Strategic ReportStrategic ReportStrategic Report Financial Additional Overview Strategy Performance Governance Statements Information Balance sheet highlights Change GEL thousands, unless otherwise noted 2018 2017 y-o-y Liquid assets 4,540,032 4,346,509 4.5% Liquid assets, GEL 2,283,812 1,791,708 27.5% Liquid assets, FC 2,256,220 2,554,801 -11.7% Net loans and finance lease receivables 9,397,747 7,741,420 21.4% Net loans and finance lease receivables, GEL 3,597,826 2,968,832 21.2% Net loans and finance lease receivables, FC 5,799,921 4,772,588 21.5% Client deposits and notes 8,133,853 7,078,058 14.9% Amounts due to credit institutions 2,994,879 2,778,338 7.8% Borrowings from DFIs 1,302,679 1,297,749 0.4% Short-term loans from central banks 1,118,957 793,528 41.0% Loans and deposits from commercial banks 573,243 687,061 -16.6% Debt securities issued 1,730,414 1,386,412 24.8% Liquidity and CAR ratios Net loans/client deposits and notes 115.5% 109.4% Net loans/client deposits and notes + DFIs 99.6% 92.4% Liquid assets as percentage of total assets 30.7% 33.7% Liquid assets as percentage of total liabilities 34.9% 38.3% NBG liquidity ratio 31.9% 34.4% NBG liquidity coverage ratio 120.1% 112.4% NBG (Basel III) Tier I capital adequacy ratio 12.2% 12.4% NBG (Basel III) Total capital adequacy ratio 16.6% 17.9% Our balance sheet remains highly liquid(NBG liquidity coverage ratio of 120.1%) and strongly capitalised(NBG Basel III Tier I ratio of 12.2%) with a well diversified funding base(Client Deposits and Notes to Total Liabilities of 62.6%). • Liquidity. Liquid assets increased to GEL 4,540.0 million at 31 December 2018, up 4.5% y-o-y. The y-o-y growth was largely driven by an increase in local currency bonds, which are used by the Bank as collateral for short-term borrowings from the NBG, and additional proceeds as a result of the Demerger-related pushdown of US$ 350 million Eurobonds of JSC BGEO Group in March 2018. Management has successfully continued to deploy excess liquidity accumulated as a result of these proceeds. In addition, the y-o-y increase in liquid assets was also driven by the changes in minimum reserve requirements mandated by NBG since September 2018, whereby the foreign currency funds raised by local banks now carry an up to 25% reserve requirement depending on maturity. The NBG liquidity coverage ratio increased to 120.1% at 31 December 2018 (112.4% at 31 December 2017), well above the 100% minimum requirement level. • Loan book. Our net loan book and finance lease receivables reached GEL 9,397.7 million at 31 December 2018, up 21.4% y-o-y. As of 31 December 2018, the retail book represented 69.8% of the total loan portfolio (68.0% at 31 December 2017). Both local and foreign currency portfolios experienced strong y-o-y growth of 21.2% and 21.5%, respectively. The local currency loan portfolio growth was partially driven by the Government’s de-dollarisation initiatives and our goal to increase the share of local currency loans in our portfolio. •D iollarisation of our loan book and clent deposits. The retail client loan book in foreign currency accounted for 50.3% of the total RB loan book at 31 December 2018 (48.8% at 31 December 2017), while retail client foreign currency deposits comprised 69.7% of total RB deposits at 31 December 2018 (72.1% at 31 December 2017). At 31 December 2018, 82.3% of CIB’s loan book was denominated in foreign currency (83.1% at 31 December 2017), while 61.2% of CIB deposits were denominated in foreign currency (63.1% at 31 December 2017). De-dollarisation is expected to pick up pace in 2019, on the back of the mandated recent increase of local currency loan threshold from GEL 100,000 to GEL 200,000. •Net loans to customer funds and DFI ratio. Our net loans to customer funds and DFI ratio, which is closely monitored by management, remained strong at 99.6% (up from 92.4% at 31 December 2017). • Diversified funding base. Debt securities issued grew by 24.8% y-o-y. The y-o-y increase was driven by the Demerger- related pushdown of US$ 350 million Eurobonds of JSC BGEO Group in March 2018. Annual Report 2018Bank of Georgia Group PLC 93