Risk Committee Report continued Financial risks and our loan book We also carried out a robust review of the principal The Risk Committee receives regular updates on the risks and uncertainties disclosure and other relevant top 20 corporate exposures and management’s plans risk management disclosures and reported to the Board to manage these through initiatives including increasing with our recommendation on their inclusion in this local currency loans and analysis of retail borrowers’ debt Annual Report and the Half-Year Report. bearing capacity. Reports are discussed at scheduled meetings and, where necessary, during informal interim Finally, we assisted with the formulation of the viability calls with management. The Group has had a multi-year statement in conjunction with the Audit Committee and programme to reduce its concentration risk, and the top management. The viability statement can be found on ten exposures now comprise 9.8% of the loan book, down page 68. from 10.7% at the end of 2017 and a level at which we can take more comfort. We also stress test the impact on the Risk Committee effectiveness review Group of distress amongst these creditors and a broader The Risk Committee self-assessed its effectiveness economic downturn. Both internally-developed stress tests towards the end of the year. The Directors’ evaluation and one using NBG-specified criteria were considered. was that the Risk Committee assesses and challenges the principal risks facing the Group and that the Risk We closely monitored NPL levels and management Committee operates and performs effectively. actions to assure adequate coverage of our loan loss exposure. Our NPL coverage ratio changed from 92.7% During 2019, the Risk Committee will prioritise further at 31 December 2017 to 90.5% at 31 December 2018. work to formalise the Bank’s risk appetite and tolerance We regularly review the write-off and recovery of loans, levels for all risk types. We will keep under review the and the overdue rate on the Retail Banking side. We are impact of regulatory changes on our retail loan portfolio, confident that management takes an appropriately including the allocation of risk budget to different prudent and conservative approach to write-offs. segments as our loan book rebalances away from unsecured consumer loans. There will be a renewed Risk Management focus on emerging risks and consideration of how the The Risk Committee assisted the Board in setting Risk Committee can receive appropriate information the Group’s risk appetite and exposure in line with in a timely manner. our strategic objectives and in making any necessary modifications as strategy evolves and when the risk The Risk Committee also agreed to hold in 2019 quarterly environment changes. We also monitored risk exposure joint meetings with the Audit Committee at which and actions to address risk, which included oversight and we will consider items, primarily relating to operational support of our executive management risk team. risks, which are within the scope of both Risk Committees. To facilitate this change, Jonathan Muir stepped down We work closely with the Audit Committee to ensure from the Risk Committee at the end of the year. The that our risk management framework and systems of Board is confident that the joint meetings will ensure internal control operate effectively and in compliance with that the solid link between risk and audit is maintained the Code and FRC guidance. We also worked through without the need for overlapping membership. the processes supporting the assessment of the Group’s longer-term solvency and liquidity which underlie the viability statement. During the year, management reviewed the risk mitigation tools and control functions and reported to the Risk Committee (and to the Audit Committee) on their assessment of the effectiveness of these controls. We also worked with the Board and the Audit Committee to monitor the implementation of the Group’s Compliance Policy, the development of our Data Protection Policy in line with the GDPR and proposed Georgian legislation, and reviewed management’s anti-money laundering assessments in respect of correspondent banks. 128 Annual Report 2018Bank of Georgia Group PLC