TIDMTBCG
RNS Number : 3808W
TBC Bank Group PLC
18 August 2020
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TBC BANK GROUP PLC ("TBC Bank")
2Q AND 1H 2020 UNAUDITED CONSOLIDATED FINANCIAL RESULTS
Forward-Looking Statements
This document contains forward-looking statements; such
forward-looking statements contain known and unknown risks,
uncertainties and other important factors, which may cause the
actual results, performance or achievements of TBC Bank Group PLC
("the Bank" or the "Group") to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. Forward-looking statements are
based on numerous assumptions regarding the Bank's present and
future business strategies and the environment in which the Bank
will operate in the future. Important factors that, in the view of
the Bank, could cause actual results to differ materially from
those discussed in the forward-looking statements include, among
others, the achievement of anticipated levels of profitability,
growth, cost and recent acquisitions, the impact of competitive
pricing, the ability to obtain necessary regulatory approvals and
licenses, the impact of developments in the Georgian economic, the
impact of COVID-19, the political and legal environment, financial
risk management and the impact of general business and global
economic conditions.
None of the future projections, expectations, estimates or
prospects in this document should be taken as forecasts or promises
nor should they be taken as implying any indication, assurance or
guarantee that the assumptions on which such future projections,
expectations, estimates or prospects are based are accurate or
exhaustive or, in the case of the assumptions, entirely covered in
the document. These forward-looking statements speak only as of the
date they are made, and subject to compliance with applicable law
and regulation the Bank expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any
forward-looking statements contained in the document to reflect
actual results, changes in assumptions or changes in factors
affecting those statements.
Certain financial information contained in this presentation,
which is prepared on the basis of the Group's accounting policies
applied consistently from year to year, has been extracted from the
Group's unaudited management's accounts and financial statements.
The areas in which the management's accounts might differ from the
International Financial Reporting Standards and/or U.S. generally
accepted accounting principles could be significant; you should
consult your own professional advisors and/or conduct your own due
diligence for a complete and detailed understanding of such
differences and any implications they might have on the relevant
financial information contained in this presentation. Some
numerical figures included in this report have been subjected to
rounding adjustments. Accordingly, the numerical figures shown as
totals in certain tables might not be an arithmetic aggregation of
the figures that preceded them.
Second Quarter and First Half of 2020 Unaudited Consolidated
Financial Results Conference Call
TBC Bank Group PLC ("TBC PLC") publishes its unaudited
consolidated financial results for the second quarter and half year
of 2020 on Tuesday, 18 August 2020 at 7.00 am BST (10.00 am GET),
while the results call will be held at 14.00 (BST) / 15.00 (CEST) /
9.00 (EST).
Please click the link below to join the webinar:
https://tbc.zoom.us/j/92746432667?pwd=bUs5SnRxeWp3Q3Y2V3NwMElZUmVIUT09
Webinar ID: 927 4643 2667
Password: 424396
Or use the following dial-ins:
o Georgia : +995 7067 77954 or +995 3224 73988 or 800 100 293
(Toll Free)
o Russian Federation: 8800 301 7427 (Toll Free) or 8800 100 6938
(Toll Free)
o United Kingdom: 0 800 260 5801 (Toll Free) or 0 800 358 2817
(Toll Free) or 0 800 031 5717 (Toll Free)
o US: 833 548 0282 (Toll Free) or 877 853 5257 (Toll Free) or
888 475 4499 (Toll Free) or 833 548 0276 (Toll Free)
Webinar ID: 927 4643 2667 # , please dial the ID number
slowly
Other international numbers available at: https://tbc.zoom.us/u/afRUs7Io5
The call will be held in two parts. The first part will be
comprised of presentations and during the second part of the call,
you will have the opportunity to ask questions. All participants
will be muted throughout the webinar.
Webinar Instructions:
For those participants who will be joining through the webinar,
in order to ask questions, please use the "hand icon" that you will
see at the bottom of the screen. The host will unmute those
participants who have raised hands one after another. After the
question is asked, the participant will be muted again.
Call Instructions
For those participants who will be using the dial in number to
join the webinar, please dial *9 to raise your hand.
Contacts
Zoltan Szalai Anna Romelashvili Investor Relations Department
Director of International Head of Investor Relations
Media and Investor Relations
E-mail: ZSzalai@Tbcbank.com.ge E-mail: IR@tbcbank.com.ge E-mail: IR@tbcbank.com.ge
Tel: +44 (0) 7908 242128 Tel: +(995 32) 227 27 Tel: +(995 32) 227 27
Web: www.tbcbankgroup.com 27 27
Address: 68 Lombard Web: www.tbcbankgroup.com Web: www.tbcbankgroup.com
St, London EC3V 9LJ, Address: 7 Marjanishvili Address: 7 Marjanishvili
United Kingdom St. Tbilisi, Georgia St. Tbilisi, Georgia
0102 0102
Table of Contents
2Q AND 1H 2020 Results Announcement
TBC Bank - Background
Financial Highlights
Letter from the Chief Executive Officer
Supporting stakeholder s
Economic Overview
Unaudited Consolidated Financial Results Overview for 2Q
2020
Unaudited Consolidated Financial Results Overview for 1H
2020
Additional Disclosures
1) Subsidiaries of TBC Bank Group PLC
2) Our Ecosystems
3) Net gains from currency swaps
4) TBC Insurance
6) Main terms of shareholders' agreement with Yelo Bank
7) Loan book breakdown by stages according IFRS 9
Material Existing and Emerging Risks
Statement of Directors' Responsibilities
Unaudited Condensed Consolidated Interim Financial
Statements
TBC Bank Group PLC ("TBC Bank")
TBC Bank Announces Unaudited 2Q and 1H 2020 Consolidated
Financial Results
European Union Market Abuse Regulation EU 596/2014 requires TBC
Bank Group PLC to disclose that this announcement contains Inside
Information, as defined in that Regulation.
The information in this announcement, which was approved by the
Board of Directors on 17 August 2020, does not comprise statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2019, which
contained an unmodified audit report under Section 495 of the
Companies Act 2006 (which did not make any statements under Section
498 of the Companies Act 2006) have been delivered to the Registrar
of Companies in accordance with Section 441 of the Companies Act
2006.
TBC Bank - Background
TBC Bank is the largest banking group in Georgia, where 99.6% of
its business is concentrated, with a 38.5% market share by total
assets. It offers retail, corporate, and MSME banking
nationwide.
These unaudited financial results are presented for TBC Bank
Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26
February 2016 as the ultimate holding company for JSC TBC Bank
Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia
on 10 August 2016, following the Group's restructuring. As this was
a common ownership transaction, the results have been presented as
if the Group existed at the earliest comparative date as allowed
under the International Financial Reporting Standards ("IFRS"), as
adopted by the European Union. TBC Bank successfully listed on the
London Stock Exchange's premium listing segment on 10 August
2016.
TBC Bank Group PLC's financial results are prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union ("EU") and the Companies
Act 2006 applicable to companies reporting under IFRS.
Please note that there is an important update set out in
paragraph 9 of the Material Existing and Emerging Risks section on
page 49.
Changes in accounting policies, IAS 16
In 2Q 2020, the accounting policy in relation to subsequent
measurement of land, buildings and construction in progress was
changed from the revaluation model to the cost model. This led to
the restatement of appropriate balance sheet amounts in 1Q 2020 and
2019, while no material impact was recorded in the income
statement.
Financial Highlights
In the first half 2020, our financial results were affected by
the following non-recurring charges related to the COVID-19
pandemic:
-- a net modification loss of financial instruments, in the
amount of GEL 34.2 million (out of which GEL 30.6 million was
accounted for in the first quarter and GEL 3.5 million in the
second quarter) to reflect the decrease in the present value of
cash-flows resulting from the loan repayment grace periods granted
to borrowers; and
-- an extra credit loss allowance booked in the first quarter,
in the amount of GEL 215.7 million (or GEL 210.9 million for
loans), to prepare for the potential impact of the COVID-19
pandemic on our borrowers. In the second quarter, we also created
additional GEL 9.0 million COVID-19 related credit loss allowances
for loans in our Azeri subsidiary, TBC Kredit. These charges
resulted in additional COVID-19 related, not annulized cost of risk
in the amount of 1.7% in 2Q and 1H 2020.
-- Without the above mentioned COVID-19 related charges, ROE and
ROA amounted to 19.6% and 2.8% respectively in 2Q 2020, while in 1H
2020, ROE and ROA stood at 21.2% and 3.0% respectively.
The financial performance measures presented in this report show
our reported figures only, while the impact of the above mentioned
COVID-19 related, non-recurring charges is discussed in our 2Q
financial results presentation available at our Investor Relations
website at www.tbcbankgroup.com under the Results Announcement
section .
2Q 2020 P&L Highlights
o Profit for the period amounted to GEL 126.2 million (2Q 2019:
GEL 120.2 million)
o Return on average equity (ROE) stood at 19.5% (2Q 2019: 21.1%
[1] )
o Return on average assets (ROA) stood at 2.6% (2Q 2019: 3.0%(1)
)
o Cost to income of TBC Bank Group PLC stood at 38.5% (2Q 2019:
40.2%)
o Standalone cost to income ratio of the Bank [2] was 32.3% (2Q
2019: 35.2%)
o Cost of risk stood at 0.0% [3] (2Q 2019: 1.1%)
o Net interest margin (NIM) stood at 4.3% (2Q 2019: 5.8%)
1 H 2020 P&L Highlights
o Profit for the period amounted to GEL 69.2 million (1H 2019:
GEL 253.5 million)
o Return on average equity (ROE) stood at 5.2% (1H 2019: 22.8%
[4] )
o Return on average assets (ROA) stood at 0.7% (1H 2019: 3.3%(4)
)
o Cost to income of TBC Bank Group PLC stood at 37.4% (1H 2019:
38.9%)
o Standalone cost to income ratio of the Bank(2) was 31.9% (1H
2019: 35.7%)
o Cost of risk stood at 2.1% [5] (1H 2019: 1.3%)
o Net interest margin (NIM) stood at 4.7% (1H 2019: 6.0%)
Balance Sheet Highlights as of 30 June 2020
o Total assets amounted to GEL 19,813.4 million, up by 15.0%
YoY
o Gross loans and advances to customers stood at GEL 13,635.4
million , up by 22.4 % YoY or at 18.1% on a constant currency
basis
o Net loans to deposits + IFI [6] funding stood at 105.3%, up by
13.9 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR),
effective from 30 September 2019, stood at 127.5%
o NPLs were 2.9%, down by 0.2 pp YoY
o NPLs coverage ratios stood at 134.7%, or 246.7% with
collateral, on 30 June 2020 compared to 97.9% or 206.0% with
collateral, as of 30 June 2019
o Total customer deposits amounted to GEL 10,420.3 million, up
by 5.5% YoY or at 1.4% on constant currency basis
o The Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy
Ratios per NBG methodology stood at 10.0% 12.7% and 17.2%
respectively, while minimum eased regulatory requirements amounted
to of 6.9%, 8.7%, and 13.3%, respectively.
Market Share s as of June 2020 ([7])
o Market share by total assets reached 38.5%, down by 0.6 pp
YoY
o Market share by total loans was 39.5%, up by 1.0 pp YoY
o Market share of total deposits reached 37.1%, down by 3.9 pp YoY
2Q 2020 operating highlights
o The number of affluent customers reached 91.0 thousand as of
30 June 2020, up by 173% YoY
o 96% of all transactions were conducted through digital
channels (2Q 2019: 93%)
o The penetration ratio for internet or mobile banking [8] stood
at 48% for 2Q 2020 (2Q 2019: 44%)
o The penetration ratio for mobile banking [9] stood at 45% for
2Q 2020 (2Q 2019: 39%)
Income Statement
Highlights
in thousands of GEL 2Q'20 2Q'19 Change YoY 1H'20 1H'19 Change
YoY
Net interest income 184,365 197,448 -6.6% 392,324 398,586 -1.6%
Net fee and commission
income 39,517 43,534 -9.2% 83,069 85,341 -2.7%
Other operating
non-interest income [10] 26,161 31,320 -16.5% 64,905 60,321 7.6%
Credit loss allowance (11,314) (33,372) -66.1% (259,051) (66,467) NMF
Operating income after
credit loss allowance 238,729 238,930 -0.1% 281,247 477,781 -41.1%
Losses from modifications
of financial instrument (3,527) - NMF (34,170) - NMF
Operating expenses (96,331) (109,383) -11.9% (202,160) (211,897) -4.6%
Profit before tax 138,871 129,547 7.2% 44,917 265,884 -83.1%
Income tax expense (12,665) (9,329) 35.8% 24,283 (12,344) NMF
Profit for the period 126,206 120,218 5.0% 69,200 253,540 -72.7%
Jun-20 Jun-19 Change
Balance Sheet and Capital Highlights YoY
in thousands of GEL
Total Assets 19,813,429 17,227,131* 15.0%
Gross Loans 13,635,392 11,141,360 22.4%
Customer Deposits 10,420,330 9,876,813 5.5%
Total Equity 2,653,405 2,320,217* 14.4%
Regulatory Common Equity Tier I Capital (Basel III) 1,631,006 1,678,050 -2.8%
Regulatory Tier I Capital (Basel III) 2,068,052 1,730,302 19.5%
Regulatory Total Capital (Basel III) 2,787,136 2,430,135 14.7%
Regulatory Risk Weighted Assets (Basel III) 16,249,475 13,986,201 16.2%
* Certain amounts do not correspond to the 2019 consolidated
financial statement as they reflect the change in accounting policy
for PPE from revaluation model to cost method in 2Q 2020.
Key Ratios 2Q'20 2Q'19 Change 1H'20 1H'19 Change YoY
YoY
ROE 19. 5 % 21.1% * -1. 6 pp 5.2% 22.8%* -17.6 pp
ROA 2.6% 3.0% * -0.4 pp 0.7% 3.3% * -2.6 pp
NIM 4.3% 5.8% -1.5 pp 4.7% 6.0% -1.3 pp
Cost to income 38.5% 40.2% -1.7 pp 37.4% 38.9% -1.5 pp
Standalone cost to income of the Bank [11] 32.3% 35.2% -2.9 pp 31.9% 35.7% -3.8 pp
Cost of risk 0.0%** 1.1% -1.1 pp 2.1%*** 1.3% 0.8 pp
NPL to gross loans 2.9% 3.1% -0.2 pp 2.9% 3.1% -0.2 pp
NPLs coverage ratio exc. collateral 134.7% 97.9% 36.8 pp 134.7% 97.9% 36.8 pp
CET 1 CAR (Basel III) 10.0% 12.0% -2.0 pp 10.0% 12.0% -2.0 pp
Regulatory Tier 1 CAR (Basel III) 12.7% 12.4% 0.3 pp 12.7% 12.4% 0.3 pp
Regulatory Total CAR (Basel III) 17.2% 17.4% -0.2 pp 17.2% 17.4% -0.2 pp
Leverage (Times) 7.5x 7.4x**** 0.1x 7.5x 7.4x**** 0.1x
* Prior to change in PPE accounting policy from revaluation
model to cost method, ROE stood at 20.7% and 22.3% for 2Q 2019 and
1H 2019, respectively, while ROA remained unchanged for both
periods
** Ratio includes COVID-19 related TBC Kredit credit loss
allowances for loans, in the amount of GEL 9.0 million, which given
its non-recurring nature was not annualized
***Ratio includes COVID-19 related credit loss allowances for
loans, in the amount of GEL 219.9 million, which given its
non-recurring nature was not annualized
**** Prior to change in PPE accounting policy from revaluation
model to cost method, Leverage stood at 7.3x for 2Q 2019 and 1H
2019
Letter from the Chief Executive Officer
I would like to present our financial and operating results for
the second quarter and first half of 2020 and update you on recent
economic developments in the country. I am pleased to say that the
Georgian economy has started its recovery from the negative impacts
of the pandemic and the performance of the group in the second
quarter also fills me with confidence.
Georgia continues to manage the COVID-19 crisis effectively. The
number of new cases remains very low and Georgia has been
recognized by the EU as one of 13 epidemiologically safe countries
outside the EU. International flights are expected to resume
gradually starting from August, though a substantial recovery in
tourism inflows is expected only in 2021. At the same time,
remittances increased by 17.8% in June and exports have
demonstrated much stronger dynamics than expected. The recovery in
the domestic demand also appears strong, judging from the June
imports rebound and rapid macro and sector indicators such as the
increase in consumer spending and remittances ([12]) . Based on
initial estimates, GDP declined by 7.7% in June, while it dropped
by 16.6% and 13.5% in April and May, respectively. For the full
year 2020, we maintain our earlier projection of around a 4.5-5.5%
contraction of the economy and expect it to mostly recover to
pre-crises levels in 2021.
Government policies play an important role in mitigating the
impact of the crisis. An updated state budget was approved in June
with the 2020 deficit planned at 8.5%, mostly financed by
additional external borrowings of about USD 1.6 billion. These
additional funding would be sufficient even in case the performance
of the economy is worse than assumed in the baseline scenario, part
of which would be allocated to create a fiscal buffer of around 5%
of GDP. Together with the fiscal stimulus, the monetary and the
financial sector supervision policies have also been supportive.
The NBG has continued to intervene to stabilize the currency rate
during the pandemic. In addition, the NBG gradually cut the
monetary policy rate to support GEL lending, while keeping a close
eye on the inflation rate in the light of current uncertainties.
The confidence in the banking system, as well as increasing capital
and liquidity levels, continue to support the recovery.
Resilient financial performance
In the first half 2020, our financial results were affected by
the following non-recurring charges related to the COVID-19
pandemic:
-- a net modification loss of financial instruments, in the
amount of GEL 34.2 million (out of which GEL 30.6 million ([13])
was accounted for in the first quarter and GEL 3.5 million ([14])
in the second quarter) to reflect the decrease in the present value
of cash-flows resulting from the loan repayment grace periods
granted to borrowers; and
-- an extra credit loss allowance booked in the first quarter,
in the amount of GEL 215.7 million (or GEL 210.9 million for
loans), to prepare for the potential impact of the COVID-19
pandemic on our borrowers. In the second quarter, we also created
additional GEL 9.0 million COVID- 19 related credit loss allowance
in our Azeri subsidiary, TBC Kredit.
Consequently, in the first half 2020, our consolidated net
profit stood at GEL 69.2 million. Over the same period, return on
equity stood at 5.2% and return on assets stood at 0.7%.
In the second quarter 2020, our consolidated net profit amounted
to GEL 126.2 million, up by 5% year-on-year. The growth in net
profit was driven by recoveries in credit loss allowances and a
reduction in operating expenses, which offset the reduction in
operating income resulting from the slowdown in business activities
due to the pandemic. Over the same period, we experienced pressure
on our net interest margin, which decreased by 0.8pp
quarter-on-quarter and stood at 4.3%, mainly due to high liquidity
and respective pressure on GEL funding, a decrease in Libor and Fed
rates, as well as an increase in the average GEL exchange rate
QoQ.
On the positive side, in the second quarter 2020, our cost of
risk stood at 0.0% ([15]) and our cost-to-income ratio amounted to
38.5%, down by 1.7 pp year-on-year due to our increased focus on
cost efficiency. Also, the Bank's standalone cost-to-income ratio
([16]) stood at 32.3% in the second quarter 2020, down by 2.9 pp
year-on-year. As a result, our return on equity stood at 19.5% and
return on assets stood at 2.6% over the same period.
In constant currency terms, our loan book remained broadly
stable on a quarter-on-quarter basis, growing by 1.9%, while our
deposits decreased by 2.6%. As a result, our market share in total
loans and total deposits stood at 39.5% and 37.1% respectively as
of 30 June 2020.
Our liquidity and capital positions remain strong. As of 30 June
2020, our net stable funding (NSFR) and liquidity coverage ratios
(LCR) stood at 128% and 125% respectively. As expected, in the
second quarter, we started to generate significant buffers for our
capital and our CET1, Tier 1 and total capital ratios increased by
0.5%, 0.8% and 0.9% respectively and stood at 10.0%, 12.7% and
17.2% correspondingly, comfortably above the minimum
requirements.
Operating performance and recent developments
Our market leading internet and mobile banking services have
proved crucial during the pandemic, allowing our customers to
conduct most of their transactions remotely. As a result, the
number of internet or mobile banking users increased by 13% YoY and
reached 633,000 ([17]) , leading to a 48% penetration level.
In terms of our strategic progress, I am delighted to inform you
that on 29 June 2020, we launched our banking operation in
Uzbekistan, initially in a pilot mode for "friends and family", and
plan to extend our services to the broader population in fall 2020.
In line with our asset-light and highly digitalized strategy, we
will be serving our customers mainly through our online platform,
Space, while our smart, next generation branches will be used
primarily for client relationship purposes. The first pilot branch
has already opened.
I am also delighted to inform you that as a testimony to our
commitment towards the highest standards of corporate social
responsibility, TBC Bank became a member of the FTSE4Good Index
Series ([18]) in June 2020. In addition, TBC Bank has been also
rated as low risk in terms of its ESG performance by Sustainalytics
([19]) based on its most recent review on 4(th) March 2020.
Furthermore, I would like to inform you about changes in our
management board and Board of Directors. Giorgi Shagidze, deputy
CEO and CFO and member of the Board of Directors, intends to leave
the group at the end of 2020 to explore other opportunities in a
different field and/or geography. He will continue to perform his
duties until the year-end in order to ensure a smooth transition to
his successor. I would like to thank Giorgi for his crucial
contribution towards bringing the group to the next level over the
past 10 years and wish him success in his future endeavors. I would
also like to welcome our new Independent Non-Executive Director,
Abhijit Akerkar. Mr Akerkar is an influential thought leader in
Artificial Intelligence in banking and has 25 years of
cross-disciplinary global experience operating at a strategic level
at the forefront of technology with Lloyds Banking Group, McKinsey
and Company, and HCL Technologies.
The board also intends to add one more independent non-executive
director by the year-end and has commenced a search process to
identify suitable candidates. The board intends to use this
opportunity to further support diversity at the board level.
Finally, the bank was informed by the founders that they are
taking steps to transfer their shares into a blind trust and expect
this process to be completed before the year-end.
Outlook
Given the uncertainties associated with the COVID-19 pandemic,
our focus in the short-term will be maintaining prudent capital and
liquidity positions and, proactively managing asset quality and
cost optimization. At the same time, we will concentrate our
efforts on supporting existing customers to withstand the negative
impacts of COVID-19 rather than the acquisition of new clients.
In the medium term (3 to 5 years), we remain committed to our
guidance: ROE of above 20%, a cost to income ratio below 35%, a
dividend payout ratio of 25-35% and loan book growth of around
10-15%.
I would like to finish my letter by expressing a deep
appreciation to every single employee of the TBC Group for carrying
on with their duties with professionalism and outstanding
commitment during these challenging times.
Supporting stakeholders
Our stakeholders
TBC responded promptly to the spread of COVID-19 in its early
stages by developing an anti-crisis plan for both employees and
customers as well as extending its support to the community at
large, while ensuring the financial stability of the Group, as
discussed in the CEO letter.
Supporting our colleagues
First of all, for our front-offices staff, we have introduced
appropriate social distancing and infection prevention measures
We also managed to change our operating model swiftly and
started to move our back-office employees to remote working
practices from mid-March. Already by the end of April, 95% of our
back office-employees were working remotely. This turned out to be
very effective, leading to increase in efficiency levels,
creativity and employee happiness. We intend to extend this
flexible working arrangement post pandemic whereby the majority of
our staff can choose remote working.
We feel a responsibility towards the well-being of each of our
7,800 employees and therefore we have made a decision not to make
any redundancies during this year. However, in order to keep our
costs under control, senior management decided to forgo their
entire bonuses for 2020 and LTIP grants for the 2020 cycle and also
to
reduce the bonuses of middle and back-office managers by 50% and 30%, respectively.
Supporting our customers
We have promptly mobilized all our efforts to provide full
support to our customers and help them recover from the negative
impacts of the COVID-19 pandemic. In this regard, with close
cooperation with the National Bank of Georgia and the government,
we have implemented the following initiatives:
-- In March, we introduced a three-month grace period on
principal and interest payments for individual and MSME customers
as well as those corporate customers who are most affected by the
current situation. The take-up rate per segments was as follows:
32%-corporate, 59%-MSME and 77%-retail;
-- In addition, starting from June 10th, we extended the grace
period for a further three months to our most vulnerable retail and
micro customers, based on specific qualification criteria. The
take-up rate per segments was as follows: 5%-corporate, 24%-MSME
and 29%-retail;
-- Since April, we have been actively participating in the
government's support programme for MSME hotels, which envisages
subsidies for 70-80% of interest on loans issued before 1st March
2020 for 6 months, based on certain criteria. In May, this
programme was extended to large hotels as well. By the end of July,
we have already received subsidies for around 265 loans, with a
total outstanding loan amount of GEL 44 million.
-- Since second half of July, the Bank is also participating in
the government loan guarantee programme, which envisages supporting
certain businesses, which do not have sufficient collateral for a
loan or do not meet some other underwriting criteria. Under this
programme, the government will guarantee the repayment of 90% of
the principal amount in case of a new loan, and 30% in case of a
restructured loan. A total of GEL 300 million has been allocated by
the government to this programme; according to our estimates, 34%
of this amount could be utilized by TBC Bank. By the end of July,
we have received guarantees for 8 loans, with a total amount of GEL
6 million.
-- From beginning of July, we started issuing loans under
government support programmes for developers allowing customers to
get a 4% interest subsidy or receive a 20% guarantee (in case of
minimum 10% participation from the borrower side) for purchasing
new apartments under GEL 200,000 for a duration of 5 years. By the
end of July, we have disbursed around 283 such loans with a total
amount of GEL 27 million.
Furthermore, we have provided additional incentives to our
customers to use our market-leading digital banking platform, such
as a temporary waiver of fees on money transfers and utilities
payments in internet and mobile banking.
Supporting our communities
In order to support the Georgian population and reduce the
damage caused by COVID-19, we have launched a special programme
called #TBCforyou. Within the scope of this programme, we have
undertaken several projects, including the following:
-- More than 1,000 elderly people living in the capital and
regions received food, medicine and other safety items;
-- TBC has purchased 10,000 COVID-19 rapid tests and handed them
over to the Ministry of Health;
-- TBC has purchased laptops for 161 socially vulnerable
students at six universities as well as for 100 socially vulnerable
senior-grade students residing in different regions of Georgia. TBC
will also cover their monthly internet fee until the end of the
school year;
-- TBC and VISA have launched a new initiative for companies
called "Create your own online store", which helps companies to
create their online store in a short period of time;
-- A special platform was launched to allow people to support
their favorite Georgian company by transferring money in return for
a voucher, which they would be able to redeem once the business
could operate normally.
Economic Overview
Economic growth
Real GDP increased by 2.2% in the first quarter of 2020, already
reflecting the economic damage caused by the spread of COVID-19
globally, though maintaining the positive dynamics carried over
from the strong growth in 2019 (5.1% YoY). Thereafter, as strict
mobility restrictions were introduced, the economy contracted by
16.6% in April, 13.5% in May and 7.7% in June. Accordingly, the
Georgian economy dropped by 5.8% in the first half months of 2020
YoY. All sectors of the economy registered declines as the economy
continued to operate under the strict mobility restrictions during
for most of May. The smaller decrease in GDP in June compared to
the previous two months is attributable to the removal of most of
the restrictions starting from the end of May. As most of the
sectors have been allowed to reopen in June, the annual GDP decline
should continue to moderate going forward. According to TBC Capital
estimates, in the baseline scenario the GDP drop is expected to be
4.5-5.5% before recovering by 4.0-5.0% in 2021. So far, the actual
numbers remain broadly consistent with TBC Capital projections.
External sector
The tourism industry has been hit the hardest as tourism inflows
went down by an estimated 96.7% YoY in 2Q 2020, following a 26.1%
drop in 1Q 2020. Regular flights remain halted and will only
gradually start to recover in August. Epidemiological developments
in neighboring countries, which make up almost half of the total
tourism revenues, also remain challenging. Much of 2020 is likely
to be lost for the tourism industry, with domestic tourism
compensating for only a fraction of the loss. On the other hand,
Georgia maintains an image of being a safe destination as the
spread of COVID-19 is at very low levels. This, together with its
proven potential as an attractive tourism destination, should help
the country to regain its position relatively quickly once the
virus is contained.
The spread of COVID-19 and related restrictions have translated
into a sharp adjustment of external trade in 2Q 2020, with exports
of goods down by 24.8% YoY and imports by 32.8% YoY. The decline of
exports moderated to 14.0% YoY in June from a 31.3% YoY decline in
May 2020. The fall in imports also softened to 17.2% YoY (-36.8%
YoY in May). Despite a continued improvement in the balance of
trade in goods, the rate of improvement is starting to worsen as
the recovery of domestic demand is quite strong. At the same time,
stronger than expected performance in the remittance inflows is
observed. Specifically, remittance inflows fell by 10.9% YoY in 2Q
2020, reflecting limited economic activity in most remitting
countries. However, a recovery within the quarter was apparent as
it moved from a low point of -42.3% YoY in April 2020 to strong
growth of 17.6% in June 2020, though some of the recovery in
digital transfers could be due to the restrictions of physical
travel.
FDI inflows in Georgia shrank by -41.7% YoY to USD 165.4 million
in 1Q 2020, with the decline attributable to uncertainties related
to COVID-19 along with one-off factors such as the completion of a
BP pipeline project and transferring company ownerships from
non-resident to resident units. The reinvestment of earnings made
up slightly more than 80% of total FDI inflows, while debt and
equity inflows shrank dramatically compared to the same period in
the previous year.
The current account balance to GDP ratio stood at -11.0% in 1Q
2020, down 4.1 PP YoY. The widening CA deficit mostly reflects the
worsened trade balance in goods (from -20.8% of GDP to -23.4% of
GDP) as well as a lower surplus in services trade (from 9.7% of GDP
to 6.6% of GDP), mostly on the back of declined tourism inflows.
Current transfers somewhat improved, while the income account
widened moderately. On the financing side, net FDI inflows almost
halved from 6.4% of GDP in 1Q 2019 to 3.3% of GDP in 1Q 2020. At
the same time, NBG selling reserves (2.6% of GDP) and other
borrowings attracted mostly by commercial banks covered higher the
CA deficit in 1Q 2020.
Fiscal stimulus
Key budget parameters were revised substantially to accommodate
a stimulus package to support the economy amid the COVID-19 related
fallout. The budget deficit is currently projected at 8.5% of GDP
for 2020, mostly to be financed by the additional external
borrowing amounting to USD 1.6 billion. Higher spending will be
diverted to both social spending as well as to support
crisis-affected sectors. More importantly, secured funding is
enough to finance the increased budget deficit, as well as to
create a buffer of GEL 2.7 billion (5.4% of GDP), which will be
available in case of further deterioration of the macro scenario,
compared with the baseline one.
Credit growth
Bank credit growth also moderated to 13.9% YoY on FX adjusted
terms as of June 2020, compared to 17.1% YoY growth by the end of
1Q 2020. In terms of the segments, corporate lending slowed to
22.6% from the 28.7% YoY growth registered in March 2020, while
MSME lending also weakened to 14.1% YoY compared to 17.1% YoY in
March. At the same time, retail lending, with 7.1% YoY growth by
the end of 2Q 2020, remained relatively stable as weakening in the
mortgage lending was partly offset by improving growth in
non-mortgage loans. The latest indicators point to a recovery in
mortgage credit, which was also supported by the relevant state
housing stimulus package. However, on QoQ basis the growth was
limited as expected.
Inflation, monetary policy and the exchange rate
Following an uptick in inflation in April and May 2020, mostly
reflecting the increase of food prices, annual inflation retreated
to 6.1% in June 2020 on the back of monthly decline of food prices
as well as a continued fall in energy inflation. On the other hand,
core inflation, the gauge of prices excluding energy and food,
continued to accelerate to 6.6% YoY in June, compared to 3.7% YoY
in March 2020. It is likely that the lagged effects of the
undervalued exchange rate, coupled with the additional cost of
companies related to the COVID-19 restrictions, are putting upward
pressure on inflation. Despite some likely short-term effects of
increasing costs, annual inflation is expected to continue to
decline, reflecting the relative stability of the effective
exchange rate, downward pressure from lower aggregate demand and
the high base effects from the previous year. While commodity
prices eased inflation pressures in the previous months, the effect
going forward may reverse due to the solid recovery in oil and a
number of other key commodity prices.
The NBG continued to ease monetary policy and delivered a 1 .0
pp rate cut year-to-date, bringing the policy rate to 8.0% compared
to 9.0% by the end of 2019. Despite still considerable
uncertainties surrounding developments in aggregate demand, per the
latest NBG projections, inflation is expected to decline towards
the target rate of 3% in the first half of 2021.
As of the end of June 2020, the USD/GEL exchange rate of GEL
depreciated by 17.0% YoY, while the EUR/GEL exchange rate
depreciated by 5.5% YoY. The real effective exchange rate (REER) of
the GEL weakened by 2.1% YoY in June 2020 while it appreciated by
1.4% MoM. The GEL REER likely remains undervalued from the medium
as well as from the long-term perspective. NBG actively intervenes
in the FX market to largely compensate the shortage of inflows. As
of the end of July, NBG sold USD 270 million via the FX
interventions (additional USD 11.5 million was sold on the
interbank market without FX auctions in the first half of the
year). NBG's International reserves, coupled with additional
external borrowings in the amount of USD 1.6 billion as mentioned
above, are expected to be sufficient to continue to supply FX to
the market.
Going forward
According to the World Bank's Global Economic Prospects, which
were updated in June 2020 [20] , the Georgian economy is expected
to drop by 4.8% in 2020 and recover by 4% in 2021, which is broadly
consistent with TBC Capital's projection of a 4.5-5.5% decline and
a 4.0-5.0% recovery. Nevertheless, risks to the outlook remain
considerable, but are likely mostly in the short term rather than
the medium term. Once the virus is contained, the Georgian economy
is likely to return to its trend growth rate of around 5.2%, as
also indicated by the IMF's medium term projections [21] . Also,
Georgia is well placed to benefit from some emerging opportunities
related to potential changes in the structure of global supply
chains as well as the increased tendency of teleworking.
More information on the Georgian economy and financial sector
can be found at www.tbccapital.ge
Unaudited Consolidated Financial Results Overview for 2Q
2020
This statement provides a summary of the unaudited business and
financial trends for 2Q 2020 for TBC Bank Group plc and its
subsidiaries. The quarterly financial information and trends are
unaudited.
TBC Bank Group PLC financial results are prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the European Union ("EU") and the Companies Act 2006
applicable to companies reporting under IFRS.
Changes in accounting policies, IAS 16
In 2Q 2020, the accounting policy in relation to subsequent
measurement of land, buildings and construction in progress was
changed from the revaluation model to the cost model. This led to
the restatement of appropriate balance sheet amounts, in 1Q 2020
and 2019, while no material impact was recorded in the income
statement.
Net Interest Income
In 2 Q 2020, net interest income amounted to GEL 184.4 million,
down by 6.6% YoY and 11.3% on a QoQ basis.
The YoY increase in interest income by GEL 52.8 million or 15.5%
was primarily related to an increase in interest income from loans,
which was driven by an increase in the gross loan portfolio of GEL
2,494.0 million, or 22.4%. This was partially offset by a 1.3 pp
drop in loan yields across all segments, mainly related to decrease
in Libor rate, currency devaluation, change in segment mix towards
corporate, as well as competition.
Over the same period, interest expense increased by GEL 62.9
million, or 42.0%, mainly driven by an increase in interest expense
from Senior and AT1 Bonds issued in June and July 2019 ,
respectively in the total amount of US$ 425 million, as well as an
increase in the average balance of the NBG loan. Overall, the GEL
cost of funding increased by 1.5 pp YoY mainly driven by an
increase in the refinance rate as well as increased cost of GEL
deposits. Over the same period, FC cost of funding remained
unchanged despite the decrease in Libor rate, which was offset by
cost of debt securities issued , as mentioned above.
The slight decrease in interest income on a QoQ basis by GEL 1.7
million or 0.4% was mainly triggered by a decrease in income from
mandatory reserves placed at NBG due to the drop in the Federal
funds rate. This decrease was partially offset by the increase in
interest income from investment securities, in line with a growth
in the respective portfolio of GEL 367.0 million or 17.9% over the
same period.
QoQ interest expense increased by GEL 17.3 million, or 8.9%,
which was primarily driven by increase in the interest expense on
GEL borrowed funds from the NBG, related to an increase in the
respective average balance mainly due to the change in GEL funding
sources. This increase more than offset by the decrease in the
refinance rate. The FC cost of funding remained unchanged despite a
decrease in Libor rate, which was offset by a slight change in
liability structure towards IFI funding.
Since 4Q 2019, we have re-classified net gains from currency
swaps from other operating income to net interest income. In 2Q
2020, our net gains from currency swaps decreased by 43.1% Y oY and
53.7% on a QoQ basis driven by the decline in the interest rate
spread on the international markets, due to a decline in federal
funds rate. More information about the re-classification is given
in annex 3 on page 40.
In 2Q 2020, our NIM stood at 4.3%, down by 1.5 pp YoY and 0.8 pp
on a QoQ basis.
In thousands of GEL 2Q'20 1Q'20 2Q'19 Change Change QoQ
YoY
Interest income 393,114 394,779 340,301 15.5% -0.4%
Interest expense (212,714) (195,377) (149,820) 42.0% 8.9%
Net gains from currency swaps 3,965 8,557 6,967 -43.1% -53.7%
Net interest income 184,365 207,959 197,448 -6.6% -11.3%
NIM 4.3% 5.1% 5.8% -1.5 pp -0.8 pp
Net fee and commission income
In 2Q 2020, net fee and commission income totalled GEL 39.5
million, down by 9.2% YoY and 9.3% QoQ.
The YoY decrease was mainly related to a reduction i n other net
fee and commission income due to a decrease in cash transactions,
as well as a decline in net fee and commission income from card
operations, on the back of the slow-down of economic activity due
to the COVID-19 pandemic. Furthermore, starting from 4Q 2019 we
reclassified certain fees from our Uzbek subsidiary Payme (Inspired
LLC) from other sub-category to settlement transactions, in the
amount of GEL 3.6 million in 2Q 2020 . The decrease was partially
offset by an increase in guarantees issued and letters of credit
due to an increase in the respective portfolio.
On a QoQ basis, all major categories decreased due to the
slowdown in business activities related to the COVID-19 pandemic.
This effect was slightly offset by an increase in guarantees issued
and letters of credit, due to increase in average portfolio.
In thousands of GEL 2Q'20 1Q'20 2Q'19 Change YoY Change QoQ
Net fee and commission income
Card operations 10,962 12,540 11,773 -6.9% -12.6%
Settlement transactions 18,169 19,843 15,118 20.2% -8.4%
Guarantees issued and letters of credit 9,498 8,421 7,155 32.7% 12.8%
Other 888 2,748 9,488 -90.6% -67.7%
Total net fee and commission income 39,517 43,552 43,534 -9.2% -9.3%
Other Non-Interest Income
Total other non-interest income decreased by 16.5% YoY and 32.5%
QoQ, amounting to GEL 26.2 million in 2Q 2020.
Both the YoY and QoQ decreases were mainly related to a decline
in net income from foreign currency operations. The former decrease
was mainly attributable to the reduced scale of FX transactions
across all segments, as a result of lower economic activities, as
well as the reduced margin due to lower volatility.
Net insurance premium earned after claims and acquisition costs
increased by 26.3% YoY, mainly related to the overall increase in
the scale of the insurance business as well as decrease in claims
during the lock-down period related to COVID-19 pandemic. More
information about TBC insurance can be found in Annex 4 on page
41.
In thousands of GEL 2Q' 20 1Q'20 2Q'19 Change YoY Change QoQ
Other non-interest income
Net income from foreign currency operations 19,137 28,642 23,167 -17.4% -33.2%
Net insurance premium earned after claims and acquisition costs [22] 5,481 4,800 4,338 26.3% 14.2%
Other operating income 1,543 5,302 3,815 -59.6% -70.9%
Total other non-interest income 26,161 38,744 31,320 -16.5% -32.5%
Credit Loss Allowance
Credit loss allowance for loans in 1Q 2020 amounted to GEL 241.0
million, out of which GEL 210.9 million was COVID-19 related as
disused on page 5. The largest impact comes from the retail
segment, followed by the MSME. In 2Q 2020, total credit loss
allowance was mainly driven by MSME and corporate segments, which
was offset by recovery of provisions in retail segment. In
addition, 2Q credit loss allowances includes COVID-19 related TBC
Kredit credit loss allowances for loans in the amount of GEL 9.0
million.
In thousands of GEL 2Q'20 1Q'20 2Q'19 Change Change
YoY QoQ
Credit loss allowance for
loan to customers (8,191) (241,025) (30,067) -72.8% -96.6%
Credit loss allowance for
other transactions (3,123) (6,712) (3,305) -5.5% -53.5%
Total credit loss allowance (11,314) (247,737) (33,372) -66.1% -95.4%
Operating income after credit
loss allowance 238,729 42,518 238,930 -0.1% NMF
Cost of risk 0.0%* 2.6%** 1.1% -1.1 -2.6
pp pp
* Ratio includes COVID-19 related TBC Kredit credit loss
allowances for loans, in the amount of GEL 9.0 million, which given
its non-recurring nature was not annualized
** Ratio includes COVID-19 related credit loss allowances for
loans, in the amount of GEL 210.9 million, which given its
non-recurring nature was not annualized
NMF - no meaningful figures
Operating Expenses
In 2Q 2020, we continue to implement cost efficiency across all
levels. As a result, in 2Q 2020 our operating expenses decreased by
11.9% YoY and 9.0% QoQ. The reduction was mainly related to
decrease in administrative and other expenses due to the COVID-19
effects and included discretionary administrative expenses such as
advertising, marketing and consultation services as well as the
impact from renegotiated rent expenses per IFRS 16 in the amount of
GEL 4.2 million.
As a result, in 2Q 2020, our cost to income ratio stood at
38.5%, down by 1.7 pp YoY and up by 2.0 pp QoQ, while our
standalone cost to income stood at 32.3% down by 2.9 pp YoY and up
by 0.8 pp on a QoQ basis.
In thousands of GEL 2Q'20 1Q'20 2Q'19 Change YoY Change QoQ
Operating expenses
Staff costs (57,204) (56,802) (58,886) -2.9% 0.7%
Provisions for liabilities and charges (59) 136 1,241 NMF NMF
Depreciation and amortization (16,427) (15,788) (15,955) 3.0% 4.0%
Administrative & other operating expenses (22,641) (33,375) (35,783) -36.7% -32.2%
Total operating expenses (96,331) (105,829) (109,383) -11.9% -9.0%
Cost to income 38.5% 36.5% 40.2% -1.7% 2.0 pp
Standalone Cost to income* 32.3% 31.5% 35.2% -2.9 pp 0.8 pp
* For the ratio calculation all relevant group recurring costs
are allocated to the bank
NMF - no meaningful figures
Net Income
In 2Q 2020, we generated GEL 126.2 million in net profit up by
5.0% YoY, mainly due to recoveries in credit loss allowance and a
decrease in operating expenses, which were offset by the reduction
in operating income due to COVID-19 pandemic.
As a result, our ROE stood at 19.5%, down by 1.6 pp YoY, while
ROA stood at 2.6%, down by 0.4 pp YoY.
In thousands of GEL 2Q'20 1Q'20 2Q'19 Change YoY Change QoQ
Losses from modifications of financial instruments (3,527) (30,643) - NMF -88.5%
Profit before tax 138,871 (93,954) 129,547 7.2% NMF
Income tax expense (12,665) 36,948 (9,329) 35.8% NMF
Profit for the period 126,206 (57,006) 120,218 5.0% NMF
ROE 19.5% n/a 21.1%* -1.6 pp NMF
ROA 2.6% n/a 3.0%* -0.4 pp NMF
* Prior to change in PPE accounting policy from revaluation
model to cost method, ROE stood at 20.7% while ROA remained
unchanged in 2Q 2019
Funding and Liquidity
As of 30 June 2020, the total liquidity coverage ratio, as
defined by the NBG, was 124.8 % , above the 100% limit, while the
LCR in GEL and FC stood at 141.0% and 117.3% respectively, above
the respective limits of 75% and 100%.
However, in the light of COVID-19 pandemic, starting from May
2019, NBG removed minimum requirement on GEL LCR of 75%, for one
year period. Despite ease of requirement, our internal limit of 75%
remains unchanged and we continue to operate with high liquidity
buffers.
As of 30 June 2020, NSFR stood at 127.5%, compared to the
regulatory limit of 100%, effective from September 2019.
30-Jun-20 31-Mar-20 Change
Minimum net stable funding ratio, as defined by the NBG 100% 100% 00 pp
Net stable funding ratio as defined by the NBG 127.5% 124.7% 2.8 pp
Net loans to deposits + IFI funding 105.3% 101.8% 3.5 pp
Leverage (Times) 7.5x 7.9x* -0.4x
Minimum liquidity ratio, as defined by the NBG 30.0% 30.0% 0.0 pp
Liquidity ratio, as defined by the NBG 39.2% 30.6% 8.6 pp
Minimum total liquidity coverage ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Minimum LCR in GEL, as defined by the NBG n/a 75.0% NMF
Minimum LCR in FC, as defined by the NBG 100.0% 100.0% 0.0 pp
Total liquidity coverage ratio, as defined by the NBG 124.8% 107.6% 17.2 pp
LCR in GEL, as defined by the NBG 141.0% 107.0% 34.0 pp
LCR in FC, as defined by the NBG 117.3% 107.8% 9.5 pp
* Prior to change in PPE accounting policy from revaluation
model to cost method, Leverage stood at 7.8x as of 31 March
2020
Regulatory Capital
As expected, in 2Q we started to generate sufficient capital
buffers and our CET1, Tier 1 and Total Capital ratios increased by
0.9%, 0.7% and 0.5% respectively QoQ.
In 2Q, CET1 increased by 7.4% QoQ mainly due to net income
generation, while Tier1 and Total Capital grew by only 4.0% and
0.7% respectively, since AT1 bonds and subordinated loans are
denominated in FX and are thus negatively affected by GEL
appreciation.
The QoQ decrease in RWA was mainly driven by the GEL
appreciation in 2Q.
In thousands of GEL 30-Jun-20 31-Mar-20 Change QoQ
CET 1 Capital 1,631,006 1,518,950 7.4%
Tier 1 Capital 2,068,052 1,987,693 4.0%
Total Capital 2,787,136 2,767,850 0.7%
Total Risk-weighted Exposures 16,249,475 16,604,960 -2.1%
Minimum CET 1 ratio 6.9% 6.9% 0.0 pp
CET 1 Capital adequacy ratio 10.0% 9.1% 0.9 pp
Minimum Tier 1 ratio 8.7% 8.8% -0.1 pp
Tier 1 Capital adequacy ratio 12.7% 12.0% 0.7 pp
Minimum total capital adequacy ratio 13.3% 13.3% 0.0 pp
Total Capital adequacy ratio 17.2% 16.7% 0.5 pp
Loan Portfolio
As of 30 June 2020, the gross loan portfolio reached GEL
13,635.4 million, down by 2. 1 % QoQ or up by 1.9% at a constant
currency basis. The slowdown in lending relates to COVID-19
pandemic. The proportion of gross loans denominated in foreign
currency decreased by 1.7 pp QoQ and accounted for 60.7% of total
loans, while on a constant currency basis the proportion of gross
loans denominated in foreign currency increased by 0.1 pp QoQ and
stood at 62.3%.
As of 30 June 2020, our market share in total loans stood at
39.5%, up by 0.1 pp QoQ. Our loan market share in legal entities
was 39.2%, up by 0.7 pp over the same period, and our loan market
share in individuals stood at 39.9%, down by 0.4 pp QoQ.
In thousands of GEL 30-Jun-20 31-Mar-20 Change QoQ
Loans and advances to customers
Retail 5,358,723 5,485,120 -2.3%
Retail loans GEL 2,550,110 2,445,016 4.3%
Retail loans FC 2,808,613 3,040,104 -7.6%
Corporate 5,070,563 5,209,833 -2.7%
Corporate loans GEL 1,331,062 1,358,616 -2.0%
Corporate loans FC 3,739,501 3,851,217 -2.9%
MSME 3,206,106 3,234,687 -0.9%
MSME loans GEL 1,470,959 1,432,858 2.7%
MSME loans FC 1,735,147 1,801,829 -3.7%
Total loans and advances to customers 13,635,392 13,929,640 -2.1%
2Q'20 1Q'20 2Q'19 Change YoY Change QoQ
Loan yields 9.7% 10.3% 11.0% -1.3% -0.6%
Loan yields GEL 15.0% 15.5% 15.6% -0.6% -0.5%
Loan yields FC 6.5% 6.8% 7.8% -1.3% -0.3%
Retail Loan Yields 10.5% 11.2% 12.2% -1.7% -0.7%
Retail loan yields GEL 15.7% 16.7% 18.4% -2.7% -1.0%
Retail loan yields FC 6.1% 6.4% 7.3% -1.2% -0.3%
Corporate Loan Yields 8.7% 9.0% 8.8% -0.1% -0.3%
Corporate loan yields GEL 13.3% 13.3% 9.9% 3.4% 0.0%
Corporate loan yields FC 7.0% 7.2% 8.4% -1.6% -0.2%
MSME Loan Yields 10.2% 10.8% 11.5% -1.3% -0.6%
MSME loan yields GEL 15.2% 15.6% 15.5% -0.3% -0.4%
MSME loan yields FC 6.1% 6.4% 7.8% -1.7% -0.3%
Loan Portfolio Quality
Total PAR 30 decreased by 1.0 pp on QoQ basis and stood at 1.3%.
The decrease was driven by an improved performance across all
segments. Our total NPLs stood at 2.9% and remained flat QoQ.
However, COVID-19 impact has not been yet realized in those ratios
mainly due to grace period offered to our customers.
30-Jun-20 31-Mar-20 Change QoQ
Par 30
Retail 1.3% 2.4% -1.1 pp
Corporate 0.6% 1.6% -1.0 pp
MSME 2.3% 3.2% -0.9 pp
Total Loans 1.3% 2.3% -1.0 pp
Non-performing Loans 30-Jun-20 31-Mar-20 Change QoQ
Retail 3.0% 2.9% 0.1 pp
Corporate 2.0% 2.1% -0.1 pp
MSME 4.2% 4.3% -0.1 pp
Total Loans 2.9% 2.9% 0.0 pp
NPL Coverage Jun-20 Mar-20
Exc. Collateral Incl. Collateral Exc. Collateral Incl. Collateral
Retail 187.6% 266.5% 199.5% 277.0%
Corporate 108.2% 268.3% 99.6% 238.4%
MSME 91.9% 206.7% 84.7% 201.5%
Total 134.7% 246.7% 133.8% 241.0%
Cost of risk
Total cost of risk decreased by 1.1 pp YoY and 2.6 pp on QoQ
basis and stood at 0.0%. Cost of risk in 2Q also includes the
COVID-19 related TBC Kredit credit loss allowances for loans, in
the amount of GEL 9.0 million, which given its non-recurring nature
has not been annualized.
In 2Q 2020, CoR was mainly driven by the charges in MSME and
corporate segments, which were offset by reversal of credit loss
allowances in retail segment.
Cost of 2Q'20* 1Q'20** 2Q'19 Change YoY Change
Risk QoQ
Retail -0.7% 4.6% 2.4% -3.1 pp -5.3 pp
Corporate 0.3% 0.7% -0.5% 0.8 pp -0.4 pp
MSME 1.0% 2.1% 0.9% 0.1 pp -1.1 pp
Total 0.0% 2.6% 1.1% -1.1 pp -2.6 pp
* Cost of risk in 2Q 2020 includes COVID-19 related TBC Kredit
credit loss allowances for loans, in the amount of GEL 9 million,
which given its non-recurring nature has not been annualized
** Cost of risk in 1Q 2020 includes COVID-19 related credit loss
allowances for loans, in the amount of GEL 210.9 million, which
given its non-recurring nature has not been annualized
Deposit Portfolio
The total deposits portfolio decreased by 7.0% QoQ and amounted
to GEL 10,420.3 million, while on a constant currency basis, the
deposit portfolio decreased by 2.6 pp. Furthermore, the decrease in
the corporate segment was related to high liquidity, as well as
currency appreciation in 2Q 2020. Without currency effect, the
corporate book would have decreased by 14.6% QoQ. We have not
observed any material impact on our deposit portfolio due to
COVID-19.
The proportion of deposits denominated in foreign currency
dropped by 0.6 pp QoQ and accounted for 65.6% of total deposits,
while on a constant currency basis the proportion of deposits
denominated in foreign currency decreased by 0.9 pp QoQ and stood
at 67.2%.
As of 30 June 2020, our market share in deposits amounted to
37.1%, down by 2.7 pp QoQ and our market share in deposits to legal
entities stood at 35.9%, down by 6.3 pp over the same period. Our
market share in deposits to individuals stood at 38.1%, up by 0.2%
QoQ.
In thousands of GEL 30-Jun-20 31-Mar-20 Change QoQ
Customer Accounts
Retail 6,019,291 6,166,759 -2.4%
Retail deposits GEL 1,192,734 1,049,071 13.7%
Retail deposits FC 4,826,557 5,117,688 -5.7%
Corporate 3,222,718 3,892,288 -17.2%
Corporate deposits GEL 1,833,301 2,248,487 -18.5%
Corporate deposits FC 1,389,417 1,643,801 -15.5%
MSME 1,178,321 1,150,103 2.5%
MSME deposits GEL 555,530 483,750 14.8%
MSME deposits FC 622,791 666,353 -6.5%
Total Customer Accounts 10,420,330 11,209,150 -7.0%
2Q'20 1Q'20 2Q'19 Change Change
YoY QoQ
Deposit rates 3.4% 3.5% 3.4% 0.0% -0.1%
Deposit rates GEL 6.4% 6.4% 5.8% 0.6% 0.0%
Deposit rates FC 1.9% 1.9% 2.1% -0.2% 0.0%
Retail Deposit Yields 3.0% 2.8% 3.0% 0.0% 0.2%
Retail deposit rates GEL 6.0% 5.4% 5.3% 0.7% 0.6%
Retail deposit rates FC 2.3% 2.3% 2.4% -0.1% 0.0%
Corporate Deposit Yields 5.1% 5.3% 4.9% 0.2% -0.2%
Corporate deposit rates
GEL 7.9% 8.2% 7.2% 0.7% -0.3%
Corporate deposit rates
FC 1.4% 1.5% 1.8% -0.4% -0.1%
MSME Deposit Yields 0.9% 0.9% 1.0% -0.1% 0.0%
MSME deposit rates GEL 1.6% 1.5% 1.5% 0.1% 0.1%
MSME deposit rates FC 0.4% 0.3% 0.3% 0.1% 0.1%
Segment definition and PL
Business Segments
The segment definitions are as follows:
-- Corporate - a legal entity/group of affiliated entities with
an annual revenue exceeding GEL 12.0 million or which have been
granted facilities with more than GEL 5.0 million. Some other
business customers may also be assigned to the corporate segment or
transferred to the MSME segment on a discretionary basis;
-- Retail - non-business individual customers; all individual
customers are included in retail deposits;
-- MSME - business customers who are not included in the
corporate segment; or legal entities which have been granted a pawn
shop loan; or individual customers of the fully-digital bank,
Space; and
-- Corporate centre and other operations - comprises the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
Business customers are all legal entities or individuals who
have been granted a loan for business purposes.
Income Statement by Segments
2Q'20 Retail MSME Corporate Corp.Centre Total
Interest income 141,343 81,388 114,371 56,012 393,114
Interest expense (45,530) (2,829) (41,765) (122,590) (212,714)
Net gains from currency swaps - - - 3,965 3,965
Net transfer pricing (14,174) (32,961) (1,409) 48,544 -
Net interest income 81,639 45,598 71,197 (14,069) 184,365
Fee and commission income 43,615 5,009 12,673 3,741 65,038
Fee and commission expense (20,686) (2,378) (2,087) (370) (25,521)
Net fee and commission income 22,929 2,631 10,586 3,371 39,517
Net insurance premium earned
after claims and acquisition
costs - - - 5,481 5,481
Net income from foreign currency
operations 7,769 5,789 10,462 (11,542) 12,478
Foreign exchange translation
gains less losses/(losses
less gains) - - - 6,659 6,659
Net gains/(losses) from derivative
financial instruments - - - (13) (13)
Gains less Losses from Disposal
of Investment Securities Measured
at Fair Value through Other
Comprehensive Income - - - (1,480) (1,480)
Other operating income 941 65 210 1,867 3,083
Share of profit of associates - - - (47) (47)
Other operating non-interest
income and insurance profit 8,710 5,854 10,672 925 26,161
Credit loss allowance for
loans to customers 5,671 (10,629) (3,233) - (8,191)
Credit loss allowance for
performance guarantees and
credit related commitments 773 184 270 - 1,227
Credit loss allowance for
investments in finance lease - - - (3,408) (3,408)
Credit loss allowance for
other financial assets 128 - (282) (834) (988)
Credit loss allowance for
financial assets measured
at fair value through other
comprehensive income - - 140 (94) 46
Profit/(loss) before G&A expenses
and income taxes 119,850 43,638 89,350 (14,109) 238,729
Losses from modifications
of financial instruments (1,347) (290) (1,610) (280) (3,527)
Staff costs (27,407) (11,102) (7,822) (10,873) (57,204)
Depreciation and amortization (10,915) (2,750) (1,027) (1,735) (16,427)
Provision for liabilities
and charges - - - (59) (59)
Administrative and other operating
expenses (10,823) (3,525) (2,396) (5,897) (22,641)
Operating expenses (49,145) (17,377) (11,245) (18,564) (96,331)
Profit/(loss) before tax 69,358 25,971 76,495 (32,953) 138,871
Income tax expense (7,204) (1,833) (4,206) 578 (12,665)
Profit/(loss) for the year 62,154 24,138 72,289 (32,375) 126,206
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
In thousands of GEL Jun-20 Mar-20
Cash and cash equivalents 981,803 1,127,242
Due from other banks 30,879 34,699
Mandatory cash balances with National Bank of Georgia 1,794,010 1,900,285
Loans and advances to customers 13,105,988 13,388,126
Investment securities measured at fair value through other comprehensive income 1,082,520 999,578
Bonds carried at amortized cost 1,335,415 1,051,603
Investments in finance leases 270,172 281,717
Investment properties 70,716 70,926
Current income tax prepayment 36,703 25,771
Deferred income tax asset 7,470 21,472*
Other financial assets 174,378 188,196
Other assets 258,349 245,359
Premises and equipment 345,064 343,193*
Right of use assets 62,865 58,182
Intangible assets 194,689 181,283
Goodwill 60,296 62,108
Investments in associates 2,112 2,792
TOTAL ASSETS 19,813,429 19,982,532*
LIABILITIES
Due to credit institutions 4,403,406 3,767,185
Customer accounts 10,420,330 11,209,150
Lease liabilities 65,937 66,513
Other financial liabilities 138,749 139,223
Current income tax liability 692 465
Debt Securities in issue 1,396,141 1,488,024
Deferred income tax liability 5 5
Provisions for liabilities and charges 25,558 25,861
Other liabilities 80,557 77,743
Subordinated debt 628,649 683,227
TOTAL LIABILITIES 17,160,024 17,457,396
EQUITY
Share capital 1,682 1,682
Shares held by trust (34,451) (34,451)
Share premium 848,459 848,459
Retained earnings 2,029,545 1,904,716*
Group re-organisation reserve (162,166) (162,167)
Share based payment reserve (31,808) (36,177)
Revaluation reserve for premises - -
Fair value reserve (1,492) (1,454)
Cumulative currency translation reserve (5,685) (3,683)
Net assets attributable to owners 2,644,084 2,516,925*
Non-controlling interest 9,321 8,211*
TOTAL EQUITY 2,653,405 2,525,136*
TOTAL LIABILITIES AND EQUITY 19,813,429 19,982,532*
* Certain amounts do not correspond to the 2019 consolidated
financial statement as they reflect the change in accounting policy
for PPE from revaluation model to cost method in 2Q 2020.
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
In thousands of GEL 2Q'20 1Q'20 2Q'19
Interest income 393,114 394,779 340,301
Interest expense (212,714) (195,377) (149,820)
Net gains from currency swaps 3,965 8,557 6,967
Net interest income 184,365 207,959 197,448
Fee and commission income 65,038 73,714 68,983
Fee and commission expense (25,521) (30,162) (25,449)
Net fee and commission income 39,517 43,552 43,534
Net insurance premiums earned 13,385 13,233 8,663
Net insurance claims incurred and agents' commissions (7,904) (8,433) (4,325)
Net insurance premium earned after claims and acquisition costs 5,481 4,800 4,338
Net income from foreign currency operations 12,478 36,928 17,580
Net gain/(losses) from foreign exchange translation 6,659 (8,286) 5,587
Net gains/(losses) from derivative financial instruments (13) (7) (86)
Gains less losses from disposal of investment securities measured at fair value
through other
comprehensive income (1,480) 278 79
Other operating income 3,083 4,894 3,650
Share of profit of associates (47) 137 172
Other operating non-interest income 20,680 33,944 26,982
Credit loss allowance for loans to customers (8,191) (241,025) (30,067)
Credit loss allowance for investments in finance lease (3,408) (870) 219
Credit loss allowance for performance guarantees and credit related commitments 1,227 (2,024) (824)
Credit loss allowance for other financial assets (988) (3,234) (2,389)
Credit loss allowance for financial assets measured at fair value through other
comprehensive
income 46 (584) (311)
Operating profit after expected credit losses 238,729 42,518 238,930
Losses from modifications of financial instruments (3,527) (30,643) -
Staff costs (57,204) (56,802) (58,886)
Depreciation and amortization (16,427) (15,788) (15,955)
(Provision for)/ recovery of liabilities and charges (59) 136 1,241
Administrative and other operating expenses (22,641) (33,375) (35,783)
Operating expenses (96,331) (105,829) (109,383)
Profit/(loss) before tax 138,871 (93,954) 129,547
Income tax expense (12,665) 36,948 (9,329)
Profit/(loss) for the period 126,206 (57,006) 120,218
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve (38) 5,022 2,976
Exchange differences on translation to presentation currency (2,002) 3,167 815
Items that will not be reclassified to profit or loss:
Revaluation of premises and equipment
Income tax recorded directly in other comprehensive income
Other comprehensive income for the period (2,040) 8,189 3,791
Total comprehensive income for the period 124,166 (48,817) 124,009
Profit/(loss) attributable to:
- Shareholders of TBCG 125,100 (57,475) 119,998
- Non-controlling interest 1,106 469 220
Profit/(loss) for the period 126,206 (57,006) 120,218
Total comprehensive income is attributable to:
- Shareholders of TBCG 123,060 (49,267) 123,785
- Non-controlling interest 1,106 450 224
Total comprehensive income for the period 124,166 (48,817) 124,009
Consolidated Statement of Cash flows
In thousands of GEL 30-Jun-20 31-Mar-20
Cash flows from/(used in) operating activities
Interest received 579,414 343,993
Interest received on currency swaps 12,522 -
Interest paid (404,923) (143,355)
Fees and commissions received 131,347 70,010
Fees and commissions paid (56,054) (30,504)
Insurance and reinsurance received 43,373 22,347
Insurance claims paid (13,458) (11,259)
Income received from trading in foreign currencies 49,406 36,907
Other operating income received 2,860 2,535
Staff costs paid (120,706) (44,993)
Administrative and other operating expenses paid (61,860) (41,585)
Income tax paid (11,983) (80)
Cash flows from operating activities before changes in operating assets and liabilities 149, 938 204,015
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia (183,202) (74,492)
Loans and advances to customers (357,130) (191,641)
Net investments in lease 11,008 980
Other financial assets (33,976) (48,589)
Other assets 10,847 16,622
Net change in operating liabilities
Due to other banks 85,357 35,387
Customer accounts (88,078) 163,321
Other financial liabilities 11,915 62,034
Change in finance lease liabilities - (4,100)
Other liabilities and provision for liabilities and charges 3,838 3,275
Net cash (used in)/ from operating activities (389,483) 166,811
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive
income (251,486) (85,681)
Proceeds from disposal of investment securities measured at fair value through other
comprehensive
income - 24,984
Proceeds from redemption at maturity of investment securities measured at fair value through
other comprehensive income 180,702 57,266
Acquisition of bonds carried at amortised cost (495,945) (139,561)
Proceeds from redemption of bonds carried at amortised cost 171,137 100,970
Acquisition of premises, equipment and i ntangible assets (74,550) (44,151)
Proceeds from disposal of premises, equipment and i ntangible assets 24,172 12,836
Proceeds from disposal of investment property 3,128 3,129
Acquisition of subsidiaries and associates 936
Net cash used in investing activities (441,906) (70,208)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 1,615,016 1,321,226
Redemption of other borrowed funds (966,746) (1,434,930)
Repayment of principal of lease liabilities (5,420) -
Redemption of subordinated debt - -
Proceeds from debt securities in issue 171,531 70,516
Redemption of debt securities in issue (12,569) -
Net cash flows from/(used in) financing activities 801,812 (43,188)
Effect of exchange rate changes on cash and cash equivalents 7,797 74,345
Net (decrease)/increase in cash and cash equivalents (21,780) 123,659
Cash and cash equivalents at the beginning of the period 1,003,583 1,003,583
Cash and cash equivalents at the end of the period 981,803 1,127,242
Key Ratios
Average Balances
The average balances included in this document are calculated as
the average of the relevant monthly balances as of each month-end.
Balances have been extracted from TBC's unaudited and consolidated
management accounts, which were prepared from TBC's accounting
records. These were used by the management for monitoring and
control purposes.
Key Ratios
Ratios (based on monthly averages, where applicable) 2Q'20 1Q'20 2Q'19
Profitability ratios:
ROE(1) 19.5% n/a 21.1%*
ROA(2) 2.6% n/a 3.0%*
ROE before credit loss allowance(3) 21.3% 28.7% 26.4%
Cost to income(4) 38.5% 36.5% 40.2%
NIM(5) 4.3% 5.1% 5.8%
Loan yields(6) 9.7% 10.3% 11.0%
Deposit rates(7) 3.4% 3.5% 3.4%
Yields on interest earning assets(8) 9.1% 9.7% 10.0%
Cost of funding(9) 5.0% 5.0% 4.5%
Spread(10) 4.1% 4.7% 5.5%
Asset quality and portfolio concentration:
Cost of risk(11) 0.0%** 2.6%*** 1.1%
PAR 90 to Gross Loans(12) 1.0% 1.2% 1.3%
NPLs to Gross Loans(13) 2.9% 2.9% 3.1%
NPLs coverage(14) 134.7% 133.8% 97.9%
NPLs coverage with collateral(15) 246.7% 241.0% 206.0%
Credit loss level to Gross Loans(16) 3.9% 3.9% 3.1%
Related Party Loans to Gross Loans(17) 0.1% 0.1% 0.1%
Top 10 Borrowers to Total Portfolio(18) 8.2% 8.7% 8.6%
Top 20 Borrowers to Total Portfolio(19) 12.3% 12.9% 12.6%
Capital optimisation:
Net Loans to Deposits plus IFI Funding(20) 105.3% 101.8% 91.4%
Net Stable Funding Ratio(21) 127.5% 124.7% 138.1%****
Liquidity Coverage Ratio(22) 124.8% 107.6% 126.3%
Leverage(23) 7.5x 7.9x***** 7.4x*****
CET 1 CAR (Basel III)(24) 10.0% 9.1% 12.0%
Regulatory Tier 1 CAR (Basel III)(25) 12.7% 12.0% 12.4%
Regulatory Total 1 CAR (Basel III)(26) 17.2% 16.7% 17.4%
* Prior to change in PPE accounting policy from revaluation
model to cost method, ROE stood at 20.7%, while ROA remained
unchanged in 2Q 2019
** Cost of risk for 2Q 2020 includes COVID-19 related TBC Kredit
credit loss allowances for loans, in the amount of GEL 9.0 million,
which given its non-recurring nature has not been annualized
*** Cost of risk for 1Q 2020 includes COVID-19 related credit
loss allowances for loans, in the amount of GEL 210.9 million,
which given its non-recurring nature has not been annualized
**** Based on internal estimates
***** Prior to change in PPE accounting policy from revaluation
model to cost method, Leverage stood at 7.8x and 7.3x for 1Q 2020
and 2Q 2019, respectively
Ratio definitions
1. Return on average total equity (ROE) equals net income
attributable to owners divided by the monthly average of total
shareholders' equity attributable to the PLC's equity holders for
the same period; annualised where applicable.
2. Return on average total assets (ROA) equals net income of the
period divided by monthly average total assets for the same period;
annualised where applicable.
3. Return on average total equity (ROE) before credit loss
allowance equals net income attributable to owners excluding all
credit loss allowance divided by the monthly average of total
shareholders 'equity attributable to the PLC's equity holders for
the same period.
4. Cost to income ratio equals total operating expenses for the
period divided by the total revenue for the same period. (Revenue
represents the sum of net interest income, net fee and commission
income and other non-interest income).
5. Net interest margin (NIM) is net interest income divided by
monthly average interest-earning assets; annualised where
applicable. Interest-earning assets include investment securities
excluding corporate shares, net investment in finance lease, net
loans, and amounts due from credit institutions. The latter
excludes all items from cash and cash equivalents, excludes EUR
mandatory reserves with NBG that currently have negative interest,
and includes other earning items from due from banks.
6. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
7. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits; annualised
where applicable.
8. Yields on interest earning assets equal total interest income
divided by monthly average interest earning assets; annualised
where applicable.
9. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities; annualised where
applicable.
10. Spread equals difference between yields on interest earning
assets (including but not limited to yields on loans, securities
and due from banks) and cost of funding (including but not limited
to cost of deposits, cost on borrowings and due to banks).
11. Cost of risk equals credit loss allowance for loans to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
12. PAR 90 to gross loans ratio equals loans for which principal
or interest repayment is overdue for more than 90 days divided by
the gross loan portfolio for the same period.
13. NPLs to gross loans equals loans with 90 days past due on
principal or interest payments, and loans with a well-defined
weakness, regardless of the existence of any past-due amount or of
the number of days past due divided by the gross loan portfolio for
the same period.
14. NPLs coverage ratio equals total credit loss allowance for
loans to customers calculated per IFRS 9 divided by the NPL
loans.
15. NPLs coverage with collateral ratio equals credit loss
allowance for loans to customers per IFRS 9 plus the total
collateral amount of NPL loans (excluding third party guarantees)
discounted at 30-50% depending on segment type divided by the NPL
loans.
16. Credit loss level to gross loans equals credit loss
allowance for loans to customers divided by the gross loan
portfolio for the same period.
17. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
18. Top 10 borrowers to total portfolio equals the total loan
amount of the top 10 borrowers divided by the gross loan
portfolio.
19. Top 20 borrowers to total portfolio equals the total loan
amount of the top 20 borrowers divided by the gross loan
portfolio.
20. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
21. Net stable funding ratio equals the available amount of
stable funding divided by the required amount of stable funding as
defined by NBG in line with Basel III guidelines.
22. Liquidity coverage ratio equals high-quality liquid assets
divided by the total net cash outflow amount as defined by the
NBG.
23. Leverage equals total assets to total equity.
24. Regulatory CET 1 CAR equals CET 1 capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. The reporting
started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
25. Regulatory tier 1 CAR equals tier I capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. The reporting
started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
26. Regulatory total CAR equals total capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. The reporting
started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
Exchange Rates
To calculate the QoQ growth of the Balance Sheet items without
the currency exchange rate effect, we used the USD/GEL exchange
rate of 3.2845 as of 31 March 2020. As of 30 June 2020 the USD/GEL
exchange rate equalled 3.0552. For P&L items growth
calculations without currency effect, we used the average USD/GEL
exchange rate for the following periods: 2Q 2020 of 3.1395, 1Q 2020
of 2.9267, 2Q 2019 of 2.7393.
Unaudited Consolidated Financial Results Overview for 1H
2020
This statement provides a summary of the unaudited business and
financial trends for 1H 2020 for TBC Bank Group plc and its
subsidiaries. The quarterly financial information and trends are
unaudited.
TBC Bank Group PLC financial results are prepared in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the European Union ("EU") and the Companies Act 2006
applicable to companies reporting under IFRS.
Changes in accounting policies, IAS 16
In 2Q 2020, the accounting policy in relation to subsequent
measurement of land, buildings and construction in progress was
changed from the revaluation model to the cost model. This led to
the restatement of appropriate balance sheet amounts, in 1Q 2020
and 2019, while no material impact was recorded in the income
statement.
Net Interest Income
In 1H 2020, net interest income amounted to GEL 392.3 million,
down by 1.6% YoY, whereby interest income increased by 16.2% and
interest expense increased by 40.3%.
The YoY increase in interest income was primarily related to an
increase in interest income from loans, which was driven by an
increase in the gross loan portfolio by GEL 2,494.0 million, or
22.4%. This effect was partially offset by a 1.1 pp drop in loan
yields across all segments, mainly related to a decrease in Libor
rate, currency devaluation, change in segment mix towards
corporate, as well as competition.
Our interest expense increased by 40.3%, which was primarily
related to an increase in interest expense from the Senior and AT1
Bonds issued in June and July 2019, respectively in the amount of
US$ 425 million, as well as growth in the average balance of the
NBG loan. The other contributor was an increase in interest expense
from deposits due to an increase in respective portfolio of GEL
543.5 million. Overall, the GEL cost of funding increased by 1.3 pp
YoY mainly driven by an increase in the refinance rate as well as
the increased cost of GEL deposits. Over the same period, FC cost
of funding increased by 0.1 pp despite the decrease in Libor rate,
which was offset by cost of debt securities issued, as mentioned
above.
In 1H 2020, our NIM stood at 4.7%, down by 1.3 pp YoY.
In thousands of GEL 1H'20 1H'19 Change YoY
Interest income 787,893 678,216 16.2%
Interest expense (408,091) (290,777) 40.3%
Net gains from currency swaps 12,522 11,147 12.3%
Net interest income 392,324 398,586 -1.6%
NIM 4.7% 6.0% -1.3%
Net fee and commission income
In 1H 2020, net fee and commission income totalled GEL 83.1
million, down by 2.7% YoY.
The main driver for the YoY reduction was other net fee and
commission income due to reduced cash transactions, as well as a
decrease in fees from card operations on the back of a slow-down in
economic activity due to the COVID-19 pandemic. Furthermore,
starting from 4Q 2019 we reclassified certain fees from our Uzbek
subsidiary Payme (Inspired LLC) from other sub-category to
settlement transactions, in the amount of GEL 6.0 million in 1H
2020. This decrease was partially offset by an increase in fees
from guarantees issued and letters of credit due to an increase in
the respective portfolio.
In thousands of GEL 1H'20 1H'19 Change YoY
Net fee and commission income
Card operations 23,502 25,909 -9.3%
Settlement transactions 38,012 29,986 26.8%
Guarantees issued and letters of credit 17,919 13,261 35.1%
Other 3,636 16,185 -77.5%
Total net fee and commission income 83,069 85,341 -2.7%
Other Non-Interest Income
Total other non-interest income increased by 7.6% YoY and
amounted to GEL 64.9 million in 1H 2020.
The YoY increase was mainly attributable to growth in net income
from foreign currency operations and growth in the net insurance
premium earned after claims and acquisition costs. The former
increase was driven by an increase in the number and volume of FX
transactions across all segments as well as increased the spread
due to high volatility.
Net insurance premium earned after claims and acquisition costs
increased by 27.4% YoY, mainly related to the overall increase of
the insurance business as well as decrease in claims during the
lock-down period related to COVID-19 pandemic. More information
about TBC insurance can be found in Annex 4 on page 41.
In thousands of GEL 1H' 20 1H'19 Change YoY
Other non-interest income
Net income from foreign currency operations 47,779 44,201 8.1%
Net insurance premium earned after claims and acquisition costs [23] 10,281 8,067 27.4%
Other operating income 6,845 8,053 -15.0%
Total other non-interest income 64,905 60,321 7.6%
Credit Loss Allowance
Total credit loss allowance in 1H 2020 amounted to GEL 259.1
million. This significant increase was driven by:
o an extra credit loss allowance booked in the first quarter, in
the amount of GEL 215.7 million (or GEL 210.9 million for loans),
to prepare for the potential impact of the COVID-19 pandemic on our
borrowers; and
o COVID- 19 related credit loss allowances for loans in the
amount of GEL 9.0 million, which was created in our Azeri
subsidiary, TBC Kredit in the second quarter.
These impacts translated into additional 1.7% cost of risk,
which given its non-recurring nature was not annualized .
Change
In thousands of GEL 1H'20 1H'19 YoY
Credit loss allowance for loan to customers (249,216) (66,483) NMF
Credit loss allowance for other transactions (9,835) 16 NMF
Total credit loss allowance (259,051) (66,467) NMF
Operating income after credit loss
allowance 281,247 477,781 -41.1%
Cost of risk 2.1%* 1.3% 0.8 pp
* Cost of risk for 1H 2020 consists COVID-19 related credit loss
allowances in the amount of GEL 219.9 million, which given its
non-recurring nature has not been annualized.
NMF - no meaningful figures
Operating Expenses
In 1H 2020, our total operating expenses decreased by 4.6% YoY,
as a result of our increased focus on cost optimization. The
decrease was mainly related to a decrease in administrating and
other expenses due to COVID-19 effects and included discretionary
administrative expenses such as advertising, marketing and
consultation services as well as the impact from renegotiated rent
expenses per IFRS 16 in the amount of GEL 4.2 million. Another
driver was the reduced share based payment expense in staff cost,
due to the fact that management waived their right to receive their
2020 annual bonus and LTIP for the 2020-2022 performance
period.
Thus, in 1H 2020 our cost to income ratio stood at 37.4%, down
by 1.5 pp YoY, while our standalone cost to income was 31.9% down
by 3.8 pp over the same period.
In thousands of GEL 1H'20 1H'19 Change YoY
Operating expenses
Staff costs (114,006) (116,639) -2.3%
Provisions for liabilities and charges 77 1,441 -94.7%
Depreciation and amortization (32,215) (32,124) 0.3%
Administrative & other operating expenses (56,016) (64,575) -13.3%
Total operating expenses (202,160) (211,897) -4.6%
Cost to income 37.4% 38.9% -1.5 pp
Standalone Cost to income* 31.9% 35.7% -3.8 pp
* For the ratio calculation all relevant group recurring costs
are allocated to the bank
Net Income
Due to the COVID-19 pandemic, the Group incurred losses from
modifications of financial instruments related to COVID-19 in the
amount of GEL 34.2 million, to reflect the decrease in the present
value of cash-flows resulting from a three-month grace period
granted to borrowers. The modifications are related to losses
incurred on loans, advances to customers and investments in leases
due to the COVID-19 events and are not expected to recur again in
normal course of the business.
In 1H 2020, we generated a GEL 69.2 million profit, which was
affected by the following COVID-19 related charges:
-- a net modification loss of financial instruments in the
amount of GEL 34.2 million, out of which GEL 3.5 million relates to
2Q 2020; and
-- a COVID-19 related total credit loss allowance in the amount
of GEL 224.7 million, out of which GEL 9.0 million is related to
credit loss allowances of our Azeri subsidiary, TBC Kredit.
As a result, our ROE stood at 5.2%, down by 17.6 pp YoY, while
ROA stood at 0.7%, down by 2.6 pp over the same period.
In thousands of GEL 1H'20 1H'19 Change YoY
Losses from modifications of financial instruments (34,170) - NMF
Profit before tax 44,917 265,884 -83.1%
Income tax expense 24,283 (12,344) NMF
Profit for the period 69,200 253,540 -72.7%
ROE 5.2% 22.8%* -17.6 pp
ROA 0.7% 3.3%* -2.6 pp
* Prior to change in PPE accounting policy from revaluation
model to cost method, ROE stood at 22.3%, while ROA remained
unchanged in 1H 2019
Funding and Liquidity
As of 30 June 2020, the total liquidity coverage ratio, as
defined by the NBG, was 124.8 % , above the 100% limit, while the
LCR in GEL and FC stood at 141.0% and 117.3% respectively, above
the respective limits of 75% and 100%.
However, in the light of COVID-19 pandemic, starting from May
2019, NBG removed minimum requirement on GEL LCR of 75%, for one
year period. Despite ease of requirement, our internal limit of 75%
remains unchanged and we continue to operate with high liquidity
buffers.
As of 30 June 2020, NSFR stood at 127.5%, compared to the
regulatory limit of 100%, effective from September 2019.
30-Jun-20 30-Jun-19 Change
YoY
Minimum net stable funding ratio, as defined by the NBG 100% 100% 0.0 pp
Net stable funding ratio as defined by the NBG 127.5% 138.1%* -10.6%
Net loans to deposits + IFI funding 105.3% 91.4% 13.9%
Leverage (Times) 7.5x 7.4x** 0.1x
Minimum liquidity ratio, as defined by the NBG 30.0% 30.0% 0.0%
Liquidity ratio, as defined by the NBG 39.2% 37.1% 2.1%
Minimum total liquidity coverage ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Minimum LCR in GEL, as defined by the NBG n/a 75.0% NMF
Minimum LCR in FC, as defined by the NBG 100.0% 100.0% 0.0 pp
Total liquidity coverage ratio, as defined by the NBG 124.8% 126.3% -1.5 pp
LCR in GEL, as defined by the NBG 141.0% 100.4% 40.6 pp
LCR in FC, as defined by the NBG 117.3% 143.8% -26.5 pp
*Based on internal estimates
** Prior to change in PPE accounting policy from revaluation
model to cost method, Leverage stood at 7.3x as of 30 June 2019
Regulatory Capital
In 1Q 2020, due to the COVID-19 pandemic, the NBG is
implementing countercyclical measures to support the financial
stability of the banking system and to ensure the provision of
financial support to sectors of the economy affected by the current
turmoil. In relation to capital adequacy requirements, the
following measures have been taken:
-- Postponing the phasing in of additional capital requirements
planned in March 2020, with a 0.44 pp effect on TBC's CET 1;
-- Allowing banks to use the conservation buffer (currently at
2.5pp on CET1) and 2/3 of CICR buffer resulted in the release of
1.0-2.0% of capital across our CET1, Tier 1 and Total CAR;
-- Leaving open the possibility of releasing all pillar 2
buffers (remaining 1/3 CICR, HHI and Net Grape buffers) in the
range of 1.0-4.0% of capital across our CET1, Tier 1 and Total
CAR.
As of 30 June 2020, the Bank's CET 1, Tier 1 and Total Capital
adequacy ratios stood at 10.0%, 12.7% and 17.2%, respectively,
comfortably above the respective eased minimum requirements of
6.9%, 8.7% and 13.3%.
CET 1 ratio decreased by 2.0 pp on YoY basis mainly due to
additional credit loss allowances created according to local
standards in relation to the COVID 19 pandemic, increase in loan
book and currency depreciation. These effects were offset by
issuance of an AT1 instrument in July 2019 in the amount of USD 125
million, thus leading to an increase in Tier 1 Capital ratio by
0.3pp. Over the same period, Total Capital Adequacy ratio decreased
by 0.2pp mainly due to decrease in subordinated loan.
In thousands of GEL 30-Jun-20 30-Jun-19 Change YoY
CET 1 Capital 1,631,006 1,678,050 -2.8%
Tier 1 Capital 2,068,052 1,730,302 19.5%
Total Capital 2,787,136 2,430,135 14.7%
Total Risk-weighted Exposures 16,249,475 13,986,201 16.2%
Minimum CET 1 ratio 6.9% 8.3% -1.4%
CET 1 Capital adequacy ratio 10.0% 12.0% -2.0%
Minimum Tier 1 ratio 8.7% 10.3% -1.6%
Tier 1 Capital adequacy ratio 12.7% 12.4% 0.3%
Minimum total capital adequacy ratio 13.3% 15.8% -2.5%
Total Capital adequacy ratio 17.2% 17.4% -0.2%
Loan Portfolio
As of 30 June 2020, the gross loan portfolio reached GEL
13,635.4 million, up by 22.4% YoY or up by 18.1% on a constant
currency basis. The YoY increase was spread across all segments,
with the largest contribution coming from the corporate segment,
which was mainly driven by the acquisition of both large and
mid-corporate clients. The proportion of gross loans denominated in
foreign currency decreased by 0.8 pp YoY and accounted for 60.7 %
of total loans, while on a constant currency basis the proportion
of gross loans denominated in foreign currency was up by 3.1 pp YoY
and stood at 59.3%.
As of 30 June 2020, our market share in total loans stood at
39.5%, up by 1.0 pp YoY, while our loan market share in legal
entities was 39.2%, up by 1.9 pp over the same period, and our loan
market share in individuals stood at 39.9%, up by 0.3 pp QoQ.
In thousands of GEL 30-Jun-20 30-Jun-19 Change YoY
Loans and advances to customers
Retail 5,358,723 4,835,320 10.8%
Retail loans GEL 2,550,110 2,170,941 17.5%
Retail loans FC 2,808,613 2,664,379 5.4%
Corporate 5,070,563 3,658,340 38.6%
Corporate loans GEL 1,331,062 1,045,076 27.4%
Corporate loans FC 3,739,501 2,613,264 43.1%
MSME 3,206,106 2,647,700 21.1%
MSME loans GEL 1,470,959 1,251,812 17.5%
MSME loans FC 1,735,147 1,395,888 24.3%
Total loans and advances to customers 13,635,392 11,141,360 22.4%
1H'20 1H'19 Change YoY
Loan yields 10.1% 11.2% -1.1 pp
Loan yields GEL 15.2% 16.0% -0.8 pp
Loan yields FC 6.7% 8.0% -1.3 pp
Retail Loan Yields 10.9% 12.5% -1.6 pp
Retail loan yields GEL 16.2% 18.9% -2.7 pp
Retail loan yields FC 6.3% 7.4% -1.1 pp
Corporate Loan Yields 8.9% 9.2% -0.3 pp
Corporate loan yields GEL 13.3% 10.4% 2.9 pp
Corporate loan yields FC 7.2% 8.7% -1.5 pp
MSME Loan Yields 10.5% 11.5% -1.0 pp
MSME loan yields GEL 15.4% 15.5% -0.1 pp
MSME loan yields FC 6.3% 7.9% -1.6 pp
Loan Portfolio Quality
The total par 30 decreased by 0.8 pp and stood at 1.3%, driven
by the improved performance across all segments. Our NPL ratio was
down by 0.2 pp and stood at 2.9%, which was attributable to the
strong performance of the Retail and Corporate segments. However,
COVID-19 impact has not been yet realized in those ratios mainly
due to grace period offered to our customers.
30-Jun-20 30-Jun-19 Change YoY
Par 30
Retail 1.3% 2.7% -1.4 pp
Corporate 0.6% 1.0% -0.4 pp
MSME 2.3% 2.8% -0.5 pp
Total Loans 1.3% 2.1% -0.8 pp
Non-performing Loans 30-Jun-20 30-Jun-19 Change YoY
Retail 3.0% 3.3% -0.3 pp
Corporate 2.0% 2.1% -0.1 pp
MSME 4.2% 4.2% 0.0 pp
Total Loans 2.9% 3.1% -0.2 pp
NPL Coverage Jun-20 Jun-19
Exc. Collateral Incl. Collateral Exc. Collateral Incl. Collateral
Retail 187.6% 266.5% 113.8% 180.4%
Corporate 108.2% 268.3% 103.3% 299.1%
MSME 91.9% 206.7% 71.5% 179.0%
Total 134.7% 246.7% 97.9% 206.0%
Cost of risk
The total cost of risk for 1H 2020 stood at 2.1 %, up by 0.8 pp.
The YoY increase was spread across all segments and was driven by
an extra credit loss allowances booked in 1H 2020.
Cost of Risk 1H'20* 1H'19 Change YoY
Retail 3.3% 2.4% 0.9 pp
Corporate 0.7% -0.3% 1.0 pp
MSME 2.3% 1.2% 1.1 pp
Total 2.1% 1.3% 0.8 pp
* Cost of risk in 1H comprises of COVID-19 related credit loss
allowances in the amount of GEL 219.9 million, which given its
non-recurring nature has not been annualized.
Deposit Portfolio
The total deposits portfolio increased by 5.5% YoY and amounted
to GEL 10,420.3 million, while on a constant currency basis the
total deposit portfolio increased by 1.4 pp over the same period.
The proportion of deposits denominated in foreign currency dropped
by 2.8 pp YoY and accounted for 65.6% of total deposits, while on a
constant currency basis the proportion of deposits denominated in
foreign currency increased by 5.1 pp YoY and stood at 64.2%.
As of 30 June 2020, our market share in deposits amounted to
37.1%, down by 3.9 pp YoY, and our market share in deposits to
legal entities stood at 35.9%, down by 7.1 pp over the same period.
Our market share in deposits to individuals stood at 38.1%, down by
1.4% QoQ.
In thousands of GEL 30-Jun-20 30-Jun-19 Change YoY
Customer Accounts
Retail 6,019,291 5,360,114 12.3%
Retail deposits GEL 1,192,734 1,044,181 14.2%
Retail deposits FC 4,826,557 4,315,933 11.8%
Corporate 3,222,718 3,510,179 -8.2%
Corporate deposits GEL 1,833,301 2,069,230 -11.4%
Corporate deposits FC 1,389,417 1,440,949 -3.6%
MSME 1,178,321 1,006,520 17.1%
MSME deposits GEL 555,530 557,163 -0.3%
MSME deposits FC 622,791 449,357 38.6%
Total Customer Accounts 10,420,330 9,876,813 5.5%
1H'20 1H'19 Change
YoY
Deposit rates 3.5% 3.4% 0.1 pp
Deposit rates GEL 6.4% 5.9% 0.5 pp
Deposit rates FC 1.9% 2.0% -0.1 pp
Retail Deposit Yields 2.9% 2.9% 0.0 pp
Retail deposit rates GEL 5.7% 5.3% 0.4 pp
Retail deposit rates FC 2.3% 2.3% 0.0 pp
Corporate Deposit Yields 5.3% 4.9% 0.4 pp
Corporate deposit rates GEL 8.3% 7.4% 0.9 pp
Corporate deposit rates FC 1.5% 1.7% -0.2 pp
MSME Deposit Yields 0.9% 0.9% 0.0 pp
MSME deposit rates GEL 1.6% 1.5% 0.1 pp
MSME deposit rates FC 0.3% 0.3% 0.0 pp
Segment definition and PL
Business Segments
The segment definitions are as follows:
-- Corporate - a legal entity/group of affiliated entities with
an annual revenue exceeding GEL 12.0 million or which have been
granted facilities with more than GEL 5.0 million. Some other
business customers may also be assigned to the corporate segment or
transferred to the MSME segment on a discretionary basis;
-- Retail - non-business individual customers; all individual
customers are included in retail deposits;
-- MSME - business customers who are not included in the
corporate segment; or legal entities which have been granted a pawn
shop loan; or individual customers of the fully-digital bank,
Space; and
-- Corporate centre and other operations - comprises the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
Business customers are all legal entities or individuals who
have been granted a loan for business purposes.
Income Statement by Segments
1H'20 Retail MSME Corporate Corp.Centre Total
Interest income 285,336 162,144 225,082 115,331 787,893
Interest expense (86,768) (5,426) (87,181) (228,716) (408,091)
Net gains from currency swaps - - - 12,522 12,522
Net transfer pricing (32,744) (64,097) 841 96,000 -
Net interest income 165,824 92,621 138,742 (4,863) 392,324
Fee and commission income 96,189 11,443 24,949 6,171 138,752
Fee and commission expense (45,757) (5,171) (3,990) (765) (55,683)
Net fee and commission income 50,432 6,272 20,959 5,406 83,069
Net insurance premium earned
after claims and acquisition
costs - - - 10,281 10,281
Net income from foreign currency
operations 17,897 13,748 25,763 (8,002) 49,406
Foreign exchange translation
gains less losses/(losses
less gains) - - - (1,627) (1,627)
Net gains/(losses) from derivative
financial instruments - - - (20) (20)
Gains less Losses from Disposal
of Investment Securities Measured
at Fair Value through Other
Comprehensive Income - - - (1,202) (1,202)
Other operating income 2,390 129 858 4,600 7,977
Share of profit of associates - - - 90 90
Other operating non-interest
income and insurance profit 20,287 13,877 26,621 4,120 64,905
Credit loss allowance for
loans to customers (160,861) (61,728) (26,627) - (249,216)
Credit loss allowance for
performance guarantees and
credit related commitments (378) (1,069) 650 - (797)
Credit loss allowance for
investments in finance lease - - - (4,278) (4,278)
Credit loss allowance for
other financial assets (69) - (1,964) (2,189) (4,222)
Credit loss allowance for
financial assets measured
at fair value through other
comprehensive income - - 8 (546) (538)
Profit/(loss) before G&A expenses
and income taxes 75,235 49,973 158,389 (2,350) 281,247
Losses from modifications
of financial instruments (22,547) (7,068) (2,675) (1,880) (34,170)
Staff costs (54,421) (23,331) (14,894) (21,360) (114,006)
Depreciation and amortization (21,738) (5,422) (2,028) (3,027) (32,215)
Provision for liabilities
and charges - - - 77 77
Administrative and other operating
expenses (28,272) (9,284) (5,803) (12,657) (56,016)
Operating expenses (104,431) (38,037) (22,725) (36,967) (202,160)
Profit/(loss) before tax (51,743) 4,868 132,989 (41,197) 44,917
Income tax expense 25,745 5,991 (8,990) 1,537 24,283
Profit/(loss) for the year (25,998) 10,859 123,999 (39,660) 69,200
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
In thousands of GEL Jun-20 Jun-19
Cash and cash equivalents 981,803 1,628,344
Due from other banks 30,879 27,860
Mandatory cash balances with National Bank of Georgia 1,794,010 1,841,237
Loans and advances to customers 13,105,988 10,801,264
Investment securities measured at fair value through other comprehensive income 1,082,520 908,158
Bonds carried at amortized cost 1,335,415 766,663
Investments in finance leases 270,172 220,871
Investment properties 70,716 79,114
Current income tax prepayment 36,703 19,417
Deferred income tax asset 7,470 1,753
Other financial assets 174,378 165,382
Other assets 258,349 211,850
Premises and equipment 345,064 322,089*
Right of use assets 62,865 61,555
Intangible assets 194,689 123,910
Goodwill 60,296 45,301
Investments in associates 2,112 2,363
TOTAL ASSETS 19,813,429 17,227,131*
LIABILITIES
Due to credit institutions 4,403,406 3,052,742
Customer accounts 10,420,330 9,876,813
Lease liabilities 65,937 62,598
Other financial liabilities 138,749 252,280
Current income tax liability 692 727
Debt Securities in issue 1,396,141 848,838
Deferred income tax liability 5 18,916*
Provisions for liabilities and charges 25,558 20,116
Other liabilities 80,557 85,882
Subordinated debt 628,649 688,002
TOTAL LIABILITIES 17,160,024 14,906,914*
EQUITY
Share capital 1,682 1,672
Shares held by trust (34,451) -
Share premium 848,459 831,773
Retained earnings 2,029,545 1,676,687*
Group re-organisation reserve (162,166) (162,166)
Share based payment reserve (31,808) (37,968)
Fair value reserve (1,492) 12,680
Cumulative currency translation reserve (5,685) (6,478)
Net assets attributable to owners 2,644,084 2,316,200*
Non-controlling interest 9,321 4,017*
TOTAL EQUITY 2,653,405 2,320,217*
TOTAL LIABILITIES AND EQUITY 19,813,429 17,227,131*
* Figures calculated due to changed PPE accounting policy from
revaluation model to cost method in 2Q 2020
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
In thousands of GEL 1H'20 1H'19
Interest income 787,893 678,216
Interest expense (408,091) (290,777)
Net gains from currency swaps 12,522 11,147
Net interest income 392,324 398,586
Fee and commission income 138,752 129,885
Fee and commission expense (55,683) (44,544)
Net fee and commission income 83,069 85,341
Net insurance premiums earned 26,618 15,992
Net insurance claims incurred and agents' commissions (16,337) (7,925)
Net insurance premium earned after claims and acquisition costs 10,281 8,067
Net income from foreign currency operations 49,406 34,987
Net gain/(losses) from foreign exchange translation (1,627) 9,214
Net gains/(losses) from derivative financial instruments (20) (245)
Gains less losses from disposal of investment securities measured at fair value through other
comprehensive income (1,202) 147
Other operating income 7,977 7,810
Share of profit of associates 90 341
Other operating non-interest income 54,624 52,254
Credit loss allowance for loans to customers (249,216) (66,483)
Credit loss allowance for investments in finance lease (4,278) 178
Credit loss allowance for performance guarantees and credit related commitments (797) (392)
Credit loss allowance for other financial assets (4,222) 580
Credit loss allowance for financial assets measured at fair value through other comprehensive
income (538) (350)
Operating profit after expected credit losses 281,247 477,781
Losses from modifications of financial instruments (34,170) -
Staff costs (114,006) (116,639)
Depreciation and amortization (32,215) (32,124)
(Provision for)/ recovery of liabilities and charges 77 1,441
Administrative and other operating expenses (56,016) (64,575)
Operating expenses (202,160) (211,897)
Profit/(loss) before tax 44,917 265,884
Income tax expense 24,283 (12,344)
Profit/(loss) for the period 69,200 253,540
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve 4,984 3,999
Exchange differences on translation to presentation currency 1,165 457
Items that will not be reclassified to profit or loss:
Revaluation of premises and equipment
Income tax recorded directly in other comprehensive income
Other comprehensive income for the period 6,149 4,456
Total comprehensive income for the period 75,349 257,996
Profit/(loss) attributable to:
- Shareholders of TBCG 67,625 253,235
- Non-controlling interest 1,575 305
Profit/(loss) for the period 69,200 253,540
Total comprehensive income is attributable to:
- Shareholders of TBCG 73,793 257,687
- Non-controlling interest 1,556 309
Total comprehensive income for the period 75,349 257,996
Consolidated Statement of Cash Flows
In thousands of GEL 30-Jun-20 30-Jun-19
Cash flows from/(used in) operating activities
Interest received 579,414 621,472
Interest received on currency swaps 12,522 11,147
Interest paid (404,923) (291,963)
Fees and commissions received 131,347 127,685
Fees and commissions paid (56,054) (44,370)
Insurance and reinsurance received 43,373 18,560
Insurance claims paid (13,458) (9,727)
Income received from trading in foreign currencies 49,406 46,119
Other operating income received 2,860 11,500
Staff costs paid (120,706) (123,342)
Administrative and other operating expenses paid (61,860) (81,397)
Income tax paid (11,983) (30,900)
Cash flows from operating activities before changes in operating assets and liabilities 149, 938 254,784
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia (183,202) (302,690)
Loans and advances to customers (357,130) (385,945)
Net investments in lease 11,008 (3,498)
Other financial assets (33,976) 19,610
Other assets 10,847 2,869
Net change in operating liabilities
Due to other banks 85,357 276,076
Customer accounts (88,078) 134,334
Other financial liabilities 11,915 23,487
Other liabilities and provision for liabilities and charges 3,838 9,607
Net cash (used in)/from operating activities (389,483) 28,633
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive income (251,486) (101,119)
Proceeds from redemption at maturity of investment securities measured at fair value through
other comprehensive income 180,702 210,174
Acquisition of bonds carried at amortised cost (495,945) (240,420)
Proceeds from redemption of bonds carried at amortised cost 171,137 126,113
Acquisition of premises, equipment and i ntangible assets (74,550) (51,490)
Proceeds from disposal of premises, equipment and i ntangible assets 24,172 11,023
Proceeds from disposal of investment property 3,128 9,508
Acquisition of subsidiaries and associates 936 (14,569)
Net cash used in investing activities (441,906) (50,780)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 1,615,016 553,781
Redemption of other borrowed funds (966,746) (938,535)
Repayment of principal of lease liabilities (5,420) (1,367)
Redemption of subordinated debt - (8,576)
Proceeds from debt securities in issue 171,531 820,708
Redemption of debt securities in issue (12,569) (5,805)
Net cash flows from financing activities 801,812 420,206
Effect of exchange rate changes on cash and cash equivalents 7,797 63,373
Net (decrease)/ increase in cash and cash equivalents (21,780) 461,433
Cash and cash equivalents at the beginning of the period 1,003,583 1,166,911
Cash and cash equivalents at the end of the period 981,803 1,628,344
Key Ratios
Average Balances
The average balances included in this document are calculated as
the average of the relevant monthly balances as of each month-end.
Balances have been extracted from TBC's unaudited and consolidated
management accounts, which were prepared from TBC's accounting
records. These were used by the management for monitoring and
control purposes.
Key Ratios
Ratios (based on monthly averages, where applicable) 1 H '20 1H'19
Profitability ratios:
ROE(1) 5.2% 22.8%*
ROA(2) 0.7% 3.3%*
Pre-provision ROE(3) 25.2% 28.7%
Cost to income(4) 37.4% 38.9%
NIM(5) 4.7% 6.0%
Loan yields(6) 10.1% 11.2%
Deposit rates(7) 3.5% 3.4%
Yields on interest earning assets(8) 9.5% 10.4%
Cost of funding(9) 5.0% 4.5%
Spread(10) 4.4% 5.9%
Asset quality and portfolio concentration:
Cost of risk(11) 2.1%** 1.3%
PAR 90 to Gross Loans(12) 1.0% 1.3%
NPLs to Gross Loans(13) 2.9% 3.1%
NPLs coverage(14) 134.7% 97.9%
NPLs coverage with collateral(15) 246.7% 206.0%
Credit loss level to Gross Loans(16) 3.9% 3.1%
Related Party Loans to Gross Loans(17) 0.1% 0.1%
Top 10 Borrowers to Total Portfolio(18) 8.2% 8.6%
Top 20 Borrowers to Total Portfolio(19) 12.3% 12.6%
Capital optimisation:
Net Loans to Deposits plus IFI Funding(20) 105.3% 91.4%
Net Stable Funding Ratio(21) 127.5% 138.1%***
Liquidity Coverage Ratio(22) 124.8% 126.3%
Leverage(23) 7.5x 7.4x****
CET 1 CAR (Basel III)(24) 10.0% 12.0%
Regulatory Tier 1 CAR (Basel III)(25) 12.7% 12.4%
Regulatory Total 1 CAR (Basel III)(26) 17.2% 17.4%
* Prior to change in PPE accounting policy from revaluation
model to cost method ROE stood at 22.3%, while ROA remained
unchanged in 1H 2019
** Cost of risk in 1H comprises of COVID-19 related credit loss
allowances in the amount of GEL 219.9 million, which given its
non-recurring nature has not been annualized.
*** Based on internal estimates
****Prior to change in PPE accounting policy from revaluation
model to cost method, Leverage stood at 7.3x for 1H 2019
Ratio definitions
1. Return on average total equity (ROE) equals net income
attributable to owners divided by the monthly average of total
shareholders' equity attributable to the PLC's equity holders for
the same period; annualised where applicable.
2. Return on average total assets (ROA) equals net income of the
period divided by monthly average total assets for the same period;
annualised where applicable.
3. Return on average total equity (ROE) before credit loss
allowance equals net income attributable to owners excluding all
credit loss allowance divided by the monthly average of total
shareholders 'equity attributable to the PLC's equity holders for
the same period.
4. Cost to income ratio equals total operating expenses for the
period divided by the total revenue for the same period. (Revenue
represents the sum of net interest income, net fee and commission
income and other non-interest income).
5. Net interest margin (NIM) is net interest income divided by
monthly average interest-earning assets; annualised where
applicable. Interest-earning assets include investment securities
excluding corporate shares, net investment in finance lease, net
loans, and amounts due from credit institutions. The latter
excludes all items from cash and cash equivalents, excludes EUR
mandatory reserves with NBG that currently have negative interest,
and includes other earning items from due from banks.
6. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
7. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits; annualised
where applicable.
8. Yields on interest earning assets equal total interest income
divided by monthly average interest earning assets; annualised
where applicable.
9. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities; annualised where
applicable.
10. Spread equals difference between yields on interest earning
assets (including but not limited to yields on loans, securities
and due from banks) and cost of funding (including but not limited
to cost of deposits, cost on borrowings and due to banks).
11. Cost of risk equals credit loss allowance for loans to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
12. PAR 90 to gross loans ratio equals loans for which principal
or interest repayment is overdue for more than 90 days divided by
the gross loan portfolio for the same period.
13. NPLs to gross loans equals loans with 90 days past due on
principal or interest payments, and loans with a well-defined
weakness, regardless of the existence of any past-due amount or of
the number of days past due divided by the gross loan portfolio for
the same period.
14. NPLs coverage ratio equals total credit loss allowance for
loans to customers calculated per IFRS 9 divided by the NPL
loans.
15. NPLs coverage with collateral ratio equals credit loss
allowance for loans to customers per IFRS 9 plus the total
collateral amount of NPL loans (excluding third party guarantees)
discounted at 30-50% depending on segment type divided by the NPL
loans.
16. Credit loss level to gross loans equals credit loss
allowance for loans to customers divided by the gross loan
portfolio for the same period.
17. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
18. Top 10 borrowers to total portfolio equals the total loan
amount of the top 10 borrowers divided by the gross loan
portfolio.
19. Top 20 borrowers to total portfolio equals the total loan
amount of the top 20 borrowers divided by the gross loan
portfolio.
20. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
21. Net stable funding ratio equals the available amount of
stable funding divided by the required amount of stable funding as
defined by NBG in line with Basel III guidelines.
22. Liquidity coverage ratio equals high-quality liquid assets
divided by the total net cash outflow amount as defined by the
NBG.
23. Leverage equals total assets to total equity.
24. Regulatory CET 1 CAR equals CET 1 capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. The reporting
started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
25. Regulatory tier 1 CAR equals tier I capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. The reporting
started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
26. Regulatory total CAR equals total capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. The reporting
started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
Exchange Rates
To calculate the YoY growth without the currency exchange rate
effect, we used the USD/GEL exchange rate of 2.8687 as of 30 June
2019. As of 30 June 2020 the USD/GEL exchange rate equalled 3.0552.
For P&L items growth calculations without currency effect, we
used the average USD/GEL exchange rate for the following periods:
1H 2020 of 3.0419, 1H 2010 of 2.7038.
Additional Disclosures
1) Subsidiaries of TBC Bank Group PLC [24]
Ownership Country Year Industry Total Assets
/ voting of incorporation (after elimination)
% as of
30 June
2020
Subsidiary Amount % in
GEL'000 TBC Group
JSC TBC Bank 99.9% Georgia 1992 Banking 19,245,414 97.13%
United Financial
Corporation
JSC 99.5% Georgia 1997 Card processing 13,076 0.07%
TBC Capital
LLC 100.0% Georgia 1999 Brokerage 14,961 0.08%
TBC Leasing
JSC 100.0% Georgia 2003 Leasing 330,377 1.67%
TBC Kredit Non-banking
LLC 100.0% Azerbaijan 1999 credit institution 18,127 0.09%
TBC Pay LLC 100.0% Georgia 2009 Processing 35,816 0.18%
Real estate
Index LLC 100.0% Georgia 2011 management 977 0.00%
TBC Invest
LLC 100.0% Israel 2011 PR and marketing 279 0.00%
JSC TBC Insurance 100.0% Georgia 2014 Insurance 53,156 0.27%
Redmed LLC 100.0% Georgia 2019 E-commerce 692 0.00%
TBC International
LLC 100.0% Georgia 2019 Asset management 478 0.00%
Swoop JSC 100.0% Georgia 2010 Retail Trade 393 0.00%
LLC Online
Tickets 55.0% Georgia 2015 Software Services 1, 702 0.01%
TKT UZ 75.00% Uzbekistan 2019 Retail Trade 179 0.00%
E-commerce,
Housing and
My.ge LLC 65.0% Georgia 2008 Auto 7,079 0.04%
LLC Vendoo
(Geo) 100.0% Georgia 2019 Retail Leasing 3,673 0.02%
LLC Mypost 100.0% Georgia 2019 Postal Service 404 0.00%
LLC Billing
Solutions 51.00% Georgia 2019 Software Services 372 0.00%
All property.ge Real estate
LLC 90.0% Georgia 2013 management 2, 178 0.01%
LLC F Solutions 100.00% Georgia 2019 Software Services 7 0.00%
Inspired LLC 51.0% Uzbekistan 2011 Processing 7,264 0.04%
LLC Vendoo (UZ
Leasing) 100.00% Uzbekistan 2019 Consumer financing 4,893 0.02%
2) Our Ecosystems
Our mission: Make life easier
Financial services with a strong focus on digital:
o Book value as of 30 June 2020 - GEL 2.5 billion;
o Total assets as of 30 June 2020 - GEL 19.8 billion;
o Number of customers as of 30 June 2020 - 2.7 million.
Ecosystems:
o Revenue [25] - GEL 48.3 million for 2Q 2020, up by 53%
YoY;
o Net profit [26] - GEL 18.7 million for 2 Q 2020, up by 26%
YoY;
o Number of visitors [27] in 2Q 2020 -6.2 million;
o TBC Bank drives 27% of the ecosystems' revenue.
Our customer-centric ecosystems
We are increasing our touchpoints with customers by creating
secure, customer-centric digital ecosystems, that help our
customers to satisfy their needs in the most convenient and
seamless way possible.
Our ambitions are to:
o Establish new standards of customer experience;
o Facilitate digital sales and engagement;
o Create new revenue streams;
o Collect more valuable customer data.
Payments ecosystem [28]
1H 20 1H 19 Change
Number of payments (million) 188.7 161.5 16.8%
Payments ecosystem 141.4 114.0 24.0%
Other payments business 47.3 47.5 -0.4%
Volume of payments (GEL
billion) 72.6 78.0 -6.9%
Payments ecosystem 6.0 5.0 20.0%
Other payments business 66.6 73.0 -8.8%
o We are Number 1 in E-com & POS transactions volume, with a
market share of above 57%; [29]
o We are among the world's best with over 86% [30] of payments
being contactless;
o We have a great innovation record with a lot of "first in the
region" payment innovations such as stickers, P2P, contactless cash
withdrawal, Voice payments, Apple Pay, ATM QR withdrawal, TBC
Bracelets and digital cards.
Our aspirations
o Annual growth rate for payments commission income of 20% in
the medium term.
3) Net gains from currency swaps
In 2019, the Group entered into swap agreements denominated in
foreign currencies in order to decrease its cost of funding. As the
contracts reached a significant volume, the Group revisited the
presentation of effects in the statement of profit or loss.
Reclassifications from other non-interest operating income to net
interest income have been recorded for the first three quarters in
2019.
In thousands of GEL 2Q'20 1Q'20 4Q'19 3Q'19
Net gains from currency swaps 3,965 8,557 9,054 8,355
4) TBC Insurance
TBC Insurance is a rapidly growing, wholly owned subsidiary of
TBC Bank and is the Bank's main bancassurance partner. The company
was acquired by the Group in October 2016 and has since grown
significantly, becoming the second largest player on the P&C
and life insurance market and the largest player in the retail
segment, holding 18.5% and 34.9% market shares, ([31]) without
border motor third party liability (MTPL) insurance, respectively
in 2Q 2020, based on internal estimates.
TBC Insurance serves both individual and legal entities and
provides a broad range of insurance products covering motor,
travel, personal accident, credit life and property, business
property, liability, cargo, agro, and health insurance products.
The company differentiates itself through its advanced digital
channels, which include TBC Bank's award-winning internet and
mobile banking applications, a wide network of self-service
terminals, a web channel, and B-Bot, a Georgian-speaking chat-bot
that is available through Facebook messenger.
In 2Q 2019, TBC Insurance entered the health insurance market
with a focus on the premium segment. Our strategy is to focus on
affluent individuals and capture the affluent market by leveraging
our strong brand name, leading digital capabilities and
cross-selling opportunities with payroll customers. Our medium-term
target is to reach 25% market share in the premium health insurance
business. In 2 Q 2020 , TBC Insurance health business line
already attracted almost 1 2 , 000 active clients, up by 26.9% QoQ.
The total gross written premium in 2Q 2020 grew by 7.7% YoY and
amounted to GEL 21.5 million, while net earned premium increased by
41.4% YoY. Starting from July 2019, we stopped re-insuring the
motor portfolio, which led to an increase in net earned premium as
a result of the decrease in re-insurance costs. On the other hand,
this change led to increase in net claims. Overall, the impact on
the net profit was marginally positive due to our well-diversified
portfolio and prudent risk management.
In 2Q 2020, the net combined ratio ([32]) increased by 1.3 pp
YoY and stood at 82 . 6 %, driven by the health insurance business
line; without the health insurance business, our net combined ratio
would have been 79 . 4 %, down by 2.8 pp.
In 2Q 2020, net profit increased substantially both YoY and QoQ,
since we observed significant drop in motor and health insurance
claims during the lock-down period related to the COVID-19 pandemic
as well as our increased focus on cost optimization.
TBC Insurance distributed a GEL 5 million dividend for the first
time since the inception of operations in 2016.
Information excluding health 2 Q'20 1 Q' 2 Q'19 1H'20 1H'19
insurance 20
In thousands of GEL
Gross written premium 18,849 18,294 19,557 37,143 37,028
Net earned premium ([33]) 15,535 16,002 12,2 18 31,537 22,895
Net profit 3,248 2,517 2,210 5,765 4,252
Net combined ratio 79.4% 86.3% 76.6% 82.9% 77.9%
Information including health 2 Q'20 1 Q' 2 Q'19 1H'20 1H'19
insurance 20
In thousands of GEL
Gross written premium 21,540 20,195 19,991 41,735 37,462
Net earned premium 17,329 17,317 12,259 34,646 22,936
Net profit 3,109 1,928 1,803 5,037 3,807
Net combined ratio 82.6% 91.5% 81.3% 87.0% 80.6%
2 Q 2019 figures are provided without subsidiaries of TBC
Insurance: Swoop JSC, GE Commerce LTD, All Property LTD and 1Q 2020
and 2Q 2020 figures are given without Redmed LTD.
All figures in the above table are presented before
consolidation eliminations.
6) Main terms of shareholders' agreement with Yelo Bank
o TBC Bank and Yelo Bank (former Nikoil Bank) signed a
shareholders agreement in January 2019 to merge our Azeri
subsidiary, TBC Kredit (with total equity of USD 4.2 mln as of 30
June 2020) with Yelo Bank (with total equity of USD 29 mln as of 30
June 2020);
o The transaction is subject to regulatory approval, which is
pending;
o Our share in the joint entity will be 8.34% with a call option
to increase it to 50%+1 share within four years, based on a fixed
price formula;
o There is no capital commitment from TBC side;
o We are refreshing our approach in light of the COVID-19
pandemic and our expansion into Uzbekistan;
o The Group is assessing the feasibility of the completion of
the transaction.
7) Loan book breakdown by stages according IFRS 9
Total (in million GEL)
Stage Gross % of total Allowance LLP rate*
1 11,332 83.1% 177 1.6%
2 1,899 13.9% 196 10.3%
3 404 3.0% 157 38.9%
Total 13,635 100.0% 530 3.9%
Corporate (in million GEL)
Stage Gross % of total Allowance LLP rate*
1 4,443 87.6% 49 1.1%
2 464 9.2% 6 1.3%
3 164 3.2% 54 32.9%
Total 5,071 100.0% 109 2.2%
MSME (in million GEL)
Stage Gross % of total Allowance LLP rate*
1 2,652 82.7% 40 1.5%
2 443 13.8% 45 10.2%
3 111 3.5% 38 34.2%
Total 3,206 100.0% 123 3.8%
Consumer (in million GEL)
Stage Gross % of total Allowance LLP rate*
1 1,560 79.5% 78 5.0%
2 341 17.4% 110 32.3%
3 61 3.1% 39 63.9%
Total 1,962 100.0% 227 11.6%
Mortgage (in million GEL)
Stage Gross % of total Allowance LLP rate*
1 2,678 78.8% 10 0.4%
2 651 19.2% 35 5.4%
3 68 2.0% 26 38.2%
Total 3,397 100.0% 71 2.1%
* LLP rate is defined as credit loss allowances divided by gross
loans
Material Existing and Emerging Risks
Risk management is a critical pillar of the Group's strategy. It
is essential to identify emerging risks and uncertainties that
could adversely impact on the Group's performance, financial
condition and prospects. This section analyses the principal risks
and uncertainties the Group faces. However, we cannot exclude the
possibility of the Group's performance being affected by as yet
unknown risks and uncertainties other than those listed below.
The Board has undertaken a robust assessment of the principal
risks facing the Group and the long-term viability of the Group's
operations, in order to determine whether to adopt the going
concern basis of accounting. The management has a reasonable
expectation that the Group has sufficient resources to continue its
business operations in the foreseeable future. In making this
judgement, the management considered a wide range of current and
future conditions including the Group's financial position,
intentions, profitability of operations and access to financial
resources. In the assessment of future conditions, the management
performed a stress test exercise using a range of internally
developed plausible macroeconomic scenarios and satisfied
themselves that the Group's capital and liquidity positions are
adequate to meet the regulatory requirements and continue in
business for the foreseeable future.
Principal Risk and Uncertainties
1. PRINCIPAL RISK
Credit risk is an integral part of the Group's business
activities. As a provider of banking services, the Group is exposed
to the risk of loss due to the failure of a customer or
counterparty to meet their obligations to settle outstanding
amounts in accordance with the agreed terms.
Risk description
Credit risk is the greatest material risk faced by the Group,
given that the Group is engaged principally in traditional lending
activities. The Group's customers include legal entities as well as
individual borrowers.
Due to the high level of dollarization of Georgia's financial
sector, currency-induced credit risk is a component of credit risk,
which relates to risks arising from foreign currency-denominated
loans to unhedged borrowers in the Group's portfolio. Credit risk
also includes concentration risk, which is the risk related to
credit portfolio quality deterioration as a result of large
exposures to single borrowers or groups of connected borrowers, or
loan concentration in certain economic industries. Losses may be
further aggravated by unfavourable macroeconomic conditions. These
risks are described in more detail as a separate principal
risk.
COVID- 19 has increased uncertainty and caused significant
economic disruptions, with the hospitality & leisure, real
estate management and development sectors especially adversely
affected. Such economic disruptions may deteriorate the financial
standing of borrowers and result in increased credit risk for the
Group.
Risk mitigation
A comprehensive credit risk assessment framework is in place
with a clear segregation of duties among the parties involved in
the credit analysis and approval process. The credit assessment
process is distinct across segments, and is further differentiated
across various product types to reflect the differing natures of
these asset classes. Corporate, SME and larger retail and micro
loans are assessed on an individual basis, whereas the decision
making process for smaller retail and micro loans is largely
automated. The rules for manual and automated underwriting are
developed by units within the risk function, which are independent
from the origination and business development units. In the case of
corporate and SME borrowers, the loan review process is conducted
within specific sectoral cells, which accumulate deep knowledge of
the corresponding sectoral developments.
The Group uses a robust monitoring system to react promptly to
macro and micro developments, identify weaknesses in the credit
portfolio and outline solutions to make informed risk management
decisions. Monitoring processes are tailored to the specifics of
individual segments, as well as encompassing individual credit
exposures, overall portfolio performance and external trends that
may impact on the portfolio's risk profile. Additionally, the Group
uses a comprehensive portfolio supervision system to identify
weakened credit exposures and take prompt, early remedial actions,
when necessary.
Since the start of the pandemic the Bank granted 3-month payment
holidays on principal and interest payments for individual and MSME
customers as well as those corporate customers who have been
affected by current situation. The take-up rate per segments were:
32% - corporate, 59% - MSME, 77% - retail and 55% of the total
portfolio. In June, the 3-month payment holiday was extended for a
further three months to its most vulnerable retail and micro
customers, based on specific qualification criteria in order to
support borrowers who have lost their main source of income during
the COVID-19 pandemic. The take-up rate per segments were: 5% -
corporate, 24% - MSME, 29 % - retail and 19% of the total
portfolio.
Additionally, the Bank actively performs stress testing and
scenario analysis in order to check the resilience of borrowers
under various stress conditions. Intensive financial monitoring is
being carried out to duly identify the borrower's weakened
financial and business prospects, aiming to offer restructuring
tailored to their individual needs.
The Bank revised and tightened credit underwriting standards
across all segments in light of COVID-19.
The Group's credit portfolio is structurally highly diversified
across customer types, product types and industry segments, which
minimizes credit risk at the Group level. As of 30 June 2020, the
retail segment represented 39.3% of the total portfolio, which was
split between mortgage and non-mortgage exposures 63.4% and 36.6%,
respectively. No single business sector represented more than 8.9%
of the total portfolio as of H1 2020.
Collateral represents the most significant credit risk
mitigation tool for the Group, making effective collateral
management one of the key risk management components. Collateral on
loans extended by the Group may include, but is not limited to,
real estate, cash deposits, vehicles, equipment, inventory,
precious metals, securities and third party guarantees.
The Group has a largely collateralised portfolio in all its
segments, with real estate representing a major share of
collateral. As of 30 June 2020, 74.9% of the Group's portfolio was
secured by cash, real estate or gold. A sound collateral management
framework ensures that collateral serves as an adequate mitigating
factor for credit risk management purposes.
2. PRINCIPAL RISK
The Group faces currency-induced credit risk due to the high
share of loans denominated in foreign currencies in the Group's
portfolio.
A potential material GEL depreciation is one of the most
significant risks that could negatively impact portfolio quality,
due to the large presence of foreign currencies on the Group's
balance sheet. Unhedged borrowers could suffer from an increased
debt burden when their liabilities denominated in foreign
currencies are amplified.
Risk description
A significant share of the Group's loans (and a large share of
the total banking sector loans in Georgia) is denominated in
currencies other than GEL, particularly in US$ and EUR. As of H1
2020, the local regulator, the National Bank of Georgia ("NBG")
reported that 57.1% of total banking sector loans were denominated
in foreign currencies. As of the same date, 60.7% of the Group's
total gross loans and advances to customers (before provision for
loan impairment) were denominated in foreign currencies.
The income of many customers is directly linked to foreign
currencies via remittances, tourism or exports. Nevertheless,
customers may not be protected against significant fluctuations in
the GEL exchange rate against the currency of the loan. The US$/GEL
rate remained volatile throughout H1 2020 and the GEL weakened 6.5%
YTD. The GEL remains in free float and is exposed to many internal
and external factors that in some circumstances could result in its
depreciation.
Risk mitigation
Particular attention is paid to currency-induced credit risk,
due to the high share of loans denominated in foreign currencies in
the portfolio. The vulnerability to exchange rate depreciation is
monitored in order to promptly implement an action plan, as and
when needed. The ability to withstand certain exchange rate
depreciation is incorporated into the credit underwriting
standards, which also include significant currency devaluation
buffers for unhedged borrowers. The NBG, under its responsible
lending initiative, which came into force on 1 January 2019,
introduced significantly more conservative PTI and LTV thresholds
for unhedged retail borrowers, further limiting their exposure to
currency induced credit risk. The NBG eased the above-mentioned
regulation from April 2020. The changes are more relevant to hedged
borrowers. For unhedged borrowers, PTI and LTV thresholds will
remain significantly more conservative. In addition, the Group
holds significant capital against currency-induced credit risk.
Given the experience and knowledge built throughout the recent
currency volatility, the Group is in a good position to promptly
mitigate exchange rate depreciation risks.
3. PRINCIPAL RISK
The Group's performance may be compromised by adverse
developments in the economic environment.
A stronger contraction of the economy in Georgia and political
instability related to the upcoming parliamentary elections could
have a more significant impact on the repayment capacity of the
borrowers, restraining their future investment and expansion plans.
These occurrences would be reflected in the Group's portfolio
quality and profitability, and would further impede portfolio
growth rates. Negative macroeconomic developments could compromise
the Group's performance through various parameters, such as
exchange rate depreciation, a spike in interest rates, rising
unemployment, a decrease in household disposable income, falling
property prices, worsening loan collateralisation, or falling debt
service capabilities of companies as a result of decreasing sales.
Potential political and economic instability in neighbouring
countries and Georgia's main trading partners could negatively
impact the country's economic outlook through a worsening current
account (e.g. decreased exports, tourism inflows, remittances and
foreign direct investments).
Risk description
According to Geostat, real GDP increased by 2.2% in the first
quarter of 2020 and fell sharply by 16.6% in April and by 13.5% in
May as strict mobility restrictions were introduced. The decline
moderated somewhat in June to -7.7%, which can be attributed to the
easing of restrictions that began at the end of May 2020. The
recovery started from June 2020, but it has been uneven with
tourism related sectors remaining deeply negative as borders are
still mostly closed with several flights only expected to resume
from August 2020
On the other hand, other major sources of inflows displayed much
better dynamics: exports fell by 31.3% YoY in May 2020 but
moderated to -14.0% YoY in June, while remittance inflows even
experienced positive growth, although to some extent that reflected
an increase in electronic transfers as physical borders remain
closed. Domestic demand dynamics also seem promising with a
recovery in imports and a number of high-frequency indicators(1)
rebounding strongly after hitting lows in April-May.
Key budget parameters were revised substantially to accommodate
a stimulus package to support the economy amid the COVID-19 related
fallout. The budget deficit is currently projected at 8.5% of GDP
for 2020, which will mostly be financed by external borrowing
amounting to USD 1.7 billion (excl. repayments). Additional
spending will be diverted both to social spending and to support
crisis-affected sectors. More importantly, the secured funding is
enough to finance the increased budget deficit, as well as to
create an additional buffer of 2.7 billion GEL (5.4% of GDP), which
will be available in case of further deterioration of the macro
scenario, compared with the baseline one.
As of the end of June 2020, the USD/GEL exchange rate
depreciated by 17.0% YoY, while the EUR/GEL exchange rate
depreciated by 5.5% YoY. The real effective exchange rate (REER) of
the GEL weakened by 2.1% YoY in June 2020 while it appreciated by
1.4% MoM. The NBG continues to sell FX reserves to address the
shortage of inflows caused by the pandemic. Also, the central bank
has been gradually cutting the monetary policy rate to support GEL
lending, while taking into account wider uncertainties and its goal
of bringing inflation down closer to its target. Bank credit growth
also moderated to 13.9% YoY on FX adjusted terms as of June 2020,
compared to 17.1% YoY growth by the end of 1Q 2020. So far, there
are no signs of a "credit crunch" that could further exacerbate the
impact of crises on the real economy.
Georgia remains vulnerable to further deterioration of the
external and internal economic environment, which would further
worsen key macroeconomic variables including GDP growth and
exchange rate.
Risk mitigation
To decrease its vulnerability to economic cycles, the Group
identifies cyclical industries and proactively manages its
underwriting approach and clients within its risk appetite
framework.
The Group has in place a macroeconomic monitoring process that
relies on close, recurrent observation of the economic developments
in Georgia, as well as in neighbouring countries, to identify early
warning signals indicating imminent economic risks. This system
allows the Group to promptly assess significant economic and
political occurrences and analyse their implications for the
Group's performance. The identified implications are duly
translated into specific action plans with regards to reviewing the
underwriting standards, risk appetite metrics or limits, including
the limits for each of the most vulnerable industries.
Additionally, the stress testing and scenario analysis applied
during the credit review and portfolio monitoring processes enable
the Group to have an advance evaluation of the impact of
macroeconomic shocks on its business. Resilience towards a changing
macroeconomic environment is incorporated into the Group's credit
underwriting standards. As such, borrowers are expected to
withstand certain adverse economic developments through prudent
financials, debt-servicing capabilities and conservative collateral
coverage.
Taking into account the impact of the COVID-19 crisis on
Georgia's economy, the Group has adjusted its risk management
framework leveraging its already existing stress testing
practices.
4. PRINCIPAL RISK
The Group faces the capital risk of not meeting the minimum
regulatory requirements. The Bank is regulated by the National Bank
of Georgia (NBG). The regulation requires compliance with certain
capital adequacy ratios. The local regulator has the right to
impose additional regulations on a bank if it perceives excessive
risks and uncertainties in that lender or in the market. In
addition, potential GEL depreciation would increase the Bank's risk
weighted assets and impairment charges, which in turn would
negatively affect the Bank's capital adequacy ratios. A 10% GEL
depreciation translates into negative impacts of 0.86 pp, 0.75 pp
and 0.58 pp on CET1, Tier 1 and Total Regulatory capital adequacy
ratios, respectively.
Risk description
In light of the COVID-19 pandemic, the NBG implemented certain
countercyclical measures in relation to capital adequacy
requirements:
-- Postponing the phasing in of concentration risk and the net
GRAPE (General Risk Assessment Program) buffer capital requirements
on CET1 capital, planned in March 2020;
-- Allowing banks to use the conservation buffer and 2/3 of
currency induced credit risk (CICR) buffer;
-- Leaving open the possibility of releasing all the remaining
pillar 2 buffers (remaining 1/3 CICR, concentration risk and Net
Grape buffers) in case of necessity.
Whenever the Bank utilizes conservation and Pillar 2 buffers, it
is restricted to make any capital distribution.
If the NBG changes the decision with regards to capital adequacy
limits, the banking sector shall have one year to comply with the
changes.
In March 2020, the Bank created additional credit loss
allowances according to local standards to cover for potential
COVID-19 related losses in the amount of 3.1% of the total loan
book, which had a 2.19 pp impact on CET1 CAR.
As a result, the Bank's capitalization as of June 2020 stood at
10.0%, 12.7% and 17.2% compared to the regulatory minimum
requirement of 6.9%, 8.7% and 13.3% for CET1, Tier 1 and Total
capital, respectively. The ratios were well above the new
regulatory minimums.
Risk mitigation
The Group undertakes stress-testing and sensitivity analysis to
quantify extra capital consumption under different scenarios. Such
analyses indicate that the Group holds sufficient capital to meet
the current minimum regulatory requirements. Capital forecasts, as
well as the results of the stress-testing and what-if scenarios,
are actively monitored with the involvement of the Bank's
Management Board and Risk Committee to ensure prudent management
and timely actions when needed.
5. PRINCIPAL RISK
The Group is exposed to regulatory and enforcement action
risk.
The Bank's activities are highly regulated and thus face
regulatory risk. The NBG can increase prudential requirements
across the whole sector as well as for specific institutions within
it. Therefore, the Group's profitability and performance may be
compromised by an increased regulatory burden.
Risk description
The NBG sets lending limits and other economic ratios
(including, inter alia, lending, liquidity and investment ratios)
in addition to mandatory capital adequacy ratios.
The NBG is also responsible for conducting investigations into
specific transactions to ensure compliance with Georgian finance
laws and regulations. In that regard, the Bank was subject to an
inspection by the NBG in connection with certain transactions that
took place in 2007 and 2008. The inspection alleged that these
transactions between the Bank and certain entities were not in
technical compliance with Georgian law regulating conflicts of
interest. In February 2019, the Company, the Bank and the NBG
issued a joint statement confirming the settlement of this
investigation and stating that the Bank had fully complied with the
normative economic requirements and limits set by the NBG.
In parallel, the Georgian Office of Public Prosecution launched
an investigation into the same matter and has charged the founders
of the Bank. The court case with the founders is ongoing. However,
the founders have stood down from all their positions within the
Group and the Bank.
Under Georgian banking regulations, the Bank is required, among
other things, to comply with minimum reserve requirements and
mandatory financial ratios, and regularly to file periodic reports.
The Bank is also regulated by the tax code and other relevant laws
in Georgia. Following the Company's listing on the London Stock
Exchange's premium segment, the Group became subject to increased
regulations from the UK Financial Conduct Authority. In addition to
its banking operations, the Group also offers other regulated
financial services products, including leasing, insurance and
brokerage services.
TBC Bank's subsidiary has been granted a banking licence in
Uzbekistan and has launched its banking operations there initially
in a pilot mode for "friends and family", with plans to extend its
services to the broader population in August 2020. As a result of
this project, increased regulatory compliance requirements for the
Group are anticipated.
Additionally, as part of the Group's international strategy, the
ongoing merger between Yelo Bank (former Nikoil Bank) and TBC
Kredit is subject to regulatory approval. If the approval is
granted, the Group's intention is to increase its shareholding in
the merged entity to over 50% over a four-year period. This will,
in turn, increase the Group's exposure to the regulatory
environment in Azerbaijan. However the Group is assessing the
feasibility of the completion of the transaction.
The Group takes operational steps with the intention of ensuring
compliance with the relevant legislation and regulations. The Group
is also subject to financial covenants in its debt agreements. For
more information, see page 114 in the Group's Reviewed Financial
Statements.
Risk mitigation
The Group has established systems and processes to ensure full
regulatory compliance, which are embedded in all levels of the
Group's operations. The dedicated compliance department reports
directly to the Chief Executive Officer and has a primary role in
the management of regulatory compliance risk. The Group's Risk
Committee is responsible for regulatory compliance at the Board
level. In terms of banking regulations and Georgia's taxation
system, the Group is closely engaged with the regulator to ensure
that new procedures and requirements are discussed in detail before
their implementation. Although the decisions made by regulators are
beyond the Group's control, significant regulatory changes are
usually preceded by a consultation period that allows all lending
institutions to provide feedback and adjust their business
practices.
Regarding the investigations by the NBG in February 2019, the
Company, the Bank and the NBG issued a joint announcement
confirming the settlement of this investigation. In response to the
regulatory review and investigations, the founding shareholders
have stood down from their roles within the Group and the Bank. The
Company has implemented a mirror board structure strengthening the
board with the new appointments. In addition, the Bank, with the
assistance of external advisers, undertook a review of the Bank's
relevant internal controls systems. Although these reviews did not
identify any material deficiencies in the Bank's existing internal
controls and compliance systems, they did make certain technical
recommendations for further improvements in the Bank's processes
and procedures, which are being implemented.
6. PRINCIPAL RISK
The Group is exposed to concentration risk.
Banks operating in developing markets are typically exposed to
both single-name and sector concentration risks.
The Group has large individual exposures to single-name
borrowers whose potential default would entail increased credit
losses and high impairment charges.
The Group's portfolio is well diversified across sectors,
resulting in only a moderate vulnerability to sector concentration
risks. However, should exposure to common risk drivers increase,
the risks are expected to amplify correspondingly.
Risk description
The Group's loan portfolio is diversified, with maximum exposure
to the single largest industry (Real Estate) standing at 8.9% of
the loan portfolio as of H1 2020. This figure is reasonable and
demonstrates adequate credit portfolio diversification.
As of H1 2020, exposure to the 20 largest borrowers stands at
12.3% of the loan portfolio, which is in line with the Group's
target of alleviating concentration risk.
Risk mitigation
The Group constantly monitors the concentrations of its exposure
to single counterparties, as well as sectors and common risk
drivers, and it introduces limits for risk mitigation.
As part of its risk appetite framework, the Group limits both
single-name and sector concentrations. Any considerable change in
the economic or political environment, in Georgia as well as in
neighbouring countries, will trigger the Group's review of the risk
appetite criteria to mitigate emerging risk concentrations.
Stringent monitoring tools are in place to ensure compliance with
the established limits.
The NBG's capital framework includes a concentration buffer
under Pillar 2 that helps to ensure that the Group remains
adequately capitalised to mitigate concentration risks.
7. PRINCIPAL RISK
Liquidity risk is inherent in the Group's operations.
While the Board believes that the Group currently has sufficient
financial resources available to meet its obligations as they fall
due, liquidity risk is inherent in banking operations and can be
heightened by numerous factors. These include an overreliance on,
or an inability to access, a particular source of funding, as well
as changes in credit ratings or market-wide phenomena, such as the
global financial crisis that commenced in 2007.
Access to credit for companies in emerging markets is
significantly influenced by the level of investor confidence and,
as such, any factors affecting investor confidence (e.g. a
downgrade in credit ratings, central bank or state interventions,
or debt restructurings in a relevant industry) could influence the
price or the availability of funding for companies operating in any
of these markets.
Risk description
Throughout H1 2020, the Group was in compliance with the minimum
liquidity requirements set by the NBG. This is in addition to the
Basel III guidelines, under which a conservative approach was
applied to deposit withdrawal rates, depending on the concentration
of client groups. From October 2019, the Bank's foreign currency
mandatory reserve was fully categorized as a high quality liquid
asset (HQLA) for regulatory LCR calculation purposes, which had a
positive effect on the LCR ratio. In September 2019, the NBG also
introduced a Net Stable Funding Ratio.
As of 30 June 2020, the net loan to deposits plus international
financial institution funding ratio stood at 105.3%, the liquidity
coverage ratio at 124.8%, and the net stable funding ratio at
127.5%. These figures are all comfortably above the NBG's minimum
requirements or guidance for such ratios.
As a result of the COVID-19 pandemic, the NBG implemented
certain countercyclical measures in relation to liquidity
requirements:
-- opened USD/GEL FX swap lines with unlimited amounts;
-- removed minimum requirement on GEL, LCR (>=75%) for one year period;
-- allowed pledging a business loans for liquidity support purposes.
If necessary, the NBG will implement following measures:
-- decreasing LCR limits;
-- decreasing mandatory reserve requirements in foreign currency.
Risk mitigation
To mitigate this risk, the Group holds a solid liquidity
position and performs an outflow scenario analysis for both normal
and stress circumstances to make sure that it has adequate liquid
assets and cash inflows. The Group maintains a diversified funding
structure to manage the respective liquidity risks. The Board
believes there is adequate liquidity to withstand significant
withdrawals of customer deposits, but the unexpected and rapid
withdrawal of a substantial amount of deposits could have a
material adverse impact on the Group's business, financial
condition, and results of operations and/or prospects. As part of
its liquidity risk management framework, the Group has a liquidity
contingency plan in place outlining the risk indicators for
different stress scenarios and respective action plans. The
liquidity risk position and compliance with internal limits are
closely monitored by the Assets and Liabilities Management
Committee (ALCO).
8. PRINCIPAL RISK
Any decline in the Group's net interest income or net interest
margin could lead to a reduction in profitability.
Net interest income accounts for the majority of the Group's
total income. Consequently, fluctuations in its NIM affect the
results of operations. The new regulations as well as high
competition could drive interest rates down, compromising the
Group's profitability. At the same time, the cost of funding is
largely exogenous to the Group and is derived from both national
and international markets.
Risk description
The majority of the Group's total income derives from net
interest income. Consequently, the NIM's fluctuations affect the
Group's results. In H1 2020, the NIM decreased by 1.3 pp YoY to
4.7%. The decrease was mainly driven by the market pressure on
funding rate in local currency and the introduction of the
responsible lending regulation from 1 January 2019, limiting the
Bank's ability to lend money to higher-yield retail customers, as
well as other factors such as foreign currency exchange rate
depreciation.
The Group manages its direct exposure to the LIBOR and local
refinancing rates through respective limits and appropriate
pricing. As of 30 June 2020, GEL 5,988 million in assets (30%) and
GEL 4,143 million in liabilities (24%) were floating, related to
the LIBOR/FED/ ECB (deposit facility) rates, and as per internal
judgment, whereas GEL 5,526 million of assets (28%) and GEL 3,595
million of liabilities (21%) were floating, related to the NBG's
refinancing rate. The reprising maturity of floating liabilities
within a one-year horizon exceeds the one of floating assets.
Risk mitigation
In 2020, the pressure on NIM is expected be partially offset by
our increased focus on cost efficiency, while in the medium term,
the increase in fee and commission income and other operating
income will support the Bank's profitability.
To mitigate the asset-liability maturity mismatch, in cases
where loans are extended on fixed rather than floating terms, the
interest rate risk is translated into price premiums, safeguarding
against changes in interest rates.
9. PRINCIPAL RISK
The threat posed by cyber-attacks has increased in recent years
and it continues to grow. The risk of potential cyber-attacks,
which have become more sophisticated, may lead to significant
security breaches. Such risks change rapidly and require continued
focus and investment.
Erroneous statement in TBC Bank Group PLC's Annual Report and
Accounts for year ended 31 December 2019.
The following statement was included on Page 58 of the Strategic
Report of the above accounts:
"We are conducting external audits and threat intelligence led
cyber-attack readiness exercises on a regular basis, which provides
us with a practical view of our information and cyber security
position. It also gives us a benchmark against international best
practices and helps to define readiness levels against real-world
cyber threats. We are using it as one of the inputs in our
continuous improvement cycle. The latest review was conducted in
2019 by Deloitte UK, which confirmed that our critical systems
ensure high reliability against cyber threats."
We have been alerted to the fact that the last sentence, which
refers to 'Deloitte UK's findings, is erroneous. Whilst Deloitte
LLP did undertake a threat intelligence led cyber-attack readiness
exercise, their findings were materially different to those
presented in our Annual Report and, for the avoidance of doubt,
their review did not confirm that our critical systems ensure high
reliability against cyber threats. The review identified a number
of security weaknesses and made recommendations for remedial
actions, which the Bank is now implementing. Further, Deloitte
LLP's review did not constitute any form of external audit or other
assurance review.
Risk description
During the pandemic, the Bank's dependency on its IT systems
further increased as around 95% of the Bank's back office employees
are working remotely. Remote working practices may result in
increased system and behavioural risks.
No major cyber-attack attempts have targeted Georgian commercial
banks in recent years. Nonetheless, the Group's rising dependency
on IT systems increases its exposure to potential
cyber-attacks.
Risk mitigation
The Group actively monitors, detects and prevents risks arising
from cyber-attacks. Staff members monitor developments on both the
local and international markets to increase awareness of emerging
forms of cyber-attacks. Intrusion prevention and Distributed Denial
of Service (DDoS) protection systems are in place to protect the
Group from external cyber-threats. Security incident and event
monitoring systems, in conjunction with the respective processes
and procedures, are in place to handle cyber-incidents
effectively.
Processes are continuously updated and enhanced to respond to
new potential threats. A data recovery policy is in place to ensure
business continuity in case of serious cyber-attacks. In addition,
an Information Security Steering Committee is actively involved in
improving information security and business continuity management
processes to minimise information security risks.
As a result of the COVID-19 pandemic, the Bank activated secure
remote working policies, which ensure that homeworking environments
are protected against relevant cyber-threats, and our security team
provides effective oversight of teleworking channels. Additionally,
awareness program and communication strategy was refreshed to
increase the effectiveness of remote working capabilities.
10. PRINCIPAL RISK
External and internal fraud risks are part of the operational
risk inherent in the Group's business. Considering the increased
complexity and diversification of operations, together with the
digitalisation of the banking sector, fraud risks are evolving.
Unless proactively managed, fraud events may materially impact the
Group's profitability and reputation.
Risk description
External fraud events may arise from the actions of third
parties against the Group, most frequently involving events related
to banking cards, loans and cash. Internal fraud events arise from
actions committed by the Group's employees, and such events happen
less frequently.
During the reporting period, the Group faced only a few
instances of fraud, none of which had a material impact upon the
Group's profit and loss statement. Nonetheless, fraudsters are
adopting new techniques and approaches to exploit various
possibilities to illegally obtain funds. Fraud threats are
relatively elevated in relation to COVID-19 due to the potential
growth of external scams, the economic downturn and other related
factors. Therefore, unless properly monitored and managed, the
potential impact can become substantial.
Risk mitigation
The Group actively monitors, detects and prevents risks arising
from fraud events, and permanent monitoring processes are in place
to detect unusual activities in a timely manner. The risk and
control self-assessment exercise focuses on identifying residual
risks in key processes, subject to the respective corrective
actions. Given our continuous efforts to monitor and mitigate fraud
risks, together with the high sophistication of our internal
processes, the Group ensures the timely identification and control
of fraud-related activities.
11. PRINCIPAL RISK
The Group is currently exposed to reputational risk.
The media coverage in Georgia surrounding the founders of the
Bank represents a risk to the reputation of the Group.
Risk description
There are principal risks that may arise from negative publicity
surrounding TBC Bank and its public perception, as well as that of
the banking sector in Georgia as a whole. In particular, media
exposure in relation to TBC Bank and its founders has threatened to
have an adverse impact on the Bank's operations. An inability to
manage such reputational risks could have an adverse impact upon
the Bank and its stakeholders, including its clients, employees and
shareholders.
Risk mitigation
To mitigate possibility of reputational risks, the Bank works
continuously to maintain strong brand recognition within its
stakeholders. The Bank actively monitors its brand value by
receiving feedback from stakeholders on an ongoing basis. The Group
tries to identify early warning signs of potential reputational or
brand damage in order to both mitigate it and elevate it to the
attention of the Board before escalation. Dedicated internal and
external marketing and communications teams are in place which have
the responsibility to monitor risks, develop scenarios and create
respective action plans.
12. PRINCIPAL RISK
The Group faces the risk that its strategic initiatives do not
translate into long-term sustainable value for its stakeholders
.
The Group's business strategy may not adapt to the environment
of ever changing customer needs.
Risk description
The Group may face the risk of developing a business strategy
that does not safeguard long-term value creation in an environment
of changing customer needs, competitive environment and regulatory
restrictions. In addition, the Group may be exposed to the risk
that it will not be able to effectively deliver on its strategic
priorities and thereby compromise its capacity for long-term value
creation. Further, increased uncertainty together with the major
economic and social disruptions caused by the COVID-19 pandemic may
hamper the Group's ability to effectively develop and execute its
strategic initiatives in a timely manner.
Risk mitigation
The Group conducts annual strategic review sessions involving
the Bank's top and middle management in order to ensure that it
remains on the right track and assesses business performance across
different perspectives, concentrating analysis on key trends and
market practices, both in the regional and global markets. In
addition, the Bank continuously works with the world's leading
consultants in order to enhance its strategy. Further, the Group
conducts quarterly analysis and monitoring of metrics used to
measure strategy execution, and in case of any significant
deviations, it ensures the development of corrective or mitigation
actions.
In light of the COVID-19 pandemic, the Group has reviewed its
strategic priorities given an increased pressure on capital and
people as well as emerging new opportunities. While the main themes
have not changed, the Group has prioritized digital channels,
customer centricity, data analytics and international expansion for
the next three years ahead.
1 3 . PRINCIPAL RISK
The Group is exposed to risks related to its ability to attract
and retain highly qualified employees .
A strong employee base is vital to the success of the Group
.
Risk description
The Group faces the risk of losing of key personnel or the
failure to attract, develop and retain skilled or qualified
employees. In particular, the strategic decision to transform into
a digital company entails increased demands on highly competent IT
professionals across the Group. In addition, in order to adapt to
the fast changing business environment, the Group needs to foster
an "Agile" culture and equip employees with the necessary skills.
In addition, COVID-19 has created additional HR challenges in
relation to safeguarding employees' health and wellbeing,
maintaining high efficiency levels as well as strong internal
communication and a strong corporate culture.
Risk mitigation
The Group pays significant attention to human capital management
strategies and policies, which include approaches to the
recruitment, retention and development of talent, and offers
competitive reward packages to its employees. The Group has also
developed and implemented an "Agile" framework that aims to
increase employee engagement and satisfaction. Moreover, the Bank
has set up an IT academy to attract and train young professionals.
The best students are offered employment at the Bank. In addition,
the Bank has an in-house academy that provides various courses for
employees in different fields.
In response to the COVID-19 pandemic, we have promptly moved our
back-office employees to a remote working practise by equipping
them with all the necessary IT infrastructure. At the same time, to
ensure effective internal communication, we enhanced different
digital channels to engage with our employees. Regular management
meetings are being conducted with staff in order to keep them
updated with the Group's strategic initiatives and financial
position as well as address their concerns during this highly
uncertain period. In addition, in order to promote our corporate
culture, the Bank's internal Facebook group has become more active
by posting employee profiles and sharing success stories.
In relation to our front-office employees, we have introduced
appropriate safety and social distancing measures in our branches
and offices in line with WHO recommendations. We have also
introduced two-week shifts for the front office staff to mitigate
the pandemic risk. In addition, financial benefits were given to
employees with high-risk exposure.
Emerging Risks
Emerging risks are those that have large unknown components and
may affect the performance of the Group over a longer time horizon.
We believe the following risks have the potential to increase in
significance over time and could have the same impact on the Group
as the principal risks.
1. EMERGING RISK
The Group is exposed to the risks inherent in international
operations.
TBC Bank's subsidiary, TBC Bank in Uzbekistan, obtained a
banking licence in April 2020 and has launched its banking
operations in Uzbekistan, initially in a pilot mode for "friends
and family", with plans to extend its services to the broader
population in August 2020. The total amount of investment in 2020
from all shareholders is expected to amount to about US$ 40
million. TBC Group will hold around 51%. This investment exposes
the Group to Uzbekistan's macro-economic political and regulatory
environments, including exposure to risks arising from credit,
market, operational and capital adequacy risks as well as risks
related to COVID-19 in Uzbekistan. In addition, the Group is
considering the feasibility of its expansion plans in
Azerbaijan.
Currently, the Group's business activities are mainly
concentrated in Georgia, but international activities are expected
to contribute to around 30% of the Group's loan book over the
medium to long-term.
Risk description
The risk posed by the operating environment in Uzbekistan and
Azerbaijan may change the Group's risk profile as a result of this
international expansion.
According to the latest IMF forecasts, Uzbekistan is a rapidly
developing economy with over 5% real GDP growth projected in the
medium term. The Uzbekistani economy is well diversified with no
major reliance on a particular industry. It has one of the lowest
public debts as a percentage of GDP in the region and high
international reserves, implying macroeconomic stability as well as
room for future high growth. The new government of Uzbekistan plans
to reform the economy and open it up to foreign investment. While
the operational environment in Uzbekistan can be assessed as
attractive, there are important risks that could materially affect
the Group's performance in the country. These risks include, but
are not limited to, political instability, the slow pace of
reforms, adverse developments in inflation and fluctuations in the
exchange rate. As for the impact of COVID-19, per latest World Bank
projections, Uzbekistan GDP is expected to still demonstrate
positive growth of 1.5% in 2020. As for the recovery in 2021, it is
expected to be a solid 6.6%.
Azerbaijan is a small, open economy with a high reliance on oil
exports. The economy of Azerbaijan started to recover in 2017 after
a contraction in 2016 that was caused by the significant decline in
oil prices in the period 2014-2016. The combination of a slump in
oil prices and COVID-19 related restrictions has again triggered
recession in Azerbaijan and, according to the latest World Bank
estimates, Azerbaijani GDP is expected to drop by 2.6% in 2020,
before recovering by 2.2% in 2021. Furthermore, potential political
instability and unfavourable developments in state regulations can
also negatively affect the Group's business in Azerbaijan.
Risk mitigation
The Group's strategy is to follow an asset-light, limited
capital investment approach with a strong focus on digital channels
and to invest in stages, to make sure that we are comfortable with
the results and the operating environment before committing
additional investment. The Group plans to serve retail and MSME
customers, which will in turn lead to a non-concentrated portfolio
and subsequently to lower credit risk. The Group will partner with
international financial institutions that intend to take a
shareholding in the Uzbek bank in order to ensure the funding of
our business plan and sufficient flexibility across our operations
in Uzbekistan.
The Group has been operating in Azerbaijan through a small
microfinance organization for a number of years, which provides
experience and knowledge of the local banking environment. In
addition, our exposure in Azerbaijan is limited before the option
is exercised. The Group will exercise the option only after it
becomes comfortable with developments, including the operating
environment. The management will focus on establishing a strong
risk management function to ensure that all risks are managed and
mitigated properly. The Group will leverage its strong risk
management expertise to establish sound risk management practices
in new jurisdictions.
Overall, from the Group's perspective, international expansion
will result in the diversification of business lines and revenue
streams, balancing the overall risk profile of the Group.
2. EMERGING RISK
The Group is exposed to risks arising from climate change.
Risk description
The risks associated with climate change have both a physical
impact arising from more frequent and severe weather changes and a
transitional impact that may entail extensive policy, legal and
technological changes to reduce the ecological footprint of
households and businesses. For the Group, both of these risks can
materialise through the impairment of asset values and
deteriorating creditworthiness of our customers, which could result
in the reduction of the Group's profitability. The Group may also
become exposed to reputational risks as a result of its lending to,
or other business operations with, customers deemed to be
contributing to climate change.
Risk mitigation
The Group's objective is to act responsibly and manage the
environmental and social risks associated with its operations in
order to minimise negative impacts on the environment. This
approach enables us to reduce our ecological footprint by using
resources efficiently and promoting environmentally friendly
measures in order to mitigate climate change.
The Group has in place an Environmental Policy, which governs
its Environmental Management System (the "EMS") and promotes
adherence of the Group's operations to the applicable
environmental, health and safety and labour regulations and
practices. We take all reasonable steps to support our customers in
fulfilling their environmental and social responsibilities.
Management of environmental and social risks is embedded in the
Group's lending process through the application of the EMS. The
Group has developed risk management procedures to identify, assess,
manage and monitor environmental and social risks. These procedures
are fully integrated in the Group's credit risk management process.
Our Environmental Policy is fully compliant with Georgian
environmental legislation and follows international best practices
(the full policy is available at www.tbcbankgroup.com ).
3. EMERGING RISK
The Group's performance may be affected by LIBOR discontinuation
and transition.
Risk description
There are a number of different types of financial instruments
on the Group's balance sheet, each of which carries interest rates
benchmarked to the London Interbank Offered Rate ("LIBOR"). LIBOR
is also used by the Group in its risk measurement, accounting and
valuation processes. In 2017, the FCA announced that it has agreed
with LIBOR panel banks to sustain LIBOR until the end of 2021 and
called on financial sector participants to start working towards
the transition to other reference rates. The discontinuation of
LIBOR and the process of transition exposes the Group to execution,
conduct, financial and operational risks, and may result in
earnings volatility, customer complaints and legal proceedings, or
have other adverse impact on the Group's business and
operations.
Risk mitigation
The Group is in the process of identifying the implications of
such a transition to other reference rates on its risk profile by
analysing its execution, conduct, financial and operational risks
and how such risks could be addressed. TBC is proactively working
with industry participants, such as the NBG, the Banking
Association of Georgia and IFI lenders to facilitate orderly
transition to other reference rates. The Group is starting its
efforts to raise awareness of the transition, both internally and
externally, to ensure that staff have all the necessary knowledge
and tools to facilitate the transition and that all of the Group's
customers are treated fairly. We actively monitor international as
well as local transition-related developments to regulate and align
the Group's transition process with market practice.
4. EMERGING RISK
The spread of coronavirus (COVID-19) comes with unpredictable
economic and social consequences.
Risk description
Although COVID-19 has been contained relatively successfully in
Georgia, developments in some countries still indicate the high
risk of a return of the virus and repeated mobility restrictions.
This scenario could severely damage the recovery dynamics and
result in a much deeper recession than assumed in the baseline
scenario. In such a scenario, the macro environment worsens even
further with a much stronger decrease in economic growth, increased
unemployment, depreciation of the GEL, decreased commodity and real
estate prices, impaired creditworthiness of the private sector, and
higher financial and non-financial risks to the Group.
According to the state budget approved in June, the deficit is
currently projected at 8.5% of GDP for 2020, mostly to be financed
by external borrowing of around USD 1.6 billion. Additional
spending will be diverted both to social spending and to support
crisis-affected sectors. In the event of an adverse scenario
developing, the economic hit could be partially mitigated by the
utilization of the additional fiscal buffer of GEL 2.7 billion
(5.4% of GDP), together with further likely support from
international donors. Higher stimulus would likely be reflected in
larger direct support of the most vulnerable sectors and
individuals in the form of tax cuts, subsidies and social transfers
as well as possibly in stronger capital spending.
Together with international support, it is also important to
take into account that there were no signs of overheating of the
Georgian economy during the pre-distress period, including the
housing market. Therefore, once the virus is contained, most
industries should recover relatively quickly, although the
hospitality sector is likely to lag behind for an additional
period.
Risk mitigation
The Group actively analyses adverse scenarios and their economic
consequences. As part of the stress testing exercise, we have
analysed multiple scenarios to ensure that the Group has sufficient
liquidity and capital to meet updated regulatory capital and
liquidity requirements. The NBG implemented countercyclical
measures to support the financial stability of the banking system
by relaxing capital and liquidity requirements.
In addition we have close communications with our business
customers, discussing their strategies and sharing our outlook on
the economy and its key sectors.
Also, we have close communications with our business customers
discussing their strategies and sharing our outlook on the economy
and its key sectors.
Statement of Directors' Responsibilities
Each of the Directors (the names of whom are set out below)
confirm that to the best of their knowledge that:
-- The condensed consolidated interim financial statements have
been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European
Union;
-- The interim management report herein includes a fair review
of the information required by Disclosure Guidance and Transparency
Rules 4.2.7R and 4.2.8R namely:
o an indication of important events that have occurred during
the six months ended 30 June 2020 and their impact on the condensed
consolidated interim financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
o any related party transactions in the six months ended 30 June
2020 that have materially affected the financial position or
performance of TBC Bank during that period and any changes in the
related party transactions described in the last Annual Report that
could have a material effect on the financial position or
performance of TBC Bank in the six months ended 30 June 2020.
Signed on behalf of the Board by:
Vakhtang Butskhrikidze Giorgi Shagidze
CEO Deputy CEO, CFO
17 August 2020 17 August 2020
TBC Bank Group PLC Board
of Directors:
Chairman
Nikoloz Enukidze
Executive Directors Non-executive Directors
Vakhtang Butskhrikidze Nicholas Dominic Haag
(CEO)
Giorgi Shagidze (CFO) Maria Luisa Cicognani
Tsira Kemularia
Eric J. Rajendra
Arne Berggren
Abhijit Akerkar
-TBC BANK GROUP PLC
Condensed Consolidated Interim Financial
Statements (Unaudited)
30 June 2020
Contents
Independent review report
Unaudited Condensed Consolidated Interim Financial
Statements
Condensed Consolidated Interim Statement of Financial Position
....................................................................................................
58
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive
Income..................................................... 59
Condensed Consolidated Interim Statement of Changes in
Equity.....................................................................................................
61
Condensed Consolidated Interim Statement of Cash
Flows...............................................................................................................
63
Notes to the Condensed Consolidated Interim Financial
Statements..................................................................................................
64
Independent review report to TBC Bank Group plc
Report on the Unaudited Condensed Consolidated Interim Financial
Statements
Our conclusion
We have reviewed TBC Bank Group plc's Unaudited Condensed
Consolidated Interim Financial Statements (the "interim financial
statements") in the 2Q and 1H 2020 Financial Results of TBC Bank
Group plc for the 6 month period ended 30 June 2020. Based on our
review, nothing has come to our attention that causes us to believe
that the interim financial statements are not prepared, in all
material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Consolidated Interim Statement of Financial Position as at 30 June 2020;
-- the Condensed Consolidated Interim Statement of Profit or
Loss and Other Comprehensive Income for the period then ended;
-- the Condensed Consolidated Interim Statement of Cash Flows for the period then ended;
-- the Condensed Consolidated Interim Statement of Changes in
Equity for the period then ended; and
-- the Notes to the Condensed Consolidated Interim Financial Statements.
The interim financial statements included in the 2Q and 1H 2020
Financial Results have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2.1 to the interim financial statements,
the financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The 2Q and 1H 2020 Financial Results, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the 2Q and 1H 2020 Financial Results in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the 2Q and 1H 2020 Financial Results based
on our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Statements Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial statements
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the 2Q and 1H
2020 Financial Results and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
17 August 2020
30 June 31 December 31 December
2020 2019* 2018*
In thousands of GEL Note (Unaudited)
Assets
Cash and cash equivalents 4 981,803 1,003,583 1,166,911
Due from other banks 5 30,879 33,605 47,316
Mandatory cash balances with the
National Bank of Georgia 6 1,794,010 1,591,829 1,422,809
Loans and advances to customers 7 13,105,988 12,349,399 10,038,452
Investment securities measured at
fair value through other comprehensive
income 1,082,520 985,293 1,005,239
Bonds carried at amortized cost 1,335,415 1,022,684 654,203
Net investments in lease 270,172 256,660 203,802
Investment properties 70,716 72,667 84,296
Current income tax prepayment 36,703 25,695 2,116
Deferred income tax asset 22 7,470 2,173 2,097
Other financial assets 174,378 133,736 167,518
Other assets 258,349 255,712 192,792
Premises and equipment 8 345,064 334,728 315,502
Right of use assets 62,865 59,693 -
Intangible assets 8 194,689 167,597 109,220
Goodwill 60,296 61,558 31,286
Investments in associates 2,112 2,654 2,432
Total assets 19,813,429 18,359,266 15,445,991
Liabilities
Due to credit institutions 9 4,403,406 3,593,901 3,031,503
Customer accounts 10 10,420,330 10,049,324 9,352,142
Other financial liabilities 138,749 113,609 98,714
Current income tax liability 692 1,634 63
Debt securities in issue 12 1,396,141 1,213,598 13,343
Deferred income tax liability 22 5 18,888 19,793
Provisions for liabilities and charges 11 25,558 23,128 18,767
Other liabilities 80,557 95,161 104,337
Lease Liabilities 65,937 59,898 -
Subordinated debt 13 628,649 591,035 650,919
Total liabilities 17,160,024 15,760,176 13,289,581
EQUITY
Share capital 14 1,682 1,682 1,650
Shares held by trust (34,451) (27,517) -
Share premium 848,459 848,459 796,854
Retained earnings 2,029,545 1,961,172 1,531,561
Group reorganisation reserve (162,166) (162,166) (162,166)
Share based payment reserve 15 (31,808) (17,803) (16,294)
Fair value reserve (1,492) (6,476) 8,680
Cumulative currency translation
reserve (5,685) (6,850) (6,937)
Net assets attributable to owners 2,644,084 2,590,501 2,153,348
Non-controlling interest (NCI) 9,321 8,589 3,062
Total equity 2,653,405 2,599,090 2,156,410
Total liabilities and equity 19,813,429 18,359,266 15,445,991
*Certain amounts do not correspond to the 2019 consolidated
financial statements as they reflect the adjustments made due to
the change in accounting policy as described in Note 2. Restatement
does not apply to Right of use assets as transition provisions for
IFRS 16 have been adopted in 2019.
The financial statements on pages 58 to 121 were approved by the
Board of Directors on 17 August 2020 and signed on its behalf on 17
August 2020 by:
___________________________ ______________________________
Vakhtang Butskhrikidze Giorgi Shagidze
Chief Executive Officer Chief Financial Officer
Six months ended
30 June 2020 30 June 2019
In thousands of GEL Note (Unaudited) (Unaudited)
Interest income 18 787,893 678,216
Interest expense 18 (408,091) (290,777)
Net gains on currency swaps 18 12,522 11,147
Net interest income 392,324 398,586
Fee and commission income 19 138,752 129,885
Fee and commission expense 19 (55,683) (44,544)
Net fee and commission income 83,069 85,341
Net insurance premiums earned 26,618 15,992
Net insurance claims incurred and agents' commissions (16,337) (7,925)
Insurance Profit 10,281 8,067
Net gains from trading in foreign currencies 49,406 34,987
Net (losses)/gains from foreign exchange translation (1,627) 9,214
Net losses from derivative financial instruments (20) (245)
Net (losses)/gains from disposal of investment securities measured at fair value
through other
comprehensive income (1,202) 147
Other operating income 20 7,977 7,810
Share of profit of associates 90 341
Other operating non-interest income 54,624 52,254
Credit loss allowance for loan to customers 7 (249,216) (66,483)
(Charge to)/recovery of credit loss allowance for net investments in leases (4,278) 178
Credit loss allowance for performance guarantees and credit related commitments 11 (797) (392)
(Charge to)/recovery of credit loss allowance for other financial assets (4,222) 580
Credit loss allowance for financial assets measured at fair value through other
comprehensive
income (538) (350)
Operating profit after expected credit losses 281,247 477,781
Losses from modifications of financial instruments 7 (34,170) -
Staff costs (114,006) (116,639)
Depreciation and amortisation 8 (32,215) (32,124)
Recovery of provision for liabilities and charges 77 1,441
Administrative and other operating expenses 21 (56,016) (64,575)
Operating expenses (202,160) (211,897)
Profit before tax 44,917 265,884
Income tax credit/(expense) 22 24,283 (12,344)
Profit for the period 69,200 253,540
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve 4,984 3,999
Exchange differences on translation to presentation currency 1,165 457
Other comprehensive income for the period 6,149 4,456
Total comprehensive income for the PERIOD 75,349 257,996
Six months ended
30 June 2020 30 June 2019
In thousands of GEL Note (Unaudited) (Unaudited)
Profit is attributable to:
- Shareholders of TBCG 67,625 253,235
- Non-controlling interest 1,575 305
Profit for the period 69,200 253,540
Total comprehensive income is attributable to:
- Shareholders of TBCG 73,793 257,687
- Non-controlling interest 1,556 309
Total comprehensive income for the period 75,349 257,996
Earnings per share for profit attributable to the owners of the
Group:
- Basic earnings per share 16 1.24 4.64
- Diluted earnings per share 16 1.23 4.62
Note Net assets attributable to owners
Share Shares Share Group Share Revaluation Fair Cumulative Retained Total Non-control-ling Total
capital held by pre-mium reorganisation based reserve for value currency earnings interest equity
In thousands trust reserve payments premises reserve translation
of GEL reserve reserve
Balance as of
31 December
2018 1,650 - 796,854 (162,166) (16,294) 57,240 8,680 (6,937) 1,523,879 2,202,906 3,062 2,205,968
Change in
accounting
policy IAS 16 - - - - - (57,240) - - 7,682 (49,558) - (49,558)
Balance as of
31 December
2018* 1,650 - 796,854 (162,166) (16,294) - 8,680 (6,937) 1,531,561 2,153,348 3,062 2,156,410
Profit for the
six months
ended 30 June
2019
(unaudited) - - - - - - - - 253,235 253,235 305 253,540
Other
comprehensive
income/(loss)
for six
months ended
30 June 2019
(unaudited) - - - - - - 3,999 453 - 4,452 4 4,456
Total
comprehensive
income/(loss)
for six
months ended
30 June 2019
(unaudited) - - - - - - 3,999 453 253,235 257,687 309 257,996
Share issue 14 22 - 34,919 - (34,941) - - - - - - -
Share based
payment
expense 15 - - - - 13,267 - - - - 13,267 (25) 13,242
Business
Combination - - - - - - - - - - 838 838
Purchase of
additional
interest from
NCI - - - - - - - - - - (104) (104)
Dividends
declared - - - - - - - - (108,622) (108,622) - (108,622)
Balance as of
30 June 2019
(unaudited)* 1,672 - 831,773 (162,166) (37,968) - 12,679 (6,484) 1,676,174 2,315,680 4,080 2,319,760
Balance as of
31 December
2019 1,682 (27,517) 848,459 (162,166) (17,803) 56,374 (6,476) (6,850) 1,953,364 2,639,067 8,589 2,647,656
Change in
accounting
policy IAS 16 - - - - - (56,374) - - 7,808 (48,566) - (48,566)
Balance as of
31 December
2019
restated* 1,682 (27,517) 848,459 (162,166) (17,803) - (6,476) (6,850) 1,961,172 2,590,501 8,589 2,599,090
Profit for the
six months
ended 30 June
2020
(unaudited) - - - - - - - - 67,625 67,625 1,575 69,200
Other
comprehensive
income/(loss)
for six
months ended
30 June 2020
(unaudited) - - - - - - 4,984 1,184 - 6,168 (19) 6,149
Total
comprehensive
income/(loss)
for six
months ended
30 June 2020
(unaudited) - - - - - - 4,984 1,184 67,625 73,793 1,556 75,349
Share based
payment
expense 15 - - - - 6,063 - - - - 6,063 (28) 6,035
Delivery of
shares to
employees
under SBP
scheme - 18,559 - - (20,068) - - - - (1,509) - (1,509)
Share buy-back - (25,493) - - - - - - - (25,493) - (25,493)
Other
movements - - - - - - - (19) 748 729 (796) (67)
Balance as of
30 June 2020
(unaudited) 1,682 (34,451) 848,459 (162,166) (31,808) - (1,492) (5,685) 2,029,545 2,644,084 9,321 2,653,405
*Certain amounts do not correspond to the 2019 consolidated
financial statements and 2019 interim financial statements as they
reflect the adjustments made due to the change in accounting policy
as described in Note 2.
Six months ended
In thousands of GEL Note 30 June 20 (Unaudited) 30 June 2019 (Unaudited)
Cash flows from/(used in) operating activities
Interest received 579,414 621,472
Interest received on currency swaps 12,522 11,147
Interest paid (404,923) (291,963)
Fees and commissions received 131,347 127,685
Fees and commissions paid (56,054) (44,370)
Insurance and reinsurance received 43,373 18,560
Insurance claims paid (13,458) (9,727)
Income received from trading in foreign currencies 49,406 46,119
Other operating income received 2,860 11,500
Staff costs paid (120,706) (123,342)
Administrative and other operating expenses paid (61,860) (81,397)
Income tax paid (11,983) (30,900)
Cash flows from operating activities before changes in
operating assets and liabilities 149,938 254,784
Net change in operating assets
Due from other banks and mandatory cash balances with the
National Bank of Georgia (183,202) (302,690)
Loans and advances to customers (357,130) (385,945)
Net investments in lease 11,008 (3,498)
Other financial assets (33,976) 19,610
Other assets 10,847 2,869
Net change in operating liabilities
Due to other banks 85,357 276,076
Customer accounts (88,078) 134,334
Other financial liabilities 11,915 23,487
Other liabilities and provision for liabilities and charges 3,838 9,607
Net cash (used in)/from operating activities (389,483) 28,634
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value
through other comprehensive income (251,486) (101,119)
Proceeds from redemption at maturity of investment securities
measured at fair value through
other comprehensive income 180,702 210,174
Acquisition of bonds carried at amortised cost (495,945) (240,420)
Proceeds from redemption of bonds carried at amortised cost 171,137 126,113
Acquisition of premises, equipment and i ntangible assets (74,550) (51,490)
Proceeds from disposal of premises, equipment and i ntangible
assets 8 24,172 11,023
Proceeds from disposal of investment property 3,128 9,508
Acquisition of subsidiaries and associates 936 (14,569)
Net cash used in investing activities (441,906) (50,780)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 1,615,016 553,781
Redemption of other borrowed funds (966,746) (938,535)
Repayment of principal of lease liabilities (5,420) (1,367)
Redemption of subordinated debt - (8,576)
Proceeds from debt securities in issue 12 171,531 820,708
Redemption of debt securities in issue (12,569) (5,805)
Net cash flows from financing activities 801,812 420,206
Effect of exchange rate changes on cash and cash equivalents 7,797 63,373
Net (decrease)/increase in cash and cash equivalents (21,780) 461,433
Cash and cash equivalents at the beginning of the period 4 1,003,583 1,166,911
Cash and cash equivalents at the end of the period 4 981,803 1,628,344
1 Introduction
Principal activity. TBC Bank Group PLC ("TBCG" or "Group") is a
public limited liability company, incorporated in England and
Wales. TBCG held 99.88% of the share capital of JSC TBC Bank
(hereafter the "Bank") as at 30 June 2020 (31 December 2019:
99.88%), thus representing the Bank's ultimate parent company. The
Bank is a parent of a group of companies incorporated in mainly in
Georgia, Azerbaijan and Uzbekistan, their primary business
activities include providing banking, leasing, brokerage and card
processing services to corporate and individual customers. The
Group's list of subsidiaries is provided below.
The shares of TBCG ("TBCG Shares") were admitted to the Premium
Listing segment of the Official List of the UK Listing Authority
and admitted to trading on the London Stock Exchange PLC's Main
Market for listed securities effective on 10 August 2016 (the
"Admission", Note 14 ). TBC Bank Group PLC's registered legal
address is Elder House St Georges Business Park, 207 Brooklands
Road, Weybridge, Surrey, KT13 0TS. Registered number of TBC Bank
Group PLC is 10029943. The Bank is the Group's main operating unit
and it accounts for most of the Group's activities.
JSC TBC Bank was incorporated on 17 December 1992 and is
domiciled in Georgia. The Bank is a joint stock company limited by
shares and was set up in accordance with Georgian regulations. The
Bank's registered address and place of business is 7 Marjanishvili
Street, 0102 Tbilisi, Georgia.
The Bank's principal business activity is universal banking
operations that include corporate, small and medium enterprises,
retail and micro operations within Georgia. In 2018, the Bank
launched its fully-digital bank, Space. The Bank has been operating
since 20 January 1993 under a general banking license issued by the
National Bank of the Georgia ("NBG").
The Group had 156 branches and 7,854 employees mainly within
Georgia as at 30 June 2020 (30 June 2019: 146 branches and 7,266
employees).
As at 30 June 2020 and 31 December 2019, the following
shareholders directly owned more than 5% of the total outstanding
shares of the Group. Other shareholders individually owned less
than 5% of the outstanding shares. As at 30 June 2020 and 31
December 2019, the Group had no ultimate controlling party. Other
includes individual as well as corporate shareholders.
30 June 2020 31 December 2019
Shareholders Ownership interest Ownership interest
European Bank for Reconstruction and Development 8.04% 8.04%
Dunross & Co. 7.06% 6.61%
Schroder Investment Management 5.52% 6.48%
JPMorgan Asset Management 4.35% 6.22%
Badri Japaridze* 6.00% 6.00%
Liquid Crystal International N.V. LLC 5.04% 5.55%
Mamuka Khazaradze* 3.60% 4.71%
Other 60.39% 56.39%
Total 100.00% 100.00%
* Represents direct ownership of the shares for Mamuka
Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial
ownership of 8.64% (2019: 10.26%) and Badri Japaridze has
beneficial ownership of 6.00%, (2019: 6.00%).
1 Introduction (Continued)
The condensed consolidated interim financial statements
("financial statements") include the following principal
subsidiaries:
Proportion of voting rights and
ordinary share capital
Principal place Year of Industry
of business or incorpo-ration
Subsidiary Name 30 June 2020 31 December 2019 incorporation
JSC TBC Bank 99.88% 99.88% Tbilisi, Georgia 1992 Banking
United Financial
Corporation JSC 99.53% 99.53% Tbilisi, Georgia 1997 Card processing
TBC Capital LLC 100.00% 100.00% Tbilisi, Georgia 1999 Brokerage
TBC Leasing JSC 100.00% 100.00% Tbilisi, Georgia 2003 Leasing
Non-banking credit
TBC Kredit LLC 100.00% 100.00% Baku, Azerbaijan 1999 institution
TBC Pay LLC 100.00% 100.00% Tbilisi, Georgia 2009 Processing
TBC Invest LLC 100.00% 100.00% Ramat Gan,Israel 2011 PR and marketing
Real estate
Index LLC 100.00% 100.00% Tbilisi, Georgia 2011 management
JSC TBC Insurance 100.00% 100.00% Tbilisi, Georgia 2014 Insurance
Redmed
LLC 100.00% 100.00% Tbilisi, Georgia 2019 Insurance
TBC International
LLC 100.00% 100.00% Tbilisi, Georgia 2019 Asset management
Swoop JSC 100.00% 100.00% Tbilisi, Georgia 2010 Retail Trade
Online Tickets Computer and
LLC 55.00% 55.00% Tbilisi, Georgia 2015 Software Services
Tashkent,
TKT UZ 75.00% 75.00% Uzbekistan 2019 Retail Trade
My.Ge LLC 65.00% 65.00% Tbilisi, Georgia 2019 E-Commerce
Mypost LLC 100.00% 100.00% Tbilisi, Georgia 2019 Postal Service
Billing Solutions
LLC 51.00% 51.00% Tbilisi, Georgia 2019 Software Services
Vendoo LLC (Geo) 100.00% 100.00% Tbilisi, Georgia 2019 Retail Leasing
Allproperty.ge Real estate
LLC 90.00% 90.00% Tbilisi, Georgia 2013 management
F Solutions LLC 100.00% 100.00% Tbilisi, Georgia 2019 Software Services
Tashkent, Asset Management
Support LLC 100.00% N/A Uzbekistan 2020
Tashkent,
Inspired LLC 51.00% 51.00% Uzbekistan 2011 Processing
VOO LLC (UZ Tashkent,
Leasing) 100.00% 100.00% Uzbekistan 2019 Retail Leasing
Tashkent, Banking
TBC Bank JSCB 100.00% N/ A Uzbekistan 2020
The consolidated financial statements include the following
associates:
Proportion of voting rights and Principal place of Year of Industry
ordinary share capital held as of 30 business or incorpo-ration
June incorporation
Company Name 2020 2019
JSC Credit
Information
Bureau Creditinfo Financial
Georgia 21.08% 21.08% Tbilisi, Georgia 2005 intermediation
The country of registration or incorporation is also the
principal area of operation of each of the above subsidiaries.
The Group's corporate structure consists of a number of related
undertakings, comprising subsidiaries and associates, which are not
consolidated due to immateriality. A full list of these
undertakings, the country of incorporation is set out below.
1 Introduction (Continued)
Proportion of voting rights and
ordinary share capital
30 June 31 December 2019 Principal place of Year of Industry
2020 business or incorpo-ration
Company Name incorporation
TBC Invest
International Ltd 100.00% 100.00% Tbilisi, Georgia 2016 Investment Vehicle
University
Development Fund
[35] 33.33% 33.33% Tbilisi, Georgia 2007 Education
Natural Products of
Georgia LLC 25.00% 25.00% Tbilisi, Georgia 2001 Trade, Service
Data monitoring
Mobi Plus JSC 14.81% 14.81% Tbilisi, Georgia 2009 and processing
Investment Real
GRDC 1.75% 1.75% Tbilisi, Georgia 2008 Estate
Plastic Card
Georgian Card JSC 0.15% 0.15% Tbilisi, Georgia 1997 Services
Georgian Securities
Central Depositor 0.05% 0.05% Tbilisi, Georgia 1999 Finance, Service
JSC Givi
Zaldastanishvili
American Academy
In Georgia 14% 14.48% Tbilisi, Georgia 2001 Education
United Clearing
Centre 18.75% 18.75% Tbilisi, Georgia 2008 Clearing Centre
Banking and Finance
Academy of Georgia 16.67% 16.67% Tbilisi, Georgia 1998 Education
Tbilisi's City JSC 1.80% 1.80% Tbilisi, Georgia 2007 Education
TBC Trade 100.00% 100.00% Tbilisi, Georgia 2008 Trade, Service
Mineral Oil
Distribution Data monitoring
Corporation JSC 9.90% 9.90% Tbilisi, Georgia 2009 and processing
2 Summary of Significant Accounting Policies, Critical
Accounting Estimates, and Judgements in Applying Accounting
Policies
2.1 Basis of preparation
These interim financial statements for the six months ended 30
June 2020 for TBC Bank Group PLC and its subsidiaries (together
referred to as the "Group") has been prepared in accordance with
the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority and IAS 34 Interim Financial Reporting as adopted
by the European Union. These interim financial statements do not
include all the notes of the type normally included in an annual
consolidated financial statements . Accordingly, this report is to
be read in conjunction with the annual consolidated financial
statements for the year ended 31 December 2019 , which have been
prepared in accordance with IFRS as adopted by the European
Union.
The interim financial statements are presented in thousands of
Georgian Lari ("GEL thousands"), except per-share amounts and
unless otherwise indicated.
These interim financial statements have been reviewed, not
audited. Auditor's review conclusion is included in this
report.
Going Concern. The Board of Directors of TBC Bank Group PLC has
prepared these interim financial statements on a going concern
basis. In making this judgement, management considered the Group's
financial position, current intentions, profitability of operations
and access to financial resources. Management is not aware of any
material uncertainties that may cast significant doubt upon the
Group's ability to continue as a going concern. In reaching this
assessment, the directors have specifically considered the
implications of the COVID-19 pandemic upon the Group's performance
and projected funding and capital position and also taken into
account the impact of further stress scenarios. On this basis, the
directors are satisfied that the Group will maintain adequate
levels of funding and capital for the foreseeable future.
Foreign currency translation . At 30 June 2020 the closing rate
of exchange used for translating foreign currency balances was USD
1 = GEL 3.0552 (31 December 2019: USD 1 = GEL 2.8677); EUR 1 = GEL
3.4466 (31 December 2019: EUR 1 = GEL 3.2095); GBP 1 = GEL 3.7671
(31 December 2019: GBP 1 = GEL 3.7593), AZN 1 = GEL 1.7972 (31
December 2019: AZN 1 = GEL 1.7377), UZS 1000 = GEL 0.3003 (31
December 2019: UZS 1000 = GEL 0.3098),
Except as described below, the same accounting policies and
methods of computation were followed in the preparation of this
interim financial statements as compared with the annual
consolidated financial statements of the Group for the year ended
31 December 2019.
Interim period tax measurement. Interim period income tax
expense is accrued using the effective tax rate that would be
applicable to expected total annual earnings, that is, the
estimated weighted average annual effective income tax rate applied
to the pre-tax income of the interim period.
Amendment to IFRS 16, Leases (COVID-19-Related Rent
Concessions). In May 2020, the IASB issued an amendment to IFRS 16
to provide an option for lessees to account for rent concessions
occurring as a direct consequence of the COVID-19 pandemic as if
they were not lease modifications. The amendment is effective from
1 June 2020. The group has adopted this option, and the effect on
the Group's financial statements is not material.
Changes in accounting policies, IAS 16. In 2020, the Group
changed the accounting policy in relation to subsequent measurement
for Land, buildings and construction in progress. The Group now
applies the cost model, where assets are carried at cost less
accumulated depreciation and any accumulated impairment. Prior to
this change, the Group applied revaluation model: it carried Land,
buildings and construction in progress at a revalued amount being
the fair value at the date of revaluation, less any subsequent
accumulated depreciation and subsequent accumulated impairment
losses. The Group believes that the cost model provides more
relevant and consistent information, as well as it enables
investors to make accurate comparisons across the banking industry,
since the application of the cost model is a common and widespread
market practice. The balance sheet accounts for the affected
periods where restated accordingly, while the prior period income
statement accounts remained the same, due to the fact that the
change did not have material impact on them. Change did not have
material effect on EPS amounts.
2.1 Basis of preparation (Continued)
Effects on respective periods are disclosed below:
31 December 2019 Change in accounting policy 31 December 2019
In thousands of GEL Restated
Assets:
Premises, Equipment and Intangible Assets 385,736 (51,008) 334,728
Liabilities:
Deferred income tax liability 21,332 (2,444) 18,888
Equity:
Retained earnings 1,953,364 7,808 1,961,172
Revaluation reserve for premises 56,374 (56,374) -
31 December 2018 Change in accounting policy 31 December 2018
In thousands of GEL Restated
Assets:
Premises, Equipment and Intangible Assets 367,503 (52,001) 315,502
Liabilities:
Deferred income tax liability 22,237 (2,444) 19,793
Equity:
Retained earnings 1,523,879 7,682 1,531,561
Revaluation reserve for premises 57,240 (57,240) -
2.2 Critical accounting estimates and judgements in applying
accounting policies
ECL measurement. Measurement of ECLs is a significant estimate
that involves forecasting future economic conditions, longer the
term of forecasts more management judgment is applied and those
judgements may be the source of uncertainty. Details of ECL
measurement methodology are disclosed in Note 24. The following
components have a major impact on credit loss allowance: definition
of default, definition of significant increase in credit risk
(SICR), probability of default ("PD"), exposure at default ("EAD"),
and loss given default ("LGD"), as well as models of macro-economic
scenarios. The Group regularly reviews and validates the models and
inputs to the models to reduce any differences between expected
credit loss estimates and actual credit loss experience.
Significant increase in credit risk ("SICR"). The Bank applies
both qualitative and quantitative indicators to determination of
SICR considering all reasonable and supportable information
available without undue cost and effort, on past events, current
conditions and future behavioural aspects of particular portfolios.
The Bank tries to identify indicators of increase in credit risk of
individual instruments prior to delinquency and incorporates
significant assumptions in the model in doing so. One of such
judgement is determination of thresholds of significant increase in
credit risk. The effects of respective sensitivity are described
below:
In thousands of GEL 30 June 2020 31 December 2019
20% decrease in SICR Increase impairment
thresholds allowance on loans Increase impairment
and advances by GEL allowance on loans and
1,046 advances by GEL 1,954
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 1 basis points ratio by 2 basis points
10% increase in Stage Increase impairment
2 exposures allowance on loans Increase impairment
and advances by GEL allowance on loans and
3,145 advances by GEL 2,380
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 3 basis points ratio by 2 basis points
Risk parameters: Probability of default (PD) and Loss given
default (LGD) parameters are one of the key drivers of expected
credit losses. The effects of respective sensitivity are described
below:
In thousands of GEL 30 June 2020 31 December 2019
10% increase (decrease) Increase (decrease)
in PD estimates impairment allowance Increase (decrease)
on loans and advances impairment allowance
by GEL 30,484 (GEL on loans and advances
36,520) by GEL 17,427 (GEL 17,547)
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 23 (28) basis ratio by 16 (16) basis
points points
10% increase (decrease) Increase (decrease) Increase (decrease)
in LGD estimates impairment allowance impairment allowance
on loans and advances on loans and advances
by GEL 43,646 (GEL by GEL 24,758 (GEL 26,604)
45,761)
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 33 (35) basis ratio by 22 (24) basis
points points
Main drivers for COVID-19 related provision charges were a n
increase in PD parameter as a result of an application of
macroeconomic overlay, increased haircut applied to the market
value of collateral to reflect the expected decrease in real estate
prices and prepayment rates downward adjustment for future one-year
period.
3 New Accounting Pronouncements
Minor amendments to IFRSs
The IASB has published a number of minor amendments some of
which has not yet been endorsed for use in the EU. The Group has
not early adopted any of the amendments effective after 31 December
2019 and it expects they will have an insignificant effect, when
adopted, on the consolidated financial statements of the Group.
Major new IFRSs
IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and
effective for annual periods beginning on or after 1 January 2021).
IFRS 17 replaces IFRS 4, which has given companies dispensation to
carry on accounting for insurance contracts using existing
practices. As a consequence, it was difficult for investors to
compare and contrast the financial performance of otherwise similar
insurance companies. IFRS 17 is a single principle-based standard
to account for all types of insurance contracts, including
reinsurance contracts that an insurer holds. The standard requires
recognition and measurement of groups of insurance contracts at:
(i) a risk-adjusted present value of the future cash flows (the
fulfilment cash flows) that incorporates all of the available
information about the fulfilment cash flows in a way that is
consistent with observable market information; plus (if this value
is a liability) or minus (if this value is an asset) (ii) an amount
representing the unearned profit in the group of contracts (the
contractual service margin). Insurers will be recognizing the
profit from a group of insurance contracts over the period they
provide insurance coverage, and as they are released from risk. If
a group of contracts is or becomes loss making, an entity will be
recognizing the loss immediately The Group is currently assessing
the impact of the interpretation on its financial statements.
4 Cash and Cash Equivalents
31 December
In thousands of GEL 30 June 2020 2019
Cash on hand 659,556 650,700
Cash balances with the National Bank of
Georgia (other than mandatory reserve deposits) 52,906 35,132
Correspondent accounts and overnight placements
with other banks 258,076 191,420
Placements with and receivables from other
banks with original maturities of less than
three months 11,365 126,360
Total gross amount of cash and cash equivalents 981,903 1,003,612
Less: Credit loss allowance (100) (29)
Total carrying amount of cash and cash equivalents 981,803 1,003,583
As 30 June 2020, 89% of the correspondent accounts and overnight
placements with other banks was placed with OECD (The Organization
for Economic Co-operation and Development) banking institutions (31
December 2019: 85%).
As 30 June 2020, GEL 11,366 thousand was placed on an interbank
term deposits with one Georgian bank and none with the OECD banks
(31 December 2019: GEL 11,348 thousand with one non-OECD bank and
GEL 115,012 thousand with two OECD banks).
5 Due from Other Banks
Amounts due from other banks include placements with original
maturities of more than three months that are not collateralised
and do not represent past due amounts at the 30 June 2020 and 31
December 2019. As 30 June 2020, GEL 10,979 thousand (31 December
2019: GEL 11,836 thousand) was kept on deposits as restricted cash.
Refer to Note 25 for the estimated fair value of amounts due from
other banks.
As 30 June 2020, the Group had no loan issued to any bank, with
original maturities of more than three months and with aggregated
amounts above GEL 5,000 thousand (31 December 2019: none).
6 Mandatory cash balances with the National Bank of Georgia
Mandatory cash balances with the National Bank of Georgia
("NBG") represent amounts deposited with the NBG. Resident
financial institutions are required to maintain an interest-earning
obligatory reserve with the NBG, the amount of which depends on the
level of funds attracted by the financial institutions. The Group
earned up to 8.25%, (0.25%) and (0.7%) annual interest in GEL, USD
and EUR respectively on mandatory reserve with NBG in 2020 (2019:
6.0%, 0.8% and (0.6%) in GEL, USD and EUR respectively.
In April 2020, Fitch Ratings has affirmed Georgia's Long-Term
Foreign and Local Currency Issuer Default Rating (IDRs) at 'BB' and
has revised the Outlook to Negative from Stable. The issue ratings
on Georgia's senior unsecured foreign- and local-currency bonds are
also affirmed at' BB'. The Country Ceiling is affirmed at 'BBB-
'and the Short-term Foreign and Local- Currency IDRS are affirmed
at 'B'.
7 Loans and Advances to Customers
30 June 31 December
In thousands of GEL 2020 2019
Corporate loans 5,070,563 4,660,473
Consumer loans 1,962,108 1,884,006
Mortgage loans 3,396,615 3,169,197
Loans to micro, small and medium enterprises 3,206,106 2,948,279
Total gross loans and advances to customers 13,635,392 12,661,955
Less: credit loss allowance (529,404) (312,556)
Total carrying amount of loans and advances
to customers 13,105,988 12,349,399
7 Loans and Advances to Customers (Continued)
As 30 June 2020, loans and advances to customers carried at GEL
614,832 thousand have been pledged to local banks or other
financial institutions as collateral with respect to other borrowed
funds (31 December 2019: GEL 474,480 thousand).
In 2020, the Group made re-segmentation as disclosed in Note 17.
Some of the clients were re-allocated to the different
segments.
The following tables disclose the changes in the credit loss
allowance and gross carrying amount for loans and advances to
customers carried at amortised cost between the beginning and the
end of the reporting periods. The following movements are described
in the tables below:
-- Transfers between Stage 1, 2 and 3 due to balances
experiencing significant increase (or decrease) of credit risk or
becoming defaulted in the period, and the consequent "step up" (or
"step down") between 12-month and Lifetime ECL. It should be noted,
that:
o Movement does not include exposures of loans, which were
issued and repaid during the period;
o For loans, which existed at the beginning of the period,
opening exposures are disclosed as transfer amounts;
o For newly issued loans, starting exposures are disclosed as
transfer amount;
o For the loan exposures which changed stage several times
during the period, transfers between starting and ending stage is
disclosed.
-- Newly originated or purchased gives us information regarding
gross loans and corresponding expected credit losses issued during
the period (however, exposures which were issued and repaid during
the period and issued to refinance existing loans are
excluded);
-- The line, derecognised during the period refers to starting
balance of loans which were repaid or written-off during the period
(gross exposure and corresponding expected credit losses, however,
exposures which were issued and repaid during the period and repaid
by newly issued refinancing loans are excluded);
-- Net repayments refers to net changes in gross carrying
amounts, consisting of withdrawal of loan and repayment;
-- Net write offs refer to write off of loans during the period,
while net of written off and recoveries refer to already written
off loans for ECL;
-- Foreign exchange translations of assets denominated in
foreign currencies and effect to translation in presentational
currency for foreign subsidiary;
-- Net re-measurement, due to stage transfers and risk
parameters changes, refers to the movements in ECL as a result of
transfer of exposure between stages or changes in risk parameters
and forward looking expectations.
For presentation purposes, amounts are rounded to the nearest
thousands of GEL, which in certain cases are disclosed as nil.
7 Loans and Advances to Customers (Continued)
Corporate loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 4,434,685 104,409 121,379 4,660,473 39,153 1,969 39,628 80,750
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) (363,236) 366,356 (3,120) - (3,171) 3,253 (82) -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (32,464) (13,190) 45,654 - (163) (1,305) 1,468 -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) 11,288 (11,288) - - 166 (166) - -
New originated
or purchased 469,844 - - 469,844 9,512 - - 9,512
Derecognised
during
the period (99,799) (55) (2,862) (102,716) (3,987) (11) (1,071) (5,069)
Net repayments (200,350) (3,037) (5,624) (209,011) - - - -
Resegmentation 27,220 - - 27,220 91 - - 91
Net Write-offs - - - - - - 125 125
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - 4,870 2,071 11,011 17,952
Modifications (2,091) (728) 132 (2,687) - - - -
Foreign exchange
movements 196,905 21,997 8,538 227,440 2,043 197 2,951 5,191
At 30 June 2020 4,442,002 464,464 164,097 5,070,563 48,514 6,008 54,030 108,552
7 Loans and Advances to Customers (Continued)
Corporate loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime (lifetime
ECL ECL for ECL ECL for
(12-months for credit (12-months for credit
In thousands of GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2019 2,903,313 138,715 135,261 3,177,289 32,940 4,994 43,571 81,505
Transfers:
- to lifetime (from
Stage 1 and Stage
3 to Stage 2) (167,699) 171,769 (4,070) - (2,653) 2,653 - -
- to defaulted (from
Stage 1 and Stage
2 to Stage 3) (11,763) (79) 11,842 - (2,661) - 2,661 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 19,415 (19,415) - - 736 (736) - -
New originated or
purchased 648,386 - - 648,386 12,666 - - 12,666
Derecognised during
the period (159,780) (12,940) (17,273) (189,993) (4,335) 469 (6,675) (10,541)
Net repayments (190,985) (50,062) (12,603) (253,650) - - - -
Resegmentation 119,408 711 - 120,119 837 75 - 912
Net Write-offs - - - - - - 572 572
Net remeasurement
due to stage
transfers
and risk parameters
changes - - - - 137 (690) (5,958) (6,511)
Foreign exchange
movements 139,759 9,386 7,044 156,189 - - - -
At 30 June 2019 3,300,054 238,085 120,201 3,658,340 37,667 6,765 34,171 78,603
Loans to micro, Gross carrying amount Credit loss allowance
small and medium
enterprises
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 2,650,261 204,699 93,319 2,948,279 18,341 18,593 29,211 66,145
Transfers:
- to lifetime (from
Stage 1 and Stage
3 to Stage 2) (292,430) 297,657 (5,227) - (3,762) 5,231 (1,469) -
- to defaulted (from
Stage 1 and Stage
2 to Stage 3) (7,278) (22,749) 30,027 - (488) (2,831) 3,319 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 32,938 (32,938) - - 3,287 (3,287) - -
New originated or
purchased 476,744 - - 476,744 11,170 - - 11,170
Derecognised during
the period (194,995) (14,872) (2,663) (212,530) (3,239) (1,155) (1,069) (5,463)
Net repayments (69,938) (2,812) (7,300) (80,050) - - - -
Resegmentation (28,301) - - (28,301) (91) - - (91)
Net Write-offs - - (8,725) (8,725) - - (5,504) (5,504)
Net remeasurement
due to stage
transfers
and risk parameters
changes - - - - 14,058 26,475 12,839 53,372
Modification (4,790) (1,350) (315) (6,455) - - - -
Foreign exchange
movements 90,073 15,440 4,542 110,055 876 1,160 1,058 3,094
Other movements 112 46 6,931 7,089 - - - -
At 30 June 2020 2,652,396 443,121 110,589 3,206,106 40,152 44,186 38,385 122,723
7 Loans and Advances to Customers (Continued)
Loans to micro, Gross carrying amount Credit loss allowance
small and medium
enterprises
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2019 2,210,725 193,049 92,820 2,496,594 19,301 22,379 29,334 71,014
Transfers:
- to lifetime
(from
Stage 1 and
Stage
3 to Stage 2) (130,631) 133,823 (3,192) - (3,613) 5,462 (1,849) -
- to defaulted
(from
Stage 1 and
Stage
2 to Stage 3) (16,515) (29,982) 46,497 - (1,859) (4,798) 6,657 -
- to 12-months
ECL
(from Stage 2
and
Stage 3 to Stage
1) 31,837 (31,837) - - 2,921 (2,921) - -
New originated or
purchased 564,817 - - 564,817 7,630 - - 7,630
Derecognised
during
the period (165,252) (21,507) (14,088) (200,847) (1,244) (2,305) (2,312) (5,861)
Net repayments (132,446) (19,047) (15,845) (167,338) - - - -
Resegmentation (119,163) (786) - (119,949) (836) (78) - (914)
Net Write-offs - - (14,041) (14,041) - - (5,699) (5,699)
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - (2,971) 7,605 8,957 13,591
Foreign exchange
movements 77,199 6,695 4,570 88,464 8 1 326 335
At 30 June 2019 2,320,571 230,408 96,721 2,647,700 19,337 25,345 35,414 80,096
Consumer loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime
(lifetime ECL for (lifetime ECL for
In thousands of (12-months ECL for credit (12-months ECL for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 1,593,262 216,817 73,927 1,884,006 36,724 52,439 44,793 133,956
Transfers:
- to lifetime
(from
Stage 1 and
Stage
3 to Stage 2) (189,868) 198,858 (8,990) - (19,486) 24,134 (4,648) -
- to defaulted
(from
Stage 1 and
Stage
2 to Stage 3) (11,156) (21,424) 32,580 - (1,239) (5,796) 7,035 -
- to 12-months
ECL
(from Stage 2
and
Stage 3 to Stage
1) 32,915 (32,651) (264) - 9,396 (9,181) (215) -
New originated or
purchased 382,704 - - 382,704 37,196 - - 37,196
Derecognised
during
the period (163,490) (22,160) (3,519) (189,169) 4,072 (7,201) (1,733) (4,862)
Net repayments (97,337) 1,813 (1,224) (96,748) - - - -
Resegmentation 1,000 - - 1,000 - - - -
Net Write-offs - - (32,569) (32,569) - - (28,706) (28,706)
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - 10,830 55,436 21,913 88,179
Modification (9,293) (2,879) (323) (12,495) - - - -
Foreign exchange
movements 19,770 3,430 1,132 24,332 154 395 573 1,122
Other Movements 1,625 (853) 275 1,047 - - - -
At 30 June 2020 1,560,132 340,951 61,025 1,962,108 77,647 110,226 39,012 226,885
7 Loans and Advances to Customers (Continued)
Consumer loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2019 1,641,993 265,673 81,850 1,989,516 42,903 59,245 54,575 156,723
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) (116,970) 122,462 (5,492) - (9,701) 12,244 (2,543) -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (31,878) (52,798) 84,676 - (2,978) (12,634) 15,612 -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) 62,544 (62,544) - - 12,388 (12,388) - -
New originated
or purchased 317,555 - - 317,555 15,126 - - 15,126
Derecognised
during
the period (96,268) (24,561) (71,162) (191,991) (380) (6,742) (4,244) (11,366)
Net repayments (246,739) (22,287) 62,094 (206,932) - - - -
Resegmentation 4,772 1,244 698 6,714 19 104 235 358
Net Write-offs - - (64,522) (64,522) - - (57,740) (57,740)
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - (18,991) 15,663 51,849 48,521
Foreign exchange
movements 21,588 2,296 1,276 25,160 9 - 24 33
At 30 June 2019 1,556,597 229,485 89,418 1,875,500 38,395 55,492 57,768 151,655
Mortgage loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 2,873,726 231,169 64,302 3,169,197 1,471 9,686 20,548 31,705
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) (439,319) 450,378 (11,059) - (796) 4,048 (3,252) -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (2,175) (10,293) 12,468 - (184) (594) 778 -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) 26,832 (26,832) - - 562 (562) - -
New originated
or purchased 250,303 - - 250,303 517 - - 517
Derecognised
during
the period (53,086) (22,854) 123 (75,817) 445 (871) (862) (1,288)
Net repayments (94,357) (61) (1,742) (96,160) - - - -
Resegmentation 81 - - 81 - - - -
Net Write-offs - - (379) (379) - - (115) (115)
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - 7,412 22,448 7,095 36,955
Modification (5,218) (1,928) (341) (7,487) - - - -
Foreign exchange
movements 120,909 30,746 3,663 155,318 395 1,678 1,398 3,471
Other movements 295 (20) 1,284 1,559 - - - -
At 30 June 2020 2,677,991 650,305 68,319 3,396,615 9,822 35,833 25,590 71,245
7 Loans and Advances to Customers (Continued)
Mortgage loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2019 2,470,603 194,410 44,170 2,709,183 1,696 9,166 14,026 24,888
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) (127,153) 133,830 (6,677) - (498) 2,426 (1,928) -
- to defaulted
Stage 2 to Stage
3) (5,137) (10,802) 15,939 - (566) (451) 1,017 -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) 48,659 (48,659) - - 1,352 (1,448) 96 -
New originated
or purchased 356,648 - - 356,648 1,089 - - 1,089
Derecognised
during
the period (54,886) (21,013) 104 (75,795) (38) (975) (1,214) (2,227)
Net repayments (156,483) (12,021) (2,958) (171,462) - - - -
Resegmentation (5,016) (1,170) (698) (6,884) (20) (102) (235) (357)
Net Write-offs - - (650) (650) - - 1,886 1,886
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - (1,483) 2,507 3,352 4,376
Foreign exchange
movements 131,723 13,873 3,183 148,779 6 1 80 87
At 30 June 2019 2,658,958 248,448 52,413 2,959,819 1,538 11,124 17,080 29,742
7 Loans and Advances to Customers (Continued)
The credit quality of loans to customers carried at amortised
cost is as follows at 30 June 2020:
Stage 1 Stage 2 Stage 3
(lifetime ECL
In thousands of (12-months (lifetime ECL for credit
GEL ECL) for SICR) impaired) Total
Corporate loans
risk category
- Very low 4,071,703 1,117 - 4,072,820
- Low 370,299 418,785 - 789,084
- Moderate - 42,771 - 42,771
- High - 1,791 - 1,791
- Default - - 164,097 164,097
Gross carrying amount 4,442,002 464,464 164,097 5,070,563
Credit loss allowance (48,514) (6,008) (54,030) (108,552)
Carrying amount 4,393,488 458,456 110,067 4,962,011
Consumer loans risk
category
- Very low 1,086,702 19,188 - 1,105,890
- Low 328,320 74,592 - 402,912
- Moderate 145,110 245,028 - 390,138
- High - 2,143 - 2,143
- Default - - 61,025 61,025
Gross carrying amount 1,560,132 340,951 61,025 1,962,108
Credit loss allowance (77,647) (110,226) (39,012) (226,885)
Carrying amount 1,482,485 230,725 22,013 1,735,223
Mortgage loans risk
category
- Very low 2,563,536 317,274 - 2,880,810
- Low 102,723 177,252 - 279,975
- Moderate 11,732 153,933 - 165,665
- High - 1,846 - 1,846
- Default - - 68,319 68,319
Gross carrying amount 2,677,991 650,305 68,319 3,396,615
Credit loss allowance (9,822) (35,833) (25,590) (71,245)
Carrying amount 2,668,169 614,472 42,729 3,325,370
Loans to MSME risk
category
- Very low 2,333,531 52,938 - 2,386,469
- Low 304,278 264,438 - 568,716
- Moderate 14,587 118,368 - 132,955
- High - 7,377 - 7,377
- Default - - 110,589 110,589
Gross carrying amount 2,652,396 443,121 110,589 3,206,106
Credit loss allowance (40,152) (44,186) (38,385) (122,723)
Carrying amount 2,612,244 398,935 72,204 3,083,383
7 Loans and Advances to Customers (Continued)
The credit quality of loans to customers carried at amortised
cost is as follows at 31 December 2019:
Stage 1 Stage 2 Stage 3
(lifetime ECL
In thousands of (12-months (lifetime ECL for credit
GEL ECL) for SICR) impaired) Total
Corporate loans
risk category
- Very low 4,094,403 7,882 - 4,102,285
- Low 339,960 75,872 - 415,832
- Moderate 322 19,827 - 20,149
- High - 828 - 828
- Default - - 121,379 121,379
Gross carrying amount 4,434,685 104,409 121,379 4,660,473
Credit loss allowance (39,153) (1,969) (39,628) (80,750)
Carrying amount 4,395,532 102,440 81,751 4,579,723
Consumer loans risk
category
- Very low 1,107,490 5,436 - 1,112,926
- Low 330,361 17,620 - 347,981
- Moderate 155,411 176,815 - 332,226
- High - 16,946 - 16,946
- Default - - 73,927 73,927
Gross carrying amount 1,593,262 216,817 73,927 1,884,006
Credit loss allowance (36,724) (52,439) (44,793) (133,956)
Carrying amount 1,556,538 164,378 29,134 1,750,050
Mortgage loans risk
category
- Very low 2,668,691 17,970 - 2,686,661
- Low 182,049 80,289 - 262,338
- Moderate 22,986 121,743 - 144,729
- High - 11,167 - 11,167
- Default - - 64,302 64,302
Gross carrying amount 2,873,726 231,169 64,302 3,169,197
Credit loss allowance (1,471) (9,686) (20,548) (31,705)
Carrying amount 2,872,255 221,483 43,754 3,137,492
Loans to MSME risk
category
- Very low 2,223,262 23,114 - 2,246,376
- Low 407,106 87,244 - 494,350
- Moderate 19,893 80,947 - 100,840
- High - 13,394 - 13,394
- Default - - 93,319 93,319
Gross carrying amount 2,650,261 204,699 93,319 2,948,279
Credit loss allowance (18,341) (18,593) (29,211) (66,145)
Carrying amount 2,631,920 186,106 64,108 2,882,134
7 Loans and Advances to Customers (Continued)
In 2020, grace periods were granted to customers due to the
COVID-19 pandemic. The total amount of modifications amounted to
GEL 34.2 million, out of which GEL 32.3 million related to losses
incurred on loans and advances to customers, while GEL 1.8 million
related to losses incurred on investments in leases. Modifications
reflected the decrease in the present value of cash flows resulting
from the 3 to 6 months grace periods granted to the borrowers.
Furthermore, the COVID-19 effect led to the creation of an
additional ECL charge for 6m 2020. The implication of COVID-19
impact on ECL methodology is described in Note 23.
The table below presents the Economic sector risk concentrations
within the customer loan portfolio:
30 June 2020 31 December 2019
In thousands of GEL Amount % Amount %
Individuals 5,354,863 39% 5,046,804 40%
Energy & Utilities 1,148,256 8% 1,089,643 9%
Hospitality & Leisure 1,141,852 8% 988,467 8%
Real Estate 1,218,235 9% 1,076,102 8%
Food Industry 703,789 5% 785,539 6%
Trade 633,018 5% 616,475 5%
Construction 735,129 5% 576,923 5%
Agriculture 580,203 4% 498,783 4%
Healthcare 345,471 3% 305,152 2%
Services 224,944 2% 212,661 2%
Pawn Shops 199,744 1% 203,633 2%
Automotive 223,555 2% 183,912 1%
Transportation 136,407 1% 134,223 1%
Metals and Mining 101,080 1% 99,321 1%
Financial Services 81,852 1% 96,430 1%
Communication 45,824 0% 43,329 0%
Other 761,170 6% 704,558 5%
Total loans and advances
to customers (before impairment) 13,635,392 100% 12,661,955 100%
As 30 June 2020, the Group had 260 borrowers (31 December 2019:
239 borrowers) with the aggregated gross loan amounts above GEL
5,000 thousand. The total aggregated amount of these loans was GEL
4,851,358 thousand (31 December 2019: GEL 4,443,036 thousand) or
35.6% of the gross loan portfolio (31 December 2019: 35.1%).
The amount and type of collateral required depends on an
assessment of the credit risk of the counterparty. There are three
key types of collateral:
-- Real estate;
-- Movable property including fixed assets, inventory and precious metals;
-- Financial assets including deposits, shares, and third party guarantees.
The financial effect of collateral is presented by disclosing
the collateral values separately for (i) those assets where
collateral and other credit enhancements are equal to or exceed the
assets' carrying value ("over-collateralised assets") and (ii)
those assets where collateral and other credit enhancements are
less than the assets' carrying value ("under-collateralised
assets").
7 Loans and Advances to Customers (Continued)
The following table illustrates the effect of collateral as 30
June 2020:
Over-collateralised Under-collateralised
Assets Assets
Carrying value of the Fair value of Carrying value of the Fair value of
In thousands of GEL assets collateral assets collateral
Corporate loans 4,214,549 9,508,022 856,014 262,288
Consumer loans 915,282 2,237,045 1,046,826 27,375
Mortgage loans 3,138,066 6,739,442 258,549 199,342
Loans to micro, small
and medium
enterprises 2,730,571 6,389,776 475,535 221,092
Total 10,998,468 24,874,285 2,636,924 710,097
The following table illustrated the effect of collateral as 31
December 2019:
Over-collateralised Under-collateralised
Assets Assets
Carrying value of the Fair value of Carrying value of the Fair value of
In thousands of GEL assets collateral assets collateral
Corporate loans 3,682,456 8,481,849 978,017 310,419
Consumer loans 950,847 2,232,728 933,159 37,658
Mortgage loans 2,949,426 6,171,802 219,771 107,183
Loans to micro, small
and medium
enterprises 2,579,002 5,983,285 369,277 164,979
Total 10,161,731 22,869,664 2,500,224 620,239
8 Premises, Equipment and Intangible Assets
Land, Office and Construction Total Intangible Total
Premises and Other in premises and Assets
leasehold equipment* progress ** equipment
improvements
In thousands of GEL **
Carrying amount at 1 January
2019 163,003 88,781 63,718 315,502 109,220 424,722
Additions 3,431 14,413 12,067 29,911 24,756 54,667
Business Combination - 771 - 771 1,019 1,790
Disposals (3,520) (4,759) (4,496) (12,775) (633) (13,408)
Transfer 700 (18) (557) 125 29 154
Transfer to financial leases
and repossessed assets - (1,071) - (1,071) - (1,071)
Effect of translation to
presentation currency (cost) (39) (38) - (77) (15) (92)
(Impairment charge)/reversal
of impairment to profit or
loss (30) 46 - 16 - 16
Depreciation/amortisation
charge (2,894) (11,340) - (14,234) (10,851) (25,085)
Elimination of accumulated
depreciation/amortisation on
disposals 814 2,275 - 3,089 359 3,448
Effect of translation to
presentation currency
(accumulated depreciation) 47 11 - 58 26 84
Carrying amount at 30 June
2019 161,512 89,071 70,732 321,315 123,910 445,225
Cost at 30 June 2019 202,920 225,074 70,732 498,726 190,939 689,665
Accumulated
depreciation/amortisation
including accumulated
impairment loss (41,408) (136,003) - (177,411) (67,029) (244,440)
Carrying amount at 1 January 2020 162,637 89,890 82,201 334,728 167,597 502,325
Additions 1,101 14,831 9,702 25,634 37,930 63,564
Capitalization Intangible Assets - - - - (513) (513)
Transfers - (779) 779 - - -
Disposals (1,044) (732) (175) (1,951) - (1,951)
Transfer to Inventory (388) (39) - (427) - (427)
Transfer to financial leases and
repossessed assets - (198) - (198) - (198)
(Impairment charge)/reversal of
impairment to profit or loss - (94) - (94) - (94)
Depreciation/amortisation charge (2,782) (10,893) - (13,675) (10,473) (24,148)
Elimination of accumulated
depreciation/amortisation on disposals 99 1,115 - 1,214 44 1,258
Effect of translation to presentation
currency Cost (55) (218) - (273) 371 98
Effect of translation to presentation
currency Accumulated depreciation 56 50 - 106 (125) (19)
Transfer from Provision for other
assets impairment - - - - (142) (142)
Carrying amount at 30 June 2020 159,624 92,933 92,507 345,064 194,689 539,753
Cost at 30 June 2020 205,693 244,842 92,507 543,042 278,256 821,298
Accumulated depreciation/amortisation
including accumulated impairment loss (46,069) (151,909) - (197,978) (83,567) (281,545)
*includes furniture and fixtures, computer and office
equipments, motor vehicles as well as other equipments *Office and
other equipment include furniture and fixtures, computer and office
equipment, motor vehicles as well as other equipment.
** Certain amounts do not correspond to the 2019 consolidated
financial statement and 2019 interim financial statement as they
reflect the adjustments made due to change in accounting policy as
described in Note 2.
8 Premises, Equipment and Intangible Assets (Continued)
Depreciation and amortisation charge presented on the face of
the statement of profit or loss and other comprehensive income
include depreciation and amortisation charge of premises and
equipment, investment properties and intangible assets.
Construction in progress consists of construction and
refurbishment of branch premises and the Bank's new headquarters.
Upon completion, assets are to be transferred to premises.
9 Due to Credit Institutions
In thousands of GEL 30 June 2020 31 December 2019
Due to other banks
Correspondent accounts and overnight placements 107,292 27,747
Deposits from banks 147,219 139,267
Total due to other banks 254,511 167,014
Other borrowed funds
Borrowings from foreign banks and financial institutions 2,483,612 2,005,900
Borrowings from local banks and financial institutions 1,617,344 1,378,995
Borrowings from Ministry of Finance - 536
Borrowings from other financial institutions 47,939 41,456
Total other borrowed funds 4,148,895 3,426,887
Total amounts due to credit institutions 4,403,406 3,593,901
10 Customer Accounts
In thousands of GEL 30 June 2020 31 December 2019
State and public organisations
- Current/settlement accounts 662,744 616,397
- Term deposits 220,885 298,177
Other legal entities
- Current/settlement accounts 2,983,108 3,151,507
- Term deposits 527,577 310,558
Individuals
- Current/demand accounts 2,779,784 2,712,910
- Term deposits 3,246,232 2,959,775
Total customer accounts 10,420,330 10,049,324
10 Customer Accounts (Continued)
State and public organisations include government owned profit
orientated businesses.
Economic sector concentrations within customer accounts are as
follows:
30 June 2020 31 December 2019
In thousands of GEL Amount % Amount %
Individuals 6,026,016 58% 5,672,685 56%
Construction 508,665 5% 596,703 6%
Trade 688,889 7% 741,385 7%
Government sector 497,190 5% 505,494 5%
Transportation 259,113 2% 308,268 3%
Energy & Utilities 300,891 3% 322,331 3%
Financial Services 548,917 5% 288,860 3%
Services 481,470 5% 446,876 5%
Real Estate 270,070 3% 322,416 3%
Hotels and Leisure 91,572 1% 110,816 1%
Healthcare 128,649 1% 98,294 1%
Agriculture 68,035 1% 50,915 1%
Metals and Mining 21,733 0% 12,264 0%
Other 529,120 4% 572,017 6%
Total customer accounts 10,420,330 100% 10,049,324 100%
As 30 June 2020 the Group had 383 customers (31 December 2019:
359 customers) with balances above GEL 3,000 thousand. Their
aggregate balance was GEL 4,546,770 thousand (31 December 2019: GEL
4,327,035 thousand) or 43.6% of total customer accounts (31
December 2019: 43.0%).
As 30 June 2020 included in customer accounts are deposits of
GEL 2,925 thousand and GEL 131,869 thousand (31 December 2019: GEL
9,555 thousand and GEL 101,615 thousand) held as collateral for
irrevocable commitments under letters of credit and guarantees
issued, respectively. Refer to Note 25. As 30 June 2020, deposits
held as collateral for loans to customers amounted to GEL 383,998
thousand (31 December 2019: GEL 469,205 thousand).
Refer to Note 25 for the disclosure of the fair value of
customer accounts. Information on related party balances is
disclosed in Note 26.
11 Provisions for Performance Guarantees, Credit Related
Commitments and Liabilities and Charges
Movements in provisions for performance guarantees, credit
related commitment and liabilities and charges are as follows:
In thousands of GEL Perfor-mance guarantees Credit related commitments Other Total
Carrying amount as of 1 January 2020 7,466 4,511 11,151 23,128
Charges less releases recorded in profit or loss (1,900) 2,697 1,280 2,077
Effect of translation to presentation currency 400 - (47) 353
Carrying amount at 30 June 2020 5,967 7,209 12,384 25,558
In thousands of GEL Perfor-mance guarantees Credit related commitments Other Total
Carrying amount as of 1 January 2019 4,393 5,424 8,950 18,767
Charges less releases recorded in profit or
loss 1,133 (741) 2,002 2,394
Utilization of provision - - (1,104) (1,104)
Effect of translation to presentation currency 59 - - 59
Carrying amount at 30 June 2019 5,585 4,683 9,848 20,116
Credit related commitments and performance guarantees:
Impairment allowance estimation methods differ for (i) letter of
credits and guarantees and (ii) undrawn credit lines.
For letter of credits and guarantees allowance estimation
purposes the Bank applies the staged approach and classifies them
in stage 1, stage 2 or stage 3. Significant stage 2 and stage 3
guarantees are assessed individually. Non-significant stage 3 as
well as all stage 1 and stage 2 guarantees and letter of credits
are assessed collectively using exposure, marginal probability of
conversion, loss given default and discount factor. Amount of the
expected allowance differs based on the classification of the
facility in the respective stage.
For impairment allowance assessment purposes, the Bank
distinguishes between the revocable and irrevocable loan
commitments of undrawn exposures. For revocable commitments, the
Bank does not create an impairment allowance. As for the
irrevocable undisbursed exposures, the Bank estimates a utilization
parameter (which represents expected limit utilization percentage
conditional on the default event) in order to convert off-balance
part of the exposure to on-balance.
Once the respective on balance exposure is estimated, the Bank
applies the same impairment framework approach as the one used for
the respective type of on balance exposures.
Additions less releases recorded in profit or loss for "Other"
provisions does not include gross change in total reserves for
insurance claims in amount of GEL 1,335 thousand (30 June 2019: GEL
2,339 thousand) that are included in net claims incurred.
12 Debt securities in issue
On 27 May 2020 the TBC Bank Group PLC completed the transaction
of a USD 15 million 3-year 8.2% senior unsecured bonds issue (the
"Notes"). The private placement is direct, unsecured and
unsubordinated obligations of the Company.
On 20 March 2020, TBC Leasing with the help of TBC Capital
placed senior secured bonds of amount GEL 58.4 million on the
Georgian Stock Exchange. The percentage of securities is variable,
3.25% added to the 3-month interbank rate in Tbilisi. Fitch rates
the bonds 'BB-'.
On 19 March 2020 the TBC Bank Group PLC completed the
transaction of a debut USD 10 million 3-year 6.45% senior unsecured
bonds issue. The private placement is direct, unsecured and
unsubordinated obligations of the Company.
On 3 July 2019 the Bank completed the transaction of a debut
inaugural USD 125 million 10.75% yield Additional Tier 1 Capital
Perpetual Subordinated Notes issue ("AT1 Notes"). The AT1 Notes are
listed on the regulated market of Euronext Dublin and are rated B-
by Fitch. The AT1 Notes have been simultaneously listed on JSC
Georgian Stock Exchange, making it the first dual-listed
international offering of additional Tier 1 Capital Notes from
Georgia.
On 19 June 2019 the Bank completed the transaction of a debut
USD 300 million 5-year 5.75% (6% yield) senior unsecured bonds
issue. The Notes are listed on the regulated market of Euronext
Dublin and are rated Ba2 by Moody's and BB- by Fitch. The Notes
have been simultaneously listed on JSC Georgian Stock Exchange,
making it the first dual-listed international offering of senior
unsecured Notes from Georgia.
13 Subordinated Debt
As 30 June 2020, subordinated debt comprised of:
Grant Maturity Currency Outstanding Outstanding
Date Date amount amount
in original in GEL
In thousands of GEL currency
Kreditanstalt für Wiederaufbau
Bankengruppe 10-Jun-14 8-May-21 GEL 6,401 6,401
Kreditanstalt für Wiederaufbau
Bankengruppe 4-May-15 8-May-21 GEL 7,001 7,001
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,254 46,604
European Fund for Southeast
Europe 18-Dec-15 18-Dec-25 USD 7,638 23,334
European Fund for Southeast
Europe 15-Mar-16 16-Mar-26 USD 7,636 23,330
Asian Development Bank (ADB) 18-Oct-16 31-Dec-26 USD 50,467 154,186
Private lenders 8-Jun-17 19-Dec-24 USD 25,212 77,028
Subordinated Bond 31-Aug-18 25-Jan-23 USD 10,045 30,859
Global climate partnership
fund 20-Nov-18 20-Nov-28 USD 25,089 76,653
ResponsAbility SICAV (Lux)
Microfinance Leaders 30-Nov-18 30-Nov-28 USD 1,005 3,069
ResponsAbility SICAV (Lux)
Financial inclusion fund 30-Nov-18 30-Nov-28 USD 3,114 9,514
ResponsAbility Micro and
SME finance fund 30-Nov-18 30-Nov-28 USD 5,929 18,114
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-25 USD 14,933 45,622
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-28 USD 14,927 45,605
European Fund for Southeast
Europe 21-Dec-18 21-Dec-28 USD 20,074 61,329
Total subordinated debt 628,649
As of 31 December 2019, subordinated debt comprised of:
Grant Date Maturity Date Currency Outstanding amount in Outstanding amount in GEL
In thousands of GEL original currency
Kreditanstalt für
Wiederaufbau
Bankengruppe 10-Jun-14 8-May-21 GEL 6,162 6,162
Kreditanstalt für
Wiederaufbau
Bankengruppe 4-May-15 8-May-21 GEL 6,739 6,739
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,305 43,890
European Fund for
Southeast Europe 18-Dec-15 18-Dec-25 USD 7,663 21,975
European Fund for
Southeast Europe 15-Mar-16 15-Mar-26 USD 7,662 21,971
Asian Development Bank
(ADB) 18-Oct-16 31-Oct-26 USD 50,585 145,064
Private lenders 8-Jun-17 19-Dec-24 USD 25,218 72,318
Subordinated Bond 17-Aug-18 30-Nov-22 USD 10,101 28,976
Global climate
partnership fund 20-Nov-18 20-Nov-28 USD 25,089 71,948
ResponsAbility SICAV
(Lux) Microfinance
Leaders 30-Nov-18 30-Nov-28 USD 1,006 2,884
ResponsAbility SICAV
(Lux) Financial
inclusion fund 30-Nov-18 30-Nov-28 USD 3,117 8,940
ResponsAbility Micro and
SME finance fund 30-Nov-18 30-Nov-28 USD 5,935 17,020
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-25 USD 14,924 42,797
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-28 USD 14,920 42,786
European Fund for
Southeast Europe 21-Dec-18 21-Dec-28 USD 20,074 57,565
Total subordinated debt 591,035
The debt ranks after all other creditors in case of liquidation.
Refer to Note 25 for the disclosure of the fair value of
subordinated debt.
In the event of any liquidation and/or significant financial
distress with respect to the Borrower, the Lender agrees that the
claims of the Lender in respect of the principal of, and interest
on, the Loan and all other amounts payable under this Agreement
shall be subordinated and subject in right of payment to the prior
payment of claims of depositors and unsecured creditors of the
Borrower, except for claims which are themselves so
subordinated.
13 Subordinated Debt (Continued)
Unless otherwise agreed with the Regulatory Authority, any
voluntary or mandatory prepayment of the Loan or cancellation of
this Agreement (except in the case of Clause 9.2 (Voluntary
Prepayment)) can be made no earlier than five calendar years after
the Disbursement Date of the Loan and shall require the prior
written consent of the Regulatory Authority.
The purpose of the Facility is to provide the Borrower with
funding to be used by the Borrower as an instrument that qualifies
as Tier 2 Capital to increase its lending capacity and to provide a
capital cushion for the Borrower in accordance with the provisions
of this Agreement.
14 Share Capital
Number of Share capital
In thousands of GEL except for number of shares ordinary shares
As of 1 January 2019 54,244,329 1,650
Shares issued 615,175 22
Scrip dividend issued 296,392 10
As of 31 December 2019 55,155,896 1,682
As of 30 June 2020 55,155,896 1,682
As 30 June 2020 the total authorised number of ordinary shares
was 55,155,896 shares (31 December 2019: 55,155,896 shares). Each
share has a nominal value of one British Penny. All issued ordinary
shares are fully paid and entitled to dividends.
On 24 June 2019, at the Annual General Meeting, TBC Bank Group
PLC's shareholders agreed on a dividend of GEL 1.98 per share,
based on the 2018 audited financial statements.
On 17 March 2020, the Board resolved not to recommend
distributing a dividend, based on 2019 audited financial statements
and that the Company would continue to monitor the situation
resulted from COVID-19 pandemic.
15 Share Based Payments
June 2015 arrangement:
In June 2015, the Bank's Supervisory Board approved new
management compensation scheme for the top and middle management
and it accordingly authorised the issue of a maximum 3,115,890 new
shares. The system was enforced from 2015 through 2018. According
to the scheme, each year, subject to predefined performance
conditions, a certain number of shares were awarded to the Group's
top managers and most of the middle ones. The performance features
key performance indicators (KPIs) divided into (i) corporate and
(ii) individual. The corporate KPIs are mainly related to achieving
profitability, efficiency, and portfolio quality metrics set by the
Board as well as non-financial indicators with regards to
customers' experience and employees' engagement. The individual
performance indicators are set on an individual basis and are used
to calculate the number of shares to be awarded to each employee.
According to the scheme, members of top management also received
the fixed number of shares. Once awarded, all shares carry service
conditions and, before those conditions are met, are eligible to
dividends; however they cannot be sold or transferred to third
parties.
Service conditions foresee continuous employment until the
gradual transfer of the full title to the scheme participants is
complete. Shares for each of the 2015, 2016, 2017 and 2018 tranche
gradually ran over on the second, third and fourth year following
the performance appraisal. Eighty percent of the shares are vested
in 3 years after being awarded. Under this compensation system the
total vesting period extends to March 2022.
In 2015 the Group considered 17 June as the grant date. Based on
the management's estimate of reached targets, as of 31 December
2015 1,908,960 shares were granted. The shares were gradually
awarded to the members as per the described scheme. At the grant
date the fair value amounted to GEL 24.64 per share, as quoted on
the London Stock Exchange.
Following the listing on the Premium segment of the London Stock
Exchange, the share-based payment scheme remained conceptually the
same and was only updated to reflect the Group's new structure,
whereby TBC Bank Group PLC distributes its shares to the scheme's
participants, instead of JSC TBC Bank. The respective shares' value
is recharged to JSC TBC Bank. As a result, the accounting of the
scheme did not change in the consolidated financial statements.
The Bank also payed personal income tax on behalf of equity
settled scheme beneficiaries, which was accounted as cash settled
part.
The share based payment scheme for middle management and other
eligible employees continues under existing terms for 2019-2020
except for vesting conditions that changed from 10%, 10%, 80% to
33%, 33%, 34% for the 3 year period.
December 2018 arrangements:
Anew compensation system was approved by shareholders at the AGM
on 21 May 2018 and came into effect on 1 January 2019 and it covers
the period 2019-2021 inclusive. On 28 December 2018, the Board of
Directors approved the following details for this new compensation
schemes for the top management and the Group considers that as a
grant date.
Deferred share salary plan
Part of the top management salary is paid with shares with the
objective of closely promoting the long-term success of the Group
and aligning senior executive directors' and shareholders'
interests. . Shares are usually delivered during the first quarter
of the second year (i.e. the year after the performance year) and
the exact date is determined by the Board. Once shares are
delivered, for CEO and CFO they remain subject to continued
employment, however for other members of the Bank's management
Board condition of continuous employment had mean removed starting
from the year of 2020 ; 50% of the shares for 1 year and the other
50% for 2 years from the delivery date. Upon the delivery, whilst
the shares remain subject to the continued employment condition,
the shares are registered in the trustees name as nominee for the
participants and the participants are entitled to receive
dividends.
15 Share Based Payments (continued)
Where applicable, deferred share salary is paid in part under
the executive director's service contract with TBC JSC and in part
under his service contract with TBC PLC, to reflect the executive
director's duties to each. Initial salaries are set and approved by
the Supervisory Board and Board of Directors. The Remuneration
Committee assists both Boards in compensation related matters and
makes respective recommendations. Deferred compensation is subject
to the Group's malus and clawback policies until the shares are
vested and during the holding period. If at any time after making
the deferred compensation there is a material misstatement in the
financial results for the year in respect of which the compensation
was formally granted, the Remuneration Committee has the right to
cause some or all of the deferred compensation for that year or any
subsequent financial year that is unvested (or unpaid) to lapse (or
not be paid).
The number of shares is calculated based on the average share
price of the last 10 days preceding the committee decision date.
The bank pays income tax and other employee-related taxes related
to the award, however, taxes are included in the maximum
amounts.
Deferred Bonus plan
The annual bonus for the top management is determined as to the
extent that the annual KPIs have been met. Shares are usually
delivered during the first quarter of the second year (i.e. the
year after the performance year): and the exact date is determined
by the Board. Once shares are delivered, they remain subject to
continued employment fo r CEO and CFO , however condition of
continuous emoloyment is removed for other members of the top
management starting from the year 2020and malus and claw back
provisions 50% of the shares for 1 year and the other 50% for 2
years from the delivery date. Upon the delivery, whilst the shares
remain subject to the continued employment condition per above the
shares are registered in the trustees name as the nominee for the
participants and the participants are entitled to receive
dividends.
Annual KPIs are set by the Remuneration Committee at the
beginning of each year in relation to that year and approved by the
Board. To the extent that the KPIs are achieved, the Remuneration
Committee may recommend to the Board whether an award may be made
and the amount of such award. The Group does not pay guaranteed
bonuses to executive directors. The nature of the KPIs with their
specific weightings and targets is disclosed in the published
annual report. Awards are subject to the Group's malus and clawback
policies until the shares are vested and during the holding period.
If at any time after making the award there is a material
misstatement in the financial results for the year in respect of
which the award was formally granted, the Remuneration Committee
can recommend to the Board that some or all of the award for that
year or any subsequent financial year that is unvested (or unpaid)
to lapse (or not be paid).
The number of shares is calculated based on the average share
price of the last 10 days preceding the committee decision date.
The Bank pays income tax and other employee-related taxes related
to the award, however, taxes are included in the maximum award
amounts.
Long Term Incentive Plan (LTIP)
Long term incentive plan is used to provide a strong
motivational tool to achieve long term performance conditions and
to provide rewards to the extent those performance conditions are
achieved. Performance conditions are chosen to align the Group's
and the Bank's executive directors' interests with strategic
objectives of the Group over multi-year periods and encourage a
long-term view. In order for the shares to be delivered, the
executive directors need to meet rolling performance conditions
over the 3 year performance period. A new system will be approved
in 2021 to cover the period of 2021-2023. Shares if awarded will be
delivered during the first quarter of the fourth year (i.e. the
year after the performance period ends) and the exact date will be
determined by the Board. Once shares are delivered, they remain
subject to 3 year holding period and continued employment
requirements. An award holder shall have no voting rights, or
rights to receive dividends, in respect of a conditional share
award before such award becomes a vested award, i.e. after the end
of the 3-year award period. The awards may be granted in the form
of conditional share awards, options or restricted share awards.
Performance Conditions are proposed to the Board for approval by
the Remuneration Committee for a period of 3 years. The
Remuneration Committee determines the level of award at the end of
the performance period, based on the extent to which the
performance conditions have been met and makes the recommendation
for approval to the Board. Awards are subject to the Group's malus
and clawback policies until three years after the shares are
delivered. If at any time after making the award the award holder
deliberately mislead the Company or the Bank in relation to the
financial performance, there is a material misstatement (or
material error) in the financial statements of the Company or the
Bank, the award holder's unit has suffered a material downturn in
its financial performance caused by the award holder, there is
misconduct on the
15 Share Based Payments (continued)
Long Term Incentive Plan (LTIP) (continued)
part of the award holder that caused material harm to the
Company's or the Bank's reputation or there is misconduct on the
part of the award holder that caused failure of the risk management
resulting in a material loss to the Company or the Bank, the
Remuneration Committee has the right to cause some or all of the
award for that year or any subsequent financial year that is
unvested (or unpaid) to lapse (or not be paid) and to clawback any
amount that has already been paid. For newly issued shares, the
LTIP is limited to using 10% of Company's total issued shares in 10
years for employee plans and 5% of Company's total issued shares in
10 years for discretionary plans.. These limits will exclude shares
under awards that have been renounced, forfeited, released, lapsed
or cancelled or awards that were granted prior to the Company's IPO
or awards that the Remuneration Committee decide will be satisfied
by existing shares.
The number of shares is calculated based on the average share
price during the 10 days after the preliminary annual results of
the year preceding the year of each grant is announced The Bank
pays income tax and other employee-related taxes related to the
award, however, taxes are included in the maximum amounts.
The performance conditions in respect of performance period
2019-2021 are as follows: 1) average Return on Equity for three
years 2) total shareholder return for a period of three years 3)
loan market share at the end of 2022. More details about specific
weights and targets for CEO and CFO are given on page 162 of our
2019 Annual Report.
During COVID-19 outbreak, the Group continued to focus on
optimising cost structure, re-arranging many processes and
prioritising expenses. As part of this, and in recognition of the
extraordinary pandemic circumstances, the Executive Directors of
TBC Bank Group PLC and Management of JSC TBC Bank have volunteered
to waive all their rights to deferred shares bonuses and long-term
incentive plan grants for 2020.
15 Share Based Payments (continued)
Tabular information on the schemes is given below:
In GEL except for number of shares 30 June 2020 31 December 2019
Number of unvested shares at the beginning of the period 3,141,541 2,121,129
Total number of shares granted 528,325*** 1,613,101
Number of shares granted - Deferred salary - 285,047
Number of shares granted - Deferred bonus - 471,778
Number of shares granted - LTIP - 459,751
Number of shares granted - Middle management, subsidiaries' management and other
eligible
employees 528,325 *** 396,525
Change in estimates of number of shares expected to be granted** 51,129 (57,058)
Management waiver of rights for 2020 bonus (428,451) -
Change in estimates for 2019-2021 all awards - (57,058)
Change in estimates for 2020 award for Deferred salary, 2021 awards for Deferred bonus
and
LTIP 479,580 -
Change in estimate of number of shares expected to vest based on performance
conditions -
2019 performance (71,847) -
Change in estimate of number of shares expected to vest based on performance
conditions -
2018 performance - (16,501)
Number of shares vested (536,926) (519,130)
2015 year award - 80% vesting - (405,573)
2016 year award - 80% vesting (413,544) -
2016 year award - 10% vesting - (51,693)
2017 year award - 10% vesting (61,864) (61,864)
2018 year award - 10% vesting (61,518) -
Number of unvested shares at the end of the period 3,112,222 3,141,541
Value at grant date per share according to June 2015 scheme (GEL) 24.64 24.64
Value at grant date per share (GEL) middle management and other eligible employees
plan 50.16 50.16
Value at grant date per share (GEL) Deferred share salary plan 50.16 50.16
Value at grant date per share (GEL) Deferred bonus plan 50.16 50.16
Value at grant date per share (GEL) LTIP* 50.16 50.16
30 June 2020 30 June 2019
Expense on equity-settled part (GEL thousand) 6,063 13,245
Expense on cash-settled part (GEL thousand) (1,076) 491
Expense recognised as staff cost during the period (GEL thousand) 4,987 13,736
*Grant date for LTIP plan has been determined for the first
award tranche only, which is planned in 2021. For remaining
tranches expense is accrued based on estimated fair value during
the future grant date.
** The maximum amount is fixed for deferred share compensations
for top management, the exact number will be calculated as per
policy.
*** Represents shares granted to subsidiaries' management.
Liability in respect of the cash-settled part of the award
amounted to GEL 867 thousand as 30 June 2020 (31 December 2019: GEL
3,160 thousand). Tax part of the new bonus system for the top
management is accounted under equity settled basis.
Staff costs related to equity settled part of the share based
payment schemes are recognised in the income statement on a
straight line basis over the vesting period of each relevant
tranche and corresponding entry is credited to share based payment
reserve in equity.
15 Share Based Payments (continued)
On 30 June 2020 based on level of achievement of key performance
indicators the management has reassessed the number of shares that
will have to be issued to the participants of the share based
payment system by decreasing estimated number of shares to vest by
71,847 (30 June 2019: decreased estimated number of shares to vest
by 16,501).
In 2019 the Group established employee benefit trust (EBT) set
up Executive Equity Compensation Trustee - Sanne Fiduciary Services
Limited (the "Trustee") which acts as the trustee of the Group's
share based payments plan. It purchases Group's shares from the
open market and holds them before they are awarded to participants
and vesting date is due. The number of shares to be purchased and
held are instructed by the Group. The shares are presented as
treasury shares under Shares held by trust category in the
Statement of Financial Position until they are awarded to
participants. As at 30 June 2020 the share number held by Trustee
was 778,183 (31 December 2019: 595,380), which represents 1.4% of
total outstanding shares (31 December 2019: 1.1%).
16 Earnings per Share
Basic earnings per share are calculated by dividing the profit
or loss attributable to the owners of the Group by the weighted
average number of ordinary shares in issue during the period.
In thousands of GEL except for number of shares 30 June 2020 30 June 2019
Profit for the period attributable to the owners
of the Bank (excluding the profit attributable
to the shares encumbered under the share based
payment scheme 67,625 253,235
Weighted average number of ordinary shares
in issue 54,421,866 54,587,603
Basic earnings per ordinary share attributable
to the owners of the Bank (expressed in GEL
per share) 1.24 4.64
Diluted earnings per share are calculated by dividing the profit
or loss attributable to owners of the Group by the weighted average
number of ordinary shares adjusted for the effects of all dilutive
potential ordinary shares during the period:
In thousands of GEL except for number of shares 30 June 2020 30 June 2019
Profit for the period attributable to the owners
of the Bank (excluding the profit attributable
to the shares encumbered under the share based
payment scheme - 67,625 253,235
Weighted average number of ordinary shares
in issue adjusted for the effects of all dilutive
potential ordinary shares during the period 54,950,082 54,840,290
Diluted earnings per ordinary share attributable
to the owners of the Bank (expressed in GEL
per share) 1.23 4.62
17 Segment Analysis
The Management Board (the "Board") is the chief operating
decision maker and it reviews the Group's internal reporting in
order to assess the performance and to allocate resources. In 2020
the Group made the re-segmentation after which some of the clients
were reallocated to different segments - GEL 108 million of loans
and customer amounts were transferred from MSME to Corporate
segment, while GEL 2 million amounts were transferred from
Corporate to MSME segment. In the tables below is disclosed the
information as of 30 June 2020 both with and without
re-segmentation effect.
The operating segments according to the definition are
determined as follows:
-- Corporate - legal entity/group of affiliated entities with an
annual revenue exceeding GEL 12.0 million or who have been granted
facilities with more than GEL 5 million. Some other business
customers may also be assigned to the corporate segment or
transferred to MSME on a discretionary basis
-- Retail - non-business individual customers; all individual
customers are included in retail deposits;
-- MSME - Business customers who are not included in either
corporate or legal entities who have been granted a Pawn shop loan;
or individual customers of the newly-launched fully-digital bank,
Space;
-- Corporate centre and other operations - comprises of the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group .
The Management Board assesses the performance of the operating
segments based on a measure of profit before income tax.
The reportable segments are the same as the operating
segments.
No revenue from transactions with a single external customer or
counterparty amounted to 10% or more of the Group's total revenue
in as 30 June 2020 and 31 December 2019.
The vast majority of the entity's revenues are attributable to
Georgia. A geographic analysis of origination of the Group's assets
and liabilities is given in Note 23.
A summary of the Group's reportable segments as 30 June 2020
with updated segmentation and also without re-segmentation effect
(for comparative reasons) and 30 June 2019 is provided below:
17 Segment Analysis (Continued)
Per new segmentation:
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2020
- Interest income 225,082 285,336 162,144 115,331 787,893
- interest expense (87,181) (86,768) (5,426) (228,716) (408,091)
- Net gains on currency swaps - - - 12,522 12,522
- Inter-segment interest
income/(expense) 841 (32,744) (64,097) 96,000 -
- Net interest income 138,742 165,824 92,621 (4,863) 392,324
- Fee and commission income 24,949 96,189 11,443 6,171 138,752
- Fee and commission expense (3,990) (45,757) (5,171) (765) (55,683)
- Net Fee and commission income 20,959 50,432 6,272 5,406 83,069
- Net insurance premiums earned - - - 26,618 26,618
- Net insurance claims incurred - - - (16,337) (16,337)
- Insurance Profit - - - 10,281 10,281
- Net gains from trading in foreign
currencies 25,763 17,897 13,748 (8,002) 49,406
- Net losses from foreign exchange
translation - - - (1,627) (1,627)
- Net losses from derivative
financial instruments - - - (20) (20)
- Net losses from disposal of
investment securities measured at
fair value through other
comprehensive
income - - - (1,202) (1,202)
- Other operating income 858 2,390 129 4,600 7,977
- Share of profit of associates - - - 90 90
- Other operating non-interest
income 26,621 20,287 13,877 (6,161) 54,624
- Credit loss allowance for loans
to customers (26,627) (160,861) (61,728) - (249,216)
- Credit loss allowance for
performance guarantees and credit
related commitments 650 (378) (1,069) - (797)
- Credit loss allowance for net
investments in lease - - - (4,278) (4,278)
- Credit loss allowance for other
financial assets (1,964) (69) - (2,189) (4,222)
- Credit loss allowance for
financial assets measured at fair
value through OCI 8 - - (546) (538)
- Profit before administrative and
other expenses and income taxes 158,389 75,235 49,973 (2,350) 281,247
- Losses from modifications of
financial instruments (2,675) (22,547) (7,068) (1,880) (34,170)
- Staff costs (14,894) (54,421) (23,331) (21,360) (114,006)
- Depreciation and amortisation (2,028) (21,738) (5,422) (3,027) (32,215)
- Provision for liabilities and
charges - - - 77 77
- Administrative and other
operating expenses (5,803) (28,272) (9,284) (12,657) (56,016)
- Operating expenses (22,725) (104,431) (38,037) (36,967) (202,160)
- Profit before tax 132,989 (51,743) 4,868 (41,197) 44,917
- Income tax expense (8,990) 25,745 5,991 1,537 24,283
- Profit for the period 123,999 (25,998) 10,859 (39,660) 69,200
30 June 2020
Total gross loans and advances to
customers reported 5,070,563 5,358,723 3,206,106 - 13,635,392
Total customer accounts reported 3,222,718 6,019,291 1,178,321 - 10,420,330
Total credit related commitments
and performance guarantees 2,861,193 190,710 261,182 - 3,313,085
17 Segment Analysis (Continued)
Per old segmentation:
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2020
- Interest income 221,339 285,336 165,887 115,331 787,893
- interest expense (87,077) (86,768) (5,530) (228,716) (408,091)
- Net gains on currency swaps - - - 12,522 12,522
- Inter-segment interest
income/(expense) 841 (32,744) (64,097) 96,000 -
- Net interest income 135,103 165,824 96,260 (4,863) 392,324
- Fee and commission income 24,949 96,189 11,443 6,171 138,752
- Fee and commission expense (3,990) (45,757) (5,171) (765) (55,683)
- Net Fee and commission income 20,959 50,432 6,272 5,406 83,069
- Net insurance premiums earned - - - 26,618 26,618
- Net insurance claims incurred - - - (16,337) (16,337)
- Insurance Profit - - - 10,281 10,281
- Net gains from trading in foreign
currencies 25,763 17,897 13,748 (8,002) 49,406
- Net losses from foreign exchange
translation - - - (1,627) (1,627)
- Net losses from derivative
financial instruments - - - (20) (20)
- Net losses from disposal of
investment securities measured at
fair value through other
comprehensive
income - - - (1,202) (1,202)
- Other operating income 858 2,390 129 4,600 7,977
- Share of profit of associates - - - 90 90
- Other operating non-interest
income 26,621 20,287 13,877 (6,161) 54,624
- Credit loss allowance for loans
to customers (26,627) (160,861) (61,728) - (249,216)
- Credit loss allowance for
performance guarantees and credit
related commitments 650 (378) (1,069) - (797)
- Credit loss allowance for net
investments in lease - - - (4,278) (4,278)
- Credit loss allowance for other
financial assets (1,964) (69) - (2,189) (4,222)
- Credit loss allowance for
financial assets measured at fair
value through OCI 8 - - (546) (538)
- Profit before administrative and
other expenses and income taxes 154,750 75,235 53,612 (2,350) 281,247
- Losses from modifications of
financial instruments (2,675) (22,547) (7,068) (1,880) (34,170)
- Staff costs (14,894) (54,421) (23,331) (21,360) (114,006)
- Depreciation and amortisation (2,028) (21,738) (5,422) (3,027) (32,215)
- Provision for liabilities and
charges - - - 77 77
- Administrative and other
operating expenses (5,803) (28,272) (9,284) (12,657) (56,016)
- Operating expenses (22,725) (104,431) (38,037) (36,967) (202,160)
- Profit before tax 129,350 (51,743) 8,507 (41,197) 44,917
- Income tax expense (8,483) 25,745 5,484 1,537 24,283
- Profit for the period 120,867 (25,998) 13,991 (39,660) 69,200
30 June 2020
Total gross loans and advances to
customers reported 4,964,861 5,358,723 3,311,808 - 13,635,392
Total customer accounts reported 3,212,814 6,019,291 1,188,225 - 10,420,330
Total credit related commitments
and performance guarantees 2,861,193 190,711 261,181 - 3,313,085
17 Segment Analysis (Continued)
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2019
- Interest income 156,857 288,909 141,798 90,652 678,216
- interest expense (79,418) (72,843) (4,682) (133,834) (290,777)
- Net gains on currency swaps - - - 11,146 11,146
- Inter-segment interest
income/(expense) 24,584 (33,609) (47,567) 56,592 -
- Net interest income 102,023 182,457 89,549 24,556 398,585
- Fee and commission income 24,002 92,008 11,365 2,510 129,885
- Fee and commission expense (3,251) (37,256) (3,789) (248) (44,544)
- Net Fee and commission income 20,751 54,752 7,576 2,262 85,341
- Net insurance premiums earned - - - 15,992 15,992
- Net insurance claims incurred - - - (7,925) (7,925)
- Insurance Profit - - - 8,067 8,067
- Net gains from trading in
foreign currencies 22,288 13,370 10,120 (10,805) 34,973
- Net losses from foreign exchange
translation - - - 9,214 9,214
- Net losses from derivative
financial instruments - (218) - (11) (229)
- Net losses from disposal of
investment securities measured at
fair value through other
comprehensive
income - - - 147 147
- Other operating income 1,040 4,502 701 1,566 7,809
- Share of profit of associates - - - 341 341
- Other operating non-interest
income 23,328 17,654 10,821 8,519 60,322
- Credit loss allowance for loans
to customers 4,259 (55,517) (15,225) - (66,483)
- Credit loss allowance for
performance guarantees and credit
related commitments (807) 421 (6) - (392)
- Credit loss allowance for net
investments in lease - - - 178 178
- Credit loss allowance for other
financial assets 3,010 92 - (2,522) 580
- Credit loss allowance for
financial assets measured at fair
value through OCI (320) - - (30) (350)
- Profit before administrative and
other expenses and income taxes 152,244 199,859 92,715 32,963 477,781
- Staff costs (17,674) (66,073) (23,199) (9,693) (116,639)
- Depreciation and amortisation (1,494) (24,854) (3,924) (1,852) (32,124)
- Provision for liabilities and
charges - - - 1,441 1,441
- Administrative and other
operating expenses (7,565) (39,845) (10,923) (6,242) (64,575)
- Operating expenses (26,733) (130,772) (38,046) (16,346) (211,897)
- Profit before tax 125,511 69,087 54,669 16,617 265,884
- Income tax expense (14,546) (6,985) (5,429) 14,616 (12,344)
- Profit for the period 110,965 62,102 49,240 31,233 253,540
30 June 2019
Total gross loans and advances to
customers reported 3,658,340 4,835,320 2,647,700 - 11,141,360
Total customer accounts reported 3,510,179 5,360,114 1,006,520 - 9,876,813
Total credit related commitments
and performance guarantees 1,983,645 222,636 252,082 - 2,458,363
17 Segment Analysis (Continued)
Reportable segments' assets were reconciled to total assets as
follows:
In thousands of GEL 30 June 2020 31 December 2019*
Total segment assets (gross loans and advances to customers) 13,635,392 12,661,955
Credit loss allowance (529,404) (312,556)
Cash and cash equivalents 981,803 1,003,583
Mandatory cash balances with National Bank of Georgia 1,794,010 1,591,829
Due from other banks 30,879 33,605
Investment securities measured at fair value through other comprehensive
income 1,082,520 985,293
Bonds carried at amortised cost 1,335,415 1,022,684
Current income tax prepayment 36,703 25,695
Deferred income tax asset 7,470 2,173
Other financial assets 174,378 133,736
Net investments in leases 270,172 256,660
Other assets 258,349 255,712
Premises and equipment 345,064 334,728
Intangible assets 194,689 167,597
Investment properties 70,716 72,667
Goodwill 60,296 61,558
Right of use assets 62,865 59,693
Investments in Associates 2,112 2,654
Total assets per statement of financial position 19,813,429 18,359,266
* Certain amounts do not correspond to the 2019 consolidated
financial statement and 2019 interim financial statement as they
reflect the adjustments made due to change in accounting policy as
described in Note 2.
Reportable segments' liabilities are reconciled to total
liabilities as follows:
In thousands of GEL 30 June 2020 31 December 2019*
Total segment liabilities (customer accounts) 10,420,330 10,049,324
Due to credit institutions 4,403,406 3,593,901
Debt securities in issue 1,396,141 1,213,598
Current income tax liability 692 1,634
Deferred income tax liability 5 18,888
Provisions for liabilities and charges 25,558 23,128
Other financial liabilities 138,749 113,609
Lease Liabilities 65,937 59,898
Other liabilities 80,557 95,161
Subordinated debt 628,649 591,035
Total liabilities per statement of financial position 17,160,024 15,760,176
* Certain amounts do not correspond to the 2019 consolidated
financial statement and 2019 interim financial statement as they
reflect the adjustments made due to change in accounting policy as
described in Note 2.
18 Interest Income and Expense
In thousands of GEL 30 June 2020 30 June 2019
Interest income calculated using effective
interest method
Loans and advances to customers 663,530 582,899
Bonds carried at amortised cost 42,363 23,410
Investment securities measured at fair
value through OCI 46,056 36,950
Due from other banks 9,573 11,630
Other interest income
Net investments in lease 25,517 23,327
Other 854 -
Total interest income 787,893 678,216
Interest expense
Customer accounts 177,846 155,634
Due to credit institutions 149,560 100,032
Subordinated debt 27,650 31,748
Debt Securities in issue 51,498 2,054
Lease liabilities 1,537 1,309
Total interest expense 408,091 290,777
Net gains on currency swaps 12,522 11,147
Net interest income 392,324 398,586
During the six months ended 30 June 2020 the interest accrued on
impaired loans amounted to GEL 16,175 thousand (30 June 2019: GEL
17,964 thousand).
19 Fee and Commission Income and Expense
In thousands of GEL 30 June 2020 30 June 2019
Fee and commission income
Fee and commission income in respect
of financial instruments not at fair
value through profit or loss:
- Card operations 65,033 60,084
- Settlement transactions 43,868 36,609
- Guarantees issued 17,047 12,546
- Cash transactions 3,886 6,706
- Issuance of letters of credit 2,686 2,319
- Foreign exchange operations 580 1,388
- Other 5,652 10,233
Total fee and commission income 138,752 129,885
Fee and commission expense
Fee and commission expense in respect
of financial instruments not at fair
value through profit or loss:
- Card operations 41,531 34,175
- Settlement transactions 5,856 6,623
- Cash transactions 3,989 1,603
- Guarantees received 1,149 864
- Letters of credit 665 740
- Foreign exchange operations 110 31
- Other 2,383 508
Total fee and commission expense 55,683 44,544
Net fee and commission income 83,069 85,341
20 Other Operating Income
In thousands of GEL 30 June 2020 30 June 2019
Revenues from operational leasing 1,283 1,660
Gain on disposal of premises and equipment 48 1,370
Gain from sale of investment properties 368 630
Gain from sale of repossessed collateral 322 582
Revenues from e-commerce 2,759 -
Revenues from sale of cash-in terminals 317 443
Revenues from non-credit related fines 122 165
Other 2,758 2,960
Total other operating income 7,977 7,810
Revenue from operational leasing is wholly attributable to
investment properties. The carrying value of
repossessed collateral disposed of in the period ended 30 June
2020 was GEL 4,840 thousand (30 June 2019: GEL 5,980 thousand).
21 Administrative and Other Operating Expenses
30 June 30 June
In thousands of GEL 2020 2019
Professional services 8,122 12,046
Advertising and marketing services 10,348 9,461
Intangible asset enhancement 6,756 5,976
Expenses related to lease contracts 6,641 5,826
Premises and equipment maintenance 3,262 4,765
Taxes other than on income 4,839 3,713
Utility services 3,426 3,570
Communications and supply 2,952 2,782
Stationery and other office expenses 3,086 2,251
Charity 799 1,279
Business trip expenses 558 1,065
Security services 943 1,025
Transportation and vehicle maintenance 794 903
Personnel training and recruitment 511 596
Insurance 954 508
Loss on disposal of premises and equipment 10 251
Loss on disposal of inventories 120 52
Loss on disposal of investment properties 248 38
Impairment of Premises & Equipment 94 -
Write-down of current assets to fair value
less costs to sell (345) (251)
Other 1,898 8,719
Total administrative and other operating
expenses 56,016 64,575
22 Income Taxes
As at 30 June 2020, the statutory income tax rate applicable to
the majority of the Group's income is 15% (six months ended 30 June
2019: 15%). O n 12 June 2018, the new amendment to the current
corporate taxation model came into force that postpones tax relief
for re-invested profit from 1 January 2019 to 1 January 2023 for
commercial banks, credit unions, insurance organizations,
microfinance organizations and pawnshops. As a result, deferred tax
assets/liabilities are measured to the amounts that are realizable
until 31 December 2022.
23 Financial and Other Risk Management
Credit Quality
Depending on the type of financial asset the Group may utilize
different sources of asset credit quality information including
credit ratings assigned by the international rating agencies
(Standard & Poor's, Fitch), credit scoring information from
credit bureau and internally developed credit ratings. Financial
assets are classified in an internally developed credit quality
grades by taking into account the internal and external credit
quality information in combination with other indicators specific
to the particular exposure (e.g. delinquency). The Group defines
following credit quality grades:
-- Very low risk - exposures demonstrate strong ability to meet financial obligations;
-- Low risk - exposures demonstrate adequate ability to meet financial obligations;
-- Moderate risk - exposures demonstrate satisfactory ability to meet financial obligations;
-- High risk - exposures that require closer monitoring, and
-- Default - exposures in default, with observed credit impairment.
The internal credit ratings are estimated by the Group by
statistical models with the limited involvement of credit officers.
Statistical models include qualitative and quantitative information
that shows the best predictive power based on historical data on
defaults.
The rating models are regularly reviewed and back tested on
actual default data. The Group regularly validates the accuracy of
ratings estimates and appraises the predictive power of the
models.
Credit quality assignment methodology is unchanged and it does
not take into account COVID-19 related overlays applied by the
management for ECL calculation.
Expected credit loss (ECL) measurement
ECL is a probability-weighted estimate of the present value of
future cash shortfalls. An ECL measurement is unbiased and is
determined by evaluating a range of possible outcomes. ECL
measurement is based on four components used by the Group:
Probability of Default ("PD"), Exposure at Default ("EAD"), Loss
Given Default ("LGD") and Discount Rate. The estimates consider
forward looking information, that is, ECLs reflect probability
weighted development of key macroeconomic variables that have an
impact on credit risk.
The Bank uses is a three-stage model for ECL measurement and
classifies its borrowers across three stages: The Bank classifies
its exposures as Stage 1 if no significant deterioration in credit
quality occurred since initial recognition and the instrument was
not defaulted when initially recognized. The exposure is classified
to Stage 2 if the significant deterioration in credit quality was
identified since initial recognition but the financial instrument
is not considered defaulted. The exposures for which the defaulted
indicators have been identified are classified as Stage 3
instruments. The Expected Credit Loss (ECL) amount differs
depending on exposure allocation to one of the Stages. In the case
of Stage 1 instruments, the ECL represents that portion of the
lifetime ECL that can be attributed to default events potentially
occurring within the next 12 months from the reporting date. In
case of Stage 2 instruments, the ECL represents the lifetime ECL,
i.e. credit losses that can be attributed to possible default
events during the whole lifetime of a
financial instrument. Generally, lifetime is set equal to the
remaining contractual maturity of the financial instrument. Factors
such as existence of contractual repayment schedules, options for
extension of repayment maturity and monitoring processes held by
the Bank affect the lifetime determination. In case of Stage 3
instruments, default event has already incurred and the lifetime
ECL is estimated based on the expected recoveries.
23 Financial and Other Risk Management (Continued)
Definition of default
Financial assets for which the Group observed occurrence of one
or more loss events are classified in Stage 3. The Group's
definition of default for the purpose of ECL measurement, is in
accordance with the Capital Requirements Regulation (EU).
The Group uses both quantitative and qualitative criteria for
the definition of default. The borrower is classified as defaulted
if at least one of the following occurred:
-- Any amount of contractual repayments is past due more than 90 days;
-- Factors indicating the borrower's unlikeliness-to-pay.
In case of individually significant borrowers the Bank
additionally applies criteria including but not limited to:
bankruptcy proceedings, significant fraud in the borrower's
business that significantly affected its financial condition,
breach of the contract terms etc. For SME and corporate borrowers
default is identified on the counterparty level, meaning that all
the claims against the borrower are treated as defaulted. As for
retail and micro exposures, facility level default definition is
applied considering additional pulling effect criteria. If the
amount of defaulted exposure exceeds predefined threshold, all the
claims against the borrower are classified as defaulted. Once
financial instrument is classified as defaulted, it remains as such
until it no longer meets any of the default criteria for a
consecutive period of six months, in which case exposure is
considered to no longer be in default (i.e. to have cured). Grace
period of six months has been determined on analysis of likelihood
of a financial instrument returning to default status after curing.
Exposures which are moved to stage 2 from default state are kept
there for certain period before transferring to Stage 1 and
classified as fully performing instruments again.
Significant increase in credit risk ("SICR")
Financial assets for which the Group identifies significant
increase in credit risk since its origination are classified in
Stage 2. SICR indicators are recognized at financial instrument
level even though some of them refer to the borrower's
characteristics. The Group uses both quantitative and qualitative
indicators of SICR.
Quantitative criteria
On a quantitative basis the Bank assess change in probability of
default parameter for each particular exposure since initial
recognition and compares it to the predefined threshold. When
absolute change in probability of default exceeds the applicable
threshold, SICR is deemed to have occurred and exposure is
transferred to Stage 2. Quantitative indicator of SICR is applied
to retail and micro segments, where the Group has sufficient number
of observations.
An increase in PD parameter as a result of an application of
COVID-19 related macroeconomic overlay, triggered a quantitative
SICR criteria for retail and micro exposures. In order to classify
triggered exposures as a stage 2, in addition to the change in PD
SICR criteria, the Bank also considers extension of payment holiday
to the borrower. The Bank has not deemed the borrower's decision to
take payment holiday alone as a sufficient indicator of an SICR
occurring.
Qualitative criteria
Financial asset is transferred to Stage 2 and lifetime ECLs is
measured if at least one of the following SICR qualitative criteria
is observed:
-- delinquency period of more than 30 days on contractual repayments;
-- exposure is restructured, but is not defaulted;
-- borrower is classified as "watch".
23 Financial and Other Risk Management (Continued)
Significant increase in credit risk ("SICR") (Continued)
The Group has not rebutted the presumption that there has been
significant increase in credit risk since origination when
financial asset becomes more than 30 days past due. This
qualitative indicator of SICR together with debt restructuring is
applied to all segments. Particularly for corporate and SME segment
the Group uses downgrade of risk category since origination of the
financial instrument as a qualitative indicator of SICR. Based on
the results of the monitoring borrowers are classified across
different risk categories. In case there are certain weaknesses
present, which if materialized may lead to loan repayment problems,
borrowers are classified as "watch" category. Although watch
borrowers' financial standing is sufficient to repay obligations,
these borrowers are closely monitored and specific actions are
undertaken to mitigate potential weaknesses. Once the borrower is
classified as "watch" category it is transferred to Stage 2. If any
of the SICR indicators described above occur financial instrument
is transferred to Stage 2. Financial asset may be moved back to
Stage 1, if SICR indicators are no longer observed.
ECL measurement
The Group utilizes two approaches for ECL measurement -
individual assessment and collective assessment. Individual
assessment is mainly used for stage 2 and stage 3 individually
significant borrowers. Additionally, the Bank may arbitrarily
designate selected exposures to individual measurement of ECL based
on the Bank's credit risk management or underwriting departments'
decision.
The Bank uses the discounted cash flow (DCF) method for the
determination of recovery amount under individual assessment. In
order to ensure the accurate estimation of recoverable amount the
Bank may utilize scenario analysis approach. Scenarios may be
defined considering the specifics and future outlook of individual
borrower, sector the borrower operates in or changes in values of
collateral. In case of scenario analysis the Bank forecasts
recoverable amount for each scenario and estimates respective
losses. Ultimate ECL is calculated as the weighted average of
losses expected in each scenario, weighted by the probability of
scenario occurring.
As for the non-significant and non-impaired significant
borrowers the Bank estimates expected credit losses collectively.
For the collective assessment and risk parameters estimation
purposes the exposures are grouped into a homogenous risk pools
based on similar credit risk characteristics. Common credit risk
characteristics of the group include but are not limited to: Stage
(Stage 1, Stage 2 or Stage 3), type of counterparty (individual vs
business), type of product, rating (external or internal), overdue
status, restructuring status, months in default category or any
other characteristics that may differentiate certain sub-segments
for risk parameter's estimation purposes. Number of pools differs
for different products/ segments considering specifics of portfolio
and availability of data within each pool. Collective ECL is the
sum of the multiplications of the following credit risk parameters:
EAD, PD and LGD, that are defined as explained below, and
discounted to present value using the instrument's effective
interest rate.
The key principles of calculating the credit risk
parameters:
Exposure at default (EAD)
The EAD represents estimation of exposure to credit risk at the
time of default occurring during the life of financial instrument.
The EAD parameter used for the purpose of the ECL calculation is
time-dependent, i.e. the Bank allows for various values of the
parameter to be applied to subsequent time periods during the
lifetime of an exposure. Such structure of the EAD is applied to
all Stage 1 and Stage 2 financial instruments. In case of Stage 3
financial instruments and defaulted POCI assets, the EAD vector is
one-element with current EAD as the only value. EAD is determined
differently for amortising financial instruments with contractual
repayment schedules and for revolving facilities. For amortising
products EAD is calculated considering the contractual repayments
of principal and interest over the 12-month period for facilities
classified in Stage 1 and over lifetime period for remaining
instruments. It is additionally adjusted to include effect of
reduction in exposure due to prepayments. In light of the COVID-19
pandemic, the Bank expects that prepayment rates will decrease
substantially compared to the pre-stress levels. In order to
reflect the future expectations in EAD modelling, we have adjusted
the prepayment rates downward for future one-year period. For
revolving products, the Bank estimates the EAD based on the
expected limit utilisation percentage conditional on the default
event.
23 Financial and Other Risk Management (Continued)
Probability of default (PD)
Probability of default parameter describes the likelihood of a
default of a facility over a particular time horizon. It provides
an estimate of the likelihood that a borrower will be unable to
meet its contractual debt obligations. The PD parameter is
time-dependent (i.e. has a specific term structure) and is applied
to all non-defaulted contracts. Taking into account specific nature
of different segments of clients for which the PD is estimated as
well as unique characteristics that drive their default propensity,
the PD is modelled differently for Retail and Micro segments and
Corporate and SME segments. PD assessment approach is also
differentiated for different time horizons and is further adjusted
due to expected influence of macroeconomic variables as forecasted
for the period (see 'Forward Looking Information" section for
further details on incorporation of macroeconomic expectations in
ECL calculation). Two types of PDs are used for calculating ECLs:
12-month and lifetime PD. Lifetime PDs represent the estimated
probability of a default occurring over the remaining life of the
financial instrument and it is a sum of the 12
months marginal PDs over the life of the instrument. The Group
uses different statistical approaches such as the extrapolation of
12-month PDs based on migration matrixes, developing lifetime PD
curves based on the historical default data and gradual convergence
of long-term PD with the long-term default rate.
Loss given default (LGD)
The LGD parameter represents the share of an exposure that would
be irretrievably lost if a borrower defaults. For Stage 1 and Stage
2 financial instruments, the LGD is estimated for each period in
the instrument's lifetime and reflects the share of the expected
EAD for that period that will not be recovered over the remaining
lifetime of the instrument after the default date. For Stage 3
financial instruments, the LGD represents the share of the EAD as
of reporting date that will not be recovered over the remaining
life of that instrument. Assessment of LGD varies by the type of
counterparty, segment, type of product, securitization level and
availability of historical observations. The general LGD estimation
process employed by the Bank is based on the assumption that after
the default of the exposure, two mutually exclusive scenarios are
possible. The exposure either leaves the default state (cure
scenario) or does not leave the default state and will be subject
to recovery process (non-cure scenario). The probability that an
exposure defaults again in the cure scenario is involved in the
estimation process. Risk parameters applicable to both scenarios,
i.e. cure rates and recovery rates, are estimated by means of
migration matrices approach, where risk groups are defined by
consecutive months-in-default. For certain portfolios based on the
limitations of observations alternative versions of the general
approach may be applied. In light of the COVID-19 pandemic, the
Bank applied an additional downward adjustment to the collateral
values for LGD calculation purposes to capture expected real estate
price drop in downside macroeconomic scenario.
Forward-looking information
The measurement of unbiased, probability weighted ECL requires
inclusion of forward looking information obtainable without undue
cost or effort. For forward-looking information purposes the Bank
defines three macro scenarios. The scenarios are defined as
baseline (most likely), upside (better than most likely) and
downside (worse than most likely) scenarios of the state of the
Georgian economy.
To derive the baseline macro-economic scenario, the Group takes
into account forecasts from various external sources - the National
Bank of Georgia, Ministry of Finance, International Monetary Fund
("IMF") as well as other International Financial Institutions
("IFI"'s) - in order to ensure the to the consensus market
expectations. Upside and downside scenarios are defined based on
the framework developed by the Bank's macroeconomic unit.
In light of the COVID-19 pandemic, the Bank modified its
approach to incorporating forward-looking information in the
estimation of ECLs. The Bank generally uses statistical models and
historical relationship between the various macroeconomic factors
and default observations to derive forward-looking adjustments.
Such models are not accustomed to the magnitude of stress
macroeconomic conditions that we expect to be a result of COVID-19
pandemic and may downplay the severity of impact. Current
forward-looking adjustment is based on the Bank's expectations on
future defaults related to the COVID-19 implications and
23 Financial and Other Risk Management (Continued)
Forward-looking information (Continued)
is a result of the internal stress test exercise. Stress test is
conducted based on the projections of macroeconomic factors
separately in each macroeconomic scenario. Additionally, the
scenario probabilities were also adjusted to reflect the
management's expectations regarding their future realisation. The
baseline, upside and downside scenarios were assigned probability
weighing of 60%, 10% and 30%, respectively (31 December 2019: 50%,
25% and 25%).
The forward looking information is incorporated in both
individual and collective assessment of expected credit losses.
Model maintenance and validation
The Group regularly reviews its methodology and assumptions to
reduce any difference between the estimates and the actual credit
loss. Such back-testing is performed at least once a year. As part
of the back-testing process, the Group evaluates actual realization
of the risk parameters and their consistency with the model
estimates. Additionally staging criteria are also analysed within
the back-testing process. The results of back-testing the ECL
measurement methodology are communicated to the Group Management
and further actions for tuning the models and assumptions are
defined after discussions between authorised persons.
23 Financial and Other Risk Management (Continued)
Geographical risk concentrations. Assets, liabilities, credit
related commitments and performance guarantees have generally been
attributed to geographic regions based on the country in which the
counterparty is located. Balances legally outstanding to/from
offshore companies, which are closely related to Georgian
counterparties, are allocated to the caption "Georgia". Cash on
hand and premises and equipment have been allocated based on the
country in which they are physically held.
The table below presents the geographical concentration of the
Group's assets and liabilities as at 30 June 2020:
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 743,427 229,978 8,398 981,803
Due from other banks 18,864 12,015 - 30,879
Mandatory cash balances with National
Bank of Georgia 1,794,010 - - 1,794,010
Loans and advances to customers 12,613,131 343,859 148,998 13,105,988
Investment securities measured
at fair value through other comprehensive
income 1,082,520 - - 1,082,520
Bonds carried at amortised cost 1,335,415 - - 1,335,415
Investments in leases 269,351 - 821 270,172
Other financial assets 169,006 4,865 507 174,378
Total financial assets 18,025,724 590,717 158,724 18,775,165
Non-financial assets 1,036,486 36 1,742 1,038,264
Total assets 19,062,210 590,753 160,466 19,813,429
Liabilities
Due to credit institutions 2,105,261 2211877 86,268 4,403,406
Customer accounts 8,641,262 951,545 827,523 10,420,330
Debt securities in issue 1,396,141 - - 1,396,141
Other financial liabilities 138,134 291 324 138,749
Lease liabilities 63,739 - 2,198 65,937
Subordinated debt 107,581 365,753 155,315 628,649
Total financial liabilities 12,452,118 3,529,466 1,071,628 17,053,212
Non-financial liabilities 102,227 30 4,555 106,812
Total liabilities 12,554,345 3,529,496 1,076,183 17,160,024
Net balance sheet position 6,507,865 (2,938,743) (915,717) 2,653,405
Performance guarantees 677,404 239,707 700,525 1,617,636
Credit related commitments 1,682,712 8,291 4,446 1,695,449
23 Financial and Other Risk Management (Continued)
The table below shows the geographical concentration of the
Group's assets and liabilities as at 31 December 2019. Certain
amounts do not correspond to the 2019 consolidated financial
statements as they reflect the adjustments made due to the change
in accounting policy as described in Note 2.
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 701,993 287,079 14,511 1,003,583
Due from other banks 21,538 12,067 - 33,605
Mandatory cash balances with National
Bank of Georgia 1,591,829 - - 1,591,829
Loans and advances to customers 11,775,027 408,217 166,155 12,349,399
Investment securities measured
at fair value through OCI 985,293 - - 985,293
Bonds carried at amortised cost 1,022,684 - - 1,022,684
Investments in leases 255,596 - 1,064 256,660
Other financial assets 132,060 1,431 245 133,736
Total financial assets 16,486,020 708,794 181,975 17,376,789
Non-financial assets 978,724 28 3,725 982,477
Total assets 17,464,744 708,822 185,700 18,359,266
Liabilities
Due to credit institutions 1,813,684 1,744,130 36,087 3,593,901
Customer accounts 8,406,484 733,778 909,062 10,049,324
Debt securities in issue 1,213,598 - - 1,213,598
Other financial liabilities 113,272 329 8 113,609
Lease liabilities 59,898 - - 59,898
Subordinated debt 100,993 343,861 146,181 591,035
Total financial liabilities 11,707,929 2,822,098 1,091,338 15,621,365
Non-financial liabilities 132,688 829 5,294 138,811
Total liabilities 11,840,617 2,822,927 1,096,632 15,760,176
Net balance sheet position 5,624,127 (2,114,105) (910,932) 2,599,090
Performance guarantees 603,910 232,328 622,646 1,458,884
Credit related commitments 1,485,032 4,476 11,459 1,500,967
23 Financial and Other Risk Management (Continued)
Market risk
The Bank follows the Basel Committee's definition of market risk
as the risk of losses in on- and off-balance sheet positions
arising from movements in market prices. This risk is principally
made up of (a) risks pertaining to interest rate instruments and
equities in the trading book and (b) foreign exchange rate risk (or
currency risk) and commodities risk throughout the Bank. The Bank's
strategy is not to be involved in trading book activity or
investments in commodities. Accordingly, the Bank's exposure to
market risk is primarily limited to foreign exchange rate risk in
the structural book.
Currency risk
Foreign exchange rate risk arises from the potential change in
foreign currency exchange rates, which can affect the value of a
financial instrument. This risk stems from the open currency
positions created due to mismatches in foreign currency assets and
liabilities. The NBG requires the Bank to monitor both
balance-sheet and total aggregate (including off-balance sheet)
open currency positions and to maintain the later one within 20% of
the Bank's regulatory capital. As of 30 June 2020, the Bank
maintained an aggregate open currency position of 2.1% of
regulatory capital (2019: 0.5%). The Asset-Liability Management
Committee ("ALCO") has set limits on the level of exposure by
currency as well as on aggregate exposure positions which are more
conservative than those set by the NBG. The Bank's compliance with
such limits is monitored daily by the heads of the Treasury and
Financial Risk Management Departments.
On 13 August 2018 the NBG introduced new regulation on changes
to OCP ("open currency position") calculation method, according to
this regulation, from March 2019 special reserves assigned to FC
balance-sheet assets would be deductible gradually for OCP
calculation purposes. As a result of COVID-19 pandemic, the NBG
implemented countercyclical measure in relation to OCP
requirements: postponing the phasing in of special reserved planned
to be fully implemented by July 2022.
Currency risk management framework is governed through the
Market Risk Management Policy, market risk management procedure and
relevant methodologies. The Bank has in place the methodology
developed for allocating capital charges for FX risk following
Basel guidelines. The table below summarises the Group's exposure
to foreign currency exchange rate risk at the balance sheet date.
While managing open currency position the Group considers part of
the provisions to be denominated in the FC currency. Gross amount
of currency swap deposits is included in Derivatives. Therefore
total financial assets and liabilities below are not traceable with
either balance sheet or liquidity risk management tables, where net
amount of gross currency swaps is presented.
As 30 June 2020 As 31 December 2019
Monetary Monetary Deri-vatives Net balance Monetary Monetary Deri-vatives Net balance
In thousands financial financial sheet financial financial sheet
of GEL assets liabilities position assets liabilities position
Georgian
Lari 7,762,201 6,068,079 34,651 1,728,773 7,502,497 5,706,300 (100,140) 1,696,057
US Dollars 7,105,190 9,756,431 2,602,284 (48,957) 6,846,799 8,774,033 1,955,050 27,816
Euros 3,820,961 1,111,146 (2,707,596) 2,219 2,970,008 1,035,944 (1,925,463) 8,601
Other 86,813 114,635 65,583 37,761 57,485 105,088 56,136 8,533
Total 18,775,165 17,050,291 (5,078) 1,719,796 17,376,789 15,621,365 (14,417) 1,741,007
US Dollar strengthening by 10% (weakening 10%) would decrease
Group's profit or loss and equity in 2020 by GEL 4,896 thousand
(increase by GEL 4,896 thousand). Euro strengthening by 10%
(weakening 10%) would increase Group's profit or loss and equity in
2019 by GEL 222 thousand (decrease by GEL 222 thousand).
US Dollar strengthening by 10% (weakening 10%) would increase
Group's profit or loss and equity in 2019 by GEL 2,782 thousand
(decrease by GEL 2,782 thousand). Euro strengthening by 10%
(weakening 10%) would increase Group's profit or loss and equity in
2019 by GEL 860 thousand (decrease by GEL 860 thousand).
23 Financial and Other Risk Management (Continued)
Interest rate risk
Interest rate risk arises from potential changes in the market
interest rates that can adversely affect the fair value or future
cash flows of the financial instrument. This risk can arise from
maturity mismatches of assets and liabilities, as well as from the
re-pricing characteristics of such assets and liabilities.
The Bank's deposits and the part of the loans are at fixed
interest rates, while a portion of the Bank's borrowings is at a
floating interest rate. The Bank used to enter also into interest
rate swap agreements or apply for other interest rate risk hedging
instruments in order to mitigate interest rate risk. Furthermore,
many of the Bank's loans to customers contain a clause allowing it
to adjust the interest rate on the loan in case of adverse interest
rate movements, thereby limiting the Bank's exposure to interest
rate risk. The management also believes that the Bank's interest
rate margins provide a reasonable buffer to mitigate the effect of
possible adverse interest rate movements.
The table below summarises the Group's exposure to interest rate
risks. It illustrates the aggregated amounts of the Group's
financial assets and liabilities at the amounts monitored by the
management and categorised by the earlier of contractual interest
re-pricing or maturity dates. Cross-Currency swaps are not netted
when assessing the Group's exposure to interest rate risks.
Therefore, total financial assets and liabilities below are not
traceable with either balance sheet or other financial risk
management tables. The tables consider both reserves placed with
NBG and Interest bearing Nostro accounts. Income/expense on NBG
reserves and Nostros are calculated as benchmark minus margin
whereby for benchmark Federal funds rate and ECB rates are
considered in case of USD and EUR respectively. Therefore, they
have impact on the TBC's Net interest income in case of both upward
and downward shift of interest rates.
In thousands of GEL Less than 1 month From 1 to 6 months From 6 to 12 months More than 1 year Total
30 June 2020
Total financial assets 6,463,980 5,432,862 1,269,698 6,273,348 19,439,888
Total financial liabilities 5,737,442 3,201,728 1,492,705 7,288,642 17,720,517
Net interest sensitivity gap
as at 30 June 2020 726,538 2,231,134 (223,007) (1,015,294) 1,719,371
31 December 2019
Total financial assets 6,650,943 5,034,027 1,022,854 5,354,287 18,062,111
Total financial liabilities 6,016,285 3,087,372 1,026,326 6,184,815 16,314,798
Net interest sensitivity gap
as at 31 December 2019 634,658 1,946,655 (3,472) (830,528) 1,747,313
At 30 June 2020, if interest rates had been 100 basis points
higher, with all other variables held constant, profit would have
been GEL 22,586 thousands higher (30 June 2019 GEL 12,574 thousands
higher), mainly as a result of higher interest income on variable
interest assets. Other comprehensive income would have been GEL
11,849 thousand higher (30 June 2019: GEL 8,433 thousand), as a
result of an increase in the fair value of fixed rate financial
assets measured at fair value through other comprehensive income
and repurchase receivables.
If interest rates at 30 June 2020 had been 100 basis points
lower with all other variables held constant, profit for the year
would have been GEL 22,164 thousands lower (30 June 2019 GEL 12,005
thousands lower), mainly as a result of lower interest income on
variable interest assets. Other comprehensive income would have
been GEL12,300 thousand lower (30 June 2019: GEL 8,044 thousand),
as a result of decrease in the fair value of fixed rate financial
assets measured at fair value through other comprehensive
income.
TBC employs an advanced framework for the management of interest
rate risk. The interest rate risk assessment on a standalone basis
is performed monthly by the Financial Risk Management Department.
From September2020, NBG plans to introduce NBG IRR model.
23 Financial and Other Risk Management (Continued)
Interest rate risk (continued)
The Bank calculates the impact of changes in interest rates
using both Net Interest Income and Economic Value sensitivity. Net
Interest Income sensitivity measures the impact of a change of
interest rates along the various maturities on the yield curve on
the net interest revenue for the nearest year. Economic Value
measures the impact of a change of interest rates along the various
maturities on the yield curve on the present value of the Group's
assets, liabilities and off-balance sheet instruments. When
performing Net Interest Income and Economic Value sensitivity
analysis, the Bank uses parallel shifts in interest rates as well
as number of different scenarios. To allocate capital charges for
IRR, TBC Bank reserves the amount of the adverse effect of possible
parallel yield curve shift scenarios on net interest income over a
one-year period.
In order to manage Interest Rate risk the Bank establishes
appropriate limits. The Bank monitors compliance with the limits
and prepares forecasts. ALCO decides on actions that are necessary
for effective interest rate risk management and follows up on the
implementation. Periodic reporting is done to Management Board and
the Board's Risk, Ethics and Compliance Committee.
Liquidity Risk
The liquidity risk is the risk that TBC Bank either does not
have sufficient financial resources available to meet all of its
obligations and commitments as they fall due, or can access those
resources only at a high cost. The risk is managed by the Financial
Risk Management and Treasury Departments and is monitored by the
ALCO.
The principal objectives of the TBC Bank's liquidity risk
management policy are to: (i) ensure the availability of funds in
order to meet claims arising from total liabilities and off-balance
sheet commitments, both actual and contingent, at an economic
price; (ii) recognise any structural mismatch existing within TBC
Bank's statement of financial position and set monitoring ratios to
manage funding in line with well-balanced growth; and (iii) monitor
liquidity and funding on an ongoing basis to ensure that approved
business targets are met without compromising the risk profile of
the Bank.
The liquidity risk is categorised into two risk types: the
funding liquidity risk and the market liquidity risk.
Funding liquidity risk
Funding liquidity risk is the risk that TBC will not be able to
efficiently meet both expected and unexpected current and future
cash flow and collateral needs without affecting either its daily
operations or its financial condition. To manage funding liquidity
risk TBC Bank uses the Liquidity Coverage ratio and the Net Stable
Funding ratio set forth under Basel III and defined further by the
NBG. In addition the Bank performs stress tests, what if and
scenarios analysis. In 2017, for liquidity risk management purposes
National Bank of Georgia introduced Liquidity Coverage Ratio ("NBG
LCR"), where in addition to Basel III guidelines conservative
approaches were applied to Mandatory Reserves' weighting and to the
deposits' withdrawal rates depending on the clients group's
concentration. From 1(st) of September, 2017 the Bank monitors
compliance with NBG LCR limits. In 2019, for long-term liquidity
risk management purposes NBG introduced Net Stable Funding Ratio
(""NBG NSFR") . From September 2019, on a monthly basis the Bank
monitors compliance with the set limit for NBG NSFR.
The Liquidity Coverage ratio is used to help manage short-term
liquidity risks. The Bank's liquidity risk management framework is
designed to comprehensively project cash flows arising from assets,
liabilities and off-balance sheet items over certain time bands and
ensure that NBG LCR limits are met on a daily basis.
The Net Stable Funding ratio is used for long-term liquidity
risk management to promote resilience over a longer time horizon by
creating additional incentives for TBC Bank to rely on more stable
sources of funding on a continuous basis.
The Bank also monitors deposit concentration for large deposits
and set limits for non-Georgian residents deposits share in total
deposit portfolio.
The management believes that a strong and diversified funding
structure is one of TBC Bank's differentiators. The Bank relies on
relatively stable deposits from Georgia as the main source of
funding. In order to maintain and further enhance the liability
structure TBC Bank sets the targets for deposits and IFI funding
within the Bank's risk appetite.
23 Financial and Other Risk Management (Continued)
Funding liquidity risk (Continued)
The loan to deposit and IFI funding ratio (defined as total
value of net loans divided by total value of deposits and funds
received from International financial institutions) stood at 105.3%
and 104.8% as at 30 June 2020 and 31 December 2019
respectively.
Maturity analysis
The table below summarizes the maturity analysis of the Group's
financial liabilities; based on remaining undiscounted contractual
obligations as at 30 June 2020 Subject-to-notice repayments are
treated as if notice were to be given immediately. However, the
Group expects that many customers will not request repayment on the
earliest date the Group could be required to pay and the table does
not reflect the expected cash flows indicated by the Group's
deposit retention history.
The maturity analysis of financial liabilities as at 30 June
2020 is as follows:
Less than From 3 From 12 Over 5 Total
3 months to 12 months years
In thousands of GEL months to 5 years
Liabilities
Due to Credit institutions 1,948,849 910,895 3,763,528 279,948 6,903,220
Customer accounts - individuals 3,631,395 1,794,740 709,637 28,940 6,164,712
Customer accounts - other 3,799,558 279,912 469,020 244,147 4,792,637
Other financial liabilities 121,993 7,569 1,075 - 130,637
Lease Liabilities 3,575 10,463 45,622 6,465 66,125
Subordinated debt 2,805 71,406 1,255,411 1,963,480 3,293,102
Debt securities in issue 1,323 3,492 1,416,862 - 1,421,677
Gross settled forwards 2,677,801 506,177 164,261 - 3,348,239
Performance guarantees 134,772 524,180 903,141 55,543 1,617,636
Financial guarantees and
letters of credit 60,099 241,084 77,115 610 378,908
Other credit related commitments 1,316,541 - - - 1,316,541
Total potential future payments
for financial obligations 13,698,711 4,349,918 8,805,672 2,579,133 29,433,434
The maturity analysis of financial liabilities as 31 December
2019 is as follows:
Less than From 3 From 12 Over 5 Total
3 months to 12 months years
In thousands of GEL months to 5 years
Liabilities
Due to Credit institutions 1,590,089 616,417 3,724,084 435,233 6,365,823
Customer accounts - individuals 3,407,952 1,658,316 699,554 27,344 5,793,166
Customer accounts - other 3,722,452 339,113 250,328 142,043 4,453,936
Other financial liabilities 90,944 10,131 4,921 - 105,996
Lease Liabilities 4,367 12,509 57,058 11,988 85,922
Subordinated debt 2,019 55,182 1,255,291 2,330,270 3,642,762
Debt securities in issue - - 1,213,598 - 1,213,598
Gross settled forwards 1,476,685 552,630 164,099 - 2,193,414
Performance guarantees 115,997 332,833 909,502 100,552 1,458,884
Financial guarantees and letters
of credit 84,103 176,822 89,342 590 350,857
Other credit related commitments 1,150,110 - - - 1,150,110
Total potential future payments
for financial obligations 11,644,718 3,753,953 8,367,777 3,048,020 26,814,468
The undiscounted financial liability analysis does not reflect
the historical stability of the current accounts.
Their liquidation has historically taken place over a longer
period than the one indicated in the tables above. These balances
are included in amounts due in less than three months in the tables
above.
23 Financial and Other Risk Management (Continued)
Maturity analysis (Continued)
Term Deposits included in the customer accounts are classified
based on remaining contractual maturities, according to the
Georgian Civil Code, however, individuals have the right to
withdraw their deposits prior to maturity if they partially or
fully forfeit their right to accrued interest and the Group is
obliged to repay such deposits upon the depositor's demand. Based
on the Bank's deposit retention history, the management does not
expect that many customers will require repayment on the earliest
possible date; accordingly, the table does not reflect the
management's expectations as to actual cash outflows.
The Group does not use the above undiscounted maturity analysis
to manage liquidity. Instead, the Group monitors the liquidity gap
analysis based on the expected maturities. In particular, the
customers' deposits are distributed in the given maturity gaps
following their behavioural analysis.
As at 30 June 2020, the analysis by expected maturities may be
as follows:
In thousands of GEL Less than 3 months From 3 to 12 months From 1 to 5 Years Over 5 years Total
Assets
Cash and cash equivalents 981,803 - - - 981,803
Due from other banks 18,502 2,000 10,377 - 30,879
Mandatory cash balances with
National Bank of Georgia 1,794,010 - - - 1,794,010
Loans and advances to customers 1,490,878 2,183,624 5,479,768 3,951,718 13,105,988
Investment securities measured
at fair value through other
comprehensive income 1,082,520 - - - 1,082,520
Bonds carried at amortised cost 185,488 210,779 682,114 257,034 1,335,415
Net investments in leases 53,618 71,187 142,718 2,649 270,172
Insurance and Reinsurance
Receivables 7,359 13,667 - - 21,026
Other financial assets 144,808 1,174 7,370 - 153,352
Total financial assets 5,758,986 2,482,431 6,322,347 4,211,401 18,775,165
Liabilities
Due to Credit institutions 1,929,671 714,446 1,683,992 75,297 4,403,406
Customer accounts 1,321,625 466,582 - 8,632,123 10,420,330
Debt securities in issue 139 - 1,396,002 - 1,396,141
Other financial liabilities 121,993 7,569 1,075 - 130,637
Lease liabilities 3,199 9,363 47,589 5,786 65,937
Insurance contract liabilities 1,950 6,162 - - 8,112
Subordinated debt 350 13,348 107,006 507,945 628,649
Total financial liabilities 3,378,927 1,217,470 3,235,664 9,221,151 17,053,212
Credit related commitments and
performance guarantees
Performance guarantees 5,967 - - - 5,967
Financial guarantees 7,209 - - - 7,209
Other credit related
commitments 165,613 - - - 165,613
Credit related commitments and
performance guarantees 178,789 - - - 178,789
Net liquidity gap as at 30 June
2020 2,201,270 1,264,961 3,086,683 (5,009,750) 1,543,164
Cumulative gap as at 30 June
2020 2,201,270 3,466,231 6,552,914 1,543,164
23 Financial and Other Risk Management (Continued)
Maturity analysis (Continued)
As at 31 December 2019, the analysis by expected maturities may
be as follows:
In thousands of GEL Less than 3 months From 3 to 12 months From 1 to 5 Years Over 5 years Total
Assets
Cash and cash equivalents 1,003,583 - - - 1,003,583
Due from other banks 15,193 3,500 14,912 - 33,605
Mandatory cash balances with
National Bank of Georgia 1,591,829 - - - 1,591,829
Loans and advances to customers 1,303,711 2,307,064 5,108,650 3,629,974 12,349,399
Investment securities measures
at fair value through OCI 985,293 - - - 985,293
Bonds carried at amortised cost 124,006 215,711 555,379 127,588 1,022,684
Net investments in lease 34,448 70,398 148,542 3,272 256,660
Insurance and Reinsurance
Receivables 9,072 17,104 - - 26,176
Other financial assets 104,612 2,946 2 - 107,560
Total financial assets 5,171,747 2,616,723 5,827,485 3,760,834 17,376,789
Liabilities
Due to Credit institutions 1,573,720 427,794 1,496,459 95,928 3,593,901
Customer accounts 1,082,198 174,905 - 8,792,221 10,049,324
Debt securities in issue - - 1,213,598 - 1,213,598
Other financial liabilities 90,944 10,131 4,921 - 105,996
Lease liabilities 4,394 8,513 38,831 8,160 59,898
Insurance contract liabilities 1,850 5,763 - - 7,613
Subordinated debt 331 - 113,497 477,207 591,035
Total financial liabilities 2,753,437 627,106 2,867,306 9,373,516 15,621,365
Credit related commitments and
performance guarantees
Performance guarantees 7,466 - - - 7,466
Financial guarantees 4,511 - - - 4,511
Other credit related commitments 100,212 - - - 100,212
Credit related commitments and
performance guarantees 112,189 - - - 112,189
Net liquidity gap as at 31
December 2019 2,306,121 1,989,617 2,960,179 (5,612,682) 1,643,235
Cumulative gap as at 31 December
2019 2,306,121 4,295,738 7,255,917 1,643,235
The management believes that the Group has sufficient liquidity
to meet its current on- and off-balance sheet obligations.
24 Contingencies and Commitments
Legal proceedings
When determining the level of provision to be set up with
regards to such claims, or the amount (not subject to provisioning)
to be disclosed in the financial statements, the management seeks
both internal and external professional advice. The management
believes that the provision recorded in these interim financial
statements is adequate and the amount (not subject to provisioning)
need not be disclosed as it will not have a material adverse effect
on the financial condition or the results of future operations of
the Group.
Tax legislation
Georgian , Azerbaijani and Uzbekistan tax and customs
legislation is subject to varying interpretations, and changes,
which can occur frequently. The management's interpretation of the
legislation as applied to the Group's transactions and activity may
be challenged by the relevant authorities. Fiscal periods remain
open to review by the authorities in respect of taxes for five
calendar years preceding the review period. To respond to the
risks, the Group has engaged external tax specialists to carry out
periodic reviews of Group's taxation policies and tax filings. The
Group's management believes that its interpretation of the relevant
legislation is appropriate and the Group's tax and customs
positions will be sustained. Accordingly, as of 30 June 2020 and 31
December 201 9 no material provision for potential tax liabilities
has been recorded.
Compliance with covenants.
The Group is subject to certain covenants primarily related to
its borrowings. Non-compliance with such covenants may result in
negative consequences for the Group including growth in the cost of
borrowings and declaration of default. The Group was in compliance
with all covenants as of 30 June 2020 and as of 31 December
2019.
Credit related commitments and financial guarantees
The primary purpose of these instruments is to ensure that funds
are available to a customer as required. Financial guarantees and
standby letters of credit, which represent the irrevocable
assurances that the Group will make payments in the event that a
customer cannot meet its obligations to third parties, carry the
same credit risk as loans. Documentary and commercial letters of
credit, that are written undertakings by the Group on behalf of a
customer authorising a third party to draw drafts on the Group up
to a stipulated amount under specific terms and conditions, are
collateralised by the underlying shipments of goods to which they
relate or cash deposits and therefore carry less risk than a direct
borrowing.
Commitments to extend credit represent unused portions of
authorisations to prolong credit in the form of loans, guarantees
or letters of credit. With respect to credit risk on commitments to
extend credit, the Group is potentially exposed to a loss in an
amount equal to the total unused commitments. However, the likely
amount of loss is lower than the total unused commitments since
most commitments to extend credit are contingent upon customers
maintaining specific credit standards. The Group monitors the term
to maturity of credit related commitments because longer-term
commitments generally have a greater degree of credit risk than
shorter-term ones.
Outstanding credit related commitments are as follows:
In thousands of GEL 30 June 2020 31 December 2019
Financial guarantees issued 239,659 241,124
Undrawn credit lines 1,316,541 1,150,110
Letters of credit issued 139,249 109,733
Total credit related commitments (before provision) 1,695,449 1,500,967
Provision for credit related commitments (7,209) (4,511)
Total credit related commitments 1,688,240 1,496,456
24 Contingencies and Commitments (Continued)
The total outstanding contractual amount of undrawn credit
lines, letters of credit, and guarantees does not necessarily
represent future cash requirements, as these financial instruments
may expire or terminate without being funded. Non-cancellable
commitments as at 30 June 2020 included in undrawn credit lines
above were GEL 552,313 thousand (31 December 2019: GEL 472,485
thousand).
Performance guarantees. Performance guarantees are contracts
that provide compensation in case of another party fails to perform
a contractual obligation. Such contracts do not transfer credit
risk. The risk under the performance guarantee contracts is the
possibility that the insured event occurs (i.e.: the failure to
perform the contractual obligation by another party). The key risks
the Group faces are significant fluctuations in the frequency and
severity of payments incurred on such contracts, relative to
expectations.
Outstanding amount of performance guarantees and respective
provision as at 30 June 2020 amounted to GEL 1,617,636 thousand and
GEL 5,967 thousand (31 December 2019: GEL1,458,884 thousand and GEL
7,466 thousand).
Fair value of credit related commitments and financial
guarantees provisions was GEL 7,209 thousand as at 30 June 2020 (31
December 2019: GEL 4,511 thousand). Total credit related
commitments and performance guarantees are denominated in
currencies as follows:
In thousands of GEL 30 June 2020 31 December 2019
Georgian Lari 1,173,559 1,155,422
US Dollars 1,323,918 1,203,296
Euro 757,348 542,303
Other 58,260 58,830
Total 3,313,085 2,959,851
Capital expenditure commitments . As at 30 June 2020, the Group
has contractual capital expenditure commitments amounting to GEL
33,416 thousand (31 December 2019: GEL 33,723 thousand). Out of
total amount contractual commitments related to the head office
construction amounted GEL 11,544 thousand (31 December 2019: GEL
13,186 thousand).
25 Fair Value Disclosures
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting
standards require or permit in the statement of financial position
at the end of each reporting period. The level in the fair value
hierarchy into which the recurring fair value measurements are
categorised as follows:
30 June 2020 31 December 2019*
Level Level Level Total Level Level Level Total
In thousands of GEL 1 2 3 1 2 3
Assets AT FAIR VALUE
FINANCIAL Assets
Investment securities
measured at fair value
through other comprehensive
income
- Certificates of Deposits
of National Bank of Georgia - - - - - 40,346 - 40,346
- Corporate bonds - 601,738 - 601,738 - 611,000 - 611,000
- Netherlands Government
Bonds - 1,707 - 1,707 - 1,596 - 1,596
- Ministry of Finance
Treasury Bills - 476,168 - 476,168 - 329,352 - 329,352
Foreign exchange forwards
and gross settled currency
swaps, included in other
financial assets or due
from banks - 17,848 - 17,848 - 5,849 - 5,849
Total ASSETS RECURRING
FAIR VALUE MEASUREMENTS - 1,097,461 - 1,097,461 988,143 988,143
Liabilities Carried AT
FAIR VALUE
FINANCIAL liabilities
- Interest rate swaps
included in other financial
liabilities - - - - - - - -
- Foreign exchange forwards
and gross settled currency
swaps, included in other
financial liabilities - 21,459 - 21,459 - 20,266 - 20,266
Total Liabilities RECURRING
FAIR VALUE MEASUREMENTS - 21,459 - 21,459 - 20,266 - 20,266
* Certain amounts do not correspond to the 2019 consolidated
financial statement and 2019 interim financial statement as they
reflect the adjustments made due to the change in accounting policy
as described in Note 2.
There were no transfers between levels during the six months
ended 30 June 2020 (2019: none).
25 Fair Value Disclosures (Continued)
(a) Recurring fair value measurements (continued)
The description of the valuation technique and the description
of inputs used in the fair value measurement for level 2
measurements:
Fair value
30 June 31 December Valuation Inputs used
In thousands of GEL 2020 2019 technique
Assets AT FAIR VALUE
FINANCIAL Assets
Certificates of Deposits
of NBG, Ministry of Finance Discounted
Treasury Bills, Government cash flows Government bonds
notes, Corporate bonds 1,079,613 982,29 5 ("DCF") yield curve
Foreign exchange forwards
and gross settled currency Forward pricing Official exchange
swaps, included in due using present rate, risk-free
from banks 17,848 5,848 value calculations rate
Total ASSETS RECURRING
FAIR VALUE MEASUREMENTS 1,097,461 988,143
LIABILITIES CARRIED AT
FAIR VALUE
FINANCIAL LIABILITIES
Other financial liabilities
- Foreign exchange forwards Forward pricing Official exchange
included in other financial using present rate, risk-free
liabilities 21,459 20,266 value calculations rate
Total RECURRING FAIR VALUE
MEASUREMENTS at level 2 21,459 20,266
There were no changes in the valuation technique for the level 2
and level 3 recurring fair value measurements during the six month
period ended 30 June 2020 (2019: none).
25 Fair Value Disclosures (Continued)
(b) Assets and liabilities not measured at fair value but for
which fair value is disclosed
Fair values analysed by level in the fair value hierarchy and
carrying value of assets not measured at fair value are as
follows:
30 June 2020 31 December 2019*
In thousands Level Level Level Carrying Level Level Level Carrying
of 1 2 3 Value 1 2 3 Value
GEL
Financial
Assets
Cash and cash
equivalents 659,556 322,248 - 981,803 650,700 352,883 - 1,003,583
Due from other
banks - 30,879 - 30,879 - 33,605 - 33,605
Mandatory cash
balances
with the NBG - 1,794,010 - 1,794,010 - 1,591,829 - 1,591,829
Loans and
advances
to customers:
- Corporate
loans - - 4,173,977 4,962,011 - - 4,838,348 4,579,723
- Consumer
loans - - 1,927,632 1,735,223 - - 1,876,364 1,750,050
- Mortgage
loans - - 3,491,085 3,325,370 - - 3,354,901 3,137,492
- MSME - - 3,064,959 3,083,384 - - 2,891,382 2,882,134
Bonds carried
at
amortised
cost - 1,318,863 - 1,335,415 - 990,537 - 1,022,684
Net
investments
in leases - - 272,806 270,172 - - 265,165 256,660
Other
financial
assets - - 156,531 174,378 - - 127,888 127,888
NON-FINANCIAL
Assets
Investment
properties - - 117,186 70,716 - - 123,325 72,667
Premises and
leasehold
improvements - - 209,356 159,624 - - 262,103 162,637
Total ASSETS 659,556 3,466,000 13,413,532 17,922,984 650,700 2,968,854 13,739,476 16,620,952
FINANCIAL
liabilities
Due to credit
institutions - 4,400,614 - 4,403,406 - 3,600,318 - 3,593,901
Customer
accounts - 6,425,637 3,968,863 10,420,330 - 6,480,250 3,580,630 10,049,324
Debt
securities
in issue 1,295,606 - - 1,323,903 1,136,297 - - 1,136,297
Other
financial
liabilities - 183,228 - 183,228 - 153,240 - 153,240
Subordinated
debt - 632,828 - 628,649 - 594,893 - 591,035
Total
Liabilities 1,295,606 11,642,307 3,968,863 16,959,516 1,136,297 10,828,701 3,580,630 15,523,797
* Certain amounts do not correspond to the 2019 consolidated
financial statement and 2019 interim financial statement as they
reflect the adjustments made due to the change in accounting policy
as described in Note 2.
The fair values of financial assets and liabilities in the level
2 and level 3 of fair value hierarchy were estimated using the
discounted cash flows valuation technique. The fair value of
unquoted fixed interest rate instruments was calculated based on
estimated future cash flows expected to be received discounted at
current interest rates for new instruments with similar credit risk
and remaining maturity. The fair value of investment properties was
estimated using market comparatives.
Amounts due to credit institutions were discounted at the
Group's own incremental borrowing rate. Liabilities due on demand
were discounted from the first date that the Group could be
required to pay the amount.
There were no changes in the valuation technique for the level 2
and level 3 measurements of assets and liabilities not measured at
fair values in the six months ended 30 June 2020 (2019: none).
26 Related Party Transactions
Pursuant to IAS 24 "Related Party Disclosures", parties are
generally considered to be related if the parties are under common
control or one party has the ability to control the other or it can
exercise significant influence over the other party in taking
financial or operational decisions. In considering each possible
related party relationship, attention is directed to the substance
of the relationship, not merely the legal form:
-- Parties with more than 10% of ownership stake in the TBCG or
with representatives in the Board of Directors are considered as
Significant Shareholders.
-- The key management personnel include members of TBCG's Board
of Directors, the Management Board of the Bank and their close
family members.
Transactions between TBC Bank Group PLC and its subsidiaries
also meet the definition of related party transactions. Where these
are eliminated on consolidation, they are not disclosed in the
Group Financial Statements.
As of 30 June 2020, the outstanding balances with related
parties were as follows:
Significant Key management
In thousands of GEL shareholders personnel
Gross amount of loans and advances
to customers (contractual interest
rate: 5.3% - 36.0%) 66 10,264
Credit loss allowance for loans and
advances to customers - 15
Customer accounts (contractual interest
rate: 0% - 11.5 %) 14,054 11,656
The income and expense items with related parties except from
key management compensation during the period end 30 June 2020 were
as follows:
Significant Key management
In thousands of GEL shareholders personnel
Interest income 4 164
Interest expense 1 2
Gains less losses from trading in foreign
currencies 123 424
Fee and commission income 18 19
Administrative and other operating
expenses (excluding staff costs) - 281
The aggregate loan amounts advanced to, and repaid, by related
parties during the period end 30 June 2020 were as follows:
Significant Key management
In thousands of GEL shareholders personnel
Amounts advanced to related parties during
the period 59 1,232
Amounts repaid by related parties during
the period (39) (1,265)
As of 31 December 2019, the outstanding balances with related
parties were as follows:
Significant Key management
In thousands of GEL shareholders personnel
Gross amount of loans and advances
to customers (contractual interest
rate: 6.6% - 36.0%) 77 9,723
Credit loss allowance for loans and
advances to customers - 1
Customer accounts (contractual interest
rate: 0.0% - 11.5%) 16,418 12,997
26 Related Party Transactions (Continued)
The income and expense items with related parties except from
key management compensation during the period ended 30 June 2019
were as follows:
Significant Key management
In thousands of GEL shareholders personnel
Interest income - loans and advances
to customers 35 361
Interest expense 53 97
Gains less losses from trading in foreign
currencies 53 23
Foreign exchange translation gains
less losses 389 (968)
Fee and commission income 37 17
Administrative and other operating
expenses (excluding staff costs) 104 208
Aggregate amounts of loans advanced to and repaid by related
parties during the six months ended 30 June 2019 were as
follows:
Significant Key management
In thousands of GEL shareholders personnel
Amounts advanced to related parties during
the period 176 5,143
Amounts repaid by related parties during
the period (1,037) (4,081)
The compensation of the TBCG Board of Directors and the Bank's
Management Board is presented below:
Expense over the Accrued liability
six months ended as of
In thousands of GEL 30 June 30 June 30 June 31 December
2020 2019 2020 2019
Salaries and bonuses 4,753 6,263 102 -
Cash settled bonuses related
to share-based compensation - (1,627) - -
Equity-settled share-based compensation 4,945 9,444 - -
Total 9,698 14,080 102 -
-
Included in salaries and bonuses for six months ended 30 June
2020 GEL 1,329 thousand relates to compensation for directors of
TBCG paid by TBC Bank Group PLC (six months ended 30 June 2019: GEL
1,782 thousand).
[1] A full list of related undertakings and the country of incorporation is set out below.
Company Name Country of incorporation
JSC TBC Bank 7 Marjanishvili Street, 0102, Tbilisi, Georgia
United Financial Corporation JSC 154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia
TBC Capital LLC 11 Chavchavadze Avenue, 0179, Tbilisi, Georgia
TBC Leasing JSC 80 Chavchavadze Avenue, 0162,, Tbilisi, Georgia
TBC Kredit LLC 71-77, 28 May Street, AZ1010, Baku, Azerbaijan
Banking System Service Company LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Pay LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Invest LLC 7 Jabonitsky street, , 52520, Tel Aviv, Israel
Index LLC 8 Tetelashvili,0102,, Tbilisi, Georgia
JSC TBC Insurance 24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
TBC Invest International Ltd 7 Marjanishvili Street, 0102, Tbilisi, Georgia
University Development Fund 1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
J JSC CreditInfo Georgia 2 Tarkhnishvili street, 0179, Tbilisi, Georgia
L LTD Online Tickets 3 Irakli Abashidze street, 0179, Tbilisi, Georgia
VOO LLC 3 Chavchavadze Avenue, 0128, Tbilisi, Georgia
Swoop JSC 74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
T TBC Bank JSCB 12 Shota Rustaveli St. Tashkent, Uzbekistan
Support LLC 12 Shota Rustaveli St. Tashkent, Uzbekistan
Natural Products of Georgia LLC 1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
Mobi Plus JSC 45 Vajha Pshavela Street, 0177, Tbilisi, Georgia
Mineral Oil Distribution Corporation JSC 11 Tskalsadeni Street, 0153, Tbilisi, Georgia
Georgian Card JSC 106 Beliashvili Street, 0159, Tbilisi Georgia
Georgian Securities Central Depositor 74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
JSC Givi Zaldastanishvili American Academy In Georgia 37 Chavchavadze Avenue, 0162, Tbilisi Georgia
United Clearing Centre 5 Sulkhan Saba Street, 0105, Tbilisi, Georgia
GRDC 2 Vagzali Square, 0112, Tbilisi, Georgia
Banking and Finance Academy of Georgia 123, Agmashenebeli Avenue, 0112, Tbilisi, Georgia
Tbilisi's City JSC 15 Rustaveli Avenue, 0108, Tbilisi Georgia
TBC Trade 11A Chavchavadze Ave, 0179, Tbilisi, Georgia
TBC Support LLC 12 Rustaveli Avenue, 0108, Tbilisi Georgia
Redmed LLC 24 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
([1]) Prior to change in PPE accounting policy from revaluation
model to cost method, ROE stood at 20.7% , while ROA remained
unchanged in 2Q 2019
[2] For the ratio calculation all relevant group recurring costs are allocated to the Bank
[3] This ratio includes COVID-19 related TBC Kredit credit loss
allowances for loans, in the amount of GEL 9.0 million, which given
its non-recurring nature was not annualized
[4] Prior to change in PPE accounting policy from revaluation
model to cost method, ROE stood at 22.3%, while ROA remained
unchanged in 1H 2019
[5] This ratio includes COVID-19 related credit loss allowances
for loans, in the amount of GEL 219.9 million, which given its
non-recurring nature was not annualized
[6] International Financial Institutions
[7] Market share figures are based on data from the National
Bank of Georgia (NBG). The NBG includes interbank loans for
calculating market share in loans.
[8] Internet or Mobile Banking penetration equals the number of
active clients of Internet or Mobile Banking divided by the total
number of active clients. Data includes Space figures
[9] Mobile Banking penetration equals the number of active
clients of Mobile Banking divided by the number of total active
clients. Data includes Space figures
[10] Other operating non-interest income includes n et insurance
premium earned after claims and acquisition costs.
[11] For the ratio calculation, all relevant group recurring costs are allocated to the bank.
[12] See weekly updates in TBC Capital's " Tracking the Recovery
" series
[13] For more information, please refer to our press release
dated 18 March 2020 at the following link
https://otp.tools.investis.com/clients/uk/tbc_bank/rns/regulatory-story.aspx?cid=2168&newsid=1380003
[14] For more information, please refer to our press release
dated 21 May 2020 at the following link
https://otp.tools.investis.com/clients/uk/tbc_bank/rns/regulatory-story.aspx?cid=2168&newsid=1392389
[15] This ratio includes a GEL 9.0 million COVID- 19 related
credit loss allowances in our Azeri subsidiary, TBC Kredit, which
given its non-recurring nature has not been annualised
[16] For this ratio calculation purpose, all relevant group
recurring costs are allocated to the Bank
[17] Including Space users
[18] FTSE4Good is a global sustainable investment index series,
designed to identify companies that demonstrate strong
Environmental, Social and Governance (ESG) practices measured
against international standards
[19] Sustainalytics is a global leader in ESG and Corporate
Governance research and ratings
[20] World Bank. 2020. Global Economic Prospects, June 2020
[21] IMF country report , May 2020
[22] Net insurance premium earned after claims and acquisition
costs can be reconciled to the standalone net insurance profit (as
shown in Annex 4 on page 41) as follows: net insurance premium
earned after claims and acquisition costs less credit loss
allowance, administrative expenses and taxes, plus fee and
commission income and net interest income.
[23] Net insurance premium earned after claims and acquisition
costs can be reconciled to the standalone net insurance profit (as
shown in Annex 4 on page 41) as follows: net insurance premium
earned after claims and acquisition costs less credit loss
allowance, administrative expenses and taxes, plus fee and
commission income and net interest income.
[24] TBC Bank Group PLC became the parent company of JSC TBC
Bank on 10 August 2016.
[25] Total ecosystems' revenue and net profit also includes net
fee and commission income from POS terminals and e-commerce, while
net profit also includes related operating costs
[26] Total ecosystems' revenue and net profit also includes net
fee and commission income from POS terminals and e-commerce, while
net profit also includes related operating costs
[27] Total number of visitors across all systems, some
individuals may be visitors of multiple systems. For Payme, the
number of registered customers is used
[28] Includes both retail & business payments.
[29] Source: NBG
[30] The data from Business Insider Intelligence was used for comparison purposes
([31]) Market shares are given without border MTPL, which was
introduced starting from March 2018 and GWP was divided evenly
between 17 insurance companies. Total non-health and retail market
share in 2 Q 2020 including MTPL stood at 18.0% and 30.5%
respectively
([32]) Net insurance claims plus acquisition costs and
administrative expenses divided by net earned premium.
([33]) Net earned premium equals earned premium minus
reinsurer's share of earned premium.
1 See TBC Capital's " Tracking the Recovery " series
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END
IR FLFFATFIDLII
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