Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information All exposures to single group borrowers over the Bank’s limits/ratios, balance sheet, statement of US$ 25.0 million require approval by the Supervisory operations, maturity gap, interest rate gap, currency Board. Lower tier subcommittees meet on a daily basis, gap, foreign exchange risk, interest rate risk and funding whereas higher tier ones typically meet three to four liquidity risk reports, total cash flow analysis, customer times a week. Each of the subcommittees of the Credit cash flow analysis and concentration risk analysis, for the Committees makes its decisions by a majority vote of past periods as well as future projections and forecasts, its respective members. other financial analysis and further growth projections on a monthly basis. The Problem Assets Committee is chaired by one of the following: the Head of the Problem Loan Management Regulatory capital requirements in Georgia are set by department (first level pertains to loans of up to GEL the National Bank of Georgia (NBG) and are applied to 250,000), the Bank’s Deputy CEO, Operations (second the Bank on a standalone basis. NBG requires the Bank level pertains to the loans in the range of GEL 250,000- to maintain minimum capital adequacy ratios computed 500,000) and the Bank’s Deputy CEO, Chief Risk Officer based on the Bank’s standalone special purpose financial (third level pertains to loans above GEL 500,000). statements prepared in accordance with NBG regulations The Problem Loan Management department manages and pronouncements. the Bank’s exposures to problem loans and reports to the Bank’s Deputy CEO, Operations. In order to transition to Basel III, NBG introduced new capital adequacy requirements from December 2017, The Corporate Recovery Committee is chaired by the which are phased-in on different levels of capital over Bank’s Deputy CEO, Chief Risk Officer and is responsible the four-year period through to 31 December 2021. for monitoring all of the Bank’s exposures to loans that As a result of the changes, the Bank of Georgia became are managed by the Corporate Recovery department. subject to the following minimum capital requirements The Corporate Recovery department reports to the at 31 December 2018: Common Equity Tier 1 ratio of 9.5%, Bank’s Deputy CEO, Corporate Investment Banking. Tier 1 ratio of 11.4%, and Total Capital ratio of 15.9%. At 31 December 2018, Bank of Georgia’s Common Equity Tier Asset and Liability Management Committee (ALCO). 1 and Tier 1 ratios were 12.2%, while the Total Capital ratio The ALCO is the core risk management body that was 16.6%. Transition to Basel III is not expected to affect establishes policies and guidelines with respect to capital the Bank’s growth prospects or its ability to maintain adequacy, market risks and respective limits, funding dividend distributions within the existing dividend policy liquidity risk and respective limits, interest rate and payout range. prepayment risks and respective limits, money market general terms and credit exposure limits. ALCO designs and ALCO is the key governing body for capital adequacy implements respective risk management and stress testing management, as well as for respective risks identification models in practice and regularly monitors compliance with and management. ALCO establishes limits and reviews the preset risk limits, and approves treasury deals with actual performance over those limits for NBG Basel III non-standard terms. Specifically, ALCO: capital adequacy regulation. The Finance department is in •sets money-market credit exposure/lending limits; charge of regular monthly monitoring of and reporting on •sets open currency position limits with respect to NBG Basel III capital adequacy compliance with original overnight and intraday positions; pronouncements as well as with ALCO policies. Capital •establishes stop-loss limits for foreign currency adequacy management is an integral part of the Bank’s operations and securities; monthly reporting, as well as the Bank’s annual and semi- •monitors compliance with the established risk annual budget approval and budget review processes. management models for foreign exchange risk, The Finance department prepares NBG Basel III capital interest rate risk and funding liquidity risk; adequacy actual reports, as well as their forecasts, •sets ranges of interest rates for different maturities budgets and different stress scenarios, while ALCO and at which the Bank may place its liquid assets and the Management Board regularly review them, identify attract funding; and risks, issue recommendations and, if applicable, propose •reviews different stress tests and capital adequacy action plans. models prepared by the Finance department and FGCRMC. Legal department. The Bank’s Legal department’s principal purpose is to ensure that the Bank’s activities The ALCO is chaired by the Bank’s CEO and meets at any conform to applicable legislation and minimise losses from time deemed necessary, with decisions made by a majority the materialisation of legal risks. The Legal department vote of its members. ALCO members include the Bank’s is responsible for the application and development of CEO, Deputy CEO, Chief Financial Officer, Deputy CEO, mechanisms for identifying legal risks in the Bank’s Chief Risk Officer, Deputy CEO, Corporate Investment activities in a timely manner, the investigation of the Banking, Deputy CEO, Retail Banking, Deputy CEO, SOLO Bank’s activities in order to identify any legal risks, the & SME, Deputy CEO, Operations, the Head of the Finance planning and implementation of all necessary actions for department and the Head of the Treasury department. the elimination of identified legal risks, participation in The ALCO reviews financial reports and indices including legal proceedings on behalf of the Bank, where necessary, Annual Report 2018Bank of Georgia Group PLC 53