comprised of GEL 5.2mln (gross of income tax) excluded
from salaries and other employee benefits, GEL 2.9mln (gross of
income tax) excluded from non-recurring items and GEL 1.0mln tax
benefit excluded from income tax expense. The 1Q19 ROAE has been
adjusted accordingly
(9) The 1Q19 cost/income ratio is adjusted for GEL 5.2mln
one-off employee costs (gross of income tax) related to termination
benefits of the former executive management
Performance highlights
-- Retail Banking delivered solid quarterly results in each of
its major segments despite the COVID-19 pandemic impact and
generated operating income of GEL 171.2mln in 1Q20 (down 4.3% y-o-y
and down 10.7% q-o-q)
-- RB's net interest income was down by 12.5% y-o-y and down by
12.3% q-o-q in 1Q20, primarily reflecting the slow-down in economic
activity on the back of COVID-19 pandemic outbreak in March 2020.
Net interest income still benefited from the growth of the local
currency loan portfolio during the pre-COVID-19 period, which
generated 8.9ppts higher yields than the foreign currency loan
portfolio in 1Q20
-- Retail Banking net loan book reached GEL 7,950.5mln at 31
March 2020, up 24.4% y-o-y and up 7.0% q-o-q. On a constant
currency basis, retail loan book increased by 13.7% y-o-y and was
largely flat q-o-q in 1Q20. Local currency denominated loan book
increased by 26.5% y-o-y and was largely flat q-o-q, while the
foreign currency denominated loan book grew by 22.2% y-o-y and by
16.8% q-o-q. As a result, the local currency denominated loan book
accounted for 52.3% of the Retail Banking loan book at 31 March
2020 (51.4% at 31 March 2019 and 56.3% at 31 December 2019).
Currently, the part of the Retail Banking loan portfolio which is
most sensitive to foreign currency risk is largely
de-dollarised
-- The loan portfolio composition reflects the shift towards a
higher quality, lower margin product mix on the back of tighter
lending conditions for unsecured consumer lending since 1 January
2019. The y-o-y and q-o-q loan book growth reflected continued
strong loan origination levels in MSME and mortgage segments, as
well as secured consumer lending during the pre-COVID-19 period.
The q-o-q decline in the loan originations is reflective of the
slow-down of the economic activity in March 2020 as a result of
COVID-19 pandemic outbreak:
RETAIL BANKING LOAN BOOK BY PRODUCTS
GEL million, unless otherwise Change Change
noted 1Q20 1Q19 y-o-y 4Q19 q-o-q
Loan originations
Consumer loans 347,434 306,493 13.4% 412,538 -15.8%
Mortgage loans 259,310 209,514 23.8% 411,058 -36.9%
Micro loans 277,241 287,038 -3.4% 421,009 -34.1%
SME loans 297,514 214,520 38.7% 365,923 -18.7%
POS loans 16,409 14,469 13.4% 28,106 -41.6%
Outstanding balance
Consumer loans 1,591,216 1,381,499 15.2% 1,549,010 2.7%
Mortgage loans 3,332,205 2,578,536 29.2% 3,042,506 9.5%
Micro loans 1,600,263 1,310,758 22.1% 1,491,951 7.3%
SME loans 1,233,054 795,792 54.9% 1,031,475 19.5%
POS loans 40,082 44,369 -9.7% 43,444 -7.7%
-- Retail Banking client deposits increased to GEL 5,973.7mln as
at 31 March 2020, up 32.1% y-o-y and up 4.6% q-o-q . The
dollarisation level of our deposits stood at 71.5% at 31 March
2020, compared to 69.4% at 31 March 2019 and 68.0% at 31 December
2019. The cost of foreign currency denominated deposits was down
30bps y-o-y and down 10bps q-o-q, while the cost of local currency
denominated deposits increased by 50bps y-o-y and by 60bps q-o-q in
1Q20. The spread between the cost of RB's client deposits in GEL
and foreign currency widened to 4.4ppts during 1Q20 (GEL: 5.7%; FC:
1.3%), compared to 3.6ppts in 1Q19 (GEL: 5.2%; FC: 1.6%) and
3.7ppts in 4Q19 (GEL: 5.1%; FC: 1.4%)
-- Retail Banking NIM was 4.9% in 1Q20, compared to 6.6% in 1Q19
and 5.7% in 4Q19. The y-o-y and q-o-q decline in NIM was mostly
attributable to lower loan yields (down 180bps y-o-y and down 60bps
q-o-q). In addition, the cost of funds increased by 40bps y-o-y and
by 50bps q-o-q in 1Q20, primarily on the back of increased NBG
monetary policy rate (NBG increased monetary policy rate by
cumulative of 200bps since September 2019 and by additional 50bps
on 11 December 2019)
-- Retail Banking net fee and commission income . Retail Banking
still generated solid net fee and commission income during first
quarter of 2020, considering the COVID-19 impact, which was
primarily driven by settlement operations and the strong franchise
of our SOLO and MSME segments. The y-o-y and q-o-q decline was
mainly due to slower customer activity on the back of COVID-19
pandemic and temporary removal of fees on transactions executed
through our mobile and internet banking platforms since mid-March
2020, for a two-month period, in order to decrease the customer
visits to branches and incentivise the transfer of customers'
activity to digital channels
-- RB's asset quality. Cost of credit risk ratio increased to
7.4% in 1Q20, up from 2.4% in 1Q19 and up from 0.2% in 4Q19, driven
by the IFRS 9 reserve builds, created for the full economic cycle
in the first quarter of 2020, primarily related to deterioration of
the macro-economic environment and expected creditworthiness of
borrowers as a result of the COVID-19 impact
-- Our Retail Banking business continued to further focus our
strategy towards continuous digitalisation, as demonstrated by the
following performance indicators:
RETAIL BANKING PERFORMANCE INDICATORS
Change Change
Volume information in GEL thousands 1Q20 1Q19 y-o-y 4Q19 q-o-q
Retail Banking customers
Number of new customers 31,796 39,845 -20.2% 55,303 -42.5%
Number of customers 2,567,097 2,454,678 4.6% 2,540,466 1.0%
Cards
Number of cards issued 152,938 176,085 -13.1% 230,540 -33.7%
Number of cards outstanding 2,160,942 2,139,239 1.0% 2,145,060 0.7%
Express Pay terminals
Number of Express Pay terminals 3,183 3,152 1.0% 3,217 -1.1%
Number of transactions via Express
Pay terminals 22,934,069 26,751,138 -14.3% 27,434,540 -16.4%
Volume of transactions via Express
Pay terminals 2,026,846 1,765,536 14.8% 2,334,579 -13.2%
POS terminals
Number of desks 16,123 12,766 26.3% 15,592 3.4%
Number of contracted merchants 7,764 5,902 31.5% 7,519 3.3%
Number of POS terminals 22,472 17,684 27.1% 21,869 2.8%
Number of transactions via POS terminals 22,611,894 16,529,540 36.8% 24,073,703 -6.1%
Volume of transactions via POS terminals 650,294 488,198 33.2% 742,067 -12.4%
Internet banking
Number of active users(10) 287,301 277,960 3.4% 294,081 -2.3%
Number of transactions via internet
bank 1,107,073 1,421,135 -22.1% 1,268,672 -12.7%
Volume of transactions via internet
bank 654,221 490,457 33.4% 641,560 2.0%
Mobile banking
Number of active users(10) 567,036 382,152 48.4% 513,677 10.4%
Number of transactions via mobile
bank 12,453,837 6,697,926 85.9% 11,541,763 7.9%
Volume of transactions via mobile
bank 1,663,128 790,201 110.5% 1,564,891 6.3%
(10) The users that log-in in internet and mobile bank at least
once in three months
-- Growth in client base was due to the increased offering of
cost-effective remote channels . The increase to 2,567,097
customers as at 31 March 2020 (up 4.6% y-o-y and up 1.0% q-o-q)
reflects sustained growth in our client base over recent periods
and was one of the drivers of the solid Retail Banking net fee and
commission income in the first quarter of 2020
-- The number of outstanding cards increased by 1.0% y-o-y and
by 0.7% q-o-q at 31 March 2020. The number of Loyalty programme
Plus+ cards (launched in July 2017 as part of RB's client-centric
approach), reached 906,985 as at 31 March 2020, up 39.3% y-o-y and
up 5.6% q-o-q
-- Digital channels . We have actively continued the further
development of our digital strategy and therefore, more than 94% of
total daily transactions of individuals were executed through
digital channels during the first quarter of 2020
- mBank and iBank digital penetration. The Bank continued
introducing new features to our mobile banking application and our
internet bank and introducing dedicated digital spaces in our
branches to incentivise transferring client activity to digital
channels. The focus in this direction further increased after the
COVID-19 pandemic outbreak, which the Bank responded to with
various activities, such as instructive videos, incentives and call
center support for customers educating them how to use these
digital channels. As a result of increased investments and efforts
in this direction, the number of active mobile and internet banking
users, as well as the number and volume of transactions through
these channels continued to expand
- The utilisation of Express Pay terminals . The Bank has a
large network of self-service terminals throughout Georgia, which
are used extensively by its customers. The decline in number of
transactions both y-o-y and q-o-q in 1Q20, was primarily due to the
continuous migration of customers to mobile banking platform
-- Business iBank. In 2019, the Bank released a new business
internet banking platform for MSME and corporate clients, which
comes with many features designed to make its use an intuitive and
smooth experience. Since then, we have focused our efforts on
making the Business iBank even more useful for business
transactions to further incentivise transfer of client activity to
digital channels. As a result, we saw a significant y-o-y increase
in the number and volume of transactions through Business iBank
during 1Q20 (up 26.1% and up 15.0% y-o-y, respectively). c.95% of
daily transactions of legal entities were executed through the
internet bank during the first quarter of 2020
-- Digital ecosystem development . In order to enhance our
client-centric offering, we have developed a digital ecosystem with
a number of integrated platforms aimed at providing the
valued-added solutions to our clients in addition to the financial
services they receive from the Bank. Currently, our digital
ecosystem rests on two pillars: retail and MSME. Under the retail
pillar, we launched two platforms in 2019 - real estate platform
area.ge and online marketplace platform extra.ge. Under the MSME
pillar, we launched Optimo in 2019 - a digital solution for our
MSME customers to run their business sales and solutions
- In 1Q20, the Group in response to COVID-19 outbreak accepted
social and commercial challenge to play a vital role in addressing
accelerated digital service demand. Due to social distancing and
restrictions imposed on commercial activities, the Group's digital
ecosystem arm proactively restructured its operations and
commercial offerings to adapt to the changing environment. Core
focus fell on extra.ge, which after its acquisition in 2Q19, has
been transformed into a vibrant and dynamic full-scale digital
marketplace and the full-scale re-launch was completed as planned
in the first quarter of 2020. Currently, the platform has been
upgraded from consumer-to-consumer (C2C) to business-to-consumer
(B2C) and business-to-business (B2B) sales platform, already having
a network of more than 200 largest vendors operating in the
country
- Following the COVID-19 outbreak, during the first quarter of
2020, the Group structured a unique digital solution for merchants
who were faced by customer scarcity and heavy burden of
restrictions. The Group has merged extra.ge and Optimo - a
cutting-edge digital inventory management and POS solution with
integrated software and a rich variety of functions and analytical
tools, to address traditional retailers' key challenges: 1) lack of
competence to create and harness the e-commerce solution; 2) lack
of internal tools and sufficient procedures to support digital
sales; and 3) lack of appropriate infrastructure to deliver the
products sold. As such, with the packaged solution, branded as
Adapter, the Group is offering a best-in-class solution to the
merchants, who can now undergo fast and efficient transformation to
digital sales with just a simple plug-in. With Optimo they get
effective inventory and order management platform, which is
digitally integrated with extra.ge, through which they can sell
their products directly to customers remotely. Since its
introduction, Adapter quickly gained interest and popularity
amongst market players, small merchants, as well as large physical
marketplaces, which is evident through active negotiations and
already onboarded partners. Adapter was highly accepted by hundreds
of retailers and producers, exceeding initially planned targets
-- SOLO, our premium banking brand, continued its strong growth
and investment in its lifestyle brand. We have 12 SOLO lounges, of
which 9 are located in Tbilisi, the capital of Georgia, and 3 in
major regional cities of Georgia. The number of SOLO clients
reached 56,327 at 31 March 2020 (47,057 at 31 March 2019 and 54,542
at 31 December 2019). At 31 March 2020, the product to client ratio
for the SOLO segment was 5.0, compared to 2.1 for our retail
franchise. While SOLO clients currently represent 2.2% of our total
retail client base, they contributed 30.6% to our retail loan book,
40.2% to our retail deposits, 26.7% and 25.7% to our net retail
interest income and to our net retail fee and commission income in
1Q20, respectively. The fee and commission income from the SOLO
segment was GEL 6.1mln in 1Q20 (GEL 5.8mln in 1Q19 and GEL 6.4mln
in 4Q19). SOLO Club, a membership group within SOLO, which offers
exclusive access to SOLO products and offers ahead of other SOLO
clients at a higher fee, continued to increase its client base. At
31 March 2020, SOLO Club had 5,620 members, up 26.4% y-o-y and up
2.5% q-o-q
-- MSME banking. The number of MSME segment clients reached
224,641 at 31 March 2020, up 8.1% y-o-y and up 1.8% q-o-q. MSME's
gross loan portfolio reached GEL 3,017.1mln (up 32.3% y-o-y and up
11.9% q-o-q) and client deposits and notes amounted to GEL 750.9mln
(up 10.1% y-o-y and down 7.0% q-o-q) at 31 March 2020. The MSME
segment generated operating income of GEL 50.5mln in 1Q20 (up 11.0%
y-o-y and down 9.5% q-o-q)
-- Retail Banking recorded a loss in the amount of GEL 78.0mln
in 1Q20, compared to profit of GEL 69.8mln(11) in 1Q19 and GEL
92.6mln in 4Q19. As such, Retail Banking's profitability was
negative in 1Q20, compared to outstanding ROAE of 25.3%(11) in 1Q19
and 31.4% in 4Q19. This resulted primarily from the increased cost
of risk and non-recurring costs associated with the impact of
COVID-19
(11) The 1Q19 profit and ROAE are adjusted for GEL 7.1mln
one-off employee costs (net of income tax) related to termination
benefits of the former CEO and executive management
CORPORATE AND INVESTMENT BANKING (CIB)
CIB provides (1) loans and other credit facilities to Georgia's
large corporate clients and other legal entities, excluding SME and
micro businesses; (2) services such as fund transfers and
settlements services, currency conversion operations, trade finance
services and documentary operations as well as handling savings and
term deposits; (3) finance lease facilities through the Bank's
leasing operations arm, the Georgian Leasing Company; (4) brokerage
services through Galt & Taggart; and (5) Wealth Management
private banking services to high-net-worth individuals and offers
investment management products in Georgia and internationally
through representative offices in Tbilisi, London, Budapest,
Istanbul and Tel Aviv.
GEL thousands, unless otherwise Change Change
noted 1Q20 1Q19 y-o-y 4Q19 q-o-q
INCOME STATEMENT HIGHLIGHTS(12)
Net interest income 69,341 48,541 42.9% 65,642 5.6%
Net fee and commission income 8,955 8,151 9.9% 11,928 -24.9%
Net foreign currency gain 8,534 10,242 -16.7% 14,341 -40.5%
Net other income 4,681 1,386 NMF 9,212 -49.2%
Operating income 91,511 68,320 33.9% 101,123 -9.5%
Salaries and other employee benefits (10,561) (12,439) -15.1% (15,495) -31.8%
Administrative expenses (4,466) (4,027) 10.9% (8,989) -50.3%
Depreciation, amortisation and
impairment (2,473) (1,701) 45.4% (2,387) 3.6%
Other operating expenses (296) (203) 45.8% (295) 0.3%
Operating expenses (17,796) (18,370) -3.1% (27,166) -34.5%
Operating income before cost of
risk 73,715 49,950 47.6% 73,957 -0.3%
Cost of risk (95,902) (1,824) NMF (7,389) NMF
Net operating (loss) / income before
non-recurring items (22,187) 48,126 NMF 66,568 NMF
Net non-recurring items (1,406) (72) NMF (217) NMF
(Loss) / profit before income tax
and one-off costs (23,593) 48,054 NMF 66,351 NMF
Income tax benefit / (expense) 1,847 (3,864) NMF (5,344) NMF
(Loss) / profit adjusted for one-off
costs (21,746) 44,190 NMF 61,007 NMF
One-off termination costs of former - (3,165) NMF - -
CEO and executive management (after
tax)
(Loss) / profit (21,746) 41,025 NMF 61,007 NMF
BALANCE SHEET HIGHLIGHTS
Net loans and finance lease receivables,
currency blended 4,391,652 2,652,838 65.5% 3,804,448 15.4%
Net loans and finance lease receivables,
GEL 768,968 451,360 70.4% 720,375 6.7%
Net loans and finance lease receivables,
FC 3,622,684 2,201,478 64.6% 3,084,073 17.5%
Client deposits, currency blended 4,285,356 3,531,840 21.3% 3,824,667 12.0%
Client deposits, GEL 1,310,129 1,405,892 -6.8% 1,305,230 0.4%
Client deposits, FC 2,975,227 2,125,948 39.9% 2,519,437 18.1%
Time deposits, currency blended 1,740,893 1,325,345 31.4% 1,349,969 29.0%
Time deposits, GEL 583,015 506,023 15.2% 366,847 58.9%
Time deposits, FC 1,157,878 819,322 41.3% 983,122 17.8%
Current accounts and demand deposits,
currency blended 2,544,463 2,206,495 15.3% 2,474,698 2.8%
Current accounts and demand deposits,
GEL 727,114 899,869 -19.2% 938,383 -22.5%
Current accounts and demand deposits,
FC 1,817,349 1,306,626 39.1% 1,536,315 18.3%
Letters of credit and guarantees,
standalone (off-balance sheet item) 1,520,149 1,037,779 46.5% 1,376,196 10.5%
Assets under management 2,704,411 2,371,002 14.1% 2,567,177 5.3%
RATIOS
ROAE(12) -10.6% 27.1% 28.5%
Net interest margin, currency blended 4.0% 3.6% 3.8%
Cost of credit risk ratio 8.3% 0.1% 0.5%
Cost of funds, currency blended 3.5% 3.8% 4.0%
Loan yield, currency blended 8.9% 9.1% 9.2%
Loan yield, GEL 13.7% 11.5% 12.5%
Loan yield, FC 7.8% 8.6% 8.5%
Cost of deposits, currency blended 3.7% 3.5% 3.3%
Cost of deposits, GEL 7.3% 5.9% 6.1%
Cost of deposits, FC 1.6% 1.9% 1.7%
Cost of time deposits, currency
blended 6.0% 5.5% 5.4%
Cost of time deposits, GEL 9.4% 7.5% 7.6%
Cost of time deposits, FC 3.6% 4.2% 4.2%
Current accounts and demand deposits,
currency blended 2.0% 2.1% 2.1%
Current accounts and demand deposits,
GEL 5.5% 4.8% 5.3%
Current accounts and demand deposits,
FC 0.2% 0.3% 0.2%
Cost / income ratio(13) 19.4% 26.9% 26.9%
Concentration of top ten clients 9.6% 9.1% 9.9%
(12) The 1Q19 income statement adjusted profit excludes GEL
3.2mln one-off employee costs (net-off income tax) related to the
former CEO and executive management termination benefits. The
amount is comprised of GEL 2.7mln (gross of income tax) excluded
from salaries and other employee benefits, GEL 1.1mln (gross of
income tax) excluded from non-recurring items and GEL 0.6mln tax
benefit excluded from income tax expense. The 1Q19 ROAE has been
adjusted accordingly
(13) The 1Q19 cost/income ratio is adjusted for GEL 2.7mln
one-off employee costs (gross of income tax) related to termination
benefits of the former executive management
Performance highlights
-- Corporate and Investment Banking delivered strong quarterly
results. CIB continued further growth during the first quarter of
2020 and generated strong net interest income and net fee and
commission income during the period, coupled with efficient cost
discipline. This resulted in 47.6% y-o-y increase and only 0.3%
q-o-q decline in operating income before cost of risk in 1Q20
-- CIB delivered strong net interest income during the first
quarter of 2020 (up by 42.9% y-o-y and up by 5.6% q-o-q). CIB NIM
was 4.0% in 1Q20 (up 40bps y-o-y and up 20bps q-o-q) . Increase in
NIM both y-o-y and q-o-q was due to a decrease in cost of funds
(down 30bps y-o-y and down 50bps q-o-q), partially offset by a
decline in currency blended loan yields (down 20bps y-o-y and down
30bps q-o-q)
-- CIB's net fee and commission income was GEL 9.0mln in 1Q20,
up 9.9% y-o-y and down 24.9% q-o-q. The y-o-y growth in net fee and
commission income was largely driven by increased fees from
guarantees and letters of credit issued, while q-o-q decline was
mostly due to slow-down of economic activity on the back of
COVID-19 pandemic outbreak and higher placement fees generated in
4Q19
-- CIB's loan book and dollarisation . CIB loan portfolio
reached GEL 4,391.7mln at 31 March 2020, up 65.5% y-o-y and up
15.4% q-o-q. On a constant currency basis, CIB loan book was up
40.9% y-o-y and up 3.4% q-o-q. The concentration of the top 10 CIB
clients stood at 9.6% at 31 March 2020 (9.1% at 31 March 2019 and
9.9% at 31 December 2019). Foreign currency denominated net loans
represented 82.5% of CIB's loan portfolio at 31 March 2020,
compared to 83.0% a year ago and 81.1% at 31 December 2019. At 31
March 2020, 39.4% of total gross CIB loans were issued in foreign
currency with exposure to foreign currency risk in regards of
income, while 43.4% of total gross CIB loans were issued in foreign
currency with no or minimal exposure to foreign currency risk
-- Dollarisation of CIB deposits increased to 69.4% at 31 March
2020 from 60.2% a year ago and from 65.9% at 31 December 2019. A
y-o-y increase in foreign currency denominated deposits was
partially due to local currency depreciation during the first
quarter of 2020. The interest rates on local currency deposits
increased, while interest rates on foreign currency deposits
declined both y-o-y and q-o-q in 1Q20, and the cost of deposits in
local currency remained well above the cost of foreign currency
deposits
-- Net other income. Significant q-o-q decrease in net other
income in 1Q20 was largely driven by net gains recorded as a result
of the revaluation of investment property in the fourth quarter of
2019
-- Cost of credit risk. CIB's cost of credit risk ratio
increased significantly up to 8.3% in 1Q20 (compared to 0.1% in
1Q19 and 0.5% in 4Q19), driven by the IFRS 9 ECL reserve builds,
created for the full economic cycle in the first quarter of 2020,
primarily related to deterioration of macro-economic environment
and expected creditworthiness of borrowers as a result of the
COVID-19 impact. This reflected additional reserves for borrowers
operating across multiple sectors of the economy, with the largest
impacts in tourism, trade, transportation, construction and real
estate industries. At the same time, CIB's NPL coverage ratio was
up to 111.8% at 31 March 2020 (89.4% as at 31 March 2019 and 62.0%
at 31 December 2019), primarily driven by these additional reserve
builds
-- As a result, CIB recorded a loss in the amount of GEL 21.7mln
during the first quarter of 2020, compared to profit of GEL
44.2mln(14) in 1Q19 and GEL 61.0mln in 4Q19. CIB profitability was
negative in 1Q20, compared to outstanding ROAE of 27.1%(14) in 1Q19
and 28.5% in 4Q19
(14) The 1Q19 profit and ROAE are adjusted for GEL 3.2mln
one-off employee costs (net of income tax) related to termination
benefits of the former CEO and executive management
Performance highlights of investment management operations
-- The Investment Management's AUM increased to GEL 2,704.4mln
as at 31 March 2020, up 14.1% y-o-y and up 5.3% q-o-q. This
includes a) deposits of Wealth Management franchise clients, b)
assets held at Bank of Georgia Custody, c) Galt & Taggart
brokerage client assets, and d) Global certificates of deposit held
by Wealth Management clients. The y-o-y and q-o-q increase in AUM
mostly reflected increase in client assets and depreciation of the
local currency during the first quarter of 2020
-- Wealth Management deposits reached GEL 1,658.7mln as at 31
March 2020, up 33.5 % y-o-y and up 18.1% q-o-q, growing at a
compound annual growth rate (CAGR) of 12.7% over the last five-year
period . The cost of deposits was 3.0% in 1Q20, down 10bps y-o-y
and down 20bps q-o-q
-- We served 1,563 wealth management clients from 79 countries
as at 31 March 2020, compared to 1,535 clients as at 31 March 2019
and 1,557 clients as at 31 December 2019
-- Galt & Taggart, which brings under one brand corporate
advisory, debt and equity capital markets research and brokerage
services, continues to develop local capital markets in Georgia
-- During 2020 , Galt & Taggart acted as a:
- lead manager for International Finance Corporation,
facilitating a public placement of GEL 100mln local bond issuance
in April 2020
- rating advisor for one of the microfinance organisations,
assisting in obtaining credit rating from Scope Ratings
-- In February 2020, Global Finance Magazine named Galt &
Taggart Best Investment Bank in Georgia for the sixth consecutive
year
-- Galt and Taggart Research activities in 1Q20:
- In March 2020, Galt & Taggart together with JSC Bank of
Georgia organised a web-conference to discuss the COVID-19 impact
on the Georgian economy and various economic scenarios for 2020.
The web-conference was attended by c.200 guests, including the
Bank's corporate clients and high-level representatives from the
Georgian Government. The presentation was followed by a Q&A
session, during which the Minister of Economy and Sustainable
Development of Georgia addressed participants and commented on the
Government's support measures for private sector
- In March 2020, Galt & Taggart continued its web-conference
series on COVID-19 developments and organised a web-conference,
this time for the Bank's SME clients, to discuss virus impact on
Georgian economy, which was followed by a Q&A session
RESPONSE TO COVID-19 PANDEMIC OUTBREAK
MEASURES IMPLEMENTED BY THE GOVERNMENT OF GEORGIA
The first case of coronavirus in the country was confirmed on 26
February 2020. As of 11 May 2020, Georgia has reported a total of
638 confirmed cases, with 317 recovered and 11 deaths. Georgia has
responded to the virus outbreak promptly in an extraordinary
resilient and co-operative manner, which has also been acknowledged
by the international community. Importantly, currently, Georgia has
one of the lowest active coronavirus cases globally at 16 per
100,000 persons.
Safety measures . The following swift and decisive actions have
proven critical in containing the virus spread so far:
- Before international flights were banned entirely on 18 March
2020, travel was initially banned from China and Iran in January
and February 2020, respectively
- Full lockdown was introduced on 21 March 2020, and state of
emergency declared in the country, which is now in place until 22
May 2020
- 14-day mandatory quarantine period imposed on citizens
returning to Georgia from other countries
- Educational process suspended and educational institutions switched to distance learning
- All public transportation is closed, except for vehicles and
taxis operating with regulatory approval
- All economic activities, other than grocery stores,
pharmacies, food and pharmacy products delivery services, gas
stations, banks and post offices, are restricted completely
- The Government maintains an informational website that
provides live statistics on the spread of the virus in Georgia -
www.stopcov.ge
Anti-crisis stimulus plan . The Government announced a series of
support measures designed to mitigate the negative economic impact
of COVID-19. The anti-crisis plan was presented by the Prime
Minister of Georgia on 24 April 2020 and includes a social
assistance package for individuals, as well as tax exemptions and
various funding mechanisms for businesses. A total of GEL 3.5
billion (7% of GDP) will be allocated for implementing the economic
stimulus plan, of which GEL 1.035 billion will be used to support
citizens, GEL 2.11 billion to support businesses, and GEL 350
million will be spent to enhance the country's healthcare system.
The stimulus plan may be further expanded and the 2020 revised
Government budget document, which will be available in May 2020,
will detail the full picture of measures.
Support to businesses
- Property and income tax payments postponed for four months
until 1 November 2020 for hospitality sector companies;
Approximately 4,500 companies affected, and around GEL 90 million
will remain in this sector of the economy . This initiative was
further updated as part of Tourism recovery plan presented on 7 May
2020 (see below): Tourism sector companies will fully be exempted
from property tax payments in 2020 (resulting in savings of GEL 45
million), while personal income tax payments for this sector
companies will be postponed until the end of 2020 (around GEL 90
million)
- Small-size hotels will receive a bank loan interest payment
subsidy for six months; GEL 10 million has been allocated for the
measure and around 850 companies already registered. This
initiative was further updated as part of Tourism recovery plan
presented on 7 May 2020 (see below): GEL 60 million has been
allocated to subsidise bank loan interest payments for hotels,
which will affect around 3,000 hotels operating in hospitality
industry. Additional GEL 5 million will be allocated to support
travel agencies and tourist guide operators
- Hotels offered to turn into quarantine zones at a specified
rate reimbursed by the Government
- Customs clearance for car importers postponed for 90 days
until 1 September 2020; Around 38,000 importers affected, resulting
in savings of GEL 50 million
- For all infrastructure projects, the State has insured against
an increase in the price of construction materials totalling c.GEL
200 million
- With the support of local banks, legal entities were given the
opportunity of loan restructuring; 7,000 legal entities have
already benefited
- VAT refunds to double to approximately GEL 1.2 billion from
initially planned GEL 600 million
- Government subsidised prices of nine food products - rice,
buckwheat, pasta, oil, flour, wheat, milk powder, sugar and beans;
Agreement concluded with large importers, allocating GEL 15 million
for the measure
- Support to agriculture development (grants, bank loans and irrigation systems)
- GEL 600 million long-term local-currency resource to be provided to commercial banks
- GEL 500 million will be allocated for supporting businesses, through:
- GEL 300 million credit guarantee scheme - GEL 2 billion loan
portfolio coverage, with 90% guarantee cover on new loans and 30%
on restructured loans
- Co-financing scheme under the State programme "Produce in
Georgia" - loan/lease co-financing period increase from 24 to 36
months; interest rate co-financing mechanism change; increase the
coverage of the programme; lower minimum loan/lease limit; increase
working capital funding
Support to individuals
- Individuals who lost jobs during the pandemic will receive a
monthly allowance of GEL 200 for a period of six months
- Individuals with monthly salary of GEL 750, who have not been
laid-off during the pandemic, will be exempt from income tax
payments for the next six months; In case of monthly salary of GEL
1,500, the exemption will apply to the GEL 750 tax base
- Self-employed or unemployed individuals who are able to prove
that they lost income due to the pandemic outbreak, will receive
GEL 300 as a one-off assistance
- Socially disadvantaged groups (320,000 people), as well as
adults and children with disabilities (40,000 people), will be
entitled to a monthly financial assistance of GEL 600 for the next
six months
- Three-month utility payments (electricity, water and
sanitation charges for more than 1.2 million families and natural
gas payments for more than 670,000 families) of GEL 150 million
will be subsidised by the Government
- With the support of the local commercial banks, retail clients
were given the opportunity to defer loan payments for three months;
600,000 citizens have already benefited from this measure
Reopening timeline
- On 24 April 2020, the Prime Minister of Georgia presented a
timeline for gradually lifting the coronavirus-related restrictions
and resuming economic activity. The reopening plan commenced on 27
April 2020 and will be executed in six phases, two weeks per stage,
depending on the epidemiological situation in the country. On 7 May
2020, the Prime Minister announced an update to the plan, with
target to re-open Georgia's borders to foreign tourists from 1 July
2020, while domestic tourism will resume from June 15(th) .
Detailed Tourism Recovery plan was presented as a top priority with
GEL 200 million allocated to this industry initiatives and aim to
promote Georgia as a safe destination, which will be shortly
followed by support schemes for agriculture, construction and
development, and anti-crisis actions in education
International support . Georgian authorities have mobilised
US$3.0 billion financing from the International Monetary Fund (the
"IMF") and other international partners (US, EU, World Bank, KFW,
AFD, EBRD, EIB, ADB, etc.) to respond effectively to the COVID-19
pandemic associated economic crisis. Georgia's long-lasting ties
with these institutions, prudent economic policymaking of recent
years and the country's aspiration to democratic changes made this
support from long-standing partners possible. Of this funding,
US$1.5 billion (9.9% of GDP) is earmarked for the public sector and
US$1.5 billion for the private sector. The IMF's financing is
c.US$400 million, of which US$200 million will be made available
immediately to the budget, US$100 million to the National Bank of
Georgia (the "NBG") in the second half of 2020, and another US$100
million in 2021. With this support, the estimated stimulus in 2020
will be substantial at 11-15% of GDP, which will help to finance
healthcare and macroeconomic stabilisation initiatives
NATIONAL BANK OF GEORGIA SUPERVISORY PLAN - COVID-19
At the end of March 2020, NBG introduced an updated supervisory
plan for the Georgian banking sector, aimed at alleviating the
negative financial and economic challenges created by the global
COVID-19 pandemic in Georgia. The measures, which were introduced
with immediate effect, were mainly focused on capital adequacy and
liquidity initiatives that allow banks to use existing regulatory
capital buffers to support customers in the current financially
stressed circumstances, to continue normal business activities as
far as possible, and to support the economy through ongoing lending
operations.
-- Capital adequacy initiatives
- Combined buffer - the conservation buffer requirement of 2.5%
of risk-weighted assets has been reduced to 0% indefinitely
- Pillar 2 requirements:
- Currency induced credit risk buffer (CICR) requirement reduced by 2/3rds indefinitely
- The phase-in of additional credit portfolio concentration risk
buffer (HHI) and net GRAPE buffer requirements on Common Equity
Tier 1 (CET1) and Tier 1 capital, planned at the end of March 2020,
has been postponed indefinitely
- The possibility of fully or partially releasing the remaining
requirements of Pillar 2 buffers (HHI, CICR, net GRAPE), if
necessary, remains open
- During the period the banks are allowed to partially or fully
use the Pillar 2 and conservation buffers, the banks are restricted
to make capital distribution in any form
-- General loan loss provisioning relating to COVID-19 . NBG
requested the Georgian banks to create general provisions under the
local accounting basis that is used for calculation of capital
adequacy ratios in the first quarter of 2020. The specific quantum
of the provision reflected the NBG's current expectation of
estimated credit losses on the lending book of the banking system
for the whole economic cycle, given current economic expectations.
The NBG considers the banking system capital ratios to be
sufficiently in excess of the expected minimum capital
requirements, to be able to absorb this upfront general provision,
whilst maintaining sufficiently comfortable buffers over the
required minimum capital ratios
-- Liquidity initiatives
- Liquidity coverage ratio (LCR) requirements (for local and
foreign currency, as well as total requirement) may be revisited
and reduced, if necessary. On 1 May 2020, NBG temporarily cancelled
the 75% LCR requirement for local currency for a one-year period,
or until further communicated by NBG
- Mandatory reserve requirements may be revisited and reduced, if necessary
- The eligibility criteria for repo-eligible securities has
already been extended by NBG and may be revisited further, if
necessary, to support GEL liquidity
-- Other initiatives
- The deadline for submitting previously planned stress testing
results to NBG was postponed until the end of May, 2020
- NBG will not impose any monetary sanctions in case of breach
of economic normatives and limits driven by external factors (e.g.
reserves, exchange rate depreciation)
- NBG on-site audits, except for ongoing anti-money laundering
reviews, postponed indefinitely
- All new regulatory changes and requirements postponed until
September, 2020, or until further communicated by NBG. This does
not apply to regulations with regard to open banking, XBRL
reporting and resolution framework
BANK OF GEORGIA'S BUSINESS CONTINGENCY PLANNING - COVID-19
The Group has introduced a number of resilience protocols and a
comprehensive Business Continuity Plan (the "BCP") aimed at curbing
the spread of COVID-19 in Georgia and mitigating the negative
impact on our business and the community. We started developing the
BCP at the end of January 2020 , such that all of our operations
would be successfully adapted to the new operating environment,
while establishing the health and safety of all our staff and
customers as the number one priority. Our BCP is focused on three
main pillars: Operating efficiency (employees, customers and
community), capital, and liquidity and funding positions
Operating efficiency . The Group has put in place a number of
initiatives in order to reduce physical interaction and prevent the
spread of coronavirus, whilst maintaining the full banking
capability required to support and assist our customers.
Safety measures
- The Bank's main branches remain open with additional security
measures introduced as discussed below. We reduced the physical
presence of bankers in the Bank's service centres. Two-week shifts
have been introduced in front offices and other service areas
throughout the business, to ensure ongoing availability of team
members
- Most Express branches remain open, however, the Bank has
initiated the temporary closure of the customer service support
areas of these branches, with only the self-service terminals and
ATM areas remaining open
- Banking services, where possible, are conducted exclusively
via call centres, which is operating remotely , with employees
working from home with significantly increased capacity since March
2020
- A three-month grace period on principal and interest payments
has been introduced on all retail loans in order to significantly
reduce the requirement for customers to physically visit Bank
branches
- We have further increased focus on our digitalisation strategy
and introduced various initiatives to incentivise the transfer of
our customers' activity to digital channels
- In the Bank's back office environments, the majority of staff are now working from home
- Additional safety measures have been introduced in our
locations. Glass barriers have been installed for our
teller/operators to ensure secure interaction with customers; all
employees are required to wear gloves and face masks and are
equipped with hand sanitisers. The Bank's premises, as well as ATMs
and self-service terminals, are sanitised twice a day, and all
employees and customers entering the Bank premises have to undergo
mandatory body temperature checks. Maximum of three customers are
allowed to enter the branch at the same time. Cash center is split
in two locations and operating in two-week shifts, where employees
have to follow even stricter protocols and procedures in order to
minimise the infection risk due to direct interaction with cash
Support to customers and community
- All retail clients have been given the opportunity to defer
loan principal and interest payments for three months
- Corporate customers and all legal entities operating in the
tourism industry have been given an immediate loan restructuring
opportunity. Specific sectors include hotels, as well as
restaurants, travel agencies, and passenger transportation
companies, amongst others
- In order to ensure uninterrupted secure service for our
customers and incentivise the use of remote channels, since
mid-March 2020, we have temporarily removed fees for transactions
executed through our internet and mobile banking platforms for a
two month period. Furthermore, in collaboration with mobile service
providers in Georgia, Bank of Georgia ensures full access to the
mBank, even in the offline mode, without an internet connection.
Finally, we launched a nationwide educational campaign with
informative and instructive videos (more than 100 pieces of
educational content), which help people to get familiar with and
learn easily how to use the mBank application
- The Group's digital ecosystem arm introduced a combined packed
solution of Optimo and extra.ge, branded as Adapter, which offers
best-in-class solution to the merchants, who can now undergo fast
and efficient transformation to digital sales with just a simple
plug-in. With Optimo they get effective inventory and order
management platform, which is digitally integrated with extra.ge,
through which they can sell their products directly to customers
remotely. This structured unique digital solution was highly
accepted by hundreds of retailers and producers and enabled them to
quickly adjust to the new challenging environment and
restrictions
- The Group also introduced a new online web-based platform
argacherde.ge to help businesses survive while they are closed. The
businesses listed on the platform offer vouchers to its customers
for future services after the full reopening of the economy
- Galt & Taggart together with JSC Bank of Georgia organised
several web-conferences for its corporate and SME clients to
discuss the COVID-19 impact on Georgian economy and Georgian
economic outlook for 2020. The web-conferences were also attended
by high-level representatives from the Georgian Government. The
presentations were followed by a Q&A session, during which our
business customers had the chance to hear directly from the Group,
as well as Government representatives, and discuss the current
challenges and plans to overcome those
- In collaboration with charte.ge, we financed one-year internet
access for 300 impoverished families to help youngsters continue
their education
- The Bank financed and donated 20,000 laboratory tests of
COVID-19, 10 respirators, 50,000 face masks and 60,000 gloves to
the Ministry of Health of Georgia to support the battle to prevent
the virus spread
Capital, liquidity and funding positions. See detailed plans and
initiatives put in place to further strengthen our capital and
liquidity and funding positions on pages 8 and 13
GEORGIAN ECONOMIC OUTLOOK IN 2020
With the COVID-19 pandemic, Georgia's economic outlook has
clearly deteriorated. The IMF expects real GDP to decline by 4% in
2020 and the expectations of our investment arm, Galt &
Taggart, are consistent with the IMF's projections. According to
the IMF, falling exports, halted tourism, and weaker remittances
are expected to widen the current account deficit to 10.5% of GDP
in 2020. Urgent balance-of-payments needs resulting from the
COVID-19 shock are expected to amount to c.US$ 1.6 billion in
2020-2021, and this gap is being financed through international
support mobilised from IMF and other international financial
institutions. Notably, Galt & Taggart has a different view on
the current account deficit - projected at 6% of GDP in 2020. This
is based on the anticipated significant reduction in imports due to
savings in oil imports and demand collapse, largely compensating
for the tourism revenue loss in 2020.
The fiscal deficit is expected to temporarily widen to 8.5% of
GDP in 2020 based on the IMF's projections, as revenues decline and
spending rises to offset the social and economic impact of the
pandemic. Importantly, the mobilised financing from international
community also allows for the building of buffers for additional
policy space, if risks further widen.
Galt & Taggart's baseline scenario assumes that the pandemic
fades and the economy reopens in the second half of 2020, however,
the projections are subject to more than usual uncertainty. In a
more adverse scenario, Galt & Taggart expects normalisation
process to take longer and the Georgian economy to contract by
6%.
SELECTED FINANCIAL AND OPERATING INFORMATION
INCOME STATEMENT BANK OF GEORGIA GROUP CONSOLIDATED
GEL thousands, unless otherwise Change Change
noted 1Q20 1Q19 y-o-y 4Q19 q-o-q
Interest income 388,326 334,735 16.0% 393,480 -1.3%
Interest expense (191,246) (144,754) 32.1% (186,389) 2.6%
Net interest income 197,080 189,981 3.7% 207,091 -4.8%
Fee and commission income 70,894 62,531 13.4% 77,472 -8.5%
Fee and commission expense (30,782) (20,351) 51.3% (30,914) -0.4%
Net fee and commission income 40,112 42,180 -4.9% 46,558 -13.8%
Net foreign currency gain 30,661 22,985 33.4% 37,177 -17.5%
Net other income 6,627 3,568 85.7% 18,439 -64.1%
Operating income 274,480 258,714 6.1% 309,265 -11.2%
Salaries and other employee benefits
(excluding one-offs) (56,538) (52,418) 7.9% (61,504) -8.1%
One-off termination costs of former
executive management (1) - (7,842) NMF - -
Salaries and other employee benefits (56,538) (60,260) -6.2% (61,504) -8.1%
Administrative expenses (27,021) (22,741) 18.8% (35,131) -23.1%
Depreciation, amortisation and
impairment (21,390) (15,688) 36.3% (23,815) -10.2%
Other operating expenses (1,059) (1,080) -1.9% (1,095) -3.3%
Operating expenses (106,008) (99,769) 6.3% (121,545) -12.8%
Profit from associates 301 188 60.1% 153 96.7%
Operating income before cost of
risk 168,773 159,133 6.1% 187,873 -10.2%
Expected credit loss / impairment
charge on loans to customers (228,189) (40,117) NMF (7,985) NMF
Expected credit loss / impairment
charge on finance lease receivables (1,885) (446) NMF 451 NMF
Other expected credit loss / impairment
charge on other assets and provisions (11,329) (2,089) NMF (6,698) 69.1%
Cost of risk (241,403) (42,652) NMF (14,232) NMF
Net operating (loss) / income before
non-recurring items (72,630) 116,481 NMF 173,641 NMF
Net non-recurring items (excluding
one-offs) (40,345) (1,575) NMF (1,591) NMF
One-off termination costs of former
CEO (2) - (3,985) NMF - -
Net non-recurring items (40,345) (5,560) NMF (1,591) NMF
(Loss) / profit before income tax (112,975) 110,921 NMF 172,050 NMF
Income tax benefit / (expense)
(excluding one-offs) 13,030 (10,536) NMF (15,515) NMF
Income tax benefit related to one-off
termination costs of former CEO
and executive management (3) - 1,587 NMF - -
Income tax benefit / (expense) 13,030 (8,949) NMF (15,515) NMF
(Loss) / profit (99,945) 101,972 NMF 156,535 NMF
One-off items (1)+(2)+(3) - (10,240) NMF - -
(Loss) / profit attributable to:
- shareholders of the Group (99,515) 101,512 NMF 155,823 NMF
- non-controlling interests (430) 460 NMF 712 NMF
(Loss) / earnings per share (basic) (2.09) 2.12 NMF 3.30 NMF
(Loss) / earnings per share (diluted) (2.08) 2.11 NMF 3.29 NMF
BALANCE SHEET BANK OF GEORGIA GROUP CONSOLIDATED
GEL thousands, unless otherwise Mar-20 Mar-19 Change Dec-19 Change
noted y-o-y q-o-q
Cash and cash equivalents 1,507,142 1,162,168 29.7% 2,153,624 -30.0%
Amounts due from credit institutions 1,954,218 1,391,630 40.4% 1,619,072 20.7%
Investment securities 1,917,772 1,948,592 -1.6% 1,786,804 7.3%
Loans to customers and finance
lease receivables 13,144,429 9,570,691 37.3% 11,931,262 10.2%
Accounts receivable and other loans 3,460 3,134 10.4% 3,489 -0.8%
Prepayments 42,144 31,621 33.3% 42,632 -1.1%
Inventories 13,342 11,756 13.5% 12,297 8.5%
Right-of-use assets 92,335 91,248 1.2% 96,095 -3.9%
Investment property 208,776 169,328 23.3% 225,073 -7.2%
Property and equipment 380,580 349,728 8.8% 379,788 0.2%
Goodwill 33,351 33,352 0.0% 33,351 0.0%
Intangible assets 112,152 87,005 28.9% 106,290 5.5%
Income tax assets 71,500 19,446 NMF 282 NMF
Other assets 134,578 144,343 -6.8% 143,154 -6.0%
Assets held for sale 47,914 40,528 18.2% 36,284 32.1%
Total assets 19,663,693 15,054,570 30.6% 18,569,497 5.9%
Client deposits and notes 10,835,918 8,393,861 29.1% 10,076,735 7.5%
Amounts owed to credit institutions 4,144,701 2,463,408 68.3% 3,934,123 5.4%
Debt securities issued 2,294,431 2,045,428 12.2% 2,120,064 8.2%
Lease liabilities 104,976 78,364 34.0% 94,616 10.9%
Accruals and deferred income 34,470 48,449 -28.9% 52,471 -34.3%
Income tax liabilities 80,601 37,396 115.5% 37,918 112.6%
Other liabilities 121,341 68,883 76.2% 102,662 18.2%
Total liabilities 17,616,438 13,135,789 34.1% 16,418,589 7.3%
Share capital 1,618 1,618 0.0% 1,618 0.0%
Additional paid-in capital 483,006 495,452 -2.5% 492,072 -1.8%
Treasury shares (54) (42) 28.6% (64) -15.6%
Other reserves 7,141 36,474 -80.4% (7,481) NMF
Retained earnings 1,546,456 1,376,834 12.3% 1,655,256 -6.6%
Total equity attributable to shareholders
of the Group 2,038,167 1,910,336 6.7% 2,141,401 -4.8%
Non-controlling interests 9,088 8,445 7.6% 9,507 -4.4%
Total equity 2,047,255 1,918,781 6.7% 2,150,908 -4.8%
Total liabilities and equity 19,663,693 15,054,570 30.6% 18,569,497 5.9%
Book value per share 42.88 39.88 7.5% 45.36 -5.5%
BELARUSKY NARODNY BANK (BNB)
Change Change
INCOME STATEMENT HIGHLIGHTS 1Q20 1Q19 y-o-y 4Q19 q-o-q
GEL thousands, unless otherwise
stated
Net interest income 9,469 6,585 43.8% 7,194 31.6%
Net fee and commission income 1,703 1,812 -6.0% 1,602 6.3%
Net foreign currency gain 493 3,955 -87.5% 6,548 -92.5%
Net other income 334 147 127.2% 92 NMF
Operating income 11,999 12,499 -4.0% 15,436 -22.3%
Operating expenses (8,706) (7,847) 10.9% (9,493) -8.3%
Operating income before cost of
risk 3,293 4,652 -29.2% 5,943 -44.6%
Cost of risk (3,422) (1,442) 137.3% (7) NMF
Net non-recurring items (10) (50) -80.0% (46) -78.3%
Profit before income tax expense (139) 3,160 NMF 5,890 NMF
Income tax expense (32) (571) -94.4% (1,261) -97.5%
(Loss) / profit (171) 2,589 NMF 4,629 NMF
BALANCE SHEET HIGHLIGHTS Mar-20 Mar-19 Change Dec-19 Change
y-o-y q-o-q
GEL thousands, unless otherwise
stated
Cash and cash equivalents 150,349 79,497 89.1% 212,777 -29.3%
Amounts due from credit institutions 13,141 20,556 -36.1% 12,742 3.1%
Investment securities 81,592 116,082 -29.7% 81,573 0.0%
Loans to customers and finance
lease receivables 671,854 451,665 48.8% 580,876 15.7%
Other assets 54,981 54,001 1.8% 55,102 -0.2%
Total assets 971,917 721,801 34.7% 943,070 3.1%
Client deposits and notes 643,614 425,563 51.2% 608,777 5.7%
Amounts owed to credit institutions 143,374 144,314 -0.7% 144,621 -0.9%
Debt securities issued 51,063 53,846 -5.2% 69,438 -26.5%
Other liabilities 13,407 9,477 41.5% 11,038 21.5%
Total liabilities 851,458 633,200 34.5% 833,874 2.1%
Total equity 120,459 88,601 36.0% 109,196 10.3%
Total liabilities and equity 971,917 721,801 34.7% 943,070 3.1%
KEY RATIOS 1Q20 1Q19 4Q19
Profitability
ROAA, annualised(15) -2.1% 3.1% 3.4%
ROAA, annualised (unadjusted) -2.1% 2.8% 3.4%
ROAE, annualised(15) -18.6% 24.5% 29.9%
RB ROAE (15) -25.5% 25.3% 31.4%
CIB ROAE (15) -10.6% 27.1% 28.5%
ROAE, annualised (unadjusted) -18.6% 22.2% 29.9%
Net interest margin, annualised 5.0% 6.0% 5.4%
RB NIM 4.9% 6.6% 5.7%
CIB NIM 4.0% 3.6% 3.8%
Loan yield, annualised 10.8% 12.2% 11.4%
RB Loan yield 11.8% 13.6% 12.4%
CIB Loan yield 8.9% 9.1% 9.2%
Liquid assets yield, annualised 3.9% 3.8% 3.7%
Cost of funds, annualised 4.7% 4.6% 4.7%
Cost of client deposits and notes,
annualised 3.1% 3.1% 3.0%
RB Cost of client deposits and notes 2.6% 2.7% 2.5%
CIB Cost of client deposits and
notes 3.7% 3.5% 3.3%
Cost of amounts owed to credit institutions,
annualised 7.6% 7.4% 7.4%
Cost of debt securities issued 7.6% 7.5% 7.9%
Operating leverage, y-o-y(16) -9.2% 5.0% -7.3%
Operating leverage, q-o-q(16) 1.5% 3.6% -4.1%
Efficiency
Cost / Income(16) 38.6% 35.5% 39.3%
RB Cost / Income (16) 46.6% 35.5% 43.5%
CIB Cost /Income (16) 19.4% 26.9% 26.9%
Cost / Income (unadjusted) 38.6% 38.6% 39.3%
Liquidity
NBG liquidity coverage ratio (minimum
requirement 100%) 121.2% 133.1% 136.7%
Liquid assets to total liabilities 30.5% 34.3% 33.9%
Net loans to client deposits and
notes 121.3% 114.0% 118.4%
Net loans to client deposits and
notes + DFIs 104.9% 98.6% 103.2%
Leverage (times) 8.6 6.8 7.6
Asset quality:
NPLs (in GEL) 284,038 326,127 252,695
NPLs to gross loans to clients 2.1% 3.3% 2.1%
NPL coverage ratio 147.2% 92.2% 80.9%
NPL coverage ratio, adjusted for
discounted value of collateral 194.9% 132.6% 139.6%
Cost of credit risk, annualised 7.4% 1.7% 0.2%
RB Cost of credit risk 7.4% 2.4% 0.2%
CIB Cost of credit risk 8.3% 0.1% 0.5%
Capital adequacy:
NBG (Basel III) CET1 capital adequacy
ratio 8.3% 12.7% 11.5%
Minimum regulatory requirement 6.9% 9.6% 10.1%
NBG (Basel III) Tier I capital adequacy
ratio 10.6% 12.7% 13.6%
Minimum regulatory requirement 8.7% 11.6% 12.2%
NBG (Basel III) Total capital adequacy
ratio 15.3% 17.1% 18.1%
Minimum regulatory requirement 13.3% 16.1% 17.1%
Selected operating data:
Total assets per FTE 2,676 2,017 2,515
Number of active branches, of which: 233 276 272
- Express branches (including Metro) 124 166 162
- Bank of Georgia branches 97 98 98
- SOLO lounges 12 12 12
Number of ATMs 939 886 933
Number of cards outstanding, of
which: 2,160,942 2,139,239 2,145,060
- Debit cards 1,791,937 1,627,070 1,749,524
- Credit cards 369,005 512,169 395,536
Number of POS terminals 22,472 17,684 21,870
Number of Express pay terminals 3,183 3,152 3,217
FX Rates:
GEL/US$ exchange rate (period-end) 3.2845 2.6914 2.8677
GEL/GBP exchange rate (period-end) 4.0725 3.5147 3.7593
Mar-20 Mar-19 Dec-19
Full time employees (FTE), of which: 7,349 7,465 7,383
- Full time employees, BOG standalone 5,851 5,886 5,879
- Full time employees, BNB 550 644 565
- Full time employees, other 948 935 939
Shares outstanding Mar-20 Mar-19 Dec-19
Ordinary shares 47,528,704 47,899,817 47,210,876
Treasury shares 1,640,724 1,269,611 1,958,552
Total shares outstanding 49,169,428 49,169,428 49,169,428
(15) The 1Q19 ratios are adjusted for one-off employee costs
related to termination benefits of the former CEO and executive
management
(16) The 1Q19 ratios are adjusted for one-off employee costs
related to termination benefits of the former executive
management
GLOSSARY
-- Alternative performance measures (APMs) In this announcement
the management uses various APMs, which they believe provide
additional useful information for understanding the financial
performance of the Group. These APMs are not defined by
International Financial Reporting Standards, and also may not be
directly comparable with other companies who use similar measures.
We believe that these APMs provide the best representation of our
financial performance as these measures are used by management to
evaluate the Group's operating performance and make day-to-day
operating decisions;
-- Cost of funds Interest expense of the period divided by
monthly average interest bearing liabilities;
-- Cost of credit risk Expected loss/impairment charge for loans
to customers and finance lease receivables for the period divided
by monthly average gross loans to customers and finance lease
receivables over the same period;
-- Cost to income ratio Operating expenses divided by operating
income;
-- Interest bearing liabilities Amounts owed to credit
institutions, client deposits and notes, and debt securities
issued;
-- Interest earning assets (excluding cash) Amounts due from
credit institutions, investment securities (but excluding corporate
shares) and net loans to customers and finance lease
receivables;
-- Leverage (times) Total liabilities divided by total
equity;
-- Liquid assets Cash and cash equivalents, amounts due from
credit institutions and investment securities;
-- Liquidity coverage ratio (LCR) High quality liquid assets (as
defined by NBG) divided by net cash outflows over the next 30 days
(as defined by NBG);
-- Loan yield Interest income from loans to customers and
finance lease receivables divided by monthly average gross loans to
customers and finance lease receivables;
-- NBG (Basel III) Common Equity Tier I (CET1) capital adequacy
ratio Common Equity Tier I capital divided by total risk weighted
assets, both calculated in accordance with the requirements of the
National Bank of Georgia instructions;
-- NBG (Basel III) Tier I capital adequacy ratio Tier I capital
divided by total risk weighted assets, both calculated in
accordance with the requirements of the National Bank of Georgia
instructions;
-- NBG (Basel III) Total capital adequacy ratio Total regulatory
capital divided by total risk weighted assets, both calculated in
accordance with the requirements of the National Bank of Georgia
instructions;
-- Net interest margin (NIM) Net interest income of the period
divided by monthly average interest earning assets excluding cash
for the same period;
-- Non-performing loans (NPLs) The principal and interest on
loans overdue for more than 90 days and any additional potential
losses estimated by management;
-- NPL coverage ratio Allowance for expected credit
loss/impairment loss of loans and finance lease receivables divided
by NPLs;
-- NPL coverage ratio adjusted for discounted value of
collateral Allowance for expected credit loss/impairment loss of
loans and finance lease receivables divided by NPLs (discounted
value of collateral is added back to allowance for expected credit
loss/impairment loss);
-- Operating leverage Percentage change in operating income less
percentage change in operating expenses;
-- Return on average total assets (ROAA) Profit for the period
divided by monthly average total assets for the same period;
-- Return on average total equity (ROAE) Profit for the period
attributable to shareholders of the Group divided by monthly
average equity attributable to shareholders of the Group for the
same period;
-- NMF Not meaningful
COMPANY INFORMATION
Bank of Georgia Group PLC
Registered Address
84 Brook Street
London W1K 5EH
United Kingdom
www.bankofgeorgiagroup.com
Registered under number 10917019 in England and Wales
Secretary
Link Company Matters Limited
65 Gresham Street
London EC2V 7NQ
United Kingdom
Stock Listing
London Stock Exchange PLC's Main Market for listed
securities
Ticker: "BGEO.LN"
Contact Information
Bank of Georgia Group PLC Investor Relations
Telephone: +44(0) 203 178 4052; +995 322 444444 (9282)
E-mail: ir@ bog.ge
Auditors
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
United Kingdom
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Please note that Investor Centre is a free, secure online
service run by our Registrar, Computershare,
giving you convenient access to information on your
shareholdings.
Investor Centre Web Address - www.investorcentre.co.uk .
Investor Centre Shareholder Helpline - +44 (0)370 873 5866
Share price information
Shareholders can access both the latest and historical prices
via the website
www.bankofgeorgiagroup.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
QRFGPUMPAUPUGMW
(END) Dow Jones Newswires
May 14, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Bank Of Georgia (LSE:BGEO)
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Da Mar 2024 a Apr 2024
Grafico Azioni Bank Of Georgia (LSE:BGEO)
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