Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Larisation Bank of Georgia has been actively supporting the de- Bank of Georgia’s successful cooperation with its dollarisation of the Georgian economy ever since 2016, partner financial institutions supports the development when the Bank raised a US$ 100 million equivalent GEL- of Georgian SMEs by decreasing their exposure to foreign denominated five-year loan from the European Bank for exchange risk which compromises their solvency. The Reconstruction and Development (EBRD). The pioneering absence of currency mismatches in their assets and local currency facility offered by EBRD was the largest and liabilities provides the SMEs with a much needed cushion longest maturity resource granted to a Georgian bank. The against economic fluctuations and opportunities to grow loan enabled the Bank to provide essential local currency their businesses notwithstanding external economic loans to micro, small and medium-sized enterprises to shocks. Solvent and naturally hedged Georgian companies converge to DCFTA requirements, as well as underserved translate into a more robust banking sector as well, segments, such as women entrepreneurs. with much healthier loan books and more sustainable profits. Eventually, the larisation of the Georgian financial In the same year of 2016, Bank of Georgia went further in sector is a crucial process for all the stakeholders in the raising a GEL 60 million five-year facility from Black Sea economy and Bank of Georgia, as a leading Georgian bank, Trade and Development Bank (BSTDB) aimed at financing continues to play an important role in it. investments and the working capital needs of local businesses in rural and urban areas of Georgia. BSTDB supported the Bank’s local currency lending to SMEs by topping up its exposure by an additional GEL 75 million five-year facility in 2018. It is important to note, that in addition to supplying the Georgian banking sector with high demand local currency long-term resources, the cooperation with Development Finance Institutions (DFIs) helps develop the Georgian capital market as well. DFIs raise the local currency funds through a public placement of GEL-denominated bonds on the Georgian Stock Exchange arranged by Galt & Taggart, the Group’s wholly-owned brokerage arm. In 2017, Bank of Georgia pioneered the first GEL- denominated bond issuance to a broad base of investors on the Irish Stock Exchange. The issuance of GEL 500 million was the first international local currency bond offering from the wider CIS region (excluding Russia) in the past ten years and represented a landmark transaction for Georgia. The issuance marked an extraordinary precedence GEL deposits(as a % of total client deposits) of foreign investors assuming Georgian local currency risk and thus expressing their trust in the currency. In 2018, the Bank executed its first local currency 32.5% 30.5% transaction with Symbiotics – a Swiss investment company active in emerging and frontier economies. The GEL-denominated loan facility, totaling GEL 25 million 23.2% (US$ 10 million) with a maturity of two to three years was an unhedged transaction, whereby Symbiotics assumed 2016 2017 2018 the exposure to Georgian Lari. Transactions of this kind are critical for the larisation of the Georgian economy. In 2018, Dutch development bank, Nederlandse GEL loans(as a % of total loan portfolio) Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO) chose Bank of Georgia as its trusted counterparty for its first local currency transaction in Georgia. The Bank raised 38.3% 38.3% a GEL 160 million five-year facility to reinforce its lending capacity of GEL-denominated loans in the local market and further contribute to de-dollarising the Georgian economy. 28.7% Over the last three years, the Bank of Georgia raised local currency funding from credit institutions and foreign investors in the amount of around GEL 1 billion. In 2018, 2016 2017 2018* the Group’s local currency deposits were 32.5% of the total deposits, up from 30.5% in 2017. The loan book larisation reached 38.3% of the total loan portfolio, flat y-o-y. * The larisation slowed down in 2018 on the back of local currency depreciation. Annual Report 2018Bank of Georgia Group PLC 43