Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Well capitalised banking sector with low non-performing loans (NPLs) The Georgian banking sector has been one of the faster Non-performing loans, growing sectors of the Georgian economy. The banking Latest – 2018 sector’s assets growth rate of 19.0% (ten-year CAGR) has far outperformed the nominal GDP growth rate for the same period. The banking sector is entirely privately- owned and quite concentrated, with the two largest banks 11.7% accounting for 72.8% of the total assets as at the end of 11.1% 10.7% 2018. Prudent regulation and conservative oversight by 9.4% 8.7%8.8% the central bank resulted in stability and resilience of the financial sector during different shocks to the economy. 6.0% 6.3% 5.6% The Georgian banking sector has remained profitable and 4.0%4.1% maintained its credit ratings with a stable outlook even 2.7%2.7%2.9%3.0% 1.9% during multiple downgrades of other banks in the region in 2015-2016. In 2018, the average capital adequacy ratio remained above 18%, the share of NPLs stood at 2.7% and the overall liquidity ratio remained high at close to 40%. Strong growth along with improved confidence supported the Source: IMF solid credit portfolio growth at 19.3% y-o-y in 2018. NBG’s measures helped the rapid de-dollarisation process in the banking sector with the deposit dollarisation reaching 63.1% and loan dollarisation – 56.9% in 2018, both down over 8 ppts since reform started in 2017. The penetration rates still remain low compared to advanced economies with the retail loans estimated at 35.6% of GDP and the total loans at 64.7% of GDP as of 2018 (and 55.7% of GDP for the deposits). Due to NBG’s conservative regulations, liquidity and capitalisation rates in the banking sector have been historically high. Nevertheless, the sector’s profitability has remained robust at 23.0% return of equity over the past three years. Annual Report 2018Bank of Georgia Group PLC 19 .peR hcezCainauhtiLaigroeGyragnuHyekruTdnaloPsuraleBainamoRaivtaLainemrAairagluBnatshkazaK.zreH & ainsoBaissuRaitaorClagutroP