Final Results

Released : 20 Feb 2015 07:00

RNS Number : 4172F
Bank of Georgia Holdings PLC
20 February 2015
 

Click on, or paste the following link into your web browser, to view the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/4172F_1-2015-2-19.pdf

 


FORWARD LOOKING STATEMENTS

This document contains statements that constitute "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.

While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other factors could cause actual developments and results to differ materially from our expectations.

These factors include, but are not limited to the following: (1) general market, macroeconomic, governmental, legislative and regulatory trends; (2) movements in local and international currency exchange rates; interest rates and securities markets; (3) competitive pressures; (4) technological developments; (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties and developments in the market in which they operate; (6) management changes and changes to our group structure; and (7) other key factors that we have 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, including those filed with the respective authorities.

When relying on forward-looking statements, investors should carefully consider the foregoing factors and other uncertainties and events. Accordingly, we are under no obligations (and expressly disclaim such obligations) to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise.

 

 

The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2014 or 2013. The statutory accounts for the Company for the 12 months to 31 December 2013 have been filed with the Registrar of Companies and those for the 12 months to 31 December 2014 will be filed following the Company's annual general meeting. The auditors' report on the accounts for the 12 months to 31 December 2013 was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and (iii) did not include a statement under Section 498 (2) or (3) of the Companies Act 2006.

2014 Overview

 

Bank of Georgia Holdings PLC (LSE: BGEO LN), the holding company of Georgia's leading bank JSC Bank of Georgia (the "Bank") and its subsidiaries (the "Group"), announced today the Group's full-year 2014 and Q4 2014 consolidated results reporting a full-year profit for 2014 of GEL 240.8 million (US$129.2 million/GBP 83.2 million) and record earnings per share of GEL 6.72 (US$3.61 per share/GBP 2.32 per share). The Group also reported Q4 2014 profit of GEL 66.5 million (US$35.7 million/GBP 23.0 million), or GEL 1.82 per share (US$0.98 per share/GBP 0.63 per share). Unless otherwise mentioned, comparisons are with full-year 2013. The 2014 results are based on IFRS, are unaudited and derived from management accounts.

 

§ Strong 4th quarter 2014 performance

Q4 2014 Net Interest Margin (NIM) of 7.6%, compared to 7.4% in Q3 2014 and 8.0% in Q4 2013

Q4 2014 revenue of GEL 168.7 million, up 17.5% y-o-y and 8.6% q-o-q

Q4 2014 Cost of Client Deposits stood at 4.2% down from 4.8% in Q4 2013, flat q-o-q

Q4 2014 Loan Yields stood at 14.1% in Q4 2014, down from 14.3% in Q3 2014 and down from 15.8% in Q4 2013

Q4 2014 Cost to Income ratio stood at 41.3% compared to 41.9% in Q4 2013 and 42.5% in Q3 2014

Positive q-o-q and y-o-y operating leverage at 2.9 percentage points (ppts) and 1.6 ppts, respectively, in Q4 2014 

Profit increased to GEL 66.5 million in Q4 2014, up 19.5% y-o-y and up 6.7% q-o-q

Q4 2014 Earnings Per Share (EPS) increased 18.4% y-o-y and 7.5% q-o-q to GEL 1.87

Net loan book increased 13.9% q-o-q; client deposits increased 8.3% q-o-q

Return on Average Assets (ROAA), of 3.7% in Q4 2014 (Q3 2014: 3.7%; Q4 2013:3.6%)

Return on Average Equity (ROAE)1, of 19.5% in Q4 2014 (Q3 2014: 19.2%; Q4 2013: 18.6%)

[1] Adjusted for results of placing of ordinary shares on 4 December 2014

 

§ Excellent customer lending growth supports record annual profits

Net Interest Margin (NIM) of 7.4%, compared to 7.8% in 2013

Revenue increased 11.3% y-o-y to GEL 605.6 million in 2014

Cost to Income ratio stood at 42.8% in 2014 compared to 41.2% in 2013

Profit for 2014 increased to GEL 240.8 million, up 15.0% y-o-y

EPS1,2increased 15.5% to GEL 6.85 in 2014 compared to GEL 5.93 in 2013

ROAA of 3.6% in 2014, flat y-o-y

ROAE1,2of 19.0% in 2014, up from 18.6% in 2013

 

§ Balance sheet strength supported by solid capital and liquidity positions and declining Cost of Funding

o  Net loan book increased 23.8% y-o-y, while client deposits increased 6.6% y-o-y

Cost of Client Deposits decreased to a record low of 4.3% in 2014 from 5.6% in 2013. Loan Yields also declined to 14.4% from 16.3% in 2013

Cost of credit risk reduced in 2014 to GEL 59.0 million from GEL 61.8million in 2013. This translated into a Cost of Risk ratio of 1.2% in 2014 compared to 1.4% in 2013

NPLs to Gross Loans to Clients ratio as a result declined from 4.0% as of 31 December 2013 to 3.4% as of 31 December 2014. High liquidity continues to be maintained. Liquidity ratio, per National Bank of Georgia (NBG) requirements, stood at 35.0%, compared to the regulatory minimum requirement of 30.0%. 25.0% of total assets made up of cash and cash equivalents, amounts due from credit institutions, the NBG CDs, Georgian government treasury bills and bonds and other high quality liquid assets as of 31 December 2014

As of 31 December 2014, Net Loans to Customer Funds and DFI ratio stood at 110.6% (30 September 2014: 103.9%; 31 December2013: 96.2%)

BIS Tier I capital adequacy ratio stood at 22.1% (2013: 23.0%)

NBG (Basel 2/3)1Tier I Capital Adequacy ratio stood at 11.1% as of 31 December 2014, (30 September 2014: 11.2%)

Book value per share increased 18.9% y-o-y to GEL 41.45 (US$22.24/GBP 14.33)

Balance sheet leverage stood at 3.7 times as of 31 December 2014 (31 December 2013: 4.3 times)

 

§ Resilient growth momentum maintained across all major business lines:

o Retail Banking continues to deliver strong franchise growth, supported by the Express Banking strategy, adding 2,239 Express Pay Terminals and 721,909 Express Cards since the launch of the Express Banking service in 2012. Retail Banking's net loan book grew 28.1% y-o-y and stood at GEL 2,067.0 million, while client deposits increased 24.2% y-o-y to GEL 1,349.6 million

o The Bank's acquisition of JSC Privatbank has enhanced its position in the significantly more profitable retail franchise. The acquisition was finalised in January 2015 and increased the Bank's market share in retail loans by 4.9% and in retail deposits by 2.6% (market shares as of 31 December 2014)

o Corporate Banking's net loan book growth rate picked up in the second half of the year, with the net loan book increasing by 18.8% y-o-y to GEL 2,160.8 million as of 31 December 2014. Corporate Banking Cost of Deposits decreased significantly from 4.6% in 2013 to a record low 2.9% in 2014. Pressure on Corporate Banking NIM continued, driving it down by 50 bps y-o-y to 4.5%

o Investment Management's Assets Under Management (AUM) increased 21.4% y-o-yto GEL 1,027.1 million. Since the launch of the Certificate of Deposit (CD) programme in January 2013, the volume of CDs issued reached GEL 460.6 million, as of 31 December 2014. Net fee and commission  income for Investment Management increased substantially to GEL 8.8 million in 2014 up from GEL 1.2 million in 2013 

 

o The Group's healthcare business grew its market share from 14.3% as of 31 December 2013 to 22.0% as of 31 December 2014 in terms of hospital beds. The Group's healthcare services business, which operates 39 healthcare facilities and 2,140 hospital beds, reported profit that more than tripled y-o-y, increasing to GEL 14.0 million in 2014 (2013: GEL 4.4 million)

o m2 Real Estate enjoys strong demand, selling 576 apartments in 2014, which brings total apartments sold since 2010 to 1,328

 

 

 

 

 

CHIEF EXECUTIVE OFFICER'S STATEMENT

I am pleased to report a record 2014 full year profit of GEL 240.8 million, up 15.0%, supported by record revenue of GEL 605.6 million and earnings per share of GEL 6.85, up 15.5%. Our 2014 performance is in line with our stated 3x20 strategy. Most importantly the return on our shareholders' equity was 19.0%, customer lending grew by 23.8% during the year and our capital position is solid with a 22.1% Tier 1 capital ratio under Basel 1. These results reflect a continuing strong performance in each of our core banking and investment management businesses, demonstrating excellent customer lending growth with improving margins, balance sheet strength and strong profitability, together with substantial further progress in our healthcare and real estate businesses.

This full year performance was supported by a strong fourth quarter. Compared to the third quarter of 2014, customer lending grew by 13.9%, the net interest margin increased by 20 basis points to 7.6%, and revenues increased by 8.6%. Costs remained well controlled, with positive operating leverage of 2.9 percentage points, and asset quality remained good with a cost of risk in the quarter of 1.2% and the NPL to gross loans ratio falling to 3.4% at the end of the year. 

I would particularly like to highlight the main drivers of the strong 2014 results that also reflect the effectiveness of our strategy. Firstly, in our banking businesses we delivered 23.8% customer lending growth (17.7% excluding exchange rate effects) with strong performances in both the retail and corporate businesses. In particular, customer lending in the final quarter of the year increased by 13.9%. Secondly, we achieved strong net non-interest income growth, up 13.6% during the year, driven by our Retail Banking and Investment Management strategies. Thirdly, our Healthcare revenue more than doubled during the year, driven by both organic growth and the impact of recent acquisitions.

These positive revenue developments are the fruits of the key strategic initiatives we have put in place over the last few years. Along with the expansion of our Retail Banking business through our Express Banking and payment systems strategies, the development of our Investment Management business has delivered a significantly increased contribution in net fee and commission income.  

Our Investment Management strategy is a timely response to developments in the corporate landscape and the start of the development of the Georgian capital markets. With this move, we have enhanced our fee generating business that we have uniquely positioned to build upon the success of our wealth management and research services and our extensive coverage of the corporate client base in Georgia.

We are also pleased to see substantial benefits of our strategy for our healthcare business - Georgia Healthcare Group, which now combines our two healthcare-related businesses (healthcare services and health insurance) into an integrated whole. In our healthcare services business we progressed further in terms of our M&A activity by acquiring eight new hospitals with a total number of 850 beds throughout the country, markedly strengthening our footprint in this market over the last 12 months. While we have not yet fully realised the synergies from these acquisitions, we have nevertheless reported a 62.8% healthcare services revenue growth, and a 146.6% healthcare services profit growth. This business is now extremely well positioned for its planned international stock market listing in the second half of 2015.

Strategy Going Forward:

Towards the end of 2014, the Board conducted a business review to ensure that returns produced by the Group are sustainable in longer run and that the capital is allocated accordingly. As a result of this review the Group's strategy was upgraded from "3x20" to "4x20". Let me address the updated strategy and the logic behind the change:

1. Return-on-Equity of circa. 20% in the banking business

Due to superior returns in Retail Banking, we expect Retail business to continue to drive the banking business ROAE. The recent acquisition of Privatbank is in line with our updated strategy to further strengthen our growing payments business as well as capture synergies by merging Privatbank with our existing Express Banking franchise.

In Corporate Banking returns are below our targeted 20% level. Therefore, we intend to step-up our advisory business through our investment banking arm and start developing capital markets in Georgia in order to enhance the overall Banking ROAE.

2. Tier 1 Capital circa. 20%

We are committed to growing our banking business while maintaining its existing strong capitalisation. We aim to maintain capitalisation levels consistent with the Bank's existing target of greater than 20% Tier 1 under Basel I. The Bank's strong internal capital generation will continue to support loan growth without compromising capital ratios.

3. Growth of circa. 20% in retail customer lending

Bank of Georgia's Retail net loan book has grown at a CAGR of 22.9% from 2009 to 2014 and management remains committed to 20% growth in its retail customer lending. In addition to the abovementioned growth of our Retail Banking business, the Privatbank acquisition will significantly enhance our retail customer franchise as well as increase our distribution network. With this acquisition we will be adding 400,000 retail customers and 4.9% market share in retail loans.

4. Internal Rate of Return of minimum 20% for our investment businesses

As access to equity capital is limited in a small economy like Georgia, the risk/return profile of equity investments in Georgian corporates is more attractive than that of corporate lending business. In view of the Group's successful track record in turning around its healthcare and real estate businesses and the good risk/return profile of equity investments in Georgia, the Board decided to pursue selective opportunities to invest in Georgian corporates with the aim of divestment (in full or partially) within 6 years. The minimum target IRR on such investments will be 20%. In view of updated strategy the group recently completed the acquisition of a minority interest in Georgian Global Utilities, a Tbilisi water utility company with 143 MW hydropower facilities. The Group has purchased a 25% stake initially, with an option to step up to 49.9% stake during 2015.

In December 2014, the Group completed a successful capital raising of US$114 million, representing 10 per cent of the Group's share capital, to enable a number of acquisitions to be made to support the Group's evolving strategy.

Macroeconomic Outlook:

From a macroeconomic perspective, Georgia delivered strong GDP growth in 2014, at an estimated 4.7%. This was a particularly robust performance against the backdrop of ongoing geopolitical concerns and macroeconomic and currency devaluation pressures in many of Georgia's trading partners, and demonstrates the resilience of the Georgian economy. It is noteworthy that strong contribution to GDP growth came from an increase of private investments, up 27.2% in first three quarters of 2014. Nevertheless, USD strengthened against Georgian Lari, but the US Dollar appreciation was stronger against other regional currencies. During 2014, Lari depreciated 7.3% against the US dollar, but appreciated by 5.3% against the Euro, the single largest trading partner currency of Georgia. Inflation has remained subdued, at 2.0%, as falling oil prices and weaker Euro, in particular, have helped the economy to contain inflationary pressures.

Even though the Georgian economy is well diversified and resilient to external shocks, we believe growth in 2015 will be affected by the weak regional economies. Therefore, we are revising our GDP growth targets for 2015 to be within 1.5% - 3% range. At the same time, strengthening of Real Effective Exchange Rate over the past one to two years suggests Lari correction of 5-10%. We are adjusting our risk management to reflect this revised macroeconomic outlook and, whilst there has not yet been any deterioration in asset quality, over the next 12 months we expect our Cost of Risk to be above our medium term target of 1.0-1.5%.

Dividend:

At the 2015 AGM the Board intends to recommend an annual dividend of GEL 2.1 per share payable in British Sterling at the prevailing rate. This represents an increase of 5%, compared to the annual dividend of GEL 2.0 per share last year.

 

Irakli Gilauri,

Chief Executive Officer of Bank of Georgia Holdings PLC

 

 

FINANCIAL SUMMARY

 

 

BGH



Income Statement Summary

Year ended

Change 

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Revenue1

605,578

544,256

11.3%

Operating expenses

(258,949)

(224,367)

15.4%

Operating income before cost of credit risk

346,629

319,889

8.4%

Cost of credit risk2

(59,020)

(61,802)

-4.5%

Net operating income before non-recurring items

287,609

258,087

11.4%

Net non-recurring items

(11,017)

(12,831)

-14.1%

Profit

240,767

209,343

15.0%





Earnings per share (basic, diluted) (GEL)

 

 (basic)

6.85

5.93

15.5%

 

BGH





Statement of Financial Position

As at

Change

As at

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y

30 Sep 2014

q-o-q







Total assets

7,598,917

 

6,520,969

16.5%

6,815,668

11.5%

Net loans3

4,360,705

3,522,915

23.8%

3,827,556

13.9%

Customer funds4

3,338,725

3,117,732

7.1%

3,088,254

8.1%

Tier I Capital Adequacy Ratio (BIS)5

22.1%

23.0%

-90 bps

22.7%

-60 bps

Total Capital Adequacy Ratio (BIS)5

26.1%

27.1%

-100 bps

26.4%

-30 bps

NBG Tier I Capital Adequacy Ratio (Basel 2/3)6

11.1%

n/a

n/a

11.2%

-10 bps

NBG Total Capital Adequacy Ratio (Basel 2/3)6

14.1%

n/a

n/a

14.2%

-10 bps

NBG Tier I Capital Adequacy Ratio7

13.3%

14.4%

-110 bps

14.5%

-120 bps

NBG Total Capital Adequacy Ratio7

13.8%

15.4%

-160 bps

14.1%

-30 bps

Leverage (times)8

3.7

4.3


4.1








GEL/US$ Exchange Rate (period-end)

1.8636

1.7363


1.7524


GEL/GBP Exchange Rate (period-end)

2.8932

2.8614


2.8450


 

 

BGH






Income Statement Summary

Quarter ended

Change 

Quarter ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

Y-O-Y 

30 Sep 2014

Q-O-Q







Revenue1

168,702

143,558

17.5%

155,363

8.6%

Operating expenses

(69,678)

(60,115)

15.9%

(65,956)

5.6%

Operating income before cost of credit risk

99,024

83,443

18.7%

89,407

10.8%

Cost of credit risk2

(16,552)

(10,000)

65.5%

(15,306)

8.1%

Operating income before net non-recurring items

82,472

73,443

12.3%

74,101

11.3%

Net non-recurring items

(2,093)

(5,959)

-64.9%

(727)

187.9%

Profit

66,477

55,644

19.5%

62,308

6.7%







Earnings per share (basic, diluted) (GEL)1

1.87

1.58

18.4%

1.74

7.5%

 

 

 

 

[1] Adjusted for results of placing of ordinary shares on 4 December 2014 and before one-off impairment of BG Bank in Ukraine in Q2 2014

 

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

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

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

4 Customer funds equal amounts due to customers

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

6 NBG Tier I Capital and Total Capital Adequacy ratios are calculated in accordance with the requirements of the National Bank of Georgia based on Basel 2/3 for more information please see page 47

7 NBG Tier I Capital and Total Capital Adequacy ratios are calculated in accordance with the requirements of the National Bank of Georgia based on Basel I

8 Leverage (times) equals total liabilities divided by total equity

 

DISCUSSION OF RESULTS

 

Revenue


Year ended

Change


31 Dec 2014

31 Dec 2013

y-o-y

GEL thousands, unless otherwise noted








Loans to customers

539,983

522,847

3.3%

Investment securities1

39,988

35,371

13.1%

Amounts due from credit institutions

6,581

8,423

-21.9%

Finance lease receivables

8,370

7,466

12.1%

Interest income

594,922

574,107

3.6%

Amounts due to customers

(133,865)

(159,028)

-15.8%

Amounts due to credit institutions, of which:

(62,560)

(65,161)

-4.0%

  Subordinated debt

(11,412)

(22,394)

-49.0%

  Loans and deposits from other banks

(51,148)

(42,767)

19.6%

Debt securities issued, of which:

(54,436)

(35,424)

53.7%

  Eurobonds

(52,679)

(35,424)

48.7%

  Other

(1,757)

-

-

Interest expense

(250,861)

(259,613)

-3.4%

Net interest income before interest rate swaps

344,061

314,494

9.4%

Net loss from interest rate swaps

-

(398)

-100.0%

Net interest income

344,061

314,096

9.5%

Fee and commission income

132,455

115,106

15.1%

Fee and commission expense

(32,793)

(28,210)

16.2%

Net fee and commission income

99,662

86,896

14.7%

Net insurance premiums earned

95,850

129,993

-26.3%

Net insurance claims incurred

(66,421)

(84,660)

-21.5%

Net insurance revenue

29,429

45,333

-35.1%

Healthcare revenue

125,720

60,013

109.5%

Cost of healthcare services

(78,836)

(37,644)

109.4%

Net healthcare revenue2

46,884

22,369

109.6%

Real estate income

15,782

5,898

167.6%

Net gain from trading and investment securities

376

3,097

-87.9%

Net gain from revaluation of investment property

1,909

9,788

-80.5%

Net gain from foreign currencies

49,584

43,512

14.0%

Other operating income

17,891

13,267

34.9%

Other operating non-interest income

85,542

75,562

13.2%

Net non-interest income

261,517

230,160

13.6%

Revenue

605,578

544,256

11.3%

 

1 Investment securities primarily consist of Georgian government treasury bills and bonds and National Bank of Georgia's Certificates of Deposits (NBG CDs)

2 For the net healthcare revenue disclosures please see Healthcare Business segment discussion

 

We delivered record revenue of GEL 605.6 million, up 11.3% y-o-y, as a result of maintained resilient growth momentum across all the major business lines in 2014. The robust performance was fuelled primarily by solid growth of the loan portfolio coupled with our continued focus on liability optimisation aimed at interest expense reduction. Additionally, fee and commission income also picked up significantly due to the expansion of our Express Banking footprint and investment management operations. Finally, our healthcare business also made a significant contribution, increasing 109.6% y-o-y, in line with our strategy to increase the scale of our healthcare business.

 

We delivered record net interest income for 2014 driven by the combined effect of high 'teens growth in lending and a 100 basis point cut in the Cost of Funding. Net interest income totalled GEL 344.1 million, up 9.5% y-o-y and driven by a 3.6% increase in interest income to GEL 594.9 million and a 3.4% decline in interest expense to GEL 250.9 million. Interest income grew primarily due to a 3.3% increase in interest income from loans to customers reaching GEL 540.0 million driven by a 17.7% increase in average net loans to customers, which more than offset 190 bps decline in the Loan Yield to 14.4% in 2014. The Loan Yield was impacted by strong competitive pressures driven by the high level of liquidity in the banking sector during the year, although our liquidity levels started to decline in the second-half of the year as a result of a significant pick-up in lending, translating into largely flat Loan Yield in Q4 2014 on q-o-q basis.

Interest expense declined, despite a 17.0% y-o-y increase in average interest bearing liabilities - a result of our intensified liability optimisation efforts during the year that drove Cost of Funding 100 bps lower year-on-year to 4.9%. The decline in the Cost of Funding was supported by a significant cost reduction in all respective items of interest bearing liabilities - Cost of Client Deposits, Cost of Amounts due to Credit Institutions and Cost of Debt Securities decreased 130 bps, 120 bps and 60 bps, respectively. The sharp decline in Cost of Client Deposits had the largest impact on the reduction in interest expense - despite an 8.9% increase in average client deposits, a corresponding balance sheet item. This decline was partly offset by a 53.7% increase in interest expense to debt securities to GEL 54.4 million as a result of an issue of Eurobonds in Q4 2013, which increased the corresponding average balance sheet item by 67.0% y-o-y.  

 

 

Net Interest Margin (NIM)


            Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Net interest income

344,061

314,096

9.5%

Net Interest Margin

7.4%

7.8%

-40 bps

Average interest earning assets1

4,680,837

4,037,894

15.9%

Average interest bearing liabilities1

5,127,194

4,382,341

17.0%

Average net loans, currency blended

3,710,551

3,153,831

17.7%

   Average net loans, GEL

1,154,537

972,229

18.8%

   Average net loans, FC

2,556,014

2,181,602

17.2%

Average client deposits, currency blended

3,087,110

2,835,123

8.9%

  Average client deposits, GEL

905,757

935,436

-3.2%

  Average client deposits, FC

2,181,353

1,899,687

14.8%

Average liquid assets, currency blended

1,864,265

1,593,651

17.0%

Average liquid assets, GEL

837,898

746,107

12.3%

Average liquid assets, FC

1,026,367

847,544

21.1%

Excess liquidity (NBG) 2

177,917

537,107

-66.9%

Liquid assets yield, currency blended

2.5%

2.7%

-20 bps

  Liquid assets yield, GEL

5.0%

5.1%

-10 bps

  Liquid assets yield, FC

0.5%

0.5%

-

Loan yield, total

14.4%

16.3%

-190 bps

  Loan yield, GEL

19.7%

22.2%

-250 bps

  Loan yield, FC

11.8%

13.5%

-170 bps

Cost of funding, total

4.9%

5.9%

-100 bps

  Cost of funding, GEL

4.0%

4.9%

-90 bps

  Cost of funding, FC

5.2%

6.3%

-110 bps

 

1 Daily averages are used for calculation of average interest earning assets and average interest bearing liabilities

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

 

 

The NIM at 7.4% in 2014 was comfortably maintained within our target of 7% - 7.5%. It was down slightly by 40 bps y-o-y, reflecting the competitive pressures on Loan Yields driven by high level of liquidity in the banking sector during 2014. Our NIM of 7.4% in 2014 was a result of average interest earning assets growing faster than net interest income, coupled with decreasing yields (Loan Yield down 190 bps and Liquid Asset Yield down 20 bps) which were partially offset by declining Cost of Funding (down 100 bps). As mentioned above, our liquidity levels started to decline in the second-half of the year as a result of a significant pick-up in lending which reduced NIM pressure during the second half.

 

 

 

Net fee and commission income


 Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Fee and commission income

132,455

115,106

15.1%

Fee and commission expense

(32,793)

(28,210)

16.2%

Net fee and commission income

99,662

86,896

14.7%

 

We posted a record net fee and commission income of GEL 99.7 million in 2014, delivering growth of 14.7% y-o-y.This robust growth reflects the ongoing success of our Express Banking strategy, which resulted in the addition of over 200,000 Retail Banking clients, mostly emerging mass market customers, and triggered a significant increase in the volume of banking transactions. The increase - in line with the Express Banking strategy - has predominantly come through cost-effective remote channels. Fee and commission expense increased 16.2% to GEL 32.8 million as a result of fees related to client acquisition costs within the Express Banking strategy. Another factor contributing to the y-o-y increase in fee expenses was the outsourcing of the Bank's cash collection service (GEL 2.2 million in 2014), the costs of which effectively shifted from salaries and other employee benefits to fee and commission expense. The Investment Management business also increased its contribution to our net fee and commission income. 

 

 

Net healthcare revenue and net insurance revenue


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Net insurance premiums earned

95,850

129,993

-26.3%

Net insurance claims incurred

(66,421)

(84,660)

-21.5%

Net insurance revenue

29,429

45,333

-35.1%

Healthcare revenue

125,720

60,013

109.5%

Cost of healthcare services, of which:

(78,836)

(37,644)

109.4%

  Salaries and other employee benefits

(47,085)

(19,393)

142.8%

  Depreciation expenses

(6,598)

(5,160)

27.9%

  Other operating expenses

(25,153)

(13,091)

92.1%

Net healthcare revenue1

46,884

22,369

109.6%

Net insurance and healthcare revenue (total)

76,313

67,702

12.7%

 

For the net healthcare revenue disclosures please see the Healthcare Business segment discussion

 

Our healthcare business further strengthened its market leader position in 2014 and enjoys a market share of 22.0% in terms of hospital beds as of 31 December 2014 (14.3% as of 31 December 2013). Our net healthcare revenue increased 109.6% y-o-y to GEL 46.9 million in 2014. The increase was driven by the strong performance of our healthcare operations, growing organically as well as through acquisitions. Furthermore, government-funded universal healthcare programme (the Universal Healthcare Programme or UHC) favorably affected our healthcare business results. Finally, as the management shifts its focus to integrating the acquired facilities, it expects to realise significant synergies by upgrading the facilities, centralising the back-office functions and bringing their operational performance in line with the internal targets.

 

As anticipated, UHC had a negative effect on the health insurance businesses, which has over recent years been significant component of our insurance business. UHC resulted in a structural shift of private insurers' revenues that had previously come from state to the UHC system (and away from the private insurance companies). Furthermore, the shift of revenue to the UHC system did not immediately result in the elimination of associated costs, including insurance claims incurred.As anticipated, this has had a negative effect on the health insurance businesses. Notwithstanding these changes, our health insurance business strengthened its position in the market and accounted for 36.7% of the total health insurance sector in Georgia based on gross premiums revenue as of 30 September 2014, up from 28.9% as of 31 December 2013.

 

For more information see Healthcare Business discussion on page 26

 

Other operating non-interest income


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Real estate income

15,782

5,898

167.6%

Net gain from trading and investment securities

376

3,097

-87.9%

Net gain from revaluation of investment property

1,909

9,788

-80.5%

Net gain from foreign currencies

49,584

43,512

14.0%

Other operating income

17,891

13,267

34.9%

Other operating non-interest income

85,542

75,562

13.2%

 

 

We benefited from completion of our second real estate project in 2014.Other operating non-interest income increased 13.2% to GEL 85.5 million, primarily as a result of nearly a threefold increase in real estate income to GEL 15.8 million. Real estate revenue predominantly comprises revenue from the sale of apartments in the second project of m2 Real Estate, following completion of construction works as well as the handover of apartments. Net gain from foreign currencies is the second largest contributor to our other operating non-interest income and also increased to GEL 49.6 million, up 14.0% as a result of increased economic activity and higher volatility of Georgian Lari, which significantly increased the number of foreign currency transactions. The growth was also supported by a 34.9% increase in other operating income to GEL 17.9 million, which predominantly consists of revenue from the Bank's wine making subsidiary Teliani Valley.

 

The robust growth was partially offset by a decline in net gain from trading and investment securities from GEL 3.1 million to GEL 0.4 million, which comprises realised gains from investment securities consisting of Government issued securities. Net gain from revaluation of investment property, which has declined from GEL 9.8 million in 2013 to GEL 1.9 million in 2014, comprises almost entirely revaluation of properties that m2 Real Estate has earmarked for development.

 

 

Operating income before non-recurring items; cost of credit risk; profit for the period


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Salaries and other employee benefits

(153,807)

(135,065)

13.9%

General and administrative expenses

(73,185)

(60,364)

21.2%

Depreciation and amortisation expenses

(28,207)

(26,572)

6.2%

Other operating expenses

(3,750)

(2,366)

58.5%

Operating expenses

(258,949)

(224,367)

15.4%

Operating income before cost of credit risk

346,629

319,889

8.4%

Cost of credit risk

(59,020)

(61,802)

-4.5%

Operating income before net non-recurring items

287,609

258,087

11.4%

Net non-recurring items

(11,017)

(12,831)

-14.1%

Profit before income tax expense

276,592

245,256

12.8%

Income tax expense

(35,825)

(35,913)

-0.2%

Profit

240,767

209,343

15.0%

 

 

Our non-banking businesses scaled up significantly in 2014 and this is reflected in our operating expenses. Our operating expenses increased 15.4% driven by a 13.9% increase in salaries & other employment benefits to GEL 153.8 million and a 21.2% increase in general & administrative expenses to GEL 73.2 million. The increase in operating expenses was principally driven by the growth of our healthcare business, which continues to expand organically as well as through acquisitions. As a result of this expansion, the healthcare business headcount increased by 1,280 or 19.0% during the reporting period, pushing up costs. The effect is magnified in 2014 since the post-acquisition synergies have not yet been fully realised and cost synergies are expected mainly in the areas of procurement, process standardisation and payroll, as benchmarked against our internal targets. Bank of Georgia's standalone headcount, has increased at a more modest rate of 5.5% to 3,769 employees but an  increase in the number of senior managers eligible for share based compensation resulted in higher salaries and other employee benefits expenses. Growth of operating expenses was also impacted by an expanded Corporate Social Responsibility programme that entails initiatives promoting education, conserving nature and supporting children with disabilities. Our Investment Management business, which is gearing up to build its corporate advisory business, also put upward pressure on costs during the reporting period.

 

As a result, our Cost to Income ratio increased 160 bps to 42.8% in 2014. However, Cost to Income improved in second half of the year, reaching 41.3% in Q4 2014. As the restructuring and integration process within our healthcare business nears completion, the Cost to Income ratio is expected to continue its recent downward trend. As a result of the foregoing, operating income before cost of credit risk increased 8.4% y-o-y to GEL 346.6 million.

 

Our asset quality has improved significantly as a result of further economic growth and our continuing prudent risk management policies. Cost of credit risk declined 4.5% to GEL 59.0 million in 2014. The increase in impairment of loans reflects the growth of the loan book, particularly in Retail Banking. As a result, our Cost of Risk improved to 1.2% in 2014, a 20 bps decrease from 1.4% in 2013. Cost of credit risk also reflects the new provisioning methodology the Bank implemented in January 2014. The overall effect of the new methodology was largely immaterial as its positive impact on the Retail Banking cost of credit risk was only slightly more than a small negative impact on the Corporate Banking cost of credit risk.

 

NPL coverage adjusted for the discounted value of collateral stood at a comfortable level of 111.1% as of 31 December 2014 compared to 112.4% as of 30 September 2014 and 110.6% as of 31 December 2013. The Bank's non-performing loans (NPLs), defined as the principal and interest on the overdue loans for more than 90 days and additional potential losses estimated by management, increased 6.0% y-o-y to GEL 153.6 million as of 31 December 2014 - lower than  the growth of the gross loan book. The Group's NPLs to Gross Loans to Clients ratio as a result declined from 4.0% as of 31 December 2013 to 3.4% as of 31 December 2014. The NPL Coverage ratio stood at 68.0%, compared to 83.8% as of 31 December 2013, the decline predominantly reflects increased write-offs in 2014.

 

The Group's net operating income before non-recurring items for 2014 totalled GEL 287.6 million, up 11.4% y-o-y. The Bank's net non-recurring items for the period decreased to GEL 11.0 million and included full impairment of the Bank's legacy investment in BG Bank in Ukraine (approximately GEL 3.8 million).

 

As a result, profit before income tax in 2014 totalled GEL 276.6 million, up 12.8% y-o-y. After deducting income tax expense of GEL 35.8 million, the Group's 2014 profit for the period stood at GEL 240.8 million, up 15.0% compared to 2014.

 

[1] Thenew provisioning methodology is based on statistical assessment of Probability of Default (PD) and Loss Given Default (LGD) for each loan type. Management believes that the new methodology will allow better allocation of Cost of Risk between different products. The overall impact of the change in methodology on the provisioning rate and on the financial statements for this period is not material. The new methodology was developed in consultation with Deloitte, who also provided the respectively integrated IT solution.

 

 

Balance Sheet highlights

Our balance sheet remained liquid (NBG Liquidity ratio of 35.0%) and well-capitalised (BIS Tier I of 22.1%) with a diversified funding base (Client Deposits to Liabilities of 55.6%). The y-o-y change in the composition of the balance sheet reflects strong growth of lending in the second half of 2014, particularly in Retail Banking, which drove net loans up by 23.8% to GEL 4,360.7 million. The pick-up in lending decreased the share of liquid assets to total assets to a comfortable level of 25.0% as at 31 December 2014 from 29.5% as at 31 December 2013, when the liquidity pool was significantly higher due to an issue of Eurobonds in Q4 2013. Our assets increased 16.5% y-o-y to GEL 7,598.9 million.

 

The Bank funded its growth predominantly through the excess liquidity. Additionally, more focus was placed on attracting cheaper Development Financial Institutions (DFI)funds in order to further reduce the Cost of Fundingand as a result we prepaid GEL 114.0 million of DFI funding in 2014 with cheaper funds. As a result, the share of amounts due to credit institutions to total liabilities increased from 21.9% to 23.6%, with the share of client deposits to total liabilities declining from 58.8% to 55.6%. Cost of Funding improved by 100 bps to a record low of 4.9% on the back of a significant increase in interest bearing liabilities by 31 December 2014, which were up 12.0% y-o-y. The Group's total liabilities increased 13.0% to GEL 5,964.8 million.

 

Total equity attributable to the shareholders of the Group stood at GEL 1,574.1 million, up 33.1% y-o-y, reflecting additional GEL 215.7 million equity raised in December 2014 through the issue of new ordinary shares to existing and new institutional investors representing up to 9.99% of BGH's issued share capital. The Bank's book value per share on 31 December 2014 stood at GEL 41.45 (US$22.24/GBP14.33), compared to GEL 34.85 (US$20.07/GBP12.18) as of 31 December 2013.

 

 

Liquidity, Funding and Capital Management


As at

Change

          As at

Change

GEL thousands, unless otherwise noted 

31 Dec 2014

31 Dec 2013

y-o-y

30 Sep 2014

q-o-q







Amounts due to credit institutions, of which:

1,409,214

1,157,979

21.7%

1,264,299

11.5%

Subordinated debt

140,045

168,710

-17.0%

133,883

4.6%

Other amounts due to credit institutions

1,269,169

989,269

28.3%

1,130,416

12.3%

Debt securities issued, of which:

856,695

728,117

17.7%

794,952

7.8%

Eurobonds

779,445

728,117

7.0%

719,184

8.4%

Other

77,250

-

-

75,768

2.0%

Customer Funds, of which:

3,338,725

3,117,732

7.1%

3,088,254

8.1%

Client deposits, of which

3,313,715

3,107,209

6.6%

3,060,784

8.3%

CDs

543,640

221,539

145.4%

442,808

22.8%

Promissory notes

25,010

10,523

137.7%

27,470

-9.0%

Net Loans / Customer Funds

130.6%

113.0%


123.9%


Net Loans / Customer Funds + DFIs

110.6%

96.2%


103.9%


Liquid assets

1,899,171

1,921,704

-1.2%

1,750,417

8.5%

Liquid assets, GEL

1,036,126

806,870

28.4%

854,270

21.3%

Liquid assets, FC

863,045

1,114,834

-22.6%

896,147

-3.7%

Liquid assets as percent of total assets

25.0%

29.5%

-450 bps

25.7%

-70 bps

Liquid assets as percent of total liabilities

31.8%

36.4%

-460 bps

31.9%

-10 bps

NBG liquidity ratio

35.0%

45.7%

-10.7%

37.8%

-2.8%

Excess liquidity (NBG)

177,917

537,107

-66.9%

245,941

-27.7%

RATIOS






Tier I Capital Adequacy Ratio (NBG)

13.3%

14.4%

-110 bps

14.5%

-120 bps

Total Capital Adequacy Ratio (NBG)

13.8%

15.4%

-160 bps

14.1%

-30 bps

Tier I Capital Adequacy Ratio (NBG Basel 2/3 )

11.1%

n/a

n/a

11.2%

-10 bps

Total Capital Adequacy Ratio (NBG Basel 2/3 )

14.1%

n/a

n/a

14.2%

-10 bps

Tier I Capital Adequacy Ratio (BIS)

22.1%

23.0%

-90 bps

22.7%

-60 bps

Total Capital Adequacy Ratio (BIS)

26.1%

27.1%

-100 bps

26.4%

-30 bps

 

 

We maintained a strong liquidity position while at the same time deploying a large portion of our excess liquid assets into loans in 2014. The deployment of liquid assets into loans in the second half of 2014 led to a 1.2% y-o-y decline in liquid assets. Consequently, the NBG liquidity ratio decreased to 35.0% from 45.7% at the end of 2013, against a regulatory requirement of 30.0%. The pick-up in lending during the period also resulted in a Net Loans to Customer Funds ratio of 130.6% compared to 113.0% a year ago. Net Loans to Customer Funds and DFIs ratio, closely observed by management, stood at 110.6% compared to 96.2% as of 31 December 2013. 

 

The Bank's Tier I ratio (BIS) stood at a robust 22.1%, compared to 22.7% as of 30 September 2014 and 23.0% as of 31 December 2013. Risk weighted assets increased 23.1% y-o-y to GEL 6,253.0 million, reflecting the increase in the loan book during the year, while Tier I Capital (BIS) increased 18.1% to GEL 1,381.8 million. The Bank's NBG Tier I Capital Adequacy Ratio calculated according to new regulations based on Basel 2/3 stood at 11.1% compared to11.2% as of 30 September 2014. For information on the regulatory changes on capital requirements see Annex II on page 47.

 

 

 

RESULTS BY QUARTER

 

Revenue


Quarter ended

Change

Quarter ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y

30 Sep 2014

q-o-q







Loans to customers

146,795

133,354

10.1%

134,617

9.0%

Investment securities

11,587

8,148

42.2%

10,330

12.2%

Amounts due from credit institutions

1,318

1,745

-24.5%

1,758

-25.0%

Finance lease receivables

1,992

2,570

-22.5%

1,880

6.0%

Interest income

161,692

145,817

10.9%

148,585

8.8%

Amounts due to customers

(34,116)

(35,624)

-4.2%

(32,762)

4.1%

Amounts due to credit institutions

(15,825)

(15,511)

2.0%

(15,764)

0.4%

  Subordinated debt

(2,758)

(5,456)

-49.5%

(2,665)

3.5%

  Loans and deposits from other banks

(13,067)

(10,055)

30.0%

(13,099)

-0.2%

Debt securities issued, of which:

(14,460)

(11,020)

31.2%

(13,547)

6.7%

  Eurobonds

(13,685)

(11,020)

24.2%

(13,027)

5.1%

  Other

(775)

-

-

(520)

49.0%

Interest expense

(64,401)

(62,155)

3.6%

(62,073)

3.8%

Net interest income before interest rate swaps

97,291

83,662

16.3%

86,512

12.5%

Net loss from interest rate swaps

-

(95)

-100.0%

-

-

Net interest income

97,291

83,567

16.4%

86,512

12.5%

Fee and commission income

34,480

31,200

10.5%

35,159

-1.9%

Fee and commission expense

(8,180)

(8,099)

1.0%

(7,844)

4.3%

Net fee and commission income

26,300

23,101

13.8%

27,315

-3.7%

Net insurance premiums earned

17,900

34,012

-47.4%

23,332

-23.3%

Net insurance claims incurred

(14,213)

(23,799)

-40.3%

(13,647)

4.1%

Net insurance revenue

3,687

10,213

-63.9%

9,685

-61.9%

Healthcare revenue1

40,039

18,268

119.2%

33,090

21.0%

Cost of healthcare services

(25,415)

(9,915)

156.3%

(20,566)

23.6%

Net healthcare revenue1

14,624

8,353

75.1%

12,524

16.8%

Real estate income

1,781

1,926

-7.5%

2,209

-19.4%

Net gain from trading and investment securities

66

279

-76.3%

125

-47.2%

Net gain from revaluation of investment property

1,323

2,078

-36.3%

586

125.8%

Net gain from foreign currencies

15,582

9,631

61.8%

13,150

18.5%

Other operating income

8,048

4,410

82.5%

3,257

147.1%

Other operating non-interest income

26,800

18,324

46.3%

19,327

38.7%

Net-non interest income

71,411

59,991

19.0%

68,851

3.7%

Revenue

168,702

143,558

17.5%

155,363

8.6%

 

1 For the net healthcare revenue disclosures please see the Healthcare Business segment discussion

 

We delivered record quarterly revenue of GEL 168.7 million in Q4 2014, up 17.5% y-o-y and 8.6% q-o-q. The y-o-y growth was predominantly driven by a solid increase in net interest income, net fee and commission income and strong performance of our healthcare services business.

 

On a y-o-y basis, net interest income increased 16.4% to GEL 97.3 million, which is a result of interest income growth by 10.9% to GEL 161.7 million primarily driven by a 10.1% increase in interest income from loans to GEL 146.8 million. The main driving force of robust performance was a 21.5% increase in the average net loan book to GEL 4,061.6 million in Q4 2014, which far outweighed the negative impact of the decline in the Loan Yield, down 170 bps to 14.1%. Interest income from liquid assets (investment securities and amounts due from credit institutions) increased markedly, by 30.4% driven by a significant increase of 70 bps in the Liquid Asset Yield coupled with a 2.7% increase in the corresponding average balance sheet item. Interest expense grew by 3.6% to GEL 64.4 million as a result of 14.6% increase in average interest bearing liabilities partially offset by 50 bps decrease in Cost of Funding. This increase was due to the issue of Eurobonds in Q4 2013, the cost of which was only partially included in Q4 2013 interest expense.

 

On a q-o-q basis, net interest income growth of 12.5% was driven by strong growth of the average loan book, which increased 9.8% in Q4 2014, resulting in a 9.0% increase in interest income from loans. The 6.5% decline in average liquid assets following strong customer lending also had a positive impact on the Liquid Asset Yield, which increased 40 bps and resulted in a 6.8% increase in interest income from liquid assets. The interest expense increase of 3.8% was mostly driven by amounts due to customers as a result of a 3.8% increase in average client deposits on the back of a flat Cost of Client Deposits.

 

Net fee and commission income increased 13.8% y-o-y to GEL 26.3 million as a result of expansion of the Bank's Express banking service. Net fee & commission income decreased on q-o-q basis by 3.7% largely due to the impact of the transaction fee for Galt & Taggart's M&A deal posted in Q3 2014. The bank's healthcare business also recorded strong results in Q4 2014. Net healthcare revenue increased 75.1% y-o-y and 16.8% q-o-q to GEL 14.6 million as it continues to expand organically and through acquisitions. Income from real estate, which comprises predominantly revenue from sale of m2 Real Estate properties and income from operating leases, decreased 19.4% q-o-q and 7.5% y-o-y to GEL 1.8 million. This is due to the handover of apartments in completed project of m2 Real Estate nearing completion -most of the apartments were handed over in Q4 2013 and 9M 2014.     

                                                                                                                                    

Net gain from foreign currencies increased 61.8% y-o-y and 18.5% q-o-q driven by the increased economic activity and higher volatility of Georgian Lari.

 

Net Interest Margin


As at and for

quarter ended

Change

As at and for

quarter ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y

30 Sep 2014

q-o-q







Net interest income

97,291

83,567

16.4%

86,512

12.5%

Net Interest Margin

7.6%

8.0%

-40 bps

7.4%

20 bps

Average interest earning assets1

5,122,751

4,192,519

22.2%

4,667,024

9.8%

Average interest bearing liabilities1

5,296,437

4,620,387

14.6%

5,133,468

3.2%

Average net loans, currency blended

4,061,593

 

3,341,678

 

21.5%

3,700,099

 

9.8%

Average net loans, GEL

1,176,075

 

1,095,951

 

7.3%

1,150,884

 

2.2%

Average net loans, FC

2,885,518

 

2,245,727

 

28.5%

2,549,215

 

13.2%

Average client deposits, currency blended

3,186,127

2,933,323

8.6%

3,070,472

3.8%

  Average client deposits, GEL

961,277

922,253

4.2%

900,555

6.7%

  Average client deposits, FC

2,224,850

2,011,070

10.6%

2,169,917

2.5%

Average liquid assets, currency blended

1,727,719

1,681,582

 

2.7%

1,848,733

-6.5%

  Average liquid assets, GEL

892,604

737,194

21.1%

824,197

8.3%

  Average liquid assets, FC

835,115

944,388

11.6%

1,024,536

-18.5%

Excess liquidity (NBG) 2

177,917

537,107

-66.9%

245,941

-27.7%

Liquid assets yield, currency blended

3.0%

2.3%

70 bps

2.6%

40 bps

  Liquid assets yield, GEL

5.3%

4.6%

70 bps

5.1%

20 bps

  Liquid assets yield, FC

0.5%

0.5%

-

0.6%

-10 bps

Loan yield, total

14.1%

15.8%

-170 bps

14.3%

-20 bps

  Loan yield, GEL

20.0%

20.6%

-60 bps

19.9%

10 bps

  Loan yield, FC

11.7%

13.0%

-130 bps

11.6%

10 bps

Cost of funding, total

4.8%

5.3%

-50 bps

4.8%

0 bps

  Cost of funding, GEL

3.9%

3.8%

10 bps

4.0%

-10 bps

  Cost of funding, FC

5.2%

5.9%

-70 bps

5.1%

10 bps

 

1 Daily averages are used for calculation of average interest earning assets and average interest bearing liabilities

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

 

On q-o-q basis, the NIM improved by 20 bps to 7.6% as a result of net interest income growth of 12.5% that outweighed a 9.8% increase in average interest earning assets. This was due to a robust growth of the loan book, up 9.8% q-o-q on the back of a significantly decreased liquidity pool. Lower liquidity also provided substantial support for asset yields - Loan Yield decreased 20 bps q-o-q to14.1% and Liquid Asset Yield increased 40 bps to 3.0%. Interest bearing liabilities also increased 3.2% on q-o-q basis to support increased lending on the back of flat Cost of Funding of 4.8% in Q4 2014.

 

On y-o-y basis however, the NIM declined by 40 bps as the 16.4% increase in net interest income lagged behind the 22.2% increase in average interest earning assets. This was largely due to a 170 bps y-o-y decline in the Loan Yield, which is partially offset by a 50 bps y-o-y decline in the Cost of Funding. The NIM was positively impacted by the growth of higher yielding Retail Banking loans in the total loan portfolio.

 

Operating income before non-recurring items; cost of credit risk; profit for the period

 


Quarter ended

Change

Quarter ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y

30 Sep 2014

q-o-q







Salaries and other employee benefits

(40,552)

(35,627)

13.8%

(40,196)

0.9%

General and administrative expenses

(20,660)

(17,142)

20.5%

(17,837)

15.8%

Depreciation and amortisation expenses

(7,354)

(6,682)

10.1%

(7,047)

4.4%

Other operating expenses

(1,112)

(664)

67.5%

(876)

26.9%

Operating expenses

(69,678)

(60,115)

15.9%

(65,956)

5.6%

Operating income before cost of credit risk

99,024

83,443

18.7%

89,407

10.8%

Cost of credit risk

(16,552)

(10,000)

65.5%

(15,306)

8.1%

Operating income before net non-recurring items

82,472

73,443

12.3%

74,101

11.3%

Net non-recurring items

(2,093)

(5,959)

-64.9%

(727)

187.9%

Profit before income tax expense

80,379

67,484

19.1%

73,374

9.5%

Income tax expense

(13,902)

(11,840)

17.4%

(11,066)

25.6%

Profit

66,477

55,644

19.5%

62,308

6.7%

 

Cost discipline, reflected in improved Cost to Income ratio (41.3%) and positive Operating Leverage (1.6%).On y-o-y basis, the Group's operating expenses increased 15.9% to GEL 69.7 million in Q4 2014 predominantly as a result of a 13.8% growth of salaries and employee benefits to GEL 40.6 million and a 20.5% increase in general and administrative expenses to GEL 20.7 million. The growth of expenses was primarily fuelled by the Group's non-banking businesses, particularly its healthcare business which significantly increased its headcount over the past year, from 6,316 healthcare employees to 7,697. The increase in headcount and associated costs follows a string of acquisitions over the last year period, while synergies have not yet been fully realised. The y-o-y increase in operating expenses was also affected by the increase in the number of senior managers eligible for the Group's share based compensation (non-cash bonus), which translated into the increase in salaries and employee benefits, albeit largely flat standalone headcount of the Bank on year-on-year basis. The new initiatives within our Investment Management business aimed at expanding our fee generating businesses, as well as our expanded Corporate Social Responsibility programme, also contributed to the increased operating expenses.

 

On q-o-q basis, operating expenses increased as a result of a 15.8% increase in general and administrative expenses, which was mainly attributed to increased marketing and corporate hospitality expenses associated with the Christmas period. Salaries and other employee benefits also increased slightly by 0.9%, in line with the increased revenue base, eventually resulting in positive q-o-q operating leverage.

 

As a result, operating income before cost of credit risk increased 18.7% y-o-y and 10.8% q-o-q to GEL 99.0 million in Q4 2014.

 

Cost of credit risk increased 8.1% q-o-q to GEL 16.6 million predominantly as a result of higher impairment of other assets and provisions. Impairment of loans was significantly lower on q-o-q basis due to lower impairment charges in Retail Banking as well as recoveries. This increase, on the back of a significant q-o-q increase in the loan book, resulted in a decline in the Cost of Risk to 1.2% in Q4 2014 from 1.6% in Q3 2014 - below the management's target of 1.5%. On y-o-y basis, the Cost of credit risk increased from GEL 10.0 million in Q4 2013 to GEL 16.6 million in Q4 2014 reflecting the loan book growth as well as low base in Q4 2013 due to high level of recoveries. Cost of Risk as a result increased from 0.9% in Q4 2013 to 1.2% in Q4 2014.

 

As a result of the foregoing, in Q4 2014, the Group's operating income before non-recurring items totalledGEL 82.5 million, up 12.3% y-o-y and 11.3% q-o-q. The Group's net non-recurring items declined to GEL 2.1 million from GEL 6.0 in Q4 2013. Profit before income tax in Q4 2014 reached GEL 80.4 million, up 19.1% y-o-y. After income tax expense of GEL 13.9 million, the Group's Q4 2014 profit for the period stood at GEL 66.5 million, up 19.5% y-o-y and 6.7% q-o-q.

 

 

 

SEGMENT RESULTS

 

Strategic Businesses Segment Result Discussion

 

Segment result discussion is presented for the Bank of Georgia's Retail Banking (RB), Corporate Banking (CB) and Investment Management (comprising Wealth Management and Galt and Taggart), Healthcare Business, P&C and Life Insurance, Real Estate Business (m2 Real Estate) in Georgia and Belarusky Narodny Bank (BNB) in Belarus, excluding inter-company eliminations.

 

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 handling customer deposits for both individuals and legal entities, encompassing the mass affluent segment, retail mass markets, SME and micro businesses.

               


As at and for year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





INCOME STATEMENT HIGHLIGHTS




Net interest income

213,790

191,851

11.4%

Net fee and commission income

58,867

54,025

9.0%

Net gain from foreign currencies

20,274

16,308

24.3%

Other operating non-interest income

3,650

4,537

-19.6%

Revenue

296,581

266,721

11.2%

Operating expenses

(128,972)

(119,963)

7.5%

Operating income before cost of credit risk

167,609

146,758

14.2%

Cost of credit risk

(9,226)

(29,172)

-68.4%

Net non-recurring items

(5,795)

(2,200)

163.4%

Profit before income tax expense

152,588

115,386

32.2%

Income tax expense

(19,325)

(14,468)

33.6%

Profit

133,263

100,918

32.1%

BALANCE SHEET HIGHLIGHTS




Net loans, standalone, Currency Blended

2,066,973

1,612,942

28.1%

Net loans, standalone, GEL

1,023,756

950,353

7.7%

Net loans, standalone, FC

1,043,217

662,589

57.4%

Client deposits, standalone, Currency Blended

1,349,556

1,086,607

24.2%

Client deposits, standalone, GEL

437,712

395,314

10.7%

Client deposits, standalone, FC

911,844

691,293

31.9%

Time deposits, standalone, Currency Blended

789,413

647,459

21.9%

Time deposits, standalone, GEL

174,552

161,129

8.3%

Time deposits, standalone, FC

614,861

486,330

26.4%

Current accounts and demand deposits, standalone, Currency Blended

560,143

439,148

27.6%

Current accounts and demand deposits, standalone, GEL

263,160

234,185

12.4%

Current accounts and demand deposits, standalone, FC

296,983

204,963

44.9%

KEY RATIOS




Net interest margin, currency blended

9.8%

10.3%

-50 bps

Loan yield, currency blended

17.4%

19.8%

-240 bps

Loan yield, GEL

21.5%

24.9%

-340 bps

Loan yield, FC

12.4%

13.9%

-150 bps

Cost of deposits, currency blended

3.8%

5.2%

-140 bps

Cost of deposits, GEL

4.2%

5.0%

-80 bps

Cost of deposits, FC

3.6%

5.2%

-160 bps

Cost of time deposits, currency blended

5.7%

7.4%

-170 bps

Cost of time deposits, GEL

8.2%

9.7%

-150 bps

Cost of time deposits, FC

4.9%

6.7%

-180 bps

Current accounts and demand deposits, currency blended

1.5%

3.1%

-160 bps

Current accounts and demand deposits, GEL

1.8%

3.7%

-190 bps

Current accounts and demand deposits, FC

1.2%

2.3%

-110 bps

Cost / income ratio

43.5%

45.0%

-150 bps

 

 

 

The Bank's Retail Banking registered another year of record performance.

 

Financial highlights

 

§ Retail Banking revenue increased 11.2% to GEL 296.6 million, driven by:

o Net interest income that increased 11.4% to GEL 213.8 million as a result of the significant growth of 28.1% in the Retail Banking loan book to GEL 2,067.0 million, strongly supported by a robust growth of SME & micro, mortgage loans and consumer loans

o In line with the market trends across the banking sector, the Retail Banking Loan Yield declined by 240 bps y-o-y to 17.4% putting downward pressure on the Retail Banking NIM

o The decline in the Loan Yield was partially mitigated by a 140 bps decline in Client Deposit Costs for Retail Banking

o The growth of Retail Banking client deposit balances, which increased 24.2% y-o-y to GEL 1,349.6 million, has not been compromised by the cut in deposit costs

o This is largely due to the significant number of new Express Banking clients, who bring with them the cheapest source of deposits for the bank - current accounts and demand deposits

o Net fee and commission income and net gain from foreign currencies that increased 9.0% and 24.3% respectively. The growth of both items are mainly attributed to the Express Banking franchise, which has attracted c.560,000 previously unbanked emerging mass market customers since its launch 3 years ago, and driven the number of client related foreign currency and other banking transactions substantially higher

 

§ Operating expenses increased 7.5%, or at a much slower rate than revenue growth rate, reflecting:

o Cost efficiencies achieved largely due to the success of the Express Banking footprint, with increasing shift to low cost remote channel-intensive Express Banking services

o In 2014, transactions executed through Express Pay terminals, ATMs, Internet and Mobile channels increased 100.1%, 21.2% 38.4% and 202.2%, respectively while operations through tellers decreased 4.0%

 

§ The Cost of credit risk improved significantly from GEL 29.2 million to GEL 9.2 million, as a result of:

o Lower impairments reflecting further economic growth and our continuing prudent risk management policies

o The effects of the new provisioning methodology which had a positive impact on the Retail Banking cost of credit risk

 

§ As a result, Retail Banking profit reached GEL 133.3 million, up by 32.1% y-o-y

 

§ We enhanced our footprint in the significantly more profitable retail franchise through the Privatbank acquisition in January 2015. Privatbank is the 9th largest bank in Georgia by total assets and has a focus on retail banking, with retail loans representing 86% of its loan book, while the cards business accounts for 69% of loans (based on 2013 IFRS consolidated financial statements). Privatbank has a countrywide distribution network with 92 branches (equal to 42% of our current distribution network), 431 ATMs and 1,937 POS terminals and 1,154 employees. Privatbank has a 4.9% market share by retail loans and 3.0% by customer deposits (market data based on standalone accounts as published by the National Bank of Georgia ("NBG") as of 31 December 2014.)

 

This transaction offers significant synergy potential. Express Pay terminals will be used by Privatbank customers for transactions such as credit card and consumer loan payments, utility bill payments and mobile telephone top-ups. Potential revenue synergies are expected to be captured from the cross-selling of our banking products to the customers of Privatbank, which has a more limited portfolio of banking products due to its strategic focus on credit cards. Cost synergies are expected mainly as a result of reduction in Privatbank's Cost of Funding, back office and distribution network optimisation initiatives, significant potential to increase the utilisation of the Privatbank franchise.

Side by side analysis of operating KPIs



31 December 2014

31 December 2013



Bank of Georgia (standalone)

Privatbank Georgia

Bank of Georgia (standalone)


Total # of Retail Banking Clients (k)

1,452

436

1,245


Total # of Cards (k)

1,157

904

976


# of Branches

219

92

202


# of ATMs

523

431

496


# of POS

6,320

1,937

4,836


# of Employees

3,769

1,154

3,574

 

 

Operating highlights

§ Number of active internet and mobile banking clients increased 33.7% and 103.7% to 72,357 and 28,984 as of 31 December 2014, respectively. Number of transactions increased 54.2% from 3,408,926 in 2013 to 5,258,196 in 2014

§ Increased number of Express Pay terminals to 2,239 from 985 in 2013. Express Pay terminals are used for bank transactions such as credit card and consumer loan payments, utility bill payments and mobile telephone top-ups

§ Utilisation of Express Pay terminals have doubled in 2014, with number of transactions growing at 100.1% y-o-y to 99.4 million during the year

§ Outstanding balances on retail current accounts increased 24.7% to GEL 356.3 million in 2014

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

§ Since the launch on 5 September 2012, 721,909 Express cards have been issued in essence replacing pre-paid metro cards in circulation since July 2009

§ Issued 589,348 debit cards, including Express cards in 2014 bringing the total debit cards outstanding to 1,040,016, up 21.3% y-o-y

§ Issued 33,779 credit cards of which 26,450 were American Express cards in 2014. A total of 230,790 American Express cards have been issued since the launch in November 2009. The total number of outstanding credit cards amounted to 116,615 (of which 110,362 were American Express Cards)

§ Number of Retail Banking clients totalled 1,451,777 up 16.6% y-o-y and by 5.3% (73,304 clients) q-o-q

§ In 2014 acquired 1,701 new clients in the Solo business line, the Bank's mass affluent sub-brand. As of 31 December 2014, the number of Solo clients reached 7,971

§ Increased the number of corporate clients using the Bank's payroll services from 3,842 as of 31 December 2013 to 4,340 as of 31 December 2014. At the period end, the number of individual clients serviced through the corporate payroll programmes administered by the Bank amounted to 239,884, compared to 233,153 as of 31 December 2013

§ Increased Point of Sales (POS) footprint: as of 31 December 2014, 329 desks at 1,035 contracted merchants, up from 283 desks and 731 merchants as of 31 December 2013. GEL 165.7 million POS loans were issued in 2014, compared to GEL110.2 million during the same period last year. POS loans outstanding amounted to GEL 93.1 million, up 47.9% over a one year period

§ POS terminals outstanding reached 6,320, up 30.7% y-o-y. The volume of transactions through the Bank's POS terminals grew 35.4% y-o-y to GEL 579.1 million, while the number of POS transactions increased 7.4 million y-o-y from 7.2 million in 2013 to 14.6 million in 2014

§ Added a new product on the market, whereby a client can activate a pre-approved overdraft limit upon making a purchase through any Bank of Georgia POS terminal. Since the launch in March 2013, 11,045 pre-approved POS loans were issued, worth GEL 8.05 million

§ Consumer loan originations of GEL 644.7 million resulted in consumer loans outstanding totalling GEL 525.7 million as of 31 December 2014, up 25.8% y-o-y

§ Micro loan originations of GEL 498 million resulted in micro loans outstanding totalling GEL 429.9 million as of 31 December 2014, up 27.5% y-o-y

§ SME loan originations of GEL 269.4 million resulted in SME loans outstanding totalling GEL 236.1 million as of 31 December 2014, up 47.8% y-o-y

§ Mortgage loans originations of GEL 315.2 million resulted in mortgage loans outstanding of GEL 600.9 million as of 31 December 2014, 36.1% y-o-y

 

 

Corporate Banking (CB)

 

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

 


As at and for year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





INCOME STATEMENT HIGHLIGHTS




Net interest income

105,223

103,967

1.2%

Net fee and commission income

24,810

27,318

-9.2%

Net gain from foreign currencies

27,386

24,774

10.5%

Other operating non-interest income

6,653

5,971

11.4%

Revenue

164,072

162,030

1.3%

Operating expenses

(49,060)

(43,833)

11.9%

Operating income before cost of credit risk

115,012

118,197

-2.7%

Cost of credit risk

(41,176)

(31,054)

32.6%

Net non-recurring items

(2,672)

(2,690)

-0.7%

Profit before income tax expense

71,164

84,453

-15.7%

Income tax expense

(9,528)

(11,164)

-14.7%

Profit

61,636

73,289

-15.9%

BALANCE SHEET HIGHLIGHTS




Letters of credit and guarantees, standalone1

552,661

499,055

10.7%

Net loans, standalone, currency blended

2,160,767

1,819,171

18.8%

Net loans, standalone, GEL

284,987

306,175

-6.9%

Net loans, standalone, FC

1,875,780

1,512,996

24.0%

Client deposits, standalone, currency blended

1,186,026

1,221,428

-2.9%

Client deposits, standalone, GEL

575,882

599,623

-4.0%

Client deposits, standalone, FC

610,144

621,805

-1.9%

Time deposits, standalone, currency blended

391,514

318,475

22.9%

Time deposits, standalone, GEL

197,222

39,845

NMF

Time deposits, standalone, FC

194,292

278,630

-30.3%

Current accounts and demand deposits, standalone, currency blended

794,512

902,953

-12.0%

Current accounts and demand deposits, standalone, GEL

378,660

559,778

-32.4%

Current accounts and demand deposits, standalone, FC

415,852

343,175

21.2%

RATIOS




Net interest margin, currency blended

4.5%

5.0%

-50 bps

Loan yield, currency blended

10.6%

12.4%

-180 bps

Loan yield, GEL

10.5%

12.2%

-170 bps

Loan yield, FC

10.6%

12.5%

-190 bps

Cost of deposits, currency blended

2.9%

4.6%

-170 bps

Cost of deposits, GEL

3.4%

4.7%

-130 bps

Cost of deposits, FC

2.4%

4.4%

-200 bps

Cost of time deposits, currency blended

6.4%

7.2%

-80 bps

Cost of time deposits, GEL

7.9%

8.2%

-30 bps

Cost of time deposits, FC

5.6%

7.0%

-140 bps

Current accounts and demand deposits, currency blended

1.5%

3.6%

-210 bps

Current accounts and demand deposits, GEL

2.2%

4.4%

-220 bps

Current accounts and demand deposits, FC

0.8%

2.2%

-140 bps

Cost / income ratio

29.9%

27.1%

280 bps

 

1Off-balance sheet items

 

 

 

 

 

 

 

 

 

Highlights

§ Revenue for the Corporate Banking segment remained largely flat, increasing by 1.3% to GEL 164.1 million, as a result of:

A largely flat net interest income of GEL 105.2 million, up 1.2% is a result of a slower growth of Corporate Banking segment that was largely due to competitive pressures

High liquidity environment in the Georgian banking sector during the year, that resulted in declining Corporate Banking Loan Yields (down 180 bps) and consequent downward pressure on the NIM, which declined by 50 bps

NIM pressure that was partially offset by 170 bps decline in Cost of Client Deposits and 18.8% y-o-y growth in the Corporate Banking loan book

9.2% decrease in net fee and commission income to GEL 24.8 million

Net gain from foreign currencies increased 10.5% to GEL 27.4 million as a result of a significant growth of foreign currency related client transactions

§ Corporate Banking cost of credit risk rose to GEL 41.2 million up 32.6% y-o-y, which reflected the default of a borrower in the agricultural sector in Q1 2014 as well as a slight negative impact of the new provisioning methodology

§ Agreed a US$25 million one-year Trade Finance Club Facility with Citi, the first Trade Finance Club facility arranged by Citi for a Georgian bank

§ Signed a US$20 million trade facility loan agreement with Turk Eximbank to extend financing to Georgian companies that import Turkish consumer and capital goods in Georgia

 

 

 

 

 

 

Investment Management

 

 

Investment Management consists of Bank of Georgia Wealth Management and the brokerage arm of the Bank, Galt & Taggart. Bank of Georgia Wealth Management provides private banking services to high-net-worth individuals and offers investment management products internationally through representative offices in London, Budapest, Istanbul and Tel Aviv. Galt & Taggart brings under one brand corporate advisory, private equity and brokerage services.

 

Wealth Management financial highlights


As at and for year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





BALANCE SHEET HIGHLIGHTS




Client deposits, standalone, currency blended

805,266

679,401

18.5%

Client deposits, standalone, GEL

22,115

27,476

-19.5%

Client deposits, standalone, FC

783,151

651,925

20.1%

Time deposits, standalone, currency blended

596,366

531,021

12.3%

Time deposits, standalone, GEL

13,882

19,794

-29.9%

Time deposits, standalone, FC

582,484

511,227

13.9%

Current accounts and demand deposits, standalone, currency blended

208,900

148,380

40.8%

Current accounts and demand deposits, standalone, GEL

8,233

7,682

7.2%

Current accounts and demand deposits, standalone, FC

200,667

140,698

42.6%

RATIOS




Cost of deposits, currency blended

6.0%

7.9%

-190 bps

Cost of deposits, GEL

6.3%

7.5%

-120 bps

Cost of deposits, FC

6.0%

7.9%

-190 bps

Cost of time deposits, currency blended

7.4%

9.3%

-190 bps

Cost of time deposits, GEL

9.0%

10.4%

-140 bps

Cost of time deposits, FC

7.3%

9.2%

-190 bps

Current accounts and demand deposits, currency blended

2.4%

3.6%

-120 bps

Current accounts and demand deposits, GEL

1.3%

2.3%

-100 bps

Current accounts and demand deposits, FC

2.5%

3.7%

-120 bps

 

 

Highlights

 

§ Wealth Management deposits increased 18.5% y-o-y to GEL 805.3 million notwithstanding a 190 bps decline in Cost of Client deposits to 6.0% for the Investment Management segment

§ The growth in deposits was fuelled by strong growth of current accounts and demand deposits, which increased 40.8% y-o-y in spite of a 120 bps y-o-y decrease in cost of current accounts and demand deposits

§ The AUM of Investment management segment, which includes WM client deposits, Galt & Taggart brokerage client assets, Wealth Management clients' assets held at Bank of Georgia Custody and Aldagi pension scheme assets, increased 21.4% y-o-y to GEL 1,027.1 million

§ Galt & Taggart had a particularly strong year in 2014 following high bond issuance activity on the local market, led by Galt & Taggart, as well as a successful M&A transaction during the year. As a result, net fee and commission income of Investment Management business increased to GEL 8.8 million in 2014 from just GEL 1.2 million in 2013

§ Rebranded BG Capital to Galt and Taggart bringing corporate advisory, private equity and brokerage services with consistent branding under one roof

§ Galt & Taggart hosted first investor conference dedicated to the equity and bond market development in the region. The conference brought together 60 institutional investors and analysts and more than 100 one-on-one meetings were held with Georgian and Azeri companies

§ As of 31 December 2014, the amount of the Bank's CDs issued to Investment Management clients reached GEL 460.6 million

§ Successfully placed US$8 million, EUR 8 million and GBP 5 million Euroclearable CDs

§ The Investment Management business served over 1,400 clients from 70 countries as of 31 December 2014. Client deposits attracted by Investment Management have grown at a compound annual growth rate (CAGR) of 37.6% over the last five year period, to GEL 805.3 million as of 31 December 2014     

§ Since its launch in June 2012, Galt & Taggart Research has initiated research coverage of the Georgian economy and Azeri economies, including a report analysing the impact of Russia-Ukraine standoff on the Georgian economy, the Georgian Retail Real Estate Market, the Georgian Wine Sector, Georgian Agricultural Sector, Georgian Electricity Sector, Georgian Oil and Gas Corporation, Georgian Railway, and has issued notes on the Georgian State Budget and the Tourism Sector

§ Within the Hydro Private Equity fund, actively moving forward with the detailed feasibility study on the first hydropower plant in Georgia with the help of several specialised contractors. Preparatory works have started in the Spring this year and are scheduled to be completed late autumn/early winter of 2014. The feasibility study is carried out and financed jointly by Bank of Georgia Group and rpGlobal - the Bank's Austrian partners in Hydro development (total cost of feasibility is approximately US$1.3 million)

 

Healthcare Business

 

On 1 August 2014, the Group announced the split of Aldagi into two separate business lines, and the respective rebranding of the new business entities. One business line is a pure play healthcare business that provides healthcare services (through JSC Evex Medical Corporation, (Evex)) and health insurance products (through JSC Insurance Company Imedi L, (Imedi L)) in Georgia. The Group expects to establish a new holding company JSC Georgia Healthcare Group (GHG) which will ultimately own the healthcare business. The second business line is a P&C insurance business (through JSC Insurance Company Aldagi, (Aldagi)) that continues to provide life and non-life insurance products and services in Georgia, retaining the brand name of Aldagi. P&C insurance business is reported separately on page 32.

 

 

HEALTHCARE BUSINESS

 

Income Statement

 

GEL thousands, unless otherwise noted

Healthcare Services

Health Insurance

Eliminations

Total


Year-ended

Year-ended


Year-ended

Year-ended


31 Dec 2014

31 Dec 2013

Change

y-o-y

31 Dec 2014

31 Dec 2013

Change

y-o-y

31 Dec 2014

31 Dec 2013

31 Dec 2014

31 Dec 2013

Change

y-o-y













Net interest income (expenses)

(13,147)

(12,404)

6.0%

332

2,723

-87.8%

-

-

(12,815)

(9,681)

32.4%

Net fee and commission income (expense)

(176)

(250)

-29.6%

(10)

8

NMF

-

-

(186)

(242)

-23.1%

Net insurance revenue, of which:

-

-

-

8,045

16,160

-50.2%

6,941

11,088

14,986

27,248

-45.0%

Net insurance premiums earned

-

-

-

70,010

103,200

-32.2%

(310)

(320)

69,700

102,880

-32.3%

  Net insurance claims incurred

-

-

-

(61,965)

(87,040)

-28.8%

7,251

11,408

(54,714)

(75,632)

-27.7%

Net healthcare services revenue, of which:

54,136

33,776

60.3%

-

-

-

(7,252)

(11,407)

46,884

22,369

109.6%

  Healthcare services revenue

144,185

90,745

58.9%

-

-

-

(18,465)

(30,732)

125,720

60,013

109.5%

  Cost of healthcare services

(90,049)

(56,969)

58.1%

-

-

-

11,213

19,325

(78,836)

(37,644)

109.4%

Net loss from foreign currencies

(1,837)

(5,139)

-64.3%

326

442

-26.2%

-

-

(1,511)

(4,697)

-67.8%

Other operating non-interest income

432

1,210

-64.3%

133

259

-48.6%

-

-

565

1,469

-61.5%

Revenue

39,408

17,193

129.2%

8,826

19,592

-55.0%

(311)

(319)

47,923

36,466

31.4%

Operating expenses

(22,579)

(12,367)

82.6%

(7,287)

(8,529)

-14.6%

311

319

(29,555)

(20,577)

43.6%

Operating income before cost of credit risk

16,829

4,826

NMF

1,539

11,063

-86.1%

-

-

18,368

15,889

15.6%

Cost of credit risk

(2,233)

(39)

NMF

(639)

(708)

-9.7%

-

-

(2,872)

(747)

NMF

Net non-recurring items

661

-

-

(156)

(1)

NMF

-

-

505

(1)

NMF

Profit before income tax expense

15,257

4,787

NMF

744

10,354

-92.8%

-

-

16,001

15,141

5.7%

Income tax expense

(1,210)

(389)

NMF

(136)

(1,660)

-91.8%

-

-

(1,346)

(2,049)

-34.3%

Profit

14,047

4,398

NMF

608

8,694

-93.0%

-

-

14,655

13,092

11.9%

Cost / income ratio

57.3%

 

71.9%


82.6%

43.5%

39.1%



61.7%

56.4%


 

 

Healthcare Services

§ Our healthcare services business delivered record growth in 2014, driven by acquisitions that resulted in a much stronger market position, especially in Tbilisi, and by favorable government policy that increased spending on healthcare

§ In 2014, the net healthcare services revenue, which includes revenue from hospitals and ambulatory clinics, increased 60.3% y-o-y to GEL 54.1 million, mainly driven by the following factors:

Implementation of the expansion strategy that resulted in the acquisition of seven hospitals with total of 850 beds during 2014, bringing the number of total healthcare facilities to 39 and hospital beds to 2,140, up from 32 and 1,329, respectively

Our increased footprint in Tbilisi, the capital city of Georgia, where our market share grew from 1.3% as of 31 December 2013 to 14.1% as of 31 December 2014 in terms of the hospital beds

The introduction of UHC by the Government, as a result of which all Georgian citizens are eligible for the new Government-funded basic health coverage. Since the introduction of UHC in 2012, Government expenditures on healthcare have increased over 65% from GEL 414.5 million in 2012 to GEL 692.9 million in 2014 and are expected to be further increased to GEL 768.3 million in 2015 according to the state budget for 2015 announced by the Ministry of Finance of Georgia

 

§ The increase in costs outpaced growth in net healthcare services revenue as a result of inefficiencies brought in through acquisition of the new hospitals. While the integration of the acquired healthcare facilities is ongoing and partially completed, including centralisation of some of the back-office functions, we expect significant further synergy gains to be made in 2015 as management shifts its focus from acquisition to integration mode

 

Health Insurance

§ High double digit growth in our healthcare service revenues was partially offset by the anticipated decline in health insurance revenues, resulting from UHC implementation. In addition to providing basic healthcare coverage to all citizens of Georgia, the UHC also entails a structural shift of private insurers' revenues that had previously come from state to the UHC system, implying direct management by the Government

§ As anticipated, this had a negative effect on the health insurance businesses. In addition to moving the revenue from the state funded insurance away from private insurance companies, the shift of revenue to the state did not immediately result in elimination of associated costs, including insurance claims incurred

§ As a result, our net insurance premiums earned decreased by 32.2% to GEL 70.0 million and insurance claims incurred decreased 28.8% to GEL 62.0 million, resulting in GEL 8.0 million in net insurance revenue, down 50.2% y-o-y

§ However, our private health insurance has shown resilience notwithstanding challenges posed by the implementation of UHC in the light of competition from UHC and revenue from private medical insurance products grew by 3.9% y-o-y, with approximately 200,000 people holding our health insurance policies as at 31 December 2014

§ Within the changed private insurance landscape that resulted from the introduction of UHC, our health insurance business strengthened its market share and accounted for 36.7% of the total health insurance sector of Georgia based on gross premiums revenue as of 30 September 2014, up from 28.9% as of 31 December 2013

 

 

The discussion below refers to the healthcare services and health insurancebusiness standalone numbers.

 

Healthcare Business standalone results

 

For the purposes of the results discussion below, healthcare business refers to the Group's pure-play healthcare businesses which includes healthcare services (Evex) and health insurance (Imedi L). The results are based on management accounts and refer to standalone numbers.

 

Income Statement

 


Year ended



31 Dec 2014

31 Dec 2013

Change, y-o-y

GEL thousands, unless otherwise noted

 Healthcare Services

 Health Insurance

 Eliminations

 Consolidated Healthcare Business

 Healthcare Services

 Health Insurance

 Eliminations

 Consolidated Healthcare Business

 Healthcare Services

 Health Insurance

 Consolidated Healthcare Business

Revenue

138,473

70,010

(18,776)

189,707

85,213

103,220

(30,959)

157,474

62.5%

-32.2%

20.5%

COGS, insurance claims expense

(78,891)

(61,965)

18,465

(122,391)

(48,810)

(87,040)

30,732

(105,118)

61.6%

-28.8%

16.4%

Gross profit

59,582

8,045

(311)

67,316

36,403

16,180

(227)

52,356

63.7%

-50.3%

28.6%

Selling, general and administrative

(23,776)

(7,125)

311

(30,590)

(12,220)

(8,719)

227

(20,712)

94.6%

-18.3%

47.7%

Other operating income

1,106

(14)

-

1,092

3,236

(5)

(6)

3,225

-65.8%

180.0%

-66.1%

EBITDA

36,912

906

-

37,818

27,419

7,456

(6)

34,869

34.6%

-87.8%

8.5%

Depreciation

(6,998)

(633)

-

(7,631)

(5,195)

(683)

-

(5,878)

34.7%

-7.3%

29.8%

Net interest (expense) income

(13,139)

332

-

(12,807)

(12,404)

2,723

-

(9,681)

5.9%

-87.8%

32.3%

(Losses) gains on currency exchange

(2,819)

326

-

(2,493)

(4,157)

442

-

(3,715)

-32.2%

-26.2%

-32.9%

Net non-recurring items

314

(186)

-

128

115

11

-

126

173.0%

NMF

1.6%

Profit before income tax

14,270

745

-

15,015

5,778

9,949

(6)

15,721

147.0%

-92.5%

-4.5%

Income tax expense

(1,143)

(137)

-

(1,280)

(455)

(1,681)

-

(2,136)

151.2%

-91.9%

-40.1%

Profit

13,127

608

-

13,735

5,323

8,268

(6)

13,585

146.6%

-92.6%

1.1%

Attributable to:












  - shareholders of the Company

9,807

608

-

10,415

1,370

8,268

(6)

9,632

615.8%

-92.6%

8.1%

 

  - minority interest

3,320

-

-

3,320

3,953

-

-

3,953

-16.0%

-

-16.0%

 

 

Note: the table above does not include intercompany eliminations on the Group consolidated level.

 

 

Revenue from healthcare services by business lines

 


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Referral and specialty hospitals

         117,354

57,180

105.2%

Community hospitals

           13,518

11,788

14.7%

Ambulatory clinics

4,739

4,687

1.1%

Ambulance and rural primary care

2,862

11,558

-75.2%

Total

        138,473

85,213

62.5%

 

 

§ Revenue from healthcare services increased 62.5% y-o-y to GEL 138.5 million in 2014, which is the result of acquisitions as well as organic growth

§ As discussed above, during 2014, Evex acquired seven hospitals enabling it to increase its healthcare revenues and expand into new market segments. As of 31 December 2014, Evex was the largest healthcare provider in Georgia, with 14 referral (multi-profile or specialty) hospitals and 19 community hospitals, which have total of 2,140 beds, and six ambulatory clinics providing outpatient services

§ Revenue from referral hospitals, which are the main source of revenue for the healthcare services business, grew by 105.2% y-o-y, driven by both acquisitions and organic growth

§ The 14.7% y-o-y growth of revenue from the community hospitals was the result of organic growth alone and was driven by the introduction of UHC, which made healthcare services, both outpatient and inpatient, more accessible and affordable for the population of Georgia

§ In addition, a recent initiative of the Ministry of Health, Labour and Social Affairs extended the prescription requirement to over 55% of all medicines registered in Georgia with effect from 1 September 2014 (whereas no more than 2% of all medicines registered in Georgia required a prescription before this date). We believe this initiative will begin to have a favourable impact on revenues in 2015 as outpatient visits to clinics increase

§ Ambulatory clinics revenue was largely flat because of a change in our health insurance service delivery. Prior to 2014, we mainly provided outpatient services to Imedi L health insurance patients in Tbilisi at our ambulatory clinics (i.e. the Evex ambulatory clinics). During 2014, the list of provider ambulatory clinics that are eligible to treat Imedi L's health insurance clients in Tbilisi expanded to include other (non-Evex) clinics, which has placed downward pressure on ambulatory service revenues

§ The 75.2% y-o-y decline in revenue from ambulance and rural primary care services was due to the full handover of the administration function related to these services to the Government as part of UHC. Management expects the handover to improve Evex's operating margins due to the very low profitability of ambulance and rural primary care services

 

 

Revenue from healthcare services bysources of payment 

 


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Private insurance companies, of which:

25,177

46,768

-46.2%

   Imedi L health insurance

18,465

30,732

-39.9%

Government-funded healthcare programmes

80,820

19,809

308.0%

Out-of-pocket payments by patients

32,476

18,636

74.3%

Total

138,473

85,213

62.5%

 

§ High double digit growth of our revenue from healthcare services was primarily driven by the revenues from government-funded healthcare programmes, which more than quadrupled y-o-y to GEL 80.8 million, reflecting the implementation of UHC

§ This was partially offset by an anticipated decline in revenues from private insurance companies, resulting in 46.2% y-o-y decrease in these revenues to GEL 25.2 million in 2014

§ Notably, out-of-pocket payments by patients increased 74.3% to GEL 32.5 million. The UHC places coverage limits on medical treatments and has certain exclusions. Any charges in excess of the limit for services financed by UHC must be covered by patients out-of-pocket

 

[1] Source: Ministry of Labour, Health and Social Affairs

 

Healthcare services cost of goods sold (COGS)


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





COGS for healthcare services rendered, of which:

78,891

48,810

61.6%

Direct salary

54,059

32,497

66.4%

Materials, including medicines and medical disposables

18,139

11,121

63.1%

Utilities and other expenses

6,693

5,192

28.9%

Gross profit

59,582

36,403

63.7%

§ Margins improved, as a result of increasing utilisation and scale of our healthcare services business

§ More than half of the growth in COGS comes from an increase in payroll costs, primarily attributed to recent acquisitions. Since 31 December 2013 the headcount of our healthcare services business increased by 1,342 employees and reached 7,658 full-time employees as of 31 December 2014

§ In 2014, gross profit of our healthcare services business increased 63.7% y-o-y to GEL 59.6 million, supported by the 61.6% growth in COGS on the back of 62.5% increase in revenue during the same period

§ Gross margin (which is defined as gross profit divided by revenue) improved to 43.0%, up from 42.7% in 2013. The handover of the margin-dilutive ambulance and rural primary health care service to the Government also had a positive effect on margins

 

SG&A expenses for healthcare services


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Healthcare services SG&A expenses, of which:

         23,776

         12,220

94.6%

Salaries and other employee benefits

           15,156

             8,284

83.0%

Rent

                403

                413

-2.4%

Impairment Charge

             2,212

                629

NMF

Marketing and advertising

                775

                  40

NMF

Stationery and office supplies

             1,585

                974

62.7%

Communications

                672

                413

62.7%

Other

             2,973

             1,467

102.7%

 

§ Our healthcare services business grew significantly in 2014, which is reflected in its selling, general and administrative expenses, with additional efficiencies yet to be realised. Primarily driven by recent acquisitions, SG&A expenses increased 94.6% y-o-y, with salaries and other employee benefits constituting c.60% of this growth resulting from increased headcount

§ Further cost synergies are expected mainly as a result of reducing inefficiencies in the acquired hospitals, as benchmarked against the previously managed healthcare facilities in the areas of procurement, process standardisation and payroll

§ Post-acquisition synergies are not yet fully reflected in the current financial results, as the integration process is still ongoing for a number of recent acquisitions

 

 

 

Healthcare services EBITDA; depreciation; net-interest income and profit for the period


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Healthcare services business EBITDA

36,912

27,419

34.6%

Depreciation

(6,998)

(5,195)

34.7%

Net interest expense

(13,139)

(12,404)

5.9%

Loss on currency exchange

(2,819)

(4,157)

-32.2%

Net non-recurring items

314

115

173.0%

Healthcare services business profit before income tax expense

14,270

5,778

147.0%

Income tax expense

(1,143)

(455)

151.2%

Healthcare services business profit

13,127

5,323

146.6%

 

§ Our healthcare services business EBITDA reached GEL 36.9 million, up 34.6% y-o-y

§ Net interest expense of the healthcare services business grew by 5.9% y-o-y as a result of a 54.6% increase in borrowed funds raised for acquisitions as well as new project financing

§ The increase in depreciation costs by 34.7% was primarily driven by the acquisitions completed during the past year

§ Foreign exchange related losses have decreased 32.9% to GEL 2.5 million in 2014, primarily as a result of the company's efforts during 2014 to decrease foreign currency risk exposure on foreign currency borrowings, as compared to previous reporting periods, as well as potential future exposure. The company has converted most of the borrowings into local currency and the rest was hedged thus short position was closed

§ As a result, net income of our healthcare services business more than doubled on y-o-y basis to GEL 13.1 million up from 5.3 million

 

 

Selected balance sheet items


As at

 

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

YTD





 Total assets, of which:

410,157

276,332

48.4%

      Premises and equipment, net

261,739

172,584

51.7%

Total liabilities, of which:

237,564

176,183

34.8%

      Borrowed funds

162,435

105,074

54.6%

Total shareholders' equity

172,593

100,149

72.3%

 

§ Our healthcare business balance sheet increased substantially over the last year with assets growing to GEL 410.2 million as of 31 December 2014, up 48.4% from GEL 276.3 million as of 31 December 2013. The growth of total assets (up GEL 133.8 million y-o-y) was largely driven by a GEL 89.2 million, or a 51.7%, increase in the premises and equipment of our healthcare business, reflecting the acquisition of new hospitals during the twelve months of 2014

§ We own 38 out of the 39 healthcare facilities we operate, which are fully reflected on the balance sheet. We operate the Poti community hospital under a management contract

 

 

Operating highlights

§ Our market share in healthcare services increased to 22.0% as of 31 December 2014 compared to 14.3% as of 31 December 2013, based on hospital beds

§ Our market share stood at 36.7% in health insurance as of 30 September 2014 based on gross premiums revenue

§ Our healthcare services subsidiary Evex completed a number of hospital acquisitions, in line with the Group's strategy to scale up its healthcare business in Tbilisi. Seven healthcare facilities were acquired during 2014 and 850 beds were added as a result of these acquisitions, bringing the total number of beds to 2,140, and enabling us to increase market share in Tbilisi to 14.1% as of 31 December 2014 up from 1.3% at the end of 2013

§ We launched a new Training Centre to continue to support internal skills development and human resource capacity at our healthcare facilities

 

 

 

 

P&C Insurance

 

Our P&C insurance business is Georgia's leading provider, offering of the widest range of insurance products available in Georgia for corporate and retail clients, including motor third party liability and own damage, commercial property, contractor's all liability, general third party liability, travel, household property, cargo, professional indemnity, MPA, freight forwarders liability, guarantees, aviation hull, containers, employers liability, financial risks, agro, product liability, marine hull, machinery breakdown.

 


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Net interest income (expense)

506

(177)

NMF

Net fee and commission income

312

248

25.8%

Net insurance revenue, of which:

17,752

20,785

-14.6%

  Net insurance premiums earned

29,459

29,813

-1.2%

  Net insurance claims incurred

(11,707)

(9,028)

29.7%

Net loss from foreign currencies

(2,085)

101

NMF

Other operating non-interest income

515

545

-5.5%

Revenue

17,000

21,502

-20.9%

Operating expenses

(9,402)

(8,049)

16.8%

Operating income before cost of credit risk

7,598

13,453

-43.5%

Cost of credit risk

(601)

(272)

121.0%

Profit before Income tax expense

6,997

13,181

-46.9%

Income tax expense

(1,083)

(2,100)

-48.4%

Profit

5,914

11,081

-46.6%

 

 

Financial highlights

§ Net insurance premiums earned remained largely flat y-o-y at GEL 29.5 million. This was offset however by a 29.7% increase in net insurance claims incurred, as a result of a single large property and general third party liability claim following a major fire incident

§ As a result, revenue decreased 20.9% to GEL 17.0 million

§ Operating expenses increased 16.8% to GEL 9.4 million partly as a result of the above-mentioned split of the P&C insurance and healthcare businesses. Profit for the period for P&C insurance business was GEL 5.9 million

 

Operating highlights

§ Market share of 37.8% as of 30 September 2014 based on gross insurance premium revenue as reported by the Insurance State Supervision Service of Georgia

§ Our P&C insurance business leads the market with a powerful distribution network of 87 points of sale, up from 80 in 2013, and more than 200 account managers. The number of clients has surpassed 250,000, an increase of over 70% y-o-y mainly driven by increased cross-selling of life insurance products to our Retail Banking clients and the number of vehicles insured exceeded 19,000, increasing 17.1% y-o-y

 

 

m2 Real Estate

 

Our real estate business, the Bank's wholly-owned subsidiary m2 Real Estate, develops residential property on real estate assets previously repossessed by the Bank. m2 Real Estate outsources the construction and architecture works while focusing on project management and sales. The Bank's real estate business is in place to meet the unsatisfied demand for housing through our well-established branch network and sales force, while stimulating our mortgage lending business.


Year ended


GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

Change, y-o-y


      m2      Mortgages        Total

         m2   Mortgages         Total

    m2    Mortgages           Total











Net interest (expenses) income

(524)

2,005

1,481

1,063

948

2,011

NMF

111.5%

-26.4%

Net fee and commission expenses

-

-

-

(27)

-

(27)

-100.0%

-

-100.0%

Net loss from foreign currencies

(895)

-

(895)

123

-

123

NMF

-

NMF

Other operating non-interest income

13,751

-

13,751

10,505

-

10,505

30.9%

-

30.9%

Revenue

12,332

2,005

14,337

11,664

948

12,612

5.7%

111.5%

13.7%

Operating expenses

(5,468)

-

(5,468)

(2,893)

-

(2,893)

89.0%

-

89.0%

Operating income before cost of credit risk

6,864

2,005

8,869

8,771

948

9,719

-21.7%

111.5%

-8.7%

Cost of credit risk

(66)

(16)

(82)

(185)

240

55

-64.3%

NMF

NMF

Net non-recurring items

18

-

18

(823)

(1)

(824)

NMF

-100.0%

NMF

Profit before income tax expense

6,816

1,989

8,805

7,763

1,187

8,950

-12.2%

67.6%

-1.6%

Income tax expense

(1,022)

-

(1,022)

(1,142)

-

(1,142)

-10.5%

-

-10.5%

Profit

5,794

1,989

7,783

6,621

1,187

7,808

-12.5%

67.6%

-0.3%

 

Highlights

§ Total revenue reached GEL 14.3 million, up 13.7% y-o-y. Operating expenses increased to GEL 5.5 million in 2014, predominantly due to increased marketing activity and expansion of m2 Real Estate distribution network. As a result, profit for the period remained largely flat at GEL 7.8 million in 2014

§ m2 Real Estate enjoys strong demand, selling 574 apartments in 2014, which brings total apartments sold since 2010 to 1,327

§ Strong sales performance enabled us to prepay our USD 5 million IFC debt facility in full in December 2014

§ 99% of apartments sold in second project that was completed in Q2 2014.Completed four months ahead of completion deadline, project has an estimated IRR of 40%. As of the date of this announcement, 516 or 99% of 522 apartments had been sold. The total sales from this project amounted to US$46.8 million.

§ Over 80% of apartments pre-sold at the two additional new projects launched in December 2013. m2 Real Estate launched its third and fourth projects: Kazbegi Avenue and Nutsubidze Street. As the date of this announcement, m2 Real Estate sold 253 apartment or 86% of the total number of units in the Kazbegi Avenue project and 164 apartments or 74% of the total number of units in the Nutsubidze Street project. Sales totalled US$22.8 million and US$12.9 million, respectively, including mortgage financing of US$5.0 million and US$5.0 million, respectively

§ 59% of apartments pre-sold at the fifth project started in July 2014.m2 Real Estate launched its fifth project: Tamarashvili Avenue and sold 158 apartments or 59% of the total number of units. Sales amounted to US$14.5 million, including  mortgage financing of US$7.6 million as of the date of this announcement

§ 47% of apartments pre-sold at the sixth project launched in September 2014. m2 Real Estate launched its sixth project within m2 Real Estate's new low-cost apartment initiative this time on Moscow Avenue, which will offer unprecedented affordable price of as low as US$29,000 for refurbished 1 bedroom apartments. Sales amounted to US$4.3 million, including mortgage financing of US$3.6 million

§ Number of apartments financed with our mortgages in all m2 Real Estate projects as of the date of this announcement totalled 583, with aggregate amount of GEL 58.3 million

§ Completed two bond offerings in June 2014. A US$10 million 1-year bond placement at par with a coupon rate of 8.42% and a US$5 million 1 year bond with a coupon rate of 9.5%. The US$10 million bond was issued following exceptionally strong interest in the bonds for the US$5 million issue, which left US$3 million demand unmet

 

Non-Core businesses

 

Our non-core businesses accounted for 6.2% of total assets and 8.0% of total revenue in 2014 and predominantly comprised Joint Stock Company Belarusky Narodny Bank (BNB), our Belarus banking operation, and Liberty Consumer, a Georgia-focused investment company in which the Group holds a 70% stake. In order to focus on its strategic businesses, the Bank has announced its intention to exit from its non-core operations. As of 31 December 2014, the Bank still held Teliani Valley, a Georgian wine producer, through Liberty Consumer.

 

BNB


As at and for year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y





Net interest income

22,410

18,565

20.7%

Net fee and commission income

9,443

6,350

48.7%

Net gain from foreign currencies

9,932

5,875

69.1%

Other operating non-interest income

504

(127)

NMF

Revenue

42,289

30,663

37.9%

Operating expenses

(18,390)

(15,201)

21.0%

Operating income before cost of credit risk

23,899

15,462

54.6%

Cost of credit risk

(4,187)

(563)

NMF

Net non-recurring items

(3,073)

(399)

NMF

Profit before income tax expense

16,639

14,500

14.8%

Income tax expense

(4,471)

(3,514)

27.2%

Profit

12,168

10,986

10.8%

Cost / income ratio

43.5%

49.6%

-6.1 ppts

 

ROAE

16.8%

21.9%

-5.1 ppts

Net loans

265,952

199,308

33.4%

Total assets

403,764

326,465

23.7%

Client deposits

201,810

156,323

29.1%

Total liabilities

319,308

254,451

25.5%

 

 

Highlights

 

§ Through BNB, the Bank provides retail and corporate banking services in Belarus

§ BNB delivered another year of excellent performance in 2014, achieving record revenue at GEL 42.3 million, up 37.9%. The revenue growth was driven by double digit growth of all revenue items

§ Net interest income increased 20.7% to GEL 22.4 million supported by strong loan book growth. Net fee and commission income and net gain from foreign currencies increased 48.7% and 69.1%, respectively

§ Operating expenses grew at a slower pace than revenue, increasing 21.0% to GEL 18.4 million, resulting in a strong operating leverage of 16.9%

§ The cost of credit risk increased from GEL 0.6 million to GEL 4.2 million as a result of a sharp growth in net loans, which increased 33.4% to GEL 266.0 million

§ As a result of the foregoing, the profit for the period increased 10.8% to GEL 12.2 million

 

§ Strong support from international and local financial institutions. In 2014, attracted funding from IFC (US$6 million), EBRD (US$12 million), Triple Jump (US$2 million) and Development Bank of the Republic of Belarus (BYR 30 billion - equivalent of US$ 3 million) as well as getting increased trade finance limits from Commerzbank (EUR1 million) and EBRD (US$4 million) to support the development of SME sector in Belarus

§ Received funding totalling US$10 million from IFC and Triple Jump, a fund management company investing in micro and small and medium size enterprises in developing countries

§ Added 10,765 cards bringing total number of cards to more than 29,418 as of 31 December 2014

§ Increased number of clients served through payroll services by 54.6% y-o-y to 27,203 clients

§ Increased number of retail clients by 57.3% to 36,615 and increased the number of corporate clients by 11.9% to 4,466

§ Introduced a credit card with a grace period, which is still a novelty product in Belarus

 

SELECTED FINANCIAL INFORMATION

 

CONSOLIDATED INCOME STATEMENT

 


Year ended

Change

GEL thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

y-o-y


Unaudited

Audited






Loans to customers

539,983

522,847

3.3%

Investment securities

39,988

35,371

13.1%

Amounts due from credit institutions

6,581

8,423

-21.9%

Finance lease receivables

8,370

7,466

12.1%

Interest income

594,922

574,107

3.6%

Amounts due to customers

(133,865)

(159,028)

-15.8%

Amounts due to credit institutions, of which:

(62,560)

(65,161)

-4.0%

Subordinated debt

(11,412)

(22,394)

-49.0%

Loans and deposits from other banks

(51,148)

(42,767)

19.6%

Debt securities issued, of which:

(54,436)

(35,424)

53.7%

Eurobonds

(52,679)

(35,424)

48.7%

Other

(1,757)

-

-

Interest expense

(250,861)

(259,613)

-3.4%

Net interest income before interest rate swaps

344,061

314,494

9.4%

Net loss from interest rate swaps

-

(398)

-100.0%

Net interest income

344,061

314,096

9.5%

Fee and commission income

132,455

115,106

15.1%

Fee and commission expense

(32,793)

(28,210)

16.2%

Net fee and commission income

99,662

86,896

14.7%

Net insurance premiums earned

95,850

129,993

-26.3%

Net insurance claims incurred

(66,421)

(84,660)

-21.5%

Net insurance revenue

29,429

45,333

-35.1%

Healthcare revenue

125,720

60,013

109.5%

Cost of healthcare services

(78,836)

(37,644)

109.4%

Net healthcare revenue

46,884

22,369

109.6%

Real estate income

15,782

5,898

167.6%

Net gain from trading and investment securities

376

3,097

-87.9%

Net gain from revaluation of investment property

1,909

9,788

-80.5%

Net gain from foreign currencies

49,584

43,512

14.0%

Other operating income

17,891

13,267

34.9%

Other operating non-interest income

85,542

75,562

13.2%

Revenue

605,578

544,256

11.3%

Salaries and other employee benefits

(153,807)

(135,065)

13.9%

General and administrative expenses

(73,185)

(60,364)

21.2%

Depreciation and amortisation expenses

(28,207)

(26,572)

6.2%

Other operating expenses

(3,750)

(2,366)

58.5%

Operating expenses

(258,949)

(224,367)

15.4%

Operating income before cost of credit risk

346,629

319,889

8.4%

Cost of credit risk

(59,020)

(61,802)

-4.5%

Net operating income before non-recurring items

287,609

258,087

11.4%

Net non-recurring items

(11,017)

(12,831)

-14.1%

Profit before income tax expense

276,592

245,256

12.8%

Income tax expense

(35,825)

(35,913)

-0.2%

Profit

240,767

209,343

15.0%

Attributable to:




- shareholders of the Group

232,509

201,490

15.4%

- non-controlling interests

8,258

7,853

5.2%





Earnings per share (basic, diluted)

6.72

5.93

13.3%

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 


Quarter ended


Quarter ended


31 Dec 2014

31 Dec 2013

Change

30 Sep 2014

Change

 GEL thousands, unless otherwise noted

Unaudited

Unaudited

y-o-y

Unaudited

q-o-q







Loans to customers

146,795

133,354

10.1%

134,617

9.0%

Investment securities

11,587

8,148

42.2%

10,330

12.2%

Amounts due from credit institutions

1,318

1,745

-24.5%

1,758

-25.0%

Finance lease receivables

1,992

2,570

-22.5%

1,880

6.0%

Interest income

161,692

145,817

10.9%

148,585

8.8%

Amounts due to customers

(34,116)

(35,624)

-4.2%

(32,762)

4.1%

Amounts due to credit institutions, of which:

(15,825)

(15,511)

2.0%

(15,764)

0.4%

Subordinated debt

(2,758)

(5,456)

-49.5%

(2,665)

3.5%

Loans and deposits from other banks

(13,067)

(10,055)

30.0%

(13,099)

-0.2%

Debt securities issued, of which:

(14,460)

(11,020)

31.2%

(13,547)

6.7%

Eurobonds

(13,685)

(11,020)

24.2%

(13,027)

5.1%

Other

(775)

-

-

(520)

49.0%

Interest expense

(64,401)

(62,155)

3.6%

(62,073)

3.8%

Net interest income before interest rate swaps

97,291

83,662

16.3%

86,512

12.5%

Net loss from interest rate swaps

-

(95)

-100.0%

-

-

Net interest income

97,291

83,567

16.4%

86,512

12.5%

Fee and commission income

34,480

31,200

10.5%

35,159

-1.9%

Fee and commission expense

(8,180)

(8,099)

1.0%

(7,844)

4.3%

Net fee and commission income

26,300

23,101

13.8%

27,315

-3.7%

Net insurance premiums earned

17,900

34,012

-47.4%

23,332

-23.3%

Net insurance claims incurred

(14,213)

(23,799)

-40.3%

(13,647)

4.1%

Net insurance revenue

3,687

10,213

-63.9%

9,685

-61.9%

Healthcare revenue

40,039

18,268

119.2%

33,090

21.0%

Cost of healthcare services

(25,415)

(9,915)

156.3%

(20,566)

23.6%

Net healthcare revenue

14,624

8,353

75.1%

12,524

16.8%

Real estate income

1,781

1,926

-7.5%

2,209

-19.4%

Net gain from trading and investment securities

66

279

-76.3%

125

-47.2%

Net gain from revaluation of investment property

1,323

2,078

-36.3%

586

125.8%

Net gain from foreign currencies, of which:

15,582

9,631

61.8%

13,150

18.5%

Other operating income

8,048

4,410

82.5%

3,257

147.1%

Other operating non-interest income

26,800

18,324

46.3%

19,327

38.7%

Revenue

168,702

143,558

17.5%

155,363

8.6%

Salaries and other employee benefits

(40,552)

(35,627)

13.8%

(40,196)

0.9%

General and administrative expenses

(20,660)

(17,142)

20.5%

(17,837)

15.8%

Depreciation and amortisation expenses

(7,354)

(6,682)

10.1%

(7,047)

4.4%

Other operating expenses

(1,112)

(664)

67.5%

(876)

26.9%

Operating expenses

(69,678)

(60,115)

15.9%

(65,956)

5.6%

Operating income before cost of credit risk

99,024

83,443

18.7%

89,407

10.8%

Cost of credit risk

(16,552)

(10,000)

65.5%

(15,306)

8.1%

Net operating income before non-recurring items

82,472

73,443

12.3%

74,101

11.3%

Net non-recurring itemss

(2,093)

(5,959)

-64.9%

(727)

187.9%

Profit before Income tax expense

80,379

67,484

19.1%

73,374

9.5%

Income tax expense

(13,902)

(11,840)

17.4%

(11,066)

25.6%

Profit

66,477

55,644

19.5%

62,308

6.7%

Attributable to:






- shareholders of the Group

64,225

53,645

19.7%

59,937

7.2%

- non-controlling interests

2,252

1,999

12.7%

2,371

-5.0%







Earnings per share (basic, diluted)

1.82

1.58

15.2%

1.74

4.6%

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET

 

 


As at


As at



31 Dec 2014

31 Dec 2013

Change

30 Sep 2014

Change

  GEL thousands, unless otherwise noted

Unaudited

Audited

y-o-y

Unaudited

q-o-q







Cash and cash equivalents

710,144

1,053,671

-32.6%

759,639

-6.5%

Amounts due from credit institutions

418,281

347,261

20.5%

372,042

12.4%

Investment securities

769,712

519,623

48.1%

617,700

24.6%

Loans to customers and finance lease receivables

4,360,705

3,522,915

23.8%

3,827,556

13.9%

Investment property

190,860

157,707

21.0%

185,316

3.0%

Property and equipment

588,513

470,669

25.0%

562,342

4.7%

Goodwill

49,633

48,720

1.9%

49,794

-0.3%

Intangible assets

34,432

26,434

30.3%

30,019

14.7%

Income tax assets

42,517

19,096

122.6%

39,999

6.3%

Prepayments

33,774

25,534

32.3%

34,945

-3.4%

Other assets

400,346

329,339

21.6%

336,316

19.0%

Total assets

7,598,917

6,520,969

16.5%

6,815,668

11.5%







Amounts due to customers, of which:

3,338,725

3,117,732

7.1%

3,088,254

8.1%

Client deposits

3,313,715

3,107,209

6.6%

3,060,784

8.3%

Promissory notes

25,010

10,523

137.7%

27,470

-9.0%

Amounts due to credit institutions

1,409,214

1,157,979

21.7%

1,264,299

11.5%

Debt securities issued

856,695

728,117

17.7%

794,952

7.8%

Income tax liabilities

117,336

69,028

70.0%

104,692

12.1%

Provisions

4,732

481

NMF

3,765

25.7%

Other liabilities

238,122

206,578

15.3%

231,474

2.9%

Total liabilities

5,964,824

5,279,915

13.0%

5,487,436

8.7%

Share capital

1,143

1,028

11.2%

1,024

11.6%

Additional paid-in capital

245,305

23,843

NMF

40,909

NMF

Treasury shares

(46)

(56)

-17.9%

(43)

7.0%

Other reserves

(22,574)

(16,399)

37.7%

(47,298)

-52.3%

Retained earnings

1,350,258

1,174,124

15.0%

1,276,801

5.8%

Total equity attributable to shareholders of the Group

1,574,086

1,182,540

33.1%

1,271,393

23.8%

Non-controlling interests

60,007

58,514

2.6%

56,839

5.6%

Total equity

1,634,093

1,241,054

31.7%

1,328,232

23.0%

Total liabilities and equity

7,598,917

6,520,969

16.5%

6,815,668

11.5%







Book value per share

41.45

34.85

18.9%

36.97

12.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 


USD



GBP



Full-year ended



Full-year ended


Thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

Change


31 Dec 2014

31 Dec 2013

Change


Unaudited

Audited

y-o-y


Unaudited

Audited

y-o-y









Loans to customers

289,753

301,127

-3.8%


186,639

182,724

2.1%

Investment securities

21,457

20,371

5.3%


13,821

12,361

11.8%

Amounts due from credit institutions

3,531

4,851

-27.2%


2,275

2,944

-22.7%

Finance lease receivables

4,492

4,301

4.4%


2,893

2,609

10.9%

Interest income

319,233

330,650

-3.5%


205,628

200,638

2.5%

Amounts due to customers

(71,831)

(91,590)

-21.6%


(46,269)

(55,577)

-16.7%

Amounts due to credit institutions, of which:

(33,570)

(37,529)

-10.5%


(21,623)

(22,772)

-5.0%

Subordinated debt

(6,124)

(12,898)

-52.5%


(3,944)

(7,826)

-49.6%

Loans and deposits from other banks

(27,446)

(24,631)

11.4%


(17,679)

(14,946)

18.3%

Debt securities issued, of which:

(29,210)

(20,402)

43.2%


(18,815)

(12,380)

52.0%

Eurobonds

(28,267)

(20,402)

38.6%


(18,208)

(12,380)

47.1%

Other

(943)

-

-


(607)

-

-

Interest expense

(134,611)

(149,521)

-10.0%


(86,707)

(90,729)

-4.4%

Net interest income before interest rate swaps

184,622

181,129

1.9%


118,921

109,909

8.2%

Net loss from interest rate swaps

-

(229)

-100.0%


-

(139)

-100.0%

Net interest income

184,622

180,900

2.1%


118,921

109,770

8.3%

Fee and commission income

71,075

66,294

7.2%


45,781

40,227

13.8%

Fee and commission expense

(17,597)

(16,247)

8.3%


(11,334)

(9,859)

15.0%

Net fee and commission income

53,478

50,047

6.9%


34,447

30,368

13.4%

Net insurance premiums earned

51,433

74,868

-31.3%


33,129

45,430

-27.1%

Net insurance claims incurred

(35,642)

(48,759)

-26.9%


(22,957)

(29,587)

-22.4%

Net insurance revenue

15,791

26,109

-39.5%


10,172

15,843

-35.8%

Healthcare revenue

67,461

34,564

95.2%


43,454

20,973

107.2%

Cost of healthcare services

(42,303)

(21,681)

95.1%


(27,249)

(13,155)

107.1%

Net healthcare revenue

25,158

12,883

95.3%


16,205

7,818

107.3%

Real estate income

8,469

3,397

149.3%


5,455

2,061

164.7%

Net gain from trading and investment securities

202

1,784

-88.7%


130

1,082

-88.0%

Net gain from revaluation of investment property

1,024

5,637

-81.8%


660

3,421

-80.7%

Net gain from foreign currencies, of which:

26,607

25,060

6.2%


17,138

15,207

12.7%

Other operating income

9,600

7,640

25.7%


6,183

4,636

33.4%

Other operating non-interest income

45,902

43,518

5.5%


29,566

26,407

12.0%

Revenue

324,951

313,457

3.7%


209,311

190,206

10.0%

Salaries and other employee benefits

(82,532)

(77,789)

6.1%


(53,162)

(47,202)

12.6%

General and administrative expenses

(39,271)

(34,766)

13.0%


(25,296)

(21,096)

19.9%

Depreciation and amortisation expenses

(15,136)

(15,304)

-1.1%


(9,749)

(9,286)

5.0%

Other operating expenses

(2,012)

(1,362)

47.7%


(1,296)

(827)

56.7%

Operating expenses

(138,951)

(129,221)

7.5%


(89,503)

(78,411)

14.1%

Operating income before cost of credit risk

186,000

184,236

1.0%


119,808

111,795

7.2%

Cost of credit risk

(31,670)

(35,594)

-11.0%


(20,399)

(21,599)

-5.6%

Net operating income before non-recurring items

154,330

148,642

3.8%


99,409

90,196

10.2%

Net non-recurring itemss

(5,912)

(7,390)

-20.0%


(3,808)

(4,484)

-15.1%

Profit before income tax expense

148,418

141,252

5.1%


95,601

85,712

11.5%

Income tax expense

(19,223)

(20,684)

-7.1%


(12,383)

(12,551)

-1.3%

Profit

129,195

120,568

7.2%


83,218

73,161

13.7%

Attributable to:








- shareholders of the Group

124,764

116,045

7.5%


80,364

70,417

14.1%

- non-controlling interests

4,431

4,523

-2.0%


2,854

2,744

4.0%









Earnings per share (basic, diluted)

3.61

3.42

5.6%


2.32

2.07

12.1%









 

 

 

 

 

 

 

 

 

CONSOLIDATED INCOME STATEMENT

 

 



USD






GBP




Quarter ended






Quarter ended


Thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

Change

30 Sep 2014

Change


31 Dec 2014

31 Dec 2013

Change

30 Sep 2014

Change


Unaudited

Unaudited

y-o-y

Unaudited

q-o-q


Unaudited

Unaudited

y-o-y

Unaudited

q-o-q













Loans to customers

78,770

76,804

2.6%

76,819

2.5%


50,738

46,604

8.9%

47,317

7.2%

Investment securities

6,218

4,693

32.5%

5,895

5.5%


4,005

2,848

40.6%

3,631

10.3%

Amounts due from credit institutions

707

1,005

-29.7%

1,003

-29.5%


456

610

-25.2%

618

-26.2%

Finance lease receivables

1,068

1,479

-27.8%

1,072

-0.4%


688

898

-23.4%

661

4.1%

Interest income

86,763

83,981

3.3%

84,789

2.3%


55,887

50,960

9.7%

52,227

7.0%

Amounts due to customers

(18,307)

(20,517)

-10.8%

(18,696)

-2.1%


(11,792)

(12,450)

-5.3%

(11,516)

2.4%

Amounts due to credit institutions, of which:

(8,491)

(8,933)

-4.9%

(8,994)

-5.6%


(5,470)

(5,421)

0.9%

(5,541)

-1.3%

  Subordinated debt

(1,480)

(3,142)

-52.9%

(1,521)

-2.7%


(953)

(1,907)

-50.0%

(937)

1.7%

  Loans and deposits from other banks

(7,011)

(5,791)

21.1%

(7,473)

-6.2%


(4,517)

(3,514)

28.5%

(4,604)

-1.9%

Debt securities issued, of which:

(7,759)

(6,347)

22.2%

(7,731)

0.4%


(4,998)

(3,851)

29.8%

(4,762)

5.0%

Eurobonds

(7,343)

(6,347)

15.7%

(7,434)

-1.2%


(4,730)

(3,851)

22.8%

(4,579)

3.3%

Other

(416)

-

-

(297)

40.1%


(268)

-

-

(183)

46.4%

Interest expense

(34,557)

(35,797)

-3.5%

(35,421)

-2.4%


(22,260)

(21,722)

2.5%

(21,819)

2.0%

Net interest income before interest rate swaps

52,206

48,184

8.3%

49,368

5.7%


33,627

29,238

15.0%

30,408

10.6%

Net loss from interest rate swaps

-

(55)

-100.0%

-

-


-

(33)

-100.0%

-

-

Net interest income

52,206

48,129

8.5%

49,368

5.7%


33,627

29,205

15.1%

30,408

10.6%

Fee and commission income

18,502

17,969

3.0%

20,063

-7.8%


11,918

10,904

9.3%

12,358

-3.6%

Fee and commission expense

(4,390)

(4,664)

-5.9%

(4,476)

-1.9%


(2,828)

(2,831)

-0.1%

(2,757)

2.6%

Net fee and commission income

14,112

13,305

6.1%

15,587

-9.5%


9,090

8,073

12.6%

9,601

-5.3%

Net insurance premiums earned

9,605

19,589

-51.0%

13,314

-27.9%


6,187

11,886

-47.9%

8,201

-24.6%

Net insurance claims incurred

(7,627)

(13,707)

-44.4%

(7,787)

-2.1%


(4,913)

(8,317)

-40.9%

(4,797)

2.4%

Net insurance revenue

1,978

5,882

-66.4%

5,527

-64.2%


1,274

3,569

-64.3%

3,404

-62.6%

Healthcare revenue

21,485

10,521

104.2%

18,883

13.8%


13,839

6,384

116.8%

11,631

19.0%

Cost of healthcare services

(13,638)

(5,710)

138.8%

(11,736)

16.2%


(8,784)

(3,465)

153.5%

(7,229)

21.5%

Net healthcare revenue

7,847

4,811

63.1%

7,147

9.8%


5,055

2,919

73.2%

4,402

14.8%

Real estate income

956

1,109

-13.8%

1,261

-24.2%


616

673

-8.5%

776

-20.6%

Net gain from trading and investment securities

35

161

-78.3%

71

-50.7%


23

98

-76.5%

44

-47.7%

Net gain from revaluation of investment property

710

1,197

-40.7%

334

112.6%


457

726

-37.1%

206

121.8%

Net gain from foreign currencies, of which:

8,361

5,547

50.7%

7,504

11.4%


5,386

3,366

60.0%

4,622

16.5%

Other operating income

4,320

2,539

70.1%

1,858

132.5%


2,782

1,542

80.4%

1,146

142.8%

Other operating non-interest income

14,382

10,553

36.3%

11,028

30.4%


9,264

6,405

44.6%

6,794

36.4%

Revenue

90,525

82,680

9.5%

88,657

2.1%


58,310

50,171

16.2%

54,609

6.8%

Salaries and other employee benefits

(21,760)

(20,519)

6.0%

(22,938)

-5.1%


(14,016)

(12,451)

12.6%

(14,129)

-0.8%

General and administrative expenses

(11,086)

(9,873)

12.3%

(10,179)

8.9%


(7,141)

(5,991)

19.2%

(6,270)

13.9%

Depreciation and amortisation expenses

(3,946)

(3,848)

2.5%

(4,021)

-1.9%


(2,542)

(2,335)

8.9%

(2,477)

2.6%

Other operating expenses

(597)

(382)

56.3%

(499)

19.6%


(385)

(232)

65.9%

(307)

25.4%

Operating expenses

(37,389)

(34,622)

8.0%

(37,637)

-0.7%


(24,084)

(21,009)

14.6%

(23,183)

3.9%

Operating income before cost of credit risk

53,136

48,058

10.6%

51,020

4.1%


34,226

29,162

17.4%

31,426

8.9%

Cost of credit risk

(8,882)

(5,759)

54.2%

(8,735)

1.7%


(5,721)

(3,495)

63.7%

(5,380)

6.3%

Net operating income before non-recurring items

44,254

42,299

4.6%

42,285

4.7%


28,505

25,667

11.1%

26,046

9.4%

Net non-recurring itemss

(1,123)

(3,432)

-67.3%

(414)

171.3%


(723)

(2,083)

-65.3%

(255)

183.5%

Profit before Income tax expense

43,131

38,867

11.0%

41,871

3.0%


27,782

23,584

17.8%

25,791

7.7%

Income tax expense

(7,460)

(6,820)

9.4%

(6,315)

18.1%


(4,805)

(4,138)

16.1%

(3,890)

23.5%

Profit

35,671

32,047

11.3%

35,556

0.3%


22,977

19,446

18.2%

21,901

4.9%

Attributable to:












- shareholders of the Group

34,463

30,896

11.5%

34,203

0.8%


22,199

18,747

18.4%

21,068

5.4%

- non-controlling interests

1,208

1,151

5.0%

1,353

-10.7%


778

699

11.3%

833

-6.6%













Earnings per share (basic)

0.98

0.91

7.7%

0.99

-1.0%


0.63

0.55

14.5%

0.61

3.3%













 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET

 



USD





GBP




As at


As at



As at


As at


Thousands, unless otherwise noted

31 Dec 2014

31 Dec 2013

Change

30 Sep 2014

Change


31 Dec 2014

31 Dec 2013

Change

 30 Sep 2014

Change


Unaudited

Audited

y-o-y

Unaudited

q-o-q


Unaudited

Audited

y-o-y

Unaudited

q-o-q













Cash and cash equivalents

381,060

606,848

-37.2%

433,485

-12.1%


245,453

368,236

-33.3%

267,008

-8.1%

Amounts due from credit institutions

224,448

200,001

12.2%

212,304

5.7%


144,574

121,361

19.1%

130,770

10.6%

Investment securities

413,024

299,270

38.0%

352,488

17.2%


266,042

181,597

46.5%

217,118

22.5%

Loans to customers and finance lease receivables

2,339,936

2,028,978

15.3%

2,184,179

7.1%


1,507,226

1,231,186

22.4%

1,345,362

12.0%

Investment property

102,415

90,829

12.8%

105,750

-3.2%


65,968

55,115

19.7%

65,137

1.3%

Property and equipment

315,794

271,076

16.5%

320,898

-1.6%


203,412

164,489

23.7%

197,660

2.9%

Goodwill

26,633

28,060

-5.1%

28,415

-6.3%


17,155

17,027

0.8%

17,502

-2.0%

Intangible assets

18,476

15,224

21.4%

17,130

7.9%


11,901

9,238

28.8%

10,551

12.8%

Income tax assets

22,814

10,998

107.4%

22,825

0.0%


14,695

6,674

120.2%

14,059

4.5%

Prepayments

18,123

14,706

23.2%

19,941

-9.1%


11,674

8,924

30.8%

12,283

-5.0%

Other assets

214,824

189,680

13.3%

191,918

11.9%


138,375

115,097

20.2%

118,215

17.1%

Total assets

4,077,547

3,755,670

8.6%

3,889,333

4.8%


2,626,475

2,278,944

15.2%

2,395,665

9.6%













Amounts due to customers, of which:

1,791,546

1,795,619

-0.2%

1,762,300

1.7%


1,153,990

1,089,583

5.9%

1,085,503

6.3%

Client deposits

1,778,126

1,789,558

-0.6%

1,746,624

1.8%


1,145,346

1,085,905

5.5%

1,075,847

6.5%

Promissory notes

13,420

6,061

121.4%

15,676

-14.4%


8,644

3,678

135.0%

9,656

-10.5%

Amounts due to credit institutions

756,178

666,923

13.4%

721,467

4.8%


487,078

404,690

20.4%

444,393

9.6%

Debt securities issued

459,699

419,350

9.6%

453,636

1.3%


296,106

254,462

16.4%

279,421

6.0%

Income tax liabilities

62,962

39,756

58.4%

59,742

5.4%


40,556

24,124

68.1%

36,799

10.2%

Provisions

2,539

277

NMF

2,148

18.2%


1,636

168

NMF

1,323

23.7%

Other liabilities

127,776

118,975

7.4%

132,090

-3.3%


82,304

72,194

14.0%

81,361

1.2%

Total liabilities

3,200,700

3,040,900

5.3%

3,131,383

2.2%


2,061,670

1,845,221

11.7%

1,928,800

6.9%

Share capital

613

592

3.5%

584

5.0%


395

359

10.0%

360

9.7%

Additional paid-in capital

131,630

13,732

NMF

23,345

NMF


84,787

8,333

NMF

14,379

NMF

Treasury shares

(25)

(32)

-21.9%

(25)

-


(16)

(20)

-20.0%

(15)

6.7%

Other reserves

(12.113)

(9,445)

28.2%

(26,990)

-55.1%


(7,803)

(5,731)

36.2%

(16,625)

-32.0%

Retained earnings

724,543

676,222

7.1%

728,601

-0.6%


466,701

410,332

13.7%

448,788

4.0%

Total equity attributable to shareholders of the Group

844,648

681,069

24.0%

725,515

16.4%


544,064

413,273

31.6%

446,887

21.7%

Non-controlling interests

32,199

33,701

-4.5%

32,435

-0.7%


20,741

20,450

1.4%

19,978

3.8%

Total equity

876,847

714,770

22.7%

757,950

15.7%


564,805

433,723

30.2%

466,865

21.0%

Total liabilities and equity

4,077,547

3,755,670

8.6%

3,889,333

4.8%


2,626,475

2,278,944

15.2%

2,395,665

9.6%













Book value per share

22.24

20.07

10.8%

21.10

5.4%


14.33

12.18

17.7%

12.99

10.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency Blended


GEL


FC


Full-year ended


KEY RATIOS

31 Dec 2014

31 Dec 2013


31 Dec 2014

31 Dec 2013


31 Dec 2014

31 Dec 2013










Profitability









ROAA1

3.6%

3.6%







ROAE2

18.5%

18.6%







Net Interest Margin3

7.4%

7.8%


12.6%

13.5%


4.1%

4.2%

Loan Yield 4

14.4%

16.3%


19.7%

22.2%


11.8%

13.5%

Cost of Funds5

4.9%

5.9%


4.0%

4.9%


5.2%

6.3%

Cost of Customer Funds

4.3%

5.6%


3.8%

4.9%


4.5%

5.9%

Cost of Client Deposits

4.3%

5.6%


3.8%

4.9%


4.5%

5.9%

Cost of Amounts Due to Credit Institutions

5.0%

6.2%


4.4%

5.0%


5.5%

6.5%

Cost of Debt Securities Issued

7.0%

7.6%







Operating Leverage, y-o-y6

-4.1%

7.6%







Efficiency









Cost to Income7

42.8%

41.2%







Liquidity









NBG Liquidity ratio8

35.0%

45.7%







Liquid Assets To Total Liabilities9

31.8%

36.4%







Net Loans to Customer Funds

130.6%

113.0%







Net Loans to Customer Funds + DFIs

110.6%

96.2%







Gross Loan Dollarisation rate

71.7%

66.4%







Customer Funds Dollarisation rate

70.0%

68.0%







Client Deposits Dollarisation rate

69.8%

67.9%







Leverage (times)10

                     3.7

                     4.3







Asset Quality:









NPLs (in GEL)

153,628

144,917







NPLs To Gross Loans to Clients

3.4%

4.0%







NPL Coverage ratio11

68.0%

83.8%







NPL Coverage ratio, adjusted for discounted value of collateral12

111.1%

110.6%







Cost of Risk, annualised13

1.2%

1.4%







Capital Adequacy:









BIS Tier I Capital Adequacy Ratio, consolidated14

22.1%

23.0%







BIS Total Capital Adequacy Ratio, consolidated15

26.1%

27.1%







New NBG (Basel 2/3) Tier I Capital Adequacy Ratio16

11.1%

0.0%







New NBG (Basel 2/3) Total Capital Adequacy Ratio17

14.1%

0.0%







Old NBG Tier I Capital Adequacy Ratio18

13.3%

14.4%







Old NBG Total Capital Adequacy Ratio19

13.8%

15.4%







Per Share Values:









Basic, diluted EPS (GEL)20

6.72

5.93







Book Value Per Share (GEL)21

41.45

34.85







Ordinary Shares Outstanding - Weighted Average, Basic22

34,584,751

33,983,014







Ordinary Shares Outstanding - Weighted Average, Diluted22

34,584,751

33,983,014







Ordinary Shares Outstanding - Period End, Basic

37,978,135

33,936,007







Treasury Shares Outstanding - Period End

(1,522,185)

(1,973,376)







Selected Operating Data:









Full Time Employees, Group, of which:

13,395

11,711







 - Full Time Employees, BOG Standalone

3,769

3,574







- Full Time Employees, Aldagi Insurance24

n/a

579







- Full Time Employees, Evex

7,658

6,316







- Full Time Employees, Imedi L

353

n/a







- Full Time Employees, Aldagi

250

n/a







 - Full Time Employees, BNB

463

392







 - Full Time Employees, Other

902

850







Total Assets Per FTE, BOG standalone (in GEL thousands)

2,016

1,825







Number Of Active Branches, of which:

219

202







 - Flagship Branches

34

34







 - Standard Branches

101

100







 - Express Branches (including Metro)

84

68







Number Of ATMs

523

496







Number Of Cards Outstanding, of which:

1,156,631

975,647







 - Debit cards

1,040,016

857,734







 - Credit cards

116,615

117,913







Number Of POS Terminals

6,320

4,836







 




Full-year ended

OTHER RATIOS

31 Dec 2014

31 Dec 2013




Profitability Ratios:



ROE

14.8%

17.0%

Interest Income to Average Interest Earning Assets25

12.7%

14.2%

Net Fee and Commission Income To Average  Interest Earning Assets

1.9%

1.9%

Net Fee and Commission Income to Revenue

16.5%

16.0%

Revenue to Total Assets

8.0%

8.3%

Recurring Earning Power26

5.1%

5.5%

Profit to Revenue

39.8%

38.5%

Efficiency Ratios:



Operating Cost to Average Total Assets27

3.8%

3.9%

Cost to Average Total Assets

4.0%

4.1%

Personnel Cost to Revenue

25.4%

24.8%

Personnel Cost to Operating Cost

59.4%

60.2%

Personnel Cost to Average Total Assets

2.3%

2.3%

Liquidity Ratios:



Liquid Assets to Total Assets

25.0%

29.5%

Net Loans to Total Assets

57.4%

54.0%

Average Net Loans to Average Total Assets

54.8%

54.6%

Interest Earning Assets to Total Assets

77.2%

77.5%

Average Interest Earning Assets to Average Total Assets

77.8%

77.6%

Net Loans to Client Deposits

131.6%

113.4%

Average Net Loans to Average Customer funds

119.2%

110.3%

Net Loans to Total Deposits

108.8%

98.1%

Net Loans to (Total Deposits + Equity)

77.3%

72.9%

Net Loans to Total Liabilities

73.1%

66.7%

Total Deposits to Total Liabilities

67.2%

68.0%

Client Deposits to Total Deposits

82.7%

86.5%

Client Deposits to Total Liabilities

55.6%

58.8%

Total Deposits to Total Assets

52.8%

55.1%

Client Deposits to Total Assets

43.6%

47.6%

Client Deposits to Total Equity (times)

2.0

2.5

Total Equity to Net Loans

37.5%

35.2%

Asset Quality:



Reserve For Loan Losses to Gross Loans to Clients27

2.3%

3.3%

% of Loans to Clients collateralized

87.3%

87.4%

Equity to Average Net Loans to Clients

44.0%

39.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Currency Blended


GEL


FC

 


Quarter ended


Quarter ended


Quarter ended

 

KEY RATIOS QUARTERLY

31 Dec 2014

31 Dec 2013

30 Sep 2014


31 Dec 2014

31 Dec 2013

30 Sep 2014


31 Dec 2014

31 Dec 2013

30 Sep 2014













Profitability












ROAA, annualised1

3.7%

3.6%

3.7%









ROAE, annualised2

18.7%

18.6%

19.2%









Net Interest Margin, annualised3

7.6%

8.0%

7.4%


12.6%

13.7%

12.6%


4.7%

4.1%

4.2%

Loan Yield, annualised4

14.1%

15.8%

14.3%


20.0%

20.6%

19.9%


11.7%

13.0%

11.6%

Cost of Funds, annualised5

4.8%

5.3%

4.8%


3.9%

3.8%

4.0%


5.2%

5.9%

5.1%

Cost of Customer Funds, annualised

4.2%

4.8%

4.2%


3.9%

3.6%

3.8%


4.3%

5.4%

4.4%

Cost of Client Deposits, annualised

4.2%

4.8%

4.2%


3.9%

3.6%

3.8%


4.3%

5.4%

4.4%

Cost of Amounts Due to Credit Institutions, annualised

5.0%

5.6%

5.0%


3.9%

4.5%

4.4%


5.6%

6.0%

5.4%

Cost of Debt Securities issued

7.0%

7.7%

6.9%









Operating Leverage, y-o-y6

1.6%

-0.4%

-7.8%









Efficiency












Cost to Income7

41.3%

41.9%

42.5%









Liquidity












NBG Liquidity ratio8

35.0%

45.7%

37.8%









Liquid Assets to Total Liabilities9

31.8%

36.4%

31.9%









Net Loans to Customer Funds

130.6%

113.0%

123.9%









Net Loans to Customer Funds + DFIs

110.6%

96.2%

103.9%









Gross Loan Dollarisation rate

71.7%

66.4%

69.4%









Customer Funds Dollarisation rate

70.0%

68.0%

70.2%









Client Deposits Dollarisation rate

69.8%

67.9%

69.9%









Leverage (times)10

3.7

4.3

4.1









Asset Quality:












NPLs (in GEL)

153,628

144,917

154,417









NPLs to Gross Loans to Clients

3.4%

4.0%

3.9%









NPL Coverage ratio11

68.0%

83.8%

78.5%









NPL Coverage ratio, Adjusted for discounted value of collateral12

111.1%

110.6%

112.4%









Cost of Risk, annualised13

1.2%

0.9%

1.6%









Capital Adequacy:












BIS Tier I Capital Adequacy Ratio,consolidated14

22.1%

23.0%

22.7%









BIS Total Capital Adequacy Ratio, consolidated15

26.1%

27.1%

26.4%









New NBG (Basel 2/3) Tier I Capital Adequacy Ratio16

11.1%

0.0%

11.2%









New NBG (Basel 2/3) Total Capital Adequacy Ratio17

14.1%

0.0%

14.2%









Old NBG Tier I Capital Adequacy Ratio18

13.3%

14.4%

14.5%









Old NBG Total Capital Adequacy Ratio19

13.8%

15.4%

14.1%









Per Share Values:












Basic, diluted EPS (GEL)20

1.82

1.58

1.74









Book Value Per Share (GEL)21

41.45

34.85

36.97









Ordinary Shares Outstanding - Weighted Average, Basic22

35,206,865

33,940,021

34,387,198









Ordinary Shares Outstanding -Weighted Average, Diluted23

35,206,865

33,940,021

34,387,198









Ordinary Shares Outstanding - Period End, Basic

37,978,135

33,936,007

34,387,198









Treasury Shares Outstanding - Period End

(1,522,185)

(1,973,376)

(1,522,185)









Selected Operating Data:












Full Time Employees, Group, Of Which:

13,395

11,711

13,182









 - Full Time Employees, BOG Stand-Alone

3,769

3,574

3,649









- Full Time Employees, Aldagi Insurance24

n/a

579

n/a









- Full Time Employees, Evex

7,658

6,316

7,642









- Full Time Employees, Imedi L

353

n/a

384









- Full Time Employees, Aldagi

250

n/a

240









 - Full Time Employees, BNB

463

392

455









 - Full Time Employees, Other

902

850

812









Total Assets Per FTE, BOG Standalone (in GEL thousands)

2,016

1,825

1,868









Number Of Active Branches, Of Which:

219

202

217









 - Flagship Branches

34

34

34









 - Standard Branches

101

100

100









 - Express Branches (including Metro)

84

68

83









Number Of ATMs

523

496

521









Number Of Cards Outstanding, of which:

1,156,631

975,647

1,103,066









 - Debit cards

1,040,016

857,734

986,477









 - Credit cards

116,615

117,913

116,589









Number Of POS Terminals

6,320

4,836

5,979









 


Currency Blended

 

 



Quarter ended


 

 

OTHER RATIOS QUARTERLY

31 Dec 2014

31 Dec 2013

30 Sep 2014

 

 





 

 

Profitability Ratios:




 

 

ROE, annualised,

16.2%

18.0%

18.7%

 

 

Interest Income to Average Interest Earning Assets, annualised23

12.5%

13.8%

12.6%

 

 

Net Fee and Commission Income To Average Interest Earning Assets, annualised

1.9%

1.9%

2.1%

 

 

Net Fee and Commission Income to Revenue

15.6%

16.1%

17.6%

 

 

Operating Leverage, q-o-q

2.9%

-5.7%

5.1%

 

 

Revenue to Total Assets, annualised

8.8%

8.7%

9.0%

 

 

Recurring Earning Power, annualised24

5.6%

5.4%

5.3%

 

 

Profit to Revenue

39.4%

38.8%

40.1%

 

 

Efficiency Ratios:




 

 

Operating Cost to Average Total Assets, annualised25

3.9%

3.9%

3.9%

 

 

Cost to Average Total Assets, annualised

4.0%

4.3%

3.9%

 

 

Personnel Cost to Revenue

24.0%

24.8%

25.9%

 

 

Personnel Cost to Operating Cost

58.2%

59.3%

60.9%

 

 

Personnel Cost to Average Total Assets, annualised

2.3%

2.3%

2.4%

 

 

Liquidity Ratios:




 

 

Liquid Assets to Total Assets

25.0%

29.5%

25.7%

 

 

Net Loans to Total Assets

57.4%

54.0%

56.2%

 

 

Average Net Loans to Average Total Assets

57.5%

54.7%

54.8%

 

 

Interest Earning Assets to Total Assets

77.2%

77.5%

77.8%

 

 

Average Interest Earning Assets to Average Total Assets

77.9%

77.4%

77.7%

 

 

Net Loans to Client Deposits

131.6%

113.4%

125.1%

 

 

Average Net Loans to Av. Customer funds

126.5%

113.5%

119.4%

 

 

Net Loans to Total Deposits

108.8%

98.1%

103.7%

 

 

Net Loans to (Total Deposits + Equity)

77.3%

72.9%

76.3%

 

 

Net Loans to Total Liabilities

73.1%

66.7%

69.8%

 

 

Total Deposits to Total Liabilities

67.2%

68.0%

67.2%

 

 

Client Deposits to Total Deposits

82.7%

86.5%

83.0%

 

 

Client Deposits to Total Liabilities

55.6%

58.8%

55.8%

 

 

Total Deposits to Total Assets

52.8%

55.1%

54.1%

 

 

Client Deposits to Total Assets

43.6%

47.6%

44.9%

 

 

Client Deposits to Total Equity (Times)

                     2.0

                     2.5

                     2.3

 

 

Total Equity to Net Loans

37.5%

35.2%

34.7%

 

 

Asset Quality:




 

 

Reserve For Loan Losses to Gross Loans to Clients26

2.3%

3.3%

3.1%

 

 

% of Loans to Clients collateralised

87.3%

87.4%

86.5%

 

 

Equity to Average Net Loans to Clients

40.2%

37.1%

35.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO KEY RATIOS

 

1 Return on average total assets (ROAA) equals Profit for the period divided by monthly average total assets for the same period;

2 Return on average total equity (ROAE) equals Profit for the period attributable to shareholders of the Bank divided by monthly average equity attributable to shareholders of the Bank for the same period;

3 Net Interest Margin equals Net Interest Income of the period (adjusted for the gains or losses from revaluation of interest rate derivatives) divided by monthly Average Interest Earning Assets Excluding Cash for the same period (daily averages are used for Bank of Georgia standalone Average Interest Earning assets); Interest Earning Assets Excluding Cash comprise: Amounts Due From Credit Institutions, Investment Securities (but excluding corporate shares and other equity instruments) and net Loans To Customers And Finance Lease Receivables;

4 Loan Yield equals Interest Income From Loans To Customers And Finance Lease Receivables divided by monthly Average Gross Loans To Customers And Finance Lease Receivables; (daily averages are used for Bank of Georgia standalone Gross Loans to Customers and Finance Lease Receivables);

5 Cost of Funding equals interest expense of the period (adjusted for the gains or losses from revaluation of interest rate derivatives) divided by monthly average interest bearing liabilities; interest bearing liabilities include: amounts due to credit institutions, amounts due to customers and debt securities issued;

6 Operating Leverage equals percentage change in revenue less percentage change in Other operating expenses;

7 Cost / Income Ratio equals other operating expenses divided by revenue;

8 Daily average liquid assets (as defined by NBG) during the month  divided by daily average liabilities (as defined by NBG) during the month;

9 Liquid assets include: cash and cash equivalents, amounts due from credit institutions and investment and trading securities;

10 Leverage (Times) equals total liabilities divided by total equity;

11 NPL Coverage Ratio equals allowance for impairment of loans and finance lease receivables divided by NPLs;

12 NPL Coverage Ratio adjusted for discounted value of collateral equals allowance for impairment of loans and finance lease receivables divided by NPLs (discounted value of collateral is added back to allowance for impairment)

13 Cost of Risk equals impairment charge for loans to customers and finance lease receivables for the period divided by monthly average gross loans to customers and finance lease receivables over the same period;

14 BIS Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements of Basel Accord I;

15 BIS Total Capital Adequacy ratio equals total capital divided by total risk weighted assets, both calculated in accordance with the requirements of Basel Accord I;

16 New NBG (Basel 2/3) Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements the National Bank of Georgia instructions;

17 New NBG (Basel 2/3) Total Capital Adequacy ratio equals total capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

18 Old NBG Tier I Capital Adequacy ratio equals Tier I Capital divided by total risk weighted assets, both calculated in accordance with the requirements the National Bank of Georgia instructions;

19 Old NBG Total Capital Adequacy ratio equals total capital divided by total risk weighted Assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

20 Basic EPS equals Profit for the period attributable to shareholders of the Group divided by the weighted average number of outstanding ordinary shares over the same period;

21 Book Value Per Share equals total equity attributable to shareholders of the Group divided by net ordinary shares outstanding at period end; net ordinary shares outstanding equals total number of ordinary shares outstanding at period end less number of treasury shares at period end;

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

23 Average Interest Earning Assets are calculated on a monthly basis; interest earning assets excluding cash include: amounts due from credit institutions,  investment securities (but excluding corporate shares) and loans to customers and finance lease receivables;

24 Aldagi Insurance headcount refers to Aldagi & Imedi L headcount numbers prior to the split of Aldagi into two business lines on 1 August 2014.

 

24 Recurring Earning Power equals operating income before cost of credit risk for the period divided by monthly average total assets of the same period;

25 Operating cost equals other operating expenses;

26 Reserve for Loan Losses to Gross Loans equals allowance for impairment of loans and finance lease receivables divided by gross loans and finance lease receivables.

 

 

 

 

ANNEX I - Pro-forma Income Statement

 

The table below represents management's new proposal for IFRS Financial Reporting, for 2015 onwards. The Income Statement presented below is illustrative and for demonstration purposes only.  It represents management's estimates for future reporting format and have not yet been officially approved by the Company or reviewed by or agreed with the independent auditors.

 

Income Statement (pro-forma)

GEL thousands, unless otherwise noted

 Banking
Business

 Investment
Business

 Interbusiness
Eliminations

 BGH Group
Consolidated

 Banking interest income 

602,619

-

(7,313)

595,307

 Banking interest expense 

246,344

-

(617)

245,727

 Net loss from interest rate swaps 

-

-

-

-

 Net banking interest income 

356,276

-

(6,696)

349,580






 Fee and commission income 

134,487

-

(2,053)

132,434

 Fee and commission expense 

32,617

75

-

32,692

 Net fee and commission income 

101,870

(75)

(2,053)

99,742






 Net banking foreign currency income

52,795

(130)

-

52,665

 Net other banking income

9,543

-

(620)

8,923

 Net insurance revenue 

16,388

14,986

(1,944)

29,430

 Net healthcare service revenue

-

53,482

-

53,482

 Net real estate revenue

-

13,751

(80)

13,671

 Net other investment revenue

-

13,096

187

13,283






 Revenue 

536,872

95,111

(11,206)

620,776






 Salaries and other employee benefits

131,038

24,264

(1,496)

153,806

 General and administrative expenses

57,766

16,766

(1,348)

73,185

 Banking depreciation and amortisation

25,637

-

-

25,637

 Other operating expenses 

3,226

525

-

3,750

 Operating expenses 

217,667

41,555

(2,844)

256,379






 Operating income before cost of credit risk / EBITDA 

319,204

53,555

(8,362)

364,397






 Profit (loss) from associates

-

-

-

-

 Net gains (losses) from disposal of investment businesses

-

-

-

-

 Depreciation and amortization of investment business

-

9,168

-

9,168

 Net foreign currency income from investment business

-

(3,081)

-

(3,081)

 Net interest income (expense) from investment business 

-

(13,882)

8,362

(5,520)

 Operating income before cost of credit risk 

319,204

27,424

-

346,629






 Impairment charge on loans to customers 

45,088

-

-

45,088

 Impairment charge on finance lease receivables

476

-

-

476

 Impairment charge on other assets and provisions

10,167

3,288

-

13,455

 Cost of credit risk 

55,732

3,288

-

59,020






 Net operating income before non-recurring items 

263,473

24,136

-

287,609






 Net non-recurring items 

11,836

(820)

-

11,017






 Profit before income tax 

251,636

24,956

-

276,592

 Income tax (expense) benefit 

32,724

3,102

-

35,826

 Profit 

218,913

21,854

-

240,767





Attributable to:





Equity holders of the parent

215,292

17,217

-

232,509

Non-controlling Interest

3,621

4,637

-

8,258

 

 

 

 

ANNEX II - Summary of the new capital regulation

 

 

On 28 October 2013, the National Bank of Georgia published Decree No. 100/04, introducing a new capital regulation to replace the NBG capital regulation in place since 2002 (and updated from time to time). The new capital regulation is based on the Basel Accord 2 and 3, with material regulatory discretions applied by the NBG. According to the Decree No. 100/04, Pillar 1 requirements under the new regulation came into force on 30 June 2014.  The period starting 30 June 2014 through 31 December 2017 was declared as a transition period. During the transition period, Georgian banks are required to comply with certain ratios under the previous NBG regulation according to the following schedule:  2014 - 100% of the old regulatory capital, in 2015 - 95% of the old regulatory capital, in 2016 - 90% of the older regulatory capital and in 2017 - 80% of the old regulatory capital.

According to the Decree No. 1s 00/04 by the National Bank of Georgia, Pillar 2 requirements (the "ICAAP") have come in force starting 1 October 2014. In October of 2014, the Bank submitted its first Pillar 2 ICAAP Report for Q3 2014 to the regulator. The Bank has also submitted to NBG a full draft of its internal capital regulation and policies. Currently, the entire package is going through review process by the regulator and the Bank is expecting to receive a feedback from NBG regarding the results of this review. Once the regulatory review process is finalized, a final package of the Pillar 2 internal regulation will be approved by the Board. Currently, the Bank is only required to submit its ICAAP report on a quarterly basis. No deadline has been set by NBG yet for this quarterly reporting. However, the Bank has its internal deadline 30 days after each quarter-end. The Q4 2014 ICAAP report has been already submitted.

 

Summary analysis of the key features of the new Basel 2/3 based regulation and a comparison with the old capital regulation is provided below:

 

 

Feature

NBG new Basel 2/3 based regulation, Pillar 1

NBG old regulation (no Pillar 2 or 3 existed)

Tier 1 Capital Ratio requirement

8.5%

8%

Total Capital Ratio requirement

10.5%

12%

Level of consolidation

JSC Bank of Georgia stand-alone

JSC Bank of Georgia stand-alone

Input data based on

Unconsolidated (stand-alone) financial statements per NBG accounting standards

Unconsolidated (stand-alone) financial statements per NBG accounting standards

Capital composition

Basel 3 based: share capital, share premium (additionally paid-in capital), prior period retained earnings are all components of Tier 1; revaluation and other reserves are excluded from regulatory capital; current period profit or loss included in Tier 1; investments in financial institution subsidiaries, above the 10% allowed threshold of Tier 1, are deducted from Tier 1, while the allowed 10% of Tier 1 is risk-weighted at 250%; investments in non-financial institution subsidiaries are fully deducted from Tier 1; sub-debt definition applies "no step-up" requirement; amount of sub-debt to be added to Tier 2 is not limited

NBG discretion: share capital, share premium (additionally paid-in capital), prior period retained earnings are all components of Tier 1; revaluation and other reserves are excluded from regulatory capital; current period profit or loss included in Tier 2; all investments in all subsidiaries deducted from Tier 2; sub-debt definition does not apply "no step-up" requirement; amount of sub-debt to be added to Tier 2 is limited to 50% of total Tier 1

RWA: Cash and cash equivalents

0% risk weighted, except for cash in transit

0% risk-weighted, except for cash and cash equivalents denominated in non-OECD currencies

RWA: Foreign currency denominated balances placed with NBG (including mandatory reserves)

100% risk weighted

0% risk weighted

RWA: Inter-bank loans and deposits

Based on individual international ratings, or, in absence of such, based on the international rating of the country of incorporation

OECD placed loans and deposits risk weighted at 20%; non-OECD placed loans and deposits risk weighted at 100%; placements with resident banks risk weighted at 50%

RWA: Investment securities

Sovereign securities of Georgia denominated in local currency risk weighted at 0%; all other sovereigns risk-weighted based on the international rating of the country; investment securities issued by financial institutions risk weighted based on individual international ratings, or, in absence of such, based on the international rating of the country of incorporation; investment securities of non-financial institutions (commercial entities) risk weighted at 100%

Sovereign securities of Georgia denominated in local currency risk weighted at 0%; investment securities issued by local banks risk weighted at 50%; investments securities issued by OECD institutions risk weighted at 20%; all other investment securities risk weighted at 100%

RWA: Commercial loans

Commercial loans are risk-weighted at 100%

No segregation by types / categories of loans; all loans are risk-weighted at 100%

RWA: Mortgage loans

Mortgage loans are risk-weighted at 35% (only for the properties of up to 120 m2)

No segregation by types / categories of loans; all loans are risk-weighted at 100%

RWA: Retail loans (all other)

Retail loans are risk-weighted at 75%

No segregation by types / categories of loans; all loans are risk-weighted at 100%

RWA: Market risk (on-balance sheet)

Additional 75% risk weight is applied to all on-balance sheet foreign currency denominated loan exposures, on top of their original credit risk weights

Additional 75% risk weight is applied to all on-balance sheet foreign currency denominated loan exposures, on top of their original credit risk weights

 

RWA: Loans fully secured with deposits

0% risk weight is applied

0% risk weight is applied

RWA: Credit risk mitigations, other than deposits

Gold pawns available for Retail loans providing 50% discount in the risk weight

No other mitigations available

RWA: Off-balance sheet items

For guarantees: differentiated, based on the type of the guarantee; for letters of credit: 50% credit conversion factor is further risk weighted at 100%; for undrawn credit commitments: 50% credit conversion factor is applied to credit cards and overdrafts and further risk weighted at 75%, and 0% for all other undrawn credit commitments

For guarantees: differentiated, based on the term of the guaranteed (short-term / long-term) and the type of guarantor; for letters of credit: differentiated, based on the term of the letter of credit (short-term / long-term) and the type of the guarantor; for undrawn credit commitments: 100% credit conversion factor is applied to credit cards and overdrafts and further risk weighted at 100%, and 0% for all other undrawn credit commitments

RWA: Operational risk

Calculated using Basic Indicator Approach and the amount further divided by 10.5% and the product included in RWA

None

RWA: Market risk (FX)

Total open currency position added to RWA

None

RWA: Property leased out

250% risk weighted

100% risk weighted

RWA: All other assets

100% risk weighted

100% risk weighted

 

 

 

 

 

 

COMPANY INFORMATION

 

 

BANK OF GEORGIA HOLDINGS PLC

 

Registered Address

84 Brook Street

London W1K 5EH

United Kingdom

www.bogh.co.uk

Registered under number 7811410 in England and Wales

Incorporation date: 14 October 2011

 

Stock Listing

London Stock Exchange PLC's Main Market for listed securities

Ticker: "BGEO.LN"

 

Contact Information

Bank of Georgia Holdings PLC Investor Relations

Telephone: +44 (0) 20 3178 4052

E-mail: ir@bog.ge

www.bogh.co.uk

 

Auditors

Ernst & Young LLP

1 More London Place

London SE1 2AF

United Kingdom

 

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgewater Road

Bristol BS13 8AE

United Kingdom

 

Share price information

BGH shareholders can access both the latest and historical prices via our website, www.bogh.co.uk

 

 

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR SFFEFUFISEDE