Overview of financial results continued •The y-o-y loan book growth reflected continued strong loan origination levels delivered across the mortgage and MSME segments. The trend reflects the shift towards a higher quality, finer margin product mix on the back of tighter lending conditions for unsecured consumer lending: Retail Banking loan book by products Change GEL thousands, unless otherwise noted 2018 2017 y-o-y Loan originations Consumer loans 1,381.6 1,383.6 -0.2% Mortgage loans 1,725.9 1,062.5 62.4% Micro loans 1,066.3 1,017.6 4.8% SME loans 660.2 593.7 11.2% POS loans 119.0 243.8 -51.2% Outstanding balance Consumer loans 1,379.7 1,242.0 11.1% Mortgage loans 2,539.3 1,706.1 48.8% Micro loans 1,246.3 1,030.8 20.9% SME loans 758.7 606.5 25.1% POS loans 58.6 130.8 -55.2% •Retail Banking client deposits increased to GEL 4,338.7 million, up 32.8% y-o-y. The dollarisation level of our deposits decreased to 69.7% at 31 December 2018 from 72.1% at 31 December 2017. The cost of foreign currency denominated deposits decreased by 30bps y-o-y in 2018. The cost of local currency denominated deposits, on the contrary, increased by 40bps y-o-y in 2018. The spread between the cost of RB’s client deposits in GEL and foreign currency widened 2.9 ppts in 2018 (GEL: 4.9%; FC: 2.0%) compared to 2.2 ppts in 2017 (GEL: 4.5%; FC: 2.3%). •Retail Banking NIM was 7.5% in 2018 (down 100bps y-o-y). The decline in NIM was attributable to lower loan yields, reflecting the significant growth in the mortgage portfolio during 2018. The 100bps y-o-y decrease in loan yields in 2018 was mainly driven by the change in the Retail Banking loan portfolio product mix, with the lower yield-lower risk products share increasing in total RB loan portfolio. Furthermore, the cost of funds increased by 10bps y-o-y in 2018. •Strong growth in Retail Banking net fee and commissionincome. The strong growth in net fee and commission income during all reported periods was driven by an increase in settlement operations and the strong underlying growth in our Solo and MSME segments. •RB asset quality improved in 2018 further reflecting tighter conditions for unsecured consumer lending post regulatory changes in May 2018, which primarily affected the high-yield express and micro loans as expected. Our increasing focus on lending in the mortgage segment and to finer margin SME clients has led to a product mix shift, and improvement in our asset quality metrics. RB’s cost of credit risk ratio improved to 2.1% in 2018 (down from 2.5% in 2017). 96 Annual Report 2018Bank of Georgia Group PLC