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. Organization ............................................................................................................................................... 23 2. Application of new and revised international financial reporting standards (ifrss) ................................................. 25 3. Significant accounting policies....................................................................................................................... 29 4. Critical accounting judgements and key sources of estimation uncertainty .......................................................... 43 5. Cash and cash equivalents ........................................................................................................................... 44 6. Mandatory reserve with national bank of georgia ............................................................................................ 44 7. Due from banks .......................................................................................................................................... 45 8. Loans to customers ..................................................................................................................................... 45 9. 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)