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FINCA BANK GEORGIA JOINT STOCK COMPANY

Financial Statements and Management Report

Independent Auditor’s Report

For the Year Ended December 31, 2019

FINCA Bank Georgia Joint Stock Company

Table of Contents

Page

STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF

THE FINANCIAL STATEMENTS AND MANAGEMENT REPORT FOR THE YEAR ENDED DECEMBER 31, 2019...............................1 MANAGEMENT REPORT FOR THE YEAR ENDED DECEMBER 31, 2019:
FINCA Bank Nature of the Business and Mission ..................................................................................................2 Vision for the Bank ..........................................................................................................................................2 Value proposition and long-term place in the market............................................................................................3 Strategic Priorities and Goals ............................................................................................................................3 FINCA Bank Core operating segments ................................................................................................................3 Results of Operation for 2019............................................................................................................................4 Corporate Governance......................................................................................................................................4 General Meeting of Shareholders.......................................................................................................................5 Supervisory Board ...........................................................................................................................................5 FINCA Bank Georgia’s Management Board ..........................................................................................................5 FINCA Bank Georgia Supervisory Board Committees............................................................................................6 Management Committees .................................................................................................................................6 Other functional lines.......................................................................................................................................7 Risk Management Strategy and Individual Risk Management.................................................................................7 Management of Individual Risk..........................................................................................................................9 FINCA’s Commitment to Social Performance .....................................................................................................12 FINCA Bank CSR Projects ...............................................................................................................................12 Policies and Procedure to Protect Employees.....................................................................................................13

INDEPENDENT AUDITORS’ REPORT ................................................................................................................. 16-18 FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019:
Statement of financial position ........................................................................................................................19 Statement of profit or loss and other comprehensive income...............................................................................20 Statement of changes in equity .......................................................................................................................21 Statement of cash flows .................................................................................................................................22

Notes to the financial statements:

1. 2. 3. 4. 5. 6. 7. 8. 9.
Organization...............................................................................................................................................23 Application of new and revised international financial reporting standards (ifrss).................................................25 Significant accounting policies.......................................................................................................................29 Critical accounting judgements and key sources of estimation uncertainty..........................................................43 Cash and cash equivalents ...........................................................................................................................44 Mandatory reserve with national bank of georgia ............................................................................................44 Due from banks ..........................................................................................................................................45 Loans to customers .....................................................................................................................................45 Investments in debt instruments...................................................................................................................49
10. Financial assets/liabilities at fair value through profit or loss.............................................................................49 11. Property and equipment...............................................................................................................................50 12. Other assets...............................................................................................................................................51 13. Intangible assets.........................................................................................................................................51 14. Deposits by banks.......................................................................................................................................52 15. Deposits by customers.................................................................................................................................52 16. Right of use assets and lease liabilities ..........................................................................................................53 17. Borrowed funds ..........................................................................................................................................54 18. Other liabilities ...........................................................................................................................................55 19. Subordinated debt.......................................................................................................................................55 20. Share capital ..............................................................................................................................................56 21. Net interest income.....................................................................................................................................56 22. Allowance for impairment losses ...................................................................................................................56 23. Net (loss)/gain on foreign exchange operations...............................................................................................57 24. Fee and commission income.........................................................................................................................57 25. Other income..............................................................................................................................................58 26. Staff cost ...................................................................................................................................................58 27. Other operating expenses ............................................................................................................................58 28. Income tax.................................................................................................................................................59 29. Commitments and contingencies...................................................................................................................60 30. Transactions with related parties...................................................................................................................61 31. Fair value of financial instruments.................................................................................................................62 32. Capital risk management .............................................................................................................................64 33. Risk management policies............................................................................................................................66 34. Subsequent events......................................................................................................................................89

FINCA Bank Georgia Joint Stock Company

Management Report for the Year Ended 31 December 2019

  • 1.
  • FINCA BANK NATURE OF THE BUSINESS AND MISSION

FINCA Bank Georgia JSC (hereinafter FINCA Bank or the bank) is a subsidiary of FINCA Microfinance Holding Company (FMH) with headquarters in Washington, DC. FMH reaches over 2 million clients through its 20 subsidiaries in Africa, Eurasia, the Middle East, Latin America and South Asia being

among the biggest and most comprehensive of today’s microfinance networks.

FINCA Impact Finance Global Network

FINCA launched its operations in Georgia back in 1998, operating as a microfinance institution till 6 August, 2013.

On 6 August 2013 institution received its Banking license from the National Bank of Georgia and started the process of transformation into a full-fledged commercial bank.

FINCA Bank Georgia played an important role in establishing and developing credit culture in the country - being a pioneer of microfinance for 22 years FINCA Bank Georgia has been providing responsible financial services to entrepreneurs in all regions of Georgia. With 22 years of experience in the Georgian financial services sector and having impacted lives of tens of thousands Georgian families, FINCA Bank Georgia strives for excellence and uniqueness to generate greater value to its customer base.

  • 2.
  • VISION FOR THE BANK

FINCA Bank Georgia is a successful medium-size bank, meeting both - profit and social performance expectations of its stakeholders, occupying a prominent position in the microfinance market. FINCA Bank Georgia is the bank of choice for the niche segment (micro/small businesses and agricultural clients, micro-retail segment) and the employer of choice in the employment market, a true family partner that satisfies the financial services needs of the core segment through technologically innovative, scalable and value adding solutions.

The Bank retains a critical mass of loyal customers through services accessible 24/7, through innovative channels (smart phone, internet, call center, terminals, SMS), diverse range of sticky products and creative bundle offerings. The bank complements its technology-based outreach through

2

FINCA Bank Georgia Joint Stock Company

Management Report for the Year Ended 31 December 2019

digital literacy programs. FINCA's strong brand loyalty, digital innovation resulting in superior CX, convenience and accessibility will differentiate the bank from key competitors.

The vision for the bank will be achieved with exclusive focus on the following essential building blocks: a. Ambitious growth in core segments of the bank, primarily in the rural areas. b. Superior customer experience for both – internal and external customers. c. Prevailing growth in retail deposit base. d. Innovative and digital solutions, to serve the customer base more conveniently. e. Highly efficient institutional structure.

When implementing its strategic goals the bank will be governed by its vision and goals and will

exercise social responsibility by achieving a positive impact on the country’s society as a whole, the

specific communities it works in, as well as each individual customer.

  • 3.
  • VALUE PROPOSITION AND LONG-TERM PLACE IN THE MARKET

FINCA Bank Georgia’s long-term viability as a niche bank will be a function of its value proposition in the local market. The commitment of shareholders to future of the institution, combined with proper governance, leadership, corporate culture and skillful execution will consistently evolve and deliver a compelling value proposition that will ensure a prominent long-term place in the Georgia financial services landscape.

FINCA Bank Georgia’s value proposition will deliver:



Brand association and loyalty among core customer segments. Appealing and sticky product/service bundles, available 24/7, fast and simple. Accessible technologies/platforms enabling simplicity of service delivery as well as acquisition of next generation customers.



Cost efficient systems, enabling competitive pricing on all products/services. Flexibility, agility, dynamism, market responsiveness (relative to business lines, product design, pricing, delivery channels, customer experience, and other aspects due to size and focus of the Bank.)



Community-roundedness – proximity of staff, channels to customer neighborhoods. Strength of leadership, inclusive culture, results-focus, uncompromising performance standards and skillful execution.

4. 5.
STRATEGIC PRIORITIES AND GOALS

According to FINCA Bank Georgia's strategy for 2020, all supporting initiatives will be directed in two main directions: 1. increasing competitive positioning of the bank in the market (through respective products, channels, staffing and reorganizations) and 2. Ensuring high efficiency of internal and external processes, as a standing effort. Most of the initiatives for the year 2020 and forward are heavily digital, therefore having adequate capacity to support the digitization plans are essential.

FINCA BANK CORE OPERATING SEGMENTS

FINCA Bank Georgia is a medium-size bank, meeting both - profit and social performance expectations of its stakeholders, occupying a prominent position in the microfinance market. FINCA Bank Georgia is the bank of choice for its core segment (micro/small businesses and agricultural clients, micro-retail segment) a true family partner that satisfies the financial services needs through technologically innovative, scalable and value adding solutions.

The Bank serves customers through services accessible 24/7, through innovative channels, diverse range of sticky products and creative bundle offerings. The bank complements its technology-based outreach through digital literacy programs to micro retail segment, agricultural segments/farmers, micro and small entrepreneurs.

The Bank targets to increase outreach in rural areas (currently 61% of current customer base is in rural areas) to increase accessibility and diversified offerings to remote areas of the country. For this purpose, FINCA Bank Georgia implements number of initiatives related to customer service improvement such as: modification of loan processing process and procedures aiming at offering quick

3

FINCA Bank Georgia Joint Stock Company

Management Report for the Year Ended 31 December 2019

services to customers, launch additional sales channels to increase accessibility to clients, developed and launched new banking services and products to ensure that clients remotely get the services and products they need.

  • 6.
  • RESULTS OF OPERATION FOR 2019

2019 for the bank was the year of new initiatives with challenges and opportunities, which was reflected in operational as well as financial results. The most impacting challenges for the bank were changes introduced in the regulatory and macroeconomic environment since Q2, 2018. The management responded to the challenges resulted in improvement of loan portfolio quality, maintaining retail deposit portfolio and reaching annual profitability targets.

In 2019 the bank launched a new compensation system for loans officers, completed centralization of underwriting practices and established new unit of Recovery Call-Center. The new credit products such as Credit Limit for micro entrepreneurs and Car Loans supported maintaining loan portfolio yields on high level. On the other hand to mitigate lending limitations on the market the bank continued active marketing campaigns towards promotion of the retail banking service operations and ensured increased incomes from commission fees.

Basic Financial indicators in GEL

Financial Indicators

Total Assets

31-Dec-19

279,321,543 220,905,386 169,133,192
48,804,238 37,442,784
(29,832,677)
6,792,588

31-Dec-18

297,009,851 237,084,478 144,596,458
42,011,650 33,541,572
(33,246,473)
718,437
Gross Loan Portfolio Client Deposit Portfolio Total Equity Operating Income Operating Expenses Net profit for the year

Efficiency Indicators

ROE ROA
13.91%
2.43%
1.71% 0.24%

  • 7.
  • CORPORATE GOVERNANCE

General Information

FINCA Bank Georgia’s corporate governing bodies are the General Meeting of Shareholders, the

Supervisory Board and the Management Board, each having its own responsibilities and authorities in accordance with Georgian law and the Bank’s Charter.

Shareholders Structure

FINCA Bank Georgia JSC is 100% owned by FINCA Microfinance Coöperatief U.A. a cooperative

registered in the Netherlands with the trade register of the Chamber of Commerce of Amsterdam under

number 53004698 and having its official seat in Amsterdam (the “Cooperative”). The members of the

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