TBC BANK GROUP International Financial Reporting Standards Condensed Consolidated Interim Financial Information (Unaudited) 30 June 2013

Transcription

1 TBC BANK GROUP International Financial Reporting Standards Condensed Consolidated Interim Financial Information (Unaudited) 30 June 2013

2 CONTENTS REVIEW REPORT UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION Unaudited Condensed Consolidated Interim Statement of Financial Position...1 Unaudited Condensed Consolidated Interim Statement of Comprehensive Income...2 Unaudited Condensed Consolidated Interim Statement of Changes in Equity...3 Unaudited Condensed Consolidated Interim Statement of Cash Flows...4 Notes to the Unaudited Condensed Consolidated Interim Financial Information 1 Introduction Summary of Significant Accounting Policies Critical Accounting Estimates, and Judgements in Applying Accounting Policies New Accounting Pronouncements Cash and Cash Equivalents Due from Other Banks Loans and Advances to Customers Premises and Equipment Goodwill Due to Other Banks Customer Accounts Other Borrowed Funds Provisions for Liabilities and Charges Share Capital Share Based Payments Earnings per Share Segment Information Interest Income and Expense Fee and Commission Income and Expense Other Operating Income Administrative and Other Operating Expenses Income Taxes Contingencies and Commitments Financial and Other Risk Management Management of Capital Fair Value of Financial Instruments Related Party Transactions Events after the End of the Reporting Period...42

3 Report on Review of Condensed Consolidated Interim Financial Information To the Shareholders and Management of JSC TBC Bank: Introduction We have reviewed the accompanying condensed consolidated interim statement of financial position of JSC TBC Bank (the Bank ) and its subsidiaries (together the Group ) as of 30 June 2013 and the related condensed consolidated interim statements of comprehensive income, changes in equity and cash flows for the six-month period then ended. Management is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with International Accounting Standard 34, "Interim Financial Reporting". Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting". 12 August 2013 Tbilisi, Georgia PricewaterhouseCoopers Central Asia and Caucasus B.V. Georgia Branch; Address: #7 Bambis Rigi Street, Business Center Mantashevi, Tbilisi 0105, Georgia, T: +995 (32) , F:+995 (32) ,

4 condensed consotidated tnterim statement of Financial Position (llnaudited - see fhe Review Repoft) Note ASSETS Cash and cash equivalents Due from other banks Loans and advances to customers lnvestment securities available for sale lnvestments in finance leases lnvestment properties Current income tax prepayment Goodwill lntangible assets Premises and equipment Other financial assets Other assets , ,531 2,416, ,469 28,418 65,538 7,613 2,726 20, ,595 27,328 81, , ,603 2,370, ,733 26,377 34,305 10,135 2,726 18, ,556 25,301 67,354 TOTAL ASSETS 3,987,863 3,999,694 LIABILITIES Due to other banks Customer accounts Debt securities in issue Other borrowed funds Deferred income tax liability Provisions for liabilities and charges Other financial liabilities Other liabilities Subordinated debt ,841 2,563,696 4, ,313 26,602 9,050 18, , ,124 76,204 2,486,944_ 5s0,919 20,143 6,174 19,462 20, ,080 TOTAL LIABILITIES 3,316,813 3,295,670 EQUITY Share capital Share premium Retained earnings Share based payment reserye Other reserves , , , ,215 16, , ,880 4,142 41,939 Net assets attributable to the Bank's equity holders Non-controlling interest 657,837 13, ,605 11,419 TOTAL EQUITY 67{, ,024 TOTAL LIABILITIES AND EQUITY 3,987,863 3,899,694 Approved for issue and signed on behalf of the Management Board on 12 August financial information. ralpartofthisunauditedcondensedconsolidatedinterim

5 Condensed Consolidated Interim Statement of Changes in Equity (Unaudited see the Review Report) Notes 30 June 2013 (Unaudited) 30 June 2012 (Unaudited) Interest income , ,137 Interest expense 18 (99,981) (103,366) Net interest income before provisions 133, ,771 Provision for loan impairment 7 (16,954) (18,642) Provision for liabilities and charges (2,876) (1,628) Provision for impairment of investments in finance lease (67) (72) Provision for impairment of other financial assets (619) (275) Impairment of investment securities available for sale (5) (10) Net interest income after provisions 113,175 97,144 Fee and commission income 19 31,276 26,300 Fee and commission expense 19 (12,689) (8,240) Net fee and commission income 18,587 18,060 Gains less losses from trading in foreign currencies 14,045 13,247 Foreign exchange translation gains less losses 1,876 2,726 Gains less losses/(losses less gains) from derivative financial instruments 1,085 (1,512) Other operating income 20 12,497 9,305 Other operating non-interest income 29,503 23,766 Staff costs (51,367) (44,109) Depreciation and amortisation (10,311) (8,739) Administrative and other operating expenses 21 (35,356) (31,019) Other operating expenses (97,034) (83,867) Profit before tax 64,231 55,103 Income tax expense 22 (9,427) (6,211) Profit for the period 54,804 48,892 Other comprehensive income: Items that may be reclassified subsequently to profit or loss Revaluation of available-for-sale investments 3,385 (72) Exchange differences on translation to presentation currency (14) (394) Income tax recorded directly in other comprehensive income (95) (64) Other comprehensive income/(loss) for the period 3,276 (530) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 58,080 48,362 Profit is attributable to: - Owners of the Bank 53,604 48,112 - Non-controlling interest 1, Profit for the period 54,804 48,892 Total comprehensive income is attributable to: - Owners of the Bank 56,880 47,582 - Non-controlling interest 1, Total comprehensive income for the period 58,080 48,362 Earnings per share for profit attributable to the owners of the Group: - Basic earnings per share Diluted earnings per share The notes set out on pages 5 to 42 form an integral part of this unaudited condensed consolidated interim financial information. 2

6 Condensed Consolidated Interim Statement of Changes in Equity (Unaudited see the Review Report) Attributable to equity holders of the Bank Share Share Share Other Retained capital premium based reserves earnings payment reserve Total Noncontrolling interest Total Equity Balance at 1 January , ,308 6,180 33, , ,647 9, ,781 Profit for the six months ended 30 June ,112 48, ,892 Other comprehensive loss for the six months ended 30 June (530) - (530) - (530) Total comprehensive income for the six months ended 30 June (530) 48,112 47, ,362 Equity contribution by noncontrolling interest Share based payment for the six months ended 30 June Transfer of revaluation surplus on premises to retained earnings (480) Balance at 30 June 2012 (Unaudited) 15, ,308 6,950 32, , ,056 10, ,551 Balance at 1 January , ,501 4,142 41, , ,605 11, ,024 Profit for the six months ended 30 June ,604 53,604 1,200 54,804 Other comprehensive income for the six months ended 30 June ,276-3,276-3,276 Total comprehensive income for the six months ended 30 June ,276 53,604 56,880 1,200 58,080 Share issue 240 6, ,226-7,226 Increase in share capital arising from share based payment 117 4,164 (4,142) Equity contribution by noncontrolling interest Share based payment for the six months ended 30 June Balance at 30 June 2013 (Unaudited) 16, , , , ,837 13, ,050 The notes set out on pages 5 to 42 form an integral part of this unaudited condensed consolidated interim financial information. 3

7 Note 30 June 2013 (Unaudited) 30 June 2012 (Unaudited) Cash flows from operating activities Interest received 227, ,490 Interest paid (102,447) (95,563) Fees and commissions received 31,276 26,300 Fees and commissions paid (12,689) (8,240) Income received from trading in foreign currencies 14,045 13,247 Other operating income received 11,339 7,848 Staff costs paid (47,643) (46,581) Administrative and other operating expenses paid (27,969) (29,344) Income tax paid (447) (17,036) Cash flows from operating activities before changes in operating assets and liabilities 93,431 47,121 Changes in operating assets and liabilities Net decrease/(increase) in due from other banks 48,071 (12,329) Net increase in loans and advances to customers (138,118) (315,008) Net (increase)/decrease in investment in finance lease (2,041) 72 Net increase in other financial assets (876) (5,097) Net decrease in other assets 4,545 10,254 Net (decrease)/increase in due to other banks (43,399) 56,921 Net increase in customer accounts 87, ,543 Net increase in other financial liabilities 908 2,682 Net (decrease)/increase in other liabilities (5,535) 2,360 Net cash from/(used in) operating activities 44,526 (99,481) Cash flows from investing activities Acquisition of investment securities available for sale (315,270) (476,281) Proceeds from disposal of investment securities available for sale - 55,124 Proceeds from redemption at maturity of investment securities available for sale 241, ,027 Proceeds from redemption of investment securities held to maturity - 8,365 Acquisition of premises, equipment and intangible assets (14,913) (27,682) Proceeds from disposal of investment property 9, Net cash used in investing activities (79,262) (138,500) Cash flows from financing activities Proceeds from other borrowed funds 181, ,208 Redemption of other borrowed funds (213,057) (170,998) Proceeds from/(redemption of) subordinated debt 12,133 (6,847) Equity contribution by minority shareholders Issue of ordinary shares 7,226 - Net cash (used in)/from financing activities (11,308) 122,363 Effect of exchange rate changes on cash and cash equivalents 2, Net decrease in cash and cash equivalents (43,921) (115,458) Cash and cash equivalents at the beginning of the period 5 398, ,153 Cash and cash equivalents at the end of the period 5 354, ,695 4

8 1 Introduction This condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting for the six months ended 30 June 2013 for TBC Bank (the Bank ) and its subsidiaries (together referred to as the Group or TBC Bank Group ). This condensed consolidated interim financial information has been reviewed, not audited. The Bank was incorporated on 17 December 1992 and is domiciled in Georgia. The Bank is a joint stock company limited by shares and was set up in accordance with Georgian regulations. The Group does not have an ultimate controlling party. As at 30 June 2013 and 31 December 2012, the shareholder structure by ownership interest is as follows: Shareholders 30 June 2013 Ownership interest,% 31 December 2012 Ownership interest,% International Finance Corporation 20% 20% European Bank for Reconstruction and Development 20% 20% TBC Holdings LTD 19% 20% Deutsche Investitions und Entwicklungsgesellschaft MBH 11% 12% Individuals 9% 7% Liquid Crystal International N.V. LLC 7% 7% JPMorgan Chase Bank 5% 5% Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. 5% 5% Ashmore Cayman SPC 4% 4% Total 100% 100% Principal activity. The Bank s principal business activity is universal banking operations that include corporate, SME, retail and micro operations within Georgia. The Bank has operated under a general banking license issued by the National Bank of the Georgia ( NBG ) since 20 January The Bank has 13 (31 December 2012: 13) branches and 46 (31 December 2012: 45) service centres within Georgia. At 30 June 2013, the Bank had 2,810 employees (31 December 2012: 2,705). The Bank is a parent of a group of companies (the Group ) incorporated in Georgia and Azerbaijan, primary business activities include providing banking, leasing, brokerage, card processing services, to corporate and individual customers. The Bank is the Group s main operating unit and accounts for most of the Group s activities. The condensed consolidated interim financial information includes the following principal subsidiaries: Subsidiary 30 June 2013 Ownership interest,% 31 December 2012 Ownership interest,% Country Date of incorporatio n or acquisition Industry JSC TBC Leasing 89.53% 89.53% Georgia 2003 Leasing TBC Kredit LLC 75% 75% Azerbaijan 2008 Non-banking credit institution TBC Broker LLC 100% 100% Georgia 1999 Brokerage JSC United Financial Corporation 93.32% 93.32% Georgia 1997 Card processing JSC Real Estate Management Fund 100% 100% Georgia 2010 Real Estate Management TBC Pay LLC 100% 100% Georgia 2009 Processing TBC Invest LLC 100% 100% Israel 2011 PR and marketing Bank Constanta JSC 85% 83.3% Georgia 2011 Financial Institution Banking System Service Company LLC 100% 100% Georgia 2009 Service 5

9 1 Introduction (Continued) Registered address and place of business. The Bank s registered address is: 7 Marjanishvili Street, 0102 Tbilisi, Georgia. Presentation currency. This condensed consolidated interim financial information is presented in thousands of Georgian Lari ("GEL thousands"), unless otherwise indicated. 2 Summary of Significant Accounting Policies Basis of preparation. This condensed consolidated interim financial information has been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended 31 December 2012, which have been prepared in accordance with International Financial Reporting Standards (IFRS). Except as described below, the same accounting policies and methods of computation were followed in the preparation of this condensed consolidated interim financial information as compared with the annual consolidated financial statements for the year ended 31 December Certain new standards, interpretations and amendments to the existing standards, as disclosed in the consolidated financial statements for the year ended 31 December 2012, became effective for the Group from 1 January These have not significantly affected the condensed consolidated interim financial information of the Group. Interim period tax measurement. Interim period income tax expense is accrued using the effective tax rate that would be applicable to expected total annual earnings, that is, the estimated weighted average annual effective income tax rate applied to the pre-tax income of the interim period. Foreign currency translation. At 30 June 2013 the closing rate of exchange used for translating foreign currency balances was USD 1 = GEL (31 December 2012: USD 1 = GEL ); EUR 1 = GEL (31 December 2012: EUR 1 = GEL ). IFRS 13 Fair value measurement. IFRS 13 measurement and disclosure requirements are applicable for the December 2013 year end. The group has included the disclosures required by IAS 34 para 16A(j). See Note Error! Reference source not found.. 3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies Estimates and judgements that have the most significant effect on the amounts recognised in the interim financial information are: Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. 6

10 3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued) A 5% increase or decrease between actual loss experience and the loss estimates used will result in an additional or lower charge for loan loss impairment of GEL 8,432 thousand (30 June 2012: GEL 8,621 thousand), respectively. Impairment provisions for individually significant loans are based on the estimate of discounted future cash flows of the individual loans taking into account repayments and realisation of any assets held as collateral against the loan. A 5% increase or decrease in the actual future discounted cash flows from individually significant loans which could arise from a mixture of differences in amounts and timing of the cash flows will result in an additional or lower charge for loan loss provision of GEL 3,803 thousand (30 June 2012: GEL 2,122 thousand), respectively. Finance leases and derecognition of financial assets. Management applies judgement to determine if substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to counterparties, in particular which risks and rewards are the most significant and what constitutes substantially all risks and rewards. As at 30 June 2013 the entity had investments in finance lease of GEL 28,418 thousand (31 December 2012: GEL 26,377 thousand). Fair value disclosure of investment properties. Investment properties held by the Group are carried at cost. However, as per the requirements of IAS 40, the Group also discloses the fair value of investment properties as at the reporting dates. In determining the fair values of investment properties, the Group uses the available information on the real estate market in the media, reports of independent appraisers, who hold a recognised and relevant professional qualification, information available on the valuation of similar assets and the general knowledge of the internal appraisals that the Group have. At 30 June 2013, investment properties comprised real estate assets located in Tbilisi and other regions of Georgia with the fair value amounting to GEL 69,609 thousand (31 December 2012: GEL 45,041 thousand). Tax legislation. Georgian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 23. Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. In management judgment, at 30 June 2013 and 31 December 2012, there were no loans and advances at other than market conditions. Terms and conditions of related party balances are disclosed in Note Error! Reference source not found.. Share based payments. Management has made judgement regarding the recognition of liability on put options awarded by the 2013 management compensation scheme. For further details refer to note 15. 7

11 4 New Accounting Pronouncements Since the Group published its last annual financial statements, certain new standards and interpretations have been issued: Amendments to IAS 36 - Recoverable amount disclosures for non-financial assets (issued on 29 May 2013 and effective for annual periods beginning 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period). The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets but there has been no impairment. The Group does not expect the amendment to have any material effect on its consolidated financial statements. IFRIC 21 - Levies (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014). The interpretation clarifies the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event identified by the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue operating in a future period, or prepares its financial statements under the going concern assumption, does not create an obligation. The same recognition principles apply in interim and annual financial statements. The application of the interpretation to liabilities arising from emissions trading schemes is optional. The Group is currently assessing the impact of the amendments on its consolidated financial statements. Amendments to IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting (issued on 27 June 2013 and effective for annual periods beginning 1 January 2014).The amendments will allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated (i.e parties have agreed to replace their original counterparty with a new one) to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met. The Group does not expect the amendment to have any material effect on its consolidated financial statements. Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group s consolidated financial statements/interim financial information. The Group has also not early adopted any of the new standards and interpretations disclosed in the New Accounting Pronouncements note in its last annual financial statements and effective for its annual periods beginning on or after 1 January Cash and Cash Equivalents 30 June December 2012 Cash on hand 126, ,362 Cash balances with the National Bank of Georgia (other than mandatory reserve deposits) 27,662 71,707 Correspondent accounts and overnight placements with other banks 152, ,869 Placements with and receivables from other banks with original maturities of less than three months 47,907 23,649 Total cash and cash equivalents 354, ,587 91% of correspondent accounts and overnight placements with other banks are placed with OECD banking institutions (31 December 2012: 98%). As at 30 June 2013 GEL 47,907 thousand was placed on interbank time deposits with four non-oecd banks (31 December 2012: 21,650 thousand with 4 non-oecd banks). 8

12 6 Due from Other Banks 30 June December 2012 Placements with other banks with original maturities of more than three months 3,669 29,542 Mandatory cash balances with the National Bank of Georgia 293, ,061 Total due from other banks 297, ,603 Mandatory cash balances with the National Bank of Georgia ( NBG ) represents amounts deposited with the NBG. Resident financial institutions are required to maintain an interest-earning obligatory reserve with the NBG, the amount of which depends on the level of funds attracted by the financial institutions. Amounts due from other banks are not collateralised. As at 30 June 2013 GEL 2,120 thousand was placed on interbank time deposits with one OECD bank (31 December 2012: 28,163 thousand with one non-oecd bank). 7 Loans and Advances to Customers 30 June December 2012 Corporate loans 1,047,797 1,142,087 Consumer loans 539, ,704 Mortgage loans 398, ,416 Loans to small and medium enterprises 317, ,217 Micro loans 183, ,931 Others 97,942 86,343 Total loans and advances to customers (before impairment) 2,584,820 2,536,698 Less: Provision for loan impairment (168,646) (166,498) Total loans and advances to customers 2,416,174 2,370,200 Included in the consumer loans are consumer loans, card loans, overdrafts, express and fast loans and other loans. Included in micro loans are all loans issued by Bank Constanta. Movements in the provision for loan impairment during the six months ended 30 June 2013 are as follows: Corporate loans Consumer loans Mortgage loans Small and medium enterprises Micro Loans Other Provision for loan impairment at 1 January ,975 31,156 13,186 4,820 4, ,498 Provision for / (recovery of) impairment during the period 1,506 14,628 (123) 941 (15) 17 16,954 Amounts written off during the period as uncollectible (9,841) (7,444) (1,282) (1,102) (1,807) - (21,476) Recovery of amounts previously written off as uncollectible 1,224 2,530 1, ,670 Provision for loan impairment at 30 June ,864 40,870 13,271 5,364 3, ,646 Total 9

13 7 Loans and Advances to Customers (Continued) Movements in the provision for loan impairment during the six months ended 30 June 2012 are as follows: Corporate loans Consumer loans Mortgage loans Small and medium Micro Loans Total enterprises Provision for loan impairment at 1 January ,106 25,794 12,376 5, ,660 Provision for impairment during the year 6,972 5,577 5,138 (596) 1,551 18,642 Amounts written off during the year as uncollectible (8,480) (5,851) (57) (812) (490) (15,690) Recovery of amounts previously written off as uncollectible 5,396 3,486 1, ,811 Provision for loan impairment at 30 June ,994 29,006 18,565 4,679 2, ,423 Economic sector risk concentrations within the customer loan portfolio are as follows: 30 June December 2012 Amount % Amount % Individual 938,631 36% 868,119 34% Trade and Services 382,040 15% 447,333 18% Real estate 182,642 7% 189,933 8% Food industry 151,881 6% 109,031 4% Agriculture 141,796 6% 119,935 5% Consumer goods and automobile trading 134,339 5% 132,579 5% Oil and gas 111,229 4% 143,355 6% Pawn shop 97,942 4% 86,343 3% Construction 96,396 4% 108,914 4% Energy 89,902 4% 79,929 3% Communication 78,834 3% 82,360 3% Transportation 68,427 3% 70,453 3% Manufacturing 30,755 1% 30,073 1% Mining 29,995 1% 31,140 1% Other 50,011 2% 37,201 2% Total loans and advances to customers (before impairment) 2,584, % 2,536, % Trade and service sector contains loans disbursed to consumer service, healthcare, media and financial service industries. Construction sector contains loans disbursed to the customers operating in the following industries: construction of buildings, architecture, building materials and fixtures and civil engineering. 10

14 7 Loans and Advances to Customers (Continued) Analysis by credit quality of loans outstanding at 30 June 2013 is as follows: Corporate loans Consumer loans Mortgage loans Small and medium enterprises Micro Loans Others Current and not impaired - Borrowers with credit history over two years 542, , , ,713 55,445 9,355 1,248,797 - New borrowers 304, , , , ,681 88,311 1,052,518 Total current and not impaired 847, , , , ,126 97,666 2,301,315 Past due but not impaired - 1 to 30 days overdue 22,362 14,582 6,029 6,781 1, , to 90 days overdue 10,362 5,016 2,433 1, , to 180 days overdue to 360 days overdue 14, ,581 Total past due but not impaired 47,305 19,600 8,462 8,052 1, ,305 Loans individually determined to be impaired (gross) - Not overdue 120, ,980-1 to 30 days overdue 15, , to 90 days overdue 13, , to 180 days overdue Total individually impaired loans 150, ,248 Other impaired loans - Not overdue 2,831 3,756 7,379 2,336 1, ,969-1 to 30 days overdue , to 90 days overdue - 3,202 1,150 1,627 1,267-7, to 180 days overdue - 8, , , to 360 days overdue - 5,795 1, ,176 - Over 360 days overdue ,103 Total other impaired loans 3,031 22,463 11,060 7,088 4, ,952 Total loans and advances to customers (before impairment) 1,047, , , , ,046 97,942 2,584,820 Total provision (105,864) (40,870) (13,271) (5,364) (3,260) (17) (168,646) Total loans and advances to customers 941, , , , ,786 97,925 2,416,174 Total 11

15 7 Loans and Advances to Customers (Continued) Analysis by credit quality of loans outstanding at 31 December 2012 is as follows: Corporate loans Consumer loans Mortgage loans Small and medium enterprises Micro loans Others TOTAL Current and not impaired - Borrowers with credit history over two years 583, , , , ,134 1,159,360 - New borrowers 354, , , , ,690 82,209 1,103,325 Total current and not impaired 937, , , , ,362 86,343 2,262,685 Past due but not impaired - 1 to 30 days overdue 4,251 8,945 4,590 2, , to 90 days overdue 414 4,469 3, , to 180 days overdue to 360 days overdue Total past due but not impaired 4,794 13,441 7,638 2, ,294 Loans individually determined to be impaired (gross) - not overdue 173, , to 90 days overdue 13, , to 180 days overdue 3, , to 360 days overdue 4, ,115 Total individually impaired loans 194, ,791 other impaired loans - not overdue 2,811 3,177 8,407 4,904 1,753-21,052-1 to 30 days overdue 1, , to 90 days overdue - 2, ,126 2,335-8, to 180 days overdue 35 6,665 2, ,447-12, days overdue 764 3,128 1, ,838 - more than 360 days overdue Total other impaired loans 4,744 17,012 13,019 8,514 6,639-49,928 Total loans and advances to customers (before impairment) 1,142, , , , ,931 86,343 2,536,698 Total provision (112,975) (31,156) (13,186) (4,820) (4,361) - (166,498) Total loans and advances to customers 1,029, , , , ,570 86,343 2,370,200 The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement, and created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by the end of reporting period. The tables above show analysis of loan portfolio based on credit quality. The Group s policy for credit risk management purposes is to classify each loan as not impaired until specific objective evidence of impairment of the loan is identified. The primary factors by which the Group considers a loan as impaired are: overdue status of loan, financial position of a borrower and fair value of related collateral. The Group conducts impairment analysis of each individual loan on a quarterly basis. 12

16 7 Loans and Advances to Customers (Continued) Past due but not impaired loans include overdue loans from Standard and Watch credit risk category. Where Standard is defined as loans extended to borrowers with good financial standing and good track record for repayments and Watch is defined as adequately secured loans, for which the Bank identifies the probability of worsening the borrowers financial standing. Loans individually determined to be impaired include all loans for which amount of IFRS impairment provision was assessed individually and, at the same time, such loans do not fall in Standard and Watch categories. The overdue amounts reported throughout the table represent the total balance of loans, not only the particular instalment (s) that is overdue. The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. The main types of collateral obtained are the following: real estate properties, inventory and equipment, cash covers, third party guarantees. The financial effect of collateral is presented by disclosing collateral values separately for (i) those assets where collateral and other credit enhancements are equal to or exceed carrying value of the asset ( overcollateralised assets ) and (ii) those assets where collateral and other credit enhancements are less than the carrying value of the asset ( under-collateralised assets ). The effect of collateral at 30 June 2013: Over-collateralised assets Carrying value of Fair value of the assets collateral Under-collateralised assets Carrying value of Fair value of the assets collateral Corporate loans 678,713 1,883, , ,558 Consumer loans 341, , ,445 6,632 Mortgage loans 378, ,999 20,280 6,738 Loans to small and medium enterprises 296, ,179 20,553 4,868 Micro loans 72, , , Others 91,458 91,827 6,484 6,245 Total 1,859,588 4,808, , ,627 The effect of collateral at 31 December 2012: Over-collateralised assets Carrying value of Fair value of the assets collateral Under-collateralised assets Carrying value of Fair value of the assets collateral Corporate loans 774,701 1,873, , ,772 Consumer loans 300, , ,049 6,555 Mortgage loans 363, ,838 22,084 6,705 Loans to small and medium enterprises 271, ,728 22,867 6,256 Micro loans 57, ,177 88, Others 81,758 81,990 4,585 4,412 Total 1,849,164 4,613, , ,475 The effect of collateral is determined by comparison of fair value of collateral to gross loans and advances outstanding at the reporting date. The Group s internal appraiser performed physical inspection of pledged real estate and estimated the fair value of real estate at the balance sheet date using primarily market comparison method. Fair value of inventory, equipment and other assets was determined by the Group s credit department using the Group s internal guidelines. 13

17 8 Premises and Equipment Depreciation and amortisation charge presented on the face of the condensed consolidated interim statement of comprehensive income include depreciation and amortisation charge of premises and equipment, investment properties and intangible assets. Construction in progress consists of construction and refurbishment of branch premises and a new headquarter of the Bank. Upon completion, assets are transferred to premises. As at 30 June 2013 construction in progress amounted to GEL 35,837 thousand. Premises have been revalued to market value at 6 July The valuation was carried out by an independent firm of valuers which holds a recognised and relevant professional qualification and who have recent experience in valuation of assets of similar location and category. The basis used for the appraisal was discounted cash flow, integrated cost estimation and sales comparison method. Fair values were estimated using appropriate valuation techniques, depending on the degree to which the estimates met the following characteristics: reliability and completeness of the information, specifics of the estimated property. Management considers that the fair value has not changed significantly between 6 July 2012 and 30 June The Group acquired new property amounting to GEL 16,680 thousand and disposed of property amounting to GEL 4,134 thousand during the six month period ended 30 June Goodwill Carrying amount at 1 January 2,726 2,726 Addition from acquisition of subsidiary - - Carrying amount at 30 June 2,726 2,726 No impairment indicators were identified as at 30 June 2013 or 30 June Due to Other Banks 30 June December 2012 Correspondent accounts and overnight placements of other banks 3,365 6,569 Term placements of banks and financial institutions 25,605 53,700 Short-term loans from banks 3,871 15,935 Total due to other banks 32,841 76,204 14

18 11 Customer Accounts 30 June December 2012 State and public organisations - Current/settlement accounts 91,163 72,638 - Term deposits 125, ,926 Other legal entities - Current/settlement accounts 660, ,181 - Term deposits 186, ,112 Individuals - Current/demand accounts 509, ,737 - Term deposits 989,855 1,011,350 Total customer accounts 2,563,696 2,486,944 State and public organisations include government owned profit oriented businesses. Economic sector concentrations within customer accounts are as follows: 30 June December 2012 Amount % Amount % Individuals 1,499,464 58% 1,398,087 56% Trade and Service 244,927 10% 211,729 9% Oil and Gas 181,440 7% 142,173 5% Transportation 135,968 5% 197,115 8% Construction 65,434 3% 116,392 4% Energy 63,500 2% 92,121 4% Real Estate 56,145 2% 45,116 2% Food Industry 51,335 2% 53,745 2% Communication 39,965 2% 19,305 1% Consumer Goods and Automobile Trading 36,050 1% 50,286 2% Manufacturing 17,527 1% 15,507 1% Agriculture 17,267 1% 14,198 1% Mining 10,027 0% 6,240 0% Other 144,647 6% 124,930 5% Total customer accounts 2,563, % 2,486, % Construction sector contains amounts placed by the customers operating in the following industries: construction of buildings, architecture, building materials and fixtures, civil engineering. 12 Other Borrowed Funds At 30 June 2013, other borrowed funds comprised the following: Outstanding amount in original currency GEL USD EUR Outstanding amount in GEL Foreign banks and International financial institutions 31, , ,415 Local banks and financial institutions 67,180 3,966-73,727 Other financial institutions ,869 7,171 Total 98, ,625 3, ,313 15

19 12 Other Borrowed Funds (Continued) As at 30 June 2013, investment securities available for sale amounting to GEL 63,500 thousand have been pledged to local banks as collateral with respect to other borrowed funds (31 December 2012: 54,800). Subsequent to 30 June 2013, borrowed funds in the amount of GEL 91,751 were fully repaid. At 31 December 2012, other borrowed funds comprised the following: Outstanding amount in original currency GEL USD EUR Outstanding amount in GEL Foreign banks and International financial institutions 28, , ,854 Local banks and financial institutions 52,707 6,574-63,599 Other financial institutions ,968 7,466 Total 81, ,996 3, , Provisions for Liabilities and Charges Movements in provisions for liabilities and charges are as follows: Credit related commitments and performance guarantees Other Total Carrying amount at 1 January ,134 1,300 8,434 Additions recorded in profit or loss 1,628-1,628 Carrying amount at 30 June ,762 1,300 10,062 Carrying amount at 1 January ,174 3,000 6,174 Additions recorded in profit or loss 2,876-2,876 Carrying amount at 30 June ,050 3,000 9,050 Credit related commitments: Specific provision was created against losses incurred on financial guarantees and commitments to extend credit to borrowers whose financial conditions deteriorated. Provisions for liabilities and charges are expected to be fully utilised within twelve months after 30 June Share Capital except for number of shares Number of outstanding shares Ordinary shares Share premium Treasury shares Total At 1 January ,710 15, , ,479 New shares issued 9, ,219-29,191 Treasury shares purchased (9) - (26) (1) (27) At 31 December ,419 16, ,501 (1) 247,643 New shares issued 3, ,150-11,507 Treasury shares sold At 30 June ,995 16, , ,151 16

20 14 Share Capital (Continued) The total authorised number of ordinary shares is 164,995 shares (31 December 2012: 161,419 shares). All issued ordinary shares are fully paid. All ordinary shares have a nominal value of GEL 100 per share (31 December 2012: GEL 100 per share) and rank equally. Share premium represents the excess of contributions received over the nominal value of shares issued shares included in the share capital, that were awarded to the management under share based payment arrangement enacted in 2011, do not have voting rights. All other shares carry one vote. At the reporting date the Bank also has 4,150 authorised shares reserved for issuance under share based payment arrangement (31 December 2012: 1,157 shares). For share based payments refer to Note Share Based Payments May 2011 arrangement: In May 2011, the supervisory board of the Bank approved a Senior Management Bonus scheme for the years and resolved to award employees 3,300 new shares. According to the scheme, each year, subject to defined performance and service conditions, certain number of the shares is awarded to the top management of the Bank and some of the middle managers. The shares are eligible to dividends but do not have voting rights. The shares cannot be sold or transferred to third parties before 1 January 2014, however, the right to sell the shares will be granted and they will become voting shares if: The Bank is listed on a stock exchange; or There is any other type of qualified sale of the Bank. The fair value of the shares as at the grant date was estimated at GEL 2,837 per share. The valuation was carried out by an external valuator. All staff costs related to this Senior Management Bonus scheme have been recognised during the vesting period ended on 31 December The last outstanding shares were issued in April 2013 and the share based payment reserve was credited by GEL 4,142 thousand. June 2013 arrangement: In June 2013, supervisory board of the Bank approved a new management compensation scheme for the years and authorised 4,150 new shares in accordance with the scheme. According to the scheme, each year, subject to defined performance conditions, certain number of the shares will be awarded to the top management and some of the middle managers of the Bank. These shares have service conditions after award and before all of the service conditions are met the shares are eligible to dividends but do not have voting rights; also the shares cannot be sold or transferred to third parties. The supervisory board has granted put options on the shares to be awarded under the new management compensation scheme. These put options are exercisable during a one year period starting from the third anniversary of the each share award date. The put options become null and void in case of occurrence of certain future events. In addition, the shareholders have granted put options on all bonus shares awarded under the previous share based payment arrangements. These options are exercisable in three equal tranches during one year periods starting from 1 January 2016, 2017, 2018, and will become null and void in case of occurrence of certain future events as mentioned above. As the Group considers occurrence of such events more likely than not, the whole compensation scheme is accounted as an equity settled scheme and there is no liability recognized on the awarded put options. The fair value of the share at the grant date is evaluated at GEL 3,578 per share and the valuation was carried out by an external valuator. The Bank also pays personal income tax on behalf of beneficiaries of both of the equity settled schemes which is accounted as a cash settled part. Tabular information on both of the schemes is given below: 17

21 15 Share Based Payments (Continued) In GEL except for number of shares 30 June June 2012 Cumulative number of shares outstanding as at the beginning of the period 1,157 2,179 Number of shares accrued during the period Number of shares exercised 1,157 - Cumulative number of shares outstanding at the end of the period 276 2,450 Value at grant date per share (GEL) 3,578 2,837 Expense on equity-settled part Expense on cash-settled part Expense recognised as staff cost during the period (GEL thousand) 1, Increase in equity on accrued shares resulting from the equity settled parts of both schemes is accounted for under share based payment reserve which is equal to cumulative number of shares outstanding at the end of the period multiplied by value as at grant date. 16 Earnings per Share Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the Bank by the weighted average number of ordinary shares in issue during the year. except for number of shares 30 June June 2012 Profit for the period attributable to the owners of the Bank 53,604 48,112 Weighted average number of ordinary shares in issue 162, ,710 Basic earnings per ordinary share attributable to the owners of the Bank (expressed in GEL per share) Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the Bank by the weighted average number of ordinary shares adjusted for the effects of all dilutive potential ordinary shares during the period: except for number of shares 30 June June 2012 Profit for the period attributable to the owners of the Bank 53,604 48,112 Weighted average number of ordinary shares in issue adjusted for the effects of all dilutive potential ordinary shares during the period 165, ,981 Diluted earnings per ordinary share attributable to the owners of the Bank (expressed in GEL per share) Segment Information The chief operating decision maker which is The Board of Directors reviews the Group s internal reporting in order to assess performance and allocate resources. The operating segments have been determined based on these reports as follows: Retail all retail customers of the Group. Corporate customers as legal entities which have annual revenues of GEL 8 million or more or have been granted a loan of USD 1,500,000 or more. However a few other legal entity customers which have attractive potential for the Bank might also be assigned status of corporate customer. 18

22 SME legal entity customers that are not included either in the Micro or Corporate segment. The vast majority of such customers have been granted loans between USD 1,500,000 and USD 150,000 or have annual revenue of less than GEL 8 million. Micro - Bank Constanta customers, that do not fall in the above categories and have been granted loans of USD 150,000 or less. The Board of Directors assesses the performance of the operating segments based on a measure of adjusted profit before income tax. This measurement basis excludes the effects of certain expenses from the operating segments as disclosed in the relevant reconciliation below. Other information provided to The Board of Directors is measured in a manner consistent with that in these consolidated financial statements, except for the items presented in the relevant reconciliation below. The reconciling items are managed at the Group level and are not allocated to the segments for management and/or reporting purposes. The reportable segments are the same as the operating segments. The vast majority of the entity s revenues are attributable to Georgia. A geographic analysis of origination of the Group s assets and liabilities is given in note 24. Segment information for the reportable segments of the Group for the six month periods ended 30 June 2013 and 2012 is set out below: Retail Corporate SME Micro Total Six months ended 30 June 2013 External revenues: - Interest income on loans and 101,620 66,224 21,212 24, ,099 advances to customers - Fee and commission income 19,075 7,612 3,503 1,086 31,276 - Gains less losses from trading in foreign currencies 4,221 6,478 4, ,432 Revenue from external customers 124,916 80,314 28,904 25, ,807 Six months ended 30 June 2013 External Expenses: - Interest expense on customer 52,024 19,039 3, ,023 accounts - Fee and commission expense 7, ,006 - Provision for loan impairment 14,521 1, (14) 16,954 Expenses from external customers 74,285 21,133 4, ,983 Adjusted profit before nonsegmental income, administrative and other expense and income tax 50,631 59,181 24,098 24, , June 2013 Total gross loans and advances to customers reported 1,036,572 1,047, , ,046 2,584,820 Total customer accounts reported 1,499, , ,736 6,152 2,563,696 Total guarantees, letters of credit issued ,459 28, ,169 19