Georgia | Banks | Company Update

31 October 2013 GEL/US$ 1.6707

Not Rated

Liberty Bank Q3 2013 and 9M 2013 Results GSE: BANK | BLOOMBERG: BANK GG | ISIN: GE1100000300
Liberty Bank (GSE: BANK, not rated) announced its Q3 2013 and 9M 2013 consolidated financial results, reporting Net Income of GEL 5.0 mln in Q3 2013 (up 278.4% q-o-q) and Net Income of GEL 6.5 mln in 9M 2013 (up 221.2% y-o-y).
0.0120 0.0130 0.0055 9.1% 20.0% -4.0% 5.5 66.0 39.5 19.6% 7.7 46.9%* 59.5%* 0.95%* 136.2 2.36%* 44.1 70.8% Reg S & 144A 500:1 Yes 30% 11.7% 0% 4.2 1.00 17.0%

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Market Data
Current Price (GEL) 52 Week High (09/10/2013) 52 Week Low (09/01/2013) 1M Change 3M Change 12M Change Ordinary Shares Outstanding (bn) MCap (GEL mln) MCap (US$ mln) Free Float (Including ESOP) Free Float (US$ mln) % Of Free Float Traded in 2010 % Of Free Float Traded in 2011 % Of Free Float Traded in 2012 Average Weekly Traded Volume in 2010-2012 (GEL '000) % Of Free Float Traded YTD Average Weekly Traded Volume YTD (GEL '000) Major Shareholder - Liberty Holding Georgia Ltd** GDR: Common Shares/GDR GDRs Fully Fungible? Current GDR Programme Ceiling (% Of Shares Outstanding) % Of Shares Outstanding Currently Converted Into GDRs Dividend Yield (Ordinary Shares) Convertible Preferred Shares Outstanding (mln) Placement Price Per Preferred Share (GEL) Dividend Yield/Placement Price

Total Operating Income in Q3 2013 reached GEL 23.2 mln, an increase of 8.5% q-oq and 1.5% y-o-y, with the sustained impact of the high negative carry suppressing the y-o-y growth rate. Total Operating Income in 9M 2013 reached GEL 62.0 mln, down 12.0% y-o-y. Total Operating Income normalised for the loss of state fees decreased only by 2.0% y-o-y in 9M 2013, reflecting the high negative carry in the first few months of 2013. Recurring Operating Costs increased in Q3 2013 by 10.3% q-o-q and 11.4% y-o-y to GEL 18.8 mln. BANKs Normalised Cost/Income Ratio increased to 83.1% from 79.6% in Q2 2013 and from 74.2% in Q3 2012. BANK reported quarterly Normalised Net Operating Income of GEL 4.4 mln in Q3 2013, up 1.6% q-o-q and down 26.4% y-o-y. Recurring Operating Costs for 9M 2013 increased by 8.6% y-o-y to GEL 52.7 mln. Normalised Cost/Income Ratio increased to 85.8% in 9M 2013 as compared to 70.6 % in 9M 2012. BANK reported Normalised Net Operating Income of GEL 9.3 mln in 9M 2013, down 57.6% y-o-y. Normalised Net Operating Income adjusted for the loss of state fees of GEL 8.5 mln received in 1H 2012 decreased by 36.8% y-o-y, reflecting the negative impact of the high negative carry. Pre-Provisioning Operating Profit increased in Q3 2013 by 4.4% q-o-q and decreased by 18.8% y-o-y to GEL 4.4 mln. As a result of the efforts of BANKs management, BANK has recovered a large part of certain legacy loans which resulted in the net provision recoveries of GEL 1.9 mln in Q3 2013 as compared to Net Provision Expense of GEL 2.8 mln in Q2 2013 and GEL 4.8 mln in Q3 2012. PreTax Profit increased in Q3 2013 by 277.9% q-o-q and 854.2% y-o-y to GEL 5.9 mln. Pre-Provisioning Operating Profit for 9M 2013 decreased by 57.5% y-o-y to GEL 9.2 mln. 9M 2013 Pre-Provisioning Operating Profit adjusted for the loss of state fees of GEL 8.5 mln received in 1H 2012 decreased by 36.2% y-o-y. Net Provision Expense decreased by 91.5% y-o-y to GEL 1.2 mln. Pre-Tax Profit increased by 14.8% y-o-y to GEL 7.6 mln in 9M 2013. BANK is the third largest bank in Georgia (by Total Assets), with the consolidated Total Assets reaching GEL 1,277.6 mln, up 12.4% q-o-q and 42.0% y-o-y. BANK continued to gain market share, reaching 8.2% market share by Total Assets as of 30 September 2013 (up from 6.3% as of 31 December 2012). Market share in Net Loans and Client Balances & Deposits reached 6.0% and 12.5% as of 30 September 2013, respectively (up from 4.7% and 9.0% as of 31 December 2012, respectively). BANKs BIS (Basel I) CAR stood at 16.6% as of 30 September 2013 as compared to BIS CAR of 18.3% as at YE 2012. Capital Adequacy Ratio (as per the current NBG methodology) reached 12.9% as at 30 September 2013. BANK was compliant, as of 30 September 2013, with the prudential capital adequacy ratios.

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* By parties other than JSC Liberty Capital and Liberty Holding Georgia **Formerly Liberty Capital LLC; renamed to Liberty Holding Georgia in July 2012

Share Price Performance YTD

240.0 220.0 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 May-13 May-13 Jan-13 Jan-13 Mar-13 Sep-13 Jul-13 Apr-13 Aug-13 Oct-13 Jun-13

BANK Closing Price (Rebased) GSE Index (Rebased) MSCI Emerging Markets Banks Index (Rebased)

Source: GSE, Bloomberg

Key Financials & Ratios

Unaudited d Unaudited d Unaudited d

GEL mln, unless otherwise noted Consolidated, IFRS-based

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Total Assets Net Loans Total Liabilities Client Balances & Deposits Shareholders Equity Revenue Net Income/(Loss) EPS Basic EPS Fully Diluted ROAA ROAE CAR (NBG) RWA/TA (NBG)

Q3 2013 1,278 508 1,170 1,126 108 23.2 5.0 0.0009 0.0008 1.63%* 19.06%* 12.87% 63.87%

Q2 2013 1,137 448 1,033 997 103 21.4 1.3 0.0002 0.0002 0.49%* 5.34%* 12.07% 60.78%

Q3 2012 900 407 825 627 75 22.9 0.5 0.0001 0.0001 0.24%* 2.79%* 10.09% 75.21%

Growth q-o-q 12.4% 13.5% 13.2% 13.0% 4.1% 8.5% 278.4%

Growth y-o-y 42.0% 25.0% 41.8% 79.6% 44.1% 1.5% 853.1%

BANKs Net Loans/Total Assets decreased to 39.8% as at Q3 2013 as compared to 44.6% as at YE 2012, reflecting the surge in Client Balances & Deposits in 9M 2013. However, looking ahead, we expect BANK to remain focused on the further improvement of its balance sheet structure. We believe BANK could reach Net Loans/Total Assets of 52% by YE 2013, with the annual balance sheet growth reaching or exceeding 30%. We forecast the overall Cost of Risk to reach 0.6% in 2013, due to the recoveries on large legacy loans made in Q3 2013. We forecast 2013 Net Income to reach GEL 8.2 mln, implying that ROAE (attributable to the ordinary shares) and ROAA will reach 7.9% and 0.8%, respectively.

* Annualised

Valuation Metrics
P/E P/B BV Per Share 2012A 7.96 0.42 0.018* 2013F 8.10 0.62 0.019*

H ALERT

* Excluding Treasury Shares

Liberty Bank Q3 2013 and 9M 2013 Results GSE: BANK | BLOOMBERG: BANK.GG | ISIN: GE1100000300

Income Statement Consolidated, IFRS-based GEL '000, unless otherwise noted Interest Income Interest Expense Net Interest Income Fee And Commission Income Fee And Commission Expenses Net Fee And Commission Income Net Income From Documentary Operations Net Other Non-Interest Income Net Income From FX And Translation Operations Net Non-Interest Income Total Operating Income Recurring Operating Costs Normalised Net Operating Income Non-Recurring Costs/(Income) Profit (Pre-Bonus) Before Provisions Net Provisions Pre-Bonus Result Discretionary Bonus Pool Share Of Associates' Net Profit Pre-Tax Profit Accrued Or Paid Income Tax Benefit/(Expense) Impairment Of Deferred Tax Asset Net Income Unaudited Q3 2013 40,759 25,960 14,798 6,812 822 5,990 136 248 2,033 8,407 23,206 18,777 4,428 (2) 4,430 (1,890) 6,329 500 24 5,853 (880) 4,973 Unaudited Q2 2013 37,427 23,768 13,659 6,522 718 5,804 116 315 1,486 7,721 21,380 17,023 4,357 114 4,242 2,761 1,543 6 1,549 (235) 1,314 Unaudited Q3 2012 33,352 18,607 14,745 6,250 654 5,597 328 289 1,911 8,124 22,869 16,851 6,018 560 5,458 4,799 708 108 13 613 (92) 522 Growth q-o-q 8.9% 9.2% 8.3% 4.4% 14.5% 3.2% 17.7% -21.2% 36.8% 8.9% 8.5% 10.3% 1.6% NMF 4.4% NMF 310.1% 0.0% 328.3% 277.9% 275.3% NMF 278.4% Growth y-o-y 22.2% 39.5% 0.4% 9.0% 25.8% 7.0% -58.4% -14.1% 6.4% 3.5% 1.5% 11.4% -26.4% NMF -18.8% NMF 793.7% 363.8% 86.1% 854.2% 860.4% NMF 853.1% Unaudited 9M 2013 111,016 71,495 39,520 18,604 2,215 16,389 363 831 4,912 22,495 62,016 52,720 9,295 144 9,151 1,175 8,078 500 42 7,620 (1,151) 6,469 Unaudited 9M 2012 94,525 53,856 40,669 25,800 2,005 23,795 888 743 4,384 29,811 70,480 48,555 21,925 384 21,541 13,884 7,855 1,189 (26) 6,639 (92) (4,534) 2,014 Growth y-o-y 17.4% 32.8% -2.8% -27.9% 10.5% -31.1% -59.2% 11.7% 12.0% -24.5% -12.0% 8.6% -57.6% -62.5% -57.5% -91.5% 2.8% -58.0% NMF 14.8% NMF -100.0% 221.2%

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Balance Sheet Consolidated, IFRS-based GEL '000, unless otherwise noted Cash And Due From Banks Treasuries Other Fixed Income Instruments Net Loans Net Investments Investment Property Net Property, Plant And Equipment Net Other Assets Total Assets Total Balances & Deposits Borrowed Funds Other Liabilities Contingent Capital Participation Note Total Liabilities Shareholders' Equity Total Liabilities And Shareholders' Equity

Unaudited Q3 2013 419,932 176,364 508,381 322 4,793 127,142 22,766 1,277,587 1,127,607 23,542 1,169,848 107,739 1,277,587

Unaudited Q2 2013 412,809 104,172 447,780 244 4,793 125,240 23,404 1,136,604 997,896 20,132 1,033,123 103,481 1,136,604

Audited 2012 235,533 57,497 374,003 173 4,793 126,095 24,820 838,932 691,177 26,667 15,491 740,270 98,661 838,932

Unaudited Q3 2012 201,130 103,109 406,719 360 25,021 101,040 47,516 899,924 645,347 97,000 55,262 18,615 825,135 74,789 899,924

Growth q-o-q 1.7% 69.3% NMF 13.5% 32.0% 0.0% 1.5% -2.7% 12.4% 13.0% NMF 16.9% NMF 13.2% 4.1% 12.4%

Growth YTD 75.3% 206.7% NMF 35.9% 86.4% 0.0% 0.8% -8.3% 52.3% 63.1% -100.0% 52.0% NMF 58.0% 9.2% 52.3%

Growth y-o-y 17.1% 71.0% NMF 25.0% -10.6% -80.8% 25.8% -52.1% 42.0% 74.7% -100.0% -57.4% -100.0% 41.8% 44.1% 42.0%

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Selected Ratios Consolidated, IFRS-based %, unless otherwise noted ROAA ROAE Net Interest Margin Net Spread Net Non-Interest Income/Total Operating Income Net Income/Total Operating Income Net Fee & Commission Income/Total Operating Income Net Fee & Commission Income/Average Total Assets Cost/Income Ratio (Normalised) Costs/Average Total Assets (Normalised) Personnel Costs/Total Operating Income Personnel Costs/Average Total Assets Personnel Costs/Total Recurring Operating Costs Net Loans/Total Assets Total Balances & Deposits/Total Liabilities Net Loans/Total Balances & Deposits Net Loans/Total Liabilities Liquid Assets/Total Assets Leverage (Total Liabilities/Equity), Times Shareholders' Equity/Total Assets Average Shareholders' Equity/Average Total Assets Loan Loss Reserves/Gross Loans NPLs/Gross Loans LLR Coverage Ratio Cost of Risk
Quarterly ratios are annualised, where applicable

Q3 2013 1.63% 19.06% 7.35% 9.38% 36.23% 21.43% 25.81% 1.97% 83.07% 6.32% 46.52% 3.54% 57.49% 39.79% 96.39% 45.08% 43.46% 46.67% 10.86 8.43% 8.90% 3.90% 6.51% 77.15% -1.87%

Q2 2013 0.49% 5.34% 8.09% 10.70% 36.11% 6.15% 27.15% 2.18% 79.62% 6.38% 42.18% 3.38% 52.97% 39.40% 96.59% 44.87% 43.34% 45.48% 9.98 9.10% 9.62% 3.94% 6.67% 74.81% 2.06%

Q3 2012 0.24% 2.79% 9.25% 8.91% 35.53% 2.28% 24.47% 2.54% 74.16% 7.69% 39.80% 4.13% 54.02% 45.19% 78.21% 63.02% 49.29% 33.81% 11.03 8.31% 8.48% 7.36% 8.90% 107.01% 4.10%

9M 2013 0.81% 8.61% 7.67% 10.17% 36.27% 10.43% 26.43% 2.05% 85.82% 6.65% 46.40% 3.59% 54.58% 39.79% 96.39% 45.08% 43.46% 46.67% 10.86 8.43% 9.75% 3.90% 6.51% 77.15% 0.07%

9M 2012 0.32% 3.57% 8.88% 8.62% 42.30% 2.86% 33.76% 3.78% 70.58% 7.90% 38.47% 4.30% 55.83% 45.19% 78.21% 63.02% 49.29% 33.81% 11.03 8.31% 8.96% 7.36% 8.90% 107.01% 4.21%

2012 0.62% 6.46% 9.03% 8.88% 40.60% 5.64% 31.77% 3.48% 75.37% 8.25% 40.85% 4.47% 56.14% 44.58% 93.37% 54.11% 50.52% 34.93% 7.50 11.76% 9.59% 4.33% 5.27% 98.92% 3.03%

2011 1.06% 13.29% 9.44% 9.78% 50.95% 9.15% 42.80% 4.96% 70.78% 8.21% 37.11% 4.30% 54.10% 43.74% 93.86% 51.73% 48.56% 35.35% 9.08 9.36% 7.99% 7.80% 11.66% 86.30% 6.21%

2010 1.11% 21.58% 11.89% 18.08% 62.43% 7.39% 51.29% 7.64% 73.16% 10.90% 40.12% 5.97% 54.83% 29.49% 80.52% 39.19% 31.54% 42.00% 15.25 6.15% 7.04% 11.02% 18.55% 59.84% 7.01%

2009 -1.70% -45.86% 3.16% 8.15% 89.85% -13.21% 71.49% 9.21% 103.44% 13.33% 48.99% 6.31% 47.36% 25.14% 81.38% 31.81% 25.88% 35.06% 33.80 2.87% 3.71% 20.34% 35.46% 60.35% 14.01%

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Liberty Bank Q3 2013 and 9M 2013 Results GSE: BANK | BLOOMBERG: BANK.GG | ISIN: GE1100000300 Liberty Securities Liberty Tower 74 I. Chavchavadze Ave Tbilisi, Georgia 0162 Tel: + 995 32 2555 500 research@libertysecurities.ge www.libertysecurities.ge Skype: liberty.securities Tengiz Lashkhi Asset Management Director Liberty Securities +995 591 709 280 tengiz.lashkhi@libertysecurities.ge Temur Iremashvili Director Liberty Securities +995 591 158 877 temur.iremashvili@libertysecurities.ge Skype: Temur Iremashvili Victor Meskhi Director of Research Liberty Securities +995 593 551 506 victor.meskhi@libertysecurities.ge Skype: v.meskhi

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