Bank of Georgia : 2Q21 and 1H21 Results

Bank of Georgia Group PLC 2Q21 and 1H21 results

Bank of Georgia

Group PLC

2nd quarter and half-year 2021 results

Name of authorised official of issuer responsible for making notification:

Natia Kalandarishvili, Head of Investor Relations and Funding

www.bankofgeorgiagroup.com

Bank of Georgia Group PLC 2Q21 and 1H21 results

ABOUT BANK OF GEORGIA GROUP PLC

The Group: Bank of Georgia Group PLC ("Bank of Georgia Group" or the "Group" and on the LSE: BGEO LN) is a UK

incorporated holding company, which comprises: a) retail banking and payment services (Retail Banking); and b) corporate banking, investment banking and wealth management operations (Corporate and Investment Banking) in Georgia; and c) banking operations in Belarus ("BNB").

JSC Bank of Georgia ("Bank of Georgia", "BOG", or the "Bank"), the systematically important and leading universal bank in Georgia, is the core entity of the Group. The Bank is a leader in payments business and financial mobile application, with the strong retail and corporate banking franchise in Georgia. With a continued focus on increasing digitalisation and expanding technological and data analytics capabilities, the Group aims to offer more personalised solutions and seamless experiences to its customers to enable them to achieve more of their potential. Employee empowerment, customer satisfaction, and data-driven decisions, coupled with the strong banking franchise, are key enablers in enhancing and developing the Group's strategic objectives. With all these strategic building blocks the Group has laid the groundwork for the bank of the future, and is committed to delivering strong profitability and maximising shareholder value.

The Group aims to benefit from growth of the Georgian economy, and through both its Retail Banking and Corporate and Investment Banking services aims to deliver on its strategy, which is based on achieving at least 20% return on average equity (ROAE) and c.10% growth of its loan book in the medium term.

2Q21 AND 1H21 RESULTS AND CONFERENCE CALL DETAILS

Bank of Georgia Group PLC announces the Group's consolidated financial results for the second quarter and the first half of 2021. Unless otherwise noted, numbers in this announcement are for 2Q21 and comparisons are with 2Q20. The results have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the United Kingdom and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. The results are based on International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom, are unaudited and derived from management accounts. This results announcement is also available on the Group's website at www.bankofgeorgiagroup.com.

An investor/analyst conference call, organised by Bank of Georgia Group, will be held on 17 August 2021, at 14:00 BST / 15:00 CEST / 09:00 EST.

Webinar instructions:

Please click the link below to join the webinar: https://bankofgeorgia.zoom.us/j/97213488287?pwd=YVZ3NktkN3kxblc0WEZmSk5zeFJSUT09Webinar ID: 972 1348 8287

Passcode: 838397

Or use the following international dial-in numbers available at: https://bankofgeorgia.zoom.us/u/adpOR8LHFt

Webinar ID: 972 1348 8287#

Passcode: 838397

Participants, who will be joining through the webinar, can use the "raise hand" feature at the bottom of the screen to ask questions. Participants, who will be joining through the international dial-in number, can dial *9 to raise hand and ask questions.

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Bank of Georgia Group PLC 2Q21 and 1H21 results

CONTENTS

1. COVID-19pandemic and macroeconomic developments
2. 2Q21 and 1H21 financial results highlights

1. Chief Executive Officer's statement
2. Discussion of results

12 Discussion of segment results

12 Retail Banking

16 Corporate and Investment Banking

19 Selected financial and operating information

23 Principal risks and uncertainties

1. Statement of Directors' responsibilities
2. Interim condensed consolidated financial statements
3. Independent review report

1. Interim condensed consolidated financial statements

1. Selected explanatory notes

1. Glossary
2. Company information

FORWARD-LOOKING STATEMENTS

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Bank of Georgia Group PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward- looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: macroeconomic risk, including currency fluctuations and depreciation of the Lari; regional and domestic instability; loan portfolio quality risk; regulatory risk; liquidity risk; capital risk; financial crime risk; cyber-security, information security and data privacy risk; operational risk; COVID-19 pandemic impact risk; climate change risk; and other key factors that indicated could adversely affect our business and financial performance, which are contained elsewhere in this document and in our past and future filings and reports of the Group, including the 'Principal risks and uncertainties' included in Bank of Georgia Group PLC's Annual Report and Accounts 2020 and in this announcement. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in Bank of Georgia Group PLC or any other entity within the Group, and must not be relied upon in any way in connection with any investment decision. Bank of Georgia Group PLC and other entities within the Group undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

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Bank of Georgia Group PLC 2Q21 and 1H21 results

COVID-19 PANDEMIC AND MACROECONOMIC DEVELOPMENTS

The COVID-19 pandemic has tested the resilience of our business and our customers, colleagues and communities. The pandemic and the measures introduced by the government, the National Bank of Georgia (the "NBG"), and the Group since the beginning of 2020 have had a major impact on our performance during the last six quarters.

Strict lockdown measures introduced at the onset of the pandemic led to the containment of the virus in early 2020, however, as the restrictions were eased in the summer of 2020, a second wave of virus cases hit Georgia later in the year. The government introduced a partial lockdown from the end of November 2020 to early February 2021, leading to a decline in COVID-19 cases and allowing the gradual reopening of the domestic economy from March 2021. Mobility restrictions to contain the COVID-19 spread and a halt in international tourism resulted in a 6.2% year-on-year real GDP contraction in 2020, followed by a 4.5% year-on-year contraction in the first quarter of 2021. Sizeable donor support was mainly directed to assist households and businesses, and to strengthen the healthcare system.

However, since March 2021 with the removal of most of the restrictions, the economy has swiftly gained traction, and the second quarter 2021 economic indicators have significantly beaten expectations. The year-on-year estimated real GDP growth was 29.8% during the second quarter of 2021, and the overall year-on-year growth came in at 12.7% in the first half of 2021. Robust growth in remittances and exports, and a faster than expected rebound in tourism, along with fiscal stimulus, have supported the recovery.

Notably, the economy already surpassed the pre-pandemic level as the estimated real GDP growth compared to the second quarter and the first half of 2019 was 12.6% and 5.7%, respectively.

Remittances have continued their strong growth trend and were up 40.8% year-on-year in the first half of 2021, and up 34.4% compared to 2019 levels. Goods exports also increased significantly by 25.2% year-on-year in the first half of the year, surpassing pre-pandemic level by 5.3%. Notably, tourism arrivals accelerated from April 2021 and tourism revenues accounted for c.21% of levels seen in 2019 in the first half of 2021. Strong external flows are expected to contribute to narrowing the current account deficit in 2021. The rise in world commodity prices, utility price increases and faster than expected recovery resumed price pressures in 2021 with annual inflation reaching 11.9% in July 2021. The NBG has responded by raising the monetary policy rate three times this year, reaching 10.0% in August 2021. A high inflation level is expected to continue throughout the year, before coming down in 2022 as temporary factors fade. Strong recovery dynamics, along with a tight monetary policy helped the local currency to partially regain its value against the US Dollar since May 2021, strengthening by 7.4% during the second quarter of 2021. Importantly, the international reserves remain high at US$ 3.9 billion as of 30 June 2021.

That said, virus cases have picked up significantly in July-August 2021, and the government responded by re-introduction of restrictions in August, such as wearing face masks in public places, restricting large gatherings, concerts and other activities, and closing municipal transportation, among others. Although vaccination rate is currently low, immunisation progress has significantly accelerated since end of July, which is encouraging, and the government has sufficient vaccine doses secured for 2021. The COVID-19 pandemic still remains one of the key uncertainties in our growth outlook and is a risk factor to derail the recovery, unless more than half of the population is vaccinated by the end of the year. High inflation and the possibility of further tightening of the monetary policy rate by the NBG may also have a significant impact on the growth outlook.

Based on the estimates of our brokerage and investment arm, Galt & Taggart, we currently expect real GDP growth of 8.6% in 2021, revised upwards from our previous forecast of 7.0% growth. The government and the IMF also revised Georgia's 2021 economic growth forecast upwards to 7.7% in July 2021, while the NBG expects higher growth of 8.5% in 2021. If the COVID-19- related risks do not materialise in the coming months, we also see the possibility of higher growth, at low double digits in 2021.

Our 2Q21 results were supported by this rebound in economic activity on the back of lifting of the lockdown restrictions and full reopening of the economy. Both our Retail Banking and Corporate and Investment Banking businesses delivered robust results in the second quarter of 2021. Our lending activity was strong, we saw a significant increase in operating income and, particularly, net interest income and net fee and commission income generation was up, and our loan book has performed better than expected in terms of portfolio quality. At the same time, we continued our focus on customer satisfaction and strengthened our digital banking franchise while maintaining a very healthy cost to income structure. As a result, we delivered a return on average equity of 29.4% in the second quarter of 2021 and 25.6% in the first half of 2021, while maintaining strong liquidity and capital positions.

We next outline the Group's second quarter and the first half of 2021 results highlights and the Chief Executive Officer's letter, before going into further detail.

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Bank of Georgia Group PLC 2Q21 and 1H21 results

2Q21 AND 1H21 FINANCIAL RESULTS HIGHLIGHTS

GEL thousands

INCOME STATEMENT HIGHLIGHTS

Net interest income

Net fee and commission income

Net foreign currency gain

Net other income

Operating income Operating expenses (Loss) / profit from associates

Operating income before cost of risk Cost of risk

Net operating income before non-recurring items Net non-recurringitems

Profit before income tax

Income tax (expense) / benefit

Profit

GEL thousands

BALANCE SHEET HIGHLIGHTS

Liquid assets

Cash and cash equivalents

Amounts due from credit institutions

Investment securities

Loans to customers and finance lease receivables1 Property and equipment

Total assets

Client deposits and notes

Amounts owed to credit institutions Borrowings from DFIs Short-term loans from central banks

Loans and deposits from commercial banks Debt securities issued

Total liabilities

Total equity

	2Q21	2Q20		Change		1Q21		Change		1H21		1H20		Change
		y-o-y			q-o-q				y-o-y
	228,249	174,936	30.5%	212,332	7.5%			440,581		372,017		18.4%
	57,206	32,901	73.9%	48,650	17.6%			105,856		73,013		45.0%
	22,082	22,743	-2.9%	19,176	15.2%			41,258		53,404		-22.7%
	27,438	9,081		NMF	23,482	16.8%			50,920		15,707		NMF
	334,975	239,661	39.8%	303,640	10.3%			638,615		514,141		24.2%
	(121,818)	(105,158)	15.8%	(107,359)	13.5%			(229,177)		(211,167)		8.5%
	(4,299)	113		NMF	167		NMF			(4,132)		414		NMF
	208,858	134,616	55.2%	196,448	6.3%			405,306		303,388		33.6%
	14,033	(10,221)		NMF	(44,117)		NMF			(30,084)		(251,623)		-88.0%
	222,891	124,395	79.2%	152,331	46.3%			375,222		51,765		NMF
	(67)	(1,241)	-94.6%	17		NMF			(50)		(41,586)		-99.9%
	222,824	123,154	80.9%	152,348	46.3%			375,172		10,179		NMF
	(20,654)	(8,470)	143.8%	(13,424)	53.9%			(34,078)		4,560		NMF
	202,170	114,684	76.3%	138,924	45.5%			341,094		14,739		NMF
	Jun-21	Jun-20		Change		Mar-21		Change
		y-o-y			q-o-q
	5,904,270	5,447,730		8.4%		6,968,871		-15.3%
	1,719,058	1,633,755		5.2%		2,361,663		-27.2%
	2,035,487	1,700,075		19.7%		2,200,803		-7.5%
	2,149,725	2,113,900		1.7%		2,406,405		-10.7%

14,789,371	12,599,092	17.4%	14,601,275	1.3%
387,014	396,272	-2.3%	385,352	0.4%
21,851,510	19,183,966	13.9%	22,752,245	-4.0%
13,944,383	11,583,139	20.4%	14,003,209	-0.4%
3,224,577	3,521,860	-8.4%	4,039,250	-20.2%
1,927,225	1,755,656	9.8%	2,222,967	-13.3%

398,186	847,213	-53.0%	772,647	-48.5%
899,166	918,991	-2.2%	1,043,636	-13.8%
1,515,511	1,561,933	-3.0%	1,653,399	-8.3%
19,038,149	16,984,167	12.1%	20,064,595	-5.1%
2,813,361	2,199,799	27.9%	2,687,650	4.7%

KEY RATIOS

ROAA

ROAE

Net interest margin Liquid assets yield Loan yield

Cost of funds Cost / income

NPLs to Gross loans to clients NPL coverage ratio

NPL coverage ratio, adjusted for discounted value of collateral Cost of credit risk ratio

NBG (Basel III) CET1 capital adequacy ratio NBG (Basel III) Tier I capital adequacy ratio NBG (Basel III) Total capital adequacy ratio

2Q21	2Q20	1Q21
3.6%	2.4%	2.5%
29.4%	21.8%	21.5%
4.7%	4.2%	4.5%
3.3%	3.4%	3.1%
10.4%	10.2%	10.4%
4.5%	4.8%	4.5%
36.4%	43.9%	35.4%
3.5%	2.7%	3.6%
73.1%	115.7%	77.5%
122.2%	166.3%	127.8%
-0.6%	-0.2%	0.8%
12.5%	9.9%	11.2%
14.4%	12.0%	13.3%
19.1%	17.4%	18.6%

1H21	1H20
3.1%	0.2%
25.6%	1.4%
4.6%	4.6%
3.2%	3.7%
10.4%	10.6%
4.5%	4.8%
35.9%	41.1%
3.5%	2.7%
73.1%	115.7%
122.2%	166.3%
0.1%	3.5%
12.5%	9.9%
14.4%	12.0%
19.1%	17.4%

1 Throughout this announcement, the gross loans to customers and respective allowance for impairment are presented net of expected credit loss (ECL) on contractually accrued interest income. These do not have an effect on the net loans to customers balance. Management believes that netted-off balances provide the best representation of the loan portfolio position.

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