asset and wealth management speaker: vasil revishvili...

September 2012

Asset and Wealth Management

Speaker: Vasil Revishvili, Deputy CEO

September 2012www.bogh.co.uk www.bankofgeorgia.ge/ir

Client funds growth

GEL mln

8 Private Bankers, 7 senior sales professionals, 10 support staff

Tel-Aviv office established in February 2009; UK office in October 2010; Hungary office will officially open in

September 2012 (activities started in 2010)

Dedicated officers coordinate activities on CIS market, and MENA ex Israel market

147.1 152.5 166.3 185.9 184.2 190.9 190.5 235.3

303.2 316.7 338.8 14.6 25.2

41.3 29.1 42.1 48.2 57.5

63.1

74.3 74.8

72.8

--

- -23.0

35.6 37.0

38.5

36.4 40.1 40.3

--

- -

5.3 7.0 7.1

8.2

10.6 13.6

14.8

161.7 177.7

207.6 215.0

256.7 284.6 297.1

353.4

444.2

481.1

517.0

0

100

200

300

400

500

600

Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12

CIS Activities

UK Office

MENA Activities

EE Office*

Israel Office

Georgia Office

CAGR 59.2%

* Budapest office to be officially opened in September 2012


Client funds geographical distribution, 30 June 2012

Total number of WM Clients: 925

Average AUM per client: c. GEL 560K

Funds Distribution per product: 79.2% Term deposits and investment deposits, 20.8% call and card accounts, demand

deposits

Funds Distribution by currencies: 53.8% USD, 31.0% EUR, 9.7% GBP, 2.3% GEL, 3.2% Other Currencies

Georgia

40.5%

Israel

20.4%

Hungary

7.1%

USA

7.1%

Germany

5.9%

Russia

3.6%

UK

2.4%

Lebanon

2.2%

Other

11.0%


Worldwide presence

Existing AWM office

To be considered


Cost of client funds

Historically, cost of client funds has been high due to additional costs related to “Franchise Building” (sales network

building, new client attraction); Our target is to reduce AWM cost of client funds to the level of consolidated cost of

funds

Cost of Client Deposits decreased by 1.7% y-o-y, and will continue to decrease as the effect of steep cut in contracted

rates on deposits kicks in

11.1% 11.0%11.3%

9.9%

10.9%

9.5%

10.6%10.4%

9.5%

9.0% 8.9%

8.0%

8.8% 8.8%

7.3%

8.2%

7.7%7.9% 7.8%

8.4% 8.3%

7.5%

7%

8%

9%

10%

11%

12%

Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12

Cost of client deposits, (AWM) Cost of funds (Consolidated)

1H 2012 Cost to Income

Ratio of 26.7%


Reduced interest rates on new deposits

Contracted interest rates on new time deposits decreased y-o-y by over 2.0% (and 2.5% from the peak in December

2011), to the level below current cost of funds of the bank, while maintaining broadly the same currency structure and

weighted average maturity

55.859.4

84.7

130.6

90.3

101.4

70.3

9.9%

9.5%

9.2%

9.5%

9.1%

8.6%

7.1%

0

20

40

60

80

100

120

140

7%

8%

9%

10%

11%

Q1'2011 Q2'2011 Q3'2011 Q4'2011 Q1'2012 Q2'2012 2mos of Q3'12

New and Renewed Deposits Contracted Interest Rate

GEL mln.


Asset management at Bank of Georgia

Regional Fixed Income

Fund

Rationale

Benefits

Capacity

Deposit yields going down,

prompting the need to offer new

products to our clients

Pending pension reform

Region undiscovered and under-

researched resulting in attractive

risk/return profile

Investors underweight the region due

to limited investment opportunities

Capability to build asset management

business upon existing distribution

channels and WM client base

Proven expertise (evidenced by the

track record)

Existing customer and sales network

Regional research capacity

Increased fee and commission income

Investment banking capacity building

Expanded research activities (both buy

and sell side)


According to preliminary estimates the system liquidity will allow allocation of US$1.0

bln equivalent by the end of 2016

“Regional Fixed Income Fund” to invest local and foreign currency fixed income

instruments in Georgia, Azerbaijan and Armenia

We are envisaging running both captive asset management company (Bank of

Georgia branded fund) as well as allying with reputable Asset Management

Company to run co-branded Fund(s)

Broadly, the strategy will replicate allocations of Bank of Georgia Treasury Department

(with adjusted weightings of countries, currencies and instruments)

Bank of Georgia fund will be managed by an “EU passported” Investment Management

company, adhering to best practices of the industry (execution, risk management and

compliance)

Co-branded fund to attract asset managers, “underweight” on the region due to a limited

expertise

Growing interest in frontier markets is expected to result in considerable flows into the

region

Building and growing asset management business at Bank of Georgia

Launch of a

flagship product

Bank of Georgia

branded fund

Action plan Rationale

Co-branded

fund


Track record of Treasury Department

3.3%

9.0%

-1.3% 0.2%

5.5% 4.1%

4.1%

5.4%

0.5% 0.5%

3.7%1.6%

4.2%

6.4%

5.1% 3.5%

3.5%

3.5%

11.7%

20.8%

4.3% 4.3%

12.7%

9.2%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2007 2008 2009 2010 2011 H1'2012

Georgia - Government Bonds and Notes Georgia - Interbank placements Azerbaijan - Interbank placements

Real allocations of Bank of Georgia Treasury Department are used

For the purposes returns calculation, simple average of all instruments returns is taken

All returns are in USD terms

Average annual return of 10.6% (at equal weighting of instruments) over the period of 2007-2011


The objective of the fund is to achieve attractive returns through short duration high yielding bonds,

deposits and other short term fixed income instruments

The portfolio to consist of 10 to 20 different instruments from Regional Issuers

Target Return (in USD Terms): 8-10%

Target Volatility: 5% (ex ante)

Currency: Investments will be done in both Local Currency and USD instruments

Country coverage

Armenia, Azerbaijan, Georgia

Instruments (short to medium term fixed income)

Bank Instruments: Call and Term Deposits; Certificates of Deposit / Promissory Notes

Sovereign Issuers: T-Bills and Treasury Bonds, structures on National Bank notes & CDs

Regional fixed income fund


Tentative asset allocation

According to preliminary estimations of depth on focus markets, we estimate we target to allocate up to USD

1.0B in regional fixed income securities within the next 4 years

Total size of the target market (as at July 2012) is US$16B equivalent (of which bank deposits: US$15B)

Tentative breakdown and sales timetable is as follows (All figures in USD mln equivalent):

US$ mln or equivalent Yr 1 Yr 2 Yr 3 Yr 4

LC Deposits 60 125 175 300

FX Deposits 60 125 175 300

T-Bills and Central Bank Notes 30 100 150 250

Private Placements - 25 100 150

Total: 150 375 600 1,000

Estimates do not include the possible effect of Pension Reform


Simplified modelling of portfolio returns*

* For calculation purposes we used average LC Deposit rates over the last 11 years for relevant countries, returns converted into USD (Source: WB Development Indicators)

** ELMI+ tracks total returns for local-currency-denominated money market instruments in 24 emerging markets countries (Source: JP Morgan)

Annualised

Return

Volatility

12mo LIBOR 3.05% -

JP Morgan ELMI+ Index Returns 5.61% 8.63%

Passive Allocation to LC 1mo deposits 9.54% 3.76%

Passive Allocation to USD 1mo deposits 5.48% -

• For the sake of simplification (and avoidance of

“knowledge of hindsight” effect) equally weighted

basket of 1 month local currency deposits is analysed

• Even passive investment in LC deposits gives a very

attractive risk/return profile

• Hypothetical Portfolio strongly outperforms JP Morgan

ELMI+** (Emerging Markets Local Currency Money

Market Instruments) Index with lower levels of volatility

100

120

140

160

180

200

220

Passive Allocation to 1 month USD Deposits Passive Allocation to 1 Month LC Deposits

1 Month USD LIBOR Returns JPM ELMI+ Returns


Summary of strategic goals

Decrease deposit costs

Continue to expand distribution network

Focus on fee income business on the back of decreasing deposit yields

Cross-sell asset management products to WM clients and CB clients

Build asset management business targeting US$1 bln AUM in four years


Q&A


Forward looking statements

This presentation contains forward-looking statements that are based on current beliefs or expectations, as well as

assumptions about future events. These forward-looking statements can be identified by the fact that they do not

relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target,

expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words of similar meaning.

Undue reliance should not be placed on any such statements because, by their very nature, they are subject to

known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and

JSC Bank of Georgia and/or the Bank of Georgia Holdings’ plans and objectives, to differ materially from those

expressed or implied in the forward-looking statements.

There are various factors which could cause actual results to differ materially from those expressed or implied in

forward-looking statements. Among the factors that could cause actual results to differ materially from those

described in the forward-looking statements are changes in the global, political, economic, legal, business and

social environment. The forward-looking statements in this presentation speak only as of the date of this

presentation. JSC Bank of Georgia and Bank of Georgia Holdings undertake no obligation to revise or update any

forward-looking statement contained within this presentation, regardless of whether those statements are affected as

a result of new information, future events or otherwise.

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