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Bank of Georgia high-margin pharmacies


Bank of Georgia high-margin pharmacies

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  • pg 1
									              Equity Markets

Initiating coverage

                                                                                             Andrzej Nowaczek, CFA
Georgia                                                                                      London (44 20) 7767 6635

Bank of Georgia                                                                              Initiating coverage

Unmatched growth at a price                                                                  Buy
                                                                                             8 January 2007

                                                         Price (3/01/07)                     Target price (12 mth)

Banks                                                    US$23.2                             US$31

                                                                                             BGEO LI

                                                                                             12-month forecast returns (%)
We initiate coverage of Bank of Georgia with a BUY rating.                                   Share price                          33.6
Although multiples look demanding (2007F PER of 23x),                                        Dividend                              0.0
                                                                                             12m f'cst total return               33.6
the stock offers a 2005-08F EPS CAGR of 30%, nearly
double the average of our coverage universe.
                                                                                             Key ratios (%)
                                                                                                                      2007F   2008F

Attractive market. Demand for retail banking services in Georgia has                         Net interest margin        8.5     8.2
                                                                                             Loans to assets           78.2    84.5
grown strongly in recent years, but the market is far from saturated. The                    Loans to deposits        161.9   173.6
share of retail credit to GDP is only 4% and some products, such as POS                      ROA                        3.0     2.9
                                                                                             NPL                        7.5     7.5
loans, are only beginning to emerge. The competitive environment remains
benign, offering ample opportunities for profitable business expansion.
                                                                                             Quarterly data (US$m)
First-mover advantage. We believe Bank of Georgia is well positioned
                                                                                                                      1H05        1H06
to capture this growth opportunity. It has a large distribution network, a wide
                                                                                             Net interest income       10.2       14.6
product range and entrepreneurial management. Its strategy has been to
                                                                                             Revenue                   16.0       25.7
grow through aggressive customer acquisition, and the bank has already                       Net income                 3.4        6.2
secured dominant positions in mortgage and consumer lending.                                 EPS (US$)                 0.30       0.41

Challenges ahead. We expect the competitive environment to                                   Share data
deteriorate, as other players, including foreign banks, become more                          No. of shares (m)                 25.2
aggressive. Bank of Georgia will also have to face ROE dilution following the                Daily GDR t/o (US$m)                2.1
                                                                                             Free float (%)                     100
recent large capital increase. Other risks include potential asset quality                   Mkt cap (US$m)                     585
deterioration, managing growth and political/macro risks.                                    Mkt cap (GELm)                   1,003

Forecasts and ratios
                                                                                             Share price performance
Yr to Dec                  2004       2005   2006F   2007F     2008F       2009F    2010F

Revenue (US$m)                20        35      56      92       131         162      192        24
NII (US$m)                    12        21      32      60        91         114      136        23
Net income (US$m)             (4)        8      14      26        37           48       63
BVPS (US$)                  2.70      3.46    8.64    9.23     10.21       11.99    14.31        22
EPS (US$)                 (0.41)      0.64    0.82    1.02      1.42        1.78     2.32        21
PER (x)                     N/M       36.4    28.3    22.7      16.3        13.0     10.0
P/BV (x)                     8.6       6.7     2.7     2.5        2.3         1.9      1.6       20
ROE (%)                    -13.5      18.8    10.2    11.5      14.3        16.0     17.6        19

Source: Company data, ING estimates                                                              18
_                                                                                                 11/06 12/06 12/06 12/06 01/07
                                                                                             Source: Reuters
                                                            Bank of Georgia   January 2007

Executive summary
Banking opportunity in Georgia
The Georgian banking sector is among the least developed in emerging markets.
Based on our estimates, the share of private credit to GDP was just over 10% in 2005
compared with a CEE average of around 30%. Although income per capita is also
lower than in CEE, Georgian banks have enjoyed strong growth for a number of years.
Growth rates remained strong in recent months and, as of October 2006, private credit
growth in the sector was 76% YoY.

Experience from more developed transition economies suggests a few more years of
growth driven by pent-up demand before the wealth of the economy limits further
growth potential. However, the economy is also expanding, providing Georgian banks
with strong cyclical support – GDP is growing at high-single-digit rates and disposable
incomes are rising at double-digit rates.

Strong retail franchise
We believe Bank of Georgia is well positioned to capture this growth opportunity. It has
a large distribution network, a wide product range and entrepreneurial management.

The current management team took over in October 2004 following credit quality
problems at the bank. The team consists of a number of professionals educated and
trained in the West with strong backgrounds in commercial and investment banking.

The bank’s strategy has been to build a dominant position in every attractive market
segment through product innovation and aggressive customer acquisition. By targeting
nascent market segments, management hopes to benefit from the first-mover
advantage and grow overall market share. Examples include POS lending, co-
branding partnerships with retailers, promotions for students and opening small outlets
in Tbilisi underground stations.

These ventures are beginning to bear fruit. According to management, a few months
after it started POS lending, Bank of Georgia is approving 420-430 applications per
day and the number of current accounts almost tripled in 2006. Demand is so strong
that management recently raised its POS loan rates and had to more than double
headcount to support business expansion.

Competitive threats and other risks
The main challenge is a likely increase in competition. The bank has been the leader in
customer acquisition and new product introduction, but its success to date would not
have been possible if other market players were less conservative.

The model has been tested and other players are likely to follow suit. This includes
foreign banks, which after the acquisition of Bank Republic by Societe Generale in
September, are already present in the market.

We believe the window of opportunity should last a while longer as demand still
outstrips supply, and there are ample business opportunities for more than one player.
However, a structure in which there are two or three aggressive players in a small
market like Georgia will inevitably lead to more competitive pricing in the future.

                                                                    Bank of Georgia    January 2007

While after the recent equity increase, Bank of Georgia has enough capital to finance
growth in the near term, funding will remain an issue beyond 2008. We also note that
because of the large size of the offering, the bank will face ROE dilution. However, this
can be seen as temporary and profitability should improve as loans continue to grow
strongly. In addition, if local capital adequacy regulations are relaxed, ROE could
expand further to reflect the bank’s very strong underlying profitability.

Other risk factors include low trading volumes at the moment, potential asset quality
deterioration, and managing growth and political risks, such as a further deterioration
in relations with Russia.

Fig 1       SWOT analysis

Strengths                                     Weaknesses

Distribution                                  Long-term funding
Product                                       Efficiency
Management                                    Regulatory framework

Opportunities                                 Threats

Retail banking                                Competition
New customers                                 Asset quality
Regional expansion                            Macro and political
Source: ING

Comparable company analysis suggests a valuation of between US$20 (2008F PER of
13.7x) and US$37 (2007F P/BV of 3.9x). Some of the less conventional measures,
such as market capitalisation to GDP and M&A multiples, imply a valuation of US$25-
36. The average across different methods is US$30. Relative to closer comparables,
such as Sberbank, valuations may look demanding, but taking into account superior
earnings growth and ROE expansion, the stock appears undervalued.

We value Bank of Georgia using a dividend discount model as the main tool. As a
sanity check, we also look at comparable company multiples, market capitalisation to
GDP and some recent M&A multiples. Our base-case dividend discount model
scenario translates into a price target of US$31 offering 34% upside potential. We thus
initiate coverage with a BUY rating.

    Fig 2   Valuation range (US$)

     40                                 37              36
     35        31                                                                       30
               DDM      Peer group   Peer group   M&A (2006          MC/GDP           Average
                         2008 P/E    2007 PBR       PBR)

Source: ING estimates

                                                                                    Bank of Georgia     January 2007

                                      Summary forecasts
Fig 3    Summary income statement and balance sheet (US$m)

                                          2004     2005     2006F     2007F     2008F        2009F            2010F
Interest income                             17.6     28.6     50.4    100.8     158.1         205.4            250.0
Interest expense                           (5.2)    (7.2)   (18.1)    (40.4)    (67.4)        (91.3)         (114.4)
Net interest income                         12.4     21.4     32.4      60.5      90.7           114             136
Fee and commission income                    5.4      7.9     12.5      17.7      23.6          30.0            37.7
Trading income                               2.5      3.6      6.1       8.1       9.5          10.4            11.0
Other non-interest income                    0.1      2.5      5.0       6.0       6.8            7.5             8.2
Total non-interest income                    8.0     14.1     23.6      31.9      39.9            48               57
Total revenues                              20.4     35.4     56.0      92.3    130.5            162             192
Personnel costs                            (6.7)   (12.8)   (18.9)    (27.8)    (37.9)        (45.8)          (50.4)
Depreciation and amortisation              (1.4)    (2.3)    (2.7)     (3.9)     (4.5)         (4.8)            (5.0)
Other operating costs                      (5.9)    (7.6)    (9.2)    (11.7)    (14.1)        (16.0)          (17.9)
Total operating costs                     (14.0)   (22.8)   (30.7)    (43.4)    (56.4)          (67)             (73)
Pre-provisioning profit                      6.5     12.7     25.2      49.0      74.1            95             119
Provision expense                         (10.7)    (3.4)    (8.2)    (16.3)    (28.0)        (35.4)          (40.9)
Pre-tax profit                             (4.2)      9.2     17.0      32.6      46.1          60.0            78.3
Taxes                                        0.4    (1.7)    (3.4)     (6.5)     (9.2)        (12.0)          (15.7)
Net profit                                 (3.8)      7.5     13.6      26.1      36.9          48.0            62.7
Minorities                                   0.0      0.1      0.1       0.1       0.1            0.1             0.1
Attributable net profit                    (3.8)      7.6     13.7      26.2      37.0          48.1            62.8
Dividends                                    0.0    (0.4)      0.0       0.0       0.0            0.0             0.0
Retained earnings                          (3.8)      7.2     13.7      26.2      37.0          48.1            62.8
Number of shares (m)                         9.4     12.0     16.8      25.6      26.0          27.1            27.1
EPS (US$)                                   -0.4      0.6      0.8       1.0       1.4            1.8             2.3
GEL/USD (average)                            1.9      1.8      1.8       1.7       1.8            1.8             1.8
GEL/USD (year-end)                           1.8      1.8      1.7       1.8       1.8            1.8             1.8
BVPS (US$)                                   2.7      3.5      8.6       9.2      10.2          12.0            14.3

Interbank loans                            14.0     18.6     21.6       13.4      10.0          9.0              9.4
Customer loans                             93.1    165.9    400.2      832.4   1,291.7      1,681.9          2,152.9
Interest-earning securities                11.1      8.3    135.3       22.9      31.4         38.9             47.8
Fixed assets                               14.9     20.0     33.6       43.5      46.5         48.9             51.3
Other assets                               65.9     44.1    107.7      152.0     149.2        153.0            154.7
Total assets                              199.0    256.9    698.4    1,064.1   1,528.9      1,931.7          2,416.1

Interbank deposits                         26.5     44.0    131.7      191.7     275.8        322.9            361.1
Customer deposits                         138.2    150.6    329.0      514.3     743.9        976.4          1,291.8
Interest-bearing securities                 0.0      0.6      1.4       96.5     206.5        277.5            341.0
Other liabilities                           4.0     10.7     18.6       22.0      25.9         30.0             34.6
Shareholders’ equity                       30.4     51.0    217.7      239.7     276.7        324.8            387.6
Total liabilities and equity              199.0    256.9    698.4    1,064.1   1,528.9      1,931.7          2,416.1
Source: Company data, ING estimates

                                                           Bank of Georgia   January 2007

We value Bank of Georgia using a dividend discount model as the main tool. As a
sanity check, we also look at comparable company multiples, market capitalisation to
GDP and some recent M&A multiples. Our base-case dividend discount model
scenario translates into a price target of US$31. Comparable company analysis
suggests a valuation of between US$20 (2008F PER) and US$37 (2007F P/BV).

Dividend discount model
Our main tool for valuing emerging Europe banks is a two-stage dividend discount
model, with the first stage covering the explicit forecast period (2006F-10F) and the
second covering the long-term or ‘normalised’ outlook. We use this approach because
it captures the impact of increasing market saturation and competition on growth and

Our expectation is that in the long run growth rates will slow and margins will
compress, but we also believe most banks should be able to defend their ROE through
efficiency gains and better capital management. This scenario certainly applies to
Bank of Georgia, currently operating in a high-margin, high-growth environment that
we view as unsustainable. However, we also believe that in the long run the bank can
substantially increase its equity multiplier and improve efficiency.

Figure 4 shows a set of assumptions that we think is justified for Bank of Georgia. In
the medium term, we forecast strong asset growth (57% pa) and a healthy return on
assets (2.9%), but no dividends.

Our normalised forecasts are for an ROE of 19.2% and dividend growth of 11.0%,
derived from normalised risk-weighted asset growth of 11% and a constant payout

Our cost of equity is 12.2% based on a risk-free rate of 7.9% and an equity risk
premium of 4.4%. Since Georgia has not yet issued any government bonds, we use
the long-term Eurobond yield for a B+ rated sovereign, which currently shows a spread
of just over 300bp over treasuries. Our forecasts are in US dollars.

Fig 4    Dividend discount model assumptions (%)

                                                       2006F-10F              Normalised

Risk-free rate                                               7.9                      7.9
Equity risk premium                                          4.4                      4.4
Beta (x)                                                     1.0                      1.0
Cost of equity                                              12.2                     12.2

RWA growth                                                  56.6                     11.0
ROA                                                          2.9                      1.5
Dividend payout                                                0                      55
Dividend growth                                              N/A                     11.0
ROE                                                         13.9                     19.2
Equity to assets                                            20.9                      8.4
Source: ING estimates

Key to the second stage is an assumption of 11% loan growth, which may look
undemanding, compared with the near-term outlook, but which, on a compounded

                                                             Bank of Georgia   January 2007

basis, implies a loan/GDP ratio of 72% in 25 years, assuming 7% nominal GDP

Based on these assumptions, which we consider our base case, we estimate Bank of
Georgia is currently worth US$27.8 (suggesting a 12-month price target of US$31),
equivalent to a 2008F PER of 19.5x and 2007F P/BV of 3.0x.

In Figures 5-6, we run a sensitivity analysis of our valuation to cost of equity, ROE and
asset growth. For example, a 1ppt increase in loan growth adds 29% to fair value,
while a 1ppt cut in ROE translates into a 25% reduction in fair value.

Fig 5     Valuation sensitivity to cost of equity and asset growth (US$)

Ke (%)/RWA growth (%)                            10.0              11.0                12.0

11.2                                               31                40                 54
12.2                                               25                31                 40
13.2                                               21                25                 31
Source: ING estimates

Fig 6     Valuation sensitivity to cost of equity and ROE (US$)

Ke (%)/ROE (%)                                   18.2              19.2                20.2

11.2                                               30                40                 54
12.2                                               23                31                 42
13.2                                               19                25                 34
Source: ING estimates

LEFAC is ING’s proprietary valuation methodology that is used primarily to calculate
the company-specific risk premium, which together with the risk-free rate gives the cost
of equity. The methodology is based on arbitrary scoring assigned to stock liquidity (L),
earnings quality (E), franchise/strategy (F), asset quality (A) and capital adequacy (C).
It helps quantify the risk premium which otherwise, in emerging markets at least, is
often guesstimated.

We use a score of 1 to 5, with 1 being the best and 5 the worst. The difference in total
score and the base factor of 3 is then multiplied by 15bp to arrive at the adjustment
factor, which together with the base risk premium of 3% equals the total risk premium.

Below are our thoughts on scoring:

•   Liquidity – although there is some retail free float in Tbilisi, trading volumes are
    generated almost entirely in London and a GDR float is only 35%. We give the
    company a 3 rating.

•   Earnings quality – trading gains and other non-recurring items do not feature in the
    bank’s earnings and neither is the bank relying on government securities. We give
    it a mark of 2 on this criterion.

•   Franchise – we think Bank of Georgia has a strong franchise and strategy, and we
    give it a top score for it.

•   Assets quality – although the books were cleaned up in 2005, in light of strong loan
    growth and an untested market, we believe only a medium rating of 3 is justified.

•   Capital adequacy – solvency increased dramatically following the recent capital
    increase. We assign the bank a score of 3.

                                                             Bank of Georgia    January 2007

Fig 7    LEFAC derived cost of equity

L: stock liquidity                                                                       3.0
E: earnings quality                                                                      2.0
F: franchise/strategy                                                                    1.0
A: asset quality                                                                         3.0
C: capital adequacy                                                                      3.0

Total score                                                                             12.0

Adjustment factor                                                                        1.4
Base risk premium (%)                                                                    3.0
Total risk premium (%)                                                                  4.35
Risk-free rate (%)                                                                       7.9
Cost of equity (%)                                                                      12.2
Source: ING estimates

Multiples-based valuation
Since we are not aware of any close peers in Georgia, we look at a sample of
emerging Europe banks as a proxy. The universe is diverse but it includes mostly
markets featuring slower growth and lower risk relative to Georgia.

Fig 8    Comparable valuation multiples

                         2007F PER 2008F PER 2007F P/BV 2008F P/BV 2007F ROE 2008F ROE

Russia                        18.7       15.3       4.4       3.5        26.7          25.5
Poland                        23.3       19.3       3.9       3.5        16.8          18.9
Turkey                        12.7        8.3       2.4       1.9        20.1          26.0
Czech Republic                12.5       11.3       2.5       2.3        19.2          21.4
Hungary                       12.4       10.6       3.4       2.9        29.4          29.7
Romania                       15.8        N/A       5.9       N/A        41.6           N/A
Average CEE                   16.0       13.7       3.9       2.9        26.7          23.3
Average, incl. Turkey         15.3       12.4       3.6       2.6        25.4          24.0
Bank of Georgia               22.7       16.3       2.5       2.3        11.5          14.3
Source: ING estimates

In our view, the closest comparables are Sberbank in Russia (price US$3,450, Hold),
as well as the Kazakhi banks and Raiffeisen International which we do not currently
cover. Sberbank is trading at 15.3x 2008F earnings. On the surface, it is more
profitable than Bank of Georgia, with a 2008F ROE of 25.5% compared with our Bank
of Georgia forecast of 14.3%. However, this ignores the high capital adequacy
requirement in Georgia at the moment, which we believe will be relaxed in the future,
as well as depressing effect on ROE of the recent capital increase. Assuming a similar
equity multiplier as Sberbank would produce a higher ROE for Bank of Georgia as it
has a higher return on assets.

Valuing Bank of Georgia at Sberbank’s 2008F PER multiple would translate into a
share price of US$21.8, 30% below our base case DDM valuation. At these multiples,
valuation looks conservative in light of relatively stronger earnings growth prospects for
Bank of Georgia (30%) compared with Sberbank (20%), thus we believe higher
multiples can be justified. Using the average CEE 2008F PER multiple yields only
US$20, while the average 2007F CEE P/BV suggests US$37.

Market cap to GDP
As a sanity check, we also use a somewhat less orthodox valuation methodology,
looking at the banking sector capitalisation to GDP in selected countries. Although

                                                                  Bank of Georgia   January 2007

clearly a back-of-the-envelope type of approach, it suggests a range between 26% and
35%, based on current market capitalisation and the expected 2006 GDP.

    Fig 9   Market capitalisation to GDP (2006F, %)

             Russia     Poland   Hungary    Czech     Romania   Turkey   Georgia    Average

Source: ING estimates

There are some necessary simplifications involved, such as an assumption that the
largest bank in any given market is representative of the whole sector. This approach
also ignores GDP growth expectations and market share changes. However, as we
found out earlier in Russia, it does work for leading banks in nascent markets with low
credit penetration.

Based on this measure, Bank of Georgia is trading at the low end of the range, about
an 8% discount to the average. There are pros and cons for why Bank of Georgia
should be trading in line with peers. On the one hand, the country-specific risks are
higher, but on the other, economic growth potential and room for market share gains
appear to be higher. Assuming the average ratio of 28% would value the bank at

M&A multiples
Below, we show some of the recent M&A multiples in emerging Europe and
Russia/CIS. Although we do not know of examples of acquisitions in markets closer to
Georgia, where the risk profile may be similar, these multiples provide some guidance
as to strategic buyers’ appetite for banks in markets with similar growth potential. We
note that scarcity of targets has been driving multiples higher in recent months.

The entry of Societe Generale into the Georgian market via the acquisition of a 60%
stake in Bank Republic can be seen as a sign of confidence in the Georgian banking
sector. Nevertheless, because of the small market size, a still-high country risk and a
relatively modest market share of Bank Republic, it is possible that the multiple paid in
this transaction was below the average in our sample. However, should Bank of
Georgia be taken out at the average P/BV of 4.2x, it would translate into a share price
of US$36 based on 2006F book.

                                                                     Bank of Georgia    January 2007

Fig 10       Recent M&A multiples

Date                                  Target           Country                 Buyer          P/BV (x)

Sept 06                            Rosbank               Russia    Societe Generale                4.7
July 06                     Investsberbank               Russia                 OTP                3.8
June 06                      Raiffeisen Ukr             Ukraine                 OTP                4.7
May 06                           Denizbank               Turkey                Dexia               3.9
May 06                          Finansbank               Turkey                 NBG                3.8
Feb 06                         Ukrsotsbank              Ukraine               Intesa               5.0
Feb 06                          Impex bank               Russia           Raiffeisen               4.3
Jan 06                           Ukrsibbank             Ukraine        BNP Paribas                 3.1
Dec 05                                 BCR             Romania                 Erste               5.7
Aug 05                              Garanti              Turkey                  GE                2.2
Aug 05                                 Aval             Ukraine           Raiffeisen               5.3
Average                                                                                            4.2
Source: Company data, ING estimates

Valuation range
To summarise, the above valuation measures suggest a range of between US$20
(2008F peer group PER) and US$37 (2007F peer group P/BV), with an average of

    Fig 11   Valuation range (US$)

     40                                        37          36
     35        31                                                                        30
              DDM         Peer group      Peer group   M&A (2006      MC/GDP           Average
                           2008 P/E       2007 PBR       PBR)

Source: ING estimates

                                                                                                                                      Bank of Georgia    January 2007

                                       Key investment points

                                       Growth potential
                                       The Georgian economy and the banking sector are less developed than most in
                                       emerging Europe and, indeed, CIS countries. But the development patterns we have
                                       seen elsewhere are beginning to emerge in Georgia as well. The ‘Rose revolution’ of
                                       November 2003 brought political stability and economic transformation, which have
                                       paved the way for rapid economic growth and increased demand for banking services.

                                       Based on our estimates, the share of private credit to GDP averaged just 10% in 2005
                                       compared with a CEE average of around 30%. Although income per capita is
                                       significantly lower than in CEE (US$3,600 compared with US$11,800), the banking
                                       sector has been growing at rates significantly higher than in most CEE markets for a
                                       number of years.

Fig 12     Banking sector development statistics (%)

                                                         Turkey               CE3         Europe          Egypt        Lebanon         Israel      Russia        Georgia

Loans to GDP (2005)                                              25.9           36            109           47.8              81.2     103.5          20.1          10.2
Deposits to GDP (2005)                                           40.7         37.8           71.1           79.5             268.1     129.3          14.4            8.6
Loan growth, 2000-05*                                            52.6           7.5              5            3.7               4.9       2.4           46          32.2
Deposit growth, 2000-05*                                         26.9             7            5.8            6.6               8.3       2.4         41.1          31.7
Real loan growth, 2000-05                                        22.1           4.6            2.9           -3.0               2.7       1.6         28.6          25.0
Real deposit growth, 2000-05                                       1.6          4.1            3.7           -0.3               6.1       1.7         24.3          24.5
GDP per capita (US$)                                            4,984        9,061         30,218          1,268             5,346    17,388         5,355         1,416
GDP per capita (PPP) (US$)                                      7,938       14,185         30,122          4,056             8,857    22,352        12,935         3,586
* Turkey 2001-05 growth
Source: National sources, IMF, World Bank, ING estimates

                                           Fig 13                    CEE banks development matrix (US$)


                                                                60                                                                    Estonia
                                                                                                                      Latvia                                 Slovenia
                                            Loans as % of GDP

                                                                                        Bosnia-                                        Hungary
                                                                50                    Herzegovina
                                                                40                       Ukraine                                                Czech Republic
                                                                                             Turkey                        Lithuania
                                                                30                                                     Poland
                                                                 3,300                    8,300                     13,300              18,300                   23,300
                                                                                                             GDP per capita

                                       GDP per capita PPP adjusted
                                       Source: BA-CA, IMF, World Bank, ING

                                       Between 2000 and 2005, real loan growth averaged 25%, the fastest growth among
                                       the markets we monitor except for Russia. Growth accelerated in 2005 and as of
                                       October 2006, private credit was growing at close to 60% YoY in inflation-adjusted
                                       terms. Deposit growth stood at around 30% YoY compared with a five-year average of

                                                                                                                                                                                                                                  Bank of Georgia                           January 2007

 Fig 14                   Georgian banks – deposit growth (% YoY)                                                                                       Fig 15             Georgian banks – loan growth (% YoY)

   60                                                                                                                                                     100
   30                                                                                                                                                      50
    0                                                                                                                                                       0


























Source: NBG                                                                                                                                           Source: NBG

                                                                                 Sceptics may argue that the banking sector is running ahead of itself and that for a
                                                                                 significant expansion of retail credit, GDP per capita will have to be significantly higher
                                                                                 than currently. We would point out that the recent loan growth has been driven mainly
                                                                                 by demand from corporates and that the share of retail loans in total credit is still less
                                                                                 than 30%.

                                                                                     Fig 16                     Retail and corporate loan/GDP trend (%)

                                                                                          10                                                                                                                                                                        11.1
                                                                                              6                           5.4                              4.7
                                                                                              2                                                                                                                  3.3                                                  4.4
                                                                                                                          2.8                              2.7
                                                                                                                          2003                            2004                                                 2005                                                2006F

                                                                                                                                                     Retail loans/GDP                      Corporate loans/GDP

                                                                                 Source: NBG, ING

                                                                                 A look at the current stage of development of the retail market shows that mortgage
                                                                                 credit accounts for just over 1% of GDP, car loans are used to finance less than 5% of
                                                                                 purchases and POS lending only began a few months ago. Even corporate lending
                                                                                 appears underdeveloped as a sizeable chunk of existing loan stock is project finance
                                                                                 rather than mainstream commercial lending.

                                                                                 Key constraints to mortgage market development are lack of long-term funding and
                                                                                 limited supply of new housing stock. Similar to other post-communist economies,
                                                                                 Georgia privatised its housing stock in the 1990s, but given political turmoil there has
                                                                                 not been much investment in new properties. The few developers that are active in the
                                                                                 market are struggling with financing and currently most properties are sold off plan.

                                                              Bank of Georgia   January 2007

Interest rates are still relatively high at 15-17% in US dollars and no lending in local
currency is available. Given that across more developed economies in transition, it
took a decline of rates to single-digit levels for mortgage lending to take off, rates look
prohibitively high. However, what mitigates this in Georgia is the availability of offset
mortgages, which makes mortgage borrowing more affordable.

Key factors supporting growth, other than falling interest rates, will be a growing
economy and disposable incomes. GDP growth averaged 9% in the past four years
and we expect around 7.5% growth this year. Real wage growth has been in double-
digits, which combined with the recent personal income tax reduction and increasing
remittances from abroad has driven disposable income growth.

In the long term, a reduction in the average household size and rising house prices
should also give a boost to the mortgage market. Currently, the average number of
people per household is three and a half, compared with around two and a half in more
developed emerging economies. New properties in Tbilisi are selling for in excess of
US$1,000/m2, which looks expensive given the current income per capita, but which is
still two to three times less than in more developed transition economies.

In the near term, we would expect latent demand to continue driving the mortgage
market. We estimate there are around 6,000 mortgage contracts outstanding in a
country with 1.2m households. Around 400 loans are approved each month, which
could double the market size in just one year, in our view. However, this pace of
growth implies only 25,000 contracts and a share of mortgage credit to GDP of around
4.5% by 2008.

Point of sale loans
The point of sale lending is another example of a market with strong growth potential.
Owing to limited track record of consumer lending, Georgian banks have traditionally
focused on branch-based lending, which typically requires current account history.
Scoring systems are not yet very widely used, although leading banks such as Bank of
Georgia have started using them recently.

There are obvious advantages for banks willing to enter this market segment. First, the
retail market is very fragmented – there are no powerful retail chains, with even the
largest one having only around 15 outlets across the country. This limits the bargaining
power of retailers while making exclusive deals more likely. Second, the market is not
regulated with regards to maximum interest rates and consumers are not
sophisticated, which allows room for hidden costs and effective APRs of around 50%.

The market is of course untested and scoring systems will need to be further
calibrated, but if Russia, Kazakhstan or Ukraine are anything to go by, any
delinquencies will be more than compensated by hefty spreads and early entrants
could be rewarded generously for the risk taking in this market segment.

In our view, Bank of Georgia is well positioned to benefit from the opportunities in the
market. It has a large distribution network, wide product range and entrepreneurial
management, all of which have been evolving to accommodate the rapidly changing
market conditions.

The bank’s strategy has been to build a dominant position in every attractive market
segment. This strategy does not rely on taking away market share from competitors
but rather on product innovation and aggressive acquisitions of customers with no

                                                            Bank of Georgia   January 2007

banking accounts. By targeting nascent market segments before anyone else,
management hopes to benefit from the first-mover advantage and grow overall market

The current management team took over in October 2004 following credit quality
problems at the bank. It consists of a number of professionals educated and trained in
the West with strong backgrounds in commercial and investment banking.

The appointment of new management coincided with acceleration in economic growth
and improvement in the country’s risk profile. After the necessary clean-up of the loan
book, management focused on selective business expansion, which included several
small acquisitions in banking, insurance and brokerage. Management also established
credibility with international financial institutions, which helped secure longer-term

What we are most impressed with is management’s creativity when it comes to
customer acquisition. The methods are hardly innovative, as they have been used in
other markets before but, according to management, Bank of Georgia is almost always
the first bank to test them in the local market.

A good example is current account promotions for university students, whereby Bank
of Georgia offered 10 lari to each student who opens an account with the bank.
Following an aggressive promotion last summer more than 47,000 students opened
current accounts with the bank. As for relatively high acquisition costs, they should be
recovered through current account fees and student loans.

Co-branding partnerships with retailers are another example. Last year, Bank of
Georgia introduced a new payment card in co-operation with the largest supermarket
chain. The bank has similar partnerships with the pharmacy chain and other retailers.

The list of customer acquisition initiatives also includes 23 newly-opened outlets in
underground stations, which will be focusing on current accounts, deposits and money
transfers. Approximately 400,000 people use the underground each day so the
potential for business is high, but there are also related benefits such as shorter
queues in branches and incremental business such as metro payment cards.

These ventures are beginning to bear fruit. According to management, a few months
after it started POS lending, Bank of Georgia is approving 420-430 applications per
day with the average ticket size of around GEL650. Effectively POS loans are already
the strongest contributor to profits in terms of new business origination. Importantly,
competitors are slow to launch the same product on a comparable scale and so the
bank gets a repeat business from around 80% of its customers.

All of these initiatives have enlarged the customer base. As of the end of November,
more than 405,000 clients had current accounts with the bank, up from 141,000 at the
beginning of the year. The implications are not only positive for future loan growth but
also immediate funding costs, as current account deposits are typically non-interest-

If there is anything worrying about the bank’s success, it is the lack of competitive
response so far. Either the competition is weak or Bank of Georgia is too aggressive
would be a textbook assessment of the situation. We think the truth is somewhere in

                                                             Bank of Georgia   January 2007

between. Management may be taking too much risk, both credit and operational, but
the prize is too valuable not to take a chance, in our view.

In other emerging markets, we have seen aggressive banks develop franchises early
on and those which preferred to be conservative. Even the ones with large pockets
were usually not able to gain market share and in the end were forced to buy the early
movers. Unless the Georgian economy does not develop the way we think it will, Bank
of Georgia could potentially become such a takeover target in the future.

A quick look at the bank’s main competitors shows at least a couple of potentially
strong competitors. TBC, the No.2 bank, and ProCredit, the No.4 bank. TBC has
largely a corporate bias and its retail ambitions are capped by a relatively
underdeveloped branch network. ProCredit has probably a sufficient distribution
network for its size, but its product range is more limited than that of Bank of Georgia.
Compared with Bank of Georgia, both banks have been expanding conservatively.
ProCredit does not do consumer finance and TBC does it on a small scale.

Until recently, foreign banks were absent from the market with the exception of two
banks from neighbouring countries operating on a small scale. This changed in
September 2006 when Societe Generale announced the acquisition of a 60% stake in
Bank Republic for an undisclosed amount.

Bank Republic ranks No.5 in the market. It has 21 outlets, an 11.6% share in the
deposit market and 7.6% share in the lending market. It has been focusing on
developing retail banking and currently has 74,000 customers. In its press release,
Societe Generale said it would concentrate on developing market share and

Although it is too early to gauge what the impact of this acquisition will be on other
players, we take the view that the competitive environment will have to deteriorate from
its currently benign level. While there may be enough business for more than one
player at this stage of market development, when demand still outstrips supply, a
structure in which there are two or three aggressive players in a small market will
inevitably lead to more competitive pricing.

Regulatory framework
As in other emerging markets, the regulatory environment in Georgia is still evolving
and some aspects of banking in the country require further legislative progress before
the market is ready for the next stage of development beyond the current phase of
addressing pent-up demand. We have identified several issues below which we view
as obstacles to growth.

Deposit insurance
Georgia has no deposit insurance system. A draft law has been sent to parliament.
However, it is unclear how long it will take before the bill is passed, given that there
appears to be no consensus on how to deal with the undercapitalised banks to avoid
the moral hazard issue.

A lack of deposit insurance may have been a factor behind the poor savings rate and a
high, 140%, loan/deposit ratio. According to management, some US$0.5bn, nearly the
equivalent of the banking sector deposit base, is still held ‘under mattresses’. As we
have seen in Russia, this money can gradually flow into the banking sector,
irrespective of whether or not the deposit insurance is functioning, as long as the
economy is healthy.

                                                             Bank of Georgia   January 2007

Credit bureau
A centralised credit bureau is in the process of being established. Currently, all large
banks contribute and share negative information, and plans are set to begin
exchanging positive information in the next few months. However, the database covers
a relatively short time period, and given that a vast majority of the population has never
borrowed, the information stored in the credit bureau is still of limited use.

Property registry and foreclosure
Georgia has a centralised property registration system allowing users to obtain title in
as little as one day (for an extra fee). Foreclosure is more complicated as it requires a
court order and a public sale of the collateral. Appeals can take several months and
execution even longer, delaying the whole process to often more than one year. In
practice, Georgian banks prefer a settlement with borrowers after an initial court
decision is made, which normally takes only a couple of weeks.

Accounting standards
Reporting under IFRS is mandatory for all Georgian banks but not corporates. We
have seen in other markets, where local accounting standards fail to reflect borrowers’
financial situation accurately, that credit quality could be affected. However, we
understand that Georgian GAAP is relatively close to IFRS and that therefore
accounting standards are not a major problem when assessing corporate credit risk.

Internal reporting and controls are a related issue. Ernst and Young, the company’s
auditor, identified material weaknesses in the bank’s internal controls that could be
reflected in the quality of the IFRS reporting. We noticed a change in the classification
of NPLs in 2005, inconsistent headcount numbers and a (positive) restatement of
1H06 profits after the audit. According to management, the bank’s accounting systems
are in line with or better than those of other banks in the market, but nevertheless
measures have been taken to address the weaknesses.

Banking regulations
Georgian central bank (National Bank of Georgia) regulations are broadly in line with
the practice in other emerging markets, with more conservative liquidity (minimum
30%) and capital adequacy (minimum 12%) standards.

The minimum capital adequacy ratios set by the NBG are 8% for tier 1 and 12% for tier
1 plus tier 2. Importantly, the NBG requires a 200% risk weight for foreign currency
loans and it does not allow period earnings in tier 1 capital. This results in a wide
discrepancy between local capital adequacy and BIS-based ratios. For example, in
2005, Bank of Georgia’s CAR as per local regulations was 13% (of which tier 1 11.2%)
compared with 24.1% BIS ratio (of which tier 1 19.5%). This requires extra equity
capital to operate which, in our view, understates true ROEs.

The stringent capital adequacy regulations and lack of long-term funding have been
the main obstacles to growth in the sector. Before the recent equity capital increase,
Bank of Georgia had been to a large degree relying on external funding from both
development and commercial banks. While the cost of this type of funding is
comparable with term customer deposit rates (c.400bp over Libor), it increases the
overall funding costs, which are still relatively low, a function of high current account

                                                            Bank of Georgia   January 2007

    Fig 17   Share of current accounts in total customer deposits (%)


                                  56.2                                   58.1
     50         45.2





                2003              2004              2005                 1H06

Source: Company data

As of the end of October 2006, the aggregate sector loan/deposit ratio was 154%, up
from 120% at end-June 2005. Given the strong demand for loans, this ratio will
probably continue to increase, leading to eventual slowdown in growth. The alternative
scenario of sustained growth would require legislative reforms with respect to deposit
insurance, liquidity and capital adequacy regulations.

According to management, liquidity regulations could be relaxed soon and there is also
a possibility of the NBG recognising hybrid tier 1 capital. However, changes in capital
adequacy and deposit insurance regulations are not imminent.

The recent capital increase gives Bank of Georgia an advantage over its competitors,
most of which have limited access to external financing. However, given the amount
raised (more than double the existing equity), it also presents a risk in terms of ROE
dilution and negative impact on spreads in the market.

Macroeconomic and political risks
We believe the recent deterioration in relations with Russia could affect both growth
and the company’s earnings. In September 2006, Moscow suspended air, automotive,
rail and postal links with Georgia, and discussed a possibility of imposing a ban on
banking transactions and money transfers.

Should Russia carry out a ban on remittances, there would be a direct and immediate
impact on Bank of Georgia profits. According to management, the bank earned an
estimated GEL3.7m in remittance fees in the first nine months of 2006, of which
approximately 60% was accounted for by transfers from Russia. Assuming these flows
halve, the loss to revenues and earnings would be 1.7% and 5.5% respectively, all
other things equal.

This impact could be mitigated if some recipients who currently have no banking
accounts in Georgia decide to open bank accounts and have the money transferred via
banks in third countries rather than through non-banking channels (eg, Western
Union). Bank of Georgia estimates it could potentially see around 100,000 new
accounts opened under such a scenario.

                                                    Bank of Georgia   January 2007

Fig 18        SWOT analysis

Strengths                     Weaknesses

Distribution                  Long-term funding
Product                       Efficiency
Management                    Regulatory framework

Opportunities                 Threats

Retail banking                Competition
New customers                 Asset quality
Regional expansion            Macro and political
Source: ING

                                                          Bank of Georgia   January 2007

Bank of Georgia overview

Company background
Bank of Georgia is the successor to the state-owned Binsotsbank, which was
privatised in 1994. The bank became listed on the Georgian stock exchange in 2001
and it has since expanded its shareholder base following the GDR offering in London
in November 2006.

Fig 19    Shareholders (%, 31 Dec 2006)

GDR holders (through Bank of New York)                                                43
Bank Austria Creditanstalt                                                            17
East Capital Financial Institutions AB II                                            5.4
Firebird Global Master Fund                                                             3
Galt & Taggart Securities (nominees)                                                  2.5
East Capital Bering Ukraine Fund                                                     2.3
Firebird Avrora Fund                                                                  1.7
Firebird Republics Fund                                                               1.6
Bryum Limited                                                                         1.6
Lado Gurgenidze                                                                       1.4
SEB Vilniaus Bankas (nominees)                                                       1.1
Sulkhan Gvalia                                                                        0.9
Sub-total                                                                           80.7
Retail free float                                                                   19.3
Total                                                                                100
Source: Company data

Bank of Georgia has made several acquisitions in recent years. In 2003, it acquired a
35% equity interest in an investment banking firm, Galt & Taggart Securities, and
subsequently increased it to 100% in 2005. With the arrival of the new management in
October 2004, the bank accelerated its acquisition strategy – it increased its
shareholding in Georgian Card, a card processing company, and followed with
acquisitions of TbilUniversalBank (TUB) and insurance companies BCI, Euro Pace
and, more recently, Aldagi. The bank also owns a 100% stake in GLC, Georgia’s
second-largest leasing company, which it inherited via the acquisition of TUB. In
February 2006, Bank of Georgia bought Intellect Bank in Georgia and is in the process
of buying a bank in Ukraine.

Market position
As of 30 November 2006, Bank of Georgia was the largest bank in Georgia based on
assets, loans and equity, and second-largest bank based on deposits. The bank
provides a full range of commercial and investment banking, insurance, asset
management and card services to corporate and retail clients. It serves approximately
425,000 clients through its network of 100 branches and 123 ATMs, and employs
around 2,200 people.

The Georgian banking sector is heavily concentrated with the top five banks
accounting for 81% of total assets and 84% of total deposits. Based on total assets,
Bank of Georgia’s market share is 27.8%, ahead of TBC Bank (23%). Besides TBC,
key competitors are United Georgian Bank, ProCredit Bank and Bank Republic.

                                                                  Bank of Georgia   January 2007

Fig 20    Georgian banks – market share (%, Nov 2006)

                                      Assets           Loans           Deposits            Equity

Bank of Georgia                           27.8             25.3            23.1              39.3
TBC Bank                                  23.0             22.8            26.4              13.4
United Georgian Bank                      11.6             14.5            13.1               6.0
ProCredit Bank                            10.0             11.8             9.6               7.0
Bank Republic                              8.7              7.6            11.6               7.9
Cartu Bank                                 7.1              8.2             4.0              10.7
Other banks                               12.0              9.8            12.1              15.8
Source: NBG

Following restructuring-related market share losses in 2005, Bank of Georgia
increased its share in all market segments in 1H06, including a full recovery in asset
market share to 21%. The market share increased further to 27.8% following the
capital increase in November.

Although no data is available for individual retail market segments, we believe Bank of
Georgia’s market share gains in mortgages and consumer loans may have been even
bigger. According to management, the bank is a leading player in the retail market, and
it claims 36% of the plastic cards market. Its leasing subsidiary accounts for about 40%
of the leasing market, while its insurance operations have around 40% share based on
gross written premiums. According to management, the share in the mortgage market
is around 40% and Galt & Taggart Securities completely dominates trading on
Georgian Stock Exchange, with a 97% share in 1H06, and has a fully established
presence in Ukraine.

 Fig 21       Bank of Georgia – market share (%)

   30                27.8
   25                                                        23.1
              17.8             18.2                 19.0                    18.7
                Assets            Loans               Deposits                 Equity

                                          FY05   Nov. 06

Source: NBG

Asset and revenue structure
The bank’s balance sheet is geared towards lending (71% of total interest-earning
assets in 1H06), with a relatively high share of cash and interbank loans (25%) due to
liquidity requirements. Loans to companies account for 45% of total interest-earning
assets and loans to individuals comprise a further 26%. Total assets have grown from
GEL363.2m in 2004 to GEL460.6m in 2005, and reached GEL715.6m (US$408.9m) as
of 30 June 2006.

                                                              Bank of Georgia      January 2007

    Fig 22   Asset breakdown (1H06)
                          Loans to state
                             entities                Cash
                               4%                    17%

                     Loans to                                    Interbank loans
                   induviduals                                         8%

                                                     Loans to private

Source: Company data

Given its balance sheet structure, most of the bank’s revenues come from customer
lending. In 1H06, the bank generated 56% of its revenues from loan interest income,
22% from net fees & commissions, 10% from FX-related transactions and 8% from
insurance premiums. Net interest income grew 41% YoY in 1H06 to GEL25.9m
(US$14.6m), while total revenues were up 57% to GEL42.9m (US$25.7m).

    Fig 23   Revenue breakdown (1H06)

                                                     Other operating
                         Net insurance                  income
                           premium                         2%

                       FX income
                                                                   Loans to
             Net fee and                                          customers
             commission                                              56%
                 22%     Other interest

Source: Company data

Segmental financials
The bank’s two principal areas of business are retail banking and corporate &
investment banking (CIB), which contributed 26% and 58% of the group’s 1H06
earnings, respectively. The asset & wealth management (A&WM) division generated
11% of first-half profits while insurance operations contributed 5%.

Although the size of the insurance market is relatively small, according to
management, Bank of Georgia is a leader in the Georgian insurance sector with a 40%
market share in gross premiums written following the acquisition of Aldagi in December
2006. It has a dominant position in carriers liability, financial risks and life products.

The bank’s asset and wealth management business consists of private banking
services, pension fund management and administration, as well as broker-dealer,

                                                                           Bank of Georgia    January 2007

custodial and asset management services. Most of these activities are run by the Galt
and Taggart subsidiary. Merchant banking business, while still small in terms of profit
contribution, is gradually becoming another area of activity.

Fig 24       Divisional financials summary (GELm, 1H06)

                                              Insurance             CIB    Retail banking          A&WM

Market position                                       2/3            1/2                1               1
Earning assets                                        5.9          277.6            171.5            144*
Total assets                                         15.3            N/A              N/A            29.7
Revenue                                               7.0           14.1             16.3             2.1
Normalised net operating income                       1.5           10.7              6.2             1.4
Pre-bonus result                                      0.8            8.3              3.8             1.3
Net income                                            0.5            5.4              2.5             1.0
Contribution to group net income (%)                    5             58               26              11
Source: Insurance State Supervision Service, Company data

Loan book breakdown
The bank has been rapidly increasing the size of its retail loan portfolio. As of 1H06,
the retail loan book amounted to GEL193m (US$110m), compared with GEL131m in
2005 and GEL68m in 2004. Micro-finance loans, mortgage loans and general
consumer loans account for 31%, 29% and 23% of the portfolio, respectively. In 1H06,
micro loans expanded by 34% YTD, while mortgages grew 50% and consumer loans
by 90% over the same period.

    Fig 25   Retail loan growth (GELm)

     180                                                                                    32.1
     140                                                            26.5
     120                                   24.6
     100                                                            49.9
      80                                   45.3
      60            26.4                                            45.5
      40                                   37.8
      20                                                                                    43.8
                    16.6                   23.1                     29.0
       0             5.5
                    2004                   2005                     1Q06                   2Q06

                            Consumer loans        Mortgage loans     Micro loans   Other

Including private banking
Source: Company data

Loans to commercial banking customers were GEL298m (US$170m) at 1H06 or 63%
of the total loan portfolio compared with GEL182m at end-2005 and GEL119m in
December 2004. Within the commercial loan portfolio, the top three categories are
SMEs (27% of total), retail and wholesale trade (17%), and construction and real
estate (15%). The fastest growth areas have been the trade, energy and construction

As at 1H06, Bank of Georgia had a relatively low top ten borrower concentration, at
14% of the total loan portfolio (60% of equity), and a relatively small exposure to
related parties at around 3% of loans.

                                                                                                                   Bank of Georgia        January 2007

 Fig 26     Retail loan breakdown (1H06)                                   Fig 27     Corporate loan breakdown (1H06)
                                                 Other                                                                   Consumer
                                              (including                                                                  goods
                      POS loans               overdrafts)                                                                  13%
                        2%                        4%
           4%                                                                         SMEs                                           Retail and
                                                             financing                27%                                            wholesale
     Pawn loans                                                 loans                                                                  trade
       14%                                                       33%                                                                   17%

                                                                                ticals &                                              Industry and
         General                                                                                                                         state
        consumer                                                               healthcare
                                                                                   5%                                                     6%
           17%                                                                                                              Energy
                                                      Mortgage                              and real
                                                       loans                                                                 12%
                                                        26%                                   15%

Source: Company data                                                      Source: Company data

                                         Credit quality
                                         When the new management team took over in 4Q04, it immediately began the
                                         restructuring process supported by strategic acquisitions. Improving loan quality, while
                                         expanding the loan book, was one of the key targets of the new team. The loan book
                                         was cleaned up in 2004 when the bank incurred substantial provisioning-related
                                         losses. In February 2006, the bank acquired Intellect Bank, which led to an increase in
                                         the NPL ratio to 7.5% and a drop in the coverage ratio to just over 110%.

                                         Bank of Georgia defines non-performing loans as more than 90 days overdue, but it
                                         also provides disclosure based on the NBG classification, which includes loans less
                                         than 90 days overdue such as substandard and doubtful. These loans need to be
                                         provided at 30% and 50%, respectively, and on that basis the coverage ratio in 1H06
                                         actually improved to 106% from 88% at year-end, while the share of NPLs increased
                                         only 150bp to 7.9%.

 Fig 28     NPL and provisions trend (GELm)                                Fig 29     NPL and coverage ratios (%)

   45                                                              41.9      350
   40                                                       37.6                              291.7
   25                                                                        200
   20                                        17.7                                                                   139.7
   15                             12.7
   10       7.0
    5                                                                                                                               7.5
                                                                                       4.1                   4.0
    0                                                                          0
              2004                   2005                      1H06                       2004                    2005                1H06

                              NPLs       Provisions                                                   NPL ratio    Coverage ratio

Source: Company data                                                      Source: Company data

                                                                                                                                                                                                                               Bank of Georgia                           January 2007

                                                                                 Earnings outlook
                                                                                 Between 2005 and 2008, we forecast average annual EPS growth of 30%, driven
                                                                                 mainly by 97% average loan growth. This forecast assumes a 185bp annual margin
                                                                                 attrition, 40% non-interest income growth, 34% cost growth and credit costs at around
                                                                                 250bp throughout the forecasting period.

                                                                                 Top-down market assumptions
                                                                                 Our top-down growth forecasts for the Georgian banking sector are based on the
                                                                                 assumption that the favourable economic and risk environment will continue in the
                                                                                 medium term.

                                                                                 Recent sector data shows no signs of a significant credit market slowdown. Private
                                                                                 credit growth was 76% YoY in October, below the 84% monthly average in 9M06.
                                                                                 Deposit growth slowed to 44% YoY, from a 48% monthly average in 9M06. Retail and
                                                                                 corporate loan growth rates have been similar in recent months following the
                                                                                 outperformance of the corporate market in 2005. As of October 2006, credit to
                                                                                 households accounted for 28% of total credit, unchanged compared with end-2005, but
                                                                                 down from 32% in June 2005.

 Fig 30                   Georgian banks – deposit growth (% YoY)                                                                                    Fig 31             Georgian banks – loan growth (% YoY)

   60                                                                                                                                                  100
   30                                                                                                                                                   50
    0                                                                                                                                                    0



























Source: NBG                                                                                                                                         Source: NBG

                                                                                 Beyond 2006, we expect a decline in corporate and, to a lesser degree, retail credit
                                                                                 growth, as the base for growth becomes larger and the market gets more saturated.
                                                                                 Between 2005 and 2008, we forecast 62% growth in total credit, with the retail market
                                                                                 growing at 78% and the corporate market growing at 53%. This implies a 2008F
                                                                                 average loan/GDP ratio of 26%, up from 10.2% in 2005, and a retail loan/GDP ratio of
                                                                                 11%, up from 3.3% in 2005. This, in our view, would be consistent with the growth
                                                                                 patterns we have seen in more developed transition economies.

                                                                                                   Bank of Georgia   January 2007

Fig 32     Georgian banks – growth forecasts (GELm)

                                          2004         2005         2006F        2007F        2008F         2009F          2010F

Retail loans, avg.                          265          379          785         1,426        2,122         3,106         3,955
% growth                                      11           43         107            82           49            46            27
Corporate loans, avg.                       464          810        1,499         2,097        2,894         3,772         4,975
% growth                                       0          74           85            40           38            30            32
Total loans, avg.                           730        1,188        2,284         3,523        5,016         6,878         8,930
% growth                                       4           63          92            54           42            37            30
GDP                                       9,800       11,600       14,278        16,776       19,293        22,187        25,515
% growth                                      14          18           23            18           15            15            15
Retail loans/GDP (%)                         2.7          3.3          5.5           8.5        11.0          14.0          15.5
Corporate loans/GDP (%)                      4.7          7.0        10.5          12.5         15.0          17.0          19.5
Total loans/GDP                              7.4        10.2         16.0          21.0         26.0          31.0          35.0
Source: NBG, ING estimates

                                      Loan growth
                                      In recent quarters, Bank of Georgia has been growing faster than the sector, partly due
                                      to acquisitions. Between end-2004 and 1H06, its loan book growth averaged 84%
                                      against sector growth of 78%. At 100%, retail loan growth outpaced the corporate
                                      growth, in contrast to the peer group. Within the retail book, consumer loan growth was
                                      the fastest (299%), followed by mortgage loans (127%) and micro loans (110%). As of
                                      June 2006, retail loans accounted for 35% of total loans compared with a sector
                                      average of 28%.

                                      We forecast that Bank of Georgia will continue growing faster than the sector owing, to
                                      some degree, to its higher exposure to and a better positioning in the retail market, but
                                      mostly because of the recent capital increase. The recent expansion of the distribution
                                      network, partnership initiatives with the retailers, the head-start in the fast-growing
                                      POS market and product innovation in general should give the bank an edge over its
                                      competitors. However, it is what appears to be a limited access to external funding of
                                      the competitors that creates the unique opportunity for market share gains.

                                      In the first 11 months of last year, Bank of Georgia already captured over 700bp in the
                                      lending market and we anticipate its market share will increase by a further 800bp in
                                      the next three years. This implies 85% annual loan growth between 2005 and 2008
                                      and excludes any acquisitions outside Georgia.

Fig 33      Loan and market share forecasts (GELm)

                                          2004         2005         2006F        2007F        2008F         2009F          2010F

Average loan volume                        170          252          472          1,022        1,655         2,304          2,947
 growth (%)                                               48           88           116           62            39             28
 market share (%)                          23.3         21.2         20.7          29.0         33.0          33.5           33.0
Implied year-end volume                     189          314          715         1,328        1,982         2,626          3,268
 growth (%)                                               66          128            86           49            32             24
 market share (%)                          20.3         18.3         25.0          31.7         33.9          33.2           32.9
Source: Company data, ING estimates

                                      Based on our calculations, the net interest margin on interest-earning assets averaged
                                      13.8% last year, up from 12.7% in 2004. This was driven by improvement in both asset
                                      yield and liability costs, with asset spreads helped by deteriorating liquidity in the
                                      banking sector. However, in 2006 market spreads began contracting and given the

                                                                                                                   Bank of Georgia    January 2007

                                         large capital increase in November, we expect margins to be substantially lower in the
                                         coming years, at just around 8% on average.

                                             Fig 34      Georgian banks – interest rate spreads (%)






                                               01/03         07/03      01/04           07/04        01/05      07/05       01/06        07/06

                                                                                            GEL           FX

                                         Source: NBG

                                         The exact forecasting of asset spreads is difficult owing to expected changes in
                                         balance sheet mix, notably a likely increase in the share of consumer and especially
                                         POS loans. POS loans are not only the fastest growing but also show rising rates as
                                         demand outpaces supply, a result of Bank of Georgia being the only significant player
                                         in the market.

                                         Currently, POS loans account for only around 2% of total loans but they carry rates
                                         that are twice as high as branch-based consumer loan rates and three times as high
                                         as commercial loan rates. The upside to assets spreads is therefore clear, but only if
                                         the competition remains weak. In our model, we choose to be conservative and
                                         assume pressure on loan rates throughout the forecasting horizon. Our expectation is
                                         that NIM will shrink to 8.2% by 2008.

Fig 35       Margin forecasts (%)

                                                  2004         2005         2006F               2007F          2008F        2009F           2010F

Yield on customer loans                           20.1          20.2            15.1              15.0          14.5          13.5            12.8
Loan/deposit ratio                                  67           110             122               162           174           172             167
Customer loans/total assets                        47             65              57                78            84            87              89
Yield on assets                                   18.0          18.5            13.6              14.1          14.4          13.4            12.7
Cost of deposits                                   3.6            3.5             5.0               5.6           5.7           5.4             5.3
Cost of funding                                    4.2            4.0             5.5               6.4           6.6           6.5             6.4
Net interest spread                               13.8          14.4              8.0               7.7           7.7           6.9             6.3
Equity to assets                                  14.9          19.6            31.1              22.5          18.0          16.8            16.0
Net interest margin                               12.7          13.8              8.7               8.5           8.2           7.5             6.9
Annual arithmetic averages are used for ratios.
Source: Company data, ING estimates

                                         Non-interest income
                                         Fee & commission income accounted for 67% of total non-interest income and 22% of
                                         total revenues in 2005. The bulk of it was related to standard cash and settlement
                                         operations with a relatively negligible share of securities commissions or FX conversion.
                                         Because loan growth will likely remain the main revenue growth driver, we expect the
                                         share of commissions to decline slightly in the coming years despite numerous
                                         opportunities to diversify that source of income.

                                                                                                   Bank of Georgia   January 2007

                                      Beginning January 2005, Bank of Georgia introduced account fees in the range of
                                      GEL1.0-1.5 per month. This translates into around US$8.5 per average current account
                                      per year, which relative to other banks we follow may look inexpensive, but which given
                                      the low income per capita in Georgia probably offers only limited upside potential in the
                                      near term. The growth should therefore come mainly from the increase in the numbers of
                                      customers and new product introduction.

                                      As of November 2006, the bank had more than 405,000 current accounts, almost triple
                                      the number it had in the beginning of the year, driven by management initiatives such as
                                      promotions for students and co-branding with retailers. An introduction of new charges,
                                      for example for overdraft commitment or ATM loans, could boost fee income further.

                                      All in all, we believe our 42% annual average growth may be too conservative, but like
                                      our margin forecasts, it assumes a tougher competitive environment in the future.

                                      In addition to fees and commissions, Bank of Georgia generates a substantial chunk of
                                      its non-interest income from FX income and insurance premiums. On the net basis, the
                                      latter contributed 7% to the consolidated bottom line in 2005, in line with its revenue
                                      contribution. Gains from foreign currency dealings are mostly attributable to trading on
                                      behalf of customers rather than proprietary trading, and we expect the share of this
                                      revenue source to decline gradually over the coming years.

Fig 36      Non-interest income growth forecasts (GEL000)

                                           2004        2005         2006F        2007F        2008F         2009F          2010F

Fee & commission income                   10,314      14,368       21,906       30,682        41,370       52,462         65,899
growth (%)                                    16          39           52           40            35           27             26
Other non-interest income                  5,000      11,102       19,541       24,564        28,385       31,336         33,636
growth (%)                                    28         122           76           26            16           10              7
Total non-interest income                 15,314      25,470       41,447       55,246        69,755       83,798         99,535
growth (%)                                    20          66           63           33            26           20             19
Total revenues                            39,153      64,221       98,197      159,993       228,394      283,528        336,849
growth (%)                                     5          64           53           63            43           24             19
F&C income to total revenues                  26          22           22           19            18           19             20
Non-int. Inc to total revenues                39          40           42           35            31           30             30
Source: Company data, ING estimates

                                      Bank of Georgia’s cost/income and, especially, cost/asset ratios are among the highest
                                      we have seen in the emerging market banks space. In 2005, they were 64% and 10%,
                                      respectively. The cost structure is more typical – personnel costs account for 56%,
                                      depreciation for 10% and other costs for the remainder, although personnel costs are
                                      inflated by substantial management costs, which in 1H06 accounted for 32% of total
                                      personnel costs and 34% of pre-tax profits.

                                      In a gradually declining margin environment, such a high cost base should not pose a
                                      threat to earnings and indeed, we forecast the cost/income and cost/asset ratios to
                                      decline to 43.2% and 4.4%, respectively, by 2008. This should be possible due to
                                      strong loan growth, which should fuel revenue and asset expansion over the coming

                                      We feel there is downside risk to these forecasts given the planned significant
                                      business expansion. Last year, headcount more than doubled to 2,220. Wage inflation
                                      in the economy has been significantly higher than CPI in recent years and we believe

                                                                                                   Bank of Georgia    January 2007

                                      the competition for staff in the banking sector is stronger than elsewhere in the

                                      Credit quality
                                      As of 1H06, 7.5% of gross loans were classified as non-performing, up from 4.0% at
                                      end-2005. More than 80% of this increase can be explained by the acquisition of
                                      Intellect Bank, which more than doubled the NPL stock. It also contributed to the fall in
                                      the coverage ratio to 111% from 140% at year-end. According to management, there is
                                      a substantial chance of recoveries at Intellect, which itself had a coverage ratio of

                                      Bank of Georgia defines non-performing loans as more than 90 days overdue, but it
                                      also provides disclosure based on the NBG classification, which includes loans less
                                      than 90 days overdue such as substandard and doubtful. These loans need to be
                                      provided at 30% and 50%, respectively, and on that basis the coverage ratio in 1H06
                                      actually improved to 106% from 88% at year-end, while the share of NPLs increased
                                      only 150bp to 7.9%.

                                      After the current management took over in 2004, the loan book was cleaned up at a
                                      one-off charge of GEL20.5m. 2005 is therefore more representative in terms of
                                      recurring credit costs, which amounted to 250bp. Given that the loan book will have
                                      more than doubled last year and is likely to double again this year, we would not
                                      expect anything below this in the near term. This is not to say that charges will have to
                                      increase as the current demand still comes from the top quality borrowers and the
                                      share of riskier POS loans is still very low. We anticipate unchanged provisioning rate
                                      in the next three years, with a somewhat higher rate (275bp) in 2006.

Fig 37      Provisioning forecasts (GELm)

                                            2004        2005        2006F        2007F        2008F         2009F           2010F

Gross customer loans                      188,949    314,316      732,671     1,531,282    2,383,976     3,128,968       4,024,635
NPL ratio (%)                                 N/A         4.0          7.5           7.5          7.5           7.5             7.5
LLPs                                       19,081     16,940       46,336        74,635      123,576       185,597         257,133
LLPs/gross loans (%)                         10.1         5.4          6.3           4.9          5.2           5.9             6.4
Credit cost                                20,511      6,228       14,396        28,299       48,941        62,021          71,536
Credit cost (bp)                            1,207        248          275           250          250           225             200
Credit costs to PPP (%)                       166         27           33            33           38            37              34
Coverage ratio (%)                            N/A        140          110           100          100           100             100
Source: Company data, ING estimates

                                      Other earnings factors
                                      Bank of Georgia’s non-banking subsidiaries operate in insurance (BCI and Aldagi),
                                      brokerage (G&T), leasing (GLC) and card processing (Georgian Card). In 2005, they
                                      contributed GEL0.790m, or 6% to consolidated profits. BCI was the strongest contributor
                                      (GEL 0.932m) while Georgian Card was loss making (-GEL0.318m).

                                      While we do not forecast these subsidiaries’ earnings explicitly, we assume a stable
                                      share of profits in the coming years. The insurance market is as underdeveloped as the
                                      banking market and it certainly has the potential for growth. The brokerage business, on
                                      the other hand, would require regional expansion to grow given that its market share in
                                      Georgia is already more than 90%.

                                      Management plans to expand in Ukraine in both commercial and investment banking. In
                                      commercial banking, we believe management has already identified a small-size bank

                                                               Bank of Georgia   January 2007

and is currently negotiating a purchase. Although we know little of this bank, we include it
in our forecasts assuming roughly US$180m in assets by end-2007 and around 2% ROA
with profit contribution from 2H07.

Sensitivity analysis
We have run earnings sensitivity against various margin, provisioning, fee and cost
assumptions. Given that Bank of Georgia’s earnings are driven mainly by loan growth,
we are not surprised to see the highest sensitivity to margins and operating costs, and
relatively little sensitivity to credit costs and fee & commission income growth.

For example, for each 100bp change in NIM, 2007F earnings change by 21-22% and a
5ppt change in cost/income ratio changes earnings by 13%. On the other hand, a 25bp
change in credit cost has only a 5-6% impact on earnings, while a 500bp change in fee &
commission income growth triggers only a 2% change in earnings.

We feel our margin and non-interest income growth assumptions are conservative and
while we think our cost and provisioning assumptions are defendable, there is a
potentially high volatility embedded in both.

                                                                                               Bank of Georgia     January 2007

Fig 38      Summary IFRS income statement and balance sheet (GEL000)

                                             2004        2005       2006F       2007F       2008F        2009F           2010F

Interest income                             33,758      51,832      88,439    174,714      276,597      359,490         437,456
Interest expense                           (9,919)    (13,081)    (31,689)    (69,967)   (117,958)    (159,761)       (200,142)
Net interest income                         23,839      38,751      56,750    104,746      158,639      199,730         237,314
Fee and commission income                   10,314      14,368      21,906      30,682      41,370       52,462          65,899
Trading income                               4,848       6,507      10,737      14,119      16,547       18,235          19,311
Other non-interest income                      152       4,595       8,804      10,446      11,838       13,101          14,325
Total non-interest income                   15,314      25,470      41,447      55,247      69,755       83,798          99,535
Total revenues                              39,153      64,221      98,197    159,993      228,394      283,528         336,849
Personnel costs                           (12,896)    (23,219)    (33,197)    (48,178)    (66,244)     (80,156)        (88,171)
Depreciation and amortisation              (2,609)     (4,230)     (4,673)     (6,687)      (7,875)      (8,345)         (8,762)
Other operating costs                     (11,267)    (13,809)    (16,053)    (20,267)    (24,624)     (27,973)        (31,274)
Total operating costs                     (26,772)    (41,258)    (53,923)    (75,131)    (98,744)    (116,474)       (128,208)
Pre-provisioning profit                     12,381      22,963      44,274      84,862     129,650      167,054         208,641
Provision expense                         (20,511)     (6,228)    (14,396)    (28,299)    (48,941)     (62,021)        (71,536)
Pre-tax profit                             (8,130)      16,735      29,878      56,562      80,709      105,033         137,105
Taxes                                           781    (3,108)     (5,975)    (11,312)    (16,142)     (21,007)        (27,421)
Net profit                                 (7,349)      13,627      23,902      45,250      64,568       84,027         109,684
Minorities                                        -        211         190         200          200          200             200
Attributable net profit                    (7,349)      13,838      24,092      45,450      64,768       84,227         109,884
Dividends                                         -      (776)           -           -            -            -               -
Retained earnings                          (7,349)      13,062      24,092      45,450      64,768       84,227         109,884
Fully-diluted number of shares (000s)        9,442      11,980      16,751      25,627      25,977       27,087          27,087
EPS (GEL)                                    (0.78)       1.16        1.44        1.77         2.49         3.11            4.06
GEL/US$ (average)                              1.92       1.81        1.75        1.73         1.75         1.75            1.75
GEL/US$ (year-end)                             1.83       1.79        1.72        1.75         1.75         1.75            1.75
BVPS (GEL)                                     4.92       6.21       14.81       16.15        17.87        20.98           25.04

Interbank loans                            25,585      33,398       37,072      23,448      17,562       15,675          16,458
Customer loans                            169,868     297,376      686,335   1,456,646   2,260,399    2,943,371       3,767,502
Interest-earning securities                20,226      14,921      231,965      40,029      55,012       68,160          83,646
Fixed assets                               27,159      35,815       57,644      76,090      81,417       85,488          89,762
Other assets                              120,334      79,060      184,660     265,995     261,178      267,723         270,796
Total assets                              363,172     460,570    1,197,675   1,862,208   2,675,568    3,380,416       4,228,164

Interbank deposits                         48,334      78,873      225,876     335,427     482,729      565,155         631,985
Customer deposits                         252,129     269,952      564,235     899,954   1,301,910    1,708,757       2,260,686
Interest-bearing securities                     -       1,143        2,397     168,868     361,377      485,691         596,672
Other liabilities                           7,249      19,140       31,868      38,560      45,386       52,420          60,546
Shareholders’ equity                       55,460      91,462      373,299     419,399     484,166      568,393         678,276
Total liabilities and equity              363,172     460,570    1,197,675   1,862,208   2,675,568    3,380,416       4,228,164
Source: Company data, ING estimates

                                                                                      Bank of Georgia   January 2007

Fig 39       Financial ratios (%)

                                                  2004     2005    2006F   2007F   2008F       2009F          2010F

Yield on earning assets                             18.0    18.5    13.6    14.1    14.4         13.4           12.7
Cost of interest-bearing liabilities                 4.2     4.0     5.5     6.4     6.6          6.5            6.4
Net interest spread                                 13.8    14.4     8.0     7.7     7.7          6.9            6.3
Net interest margin                                 12.7    13.8     8.7     8.5     8.2          7.5            6.9
Operating income/total assets                       13.2    15.6    11.8    10.5    10.1          9.4            8.9
Return on equity                                  (13.3)    18.8    10.4    11.5    14.3         16.0           17.6
Return on assets                                   (2.5)     3.4     2.9     3.0     2.9          2.8            2.9

Costs/income                                       68.4     64.2    54.9    47.0    43.2         41.1           38.1
Cash costs/income                                  61.7     57.7    50.2    42.8    39.8         38.1           35.5
Costs/total assets                                  9.0     10.0     6.5     4.9     4.4          3.8            3.4
Staff costs/total income                           32.9     36.2    33.8    30.1    29.0         28.3           26.2
Depreciation/fixed assets                          11.1     13.4    10.0    10.0    10.0         10.0           10.0

Asset quality
NPLs/gross customer loans                           4.1      4.0     7.5     7.5     7.5          7.5            7.5
Provisions/NPLs                                   291.7    139.7   110.0   100.0   100.0        100.0          100.0
Provisions/gross loans                             12.1      5.6     8.3     7.5     7.5          7.5            7.5
Provisions expense/loans                           12.1      2.5     2.8     2.5     2.5          2.3            2.0
Provision exp./operating profit                   165.7     27.1    32.5    33.3    37.7         37.1           34.3

Capital adequacy
Tier 1 ratio                                       15.0     11.2    24.0    10.8     8.4          7.9            7.6
Capital adequacy ratio                              9.0     13.0    28.4    16.8    12.8         11.7           11.0
Equity/assets                                      15.3     19.9    31.2    22.5    18.1         16.8           16.0
Dividend payout ratio                                 -      5.6       -       -       -            -              -

Income and cost growth
Net interest income                                (2.4)    62.6    46.4    84.6    51.5         25.9           18.8
Non-interest income                                20.0     66.3    62.7    33.3    26.3         20.1           18.8
Operating costs                                    24.5     54.1    30.7    39.3    31.4         18.0           10.1
Net profit                                          N/A      N/A    74.1    88.7    42.5         30.0           30.5

Income breakdown
Fee income/total income                            26.3     22.4    22.3    19.2    18.1         18.5           19.6
Trading income/total income                        12.4     10.1    10.9     8.8     7.2          6.4            5.7
Non-interest income/total income                   39.1     39.7    42.2    34.5    30.5         29.6           29.5
Interest income/total income                       60.9     60.3    57.8    65.5    69.5         70.4           70.5

Balance sheet growth
Loan                                               19.8     75.1   130.8   112.2    55.2         30.2           28.0
Deposit                                           104.0      7.1   109.0    59.5    44.7         31.3           32.3
Asset                                              57.8     26.8   160.0    55.5    43.7         26.3           25.1
Equity                                              1.5     64.9   308.1    12.3    15.4         17.4           19.3

Balance sheet structure
Customer loans/total assets                        46.8     64.6    57.3    78.2    84.5         87.1           89.1
Interest-earn sec./assets                           5.6      3.2    19.4     2.1     2.1          2.0            2.0
Earning assets/total assets                        59.4     75.1    79.8    81.6    87.2         89.6           91.5
Deposits/total assets                              69.4     58.6    47.1    48.3    48.7         50.5           53.5
Loans/deposits                                     67.4    110.2   121.6   161.9   173.6        172.3          166.7
Annual arithmetic averages are used for ratios.
Source: Company data, ING estimates

                                                                                                                           Bank of Georgia        January 2007

Disclosures Appendix
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RATING DISTRIBUTION (as of end 3Q06)                                            RATING DEFINITIONS
              Equity coverage            Investment Banking clients*            Buy: Forecast 12-mth absolute total return greater than +15%

Buy                          47%                                       19%      Hold: Forecast 12-mth absolute total return of +15% to -5%
                                                                                Sell: Forecast 12-mth absolute total return less than -5%
Hold                         45%                                       18%
                                                                                Total return: forecast share price appreciation to target price plus forecast annual
Sell                           8%                                        8%     dividend. Price volatility and our preference for not changing recommendations too
                                                                                frequently means forecast returns may fall outside of the above ranges at times.
                                                                                Research published prior to 15/12/05: EMEA equities’ ratings were based on US
* Percentage of companies in each rating category that are Investment Banking   dollar total returns; Western Europe’s were based on: absolute return +25%, Strong
clients of ING Financial Markets LLC or an affiliate.                           Buy; greater than +10%, Buy; +10% to -10%, HOLD; lower than -10%, Sell.

                                                                                                                                 Bank of Georgia        January 2007

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London          ING Bank N.V. London Branch, 60 London Wall, London EC2M 5TQ, United Kingdom. Financial Services Authority
Madrid          ING Financial Markets A.V., S.A, C/Genova, 27. 4th Floor, Madrid, Spain, 28004. Comisión Nacional del Mercado de Valores
Manila          ING Bank N.V. Manila Branch, 21/F Tower I, Ayala Avenue, 1200 Makati City, Philippines. Philippine Securities and Exchange Commission
Mexico City     ING Grupo Financiero (Mexico) S.A. de C.V., Bosques de Alisos 45-B, Piso 4, Bosques de Las Lomas, 05120, Mexico City, Mexico.
                Comisión Nacional Bancaria y de Valores
Milan           ING Bank N.V. Milan Branch, Via Paleocapa, 5, Milano, Italy, 20121. Commissione Nazionale per le Società e la Borsa
Moscow          ING Bank (Eurasia) ZAO, 36, Krasnoproletarskaya ulitsa, 127473 Moscow, Russia. Federal Financial Markets Service
Mumbai          ING Vysya Bank Limited, A Wing, Shivsagar Estate, 2nd Floor, South Wing, Dr. Annie Besant Road, Worli, Mumbai, 400 018. India
                Securities and Exchange Board of India
New York        ING Financial Markets LLC, 1325 Avenue of the Americas, New York, United States,10019. Securities and Exchange Commission
Paris           ING Belgium S.A., Succursale en France, Coeur Defense, Tour A, La Defense 4110, Esplanade du General de Gaulle, Paris La
                Defense Cedex, 92931. l’Autorité des Marchés Financiers
Prague          ING Bank N.V. Prague Branch, Nadrazni 25, 150 00 Prague 5, Czech Republic. Czech National Bank
Sao Paulo       ING Bank N.V. Sao Paulo, Av. Brigadeiro Faria Lima n. 3.400, 11th Floor, Sao Paulo, Brazil 04538-132. Securities and Exchange
                Commission of Brazil
Singapore       ING Bank N.V. Singapore Branch, 19/F Republic Plaza, 9 Raffles Place, #19-02, Singapore, 048619. Monetary Authority of Singapore
Sofia           ING Bank N.V. Sofia Branch, 12 Emil Bersinski Str, Ivan Vazov Region,1408 Sofia, Bulgaria. Bulgarian Central Bank and Financial
                Supervision Commission
Tel Aviv        UMI/GM Building, Moshe Levy St, Rishon Lezion, Israel, 52522. Analyst registered with UK Financial Services Authority by ING Bank
                N.V. London Branch
Warsaw          ING Securities S.A., Plac Trzech Krzyzy, 10/14, Warsaw, Poland, 00-499. Polish Securities and Exchange Commission

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EQ_UK IND                                                                                                                        32
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