Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Going concern statement The viability assessment involved a risk identification The Group’s business activities, objectives and strategy, process which included recognition of the principal risks principal risks and uncertainties in achieving its objectives to viability (risks that could impair the Group’s business and performance are set out on pages 22 to 101. After model, future performance, solvency or liquidity), excluding making inquiries, the Directors confirm that they have risks not sufficiently severe over the period of assessment. a reasonable expectation that Bank of Georgia Group The principal risks and uncertainties are set out on pages and the Group, as a whole, have adequate resources to 60 to 67 in this annual report. We also identified other continue in operational existence for the 12 months from risks which, while not necessarily severe in themselves, the date the financial statements are authorised for issue. could escalate when combined with others. For each risk, Therefore, the Directors consider it appropriate to adopt we considered our risk appetite and tolerance, as well as the going concern basis of accounting in preparing the risk proximity and momentum. accompanying consolidated financial statements. For those risks considered sufficiently severe to affect our viability, we performed stress testing for the assessment Viability statement period, which involved modelling the impact of a In accordance with the Corporate Governance Code, combination of severe and plausible adverse scenarios. the Directors are required to assess the prospects of the The Group has examined amont other, the following Group to meet its liabilities by taking into account its stress scenarios over the assessment period: Georgian current position and principal risks. The Board performed Lari depreciation against US Dollar, competition or this review over a three-year period beginning 1 January market driven reduction in net interest margin, increase 2019, being the first day after the end of the financial in operating expenses resulting in higher cost-to-income year to which this report relates. In determining the ratio, impairment of loan portfolio quality. Each of appropriate period over which to make their assessment, these scenarios are referred to in our principal risks the Directors considered the duration of strategic and uncertainties. The stress test scenarios were then plans and financial forecasts, which are usually set and reviewed against the Group’s current and projected prepared for a three-year period, the nature of the Group’s liquidity position, considering current committed funding, activities, as well as the evolving nature of the regulatory capital adequacy and solvency. The stress testing also took and macroeconomic environment in which the Group into account the availability and likely effectiveness of operates. A period of three years beyond the balance mitigating actions that could be taken to avoid or reduce sheet date was therefore considered the most appropriate the impact or occurrence of the identified underlying risks viability period for the Group. to which the Group is exposed, such as a decline in lending activity and reduction of operating expenses. It also took In order to consider the Group’s viability, the Board into account the assumption that the Group will be able considered a number of key factors, including: to prolong or refinance existing borrowings, or increase the financing from DFIs, on terms similar to existing ones. •the Group’s financial and operational position, including capital allocation and other key financial ratios; The Directors have also satisfied themselves that they the Board’s risk appetite; have the evidence necessary to support the statement • the Group’s business model and strategy as set out in terms of the effectiveness of the Group’s risk • on pages 22 to 43; management framework and internal control processes the Group’s principal risks and uncertainties as set out in place to mitigate risk. • on pages 60 to 67; the effectiveness of our risk management framework Based on the analysis described above, the Directors • and internal control processes; and confirm that they have a reasonable expectation that stress testing, as described below. the Group will be able to continue operation and meet • its liabilities as they fall due over the three-year period The key factors above have been reviewed in the context from 1 January 2019 to 31 December 2021. of our current position and strategic plan, financial budgets and forecasts assessed annually and on a three-year basis. Annual Report 2018Bank of Georgia Group PLC 69