Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information 10. Loans to Customers and Finance Lease Receivables continued Expected credit loss continued Commercial Consumer Residential Micro and loans loans mortgage loans SME loans Total 2016 2016 2016 2016 2016 At 1 January 125,312 51,017 6,061 16,504 198,894 Charge 75,288 64,099 3,899 15,606 158,892 Recoveries 3,525 21,632 4,003 7,084 36,244 Write-offs (41,442) (65,597) (8,597) (10,317) (125,953) Accrued interest on written-off loans (3,900) (12,463) (1,475) (642) (18,480) Currency translation differences 976 97 – 2,099 3,172 At 31 December 159,759 58,785 3,891 30,334 252,769 Individual impairment 143,493 1,977 2,272 23,704 171,446 Collective impairment 16,266 56,808 1,619 6,630 81,323 159,759 58,785 3,891 30,334 252,769 Gross amount of loans, individually determined to be impaired, before deducting any individually assessed impairment allowance 462,607 2,778 11,869 51,118 528,372 The contractual amounts outstanding on loans to customers that have been written off during the reporting period but are still subject to enforcement activity was GEL 67,001 (2017: GEL 70,904, 2016: GEL 45,258). Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateral obtained are as follows: • For commercial lending, charges over real estate properties, equipment and machinery, corporate shares, inventory, trade receivables, third party corporate guarantees and personal guarantees of shareholders. • For retail lending, mortgages over residential properties, cars, gold and jewellery, third party corporate guarantees and personal guarantees of shareholders. Management requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the allowance for expected credit loss/impairment of loans. It is the Group’s policy to dispose of repossessed properties in an orderly fashion or to hold them for capital appreciation or earning rentals, as appropriate in each case. The proceeds are used to reduce or repay the outstanding claim. In general, the Group does not occupy repossessed properties for business use. Without taking into account the discounted value of collateral, the ECL for credit-impaired loans would be as follows: • for commercial loans: GEL 249,514 as at 31 December 2018; • for consumer loans: GEL 86,622 as at 31 December 2018; • for micro and SME: GEL 107,980 as at 31 December 2018; • for residential mortgage loans: GEL 75,073 as at 31 December 2018; and • gold – pawn loans: GEL 283 as at 31 December 2018. Without taking into account the discounted value of collateral, the allowance for expected credit loss/impairment of loans would be GEL 263,482 higher as at 31 December 2018 (2017: GEL 253,818 higher, 2016: GEL 322,880 higher). Annual Report 2018Bank of Georgia Group PLC 225