#1LUSHOƆCML ¿563N BANK OF GEORGIA GROWTH AT THE RIGHT PRICE LSE: BGEO/GSE:GEB JSC Bank of Georgia investor presentation March 2010#2Introduction to Bank of Georgia The leading universal bank in Georgia No.1 by assets (33.0%), (¹) loans (31.8%), (¹) client deposits (28.3%) (¹) and equity (38.6%) (¹) Leading retail banking, with top brand, best distribution network and broadest range of services of any bank in Georgia Retail Accounts Cards Outstanding Branches FATMs December September December 2009 2009 2008 999,000+ 895,000+ 866,000+ 537,000+ 569,000+ 639,000+ 141 140 151 382 394 416 Leading corporate bank with approximately 82,000 legal entities and over 153,000 current accounts Leading card-processing, leasing, insurance and wealth management services provider Banking operations in Ukraine and Belarus, with BG Bank (Ukraine) and BNB (Belarus) accounting for less than 10% of BoG's consolidated total assets The only Georgian entity with credit ratings from all three global rating agencies S&P: 'B/B' at the sovereign ceiling Fitch Ratings: 'B/B' Moody's: 'B3/NP (FC)' & 'Ba3/NP (LC)' Listed on the London Stock Exchange (GDRs) and Georgian Stock Exchange Market Cap (LSE) US$ 313 mln as of 25 February 2010 Approximately 95% free float Issue of the first ever Eurobonds in Georgia Bloomberg: BKGEO; 5 year, 9%, US$200 mln B/Ba2/B (composite B+) (1) All data according to the NBG as of 31 December 2009 Labo BANK OF GEORGIA www.bog.ge/ir March 2010 Page 2#3LUSHOƆCML ¿563N BANK OF GEORGIA The Georgian Economy March 2010#4Georgia's Economy – Basic Facts Area: 69,700 sq km - Population: 4.4 million (as of January 1, 2009) Life expectancy: 76.5 years Official language: Georgian Literacy: 100% Capital: Tbilisi Currency (code): Lari (GEL) GDP (2009F): US$12.3 billion GDP real growth rate 2009F: -4% GDP per capita 2009F (market): US$ 2,802 GDP per capita 2009F (PPP): US$ 4,747 Current account deficit 2009F: US$ 1.6bn, 12.8% of GDP Budget Deficit 2009F: 9.5% of GDP Inflation rate (October, 12-month rate) 2009: 3.2% External public debt / GDP 2009F: 27% Lobko BANK OF GEORGIA www.bog.ge/ir March 2010 Page 4#5Key drivers of economic growth . Export-led growth with sufficient diversity Agricultural product exports of US$282m in 2009 • Ferroalloy exports of US$426m in 2008 Aircraft, rail car, vessels and vehicles exports of US$122m in 2008 and US$107m in 2009 Fertilizers exports of US$105m in 2008 and US$60m 2009 Machinery exports of US$29m in 2008 and US$30m in 2009 Oil and gas pipelines Russia-Georgia-Armenia pipeline - 5.8 bcm/year Shah-Deniz (BTE) gas pipeline - 6.6 bcm/year Iran-Azerbaijan-Georgia (IAG) gas pipeline - 3.5 bcm/year Baku-Supsa oil pipeline - 5.75 mt/year Baku-Tbilisi-Ceyhan (BTC) oil pipeline - 50 mt/year Huge untapped hydro-power resources - only 18% of Georgia's hydro potential is being utilized Increasing domestic consumption Consumer spending in 2008 - US$3.8bn estimated average household size of 3.7, far higher than in most CEE/CIS peers new construction has not caught up with the cumulative deterioration of the Soviet-built housing stock less than 18,000 households (out of the estimated total of 1.3 million) have mortgages Consumer debt per capita (including mortgages) stood at US$92 as of 31 December 2009 Organized retail trade (supermarkets, hypermarkets, consumer electronics & white goods, etc) account for a low share of total ■ FDI expected at US$ 0.8 bn in 2010 Economic growth is supported by ■ Free industrial zones created around Poti (port), Kutaisi (second largest city) etc. (Tax rates in zones largely 0%) ■ Net transfers from abroad Increasing consumer spending ■ Sustained government spending Source: Ministry of Economic Development, Ministry of Finance, State Statistics Department www.bog.ge/ir LOLEJN BANK OF GEORGIA March 2010#6Libertarian economic policies kick-start modernization Tax and tax rates slashed Now only 6 taxes, down from 21 Flat personal income tax of 20% (to come down to 15% by 2013) Corporate income tax 15% By 2012, no taxes on dividends, interest income, or world-wide income "Liberty Act": Referendum is required for an increase in tax rates Budget expenditure capped at 30% of GDP (FY 2012) Budget deficit capped at 3% of GDP (FY2012) Public debt capped at 60% of GDP (FY2012) Budget earmarks are limited Red tape and import duties cut Customs code harmonized with EU. Customs procedures reduced from 15 to 7 Capital controls abolished Corruption significantly reduced In the World Bank's Ease of Doing Business survey in 2009 Georgia was 11th (out of 183), from 112th in 2005 In the 2009 Transparency International Corruption Index Georgia was 66th (4.1 score), just below Turkey (61st, 4.4), the same as Croatia and above Brazil (75th, 3.7), China (79th, 3.6), India (84th, 3.4) and Russia & Ukraine (146th=2.2) According to the International Republican Institute survey, 98% of Georgians didn't have to pay a bribe in the past 12 months In Forbes Tax Misery & Reform Index, Georgia was 4th best behind Hong Kong, UAE & Qatar Ambition: Create a fast-growing free enterprise economy that attracts investment and become regional logistical and banking hub Loka BANK OF GEORGIA www.bog.ge/ir March 2010 Page 6#7GDP breakdown: Trade, Logistics, Services GDP Breakdown, Q3 2009 LOLE BANK OF GEORGIA Health, social and community work, 8.3% Agriculture etc., 7.8% Education, 4.3% Mining and quarrying, 0.7% Manufacturing, 8.2% Public administration, 13.5% Real estate and imputed rent etc., 3.7% Financial intermediation, 2.3% Source: National Bank of Georgia www.bog.ge/ir Transport & communication, 10.6% Utilities & household processing, 5.3% Construction, 6.0% Trade (Retail & Wholesale), 12.7% Hotels and restaurants, 2.1% Page 7 March 2010 Page 7#8GDP per capita is low, leaving much room to climb GDP per capita across countries 45,000 US$ 40,000 35,000 30,000 25,000 20,000 16,680 15,000 13,980 12,530 10,580 10,000 9,500 7,770 8,230 5,000 2,520 2,921 3,850 5,190 39,000 Ukraine Georgia China Belarus Romania Russia Turkey Poland Hungary Estonia Czech Republic Western Europe US$ 4,500 average (EU 15+) 4,000 3,500 2,921 2,984 3,000 2,737 2,555 2,556 2,641 2,500 2,034 2,000 1,500 1,000 500 0 China 2006 Source: IMF, National Bank of Georgia Labkon BANK OF GEORGIA www.bog.ge/ir Bulgaria 2003 Poland 1994 Turkey 2002 Romania 2003 Georgia 2008 Russia 2003 March 2010 Page 8#9Strong economic growth before crisis ... starting again? Gross domestic product (GDP) US$ billion 14 11.1% 12 10 8 6 4 2 0 -2 2003 5.9% 9.6% 9.4% 12.3% ||| 1% 15% 13% 11% 9% 7% 5% 2.0% 3% 1% -1% 4.0% -3% -5% 2004 2005 2006 2007 2008 2009F 2010F Nominal GDP (LHS) Real GDP Growth (RHS) GDP per capita US$ 6,000 4,900 4,863 5,000 4,664 4,747 4,038 4,000 3,644 3,242 2,966 2,920 2,920 3,000 2,802 2,315 2,000 1,764 1,484 1,188 919 1,000 0 2003 2007 Source: State Statistics Department of Georgia Lobko BANK OF GEORGIA www.bog.ge/ir 2004 2005 2006 2008 2009F 2010F ■Nominal GDP per capita ■GDP per capita PPP March 2010 Page 9#10US$ mln US$ mln Current Account Deficit Exports and Imports* 8,000 7,000 Remittances Exports of goods & services CAGR ('04-09F): 11% Imports of goods & services CAGR ('04-'09F): 15% 7,497.0 5,916.9 955.2 6,000 5,000 4,412.9 755.4 3,691.3 4,000 3,318.1 3,182.4 3,000 2,492.8 2,551.6 420.5 5,122.0 828.9 2,791.5 1,865.3 2,187.5 1,646.9 315.4 2,000 1,288.5 212.7 1,000 165.8 0 2003 2004 2005 2006 2007 2008 2009F *Export and Import of goods and services Source: Central Bank of Georgia Current Account Deficit Donor inflows (DI) Total private capital inflows (TPCI) CAD CAD as % of GDP CAD+TPCI+DI as % of GDP 5,000 10.3% 10.1% 15.0% 7.7% 4,000 5.6% 5.4% 10.0% 3.2% 3,000 1.7% 3,230.3 5.0% 2,000 1,865.1 0.0% 734.8 1,000 479.6 1,506.8 2,283.8 0 351.0 98.3 (389:3) 160.3 -6.9% 176.7 942.0 1,092.6 -5.0% (709.5) -9.6% 261.7 (1,174.6) 276.2 (2,008.7) (2,850.5) (1,649.5) -10.0% -1,000 (383.3) -11.1% -12.8% -15.1% -15.0% -2,000 -20.0% I -3,000 -19.7% -22.3% -4,000 -25.0% 2003 2004 2005 2006 2007 2008 2009F Lobko BANK OF GEORGIA www.bog.ge/ir Donor Inflows include both public and private sectors. Donor inflows in 2009 adjusted according to the banking sector foreign debt outflows Source: Central Bank of Georgia, Minister of Finance of Georgia March 2010 Page 10#11Trade structure WTO member since Import structure by country, 2009 2000 No quantitative restrictions on trade Simplified customs regime since August 2006, new customs code becomes Kazakhstan, 0.5% Armenia, 0.9%- Turkmenistan, 2.8% Others, 12.4% USA, 5.2% United Arab EU Countries, 29.9% effective in January Emirates, 2.5% 2007 Export structure by country, 2009 China, 0.5% United Arab Emirates, 1.5% Kazakhstan, 1.8%- Russia, 1.9%- USA, 3.3%- Armenia, 7.8% Other, 10.0% Turkey, 19.9% One of the two China, 4.0% beneficiaries of the EU GSP+ Scheme in the CIS since 2006, granting local companies the right to export 7,200 categories of goods duty-free As of November 2007 Georgia has entered into a free trade agreement with Turkey US-Georgia charter on strategic partnership envisions an update of Bilateral Investment Treaty, expansion of Georgian access to the General System of Preferences and the possibility of entry into Free Trade Agreement Russia, 6.6% Ukraine, 9.6% Azerbaijan, 12.1% Turkey, 18.0% Import structure by product, 2009 Sugar, 1.4%- Others, 36.5% Paper, 2.0%- Mechanical Equipment & Electrical Machinery, 20.1% Mechanical Equipment & Electrical Machinery, 17.5% Vehicles, 7.8% -Ferrous Metals, 1.9% Apparel & footwear, 3.2% Ferrous Metal Products, 2.2% Plastic, 3.0% Cereals, 4.0% Pharmaceuticals, 4.4% Ukraine, 7.4% Canada, 10.4% Azerbaijan, 16.3% Export structure by product, 2009 Sugar, 0.1%- Vessels & Aircraft, 2.0%- Pharmaceuticals, 1.3% Oil & Gas, 3.9%- Equipment & Rail Cars, 4.0% Others, 28.3% Fertilizers, 5.3%- Cement, 2.1% EU Countries, 20.9% Ferrous Metals, 17.4% Vehicles, 7.4% Beverages, Spirits & Vinegar, 10.9% Ores, 5.9% Gems & Precious Stones, 10.4% Source: State Statistics Department of Georgia www.bog.ge/ir LOORIN BANK OF GEORGIA Page 11 March 2010 Page 11#12Lobko FDI picking up again... Quarterly FDI inflows US$ mln 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 Q1 Q2 '05 '05 89.4 105.S × 2 / 75.6 ཛྱ£ 178.9 46.0 306.9 280.7 456.7 421.4 401.5 489.1 702.9 537.7 605.4 34.7 286.2 129.8 151.8 223.6 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 78 88 28 88 30 98 98 98 00 00 88 80 88 '05 '05 '06 '06 '06 '06 '07 '07 '07 '07 '08 '08 '08 '08 '09 '09 '09 FDI Inflows USS mln 2,500.0 2,000.0 1,500.0 15.3% 9.7% 1,000.0 7.0% 1,190.4 19.8% 12.2% 25.0% 20.0% 15.0% 2,014.8 10.0% 6.7% 1,564.0 500.0 5.0% 830.0 499.1 449.8 0.0 0.0% 88 Q3 2004 2005 2006 2007 2008 2009F Net FDI -Net FDI as % of GDP Cumulative net FDI breakdown by origin 2004- Q3 2009 Country US$ mln % FDI breakdown by sectors (2007- Q3 2009) Banking system, 5.1% Not stated, 1.0% Agriculture, 0.6% UK 743,438 11.9% UAE 583,076 9.4% USA 484,902 7.8% Turkey 515,407 8.3% Other services, 18.9% Industry, 16.9% Netherlands 500,328 8.0% British Virgin Islands 416,323 6.7% Kazakhstan 307,651 4.9% Energy sector, 17.4% Czech Republic 290,804 4.7% Real estate, 12.2% Cyprus 296,459 4.8% Subtotal 4,138,387 66.5% Other countries 2,084,856 33.5% Transports and communications 28 .6% Construction, 6.2% Total 6,223,243 100.0% BANK OF GEORGIA www.bog.ge/ir March 2010 Page 12#13...and more donor money to continue to flow EU member states, 3.8% US$ 173 mln Norway, 0.9% US$40 mln Switzerland, 0.4% US$19 mln Other, 0.6% US$29 mln Japan, 4.4%. US$200 mln European Community, 14.1% US$638 mln United States, 22.0% US$1,000 mln Financial institutions & organizations, 53.7% US$2,438 mln Asian Development. Bank, 6.6% US$ 300 mln European Investment Bank, 7.3% US$329.6 mln IFC, 7.7% US$350 mln EBRD, 20.4% US$926.84 mln World Bank, 11.7% US$ 530 mln COEB, 0.03% US$ 1.32 mln 500 kv. power transmission line (EBRD, EIB, KfW) East-West highway improvement project (WB, Japan) Adjara bypass road (ADB) Vaziani-Gombori-Telavi road (WB) South Georgia road (MCG) H Secondary and local roads (WB) * Rehabilitation of infrastructure facilities in Batumi (KfW) Regional and municipal infrastructure development projects (ADB, EBRD) Total pledged funds: US$4.5 bn As of YE 2009 over US$1 bn disbursed Source: Ministry of Finance of Georgia Labkon BANK OF GEORGIA www.bog.ge/ir March 2010 Page 13#14Net remittances Net remittances, 2004-2009 US$ mln 1000 900 800 5.4% 700 4.9% 600 4.2% 500 400 300- 420.5 200- 315.4 100 212.7 0 2004A 2005A 2006A Net remittances (LHS) Net remittances by countries, 2009 7.4% 8% Germany, 1.1%- 7.2% 6.7% 7% Kazakhstan, 0.9%- Israel, 1.1% 6% UK, 0.7%- 5% Turkey, 2.7%- 4% 917.9 828.9 755.4 3% Ukraine, 6.9% 2% 1% Spain, 2.7% 0% 2007A 2008A 2009F Greece, 7.7% Net remittances as % of GDP (RHS) Cumulative net remittances, 2004-2009 Other countries, 13.4% Russia, 54.5% USA, 8.5% Cumulative net remittances by countries, 2004-2009 Germany, 0.7%- Kazakhstan, 1.0%- Country US$ '000s % of total Russia 1,015,697 60.3% Israel, 0.9%- USA 126,199 7.5% UK, 0.7%- Other countries, 11.7 Greece 104,117 6.2% Turkey, 2.2%- Spain 39,469 2.3% Ukraine 109,517 6.5% Ukraine, 6.5% Turkey 36,513 2.2% UK 11,872 0.7% Spain, 2.3% Israel 15,761 0.9% Kazakhstan 16,306 1.0% Greece, 6.2% Germany 12,601 0.7% Other countries 196,299 11.7% Total USA, 7.5% 1,684,352 100.0% Source: National Bank of Georgia Labkon BANK OF GEORGIA www.bog.ge/ir Russia, 60.3% March 2010 Page 14#15...so FX reserves rose, while inflows funded investment FX reserves, $ mn US$ mln 2,000 US$2.03 bn Oct '09 Record high for Georgia 1,500 1,000 500 US$0.19 bn 0 2003 US$0.49 bn US$0.38 bn 2004 2005 US$0.93 bn 2006 US$1.48 bn US$1.36 bn 2007 FX rates: Nominal Lari/US$ and Real effective 160 140 120 100 80 Jan-04 2008 2009 1.2 1.4 1.6 1.8 2.0 2.2 2.4 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Real effective rate, Jan04-100 (LHS) Lari / US$ (RHS) Source: National Bank of Georgia, Ministry of Finance of Georgia Loka BANK OF GEORGIA www.bog.ge/ir March 2010 Page 15#16Fiscal indicators: The worst seems past Overall fiscal balance of the state budget, 2004-2009F GEL mln 0.0 2006 2007 2008 2009F 0.0% 2010F 2011F -468.9 -400.0 -815.7 -2.0% -935.7 -1,258.6 -1,390.1 -4.5% -800.0 -3.4% -4.8% -4.0% -1,720.5 -1,200.0 -1,600.0 -2,000.0 -6.6% -9.4% -7.3% Overall fiscal balance Overall fiscal balance as % of GDP Overall fiscal balance of the state budget, 2004-2009F GEL mln 700.0 600.0 500.0 400.0 300.0 200.0 100.0 305.5 303.5 266.4 263.2 319.6 266.0 379.5 499.5 573.2 308.4 0.0 January February March April May June ■2007 2008 2009 Lobko BANK OF GEORGIA www.bog.ge/ir -6.0% -8.0% -10.0% July August September October November December March 2010 Page 16#17Public debt Georgia's economy is quite unleveraged compared to other emerging market economies Georgia's public debt is 28.5% of GDP in 2008 down from 56% in 2003 Paris club rescheduling in 2001 and 2004 The external debt is all multilateral or bilateral and significant share is highly concessional This explains why the government debt service burden is low Eurobonds debut issuance of US$500 mln in April 2008, maturity date 2013 Breakdown of public debt US$ billion 5.0 60.0% 4.5 4.0 50.5% 40.0% 3.5 50.0% 1.00 40.0% 0.97 3.0 32.0% 2.5 25.5% 30.0% 0.83 35.6% 0.85 0.85 2.0 0.89 28.5% 3.38 20.0% 1.5 2.68 1.0 1.86 1.73 1.7 1.79 10.0% 0.5 0.0 0.0% 2004A 2005A 2006A 2007 A 2008A 2009F External public debt Internal public debt Total public debt as % of GDP External public debt service US$ mln Source: "The Georgian Economy Overview", Government of Georgia Presentation, December 2009. General government debt as % of GDP, Q1'09 Kazakhstan 200 8.8% 180 10 140 160 10.0% Russia 9.0% Estonia 7.3% 7.1% 8.0% Bulgaria Czech Republic 7.0% Slovak Republic 5.5% 120 6.0% Belarus 100 880 5.0% Lithuania 173.3 Ukraine 4.0% 152.2 3.4% 2.9% Turkey 60 110.6 103.8 40 20 0 2004A 3.0% 102.1 Armenia 118.7 2.0% Latvia 1.0% Poland Georgia 0.0% 2005 A 2006A 2007A 2008A 2009F Hungary 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% External debt service External debt service as % of budget revenue Source: "The Georgian Economy Overview", Government of Georgia Presentation, June 2009. Labkon BANK OF GEORGIA www.bog.ge/ir ■2008 Q1 '09 general government debt/2009F GDP Source: World Bank, International Monetary Fund March 2010 Page 17#18LUSHOƆCML ¿563N BANK OF GEORGIA Strategy & Governance March 2010#19Strategic objectives: grow at the right price More efficient Deposit funded lending machine Divesting of non-core assets International operations Enhance operational efficiency through technological improvements: Temenos T24, core banking software, acquired in October '09 is in the process of implementation; Deployment of Softscape, talent management solution, and CRIF, credit scoring solution, is under way Wealth Management services launched in Israel and Ukraine Deposits from international clients reach GEL 100 mln in '09 Premier Banking launched for the affluent client base supported by the exclusivity of Amex Card issuing and acquiring business in Georgia Despite high rate of bank debt growth in '05-'09, ample room for growth with total loans/GDP under 30%; retail loans/GDP under 10% First stage of restructuring of equity investment business completed Controlling stake in investment management company sold in Oct '09 Scale down operations of BG Bank; leverage on corporate banking and brokerage to build trade finance business in Ukraine to capture growing (c.U$1 bn) trade between Georgia and Ukraine Focus on high margin, unattended SME sector in Belarus; explore the possibility of third party investor, such as IFIs, in BNB Challenges in 2010: Cost control and Loan book growth Lobko BANK OF GEORGIA www.bog.ge/ir Page 19 March 2010 Page 19#20. A move to classical two-tier board structure Supervisory Board 7 non-executive SB members ; non-executive Chairman SB members Nicholas Enukidze, Chairman experience: MD at Concorde, Ukrainian investment bank; ABN AMRO Corporate finance in Moscow and London, Global One Communications, VA. USA • Ian Hague, Firebird Management LLC Allan Hirst, Independent Director, experience: 25 years at Citibank, including CEO of Citibank, Russia; various senior capacities at Citibank ⚫ Kaha Kiknavelidze, Independent Director currently managing partner of Rioni Capital, London based investment fund; previously Executive Director of Oil and Gas research team for UBS Jyrki Talvitie, East Capital David Morrison, Independent Director experience: senior partner at Sullivan & Cromwell LLP prior to retirement Al Breach, Advisor to SB, to replace Irakli Gilauri as SB member subject to the next AGM experience: Head of Research, Strategist & Economist at UBS: Russia and CIS economist at Goldman Sachs . Management Board Chief Executive Officer and 8 Deputies MB members . . • · • Irakli Gilauri, CEO; formerly EBRD banker in Tbilisi and London, MS from CASS Business School, London Giorgi Chiladze, Finance; formerly CEO of BTA Bank (Georgia); Program Trading Desk at Bear Sterns, NYC Archil Gachechiladze, Corporate Banking; formerly Deputy CEO of TBC Bank, Georgia; Lehman Brothers Private Equity, London; MBA from Cornell University Avto Namicheishvili, Legal; previously partner at Begiashvili &Co, law firm in Georgia. LLM from CEU, Hungary Irakli Burdiladze, COO; previously CFO at GMT Group, Georgian real estate developer. Masters degree from Johns Hopkins University Sulkhan Gvalia, Risk; founder of TUB, Georgian bank acquired by BOG in 2004 Murtaz Kikoria, acting CEO of BG Bank; formerly senior banker at EBRD; Head of Banking Supervision at the National Bank of Georgia. Mikheil Gomarteli, Retail Banking; 10 years work experience at BOG Nick Shurgaia, International Business; previously CEO of VTB Georgia, Senior Banker at EBRD, London; MBA from LBS LOCAL SEO BANK OF GEORGIA www.bog.ge/ir Page 20 March 2010 Page 20#21LUSHOƆCML ¿563N BANK OF GEORGIA FY 2009 and Q4 2009 results highlights March 2010#22Assets Total assets Total assets declined by GEL mln 6,000 9.8% in 2009 3,400.7 3,258.9 3,154.3 3,186.8 3,147.7 5,000 2,907.8 2.980.2 2,938.4 Gross loans declined by 4,000 14.9% in 2009 3,000 Gross loans 2,000 grew 1.7% q- o-q in Q4 09 1,000 1,855.7 2,106.7 2,059.7 2,189.4 2,046.8 1,904.7 1,833.1 1,864.2 Liquid funds 0 increased by GEL 180 mln, 35%, to GEL Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Gross loans Corporate loan book breakdown 700 mln in 2009 GEL 360 mlm of excess liquidity at YE 2009 Goodwill of GEL 70 mln written-off in Q4 2009, of which GEL 68 mln associated with Ukraine Pharmaceuticals and Healthcare, 1.7% Other, 14.3% Lak BANK OF GEORGIA Industry & State, 11.9% Construction & Real Estate, 17.1% www.bog.ge/ir Trade, 32.1% FMCG, 14.4% Energy, 8.5% Loan book BNB, 1% BG Bank, 10% RB & WM, 46% CB, 47% Retail loan book breakdown Micro loans, 12% Credit cards and overdrafts, 16% Mortgage loans, 43% Consumer and other*, 29% March 2010 Page 22#23Loan portfolio quality NPLs Consolidated Loan loss reserve, Consolidated 12% 9.8% 9.5% 10% 8.1% 140 6.3% 6.6% 8% 120 5.0% GEL mln 160 554.4% 140 600.0% GEL mln 200 180 500.0% 160 120 400.0% 100 60 80 300.0% 148.8 208.4% 139.8 140.0 60 109.1% 138.3% 40 104.6 129.3% 104.2% 200.0% 124.2% 131.0% 64.3 100.0% 20 ༄ - ཤྲ ཎྜ ཧྨཋ ༈ ཊ 100 80 32.1 19.0 23.3 0 0.0% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 NPLs NPL coverage ratio NPLs, BoG Standalone 6% 183.3 173.7 155.1 129.0 135.2 4% 60 2.1% 2.1% 108.8 40 2% 39.6 44.4 0 0% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Loan loss reserves Reserve For Loan Losses To Gross Loans, BoG Consolidated Loan loss reserve, BoG Standalone GEL mln 140 8% 6.9% 7.0% GEL mln 140 7.5% 7.5% 8% 6.4% 120 100 7% 6.8% 6.7% 7% 120 6% 4.7% 51.3 100 100 61.4 5% 5.5% 4.9% 6% 57.3 36.4 42.2 80 5% 75.4 3.2% 41.1 4% 00 60 60 60 80 83.6 45.2 38.2 4% 60 3% 3% 1.7% 41.6 40 1.9% 2.0% 1.2% 1.3% 67.4 2% 40 75.5 67.9 73.3 2% 54.5 10.8 57.7 20 20 46.3 22.4 11.3 35.9 1% 20 10.9 20 16.3 49.8 1% 22.7 29.8 22.2 8.1 9.7 12.0 14.5 0 0% 0 0% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 RB & WM CB RB &WM CB % of Gross loans -Loan loss reserve as % of gross loans Lobko BANK OF GEORGIA www.bog.ge/ir March 2010 Page 23#24Total Client deposits grew by 7% in 2009 WM client Liabilities Client deposits GEL mln 2,000 Wealth Management deposits GEL mln 120.0 100.0 deposits grew 1,395 68.6% in 2009 1,326 1,277 81.6 1,300 1,202 1,193 1,183 1,133 80.0 76.5 (24.1% q-o-q in 70.4 1,025 Q4 '09) 60.0 RB client deposits 681.5 grew 19.3% in 652.7 587.6 600 576.2 626.7 594.9 605.2 40.0 519.0 2009 (14.9% q-o- q in Q4 2009) FCB client deposits declined 6.7% in 2009 (1.2% q-o-q in Q4 2009) 363.6 403.4 20.0 326.0 319.0 280.4 285.0 331.2 380.5 -100 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 ■RB Client Deposits CB Client Deposits Q2 2009 Q3 2009 Q4 2009 WM Client Deposits Other Retail banking deposits GEL 225 of Borrowed funds GEL mln repaid in 2009, 500 105.2 96.7 93.3 131.4 163.1 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Borrowed funds GEL mln 1500 resulting in 20% decrease y-o-y 403.4 400 363.6 GEL 100 mln decline in 300 380.5 331.2 326.0 319.0 280.4 285.0 1000 903.6 947.8 795.1 1,137.8 1,162.8 1,011.4 918.6 913.0 Shareholders' equity in 2009 200 due to 2009 loss 500 associated with 100 Ukraine, mark- downs of real estate and 0 Q1 2008 Q2 2008 investment Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Lobko BANK OF GEORGIA www.bog.ge/ir March 2010 Page 24#25Equity & Capital adequacy Total Shareholder's equity GEL mln 1000 NBG capital adequacy ratios, BoG Standalone 25% 20.4% 19.7% 20% 18.3% 18.2% 17.8% 2008 BV/share US$13.8 15.8% 16.6% 16.4% 783.0 2009 BV/share US$11.3 15% 746.7 739.3 718.8 711.8 750 709.9 718.5 10% 16.3% 5% 594.3 0% 15.1% 15.5% 13.5% 17.4% 18.4% 21.2% 16.8% 500 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 BIS capital adequacy ratios, BoG Consolidated 40% 34.6% 34.2% 33.7% 35% 31.7% 30% 25.2% 25.3% 27.3% 25.0% 25.4% 24.7% 23.9% 25% 22.5% 22.2% 22.2% 20% 25.8% 25.8% 15% 10% 5% 0% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 ■Tier I Capital Adequacy Ratio ■Total Capital Adequacy Ratio Lobko BANK OF GEORGIA www.bog.ge/ir Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 ■Tier I Capital Adequacy Ratio Total Capital Adequacy Ratio Highlights Total Capital Adequacy Ratio of Bank of Georgia Standalone at 16.8% in Q4 2009 Tier 1 Capital adequacy Ratio of Bank of Georgia Standalone at 20.4% in Q4 2009 2009 Both ratios by NBG standards March 2010 Page 25#26Revenue 2009 Net Interest Revenue Income declined GEL mln by 5% and 400 interest expense 350 was largely flat 339.5 321.1 300 In Q4 2009 Total 250 118.7 121.9 219.5 operating 200 Income/Revenue 89.2 150 was GEL 79.5 112.0 220.8 mln (+0.2% q-0- 100- 63.4 199.2 45.3 130.2 q) 50 24.7 66.7 38.8 0 In 2009 Total operating 2005 2006 2007 2008 2009 Net Interest Income Net Non Interest Income Income/Revenue was GEL 321.1 Revenue, quarterly mln (-5.4% y-o-y) GEL mln Georgia accounts 100 for 91.1% of total 86.1 85.9 86.6 90 81.1 81.7 80.6 consolidated 79.3 79.5 80 revenues, BG 27.1 70 30.3 30.2 Bank 6.3% and 29.3 31.3 31.1 30.4 31.1 BNB 2.6% 60 60 50 40 40 Lobko 30 58.9 55.8 56.4 52.4 49.8 49.5 48.9 48.4 20 20 10 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 BANK OF GEORGIA www.bog.ge/ir Net Interest Income Net Non-Interest Income Page 26 Revenue by segments Aldagi BCI 5.9%, Other 6.4%, GEL 18.9mln (+194.6% y-o-y) GEL 20.6 mln (+5.0% y-o-y) Belarus 2.6% GEL 8.4 mln (+74.2% y-o-y) Ukraine 6.3% GEL 20.1 mln (-35.8% y-o-y) BOG Standalone 78.8%, GEL 253.1 mln (-8.8% y-o-y) Composition of revenue Q4 2009 Net foreign currency related income 6.6%, GEL 5.2 mln Net fee and(-19.1% q-o-q) commision income 15.3% GEL 12.2 mln (+1.1% q-o-q) Net income from documentary operations 2.9%, GEL 2.3 mln (-0.7% q-o-q) Net other non- interest income 14.3%, GEL 11.4 mln (+19.0% q-o-q) Net interest income 60.9%, GEL 48.4 mln (-1.1% q-o-q) March 2010 Page 26#27Net Foreign Currency Revenue cont'd Net fee & commission income GEL mln Net foreign currency related income related income 13 decreased by 42.6% in 12 2009, due to 12 the decline in trade activities 11 11.1 10.9 10.9 GEL mln 16 12.2 12.0 14 13.2 11.6 12 10 8 in Georgia by 11 c.30% & 10.2 10.2 exceptionally 10 high FX 10- Income in Ukraine in Q4 9 08. Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Income from documentary Income from documentary operations 14.9 10.4 9.4 8.8 7.1 6.5 5.2 6 4 2 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Other non-interest income 3.8 3.7 3.0 0.2 8:3 8:3 1.9 1.3 1.9 2.3 GEL mln 14 12 10 8 2.3 1.8 2.3 1.4 1.9 1.7 GEL mln operations increased by 3 34.3 % in 2009 2 Net Other Non-Interest 1.4 2 Income increased by 126% in 2009, 1 mostly due to الار الناس 5.1 4.9 5.0 -0.5 6 4.7 1.0 3.3 3.6 3.4 1.8 4 0.4 8:3 1.3 1.6 0.1 2 3.2 3.0 2.5 1.7 1.6 0 -0.4 -0.4 0.0 -1.1 1 -2 -3.4 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 -4 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 -6 ■Net Insurance Income Asset Management Income Other Brokerage Income Realized Net Investment Gains the increases in brokerage and insurance income Lobko BANK OF GEORGIA www.bog.ge/ir March 2010 Page 27#28Total Recurring Costs Recurring operating costs GEL m In 250 Employees Q4 2009 4,781 Operating 621 2,674 costs decreased 200 190.9 4,798 Q3 2009 182.9 617 2,669 by 2.0 y-o-y in 4,914 Q2 2009 2,665 707 2009 150 86.5 Q1 2009 4,964 2,692 117.4 92.7 757 1 4,977 Q4 2008 2,741 Non Net Non- 786 100- 41.8 6,196 Recurring Q3 2008 3,853 842 63.5 Costs of GEL Q2 2008 5,911 50 38.5 104.4 836 3,619 30.2 90.3 108.6 mln 75.6 15.3 4,926 Q1 2008 8241 3,056 driven by 33.3 23.2 4,459 0 Q4 2007 2,692 goodwill write- 821 down 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 associated with 2005 2006 2007 2008 2009 Personel costs. Other Recurring Operating Costs BG Bank BoG Standalone Group Consolidated BG Bank (GEL68 mln) and mark down Recurring operating costs Net non-recurring costs of real estate and GEL mln 60 GEL m In 20 4.7 investments 48.9 49.7 47.9 47.0 0 (2.0) 50 44.5 44.7 46.3 45.0 2005 2006 2007 2008 2009 -20 40 21.6 21.3 (20.7) 18.7 24.8 23.1 24.2 22.7 22.6 00 -40 30 20 20 -60 25.7 27.3 28.4 23.1 10 22.0 23.2 22.3 22.8 -80 -100 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Personnel Costs ■Other Recurring Operating Costs Lobko BANK OF GEORGIA www.bog.ge/ir Page 28 -120 (111.0) March 2010 Page 28#29Consolidated Operating profit, Provision expense Normalized net operating income Net provision expense BoG Consolidated GEL mln 120 Net provision GEL mln 40 expenses 38.7 39 improved by 103.2 100 8.0% q-o-q 38 37.1 37.1 37 36.6 36.3 80 Bank of 36 Georgia 35 34.3 34.3 60 Standalone Net 34 provision 33 32.5 40 32 expenses 40.7 32.1 30.0 27.6 declined by 31 20 7.5 7.2 10.9 1.9% q-o-q 30 29 0 Q1 2008 BG Bank's Net Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 provision expense improved by 37.2% q-o-q which drove Net provision expense BoG Standalone Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Net provision expense BG Bank Standalone GEL mln 30 25 GEL mln 160 overall changes higher 140 120 103.9 Net loss for Q4 100 2009 was GEL 102.4 mln. 2009 2009 Net loss was GEL 864 80 60 40 99.0 mln 20 8.6 6.7 0 20 18.2 15 10 13.0 11.0 9.3 8.1 29.6 24.0 17.7 17.4 5 (4.5) 0.4 (1.3) 0.5 0 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 (5) -20 Q1 2008 Q2 2008 Q3 2008 Q4 2008 -40 Lobko BANK OF GEORGIA www.bog.ge/ir March 2010 Page 29#30Profitability& Selected Ratios Net Income (Loss) GEL mln Net loans/Client deposits GEL mln 200% 100 75.6 80 60 40 26.8 13.6 20 0.2 100% 0 2005 2006 2007 2008 2009 (20) (40) - (60) - (80) (100) 0% (99.0) (120) Net interest margin (annualized) 12% 174.4% 168.7% 170.6% 160.6% 147.8% 131.7% 140.3% 136.9% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Cost Income Ratio* 240% 9.8% 10.1% 9.6% 200% 10% 10.0% 8.9% 9.1% 9.3% 9.9% 9.8% 9.2% 9.0% 9.3% 9.0% 9.1% 8.9% 8% 8.1% 8.6% 160% 7.5% 120% 6% 4% 2% 26 80% 54.8% 56.9% 57.8% 59.1% 55.4% 52.7% 57.5% 56.7% 49.3% 44.8% 47.3% 46.5% 52.3% 46 50 40% 47.3% 47.7% 48.5% 44.7% 43.1% 41.4% 48.9% 44.5% 0% 0% Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2008 Q2 2008 03 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Net Interest Margin, Group Consolidated Net Interest Margin, BoG Standalone Cost/Income Ratio, Consolidated -Cost/Income Ratio, Bank of Georgia Standalone Cash Cost/Income Ratio *Normalized for Total Non- recurring costs Lobko BANK OF GEORGIA www.bog.ge/ir March 2010 Page 30#31LUSHOƆCML ¿563N BANK OF GEORGIA Management target for 2010 March 2010#32Lobko Targeted financial performance 2010 Target pre-provision profit 2010 GEL mln 160 135.0 127.9 5.73 13.03 120 106.8 21.85 80 40 0 2007 Profit before provisions Losses related to Real Estate Other 68.02 27.0 2008 2009 2010F Goodwill Impairment associated with BG Bank Losses related to investments Target net provision expense 2010 Assumptions 2010 real GDP growth of 2%* in Georgia 2010 inflation rate of 3.2%* in Georgia The GEL/US$ exchange rate remains stable during 2010 ☑Geo-political stability is sustained in the region GEL mln 160 120 80 40 17.0 130.4 128.7 50.0 0 2007 2008 2009 2010F * IMF Estimates BANK OF GEORGIA www.bog.ge/ir March 2010 Page 32#33LUSHOƆCML ¿563N BANK OF GEORGIA Intention to pay dividends March 2010#34Intention to pay dividends for 2010 # of Shares outstanding 31,252,553 27,154,918 25,202,009 31,306,071 YE 2006 YE 2007 YE 2008 YE 2009 The new dividend policy will serve to further increase capital management discipline as we consider investing in our growth going forward ☑Estimated dividend payout for 2010 performance GEL 9.4 million The Bank intends to propose the establishment of a progressive dividend policy at the 2010 AGM The intention is to recommend GEL 0.30 dividend per share in 2011 in respect of 2010 financial year performance Dividend payment is subject to management achieving 2010 financial targets outlined above The Bank anticipates increasing the dividend payment in the future The new dividend policy is to set dividend payments while taking into consideration the need to maintain proper balance between the ability to finance growth and preserving progressive dividend Lobko BANK OF GEORGIA www.bog.ge/ir Page 34 March 2010 Page 34#35Summary * Operating environment in Georgia is improving and 2010 looks promising for Bank of Georgia: NPLs stabilized - 0.1% q-o-q decrease in Q4 2009 * Consumer confidence and economic activity is increasing with a 16% increase in client deposits in Q3 2009 and 8% q-o-q increase in client deposits in Q4 2009 National Bank of Georgia has highest FX reserves in Georgia's history – US$2+ bn, a 56% increase in FX reserves YTD A 12% y-o-y growth of VAT, a highly correlated measure to GDP, in January, suggests a healthy economic growth trend, that may result in higher than estimated 2% growth of 2010 GDP We came out strong from the downturn and are well positioned to take advantage of our high liquidity and strong capital to achieve growth at the right price.... *.....by implementing our strategy to become more efficient, deposit funded lending machine Lobko BANK OF GEORGIA www.bog.ge/ir Page 35 March 2010 Page 35#36Caution Regarding Forward-Looking Statements This presentation contains statements that constitute "forward-looking statements", including, but not limited to, statements relating to the implementation of strategic initiatives and other statements relating to our business development and financial performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market, macroeconomic, governmental, legislative and regulatory trends, (2) movements in local and international currency exchange rates, interest rates and securities markets, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) management changes and changes to our group structure and (7) other key factors that we have indicated could adversely affect our business and financial performance, which are contained elsewhere in this presentation and in our past and future filings and reports, including those filed with the NSCG. We are under no obligation (and expressly disclaim any such obligations) to update or alter our forward-looking statements whether as a result of new information, future events, or otherwise. Lobko BANK OF GEORGIA www.bog.ge/ir Page 36 March 2010 Page 36#37Contact Irakli Gilauri Chief Executive Officer +995 32 444 109 [email protected] Lobko BANK OF GEORGIA www.bog.ge/ir Macca Ekizashvili Head of Investor Relations +995 32 444 256 [email protected] March 2010 Page 37