Risk management continued of its unsubordinated Georgian Lari wholesale funding As of 31 December 2018, Banking Business consolidated for borrowings with a remaining maturity of less than client deposits and notes were GEL 8,133.9 million one year. There is no minimum reserves requirement for (US$ 3,038.9 million) (as compared to GEL 7,078.1 million Georgian Lari Certificates of Deposits. and GEL 5,755.8 million as at 31 December 2017 and 2016, respectively) and represented 62.6% (as compared Funding: In the Georgian marketplace, the majority of to 62.3% and 58.9% as at 31 December 2017 and 2016, working capital loans are short-term and granted with the respectively) of total liabilities. In accordance with expectation of renewal at maturity. As such, the ultimate Georgian legislation, the Bank is obliged to repay such maturity of assets may be different from the analysis deposits upon demand of a depositor. In the case of early presented elsewhere. In addition, the maturity gap withdrawal, the interest on the deposit is foregone or analysis does not reflect the historical stability of reduced. As at 31 December 2018, total amounts due to current accounts. credit institutions and debt securities issued were GEL 4,725.3 million (US$ 1,765.4 million) (as compared to GEL The Bank’s principal sources of liquidity are as follows: 4,164.8 million and GEL 3,925.7 million as at 31 December • deposits; 2017 and 2016, respectively) and represented 36.3% (as •borrowings from international credit institutions; compared to 36.7% and 40.2% as at 31 December 2017 •inter-bank deposit agreements; and 2016, respectively) of total liabilities. Amounts due •debt issuances; to credit institutions and debt securities are taken from •proceeds from sale of securities; a wide range of counterparties. •principal repayments on loans; •interest income; and •fee and commission income. The Bank’s Management Board believes that the Bank’s liquidity is sufficient to meet the present requirements. For information on the Group’s liquid assets, liabilities and the maturity profile of the Group’s financial liabilities, as well as further information on the liquidity risk of the Group, see Note 27 and Note 29 of the Notes to the Consolidated Financial Statements of this Annual Report. Borrowed funds repayment schedule US$ million 2019 2020 2021 2022 2023 2024 2025 2026 2027 Eurobonds – 187 – – 339 – – – – Senior loans 53 70 85 33 84 4 4 2 – Subordinated loans – – – – 65 – 90 – – Total 53 257 85 33 488 4 94 2 0 % of total assets 1.0% 4.6% 1.5% 0.6% 8.8% 0.1% 1.7% 0.0% 0.0% Market risk currency exchange operations and counterparty risk) and the Quantitative Risk Management and Risk Analytics Definition: The Bank is exposed to market risk (including department monitors compliance with such limits. currency exchange rate risk and interest rate risk), which is the risk that the fair value or future cash flows of financial Currency exchange rate risk: Currency exchange rate instruments will fluctuate due to changes in market risk is the risk that the value of a financial instrument variables. Market risk exposure arises from mismatches of will fluctuate due to changes in foreign currency exchange maturity and currencies between the assets and liabilities, rates. The Bank is exposed to the effects of fluctuation all of which are exposed to market fluctuations. in the prevailing foreign currency exchange rates on its financial position. The Bank’s currency risk is calculated as Mitigation: The general principles of the Bank’s market an aggregate of open positions and is controlled by setting risk management policy are set by the ALCO. The Bank a VAR calculation (established by the ALCO) with respect aims to limit and reduce the amount of possible losses to the Bank’s currency basket. on open market positions which may be incurred by the Bank due to negative changes in currency exchange The Bank uses the historical simulation method based rates and interest rates. The Bank classifies exposures on 400-business-day statistical data. Its open currency to market risk into either trading or non-trading positions. positions are managed by the Treasury department on a Trading and non-trading positions are managed and day-to-day basis and are monitored by the Quantitative Risk monitored using different sensitivity analyses. In order Management and Risk Analytics department. The ALCO sets to address these risks, the ALCO specifically establishes open currency position limits with respect to both overnight Value at Risk (VAR) limits on possible losses for each type and intra-day positions and stop-loss limits. Currently, the of operation (currently the VAR limit is set for foreign 58 Annual Report 2018Bank of Georgia Group PLC