Strategic Report Strategic Report Strategic Report Financial Additional Overview Strategy Performance Governance Statements Information Results highlights •Strong performance. Profit before non-recurring items and income tax totalled GEL 492.6 million during 2018 (up 23.0% y-o-y), with profitability remaining high at 26.1% in 2018 (up 90bps y-o-y).7 •Strong capital position. Basel III Tier 1 and Total Capital Adequacy ratios stood at 12.2% and 16.6%, respectively, as at 31 December 2018, both above the minimum required level of 11.4% and 15.9%, respectively. At the same time Common Equity Tier 1 (CET1) ratio stood at 12.2% compared to a 9.5% minimum requirement at 31 December 2018 and already above the estimated fully-loaded CET1 requirement for 2021. •Solid assetquality. NPLs to gross loans ratio was 3.3% at 31 December 2018 (down from 3.8% at 31 December 2017). NPL coverage ratio was 90.5% at 31 December 2018 (92.7% at 31 December 2017), while the NPL coverage ratio adjusted for discounted value of collateral was 129.9% at 31 December 2018 (130.6% at 31 December 2017). The cost of credit risk ratio improved significantly to 1.6% in 2018 (down from 2.2% in 2017). • The loan book growth reached 21.4% y-o-y at 31 December 2018. Growth on a constant-currency basis was 19.0% y-o-y.Retail Banking loan book share in the total loan portfolio was 69.8% at 31 December 2018 (68.0% at 31 December 2017). •Retail Banking (“RB”) continued to deliver solid growth across its business lines.RBrevenue reached GEL 723.5 million in 2018, up 17.7% y-o-y. The Retail Banking net loan book reached GEL 6,267.1 million at 31 December 2018, up 24.2% y-o-y. The growth was predominantly driven by mortgage and micro and SME lending as a result of the Bank’s concentrated effort to grow these businesses following recent regulatory changes on unsecured consumer lending. The number of RB clients reached 2.4 million at 31 December 2018, up 5.4% y-o-y. At the same time, RB client deposits increased to GEL 4,338.7 million at 31 December 2018, up 32.8% y-o-y. •Corporate Investment Banking (“CIB”) demonstrated further solid growth in 2018 after delivering on its risk de-concentration and loan portfolio repositioning targets in 2017. CIB’s net loan book reached GEL 2,618.5 million at 31 December 2018, up 15.9% y-o-y. The growth on a constant-currency basis was 12.9% y-o-y. The top ten CIB client concentration was 9.8% at the end of 4Q18 (10.7% at 31 December 2017). •Assets Under Management (“AUM”) within the Group’s Investment Management business increased to GEL 2,271.5 million as of 31December 2018, up 22.3% y-o-y, reflecting an increase in client assets and bond issuances at Galt & Taggart, our brokerage subsidiary. •De-dollarisation of the loan book and client deposits. Loan book in local currency accounted for 38.3% of the total book at 31 December 2018, compared to 38.3% a year ago. Client deposits in local currency represented 32.5% of the total deposit portfolio at 31 December 2018, compared to 30.5% at 31 December 2017. •Remote channels. We have actively continued the further development of our digital channels by introducing new features to both our mobile banking application and our internet bank. At the same time, we are introducing dedicated digital spaces in our branches to increase client penetration and incentivise offloading client activity to digital channels. As a result, the number of active internet and mobile banking users in December 2018 reached 295,226 (up 34.5% y-o-y) and 333,698 (up 88.3% y-o-y), respectively. Both the number and volume of transactions through our mobile and internet banking continued to expand at 69.0% and 91.1% y-o-y, respectively, in 2018. In total, c.78% of daily banking transactions were executed through remote channels in 2018. •Bank of Georgia became the first bank to launch the innovative paymentmechanism“QRPAY”. In 4Q18, BOG introduced a new payment method QR PAY to the local small business market, an alternative payment mechanism to the traditional point of sale terminal for small Georgian businesses that previously relied on cash transactions as a means for their customers to settle payments. For customers who use Bank of Georgia’s mobile bank and a debit or credit card, settling payments with QR PAY is simple, safe and user-friendly. Currently, there are around 800 small businesses connected to QR PAY. •In 4Q18, in order to extend the scale of its payment system, BOG was licensed to offer its services to JCB cards users through its terminals and ATMs. This inclusion of JCB cards in the Bank’s payment services opens up access to around 117 million people from 190 countries. JCB is an international payment brand from Japan and given the increasing number of tourists from Asia in Georgia, the Bank is well equipped to offer them best-in-class service. •The Bankerpublication named Bank of Georgia Bank of the Year 2018 in Central and Eastern Europe. 72018 ROAE adjusted for GEL 30.3 million Demerger-related costs, GEL 8.0 million Demerger-related corporate income tax gain, and GEL 30.3 million one-off impact of remeasurement of deferred tax balances. Annual Report 2018Bank of Georgia Group PLC 89