Key performance indicators continued Efficiency KPIs In 2018, operating expenses broadly kept pace with revenue growth, reflecting organic growth of our Retail Banking business and increase in administrative expenses. Express Banking, a technology-intensive remote banking channel, and our remote channels, such as mBank and iBank, are the main drivers of efficiency for our Banking Business. In 2018, we implemented “Agile Delivery” in our information technology arm, which aims at optimising the workflow and coordination processes and increasing end-product quality and usefulness. In 2018, the Bank introduced a “Lean” project, which has already started to improve back office procedures, and introduce end-to-end process optimisation in the mortgage business. Over the last 12 months, the cost to income ratio has improved from 37.7% in 2017, to 36.7% in 2018. Cost to income ratio Banking Business Operating leverage Banking Business 36.7% 2016 37.7% 2.9% 2016 -6.4% 2017 37.7% 2017 -0.1% -100 bps y-o-y 2018 36.7% 2018 2.9% Operating expenses divided by revenue. Operating leverage is measured as the percentage change in revenue less the percentage change in operating expenses. Growth KPIs The 21.4% loan book growth was driven by our Retail Net loan book growth Banking Business Banking business, which posted a 24.2% growth in the loan book in 2018. The Corporate Investment Banking loan 21.4% book increased by 15.9% in 2018, after delivering on the targets of loan portfolio risk de-concentration initiatives 2016 24.5% in 2017. We expect customer lending growth for the 2017 15.9% medium to long term to be comfortably within our 15-20% 2018 21.4% expected growth range, with lending growth expectations over the next 12 months to be closer to 15%. Net loans to customers and finance lease receivables at the end of the year compared to the previous year. Asset quality KPIs Our asset quality improved in 2018, as a result of our prudent application of the Group’s risk management policies, good lending discipline and the ongoing strength of the Georgian economy. Cost of credit risk ratio decreased from 2.2% in 2017 to 1.6% in 2018. NPLs to gross loans improved from 3.8% as at 31 December 2017 to 3.3% at the end of 2018. NPL coverage ratio went down in 2018 to 90.5%. NPL coverage ratio adjusted for discounted Cost of credit risk Banking Business value of collateral Banking Business 1.6% 2016 2.7% 129.9% 2016 132.1% 2017 2.2% 2017 130.6% -60 bps y-o-y 2018 1.6% -70 bps y-o-y 2018 129.9% Cost of credit risk ratio equals expected credit loss/impairment charge for loans to customers andNPL coverage ratio adjusted for discounted value of collateral equals allowance for expected credit finance lease receivables for the period divided by monthly average gross loans to customers and financeloss/impairment loss of loans and finance lease receivables divided by NPLs (discounted value of lease receivables over the same period. collateral is added back to allowance for expected credit loss/impairment loss). 46 Annual Report 2018Bank of Georgia Group PLC