TIDMTBCG
RNS Number : 1554J
TBC Bank Group PLC
15 August 2019
TBC BANK GROUP PLC ("TBC Bank")
2Q AND 1H 2019 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,
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, numerical figures shown as
totals in certain tables might not be an arithmetic aggregation of
the figures that preceded them.
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 2019 Results Announcement
TBC Bank - Background
Financial Highlights
Recent Developments
Support from NBG and International Partners
Additional Funding
Development of Customer Focused Ecosystems.
Letter from the Chief Executive Officer
Economic Overview
Unaudited Consolidated Financial Results Overview for 2Q
2019
Unaudited Consolidated Financial Results Overview for 1H
2019
Additional Disclosures
Principal Risks and Uncertainties
Statement of Directors' Responsibilities
Unaudited Condensed Consolidated Interim Financial
Information
TBC Bank Group PLC ("TBC Bank")
TBC Bank Announces Unaudited 2Q and 1H 2019 Consolidated
Financial Results:
Underlying([1]) Net Profit for 2Q 2019 up by 4.3% YoY to GEL
125.0 million
Underlying(1) Net Profit for 1H 2019 up by 18.8% YoY to GEL
258.3 million
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 preliminary unaudited and not reviewed results were
published on 29 July 2019. This report contains a more detailed
information on the same results.
The information in this announcement, which was approved by the
Board of Directors on 14 August 2019, does not comprise statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2018, 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 99.7% of
its business is concentrated, with a 39.1% 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 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. The Group classifies
and separately discloses certain incomes and expenses, which are
non-recurring by nature and are caused by extraordinary events, as
one-off items in order to provide a consistent view and enable
better analysis of the financial performance of the Group. Adjusted
performance is an alternative performance measure and the
reconciliation of the underlying profit and loss items with the
reported profit and loss items and the underlying ratios are given
under Annex 26 section on pages 51-52.
Financial Highlights
2Q 2019 P&L Highlights
-- Underlying(1) net profit amounted to GEL 125.0 million (2Q
2018: GEL 119.9 million; 1Q 2019: GEL 133.3 million)
-- Reported net profit amounted to GEL 120.2 million (2Q 2018:
GEL 102.4 million; 1Q 2019: GEL 133.3 million)
-- Underlying(1) return on equity (ROE) amounted to 21.5% (2Q
2018: 24.9%; 1Q 2019: 23.8%)
-- Reported return on equity (ROE) amounted to 20.7% (2Q 2018:
21.3%; 1Q 2019: 23.8%)
-- Underlying(1) return on assets (ROA) amounted to 3.1 % (2Q
2018: 3.7%; 1Q 2019: 3.6%)
-- Reported return on assets (ROA) amounted to 3.0% (2Q 2018:
3.2%; 1Q 2019: 3.6%)
-- Total operating income amounted to GEL 272.3 million, up by
5.4% YoY and up by 0.1% QoQ
-- Underlying(1) cost to income was 38.1% (2Q 2018: 35.6%; 1Q
2019: 37.7%)
-- Reported cost to income was 40.2% (2Q 2018: 35.6%; 1Q 2019:
37.7%)
-- Cost of risk stood at 1.1% (2Q 2018: 1.8%; 1Q 2019: 1.4%)
-- FX adjusted cost of risk stood at 0.8% (2Q 2018: 1.7%; 1Q
2019: 1.4%)
-- Net interest margin (NIM) stood at 5.6% (2Q 2018: 7.1%; 1Q
2019: 6.1%)
-- Risk adjusted net interest margin (NIM) stood at 4.8% (2Q
2018: 5.5%; 1Q 2019: 4.7%)
1H 2019 P&L Highlights
-- Underlying[2] net profit amounted to GEL 258.3 million (1H
2018: GEL 217.4 million)
-- Reported net profit amounted to GEL 253.5 million (1H 2018:
GEL 200.0 million)
-- Underlying(2) return on equity (ROE) of 22.7% (1H 2018:
23.0%)
-- Reported return on equity (ROE) amounted to of 22.3% (1H
2018: 21.2%)
-- Underlying(2) return on assets (ROA) was 3.3% (1H 2018:
3.4%)
-- Reported return on assets (ROA) was 3.3% (1H 2018: 3.1%)
-- Total operating income for the period was up by 9.5% YoY to
GEL 544.2 million
-- Underlying(2) cost to income stood at 37.9% (1H 2018:
36.8%)
-- Reported cost to income stood at 38.9% (1H 2018: 36.8%)
-- Cost of risk on loans stood at 1.3% (1H 2018: 1.6%)
-- FX adjusted cost of risk stood at 1.2% (1H 2018: 1.7%)
-- Net interest margin (NIM) stood at 5.8% (1H 2018: 7.0%)
-- Risk adjusted net interest margin (NIM) stood at 4.6% (1H
2018: 5.3%)
Balance Sheet Highlights as of 30 June 2019
-- Total assets amounted to GEL 17,278.4 million as of 30 June
2019, up by 27.2% YoY and up by 13.9% QoQ
-- Gross loans and advances to customers stood at GEL 11,141.4
million as of 30 June 2019, up by 25.2% YoY and up by 7.5% QoQ
-- Net loans to deposits + IFI[3] funding stood at 91.4% and Net
Stable Funding Ratio (NSFR) stood at 130.4%
-- NPLs were 3.1%, unchanged YoY and down by 0.2pp QoQ
-- NPLs coverage ratios stood at 97.9%, or 206.0% with
collateral, on 30 June 2019 compared, to 116.1% or 216.1% with
collateral, as of 30 June 2018 and 100.1%, or 210.8% with
collateral, as of 31 March 2019
-- Total customer deposits amounted to GEL 9,876.8 million as of
30 June 2019, up by 24.5% YoY and up by 7.7% QoQ
-- As of 30 June 2019, the Bank's Basel III Tier 1 and Total
Capital Adequacy Ratios per NBG methodology stood at 12.4% and
17.4% respectively, while minimum requirements amounted to 11.9%
and 16.7%
Market Shares([4])
-- Market share by total assets reached 39.1% as of 30 June
2019, up by 2.0pp YoY and up by 1.7pp QoQ
-- Market share by total loans was 38.5% as of 30 June 2019, up
by 0.2pp YoY and up by 0.1pp QoQ
-- In terms of individual loans, TBC Bank had a market share of
39.6% as of 30 June 2019, down by 0.2pp YoY and up by 0.3pp QoQ.
The market share for legal entity loans was 37.3%, up by 0.8pp YoY
and down by 0.1pp QoQ
-- Market share of total deposits reached 41.0% as of 30 June
2019, up by 1.5pp YoY and up by 0.6pp QoQ
-- Market share of individual deposits stood at to 39.5%, down
by 1.7pp YoY and unchanged on QoQ. In terms of legal entity
deposits, TBC Bank holds a market share of 42.8%, up by 5.3pp YoY
and up by 1.4pp QoQ.
Recent Developments
Buyback of shares
-- The Company has initiated a share buyback programme on 29
July 2019 (for more information please see our press release at
www.tbcbankgroup.com)
Board changes
-- In July 2019, the Chairman Mamuka Khazaradze and Deputy
Chairman Badri Japaridze stepped down from the board of TBC Bank
Group PLC, to focus on the allegations made against them regarding
historic transactions that took place in 2007 and 2008. The Board
has appointed Senior Independent Director Nikoloz Enukidze to serve
as the Chairman of TBC Bank Group PLC, based on his deep knowledge
of the Bank, prior Chairmanship roles in the banking sector and
extensive regional and international experience. (For more
information please see our press release at
www.tbcbankgroup.com)
-- TBC Bank also strengthened its supervisory board by
appointing Jyrki Koskelo as a member and Chairman of the TBC Bank
Supervisory Board in May 2019 and Arne Berggren as a member of the
TBC Bank Supervisory Board in July 2019.
-- Mr Koskelo serves and has served as a board member and senior
advisor in multiple emerging market focused banks and companies.
Prior to joining TBC, he held a number of senior leadership
positions during his 24 years at the International Financial
Corporation.
-- Mr Berggren currently serves as a member of the board of Bank
of Cyprus and Piraeus Bank and has extensive experience of senior
leadership and advisory roles in prominent financial institutions
including the IMF, World Bank, Swedbank, Carnegie Investment Bank
AB and the Swedish Ministry of Finance and Bank Support
Authority.
Awards
-- Best Bank in Georgia from EMEA Finance Magazine - TBC Bank
has been awarded the Best Bank in Georgia 2019 by the Global EMEA
Finance magazine. This award is confirmation of the Bank's
outstanding financial performance, advanced digital capabilities
and consistent focus on providing a superior customer experience.
Alongside this, TBC Bank won the award for Best Investment Bank in
Georgia 2018, whilst its subsidiary TBC Capital was named the Best
Broker in Georgia 2018.
-- Best Bank in Georgia 2019 award from Euromoney - TBC Bank has
been named The Best Bank in Georgia 2019 at the Euromoney Awards
for Excellence ceremony. The award recognizes our continuous
efforts to provide the highest standard of customer experience in
Georgia and develop the best multichannel capabilities in the
region, while delivering consistently superior financial
results.
Internal control systems' review
TBC Bank, with the assistance of one of the big four audit
firms, has undertaken benchmarking and review of its AML and
Related Party policies and procedures compliance with local and
international requirement. These reviews did not identify any
material deficiencies.
Support from NBG and International Partners
National Bank of Georgia (NBG)
On 26 July 2019, the NBG issued the following statement: "In the
light of recent events, National Bank of Georgia welcomes the
decision of the founding shareholders to step down from the Board
of Directors of TBC Bank Group PLC (which is a London based 100%
shareholder of JSC TBC Bank).
National Bank of Georgia emphasizes that TBC Bank is one of the
leading financial organization in the country and the region. It is
a strong and robust financial institution. Since April 2019, Mamuka
Khazaradze and Badri Japaridze no longer serve as the Supervisory
Board members of JSC TBC Bank and the recent events will not have
any impact on the operations of the bank."
The full statement is available on the following website:
www.nbg.gov.ge
European Bank for Reconstruction and Development (EBRD)
On 25 July 2019, EBRD issued the following statement: "The EBRD
notes the recent board changes at TBC Bank Group PLC. The bank is a
solid financial institution led by a strong management and an
independent board of directors.
We welcome the decision by the chairman and the deputy chairman
of the bank to step down from the board at this time to focus on
allegations made against them in a legal dispute.
We also welcome the strengthening of the board with the addition
of independent directors with extensive executive level experience
in financial institutions.
We expect a fair and transparent due process and a prompt
resolution of the case with no adverse impact on the operations of
the bank.
Meanwhile, the EBRD as a longstanding partner, shareholder and
lender of TBC Bank will continue to work with and support TBC Bank
Group PLC."
The full statement is available on the following website:
www.ebrd.com
International Finance Corporation (IFC)
On 25 July 2019, IFC issued the following statement: "IFC, a
member of the World Bank Group, is aware of the developments around
TBC Bank, noting the recent board changes at TBC Bank Group PLC. We
welcome the decision by the chairman and the deputy chairman of the
bank to step down from the board to focus on legal proceedings.
We note the leading role of TBC Bank in Georgia's banking sector
and expect a fair and transparent resolution of the case, with no
adverse consequences for the bank's operations. IFC was the first
international financial institution to become a shareholder of TBC
Bank in 2000, and we will continue to support TBC Bank Group
PLC.
The banking sector's growth is critical for the development of
other sectors of the economy and our continued emphasis will be on
strengthening the financial sector and increasing access to finance
for businesses."
The full statement is available on the following website:
www.ifc.org
Additional Funding
Senior Unsecured Bonds
In June 2019, TBC Bank successfully issued debut USD 300 million
5-year 6.0% yield senior unsecured bonds, representing the lowest
ever yield achieved by a Georgian issuer in the international debt
capital markets.
Main Terms
Status Senior unsecured
Currency USD
Issue Size 300,000,000
Maturity 5 years
Interest 5.750% per annum payable semi-annually
Rate
Denomination USD 200,000 x USD 1,000
Listing Euronext Dublin / Georgian Stock
Exchange
Additional Tier 1 Bond
In July 2019, TBC Bank successfully issued USD 125 million
10.75% yield Additional Tier 1 Capital Perpetual Subordinated
Notes, which represents the largest and lowest coupon Additional
Tier 1 issue ever to have been priced by a Georgian issuer.
Main Terms
Status Additional Tier 1 Capital Perpetual
Subordinated Notes
Currency USD
Issue Size 125,000,000
Maturity Perpetual, 5 year non call
Interest 10.775% per annum payable semi-annually
Rate
Denomination USD 200,000 x USD 1,000
Listing Euronext Dublin / Georgian Stock
Exchange
IFI Funding
To meet future funding needs when and as required by the
business, we have been working with our long term IFI partners -
EBRD, ADB, EIB, FMO, DEG, Proparco, BSTDB, OFID, CDB, AIIB, Blue
Orchard, EFSE, GCPF,GCF - on a funding pipeline of up to USD 900
million in total in 2019-2020, both in local currency and USD.
Under such approach, we have signed an agreement and attracted
USD 10 million from ResponsAbility Investments AG.. The funds will
be used to support SME Business growth.
Furthermore, we have signed a Continuing Agreement for
Reimbursement of Trade Advances (CARTA) with Citibank. The trade
finance framework agreement will primarily be used to finance trade
activities of local importers and exporters in Georgia.
Development of Customer Focused Ecosystems
In order to integrate better with our customers, we have started
to develop customer focused ecosystems, which are closely linked
with our financial products and services and enable us to create
synergies with our core banking offerings.
E-commerce
Our strategy is to develop an innovative e-commerce market place
in Georgia, comprising:
-- An asset light platform (Intermediation);
-- A diverse products range and fast delivery within 24 hours;
and
-- Exceptional customer service - NPS[5] 80%+;
Our estimated investment for the next two years will be around
USD 2-3 million, or GEL6-9 million[6].
Our Progress
-- The soft launch of the marketplace took place in April and
the full launch took place in May 2019.
-- In 2Q 2019, Vendoo developed an analytical system, a
logistics system, an SMS communication system and service
monitoring for customers, as well as a portal for merchants for
managing their assortment and sales.
-- In addition, Vendoo enriched its existing product offering
(comprising of electronics and personal care products) with
gardening & housing, toys and household chemistry.
Real Estate
Our strategy is to create the first housing ecosystem in the
region, with the following features:
-- An intuitive design & exceptional customer experience;
and
-- A diverse products range.
Our estimated investment for the next two years is set at around
USD 2 million, or GEL 6 million(6) .
Our Progress
-- We completed the rebranding process and launched a beta
version of the platform in May 2019. The full launch is planned in
October 2019.
-- We have introduced the first real-estate valuation service in
Georgia, which provides independent valuation certificate within 24
hours.
-- We have developed a premier agent service for brokers, which
will allow them to enhance their value proposition.
-- We have launched a customer contact center.
Additional Information Disclosure
The following materials in connection with TBC PLC's financial
results are disclosed on our Investor Relations website on
http://tbcbankgroup.com/ under Results Announcement section:
-- 2Q and 1H 2019 Results Report
-- 2Q 2019 Results Call Presentation
Letter from the Chief Executive Officer
I would like to start my letter with an update about the recent
board changes. As we announced last week due to recent
developments, regarding historic transactions that took place in
2007 and 2008, the Chairman and Deputy Chairman have decided to
step down from the board of TBC Bank Group PLC with immediate
effect. They have both arrived at this decision after careful
consideration in order to ensure that the allegations made against
them do not affect the Group. Following their resignation, the
Board has appointed, with immediate effect, Senior Independent
Director Nikoloz Enukidze to serve as the Chairman of TBC Bank
Group PLC. I would like to thank both the Chairman and Deputy
Chairman for their invaluable contribution to the bank and welcome
the appointment of Mr Enukidze with whom we have enjoyed excellent
working relationship over past 6 years.
Despite recent board changes, we continue to operate in our
usual manner capitalising on our leading market share, strong
capital and liquidity positions and operational excellence for the
benefit of our shareholders. I welcome the supporting statements
made by the NBG, EBRD and IFC in support of TBC. In light of our
strong financial position and current share price, we have
initiated a share buyback programme that was approved by the board
yesterday.
Now I am pleased to present our financial results for the second
quarter 2019 and first half of 2019.
In the second quarter of 2019, we achieved an underlying
consolidated net profit([7]) of GEL 125.0 million, up by 4.3%
year-on-year (our consolidated net reported profit was GEL 120.2
million, up by 17.4% year-on-year). The growth was mainly driven by
an increase in net fee and commission income and other operating
income, which was largely offset by a rise in operating expenses.
Our operating expenses increased by 18.8% year-on-year, or by 12.7%
on an underlying basis. Over the same period, provision expenses
decreased by 4.9%, resulting in cost of risk of 1.1% (or FX
adjusted cost of risk of 0.8%), driven by the decreasing share of
higher-yield and higher-risk loans and improved performance across
all segments. In the second quarter 2019, net interest income
increased only by 1.2% year-on-year. The pressure on net interest
income was related to a continued impact of the regulation
implemented in January 2019, that limits the ability of banks to
lend money to higher-yield retail customers, an increase in minimum
reserve requirements for foreign currency funds, as well as
competition in interest rates. As a result, net interest margin
decreased by 0.5 percentage points quarter-on-quarter and stood at
5.6%. Our underlying return on equity reached 21.5%, while the
underlying return on assets was 3.1% (our reported return on equity
was 20.7%, while reported return on assets stood at 3.0%).
In the first half of 2019, our underlying net profit7 stood at
GEL 258.3 million, up by 18.8% year-on-year, which resulted in an
underlying return on equity of 22.7% and an underlying return on
assets of 3.3% (our consolidated reported net profit was GEL 253.5
million, up by 26.8% year-on-year, while our reported return on
equity was 22.3%, and reported return on assets stood at 3.3%).
Regarding balance sheet growth, our loan book expanded by 25.2%
year-on-year, or by 14.7% at a constant currency rate. As a result,
our market share increased to 38.5%, up by 0.2 percentage points
year-on-year. Over the same period, customer accounts grew by 24.5%
year-on-year, or by 13.4% at a constant currency rate leading to a
market share of 41.0%, up by 1.5 percentage points
year-on-year.
We continue to operate with a strong capital base and a robust
liquidity position. As of 30 June 2019, our total capital adequacy
ratio (CAR) per Basel III guidelines stood at 17.4%, above the
minimum requirement of 16.7%, while our tier I capital ratio was
12.4%, also above the minimum requirement of 11.9%. The proceeds
from the issuance of AT1 bonds in the amount of USD 125 million
will be reflected in our capital in July, increasing our total and
tier 1 capital by approximately 2.5 percentage points. Our
regulatory liquidity coverage ratio stood at 126% (which will be
increased by around 12 percentage points by AT1), compared to the
minimum requirement of 100%, while the ratio of net loans to
deposits + IFI funding was 91% and the net stable funding ratio
(NSFR) was 130%.
According to Geostat's initial estimates, real GDP increased by
4.9% in the first 5 months of 2019. While credit growth has
moderated, external inflows were reasonably strong and, unlike in
2018, the fiscal stance was expansionary. Also, the current account
deficit has narrowed in the first quarter and this tendency is
likely to be sustained in the second quarter as well, driven by the
improved trade balance and the growth in tourism and remittances
inflows. Going forward, the recent restriction on flights from
Russia to Georgia will have a substantial impact on tourism
inflows. However, according to TBC Research, taking into account
the increase in tourism inflows from other destinations and the
strengthening external balance, the growth will be still
positive[8]. In terms of GDP growth, according to TBC Research as
well as the National Bank of Georgia, real GDP is expected to
increase by more than 4.0% in 2019, once again underlining the high
growth potential and the resilience of the economy.
In May 2019, TBC Insurance entered the health insurance market.
Our strategy is to focus on affluent individuals and to capture the
affluent market by leveraging our strong brand name and
cross-selling opportunities with payroll customers. Our medium term
target is to reach 25% market share in the premium health insurance
business.
I would also like to update you on the progress that we made in
development of our ecosystems:
-- Vendoo: The full launch of the platform took place in May
2019, and during the second quarter Vendoo focused on developing
its various internal systems. In addition, Vendoo enriched its
existing product offering (comprised of electronics and personal
care products) with gardening & housing, toys and household
chemistry and is already selling up to 15,000 different items.
-- Livo: We completed the rebranding process and launched the
beta version of the platform in May 2019, and we have already
reached around 9,000 users daily. The full launch is planned in
October 2019. We have introduced the first real-estate valuation
service in Georgia, which provides an independent valuation
certificate within 24 hours. We have also developed a premier agent
service for brokers, which will allow them to enhance their value
proposition, and we have launched a customer contact center.
We have also made progress in our international ventures:
-- In Azerbaijan, Nikoil bank is in the process of a significant
reorganization, which includes re-branding and a shift to
digitalization. It has also opened four new branches during the
second quarter 2019.
-- In Uzbekistan, before the license is granted, we are working
on core banking implementation, team formation and branch concept.
At the same time, our newly acquired payment company, Payme,
continued to grow rapidly, increasing its number of customers by
10.9% quarter-on-quarter to reach 1.4 million, while its revenue
increased by 19.7% over the same quarter and amounted to around USD
700,000.
In terms of funding, I am pleased to report that in June 2019,
our subsidiary, JSC TBC Bank successfully issued its first senior
Eurobond in the amount of USD 300 million with a 5-year maturity
and a coupon rate of 5.75% per annum, payable semi-annually. The
bonds are priced at 6% yield, which represents the lowest ever
yield achieved by a Georgian issuer in the international debt
capital markets. The notes are listed on the regulated market of
Euronext Dublin and on the Georgian Stock Exchange, making it the
first dual-listed international offering of senior unsecured notes
from Georgia. In July 2019, JSC TBC Bank also issued USD 125
million additional Tier 1 capital perpetual subordinated notes at
10.75% yield. This is the largest ever additional Tier 1 issue by a
Georgian issuer, priced at the lowest ever coupon. The notes are
listed on the regulated market of Euronext Dublin and on the
Georgian Stock Exchange, making it the first dual-listed
international offering of additional Tier 1 capital notes from
Georgia.
Moreover, JSC TBC Bank strengthened its supervisory board by
appointing Jyrki Koskelo as a member and Chairman of the JSC TBC
Bank Supervisory Board in May 2019, and Arne Berggren as a member
of the JSC TBC Bank Supervisory Board in July 2019. Mr Koskelo
serves and has served as a board member and senior advisor in
multiple emerging market focused banks and companies. Prior to
joining TBC, he held number of senior leadership positions during
his 24 years at The International Financial Corporation. Mr
Berggren currently serves as a member of the board of Bank of
Cyprus and Piraeus Bank and has extensive experience at senior
leadership and advisory roles in prominent financial institutions
including the IMF, World Bank, Swedbank, Carnegie Investment Bank
AB and the Swedish Ministry of Finance and Bank Support
Authority.
Finally, I would like to reiterate our medium term targets: ROE
of above 20%, cost to income ratio below 35%, dividend pay-out
ratio of 25-35% and loan book growth of 10-15%.
Economic Overview
Economic growth
According to Geostat's initial estimates, real GDP increased by
4.9% in the first half of 2019. While the credit growth has
moderated, the inflows were reasonably strong and unlike 2018, the
fiscal stance was expansionary. At the same time, the flight ban
imposed by Russia will lower growth going forward. According to TBC
Research estimates, GDP is still expected to increase by over 4%
for the FY 2019 and 2020.
In terms of the sectors, transport and communications (+12.7%
YoY), as well as the trade and repairs sector (+6.7% YoY),
contributed the most to the growth. At the same time, the education
(+15.7% YoY) and healthcare sectors (+11.4% YoY) increased
substantially, mainly due to higher budget spending on education
(+57.7% YoY) and healthcare (+14.4% YoY) in 1Q 2019.
Similarly, strong growth was observed in hotels and restaurants
(+13.1% YoY), and real estate (+11.1% YoY). All of the other major
sectors also increased, with the exception of construction (-9.6%
YoY), agriculture (-0.3% YoY), and manufacturing (-1.3% YoY). The
decline in the construction sector was broadly expected to reflect
the finalization of BP's pipeline construction project. The decline
in the construction sector was also aggravated by the weakness of
residential buildings construction, which is related to the slower
mortgage growth and tighter construction permit regulations. On the
other hand, strong government capital expenditures partly offset
the decline.
The trade balance continued to improve in 2Q 2019 with exports
of goods up by 10.3% while imports fell by 6.1%. As a result, the
trade deficit improved significantly by 15.7% YoY over the same
period, all in USD terms. The growth in tourism inflows also
accelerated to an estimated 15.5% in 2Q 2019, compared to the 5.0%
growth in 1Q 2019. Remittance inflows went up by 9.3% YoY over the
same period, which is somewhat faster growth than in the previous
quarter.
FDI inflows decreased by 6.3% YoY in the USD terms from 300
million USD in 1Q 2018 to 281 million USD in 1Q 2019 (in EUR and
GEL, 1.9% and 0.9% YoY increase, respectively). As in 2018, the
finalization of the South Caucasus Pipeline Extension Project and
the change of ownership of non-resident companies to residents
likely played a role in 1Q 2019 as well. As of the last four
quarters ending in 1Q 2019, FDI inflows still stood at a strong
7.3% of GDP. Furthermore, 2018 gross fixed capital formation was at
a solid 33.3% of GDP
The current account balance improvement trend continued in 1Q
2019 as well, with a deficit to same quarter GDP ratio of 6.2%:
this is historically low, reflecting an improvement of 5.7pp YoY,
with the strongest contribution coming from trade in goods. This
positive tendency has likely been sustained in 2Q as well, judging
from the trade balance, tourism and remittances inflows, as the
figures described above suggest. Over the last four quarters, the
current account deficit to GDP ratio stood at 6.4%, which is
improvement of 1.3pp compared to the previous quarter. Despite the
reduction, FDI inflows, which stood at 6.6% of GDP, remained the
key source of financing the current account deficit. At the same
time, over the first six months of 2019 the NBG bought 216 million
USD, or around 3% of GDP over the same period, indicating that the
inflows were sufficient for even higher growth. The recent
restriction on flights from Russia to Georgia will have a
substantial impact on tourism inflows. However, according to TBC
Research, taking into account the increase in tourism inflows from
other destinations and the strengthening external balance, the
impact should be manageable[9].
Bank credit growth came in at 14.1% YoY in June 2019 being 1.4
pp higher compared to the 12.7% in the previous month. In terms of
the segments, corporate loans were the main driver of the
acceleration with a 18.0% YoY growth rate, partly thanks to the
one-off transactions. On top of that, MSME lending also increased
by a solid 17.2% YoY. On the other hand, retail lending continues
to moderate. Mortgage lending growth slowed to 25.7% YoY, while
non-mortgage lending declined by around the same 5.6% rate on an
annual basis, similar to previous months. At the same time, there
are ongoing discussions on a possible revision of the retail credit
regulatory framework. The NBG assesses around 13% credit growth to
be moderate.
Inflation and the exchange rate
An annual inflation stood at 4.3% in June 2019, over the same
period, while core inflation[10] came in at 3.6%.
As of the end of June 2019, the USD/GEL exchange rate of GEL
depreciated by 17.0% YoY, while the EUR/GEL exchange rate
depreciated by 14.4% YoY. GEL also depreciated compared to the
major trading country currencies, as evidenced by the weaker
effective exchange rate. As of July 15th, the estimated real
effective exchange rate was around 10% below its medium term
average, also indicating potential pressures on inflation.
On 24 July meeting, the Monetary Policy Committee (MPC) of the
National Bank of Georgia decided to keep the policy rate unchanged
at 6.5%. According to the NBG, the GEL was assessed as being
undervalued and if the upward pressure from the exchange rate on
inflation continues, the central bank will consider the monetary
policy tightening, as well.
Going forward
According to the IMF's recently published World Economic
Outlook[12], the Georgian economy is projected to grow by 4.6% in
2019 and 5.0% in 2020. Thereafter, the economy is expected to
expand by 5.2%. Based on TBC Research estimates, taking into
account the Russian flights ban, growth over the next 12 months
should stand at around 4% with somewhat higher growth rates
expected for FY 2019 and 2020.
More information on the Georgian economy and financial sector
can be found at www.tbcresearch.ge.
Unaudited Consolidated Financial Results Overview for 2Q
2019
This statement provides a summary of the unaudited business and
financial trends for 2Q 2019 for TBC Bank Group plc and its
subsidiaries. The quarterly financial information and trends are
unaudited. The preliminary unaudited and not reviewed results were
published on 29 July 2019. This report contains a more detailed
information on the same results.
Starting from 1 January 2019, TBC Bank adopted IFRS 16.
Therefore, the comparative information for 2018 is not comparable
to the information presented for 2019.
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. The Group classifies
and separately discloses certain incomes and expenses, which are
non-recurring by nature and are caused by extraordinary events, as
one-off items in order to provide a consistent view and enable
better analysis of the financial performance of the Group. Adjusted
performance is an alternative performance measure and the
reconciliation of the underlying profit and loss items with the
reported profit and loss items and the underlying ratios are given
under Annex 26 section on pages 51-52.
Please note, that there might be slight differences in previous
periods' figures due to rounding.
Income Statement Highlights
in thousands of GEL 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Net interest income 190,481 196,958 188,204 1.2% -3.3%
Net fee and commission income 43,534 41,807 39,162 11.2% 4.1%
Other operating non-interest income 38,287 33,181 31,052 23.3% 15.4%
Credit loss allowance (33,372) (33,095) (35,091) -4.9% 0.8%
Operating income after credit loss
allowance 238,930 238,851 223,327 7.0% 0.0%
Operating expenses (109,383) (102,514) (92,090) 18.8% 6.7%
Reported profit before tax 129,547 136,337 131,237 -1.3% -5.0%
Underlying profit before tax 135,152 136,337 131,237 3.0% -0.9%
Reported income tax expense (9,329) (3,015) (28,799) -67.6% NMF
Underlying income tax expense (10,170) (3,015) (11,373) -10.6% NMF
Reported profit for the period 120,218 133,322 102,438 17.4% -9.8%
Underlying profit for the period 124,982 133,322 119,864 4.3% -6.3%
NMF - no meaningful figures
Balance Sheet and Capital Highlights
Jun-19 Mar-19 Change QoQ
in thousands of GEL GEL USD GEL USD
Total assets 17,278,364 6,023,064 15,172,306 5,637,329 13.9%
Gross loans 11,141,360 3,883,766 10,366,915 3,851,867 7.5%
Customer deposits 9,876,813 3,442,958 9,166,789 3,405,956 7.7%
Total equity 2,369,005 825,811 2,347,756 872,318 0.9%
Regulatory tier I capital (Basel III) 1,730,302 603,166 1,746,745 649,010 -0.9%
Regulatory total capital (Basel III) 2,430,135 847,121 2,421,461 899,703 0.4%
Regulatory risk weighted assets (Basel III) 13,986,201 4,875,449 12,689,740 4,714,922 10.2%
The Jun-19 figures are converted into US$ using exchange rate of
2.8786 as of 30 June 2019, while Mar-19 figures are converted using
exchange rate of 2.6914 as of 31 March 2019
Key Ratios 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Underlying ROE 21.5% 23.8% 24.9% -3.4 pp -2.3 pp
Reported ROE 20.7% 23.8% 21.3% -0.6 pp -3.1 pp
Underlying ROA 3.1% 3.6% 3.7% -0.6 pp -0.5 pp
Reported ROA 3.0% 3.6% 3.2% -0.2 pp -0.6 pp
NIM 5.6% 6.1% 7.1% -1.5 pp -0.5 pp
Underlying cost to income 38.1% 37.7% 35.6% 2.5 pp 0.4 pp
Reported cost to income 40.2% 37.7% 35.6% 4.6 pp 2.5 pp
Cost of risk 1.1% 1.4% 1.8% -0.7 pp -0.3 pp
FX adjusted cost of risk 0.8% 1.4% 1.7% -0.9 pp -0.6 pp
NPL to gross loans 3.1% 3.3% 3.1% 0.0 pp -0.2 pp
Regulatory Tier 1 CAR (Basel III) 12.4% 13.8% 13.4% -1.0 pp -1.4 pp
Regulatory Total CAR (Basel III) 17.4% 19.1% 17.0% 0.4 pp -1.7 pp
Leverage (Times) 7.3x 6.5x 7.0x 0.3x 0.8x
Income Statement Discussion
Net Interest Income
In thousands of GEL 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Loans and advances to customers 290,844 292,055 270,378 7.6% -0.4%
Investment securities measured at fair value
through other comprehensive income 17,016 19,934 11,968 42.2% -14.6%
Due from other banks 5,764 5,866 7,027 -18.0% -1.7%
Bonds carried at amortized cost 13,981 9,429 9,842 42.1% 48.3%
Investment in leases 12,696 10,631 8,937 42.1% 19.4%
Interest income 340,301 337,915 308,152 10.4% 0.7%
Customer accounts 80,500 75,133 64,804 24.2% 7.1%
Due to credit institutions 50,786 49,246 44,785 13.4% 3.1%
Subordinated debt 16,076 15,672 9,959 61.4% 2.6%
Finance lease 672 637 - NMF 5.5%
Debt securities in issue 1,786 269 400 NMF NMF
Interest expense 149,820 140,957 119,948 24.9% 6.3%
Net interest income 190,481 196,958 188,204 1.2% -3.3%
Net interest margin 5.6% 6.1% 7.1% -1.5% -0.5 pp
NMF - no meaningful figures
2Q 2019 to 2Q 2018 Comparison
Net interest income increased by GEL 2.3 million, or 1.2%, to
GEL 190.5 million, compared to 2Q 2018, driven by a GEL 32.1
million, or 10.4%, higher interest income and a GEL 29.9 million,
or 24.9%, higher interest expense.
Interest income grew by GEL 32.1 million, or 10.4%, YoY to GEL
340.3 million, mainly due to an increase in interest income from
loans and advances to customers of GEL 20.5 million, or 7.6%. This
is primarily related to an increase in the gross loan portfolio of
GEL 2,245.4 million, or 25.2%, YoY. This effect was slightly offset
by a 1.5 pp drop in loan yields, which was mainly driven by
decreased loan yields on retail loans. The 2.5pp drop in yields on
retail loans was primarily driven by a continued impact of the
NGB's regulation effective from January 2019, which limits the
banks' ability to lend money to higher-yield retail customers. The
gain in interest income was also driven by the growth in interest
income from financial securities (comprised of investment
securities measured at fair value through other comprehensive
income and bonds carried at amortized cost) by GEL 9.2 million, or
42.1%, which resulted from a significant increase in the respective
portfolios. Yields on investment securities remained stable on a
YoY basis. The yield on interest earning assets decreased by 1.7 pp
to 10.0%, compared to 2Q 2019.
The GEL 29.9 million, or 24.9%, YoY growth in interest expense
to GEL 149.8 million in 2Q 2019 was mainly due to a GEL 15.7
million, or 24.2%, increase in interest expense on customer
accounts, a GEL 6.1 million, or 61.4%, increase in interest expense
on subordinated debt and a GEL 6.0 million, or 13.4% increase in
interest expense on amounts due to credit institutions. The higher
interest expense on customer accounts was attributable to a GEL
1,944.2 million, or 24.5%, growth in the respective portfolio,
further magnified by a 0.1pp increase in the cost of customer
accounts attributable to the increased share of LC denominated
deposits in total deposits. The rise in interest expense on
subordinated debt was attributable to a GEL 290.4 million, or
73.0%, increase in the respective portfolio. This effect was
slightly offset by a 0.4 pp decrease in the cost of subordinated
debt to 9.6%. The increase in interest expense on amounts due to
credit institutions was mainly driven by an increase in the average
respective portfolio, slightly offset by a 0.1 pp drop in the
respective cost. The cost of funding increased by 0.1 p p and stood
at 4.5%.
Consequently, NIM stood at 5.6% in 2Q 2019, compared to 7.1% in
2Q 2018, while risk adjusted NIM stood at 4.8%, compared to 5.5% in
2Q 2018.
2Q 2019 to 1Q 2019 Comparison
On a QoQ basis, net interest income decreased by 3.3% as a
result of a 0.7% higher interest income and a 6.3% higher interest
expense.
The increase in interest income by GEL 2.4 million, or 0.7%, QoQ
mainly resulted from the growth in interest income on investments
in leases by GEL 2.1 million, or 19.4% and a GEL 1.6 million
increase in interest income on financial securities (comprised of
investment securities measured at fair value through other
comprehensive income and bonds carried at amortized cost). The rise
in interest income on investments in leases was due to a GEL 12.6
million, or 6.1%, increase in the respective portfolio. This effect
was further magnified by a 2.8 pp rise in yields on investments in
leases. The increase in financial securities was mainly driven by a
GEL 124.1 million or 8.0% growth in the respective portfolios and a
0.2 pp rise in the respective yields. The increase was offset a GEL
1.2 million or by 0.4%, decline in interest income on loans to
customers, which was driven by a drop of 0.5 pp in loan yields to
11.0%. This resulted from a 0.6 pp decline in yields on retail
deposits, related to NBG's new regulation, as mentioned above. This
effect was partially offset by a GEL 774.4 million or by 7.5%,
increase in the gross loan portfolio. The yield on interest earning
assets decreased by 0.5 pp to 10.0%, compared to 1Q 2019.
The GEL 8.9 million, or 6.3%, QoQ increase in interest expense
was primarily due to the GEL 5.4 million, or 7.1%, rise in interest
expense on customer accounts. The main driver was a GEL 710.0
million, or 7.7%, increase in the portfolio of customer accounts
and a 0.1 pp rise in the cost of customer accounts to 3.4%. Other
contributors to the increased interest expense were a GEL 1.5
million rise in interest expense on debt securities in issue and a
GEL 1.5 million increase in interest expense on amounts due to
credit institutions, both of which were related to an increase in
the respective portfolios by GEL 835.4 million and GEL 360.2
million. The cost of funding remained stable at 4.5%.
Consequently, on a QoQ basis, NIM decreased by 0.5 pp and stood
at 5.6%. Meanwhile risk adjusted NIM increased by 0.1 pp from 4.7%
in 1Q 2019.
Fee and Commission Income
In thousands of GEL 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Card operations 31,598 28,486 25,274 25.0% 10.9%
Settlement transactions 18,992 17,617 17,454 8.8% 7.8%
Guarantees issued 6,689 5,857 4,859 37.7% 14.2%
Issuance of letters of credit 1,279 1,040 1,289 -0.8% 23.0%
Cash transactions 3,537 3,169 4,543 -22.1% 11.6%
Foreign currency exchange
transactions 631 757 406 55.4% -16.6%
Other 6,257 3,976 4,440 40.9% 57.4%
Fee and commission income 68,983 60,902 58,265 18.4% 13.3%
Card operations 19,825 14,350 12,975 52.8% 38.2%
Settlement transactions 3,873 2,749 2,143 80.7% 40.9%
Guarantees issued 462 402 313 47.6% 14.9%
Letters of credit 351 389 327 7.3% -9.8%
Cash transactions 586 1,017 1,242 -52.8% -42.4%
Foreign currency exchange
transactions 3 28 3 0.0% -89.3%
Other 349 160 2,100 -83.4% NMF
Fee and commission expense 25,449 19,095 19,103 33.2% 33.3%
Card operations 11,773 14,136 12,299 -4.3% -16.7%
Settlement transactions 15,119 14,868 15,311 -1.3% 1.7%
Guarantees 6,227 5,455 4,546 37.0% 14.2%
Letters of credit 928 651 962 -3.5% 42.5%
Cash transactions 2,951 2,152 3,301 -10.6% 37.1%
Foreign currency exchange
transactions 628 729 403 55.8% -13.9%
Other 5,908 3,816 2,340 NMF 54.8%
Net fee and commission income 43,534 41,807 39,162 11.2% 4.1%
NMF - no meaningful figures
2Q 2019 to 2Q 2018 Comparison
In 2Q 2019, net fee and commission income totalled GEL 43.5
million, up by GEL 4.4 million, or 11.2%, compared to 2Q 2018. This
mainly resulted from an increase in other net fee and commission
income of GEL 3.6 million and an increase in net fee and commission
income from guarantees of GEL 1.7 million, or 37.0%.
The rise in other net fee and commission income was related to
the reclassification of certain fee expenses from this category to
settlement transactions. Without this reclassification, net fee and
commission income from settlement transactions would have increased
by GEL 0.6 million, or by 3.7% driven by our affluent retail
sub-segment, TBC Status. The increase in net fee and commission
income from guarantees was mainly related to an increase in the
respective portfolio of GEL 559.2 million, or 67.9%.
2Q 2019 to 1Q 2019 Comparison
On a QoQ basis, net fee and commission income increased by GEL
1.7 million, or 4.1%, compared to 1Q 2019. This was primarily
driven by an increase in other net fee and commission income of GEL
2.1 million, or 54.8%, a GEL 0.8 million, or 14.2%, increase in net
fee and commission income from guarantees and a GEL 0.8 million, or
37.1%, increase in net fee and commission income from cash
transactions, partially offset by a GEL 2.4 million, or 16.7%,
decrease in net fee and commission income from card operations.
The rise in other net fee and commission income was mainly due
to the increased brokerage activities of our subsidiary, TBC
Capital. The increase in net fee and commission income from
guarantees was mainly driven by the growth of the respective
portfolio by GEL 172.4 million, or 14.3%. The decrease in net
interest income from card operations was mainly driven by the
depreciation of the local currency, as fee expenses are mostly
denominated in FC.
Other Operating Non-Interest Income and Gross
Insurance Profit
In thousands of GEL 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Net income from foreign
currency operations 30,119 25,214 23,251 29.5% 19.5%
Share of profit of associates 172 169 340 -49.4% 1.8%
Gains less losses/(losses
less gains) from derivative
financial instruments (71) (158) 396 NMF -55.1%
Gains less losses from
disposal of investment
securities measured at fair
value through other
comprehensive income 79 68 - NMF 16.2%
Revenues from sale of cash-in
terminals 228 214 226 0.9% 6.5%
Revenues from operational
leasing 797 863 1,567 -49.1% -7.6%
Gain from sale of investment
properties 482 148 855 -43.6% NMF
Gain from sale of inventories
of repossessed collateral 321 260 100 NMF 23.5%
Revenues from non-credit
related fines 97 68 111 -12.6% 42.6%
Gain on disposal of premises
and equipment 140 1,231 154 -9.1% -88.6%
Other 1,585 1,375 799 98.4% 15.3%
Other operating income 3,650 4,159 3,812 -4.2% -12.2%
Gross insurance profit[13] 4,338 3,729 3,253 33.4% 16.3%
Other operating non-interest
income and gross insurance
profit 38,287 33,181 31,052 23.3% 15.4%
NMF - no meaningful figures
2Q 2019 to 2Q 2018 Comparison
Total other operating non-interest income and gross insurance
profit grew by GEL 7.2 million, or 23.3%, to GEL 38.3 million in 2Q
2019. This primarily resulted from the growth in net income from
foreign currency operations by GEL 6.9 million, or 29.5%, and an
increase in gross insurance profit of GEL 1.1 million, or 33.4%.
This increase was slightly offset by a GEL 0.8 million, or 49.1%
drop in revenues from operational leasing. Higher net income from
foreign currency operations resulted from an increased number and
volume of FX transactions in the retail and corporate segments.
The growth in gross insurance profit was related to the increase
in non-health[13] insurance business as well as entry into a new
business line, health insurance in May 2019. More information about
TBC insurance can be found in Annex 23 on page 49.
2Q 2019 to 1Q 2019 Comparison
On a QoQ basis, total other operating non-interest income and
gross insurance profit increased by GEL 5.1 million, or by 15.4%.
This mainly resulted from the growth in net income from foreign
currency operations by GEL 4.9 million, or 19.5%, mainly related to
the increased number and volume of FX transactions across all
segments, as well as the higher volatility of the local
currency.
Credit Loss Allowance
In thousands of GEL 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Credit loss allowance for loans to
customers (30,067) (36,416) (37,982) -20.8% -17.4%
Credit loss allowance for investments in
finance lease 219 (41) (252) NMF NMF
Credit loss allowance for performance
guarantees and credit related commitments (824) 432 1,375 NMF NMF
Credit loss allowance for other financial
assets (2,389) 2,969 1,950 NMF NMF
Credit loss allowance for financial assets
measured at fair value through other
comprehensive
income (311) (39) (182) NMF NMF
Total credit loss allowance (33,372) (33,095) (35,091) -4.9% 0.8%
Operating income after credit loss
allowance 238,930 238,851 223,327 7.0% 0.0%
Cost of risk 1.1% 1.4% 1.8% -0.7 pp -0.3 pp
NMF - no meaningful figures
2Q 2019 to 2Q 2018 Comparison
In 2Q 2019, total credit loss allowance declined by GEL 1.7
million, or by 4.9% to GEL 33.4 million compared to 2Q 2018.
This was primarily attributable to a drop in credit loss
allowance for loans to customers by GEL 7.9 million, or 20.8%,
which was mainly driven by recoveries in the corporate segment in
2Q 2019, as well as portfolio product mix change. This decrease was
partially offset by increases in credit loss allowances for other
financial assets and for performance guarantees and credit related
commitments by GEL 4.2 million and GEL 2.2 million,
respectively.
In 2Q 2019, the cost of risk stood at 1.1% (0.8% without the FX
effect), compared to 1.8% (1.7% without the FX effect) in 2Q
2018.
2Q 2019 to 1Q 2019 Comparison
On a QoQ basis, total credit loss allowance increased by GEL 0.3
million, or 0.8%, to GEL 33.4 million.
This was mainly driven by an increase in credit loss allowance
for other financial assets of GEL 5.4 million and a GEL 1.3 million
increase in credit loss allowance for performance guarantees and
credit related commitments. The rise in credit loss allowance for
other financial assets was primarily related to the recovery of a
single corporate debtor in 1Q 2019. The increase was partially
offset by a drop in credit loss allowance for loans to customers of
GEL 6.3 million, or 17.4%, which was mainly attributable to an
improvement in the performance of the corporate and MSME segments,
as well as portfolio product mix change.
In 2Q 2019, the cost of risk stood at 1.1% (0.8% without the FX
effect), compared to 1.4% (1.4% without the FX effect) in 1Q
2019.
Operating Expenses
In thousands of GEL 2Q'19 1Q'19 2Q'18 Change YoY Change QoQ
Staff costs 58,886 57,753 50,732 16.1% 2.0%
Provisions for liabilities and charges (1,241) (200) - NMF NMF
Depreciation and amortization 15,955 16,169 10,992 45.2% -1.3%
Professional services 8,520 3,526 1,498 NMF NMF
Advertising and marketing services 4,983 4,478 7,117 -30.0% 11.3%
Expenses related to lease contracts[14] 3,196 2,630 - NMF 21.5%
Rent - - 5,843 NMF NMF
Utility services 1,623 1,947 1,453 11.7% -16.6%
Intangible asset enhancement 3,234 2,741 2,572 25.7% 18.0%
Taxes other than on income 1,896 1,817 1,946 -2.6% 4.3%
Communications and supply 1,348 1,435 1,160 16.2% -6.1%
Stationary and other office expenses 1,133 1,119 1,324 -14.4% 1.3%
Insurance 278 229 483 -42.4% 21.4%
Security services 521 504 506 3.0% 3.4%
Premises and equipment maintenance 2,730 2,035 1,128 NMF 34.2%
Business trip expenses 656 409 669 -1.9% 60.4%
Transportation and vehicles maintenance 493 410 413 19.4% 20.2%
Charity 275 1,004 281 -2.1% -72.6%
Personnel training and recruitment 305 291 233 30.9% 4.8%
Write-down of current assets to fair value
less costs to sell (251) - (567) -55.7% NMF
Loss on disposal of Inventory 37 14 80 -53.8% NMF
Loss on disposal of investment properties 38 - 30 26.7% NMF
Loss on disposal of premises and equipment 19 233 58 -67.2% -91.8%
Other 4,749 3,970 4,139 14.7% 19.6%
Administrative and other operating expenses 35,783 28,792 30,366 17.8% 24.3%
Operating expenses 109,383 102,514 92,090 18.8% 6.7%
Profit before tax 129,547 136,337 131,237 -1.3% -5.0%
Income tax expense (9,329) (3,015) (28,799) -67.6% NMF
Profit for the period 120,218 133,322 102,438 17.4% -9.8%
Cost to income 40.2% 37.7% 35.6% 4.6 pp 2.5 pp
ROE 20.7% 23.8% 21.3% -0.6 pp -3.1 pp
ROA 3.0% 3.6% 3.2% -0.2 pp -0.6 pp
NMF - no meaningful figures
2Q 2019 to 2Q 2018 Comparison
In 2Q 2019, total operating expenses expanded by GEL 17.3
million, or 18.8%, YoY to GEL 109.4 million, primarily due to an
increase in staff costs of GEL 8.2 million, or 16.1%, YoY and a
rise in professional services of GEL 7.0 million. The growth in
staff cost was mainly driven by the increase in share price over
the three year period for the purpose of top and middle management
share based bonuses (while the change in the number of shares did
not have material effect). The increase in professional services
was mainly attributable to one-off consulting fees in the amount of
GEL 5.6 million, in relation to the recent events regarding
historic matters surrounding TBC Bank. For further details, please
see the following press release. Without these one-off costs
operating expenses would have increased by 12.7%.
As a result, cost to income ratio increased by 4.6 pp (or by 2.5
pp on an underlying basis) from 35.6% in 2Q 2018.
2Q 2019 to 1Q 2019 Comparison
On a QoQ basis, total operating expenses grew by GEL 6.9
million, or 6.7%. This was primarily attributable to a GEL 5.0
million rise in professional services and a GEL 1.1 million, or
2.0%, increase in staff costs. The increase in professional
services was related to one-off costs as mentioned above. Without
these one-off costs operating expenses would have increased by
1.2%.
As a result, the cost to income ratio expanded by 2.5 pp (or by
0.4 pp on an underlying basis) from 37.7%, compared to 1Q 2019.
Net Income
Reported net income for the second quarter decreased by GEL 13.1
million, or 9.8%, QoQ and increased by GEL 17.8 million, or 17.4%,
YoY and amounted to GEL 120.2 million. Underlying net income
decreased by GEL 8.3 million, or 6.3%, QoQ and increased by GEL 5.1
million, or 4.3%, YoY and amounted to GEL 125.0 million.
As a result, underlying ROE stood at 21.5%, down by 3.4 pp YoY
and by 2.3 pp QoQ, while underlying ROA stood at 3.1%, down by 0.6
pp YoY but by 0.5 pp QoQ. Reported ROE stood at 20.7%, down by 0.6
pp YoY and by 3.1 pp QoQ, while reported ROA stood at 3.0%, down by
0.2 pp YoY but by 0.6 pp QoQ.
Balance Sheet Discussion
In thousands of GEL Jun-19 Mar-19 Change QoQ
Cash, due from banks and mandatory cash balances with NBG 3,497,441 2,373,893 47.3%
Loans and advances to customers (Net) 10,801,264 10,029,320 7.7%
Financial securities 1,674,821 1,550,767 8.0%
Fixed and intangible assets & investment property 576,346 570,047 1.1%
Right of use assets 61,555 60,951 1.0%
Other assets 666,937 587,328 13.6%
Total assets 17,278,364 15,172,306 13.9%
Due to credit institutions 3,052,742 2,692,585 13.4%
Customer accounts 9,876,813 9,166,789 7.7%
Debt securities in issue 848,838 13,415 NMF
Subordinated debt 688,002 664,330 3.6%
Other liabilities 442,964 287,431 54.1%
Total liabilities 14,909,359 12,824,550 16.3%
Total equity 2,369,005 2,347,756 0.9%
Assets
On a QoQ basis, total assets rose by GEL 2,106.1 million, or
13.9%, mainly due to a GEL 1,123.5 million, or 47.3%, increase in
liquid assets (comprising cash, due from banks and mandatory cash
balances with NBG) and a GEL 771.9 million, or 7.7%, growth in net
loans to customers. The expansion in liquid assets was primarily
attributable to the rise in mandatory reserve requirements in FC
effective from May 2019.
As of 30 June 2019, the gross loan portfolio reached GEL
11,141.4 million, up by GEL 774.4 million, or by 7.5% QoQ. Without
the currency effect, the loans to customers would have increased by
3.3% QoQ. At the same time, gross loans denominated in foreign
currency accounted for 59.9 % of total loans, compared to 59.6% as
of 31 March 2019.
Asset Quality
Borrowers with FX income
30-Jun-19 31-Mar-19
Segments % of FX loans of which borrowers with FX % of FX loans of which borrowers with FX
income** income**
Retail 55.1% 30.0% 56.0% 28.7%
Non-mortgage 20.6% 23.5% 19.9% 23.6%
Mortgage 77.0% 31.1% 81.1% 29.6%
Corporate 71.4% 50.9%* 70.0% 51.4%*
MSME 52.7% 12.8% 52.2% 14.3%
Total loan portfolio 59.9% 34.6% 59.6% 34.4%
(Based on internal estimates)
* Pure exports account for 5.8% and 6.4% of total corporate FX
denominated loans as at 30 June 2019 and 31 March 2019,
respectively
** FX income implies both direct and indirect income
PAR 30 by Segments and Currencies Jun-19 Mar-19
GEL FC Total GEL FC Total
Corporate 1.7% 0.7% 1.0% 1.1% 1.2% 1.2%
Retail 3.6% 1.9% 2.7% 4.4% 1.8% 2.9%
MSME 2.0% 3.4% 2.8% 2.7% 3.5% 3.1%
Total 2.7% 1.8% 2.1% 3.2% 1.9% 2.4%
Loans overdue by more than 30 days to gross loans
Total
Total PAR 30 improved by 0.3 pp QoQ, standing at 2.1%. The improvement
was attributable to all three segments.
Retail Segment
The retail segment's PAR 30 amounted to 2.7%, down by 0.2 pp QoQ
mainly driven by consumer loans.
Corporate
The corporate segment's PAR 30 improved by 0.2 pp QoQ and amounted
to 1.0%.
MSME
The MSME segment's PAR 30 improved by 0.3 pp QoQ and stood at
2.8%, mainly attributable to improved performance of both SME
and Micro sub segments.
NPLs Jun-19 Mar-19
GEL FC Total GEL FC Total
Corporate 1.5% 2.3% 2.1% 1.7% 3.0% 2.6%
Retail 4.2% 2.6% 3.3% 4.3% 2.3% 3.2%
MSME 2.7% 5.6% 4.2% 3.0% 5.6% 4.4%
Total 3.2% 3.1% 3.1% 3.3% 3.2% 3.3%
Total
Total NPLs improved by 0.2 pp on a QoQ basis and stood at 3.1%,
primarily attributable to the corporate and MSME segments.
Retail Segment
The retail segment's NPLs remained broadly stable QoQ and stood
at 3.3%.
Corporate
The corporate segment's NPLs dropped by 0.5 pp QoQ and stood at
2.1%, mainly attributable to improved performance of two non-
performing corporate borrowers as well as corporate loan book
growth effect.
MSME
The MSME segment's NPLs decreased by 0.2 pp on a QoQ basis and
stood at 4.2%. QoQ improvement is driven by improved performance
of both SME and Micro sub segments.
NPLs Coverage Jun-19 Mar-19
Exc. Collateral Incl. Collateral Exc. Collateral Incl. Collateral
Corporate 103.3% 299.1% 95.4% 288.7%
Retail 113.8% 180.4% 123.8% 190.0%
MSME 71.5% 179.0% 71.4% 175.2%
Total 97.9% 206.0% 100.1% 210.8%
Liabilities
As of 30 June 2019, TBC Bank's total liabilities amounted to GEL
14,909.4 million, up by GEL 2,084.8 million, or 16.3%, QoQ. This
primarily resulted from a GEL 835.4 million increase in debt
securities in issue and a GEL 710.0 million or 7.7%, increase in
customer accounts.
As of 30 June 2019, TBC Bank's customer accounts amounted to GEL
9,876.8, up by 3.5% on a constant currency. At the same time,
customer accounts in foreign currency accounted for 62.8% of total
customer accounts, compared to 63.2% as of 31 March 2019.
Liquidity
As of 30 June 2019, the Bank's liquidity ratio, as defined by
the NBG, stood at 37.1%, compared to 35.9% as of 31 March 2019 and
above the NBG limit of 30%. As of 30 June 2019, the total liquidity
coverage ratio (LCR), as defined by the NBG, was 126.3%, above the
100.0% limit. The LCR in GEL and FC stood at 100.4% and 143.8%
respectively, above the respective limits of 75% and 100%.
Total Equity
As of 30 June 2019, TBC's total equity totalled GEL 2,369.0
million, up by GEL 21.2 million from GEL 2,347.8 million as of 31
March 2019. The QoQ change in equity was mainly due to an increase
in net income of GEL 120.2 million, which was partially offset by a
declared dividend in the amount of GEL 108.6 million.
Regulatory Capital
As of 30 June 2019, the Bank's Basel III Tier 1 and Total
Capital Adequacy Ratios (CAR) stood at 12.4% and 17.4%,
respectively, compared to the minimum required levels of 11.9% and
16.7%. In comparison, as of 31 March 2019, the Bank's Basel III
Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.8% and
19.1%, respectively, higher than the minimum required levels of
11.9% and 16.7%.
In 30 June 2019, the Bank's Basel III Tier 1 Capital amounted to
GEL 1,730.3 million, down by GEL 16.4 million, or 0.9%, compared to
March 2019, due to dividend declared in 2Q 2019, which was
partially offset by net income. The Bank's Basel III Total Capital
amounted to GEL 2,430.1 million, up by GEL 8.7 million, or 0.4%,
QoQ. The increase in total capital was attributable to the increase
in net income as well as the increase in general reserves of loans
to customers, mainly driven by the GEL depreciation. This increase
was partially offset by the declared dividend. Risk weighted assets
stood at GEL 13,986.2 million as of 30 June 2019, up by GEL 1,296.5
million, or 10.2%, compared to March 2019, mainly related to the
increase in loan book as well as the rise in mandatory cash
reserves in FC.
Results by Segments and Subsidiaries
The segment definitions are as follows (updated in 2019):
-- 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 5.0 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 corporate
segment; or legal entities who have been granted a Pawn shop loan;
or individual customers of the fully-digital bank, Space; and
-- Corporate centre and other operations - comprises of 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'19 Retail MSME Corporate Corp.Centre Total
Interest income 143,095 72,421 78,451 46,334 340,301
Interest
expense (38,176) (2,478) (40,520) (68,646) (149,820)
Net transfer
pricing (16,585) (24,103) 12,998 27,690 -
Net interest
income 88,334 45,840 50,929 5,378 190,481
Fee and
commission
income 47,987 6,110 12,752 2,134 68,983
Fee and
commission
expense (21,529) (2,123) (1,647) (150) (25,449)
Net fee and
commission
income 26,458 3,987 11,105 1,984 43,534
Gross insurance
profit - - - 4,338 4,338
Net income from
foreign
currency
operations 7,211 5,673 10,081 1,567 24,532
Foreign
exchange
translation
gains less
losses/(losses
less gains) - - - 5,587 5,587
Gains less
Losses from
Disposal
of Investment
Securities
Measured
at Fair Value
through Other
Comprehensive
Income (71) - - - (71)
Net losses from
derivative
financial
instruments - - - 79 79
Other operating
income 2,094 241 776 539 3,650
Share of profit
of associates - - - 172 172
Other operating
non-interest
income and
insurance
profit 9,234 5,914 10,857 12,282 38,287
Credit loss
allowance for
loans to
customers (28,158) (5,740) 3,831 - (30,067)
Credit loss
allowance for
performance
guarantees and
credit related
commitments 28 (189) (663) - (824)
Credit loss
allowance for
investments in
finance lease - - - 219 219
Credit loss
allowance for
other
financial
assets 55 - (854) (1,590) (2,389)
Credit loss
allowance for
financial
assets
measured
at fair value
through other
comprehensive
income - - (281) (30) (311)
Profit before
G&A expenses
and income
taxes 95,951 49,812 74,924 18,243 238,930
Staff costs (32,939) (11,831) (9,510) (4,606) (58,886)
Depreciation
and
amortization (12,355) (1,909) (777) (914) (15,955)
Provision for
liabilities
and charges - - - 1,241 1,241
Administrative
and other
operating
expenses (22,076) (6,123) (4,640) (2,944) (35,783)
Operating
expenses (67,370) (19,863) (14,927) (7,223) (109,383)
Profit before
tax 28,581 29,949 59,997 11,020 129,547
Income tax
expense (1,768) (1,679) (4,684) (1,198) (9,329)
Profit for the
year 26,813 28,270 55,313 9,822 120,218
Portfolios by Segments
In thousands of GEL Jun-19 Mar-19
Loans and advances to customers
Non-mortgage 1,875,501 1,882,816
Mortgage 2,959,819 2,695,457
Retail 4,835,320 4,578,273
Corporate 3,658,340 3,364,911
MSME 2,647,700 2,423,731
Total loans and advances to customers (Gross) 11,141,360 10,366,915
Less: credit loss allowance for loans to customers (340,096) (337,595)
Total loans and advances to customers (Net) 10,801,264 10,029,320
Customer accounts
Retail 5,360,114 4,914,927
Corporate 3,510,179 3,316,436
MSME 1,006,520 935,426
Total Customer accounts 9,876,813 9,166,789
Retail Banking
As of 30 June 2019, retail loans stood at GEL 4,835.3 million,
up by GEL 257.0 million, or 5.6%, QoQ and accounted for 39.6%
market share of total individual loans. Without the currency
effect, retail loans would have increased by 1.8%. As of the same
date, foreign currency loans represented 55.1% of the total retail
loan portfolio.
In the reporting period, retail deposits stood at GEL 5,360.1
million, up by GEL 445.2 million, or 9.1%, QoQ and accounted for
39.5% market share of total individual deposits. Without the
currency effect, retail deposits would have increased by 3.5%. As
of 30 June 2019, term deposits accounted for 53.7% of the total
retail deposit portfolio, while foreign currency deposits
represented 80.5% of the total.
In 2Q 2019, retail loan yields and deposit rates stood at 12.2%
and 3.0%, respectively. The segment's cost of risk on loans was
2.4% . The retail segment contributed 22.3%, or GEL 26.8 million,
to the total net income in 2Q 2019.
Corporate Banking
As of 30 June 2019, corporate loans amounted to GEL 3,658.3
million, up by GEL 293.4 million, or 8.7%, QoQ. Foreign currency
loans accounted for 71.4% of the total corporate loan portfolio.
Without the currency effect, corporate loans would have increased
by 3.7%. The market share of total legal entities loans stood at
37.3%.
As of the same date, corporate deposits totalled GEL 3,510.2
million, up by GEL 193.7 million, or 5.8%, QoQ. Foreign currency
corporate deposits represented 41.1% of the total corporate deposit
portfolio. Without the currency effect, corporate deposits would
have increased by 3.1%. The market share of total legal entities
deposits stood at 42.8%.
In 2Q 2019, corporate loan yields and deposit rates stood at
8.8% and 4.9%, respectively. In the same period, the cost of risk
on loans was -0.5%. In terms of profitability, the corporate
segment's net profit reached GEL 55.3 million, or 46.0%, of the
total net income.
MSME Banking
As of 30 June 2019, MSME loans amounted to GEL 2,647.7, up by
GEL 224.0 million, or 9.2%, QoQ. Without the currency effect, MSME
loans would have increased by 5.5%. Foreign currency loans
accounted for 52.7% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 1,006.5 million,
up by GEL 71.1 million, or 7.6%, QoQ. Without the currency effect,
MSME deposits would have increased by 4.5%. Foreign currency MSME
deposits represented 44.6% of the total MSME deposit portfolio.
In 2Q 2019, MSME loan yields and deposit rates stood at 11.5%
and 1.0%, respectively, while the cost of risk on loans was 0.9%.
In terms of profitability, net profit for the MSME segment amounted
to GEL 28.3 million, or 23.5%, of the total net income.
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
In thousands of GEL Jun-19 Mar-19
Cash and cash equivalents 1,628,344 927,830
Due from other banks 27,860 29,981
Mandatory cash balances with National Bank of
Georgia 1,841,237 1,416,082
Loans and advances to customers 10,801,264 10,029,320
Investment securities measured at fair value
through other comprehensive income 908,158 889,137
Bonds carried at amortized cost 766,663 661,630
Investments in finance leases 220,871 208,243
Investment properties 79,114 84,055
Current income tax prepayment 19,417 11,102
Deferred income tax asset 1,753 1,973
Other financial assets 165,382 124,093
Other assets 211,850 207,518
Premises and equipment 373,322 366,327
Right of use assets 61,555 60,951
Intangible assets 123,910 119,665
Goodwill 45,301 31,798
Investments in associates 2,363 2,601
TOTAL ASSETS 17,278,364 15,172,306
LIABILITIES
Due to credit institutions 3,052,742 2,692,585
Customer accounts 9,876,813 9,166,789
Lease liabilities 62,598 58,276
Other financial liabilities 252,280 113,145
Current income tax liability 727 36
Debt Securities in issue 848,838 13,415
Deferred income tax liability 21,361 19,337
Provisions for liabilities and charges 20,116 18,250
Other liabilities 85,882 78,387
Subordinated debt 688,002 664,330
TOTAL LIABILITIES 14,909,359 12,824,550
EQUITY
Share capital 1,672 1,672
Share premium 831,773 831,773
Retained earnings 1,668,810 1,657,330
Group reorganisation reserve (162,166) (162,166)
Share based payment reserve (37,968) (43,080)
Revaluation reserve for premises 56,606 56,701
Fair value reserve 12,680 9,702
Cumulative currency translation reserve (6,478) (7,295)
Net assets attributable to owners 2,364,929 2,344,637
Non-controlling interest 4,076 3,119
TOTAL EQUITY 2,369,005 2,347,756
TOTAL LIABILITIES AND EQUITY 17,278,364 15,172,306
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
In thousands of GEL 2Q'19 1Q'19 2Q'18
Interest income 340,301 337,915 308,152
Interest expense (149,820) (140,957) (119,948)
Net interest income 190,481 196,958 188,204
Fee and commission income 68,983 60,902 58,265
Fee and commission expense (25,449) (19,095) (19,103)
Net fee and commission income 43,534 41,807 39,162
Net insurance premiums earned 8,663 7,329 6,168
Net insurance claims incurred and agents'
commissions (4,325) (3,600) (2,915)
Insurance profit 4,338 3,729 3,253
Net income from foreign currency operations 24,532 21,587 21,701
Net gain/(losses) from foreign exchange
translation 5,587 3,627 1,550
Net gains/(losses) from derivative financial
instruments (71) (158) 396
Gains less losses from disposal of investment
securities measured at fair value through
other
comprehensive income 79 68 -
Other operating income 3,650 4,159 3,812
Share of profit of associates 172 169 340
Other operating non-interest income 33,949 29,452 27,799
Credit loss allowance for loans to customers (30,067) (36,416) (37,982)
Credit loss allowance for investments in
finance lease 219 (41) (252)
Credit loss allowance for performance
guarantees and credit related commitments (824) 432 1,375
Credit loss allowance for other financial
assets (2,389) 2,969 1,950
Credit loss allowance for financial assets
measured at fair value through other
comprehensive
income (311) (39) (182)
Operating income after credit loss allowance
for impairment 238,930 238,851 223,327
Staff costs (58,886) (57,753) (50,732)
Depreciation and amortization (15,955) (16,169) (10,992)
(Provision for)/ recovery of liabilities and
charges 1,241 200 -
Administrative and other operating expenses (35,783) (28,792) (30,366)
Operating expenses (109,383) (102,514) (92,090)
Profit before tax 129,547 136,337 131,237
Income tax expense (9,329) (3,015) (28,799)
Profit for the period 120,218 133,322 102,438
Other comprehensive income:
Items that may be reclassified subsequently to
profit or loss:
Movement in fair value reserve 2,976 1,023 (1,547)
Exchange differences on translation to
presentation currency 815 (358) 81
Items that will not be reclassified to profit
or loss:
Income tax recorded directly in other
comprehensive income - - (5,151)
Other comprehensive income for the period 3,791 665 (6,617)
Total comprehensive income for the period 124,009 133,987 95,821
Profit attributable to:
- Shareholders of TBCG 119,998 133,237 102,589
- Non-controlling interest 220 85 (151)
Profit for the period 120,218 133,322 102,438
Total comprehensive income is attributable to:
- Shareholders of TBCG 123,785 133,902 96,060
- Non-controlling interest 224 85 (239)
Total comprehensive income for the period 124,009 133,987 95,821
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 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'19 1Q'19 2Q'18
Underlying ROE(1) 21.5% 23.8% 24.9%
Reported ROE(2) 20.7% 23.8% 21.3%
Underlying ROA(3) 3.1% 3.6% 3.7%
Reported ROA(4) 3.0% 3.6% 3.2%
ROE before credit loss allowance(5) 26.4% 29.7% 28.6%
Underlying cost to income(6) 38.1% 37.7% 35.6%
Reported cost to income(7) 40.2% 37.7% 35.6%
Cost of risk(8) 1.1% 1.4% 1.8%
FX adjusted cost of risk(9) 0.8% 1.4% 1.7%
NIM(10) 5.6% 6.1% 7.1%
Risk adjusted NIM(11) 4.8% 4.7% 5.5%
Loan yields(12) 11.0% 11.5% 12.5%
Risk adjusted loan yields(13) 10.2% 10.1% 10.8%
Deposit rates(14) 3.4% 3.3% 3.3%
Yields on interest earning assets(15) 10.0% 10.5% 11.7%
Cost of funding(16) 4.5% 4.5% 4.4%
Spread(17) 5.5% 6.0% 7.3%
PAR 90 to gross loans(18) 1.3% 1.3% 1.1%
NPLs to gross loans(19) 3.1% 3.3% 3.1%
NPLs coverage(20) 97.9% 100.1% 116.1%
NPLs coverage with collateral(21) 206.0% 210.8% 216.1%
Credit loss level to gross loans(22) 3.1% 3.3% 3.6%
Related party loans to gross loans(23) 0.1% 0.1% 0.1%
Top 10 borrowers to total portfolio(24) 8.6% 9.6% 9.2%
Top 20 borrowers to total portfolio(25) 12.6% 13.5% 13.2%
Net loans to deposits plus IFI funding(26) 91.4% 90.5% 89.5%
Net stable funding ratio(27) 130.4% 123.8% 128.7%
Liquidity coverage ratio(28) 126.3% 117.5% 119.2%
Leverage(29) 7.3x 6.5x 7.0x
Regulatory Tier 1 CAR (Basel III)(30) 12.4% 13.8% 13.4%
Regulatory Total 1 CAR (Basel III)(31) 17.4% 19.1% 17.0%
Ratio definitions
1. Underlying return on average total equity (ROE) equals
underlying net income attributable to owners divided by monthly
average of total shareholders' equity attributable to the PLC's
equity holders for the same period adjusted for the respective
one-off items; Annualized where applicable.
2. Reported 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.
3. Underlying return on average total assets (ROA) equals
underlying net income of the period divided by monthly average
total assets for the same period. Annualised where applicable.
4. Reported return on average total assets (ROA) equals net
income of the period divided by the monthly average total assets
for the same period. Annualised where applicable.
5. 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.
6. Underlying cost to income ratio equals total underlying
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).
7. Reported 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).
8. Cost of risk equals credit loss allowance for loans to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
9. FX adjusted cost of risk is calculated based on currency
rates of the respective prior periods.
10. 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 which currently has negative interest,
and includes other earning items from due from banks.
11. Risk Adjusted Net interest margin is NIM minus the cost of
risk without one-offs and currency effect.
12. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
13. Risk Adjusted Loan yield is loan yield minus the cost of
risk without one-offs and currency effect.
14. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits; annualised
where applicable.
15. Yields on interest earning assets equal total interest
income divided by monthly average interest earning assets;
annualised where applicable.
16. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities; annualised where
applicable.
17. 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).
18. 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.
19. NPLs to gross loans equals loans with 90 days past due on
principal or interest payments, and loans with 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.
20. NPLs coverage ratio equals total credit loss allowance for
loans to customers calculated per IFRS 9 divided by the NPL
loans.
21. NPLs coverage with collateral ratio equals credit loss
allowance for loans to customers per IFRS 9 plus total collateral
amount of NPL loans (excluding third party guarantees) discounted
at 30-50% depending on segment type divided by the NPL loans.
22. Credit loss level to gross loans equals credit loss
allowance for loans to customers divided by the gross loan
portfolio for the same period.
23. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
24. Top 10 borrowers to total portfolio equals the total loan
amount of the top 10 borrowers divided by the gross loan
portfolio.
25. Top 20 borrowers to total portfolio equals the total loan
amount of the top 20 borrowers divided by the gross loan
portfolio.
26. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
27. Net stable funding ratio equals the available amount of
stable funding divided by the required amount of stable funding as
defined in Basel III.
28. Liquidity coverage ratio equals high-quality liquid assets
divided by the total net cash outflow amount as defined by the
NBG.
29. Leverage equals total assets to total equity.
30. 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.
31. 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 2.6914 as of 31 March 2019. For the calculations of the YoY
growth without the currency exchange rate effect, we used the
USD/GEL exchange rate of 2.4516 as of 30 June 2018. As of 30 June
2019 the USD/GEL exchange rate equalled 2.8687. For P&L items
growth calculations without currency effect, we used the average
USD/GEL exchange rate for the following periods: 2Q 2019 of 2.7393,
1Q 2019 of 2.6680, 2Q 2018 of 2.4460.
Unaudited Consolidated Financial Results Overview for 1H
2019
This statement provides a summary of the unaudited business and
financial trends for 1H 2019 for TBC Bank Group plc and its
subsidiaries. The semi-annual financial information and trends are
reviewed. The preliminary unaudited and not reviewed results were
published on 29 July 2019. This report contains a more detailed
information on the same results.
Starting from 1 January 2019, TBC Bank adopted IFRS 16.
Therefore, the comparative information for 2018 is not comparable
to the information presented for 2019.
Please note that there might be slight differences in previous
periods' figures due to rounding.
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. The Group classifies
and separately discloses certain incomes and expenses, which are
non-recurring by nature and are caused by extraordinary events, as
one-off items in order to provide a consistent view and enable
better analysis of the financial performance of the Group. Adjusted
performance is an alternative performance measure and the
reconciliation of the underlying profit and loss items with the
reported profit and loss items and the underlying ratios are given
under Annex 26 section on pages 51-52.
Income Statement Highlights
in thousands of GEL 1H'19 1H'18 Change YoY
Net interest income 387,439 363,607 6.6%
Net fee and commission income 85,341 74,082 15.2%
Other operating non-interest income 71,468 59,428 20.3%
Credit loss allowance (66,467) (74,554) -10.8%
Operating income after credit loss allowance 477,781 422,563 13.1%
Operating expenses (211,897) (183,022) 15.8%
Reported profit before tax 265,884 239,541 11.0%
Underlying profit before tax 271,489 239,541 13.3%
Reported income tax expense (12,344) (39,578) -68.8%
Underlying income tax expense (13,185) (22,152) -40.5%
Reported profit for the period 253,540 199,963 26.8%
Underlying profit for the period 258,304 217,389 18.8%
Balance Sheet and Capital Highlights
Jun-19 Jun-18 Change YoY
in thousands of GEL GEL USD GEL USD
Total assets 17,278,364 6,023,064 13,583,510 5,540,671 27.2%
Gross loans 11,141,360 3,883,766 8,895,947 3,628,629 25.2%
Customer deposits 9,876,813 3,442,958 7,932,585 3,235,677 24.5%
Total equity 2,369,005 825,811 1,943,684 792,823 21.9%
Regulatory tier I capital (Basel III) 1,730,302 603,166 1,498,857 611,379 15.4%
Regulatory total capital (Basel III) 2,430,135 847,121 1,908,398 778,430 27.3%
Regulatory risk weighted assets (Basel III) 13,986,201 4,875,449 11,200,354 4,568,589 24.9%
The Jun-19 figures are converted into US$ using exchange rate of
2.8786 as of 30 June 2019, while Jun-18 figures are converted using
exchange rate of 2.4516 as of 30 June 2018
Key Ratios 1H'19 1H'18 Change YoY
Underlying ROE 22.7% 23.0% -0.3 pp
Reported ROE 22.3% 21.2% 1.1 pp
Underlying ROA 3.3% 3.4% -0.1 pp
Reported ROA 3.3% 3.1% 0.2 pp
NIM 5.8% 7.0% -1.2 pp
Underlying cost to income 37.9% 36.8% 1.1 pp
Reported cost to income 38.9% 36.8% 2.1 pp
Cost of risk 1.3% 1.6% -0.3 pp
FX adjusted cost of risk 1.2% 1.7% -0.5 pp
NPL to gross loans 3.1% 3.1% 0.0 pp
Regulatory Tier 1 CAR (Basel III) 12.4% 13.4% -1.0 pp
Regulatory Total CAR (Basel III) 17.4% 17.0% 0.4 pp
Leverage (Times) 7.3x 7.0x 0.3x
Income Statement Discussion
Net Interest Income
In thousands of GEL 1H'19 1H'18 Change YoY
Loans and advances to customers 582,899 526,431 10.7%
Investment securities measured at fair value through other
comprehensive income 36,950 25,135 47.0%
Due from other banks 11,630 11,946 -2.6%
Bonds carried at amortized cost 23,410 17,879 30.9%
Investment in leases 23,327 16,610 40.4%
Interest income 678,216 598,001 13.4%
Customer accounts 155,634 127,727 21.8%
Due to credit institutions 100,032 86,262 16.0%
Subordinated debt 31,748 19,599 62.0%
Finance lease 1,309 - NMF
Debt securities in issue 2,054 806 NMF
Interest expense 290,777 234,394 24.1%
Net interest income 387,439 363,607 6.6%
Net interest margin 5.8% 7.0% -1.2 pp
NMF - no meaningful figures
1H 2019 to 1H 2018 Comparison
In 1H 2019, net interest income grew by GEL 23.8 million, or
6.6%, YoY to GEL 387.4 million, resulting from a GEL 80.2 million,
or 13.4%, higher interest income and a GEL 56.4 million, or 24.1%,
higher interest expense.
Interest income grew by GEL 80.2 million, or 13.4%, YoY to GEL
678.2 million. This was mainly driven by an increase in interest
income from loans and advances to customers of GEL 56.5 million, or
10.7%, which was primarily related to a rise in the gross loan
portfolio of GEL 2,245.4 million, or 25.2%, YoY. This effect was
partially offset by a 1.2 pp drop in loan yields to 11.2%, which
was driven by a decrease in yield on retail loans by 2.1pp. This
drop in yields on retail loans was primarily driven by a continued
impact of the NGB's regulation effective from January 2019, which
limits the banks' ability to lend money to higher-yield retail
customers. Another contributor to the increase in interest income
was the interest income from financial securities (comprised of
investment securities measured at fair value through other
comprehensive income and bonds carried at amortized cost), which
rose by GEL 17.3 million, or 40.3%. This resulted from an increase
in the respective portfolio by GEL 379.3 million, or by 29.3%. The
yield on investment securities decreased on a YoY basis by 0.3pp,
mainly driven by a decrease in the refinance rate. Yields on
interest earning assets decreased by 1.4 pp to 10.2%, compared to
1H 2018.
The YoY growth in interest expense by GEL 56.4 million, or
24.1%, to GEL 290.8 million in 1H 2019 was mainly due to a 21.8%
increase in interest expense on customer accounts of GEL 27.9
million and a rise in interest expense on amounts due to credit
institutions by GEL 13.8 million, or by 16.0%. The higher interest
expense on customer accounts was attributable to a GEL 1,944.2
million, or 24.5%, growth in the respective portfolio. The cost of
customer accounts remained broadly stable at 3.4%. The increase in
interest expense on amounts due to credit institutions was mainly
driven by an increase in the average respective portfolio, further
magnified by a 0.1 pp rise in the cost of amount due to credit
institutions. As a result, the cost of funding increased by 0.1 pp
on a YoY basis and stood at 4.5%.
Consequently, NIM was 5.8% in 1H 2019, compared to 7.0% in 1H
2018.
Fee and Commission Income
In thousands of GEL 1H'19 1H'18 Change YoY
Card operations 60,084 47,010 27.8%
Settlement transactions 36,609 33,693 8.7%
Guarantees issued 12,546 9,079 38.2%
Issuance of letters of credit 2,319 2,360 -1.7%
Cash transactions 6,706 8,988 -25.4%
Foreign currency exchange transactions 1,388 896 54.9%
Other 10,233 7,073 44.7%
Fee and commission income 129,885 109,099 19.1%
Card operations 34,174 23,443 45.8%
Settlement transactions 6,622 4,285 54.5%
Guarantees issued 864 620 39.4%
Letters of credit 740 588 25.9%
Cash transactions 1,603 2,359 -32.0%
Foreign currency exchange transactions 31 5 NMF
Other 510 3,717 -86.3%
Fee and commission expense 44,544 35,017 27.2%
Card operations 25,910 23,567 9.9%
Settlement transactions 29,987 29,408 2.0%
Guarantees 11,682 8,459 38.1%
Letters of credit 1,579 1,772 -10.9%
Cash transactions 5,103 6,629 -23.0%
Foreign currency exchange transactions 1,357 891 52.3%
Other 9,723 3,356 NMF
Net fee and commission income 85,341 74,082 15.2%
NMF - no meaningful figures
1H 2019 to 1H 2018 Comparison
In 1H 2019, net fee and commission income totalled GEL 85.3
million, up by GEL 11.3 million, or 15.2%, compared to 1H 2018.
This mainly resulted from an increase in other net fee and
commission income of GEL 6.4 million and an increase in net fee and
commission income from guarantees of GEL 3.2 million, or 38.1%.
The rise in other net fee and commission income was related to
the reclassification of certain fee expenses from this category to
settlement transactions. Without reclassification, net fee and
commission income from settlement transactions would have increased
by GEL 2.1 million, or by 7.1%, driven by our affluent retail
sub-segment, TBC Status. The increase in net fee and commission
income from guarantees was mainly attributable to a GEL 559.2
million, or 67.9% increase in the respective portfolio.
Other Operating Non-Interest Income and Gross Insurance Profit
In thousands of GEL 1H'19 1H'18 Change YoY
Net income from foreign currency operations 55,333 42,805 29.3%
Share of profit of associates 341 648 -47.4%
Gains less losses/(losses less gains) from derivative financial
instruments (229) 413 NMF
Gains less losses from disposal of investment securities measured 147 - NMF
at fair value through other
comprehensive income
Revenues from sale of cash-in terminals 443 1,253 -64.6%
Revenues from operational leasing 1,660 3,142 -47.2%
Gain from sale of investment properties 630 1,896 -66.8%
Gain from sale of inventories of repossessed collateral 582 205 NMF
Revenues from non-credit related fines 165 254 -35.0%
Gain on disposal of premises and equipment 1,370 199 NMF
Other 2,959 3,314 -10.7%
Other operating income 7,809 10,263 -23.9%
Gross insurance profit[16] 8,067 5,299 52.2%
Other operating non-interest income and gross insurance profit 71,468 59,428 20.3%
NMF - no meaningful figures
1H 2019 to 1H 2019 Comparison
Total other operating non-interest income and gross insurance
profit increased by GEL 12.0 million, or 20.3%, to GEL 71.5 million
in 1H 2019. This mainly resulted from a rise in net income from
foreign currency operations of GEL 12.5 million, or 29.3%, mainly
due to the increased number and volume of FX transactions across
all of the segments. Another contributor was gross insurance
profit, which rose by GEL 2.8 million, or 52.2%, but was slightly
offset by a decrease in revenues from operational leasing of GEL
1.5 million, or 47.2%.
The growth in gross insurance profit was related to the increase
in the non-health[16] insurance business as well as entry into new
business line, health insurance in May 2019. More information about
TBC insurance can be found in Annex 23 on page 49.
Credit Loss Allowance
In thousands of GEL 1H'19 1H'18 Change YoY
Credit loss allowance for loans to customers (66,483) (65,980) 0.8%
Credit loss allowance for investments in finance lease 178 (493) NMF
Credit loss allowance for performance guarantees and credit related
commitments (392) (2,500) -84.3%
Credit loss allowance for other financial assets 580 (5,469) NMF
Credit loss allowance for financial assets measured at fair value
through other comprehensive
income (350) (112) NMF
Total credit loss allowance (66,467) (74,554) -10.8%
Operating income after credit loss allowance 477,781 422,563 13.1%
Cost of risk 1.3% 1.6% -0.3 pp
NMF - no meaningful figures
1H 2019 to 1H 2018 Comparison
In 1H 2019, total credit loss allowance decreased by GEL 8.1
million, or 10.8%, to GEL 66.5 million, compared to 1H 2018. The
main contributors to the decline were credit loss allowance for
other financial assets and credit loss allowance for performance
guarantees and credit related commitments by GEL 6.0 million and by
GEL 2.1 million respectively. The decrease in credit loss allowance
for other financial assets was mainly driven by the high base in 1H
2018 related to one large corporate debtor.
Operating Expenses
In thousands of GEL 1H'19 1H'18 Change in %
Staff Costs 116,639 102,847 13.4%
Provisions for Liabilities and Charges (1,441) - NMF
Depreciation and Amortization 32,124 21,463 49.7%
Professional services 12,046 4,459 NMF
Advertising and marketing services 9,461 11,644 -18.7%
Expenses related to lease contracts[17] 5,826 - NMF
Rent - 11,707 NMF
Utility services 3,570 3,188 12.0%
Intangible asset enhancement 5,976 5,066 18.0%
Taxes other than on income 3,713 3,603 3.1%
Communications and supply 2,782 2,193 26.9%
Stationary and other office expenses 2,251 2,507 -10.2%
Insurance 508 968 -47.5%
Security services 1,025 1,002 2.3%
Premises and equipment maintenance 4,765 2,163 NMF
Business trip expenses 1,065 989 7.7%
Transportation and vehicles maintenance 903 792 14.0%
Charity 1,279 561 NMF
Personnel training and recruitment 596 409 45.7%
Write-down of current assets to fair value less costs to sell (251) (570) -56.0%
Loss on disposal of Inventory 52 100 -48.0%
Loss on disposal of investment properties 38 60 -36.7%
Loss on disposal of premises and equipment 251 336 -25.3%
Other 8,719 7,535 15.7%
Administrative and other operating expenses 64,575 58,712 10.0%
Operating expenses 211,897 183,022 15.8%
Profit before tax 265,884 239,541 11.0%
Income tax expense (12,344) (39,578) -68.8%
Profit for the period 253,540 199,963 26.8%
Cost to income 38.9% 36.8% 2.1 pp
ROE 22.3% 21.2% 1.1 pp
ROA 3.3% 3.1% 0.2 pp
NMF - no meaningful figures
1H 2019 to 1H 2018 Comparison
In 1H 2019, total operating expenses expanded by GEL 28.9
million, or 15.8%, YoY. This mainly resulted from an increase in:
staff costs by GEL 13.8 million, or 13.4%; depreciation and
amortisation by GEL 10.7 million, or 49.7%; and administrative
expenses by GEL 5.9 million, or 10.0% (mainly related to the growth
of professional services). The growth in staff costs was mainly
driven by a higher scale of business and by the increase in share
price over the three year period for the purpose of top and middle
management share based bonuses (while the change in the number of
shares did not have material effect). The increase in depreciation
and amortization was primarily related to IFRS 16. Higher
professional services were mainly attributable to one-off
consulting fees in the amount of GEL 5.6 million, in relation to
the recent events regarding historic matters surrounding TBC Bank.
For further details, please see the following press release.
Without these one-off costs, operating expenses would have
increased by 12.7%.
As a result, the cost to income ratio increased by 2.1 pp (or by
1.1 pp on an underlying basis) from 36.8% in 1H 2018.
Net Income
Reported net income for 1H 2019 increased by GEL 53.6 million,
or 26.8%, YoY and stood at GEL 253.5 million, while underlying net
income increased by GEL 40.9 million, or 18.8%, YoY and amounted to
GEL 258.3 million.
As a result, underlying ROE stood at 22.7%, down by 0.3pp YoY,
while underlying ROA stood at 3.3%, down by 0.1pp YoY. Reported ROE
stood at 22.3%, up by 1.1pp YoY, and reported ROA stood at 3.3%, up
by 0.2pp YoY.
Balance Sheet Discussion
In thousands of GEL Jun-19 Jun-18 Change YoY
Cash, due from banks and mandatory cash balances with NBG 3,497,441 2,681,809 30.4%
Loans and advances to customers (Net) 10,801,264 8,574,580 26.0%
Financial securities 1,674,821 1,295,570 29.3%
Fixed and intangible assets & investment property 576,346 540,455 6.6%
Right of use assets 61,555 - NMF
Other assets 666,937 491,096 35.8%
Total assets 17,278,364 13,583,510 27.2%
Due to credit institutions 3,052,742 3,097,602 -1.4%
Customer accounts 9,876,813 7,932,585 24.5%
Debt securities in issue 848,838 19,641 NMF
Subordinated debt 688,002 397,576 73.0%
Other liabilities 442,964 192,422 NMF
Total liabilities 14,909,359 11,639,826 28.1%
Total equity 2,369,005 1,943,684 21.9%
Assets
As of 30 June 2019, the Group's total assets amounted to GEL
17,278.4 million, up by GEL 3,694.9 million, or 27.2%, YoY. The
increase was mainly due to a rise in net loans to customers of GEL
2,226.7 million, or 26.0%, YoY. Another contributor to the increase
was a GEL 815.6 million, or 30.4%, rise in liquid assets
(comprising cash, due from banks and mandatory cash balances with
NBG), compared to 30 June 2018, which was primarily attributable to
the rise in mandatory reserve requirements in FC effective from May
2019.
As of 30 June 2019, the gross loan portfolio reached GEL
11,141.4 million, up by 25.2% YoY, while the proportion of gross
loans denominated in foreign currency increased by 1.4 pp on a YoY
basis and accounted for 59.9% of total loans. Without the currency
effect, loans to customers would have increased by 14.7% YoY.
Asset Quality
PAR 30 by Segments and Currencies Jun-19 Jun-18
GEL FC Total GEL FC Total
Corporate 1.7% 0.7% 1.0% 0.0% 0.4% 0.3%
Retail 3.6% 1.9% 2.7% 3.7% 1.8% 2.7%
MSME 2.0% 3.4% 2.8% 1.6% 3.7% 2.7%
Total 2.7% 1.8% 2.1% 2.5% 1.7% 2.0%
Loans overdue by more than 30 days to gross loans
Total
The total PAR 30 has remained broadly stable on a YoY basis and
stood at 2.1% as of 30 June 2019.
Retail Segment
The retail segment's PAR 30 remained stable on a YoY basis and
stood at 2.7% as of 30 June 2019.
Corporate
The corporate segment's PAR 30 increased by 0.7 pp YoY, mainly
driven few corporate clients.
MSME
The MSME segment's PAR 30 remained broadly stable on a YoY basis
and stood at 2.8% as of 30 June 2019.
NPLs Jun-19 Jun-18
GEL FC Total GEL FC Total
Corporate 1.5% 2.3% 2.1% 1.5% 3.2% 2.8%
Retail 4.2% 2.6% 3.3% 2.8% 2.9% 2.9%
MSME 2.7% 5.6% 4.2% 2.2% 5.7% 4.0%
Total 3.2% 3.1% 3.1% 2.4% 3.6% 3.1%
Total
Total NPLs remained stable on a YoY basis and stood at 3.1% as
of 30 June 2019.
Retail Segment
The retail segment's NPLs increased by 0.4 pp on a YoY basis to
3.3% as of 30 June 2019, mainly driven by consumer loans.
Corporate
The corporate NPLs decreased by 0.7pp on a YoY basis and stood
at 2.1% as of as of 30 June 2019. This was mainly attributable to
improved performance of two non- performing corporate borrowers as
well as corporate loan book growth effect.
MSME
The MSME NPLs increased by 0.2 pp on a YoY basis and stood at
4.2% as of 30 June 2019.
NPLs Coverage Jun-19 Jun-18
Exc. Collateral Incl. Collateral Exc. Collateral Incl. Collateral
Corporate 103.3% 299.1% 99.2% 232.1%
Retail 113.8% 180.4% 153.9% 226.8%
MSME 71.5% 179.0% 76.9% 187.6%
Total 97.9% 206.0% 116.1% 216.1%
Liabilities
As of 30 June 2019, TBC Bank's total liabilities amounted to GEL
14,909.4 million, up by GEL 3,269.5 million, or 28.1%, YoY. This
was primarily due to a GEL 1,944.2 million, or 24.5%, increase in
customer accounts and a hike in debt securities in issue of GEL
829.2 million.
As of 30 June 2019, TBC Bank's customer accounts amounted to GEL
9,876.8 million, up by 13.4% on a constant currency. At the same
time, customer accounts in foreign currency accounted for 62.8% of
total customer accounts, compared to 67.2% as of 30 June 2018.
Liquidity
As of 30 June 2019, the Bank's liquidity ratio, as defined by
the NBG, stood at 37.1%, compared to 33.3% as of 30 June 2018 and
above the NBG limit of 30%. As of 30 June 2019, the total liquidity
coverage ratio (LCR), as defined by the NBG, was 126.3%, above the
100.0% limit, while the LCR in GEL and FC stood at 100.4% and
143.8% respectively, above the respective limits of 75% and
100%.
Total Equity
As of 30 June 2019, TBC's total equity amounted to GEL 2,369.0
million, up by GEL 425.3 million or by 21.9% from GEL 1,943.7
million as of 30 June 2018. This YoY change in equity was mainly
due to a net profit contribution of GEL 491.0 million during the
last 12 months, which was slightly offset by a declared dividend in
the amount of GEL 108.6 million.
Regulatory Capital
As of 30 June 2019, the Bank's Basel III Tier 1 and Total
Capital Adequacy Ratios (CAR) stood at 12.4% and 17.4%,
respectively, compared to the minimum required levels of 11.9% and
16.7%.
As of 30 June 2019, The Bank's Basel III Tier 1 Capital amounted
to GEL 1,730.3 million, up by GEL 231.4 million or 15.4%, compared
to June 2018, due to an increase in net income. The Bank's Basel
III Total Capital totalled GEL 2,430.1 million, up by GEL 521.7
million, or by 27.3%. The increase in total capital was
attributable to the increase in net income and the attraction of
new subordinated loans. Risk weighted assets amounted to GEL
13,986.2 million as of 30 June 2019, up by GEL 2,785.8 million, or
by 24.9%, compared to June 2018, mainly related to loan book growth
primarily due to the GEL depreciation, as well as the increase in
mandatory reserves in FC.
Results by Segments and Subsidiaries
The segment definitions are as follows (updated in 2019):
-- 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 5.0 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 corporate
segment; or legal entities who have been granted a Pawn shop loan;
or individual customers of the fully-digital bank, Space; and
-- Corporate centre and other operations - comprises of 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'19 Retail MSME Corporate Corp.Centre Total
Interest income 288,909 141,797 157,355 90,155 678,216
Interest expense (72,842) (4,682) (79,418) (133,835) (290,777)
Net transfer pricing (33,609) (47,566) 24,583 56,592 -
Net interest income 182,458 89,549 102,520 12,912 387,439
Fee and commission income 92,008 11,365 24,002 2,510 129,885
Fee and commission expense (37,256) (3,789) (3,250) (249) (44,544)
Net fee and commission income 54,752 7,576 20,752 2,261 85,341
Gross insurance profit - - - 8,067 8,067
Net income from foreign currency
operations 13,370 10,119 22,288 342 46,119
Foreign exchange translation gains less
losses/(losses less gains) - - - 9,214 9,214
Net losses from derivative financial
instruments (219) - - (10) (229)
Gains less losses from disposal of
investment securities measured at fair
value through other
comprehensive income - - - 147 147
Other operating income 4,503 701 1,040 1,565 7,809
Share of profit of associates - - - 341 341
Other operating non-interest income 17,654 10,820 23,328 19,666 71,468
Credit loss allowance for loans to
customers (55,517) (15,225) 4,259 - (66,483)
Credit loss allowance for performance
guarantees and credit related
commitments 421 (6) (807) - (392)
Credit loss allowance for investments in
finance lease - - - 178 178
Credit loss allowance for other
financial assets 93 - 3,010 (2,523) 580
Credit loss allowance for financial
assets measured at fair value through
other comprehensive
income - - (320) (30) (350)
Profit before G&A expenses and income
taxes 199,861 92,714 152,742 32,464 477,781
Staff costs (66,073) (23,199) (17,674) (9,693) (116,639)
Depreciation and amortization (24,854) (3,924) (1,494) (1,852) (32,124)
Provision for liabilities and charges - - - 1,441 1,441
Administrative and other operating
expenses (39,845) (10,923) (7,565) (6,242) (64,575)
Operating expenses (130,772) (38,046) (26,733) (16,346) (211,897)
Profit before tax 69,089 54,668 126,009 16,118 265,884
Income tax expense (6,985) (5,429) (14,555) 14,625 (12,344)
Profit for the year 62,104 49,239 111,454 30,743 253,540
Portfolios by Segments
In thousands of GEL Jun-19 Jun-18
Loans and advances to customers
Non-mortgage 1,875,501 2,010,819
Mortgage 2,959,819 2,185,630
Retail 4,835,320 4,196,449
Corporate 3,658,340 2,581,612
MSME 2,647,700 2,117,886
Total loans and advances to customers (Gross) 11,141,360 8,895,947
Less: credit loss allowance for loans to customers (340,096) (321,367)
Total loans and advances to customers (Net) 10,801,264 8,574,580
Customer Accounts
Retail 5,360,114 4,467,638
Corporate 3,510,179 2,559,449
MSME 1,006,520 905,498
Total Customer Accounts 9,876,813 7,932,585
Retail Banking
As of 30 June 2019, retail loans stood at GEL 4,835.3 million,
up by GEL 638.9 million, or 15.2%, YoY and accounted for 39.6%
market share of total individual loans. Without the currency
effect, retail loans would have increased by 6.3%. As of 30 June
2019, foreign currency loans represented 55.1% of the total retail
loan portfolio.
In the reporting period, retail deposits stood at GEL 5,360.1
million, up by GEL 892.5 million, or 20.0%, YoY and accounted for
39.5% market share of total individual deposits. Without the
currency effect, retail deposits would have increased by 6.2%. As
of 30 June 2019, term deposits accounted for 53.7% of the total
retail deposit portfolio, while foreign currency deposits
represented 80.5% of the total retail deposit portfolio.
In 1H 2019, retail loan yields and deposit rates stood at 12.5%
and 2.9%, respectively. The segment's cost of risk on loans was
2.4%. The segment contributed 24.5%, or GEL 62.1 million, to the
total net income in 1H 2019.
Corporate Banking
As of 30 June 2019, corporate loans amounted to GEL 3,658.3
million, up by GEL 1,076.7 million, or 41.7%, YoY. Foreign currency
loans accounted for 71.4% of the total corporate loan portfolio.
Without the currency effect, corporate loans would have increased
by 27.5%. The market share of total legal entities loans stood at
37.3%.
As of the same date, corporate deposits totalled GEL 3,510.2
million, up by GEL 950.7 million, or 37.1%, YoY. Foreign currency
corporate deposits represented 41.1% of the total corporate deposit
portfolio. Without the currency effect, corporate deposits would
have increased by 29.1%. The market share of total legal entities
deposits stood at 42.8%.
In 1H 2019, corporate loan yields and deposit rates stood at
9.2% and 4.9%, respectively. In the same period, the cost of risk
on loans was -0.3%. In terms of profitability, the corporate
segment's net profit reached GEL 111.5 million, or 44.0% of the
total net income.
MSME Banking
As of 30 June 2019, MSME loans amounted to GEL 2,647.7 million,
up by GEL 529.8 million, or 25.0%, YoY. Foreign currency loans
accounted for 52.7% of the total MSME portfolio. Without the
currency effect, MSME loans would have increased by 15.7%.
As of the same date, MSME deposits stood at GEL 1,006.5 million,
up by GEL 101.0 million, or 11.2%, YoY. Foreign currency MSME
deposits represented 44.6% of the total MSME deposit portfolio.
Without the currency effect, MSME deposits would have increased by
4.2%.
In 1H 2019, MSME loan yields and deposit rates stood at 11.5%
and 0.9% respectively, while the cost of risk on loans was 1.2%. In
terms of profitability, net profit for the MSME segment amounted to
GEL 49.2 million, or 19.4%, of the total net income.
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
In thousands of GEL Jun-19 Jun-18
Cash and cash equivalents 1,628,344 1,605,163
Due from other banks 27,860 42,469
Mandatory cash balances with National Bank of Georgia 1,841,237 1,034,177
Loans and advances to customers 10,801,264 8,574,580
Investment securities measured at fair value through other comprehensive
income 908,158 817,876
Bonds carried at amortized cost 766,663 477,694
Investments in finance leases 220,871 172,027
Investment properties 79,114 78,094
Current income tax prepayment 19,417 7,369
Deferred income tax asset 1,753 2,331
Other financial assets 165,382 107,741
Other assets 211,850 171,046
Premises and equipment 373,322 374,414
Right of use assets 61,555 -
Intangible assets 123,910 87,947
Goodwill 45,301 28,657
Investments in associates 2,363 1,925
TOTAL ASSETS 17,278,364 13,583,510
LIABILITIES
Due to credit institutions 3,052,742 3,097,602
Customer accounts 9,876,813 7,932,585
Lease liabilities 62,598 -
Other financial liabilities 252,280 88,320
Current income tax liability 727 26
Debt Securities in issue 848,838 19,641
Deferred income tax liability 21,361 22,980
Provisions for liabilities and charges 20,116 11,732
Other liabilities 85,882 69,364
Subordinated debt 688,002 397,576
TOTAL LIABILITIES 14,909,359 11,639,826
EQUITY
Share capital 1,672 1,650
Share premium 831,773 796,808
Retained earnings 1,668,810 1,261,578
Group reorganisation reserve (162,166) (162,166)
Share based payment reserve (37,968) (21,085)
Revaluation reserve for premises 56,606 64,962
Fair value reserve 12,680 2,541
Cumulative currency translation reserve (6,478) (7,345)
Net assets attributable to owners 2,364,929 1,936,943
Non-controlling interest 4,076 6,741
TOTAL EQUITY 2,369,005 1,943,684
TOTAL LIABILITIES AND EQUITY 17,278,364 13,583,510
Consolidated Statement of Profit or Loss and Other Comprehensive Income
In thousands of GEL 1H'19 1H'18
Interest income 678,216 598,001
Interest expense (290,777) (234,394)
Net interest income 387,439 363,607
Fee and commission income 129,885 109,099
Fee and commission expense (44,544) (35,017)
Net fee and commission income 85,341 74,082
Net insurance premiums earned 15,992 10,602
Net insurance claims incurred and agents' commissions (7,925) (5,303)
Insurance profit 8,067 5,299
Net income from foreign currency operations 46,119 38,782
Net gain/(losses) from foreign exchange translation 9,214 4,023
Net gains/(losses) from derivative financial instruments (229) 413
Gains less losses from disposal of investment securities measured at 147 -
fair value through other
comprehensive income
Other operating income 7,809 10,263
Share of profit of associates 341 648
Other operating non-interest income 63,401 54,129
Credit loss allowance for loans to customers (66,483) (65,980)
Credit loss allowance for investments in finance lease 178 (493)
Credit loss allowance for performance guarantees and credit related
commitments (392) (2,500)
Credit loss allowance for other financial assets 580 (5,469)
Credit loss allowance for financial assets measured at fair value
through other comprehensive
income (350) (112)
Operating income after credit loss allowance 477,781 422,563
Staff costs (116,639) (102,847)
Depreciation and amortization (32,124) (21,463)
(Provision for)/ recovery of liabilities and charges 1,441 -
Administrative and other operating expenses (64,575) (58,712)
Operating expenses (211,897) (183,022)
Profit before tax 265,884 239,541
Income tax expense (12,344) (39,578)
Profit for the period 253,540 199,963
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve 3,999 827
Exchange differences on translation to presentation currency 457 14
Items that will not be reclassified to profit or loss:
Revaluation of premises and equipment - -
Income tax recorded directly in other comprehensive income - (5,151)
Other comprehensive income for the period 4,456 (4,310)
Total comprehensive income for the period 257,996 195,653
Profit attributable to:
- Shareholders of TBCG 253,235 198,347
- Non-controlling interest 305 1,616
Profit for the period 253,540 199,963
Total comprehensive income is attributable to:
- Shareholders of TBCG 257,687 194,089
- Non-controlling interest 309 1,564
Total comprehensive income for the period 257,996 195,653
Consolidated Statements of Cash Flows
In thousands of GEL 30-Jun-19 30-Jun-18
Cash flows from/(used in) operating activities
Interest received 632,619 573,644
Interest paid (291,963) (234,845)
Fees and commissions received 127,685 118,805
Fees and commissions paid (44,370) (35,025)
Insurance premium received 18,560 10,973
Insurance claims paid (9,727) (5,898)
Income received from trading in foreign currencies 46,119 38,782
Other operating income received 11,500 (2,672)
Staff costs paid (123,342) (111,715)
Administrative and other operating expenses
paid (81,397) (59,836)
Income tax paid (30,900) (10,151)
Cash flows from operating activities before
changes in operating assets and liabilities 254,784 282,062
Net change in operating assets
Due from other banks and mandatory cash balances
with the National Bank of Georgia (302,690) (51,957)
Loans and advances to customers (385,945) (671,825)
Investment in finance lease (3,498) (34,101)
Other financial assets 37,044 40,231
Other assets 2,869 (879)
Net change in operating liabilities
Due to other banks 276,076 126,870
Customer accounts 134,334 430,568
Other financial liabilities 6,053 (10,995)
Financial lease liabilities (1,367) -
Other liabilities and provision for liabilities
and charges 9,607 (215)
Net cash from operating activities 27,267 109,759
Cash flows from/(used in) investing activities
Acquisition of investment securities measured
at fair value through other comprehensive income (101,119) (395,898)
Proceeds from redemption at maturity of investment
securities measured at fair value through other
comprehensive income 210,174 239,593
Acquisition of bonds carried at amortized cost (240,420) (166,188)
Proceeds from redemption of bonds carried at
amortized cost 126,113 142,432
Acquisition of premises, equipment and intangible
assets (51,490) (34,241)
Disposal of premises, equipment and intangible
assets 11,023 1,015
Proceeds from disposal of investment property 9,508 6,898
Acquisition of subsidiaries, net of cash acquired (14,569) -
Net cash used in investing activities (50,780) (206,389)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 553,781 1,468,097
Redemption of other borrowed funds (938,535) (1,044,435)
Redemption of subordinated debt (8,576) (7,688)
Proceeds from debt securities in issue 820,708 28
Redemption of debt securities in issue (5,805) -
Dividends paid - (85,484)
Net cash flows from financing activities 421,573 330,518
Effect of exchange rate changes on cash and
cash equivalents 63,373 (60,202)
Net increase in cash and cash equivalents 461,433 173,686
Cash and cash equivalents at the beginning
of the year 1,166,911 1,431,477
Cash and cash equivalents at the end of the
year 1,628,344 1,605,163
Key Ratios
Average Balances
The average balances 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 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) 1H'19 1H'18
Underlying ROE(1) 22.7% 23.0%
Reported ROE(2) 22.3% 21.2%
Underlying ROA(3) 3.3% 3.4%
Reported ROA(4) 3.3% 3.1%
ROE before credit loss allowance(5) 28.1% 29.1%
Underlying cost to income(6) 37.9% 36.8%
Reported Cost to income(7) 38.9% 36.8%
Cost of risk(8) 1.3% 1.6%
FX adjusted cost of risk(9) 1.2% 1.7%
NIM(10) 5.8% 7.0%
Risk adjusted NIM(11) 4.6% 5.3%
Loan yields(12) 11.2% 12.4%
Risk adjusted loan yields(13) 10.0% 10.7%
Deposit rates(14) 3.4% 3.3%
Yields on interest earning assets(15) 10.2% 11.6%
Cost of funding(16) 4.5% 4.4%
Spread(17) 5.7% 7.1%
PAR 90 to gross loans(18) 1.3% 1.1%
NPLs to gross loans(19) 3.1% 3.1%
NPLs coverage(20) 97.9% 116.1%
NPLs coverage with collateral(21) 206.0% 216.1%
Credit loss level to gross loans(22) 3.1% 3.6%
Related party loans to gross loans(23) 0.1% 0.1%
Top 10 borrowers to total portfolio(24) 8.6% 9.2%
Top 20 borrowers to total portfolio(25) 12.6% 13.2%
Net loans to deposits plus IFI funding(26) 91.4% 89.5%
Net stable funding ratio(27) 130.4% 128.7%
Liquidity coverage ratio(28) 126.3% 119.2%
Leverage(29) 7.3x 7.0x
Regulatory Tier 1 CAR (Basel III)(30) 12.4% 13.4%
Regulatory Total 1 CAR (Basel III)(31) 17.4% 17.0%
Ratio definitions
1. Underlying return on average total equity (ROE) equals
underlying net income attributable to owners divided by monthly
average of total shareholders' equity attributable to the PLC's
equity holders for the same period adjusted for the respective
one-off items; Annualized where applicable.
2. Reported 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.
3. Underlying return on average total assets (ROA) equals
underlying net income of the period divided by monthly average
total assets for the same period. Annualised where applicable.
4. Reported return on average total assets (ROA) equals net
income of the period divided by the monthly average total assets
for the same period. Annualised where applicable.
5. 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.
6. Underlying cost to income ratio equals total underlying
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).
7. Reported 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).
8. Cost of risk equals credit loss allowance for loans to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
9. FX adjusted cost of risk is calculated based on currency
rates of the respective prior periods.
10. 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 which currently has negative interest,
and includes other earning items from due from banks.
11. Risk Adjusted Net interest margin is NIM minus the cost of
risk without one-offs and currency effect.
12. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
13. Risk Adjusted Loan yield is loan yield minus the cost of
risk without one-offs and currency effect.
14. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits; annualised
where applicable.
15. Yields on interest earning assets equal total interest
income divided by monthly average interest earning assets;
annualised where applicable.
16. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities; annualised where
applicable.
17. 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).
18. 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.
19. NPLs to gross loans equals loans with 90 days past due on
principal or interest payments, and loans with 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.
20. NPLs coverage ratio equals total credit loss allowance for
loans to customers calculated per IFRS 9 divided by the NPL
loans.
21. NPLs coverage with collateral ratio equals credit loss
allowance for loans to customers per IFRS 9 plus total collateral
amount of NPL loans (excluding third party guarantees) discounted
at 30-50% depending on segment type divided by the NPL loans.
22. Credit loss level to gross loans equals credit loss
allowance for loans to customers divided by the gross loan
portfolio for the same period.
23. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
24. Top 10 borrowers to total portfolio equals the total loan
amount of the top 10 borrowers divided by the gross loan
portfolio.
25. Top 20 borrowers to total portfolio equals the total loan
amount of the top 20 borrowers divided by the gross loan
portfolio.
26. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
27. Net stable funding ratio equals the available amount of
stable funding divided by the required amount of stable funding as
defined in Basel III.
28. Liquidity coverage ratio equals high-quality liquid assets
divided by the total net cash outflow amount as defined by the
NBG.
29. Leverage equals total assets to total equity.
30. 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.
31. 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 of the Balance Sheet items without
the currency exchange rate effect, we used the USD/GEL exchange
rate of 2.4516 as of 30 June 2018. As of 30 June 2019, the USD/GEL
exchange rate equalled 2.8687. For P&L items growth
calculations without currency effect, we used the average USD/GEL
exchange rate for the following periods: 1H 2019 of 2.7038, 1H 2018
of 2.4656.
Additional Disclosures
Subsidiaries of TBC Bank Group PLC[18]
Ownership Country Year of Industry Total Assets
/ voting incorporation (after elimination)
% as
of 30
June 2019
Subsidiary Amount % in TBC
GEL'000 Group
JSC TBC Bank 99.9% Georgia 1992 Banking 16,791,968 97.18%
United Financial
Corporation JSC 98.7% Georgia 1997 Card processing 7,867 0.05%
TBC Capital LLC 100.0% Georgia 1999 Brokerage 7,198 0.04%
TBC Leasing JSC 100.0% Georgia 2003 Leasing 289,004 1.67%
Non-banking
TBC Kredit LLC 100.0% Azerbaijan 1999 credit institution 27,712 0.16%
Banking System Service Information
Company LLC 100.0% Georgia 2009 services 983 0.01%
TBC Pay LLC 100.0% Georgia 2009 Processing 37,303 0.22%
Real estate
Index LLC 100.0% Georgia 2011 management 866 0.01%
Real Estate Management Real estate
Fund JSC* 0.0% Georgia 2010 management 21 0.00%
TBC Invest LLC 100.0% Israel 2011 PR and marketing 157 0.00%
BG LLC* 0.0% Georgia 2018 Asset management 17,018 0.10%
JSC TBC Insurance 100.0% Georgia 2014 Insurance 67,431 0.39%
TBC International
LLC 100.0% Georgia 2019 Asset management 2,824 0.02%
Swoop JSC 100.0% Georgia 2010 Retail Trade 637 0.00%
GE Commerce LTD 100.0% Georgia 2018 Retail Trade 3,239 0.02%
LLC Online Tickets 55.0% Georgia 2015 Software Services 1,746 0.01%
All property ge Real estate
LLC 90.0% Georgia 2013 management 920 0.01%
Inspired LLC 51.0% Uzbekistan 2011 Processing 2,988 0.02%
(*)The Group has de facto control over the subsidiaries (control without
legal form of ownership)
1) Earnings per Share
In GEL 1H 2019 1H 2018
Earnings per share for profit attributable
to the owners of the Group:
- Basic earnings per share 4.64 3.70
- Diluted earnings per share 4.62 3.67
Source: IFRS Consolidated
In GEL 2Q 2019 2Q 2018
Earnings per share for profit attributable
to the owners of the Group:
- Basic earnings per share 2.19 1.90
- Diluted earnings per share 2.17 1.88
Source: IFRS Consolidated
2) Sensitivity Scenario
Sensitivity Scenario 30-Jun-19 10% Currency Devaluation
Effect
NIM* -0.15%
Technical Cost of Risk +0.12%
Regulatory Total Capital 2,430 2,472
Regulatory Capital adequacy ratios tier 0.64% - 0.80%
1 and total capital decrease by
(*) Linear depreciation is assumed for NIM sensitivity
analysis
Source: IFRS statements and Management Figures
3) The share of selected FC denominated P/L Items
Selected P&L Items 2Q FC % of Respective
2019 Totals
Interest income 39%
Interest expense 51%
Fee and commission income 34%
Fee and commission expense 66%
Administrative expenses 16%
Source: IFRS statements and Management figures
4) Open Interest Rate Position as of 30 June 2019
Open interest rate Open interest rate
position in GEL GEL 886 m position in FC GEL 3,462 m
GEL m % share GEL % share
in totals m in totals
Assets 3,654 21% Assets 5,261 30%
Securities with fixed
yield(<=1y)* 372 22% Nostro** 172 19%
Securities with floating
yield 551 33% NBG reserves** 1,841 95%
Loans with floating
yield 2,575 23% NBG deposits 0 0%
Reserves in NBG 146 8% Libor loans 3,248 29%
Interbank loans& deposits
& repo 10 1% Interest rate swap 0 0%
Liabilities 2,768 19%
Current accounts*** 898 9% Liabilities 1,799 12%
Saving accounts*** 589 6% Senior loans 1,369 40%
Refinancing loan of
NBG 604 17% Subordinated loans 430 63%
Interbank loans &deposits
& repo 171 38%
IFI borrowings 506 15%
(*) 46% of the less than 1-year securities are maturing in 6
months.
(**) Income on NBG reserves and Nostros are calculated as
benchmark minus margin whereby benchmarks are correlated with
Libor. From June 2018, according to NBG regulation is it possible
to apply negative interest rates on NBG reserves and correspondent
accounts. However, negative rate is floored by 0% in case of USD
and by (-0.6)% in case of EUR accounts.
(***) The Bank considers that current and saving deposits
promptly react to interest rate changes on the market (within 1
month prior notification)
5) Yields and Rates
Yields and Rates 2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
Loan yields 11.0% 11.5% 12.2% 12.4% 12.5%
Loan yields GEL 15.6% 16.5% 17.4% 17.9% 18.3%
Loan yields FX 7.8% 8.2% 8.7% 8.5% 8.4%
Retail Loan Yields 12.2% 12.8% 13.6% 14.1% 14.7%
Retail loan yields GEL 18.4% 19.6% 20.7% 20.8% 21.3%
Retail loan yields FX 7.3% 7.4% 7.8% 7.9% 8.0%
Corporate Loan Yields 8.8% 9.5% 10.0% 9.6% 9.4%
Corporate loan yields
GEL 9.9% 10.8% 10.9% 11.0% 11.4%
Corporate loan yields
FX 8.4% 9.0% 9.7% 9.1% 8.7%
MSME Loan Yields 11.5% 11.7% 12.2% 12.6% 12.0%
MSME loan yields GEL 15.5% 15.7% 16.2% 16.6% 15.9%
MSME loan yields FX 7.8% 8.1% 8.6% 8.9% 8.5%
Deposit rates 3.4% 3.3% 3.1% 3.3% 3.3%
Deposit rates GEL 5.8% 5.9% 5.3% 5.6% 5.8%
Deposit rates FX 2.1% 1.9% 2.0% 2.1% 2.1%
Retail Deposit Yields 3.0% 2.8% 2.6% 2.7% 2.7%
Retail deposit rates GEL 5.3% 5.4% 4.6% 4.4% 4.3%
Retail deposit rates FX 2.4% 2.2% 2.2% 2.3% 2.4%
Corporate Deposit Yields 4.9% 4.9% 4.5% 4.9% 5.2%
Corporate deposit rates
GEL 7.2% 7.5% 6.8% 7.5% 7.9%
Corporate deposit rates
FX 1.8% 1.6% 1.8% 2.0% 1.9%
MSME Deposit Yields 1.0% 0.9% 1.0% 1.0% 1.0%
MSME deposit rates GEL 1.5% 1.4% 1.6% 1.7% 1.7%
MSME deposit rates FX 0.3% 0.3% 0.3% 0.4% 0.4%
Yields on Securities 7.7% 7.5% 7.6% 7.8% 7.7%
Source: IFRS Consolidated
6) Risk Adjusted Yields
& Cost of Risk
Risk-adjusted Yields 2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
Loan yields 10.2% 10.1% 10.9% 10.9% 10.8%
Retail Loan Yields 10.0% 10.4% 10.6% 11.6% 12.1%
Corporate Loan Yields 9.8% 9.6% 10.1% 9.1% 8.6%
MSME Loan Yields 10.9% 10.1% 12.4% 11.8% 11.1%
2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
Cost of Risk 1.1% 1.4% 1.4% 1.9% 1.8%
Retail 2.4% 2.4% 2.9% 2.7% 2.6%
Corporate -0.5% -0.1% 0.1% 1.1% 0.9%
MSME 0.9% 1.6% -0.1% 1.2% 1.0%
Source: IFRS Consolidated
7) Loan Quality per NBG
Sub-Standard, Doubtful and Loss (SDL) Loans Ratio per NBG
Jun-19 Mar-19 Dec-18 Sep-18 Jun-18
SDL loans as % of gross
loans 3.7% 3.9% 3.6% 3.8% 3.3%
Source: NBG
8) Cross Sell Ratio[19] and Number Active Products
Jun-19 Mar-19 Dec-18 Sep-18 Jun-18
Cross sell ratio 3.68 3.75 3.81 3.85 3.89
Number of active products
(in million) 4.52 4.58 4.62 4.58 4.64
Source: Management's figures.
9) Diversified Deposit Base
Status: monthly income >=3,000 GEL or loans/deposits
>=30,000 GEL
High-net-worth individuals >= deposit 100,000 USD as well as
on discretionary basis
30 June 2019 Volume of Deposits Number of Deposits
MASS 35% 90.3%
STATUS 34% 9.2%
High-net-worth individuals 31% 0.5%
Source: Management figures
10) Loan Concentration
Jun-19 Mar-19 Dec-18 Sep-18 Jun-18
Top 20 borrowers as %
of total portfolio 12.6% 13.5% 14.2% 14.1% 13.2%
Top 10 borrowers as %
of total portfolio 8.6% 9.6% 10.1% 10.3% 9.2%
Related party loans as
% of total portfolio 0.1% 0.1% 0.1% 0.1% 0.1%
Source: IFRS consolidated
11) Number of Transactions in Digital Channels (in
thousands)
2Q 19 2Q 18 2Q 17 2Q 16
Internet banking number of
transactions 2,171 2,584 2,166 1,797
Mobile banking number of transactions 8,984 6,266 3,163 1,485
Source: Management figures
12) Penetration Ratios of Digital Channels
2Q 19 2Q 18 2Q 17 2Q 16
Internet or mobile banking
penetration ratio* 41% 40% 33% 33%
Mobile banking penetration
ratio** 37% 33% 25% 19%
Source: Management figures
* Internet or Mobile Banking penetration equals active clients
of Interment or Mobile Banking divided by total active clients
** Mobile Banking penetration equals active clients of Mobile
Banking divided by total active clients
13) Number of Active Clients (in thousands)
Jun-19 Jun-18 Jun-17 Jun -16
Internet or mobile banking 508 479 340 246
Mobile banking 451 391 254 141
Source: Management figures
14) Distribution of Transactions in Digital Channels
2Q 19
Mobile Banking 30%
Internet Banking 9%
Branches 7%
TBC Pay terminals 19%
ATMs 34%
Other 1%
93% of all transactions are conducted in digital channels
15) Distribution of Sales in Channels
2Q 19 2Q 18 2Q 17 2Q 16
Digital Channels 41% 42% 25% 26%
Branches & call Center 59% 58% 75% 74%
41% of selected retail products are sold through digital
channels*
* For products being offered through remote channels:
pre-approved loans, credit cards, limit increase of credit cards
and opening of savings and term accounts
16) Percentage of Selected Product Sales in Digital Channels
2Q 19 2Q 18 2Q 17
Pre-approved loans 20%* 49% 12%
Credit cards 5% 6% 8%
Saving and term accounts 67% 63% 53%
Credit card limit increase 54%* 85% 82%
* The decrease is due to new regulations
17) POS Terminal Transactions
Jun-19 1Q 19 4Q 18 3Q 18 2Q 18
POS number of transactions
(in millions) 30.5 26.6 27.4 24.1 22.3
POS volume of transactions
(in mln GEL) 1,165 1,017 1,117 986 850
* Data includes e-commerce and excludes transactions at POS
terminals in TBC Bank's branches
18) Funding repayment ladder
Senior, Subordinated Loans' and Debt Securities in Issue's
Principal Amount Outflow by Year (USD million)
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Senior loans 91 179 260 110 87 37 28 11 5 -
Subordinated loans 3 14 11 11 32 1 41 73 15 35
Debt securities in issue - - - - - 300 - - - -
Total 94 193 271 121 119 338 69 84 20 35
Source: Management figures, revolving non IFI loans from NBG are
excluded
19) NPL Build Up (in GEL million)
NPLs NPLs as Real Growth FX Effect Write-Offs Repossessed NPLs as
of Mar-19 of Jun-19
Retail 144 46 4 (31) (4) 159
Corporate 87 (14) 4 - (1) 76
MSME 106 13 5 (7) (5) 112
Total 337 45 13 (38) (10) 347
20) Net Write-Offs,
2Q 2019
In GEL million Write-Offs Recoveries Net Write-Offs
Retail (31) 5 (26)
Corporate - - -
MSME (7) 5 (2)
Total (38) 10 (28)
Source: IFRS Consolidated
21) Portfolio Breakdown by Collateral
Types as of 30-Jun-19
Cash cover 2%
Gold 2%
Inventory 9%
Real estate 68%
Third party guarantees 6%
Other 1%
Unsecured 12%
Source: IFRS Consolidated
22) Loan to Value by Segments as of 30-Jun-19
Retail Corporate MSME Total
55% 50% 48% 51%
Mortgage loan's LTV
stood at 51%
23) TBC Insurance
TBC Insurance is a rapidly growing, wholly owned subsidiary of
TBC Bank and it is the Bank's main bancassurance partner. The
company was acquired by the Group in October 2016 and it has since
grown significantly. In 2Q 2019[20], TBC Insurance held a total
market share of 19.0%[21] without border motor third party
liability (MTPL) insurance, while its market share in retail
segment stood at 31.5%(21) .
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 and agro insurance products. The company
differentiates itself for 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, as well as a Georgian-speaking chat-bot B-Bot, which is
available through Facebook messenger.
From 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 2Q 2019, TBC Insurance already attracted GEL 434.7
thousand gross written premium in health insurance.
In 2Q 2019, TBC Insurance achieved strong growth results in
non-health[22] business lines. The gross written premium grew by
33.2% YoY and amounted to GEL 19.6 million. Over the same period,
the net combined ratio([23]) decreased by 4.4 pp and stood at
76.6%. As a result, the net profit for 2Q 2019 stood at GEL 2.2
million.
In thousands of GEL (excl. 2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
health insurance)
Gross written premium 19,557 17,471 17,075 15,833 14,677
Net earned premium[24] 12,218 10,677 10,554 9,841 8,804
Net profit 2,210 2,042 2,556 2,271 1,497
2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
Net combined ratio 76.6% 82.8% 80.7% 78.8% 81.0%
Market share 19.0% 22.8% 23.0% 20.7% 18.5%
In thousands of GEL (incl. 2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
health insurance)
Gross written premium 19,991 17,471 17,075 15,833 14,677
Net earned premium25 12,259 10,677 10,554 9,841 8,804
Net profit 1,803 2,004 2,556 2,271 1,497
2Q'19 1Q'19 4Q'18 3Q'18 2Q'18
Net combined ratio 81.3% 82.8% 80.7% 78.8% 81.0%
*Based on internal estimate.
Figures are provided without subsidiaries of TBC Insurance:
Swoop JSC, GE Commerce LTD, All Property LTD.
24) Regulatory Capital
Total Capital and Tier 1 Capital Limits
30-Jun-2019 31-Dec-2019 31-Dec-2020 31-Dec-2021
Actual F F F
Tier Total Tier Total Tier Total Tier Total
1 1 1 1
Minimum requirement 6.0% 8.0% 6.0% 8.0% 6.0% 8.0% 6.0% 8.0%
Conservation
buffer 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Counter-cyclical
buffer 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Systemic buffer 1.0% 1.0% 1.5% 1.5% 2.0% 2.0% 2.5% 2.5%
Pillar 1 buffers 9.5% 11.5% 10.0% 12.0% 10.5% 12.5% 11.0% 13.0%
Pillar 2 2.4% 5.2% 2.9% 5.2% 3.2% 4.7% 3.1-3.8% 4.1-5.1%
Total 11.9% 16.7% 12.9% 17.2% 13.7% 17.2% 14.1-14.8% 17.1-18.1%
25) NBG Initiatives
The new regulation on responsible lending to individuals
Starting from January 2019, the National Bank of Georgia has
adopted the regulation on responsible lending to individuals, which
replaces the former regulation introduced in May 2018. The
regulation requires financial institutions to conduct solvency
analysis of a borrower before issuing a loan and it also sets new
limits on Payment to Income (PTI) and Loan to Value (LTV) for
individual loans. The thresholds are different for domestic and
foreign currency loans in order to protect a borrower and the
financial system against the risks stemming from exchange rate
fluctuations.
Maximum Payment to Income Ratios:
Monthly income, net (in For non-hedged borrower For hedged borrowers
GEL) in case of maximum/contractual in case of maximum/contractual
maturity maturity
<1,000 20% / 25% 25% / 35%
>=1,000-2,000< 35% / 45%
>=2,000-4,000< 25% / 30% 45% / 55%
>=4,000 30% / 35% 50% / 60%
Maximum Loan to Value Ratios:
Maximum loan to value ratio (LTV)
for GEL loans 85%
Maximum loan to value ratio (LTV)
for foreign currency loans 70%
Maximum tenures:
Mortgage 15 years
Consumer mortgages collateralized 10 years
by real estate
Auto loans 6 years
Other consumer loans 4 years
Minimum reserve requirements
In May 2019, the NBG updated its requirements on mandatory
reserves. Currently the reserve requirements on funds attracted in
the national currency amount to 5%, and stand at 30% for funds
attracted in a foreign currency, up from 25%. Borrowed funds with a
remaining maturity of over one year in the national currency, and
over two years in a foreign currency, are exempt from reserve
requirements. For foreign currency liabilities with a remaining
maturity of 1-2 years, the reserve requirement amounts to 15%, up
from 10%. Capital, and funds equalized to capital, are exempt from
the required reserve norms.
26) Reconciliation of reported IFRS consolidated figures with
underlying numbers
in thousands of GEL 2Q 2019 1H 2019
Reported net interest income 190,481 387,439
Reported net fee and commission income 43,534 85,341
Reported gross insurance profit 4,338 8,067
Reported other operating income 33,949 63,401
Reported operating income 272,302 544,248
Reported total provision expenses (33,372) (66,467)
Reported operating income after provisions 238,930 477,781
Reported operating expenses (109,383) (211,897)
One-off consulting fees (5,605) (5,605)
Underlying operating expenses (103,778) (206,292)
Reported profit before tax 129,547 265,884
Underlying profit before tax 135,152 271,489
Reported income tax (9,329) (12,344)
Effect on tax of one-off items 841 841
Underlying income tax (10,170) (13,185)
Reported net profit 120,218 253,540
Underlying net profit 124,982 258,304
Reported non-controlling interest (NCI) 220 305
Effect on NCI of one-off items - -
Underlying NCI 220 305
Reported net profit less NCI 119,998 253,235
Underlying net profit less NCI 124,762 257,999
in thousands of GEL 2Q 2019 1H 2019
Average reported equity attributable to the
PLC's equity holders 2,325,788 2,293,159
Adjustment for one-off items on monthly average
basis 2,306 3,807
Average underlying equity attributable to the
PLC's equity holders 2,328,094 2,296,966
Average reported total assets 15,988,280 15,634,558
Adjustment for one-off items on monthly average - -
basis
Average underlying total assets 15,988,280 15,634,558
2Q 2019 1H 2019
Reported cost to income 40.2% 38.9%
Underlying cost to income (APM) 38.1% 37.9%
Reported return on equity 20.7% 22.3%
Underlying return on equity (APM) 21.5% 22.7%
Reported return on assets 3.0% 3.3%
Underlying return on assets (APM) 3.1% 3.3%
in thousands of GEL 2Q 2018 1H 2018
Reported net interest income 188,204 363,607
Reported net fee and commission income 39,162 74,082
Reported gross insurance profit 3,253 5,299
Reported other operating income 27,799 54,129
Reported operating income 258,418 497,117
Reported total provision expenses (35,091) (74,554)
Reported operating income after provisions 223,327 422,563
Reported operating expenses -92,090 (183,022)
Reported profit before tax 131,237 239,541
Reported income tax (28,799) (39,578)
Reversal of the one-off deferred tax gain (17,426) (17,426)
Underlying income tax (11,373) (22,152)
Reported net profit 102,438 199,963
Underlying net profit 119,864 217,389
Reported non-controlling interest (NCI) (151) 1,616
Effect on NCI of one-off items - -
Underlying NCI (151) 1,616
Reported net profit less NCI 102,589 198,347
Underlying net profit less NCI 120,015 215,773
in thousands of GEL 2Q 2018 1H 2018
Average reported equity attributable to the
PLC's equity holders 1,928,838 1,887,954
Adjustment for one-off items on monthly average
basis 4,357 3,799
Average underlying equity attributable to the
PLC's equity holders 1,933,195 1,891,753
Average reported total assets 12,979,958 12,811,990
Adjustment for one-off items on monthly average - -
basis
Average underlying total assets 12,979,958 12,811,990
2Q 2018 1H 2018
Reported return on equity 21.3% 21.2%
Underlying return on equity (APM) 24.9% 23.0%
Reported return on assets 3.2% 3.1%
Underlying return on assets (APM) 3.7% 3.4%
27) Space - fully digital bank
Date # of app. downloads # of registered customers loans in thousands GEL
30-Sep-2018 186,044 72,447 5,814
31-Dec-2018 258,846 93,994 14,693
31-Mar-2019 292,423 114,675 16,843
30-Jun-2019 365,563 133,624 22,047
Space development costs amounted GEL 1.4 million before the launch in May 2018.
28) International strategy: expansion into Azerbaijan market
Main highlights
-- TBC Bank and Nikoil Bank agreed on shareholders agreement in
late December 2018 and signed it in early January 2019. According
to which our shareholding in the joint entity will be 8.34% The
transaction is subject to regulatory approval
-- Currently bank is in the process of significant
reorganization which includes re-branding and shift to
digitalization
-- In 2Q 2019 Nikoil Bank opened four new branches.
Strengthening Management Team
Existing management team of the joint entity
CEO - Nikoloz Shurghaia
First Deputy CEO, Head of MSME - Farhad Hajinski
Deputy CEO, Head of Retail - Fuad Tagiyev
New management team of the joint entity
COO - Nukri Tetrashvili, former CEO at TBC Kredit
CDM - David Birman, former Chief Digital Officer at Bank of Georgia
CRO - David Tediashvili, former Head of Retail Credit Risk Department at TBC Bank
CFO - Emil Dushdurov, former Associate Director, Deal Advisory at KPMG Azerbaijan
CIO - Avtandil Tabatadze, former strategic projects manager at TBC Bank
Current Developments
Loans Disbursements (USD '000) Number of customers
2Q 2018 18,721 62,685
1Q 2019 25,030 66,691
2Q 2019 32,912 78,422
Mid-term vision
In USD millions 2Q 2019 Mid-term targets
results of joint entity
of Nikoil
Bank*
Loan portfolio c. 205 c. 1,400
Equity c. 35 c. 200
ROE NMF 20%+
*Based on management
accounts.
-- Core segments: Retail and MSME (not large SMEs and Corporates);
-- Product offerings: A mix of Nikoil Bank and TBC Bank products
adapted to the local needs and offered primarily through digital
channels, including Space Bank.
29) International strategy: digital greenfield bank in
Uzbekistan
This is still in the concept stage and subject to approval
(including approval from the authorities), therefore it could
change as we progress. The pre-license is expected in 2019.
Why Uzbekistan?
-- Large underpenetrated market:
-- with a population of more than 33.45 million
-- retail loans to GDP stood at 7.2% at the end of 2018
-- Similar history as part of the Soviet Union and good cultural links
-- Right time given the implementation of reforms, many of which
were designed by former Georgian government officials
-- Both Uzbekistan and Georgia are included into China's One Belt One Road initiative
-- No digital bank operates in Uzbekistan currently
Strategic Positioning
-- Build a next generation bank for retail and MSME
-- Focus on digital channels and SPACE
-- Operate asset light, smart branches
-- Establishing the highest standards of corporate governance
-- Simple and intuitive products and processes
-- Transparent and straightforward commissions structure
-- Best customer experience
-- Automated decision making system.
Main highlights
-- Initial investments from TBC Bank around USD 20-30 million, resulting in 51% shareholding
-- Medium to long-term financial targets after license is granted:
-- Achieve sustainable ROE up to 25%
-- Cost to income ratio below 35%
Our Uzbek and Azerbaijan subsidiaries together will contribute
c. 30% to the Group's loan book.
Upcoming Events
-- Opening pilot branch in 2019 for a proof of concept
-- Core banking implementation with local IT company
-- Multichannel development including Space
o Define user experience
o Testing of main processes among 100 clients including:
onboarding, account opening and card ordering
-- Client contact center development
-- Our international partners, EBRD and IFC have expressed their
interest to participate in this project subject to completion of
their internal procedures and approvals
-- We have reached an agreement on main terms with Uzbek-Oman
Investment Company (UOIC) to act as our local partner.
30) Payme
Main Highlights
-- TBC Bank Group PLC has entered into an agreement to acquire a
51% stake in LLC Inspired, a leading profitable payment platform in
Uzbekistan under the Payme brand
-- The consideration for the 51% stake is USD 5.5 million,
implying a valuation of USD 10.8 million for Payme
-- TBC Bank has also entered into a put/call arrangement for the
remaining 49% of Payme, which, in normal circumstances, may only be
exercised between the fourth and seventh anniversary of the date of
completion of the transaction
-- The exercise price will depend on a set of parameters
including Payme's revenue, EBIT and the number of active customers
that Payme achieves.
Strategic Positioning and Next Steps
The transaction is in line with TBC Bank's international
strategy to expand its regional operations, giving us the immediate
access to a large customer base in the country and use our core
digital strengths in Georgia to innovate in the Uzbekistani
market.
We are planning to enrich the product base of Payme by launching
the following new products by the end of 2019:
-- Money transfers;
-- Cards and wallets;
-- Loyalty cards;
-- Instant check-out;
-- Ticketing.
Management Team
-- The management team and founders will remain with Payme on a
long-term basis and will continue to be actively involved in the
development and execution of Payme's strategy. One of the founders
of Payme, Sarvar Ruzmatov became the CEO and Nodir Gulyamov was
appointed as Deputy CEO.
-- We also appointed a new CFO, Abdukhalil Rashidov, who has
12-year experience in banking sector and will be a valuable
addition to the management team.
-- The supervisory board has been formatted which is chaired by
Giorgi Shagidze and consists of Nikoloz Kurdiani, Lasha Gurgenidze,
Abdul-Aziz Abdul-Axadov and Bakhrom Khodjaev.
Payme Financial and Operating Highlights*
In million 2Q 19 Growth Growth
USD QoQ YTD
Revenue 0.7 19.7% 46.0%
Net profit 0.5 33.6% 131.1%
Number of customers 1.4 10.9% 26.1%
* Source: Based on Payme's unaudited management accounts
Product Types
-- Utility and Top-up -- E-commerce Acquiring
and Payment GW
-- P2P -- White Label Mobile Banking
-- Loan Repayment -- Invoicing System
-- mPOS for QR Payments -- Personal Finance Manager
31) Nikoil Bank Financials
Profit & Loss Statement
In thousands of USD 2Q'19 1Q'19 2Q'18
Interest income 5,066 4,610 3,416
Interest expense (2,245) (2,069) (2,491)
Net interest income 2,821 2,541 925
Fee and commission income 699 551 690
Fee and commission expense (282) (267) (269)
Net Fee and Commission Income 417 284 421
Net income from foreign currency operations 175 176 595
Net gain/(losses) from foreign exchange translation (6) (1) (45)
Other operating non-interest income 169 175 550
Credit loss allowance of loans 923 2,326 (27,537)
Credit loss allowance of other financial
assets 97 44 366
Operating income after credit loss allowance 4,427 5,370 (25,275)
Staff costs (2,759) (2,036) (1,372)
Depreciation and amortisation (339) (321) (342)
Administrative and other operating expenses (1,573) (1,165) (935)
Operating expenses (4,671) (3,522) (2,649)
Profit before tax (244) 1,848 (27,924)
Income tax expense - - -
Profit for the period (244) 1,848 (27,924)
Balance Sheet
In thousands of USD 30-Jun-19 31-Mar-19 30-Jun-18
Cash and cash equivalents 21,871 44,711 41,206
Due from other banks 53,381 36,654 26,676
Net Loans 138,556 135,655 147,789
Investment securities measured at fair value
through other comprehensive income 10,316 7,085 21,208
Current income tax prepayment 7 4 3
Deferred income tax asset 768 768 768
Other financial assets 12,628 10,252 12,368
Other assets 2,127 1,100 582
Premises and equipment (Net) 5,625 5,663 5,571
Intangible assets (Net) 1,775 1,849 2,068
TOTAL ASSETS 247,054 243,741 258,239
Due to other banks 4,152 20,152 21,944
Customer Accounts 154,648 136,900 153,586
Other borrowed funds 40,417 41,112 36,291
Other financial liabilities 7,502 4,998 4,076
Subordinated debt 5,000 5,000 15,000
TOTAL LIABILITIES 211,719 208,162 230,897
Share capital 204,706 204,705 144,118
Additional paid-in-capital 500 500 500
Retained earnings (169,871) (169,626) (117,276)
TOTAL EQUITY 35,335 35,579 27,342
TOTAL LIABILITIES AND EQUITY 247,054 243,741 258,239
Principal Risks and Uncertainties
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 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 long-term viability of the Group's
operations, in order to determine whether to adopt the going
concern basis of accounting.
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 its obligations to settle outstanding amounts in accordance
with agreed terms.
Risk description
Credit risk is the most material risk faced by the Group since
it is engaged mainly in traditional lending activities. The Group's
customers include legal entities as well as individual
borrowers.
Due to high level of dollarization of the Georgia's economy,
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 due to large exposures provided to
single borrowers or groups of connected borrowers, or loan
concentration in certain economic industries. Loses may be further
aggravated by unfavourable macroeconomic conditions. These risks
are described as a separate principal risks in more details.
Risk mitigation
A comprehensive credit risk assessment framework is in place
with a clear segregation of duties among 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.
Individual application underwriting and automated underwriting
rules are performed by units within the risk function that is
independent from origination and business development units.
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 promptly take early remedial actions
when necessary.
The Group's credit portfolio is structurally highly diversified
across customer types, product types and industry segments which
minimizes credit risk at Group level. As of 30 June 2019 retail
segment represented 43.4% % of the total portfolio which was split
between mortgage and non-mortgage 61.2% and 38.8%, respectively. In
business banking, no single industry represented more than 8.7% of
the total portfolio at the end of June 2019.
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 2019, 72.5% of the Group's portfolio was
secured by cash, real estate or gold. 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.
The potential material GEL depreciation is one of the most
significant risks that could negatively impact on the 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$. As of 30 June 2019,
the NBG reported that 57.1% of the total banking sector loans were
denominated in foreign currencies. As of the same date, 59.9% of
the Group's total gross loans and advances to customers (before
provision for loan impairment) were denominated in foreign
currencies.
The income of many customers is directly linked to the foreign
currency via remittances, or exports in case of business borrowers.
Nevertheless, customers may not be protected against significant
fluctuations in the GEL exchange rate against the currency of the
loan.
The US$/GEL rate remained volatile in the first half of 2019. As
of 30 June 2019, USD has substantially strengthened against GEL by
17.0 % YoY and appreciated against the 2018 average GEL exchange
rate by 13.2%. According to the NBG July 24th the Monetary Policy
Committee statement, the current nominal effective exchange rate
seems to be more undervalued than the size of the current shock
would suggest.
The NBG continues to operate under its inflation-targeting
framework. The GEL remains in free float and is exposed to many
internal and external factors that in some circumstances could
result in depreciation against the US$.
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 the 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. In addition, the Group holds
significant capital against currency-induced credit risk, which was
showed by the regulatory stress test as well. Details of stress
test are described on pages 118 to 119 of TBC Bank Group PLC Annual
Report 2018. 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.
In January 2019, the Government authorities continued their
efforts to reduce the economy's dependence on foreign currency
financing by increasing the cap to GEL 200,000 under which loans
are required to be disbursed in local currency. In addition, 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 the exposure to currency induced credit risk.
3. PRINCIPAL RISK
The Group's performance may be compromised by adverse
developments in the economic environment.
A slowdown of economic growth in Georgia would have an adverse
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 also impede the 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,
decrease in household disposable income, falling property values,
worsening loan collateralisation, or falling debt service
capabilities of companies as a result of decreasing sales.
Potential political and economic instability in the neighbouring
and main trading partner countries could negatively impact
Georgia's economic outlook through a worsening current account
(e.g. decreased exports, tourism inflows, remittances and foreign
direct investments).
Risk description
According to the Geostat's initial estimates, the real GDP
increased by 4.9% in the first half of 2019. While the credit
growth has moderated, the inflows were reasonably strong and unlike
2018, fiscal stance was expansionary. It is expected that the newly
imposed Russian flight ban will lower the growth going forward.
However, according to TBC Research estimates, GDP is still expected
to increase somewhat higher than 4.0% for the full year 2019 and
2020.
The CA balance improvement trend continued in 1Q 2019 with the
deficit to same quarter GDP ratio standing at 6.2% - being
historically low with an improvement of 5.7 percentage points YoY
and with the strongest contribution of the trade in goods. The
positive tendency is likely to be sustained in 2Q as well, judging
from the trade balance, tourism and remittances inflows. Over the
last 4 quarters, the current account deficit to GDP ratio stood at
6.4%, up by 1.3 percentage points compared to the previous quarter.
Despite the reduction, FDI inflows at 6.6% of GDP remained the main
source of financing the CA deficit. At the same time, in the first
half 2019, the NBG bought USD 216 million reserves or around 3.0%
of the same period GDP, indicating that the external inflows were
sufficient even for higher growth.
The annual inflation stood at 4.3% in June 2019. The above
target price increase was primarily due to higher excise tax on
tobacco. As of July 15, estimated real effective exchange rate was
by around 10% below its medium term average, likely indicating the
potential pressures on the inflation unless GEL appreciates back in
the coming months.
In the first half 2019, the system-wide credit growth has
moderated primarily driven by the weaker retail lending activity.
As of June 2019, estimated credit to GDP ratio was somewhat above
its long-term trend when measured at current exchange rate,
however, the gap was negative at constant exchange rate.
Overall, from a macro perspective there were no signs of
building up of system wide risks in the first half of 2019. At the
same time, Georgia remains vulnerable to external and to some
extent internal shocks, which could have adverse impact on the
Georgian economy resulting in lower growth or, in some severe
circumstances, a contraction of the economy. These negative
developments could also have a negative impact on the GEL 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 observations of the economic
developments in Georgia, as well as its 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 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. The 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.
4. PRINCIPAL RISK
The Group encounters the capital risk of not meeting the minimum
regulatory requirements, which may compromise growth and strategic
targets.
The Bank is regulated by the National Bank of Georgia (NBG). The
regulations and various terms of its funding and other arrangements
require compliance with certain capital adequacy and other ratios.
At the same time, 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 will negatively affect
the Bank's regulatory capital adequacy ratios. A 10% GEL
depreciation translates into negative impact of 82bps, 80bps
(70bps[25]) and 64bps (53bps(25) )bps on CET1, Tier 1 and Total
Regulatory capital adequacy ratios, respectively.
Risk description
In December 2017 the NBG introduced a new capital adequacy
framework. The updated regulation divides the current capital
requirement across Pillar 1 and Pillar 2 buffers that are
introduced gradually over a four-year period. As of year-end 2018,
the Bank's minimum capital requirement increased by 1.5% for Tier 1
and 3.7% for Total Capital compared to the end of 2017. The
increase in minimum requirements is driven by introduction of
systemic risk, concentration and GRAPE buffers.
The Bank's capitalisation as of June 2019 stood at 12.0%, 12.4%
and 17.4% well above the regulatory minimum requirement of 9.8%,
11.9% and 16.7% for CET 1, Tier 1 and total capital, respectively.
In June 2019, the Bank issued USD 125 million additional Tier 1
perpetual bond, which will be included in the Bank's Tier 1 and
Total Capital in July;
The Bank's capitalisation as of 30 June 2019 with AT1 would have
been 12.0%, 14.9% and 19.9% for CET 1, Tier 1 and total regulatory
capital, respectively.
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 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 local regulator, the NBG, can increase the
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, including higher capital requirements.
Risk description
The Bank is regulated by the NBG, who sets lending limits and
other economic ratios (including, inter alia, lending, liquidity
and investment ratios) in addition to mandatory capital adequacy
ratios. During 2018, the NBG introduced several regulatory changes
concerning the responsible lending standards. The details are
outlined in the RECC report on pages 133 to 135 of TBC Bank Group
PLC Annual Report 2018
Under the Georgian banking regulations, the Bank is required,
among other things, to comply with minimum reserve requirements and
mandatory financial ratios and regularly file periodic reports. The
Bank is also regulated by respective tax code or 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.
As part of the Group's international strategy, the ongoing
merger between Nikoil Bank and TBC Kredit is subject to regulatory
approval and the Group's intention is to increase over the four
year period its shareholding in the merged entity to over 50%. This
will, in turn, increase the Group's exposure to the regulatory
environment in Azerbaijan. In addition, TBC Bank is working on the
green field project in Uzbekistan. This project is currently in the
development phase and is subject to approvals, including from the
local authorities, which further increases regulatory compliance
requirements for the Group.
The Group's operations remain in full compliance with all
relevant legislation and regulations. The Group is also subject to
financial covenants in its debt agreements. For more information,
see pages 138-139 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 bears the primary responsibility for
regulatory compliance.
The Group's RECC 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. There was also an extensive dialogue with the
regulator regarding the new regulation on responsible lending.
Together with the new regulation on responsible lending, the
government introduced initiatives to ensure continuous broad access
to financing. These include simplification of the tax code to
incentivize income registration rate.
Although 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 practice.
Investigation related to the historic transactions that took
place in 2007 and 2008
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,
which took place in 2007 and 2008. The inspection alleged that
these transactions between the Bank and certain entities were not
in technical compliance with the 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 that the Bank fully complies with economic
normative requirements and limits set by the NBG. As part of the
settlement, the Bank paid approximately GEL 1 million fine; In
addition, TBC's Chairman and Deputy Chairman of supervisory board
stepped down from their roles. The respective regulatory
disclosures in this regards can be found at www.tbcbankgroup.com
under regulatory news section.
Furthermore, TBC Bank, with the assistance of one of the big
four audit firms has, undertaken benchmarking and review of its AML
and related Party Policies and procedures compliance with local and
international requirement. These reviews did not identify any
material deficiencies.
Separately, it is noted that the Georgian Office of Public
Prosecution has also launched an investigation into the same matter
and has made charges against the founders of TBC Bank. On 24 July,
the Chairman and Deputy Chairman have decided to step down from the
board of TBC Bank Group PLC with immediate effect. They have both
arrived at this decision after careful consideration in order to
ensure that the allegations made against them do not affect the
Group and to be able to concentrate on refuting those allegations.
The respective regulatory disclosures in this regards can be found
at www.tbcbankgroup.com under regulatory news section.
On 26 July 2019, the NBG issued the following statement: "In the
light of recent events, National Bank of Georgia welcomes the
decision of the founding shareholders to step down from the Board
of Directors of TBC Bank Group PLC (which is a London based 100%
shareholder of JSC TBC Bank). National Bank of Georgia emphasizes
that TBC Bank is one of the leading financial organization in the
country and the region. It is a strong and robust financial
institution. Since April 2019, Mamuka Khazaradze and Badri
Japaridze no longer serve as the Supervisory Board members of JSC
TBC Bank and the recent events will not have any impact on the
operations of the bank." The full statement is available on the
following website: www.nbg.gov.ge
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 (energy and utility) standing at
8.7% of the loan portfolio as of 30 June 2019. This figure is
reasonable and it demonstrates an adequate credit portfolio
diversification.
At the end of June 2019 the exposure to the 20 largest borrowers
improved by 0.9pp on QoQ basis and stands at 12.6% of the loan
portfolio, which is in line with the Group's target of alleviating
concentration risk.
Risk mitigation
The Group constantly checks 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 its
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. In addition, the Bank has dedicated
restructuring teams to manage borrowers with financial
difficulties. When it is deemed necessary, clients are transferred
to such teams for a more efficient handling and, ultimately, to
limit resulting credit risk losses.
The NBG's new capital framework introduced 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 or any unexpected
rapid withdrawals due to loss in consumer confidence, an erosion of
trust in financial institutions or a period of social, economic or
political instability. In the first quarter of 2019, TBC
experienced a higher volatility of deposit flows. Deposits
(excluding a liquidity-neutral deposit from the Ministry of
Finance) decreased by GEL 323.8 million or 3.5% (excluding foreign
currency effects) in the first three months of 2019 compared to 31
December 2018. The decrease was primarily driven by retail deposit
reductions (mostly in January and February, which were recovered in
the following months) prior to the settlement with the NBG as well
as the effects of seasonality.
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 2018 and 1H 2019, the Group was in compliance with
the risk appetite limits, as well as the minimum liquidity
requirements set by the NBG, which introduced a liquidity coverage
ratio in 2017. This is in addition to the Basel III guidelines,
under which a conservative approach was applied to the weighting of
mandatory reserves and to the deposit withdrawal rates, depending
on the concentration of client groups. As of 30 June 2019, the net
loan to deposits plus international financial institution funding
ratio stood at 91.4%, the liquidity coverage ratio at 126.3%
(138.1%[27]), and the net stable funding ratio at 130.4% (133.8%(1)
). These figures are all comfortably above the NBG's minimum
requirements or guidance for such ratios.
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 respective liquidity risk. 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. Liquidity risk position and compliance
with internal limits is 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 regulation concerning responsible
lending standards 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 based on both the national and international markets.
Risk description
The majority of the Group's total income derives from net
interest income. Consequently, NIM's fluctuations affect the
Group's results. In 1H 2019, the NIM decreased by 1.1 pp YTD to
5.8%, mainly driven by the change of segment / product mix as a
result of NBG responsible lending regulation, intensified
competition in interest rates, increase in mandatory reserve
requirements for FC funding, as well as high liquidity before the
bonds are deployed .
The recent regulation regarding the responsible lending, as well
as a one-off impact from the high liquidity after recent bonds
issuance before its deployment, will further impact the Group's NIM
negatively with the estimated range of 30-50 bps in 3Q 2019 and is
expected to stabilize in 4Q 2019.
The Group manages its direct exposure to the LIBOR and local
refinancing rates through respective limits and appropriate
pricing. As of 30 June 2019, GEL 5,261 million in assets (30%) and
GEL 1,799 million in liabilities (12%) were floating, related to
the LIBOR/FED/ECB (deposit facility) rates, whereas GEL 3,654
million of assets (21%) and GEL 2,768 million of liabilities (19%)
were floating, related to the NBG's refinancing rate. However, the
assets are still longer term than liabilities.
Risk mitigation
The current high margin levels, the increase in fee and
commission income and continuous cost optimization efforts
safeguard against margin declines and profitability concerns for
the Group. The Group continues to actively work on the margin
management program, which includes an adequate pricing framework
and profitability analysis to further assist in the decision making
process. In addition, the recent NBG regulation, which limits
consumer financing and shifts retail lending to mortgages,
positively impacts the cost of credit risk, thus supporting to
sustain the risk adjusted NIM. To mitigate 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 the 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.
Risk description
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 monitors the 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 respective processes and
procedures, are in place to handle cyberincidents 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.
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 baking 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 and, most frequently, this involved
events related to banking cards and cash. Internal frauds 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 events, 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. 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 timely detect unusual activities. The risk and control
self-assessment exercise focuses on identifying residual risks in
key processes, subject to 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 a timely identification and control of fraud-related
activities.
11. PRINCIPAL RISK
The Group is exposed to the risks inherent in international
operations.
The Group is expanding its international presence in Azerbaijan
and Uzbekistan. The expansion exposes the Group to new
macro-economic, political and regulatory environments, including
exposure to risks arising from credit, market, operational and
capital adequacy risks in local jurisdictions.
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 external environment in Uzbekistan and
Azerbaijan may change the Group's risk profile as a result of
international expansion. According to the latest IMF forecasts,
Uzbekistan is a rapidly developing economy with above 5% real GDP
growth projection 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
reserve implying the 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 investments.
While the operational environment in Uzbekistan can be assessed
as attractive, there are important risks, which can materially
affect the Group's performance in the country. These risks include,
but are not limited to, the political instability, low pace of
reforms, adverse developments in inflation and fluctuations in the
exchange rate.
Azerbaijan economy has high reliance on oil exports. The economy
of Azerbaijan started to recover in 2017 after the contraction in
2016 caused by the significant decline in oil prices in the period
of 2014-2016 years. The IMF projects Azerbaijan's economic growth
rate to improve to 3.4% in 2019 and to average at 2.0% over the
next 5 years. Along with the stabilisation in oil prices and
exchange rate, annual inflation remained stable in 1H 2019.
Azerbaijan's economic recovery has also contributed to the
strengthening of its financial sector and gradual recovery of the
lending to the economy. Despite relatively more stable environment,
Azerbaijan's growth is still significantly depends on oil prices
and any adverse developments in oil prices could negatively affect
the growth perspectives and exchange rate. Furthermore, potential
political instability and unfavorable developments in the state
regulations can also negatively affect the Groups business in
Azerbaijan.
Risk mitigation
The Group' 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 leading to
non-concentrated portfolio, leading to the lower credit risk.
The Group will maintain close relationship with the IFIs to
ensure business plan funding flexibility across many different
options. In particular, the IFIs will be the Group's partners in
Uzbekistan.
The Group has been operating in Azerbaijan through a small
microfinance organisation for a number of years, which provides
experience and knowledge of local banking environment. In addition,
in Azerbaijan the exposure is limited before the option is
exercised. The Group will exercise the option only after it becomes
comfortable with the development, including operating
environment.
The management will focus on establishing strong risk management
function to ensure that all risks are managed and mitigated
properly. The Group will leverage on its strong risk management
expertise to establish sound risk management practices in new
jurisdictions.
Overall, from the Group perspective international expansion will
result in diversification of business lines, macroeconomic cycles
and revenue streams balancing overall risk profile of the
Group.
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 2019 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
2019 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 2019.
Signed on behalf of the Board by:
Vakhtang Butskhrikidze Giorgi Shagidze
CEO Deputy CEO, CFO
14 August 2019 14 August 2019
TBC Bank Group PLC Board of
Directors:
Chairman
Nikoloz Enukidze
Executive Directors Non-executive Directors
Vakhtang Butskhrikidze (CEO) Nicholas Dominic Haag
Giorgi Shagidze (CFO) Maria Luisa Cicognani
Tsira Kemularia
TBC BANK GROUP PLC
International Financial Reporting Standards
Condensed Consolidated Interim Financial
Statements (Unaudited)
30 June 2019
Contents
Independent review report
Unaudited Condensed Consolidated Interim Financial
Information
Condensed Consolidated Interim Statement of Financial Position
...........................................................................................
71
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income.......................................
72
Condensed Consolidated Interim Statement of Changes in
Equity...........................................................................................74
Condensed Consolidated Interim Statement of Cash
Flows......................................................................................................
76
Notes to the Condensed Consolidated Interim Financial
Statements........................................................................................
77
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 Consolidated Financial Results of TBC
Bank Group plc for the 6 month period ended 30 June 2019. 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 2019;
-- 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 explanatory notes to the interim financial statements.
The interim financial statements included in the 2Q and 1H
Consolidated 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 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 Consolidated 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 Consolidated 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 Consolidated 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 Information 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 information
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
Consolidated 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
August 2019
TBC Bank Group PLC
Condensed Consolidated Interim Statement of Financial
Position
30 June 2019 31 December 2018
In thousands of GEL Note (Unaudited)
Assets
Cash and cash equivalents 4 1,628,344 1,166,911
Due from other banks 5 27,860 47,316
Mandatory cash balances with the
National Bank of Georgia 6 1,841,237 1,422,809
Loans and advances to customers 7 10,801,264 10,038,452
Investment securities measured at
fair value through other comprehensive
income 861,529 1,005,239
Repurchase Receivable 179,762 -
Bonds carried at amortized cost 633,530 654,203
Investments in associates 2,363 2,432
Investments in finance leases 220,871 203,802
Investment properties 79,114 84,296
Current income tax prepayment 19,417 2,116
Deferred income tax asset 1,753 2,097
Other financial assets 165,382 167,518
Other assets 211,850 192,792
Right of use assets 2 61,555 N/A
Premises and equipment 8 373,322 367,504
Intangible assets 8 123,910 109,220
Goodwill 45,301 31,286
Total assets 17,278,364 15,497,993
Liabilities
Due to credit institutions 9 3,052,742 3,031,503
Customer accounts 10 9,876,813 9,352,142
Other financial liabilities 252,280 98,714
Current income tax liability 727 63
Debt securities in issue 12 848,838 13,343
Deferred income tax liability 22 21,361 22,237
Provisions for liabilities and charges 11 20,116 18,767
Other liabilities 85,882 104,337
Lease Liabilities 2 62,598 N/A
Subordinated debt 13 688,002 650,919
Total liabilities 14,909,359 13,292,025
EQUITY
Share capital 14 1,672 1,650
Share premium 14 831,773 796,854
Retained earnings 1,668,810 1,523,879
Group reorganisation reserve (162,166) (162,166)
Share based payment reserve 15 (37,968) (16,294)
Revaluation reserve for premises 56,606 57,240
Fair value reserve 12,680 8,680
Cumulative currency translation
reserve (6,478) (6,937)
Net assets attributable to owners 2,364,929 2,202,906
Non-controlling interest 4,076 3,062
Total equity 2,369,005 2,205,968
Total liabilities and equity 17,278,364 15,497,993
The financial statements on pages 71 to 148 were approved by the
Board of Directors on 14 August 2019 and signed on its behalf on 15
August 2019 by:
______________________________ ______________________________
Vakhtang Butskhrikidze Giorgi Shagidze
Chief Executive Officer Chief Financial Officer
TBC Bank Group PLC
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income
Six months ended
30 June 2019 30 June 2018
In thousands of GEL Note (Unaudited) (Unaudited)
Interest income 18 678,216 598,001
Interest expense 18 (290,777) (234,394)
Net interest income 387,439 363,607
Fee and commission income 19 129,885 109,099
Fee and commission expense 19 (44,544) (35,017)
Net fee and commission income 85,341 74,082
Net insurance premiums earned 15,992 10,602
Net insurance claims incurred and agents' commissions (7,925) (5,303)
Insurance Profit 8,067 5,299
Net gains from trading in foreign currencies 46,119 38,782
Net gains from foreign exchange translation 9,214 4,023
Net (losses)/gains from derivative financial instruments (229) 413
Net gains from disposal of investment securities measured at fair value through
other comprehensive
income 20 147 -
Other operating income 7,809 10,263
Share of profit of associates 341 648
Other operating non-interest income 63,401 54,129
Credit loss allowance for loan to customers 7 (66,483) (65,980)
Recovery of/(Charge to) credit loss allowance for investments in finance lease 178 (493)
Credit loss allowance for performance guarantees and credit related commitments 11 (392) (2,500)
Recovery of/(Charge to) credit loss allowance for other financial assets 580 (5,469)
Credit loss allowance for financial assets measured at fair value through other
comprehensive
income (350) (112)
Operating income after credit impairment losses 477,781 422,563
Staff costs (116,639) (102,847)
Depreciation and amortisation 8 (32,124) (21,463)
(Provision for)/recovery of provision for liabilities and charges 1,441 -
Administrative and other operating expenses 21 (64,575) (58,712)
Operating expenses (211,897) (183,022)
Profit before tax 265,884 239,541
Income tax expense 22 (12,344) (39,578)
Profit for the period 253,540 199,963
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve 3,999 827
Exchange differences on translation to presentation currency 457 14
Items that will not be reclassified to profit or loss:
Income tax recorded directly in other comprehensive income - (5,151)
Other comprehensive income for the period 4,456 (4,310)
Total comprehensive income for the PERIOD 257,996 195,653
TBC Bank Group PLC
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income
Six months ended
30 June 2019 30 June 2018
In thousands of GEL Note (Unaudited) (Unaudited)
Profit is attributable to:
- Shareholders of TBCG 253,235 198,347
- Non-controlling interest 305 1,616
Profit for the period 253,540 199,963
Total comprehensive income is attributable to:
- Shareholders of TBCG 257,687 194,089
- Non-controlling interest 309 1,564
Total comprehensive income for the period 257,996 195,653
Earnings per share for profit attributable to the owners of the Group:
- Basic earnings per share 16 4.64 3.70
- Diluted earnings per share 16 4.62 3.67
TBC Bank Group PLC
Condensed Consolidated Interim Statement of Changes in
Equity
Non-control-ling Total
Net assets attributable to owners interest equity
Share Share Group Share Revaluation Fair Cumulative Retained Total
capital pre-mium reorganisation based reserve for value currency earnings
In thousands reserve payments premises reserve translation
of GEL Note reserve reserve
Balance as
of 1 January
2018 1,605 714,651 (162,166) 9,828 70,045 1,730 (7,359) 1,169,937 1,798,271 28,536 1,826,807
Profit for the
six months
ended 30 June
2018
(unaudited) - - - - - - - 198,347 198,347 1,616 199,963
Other
comprehensive
income/(loss)
for six
months ended
30 June 2018
(unaudited) - - - - (5,083) 811 14 - (4,258) (52) (4,310)
Total
comprehensive
income/(loss)
for six
months ended
30 June 2018
(unaudited) - - - - (5,083) 811 14 198,347 194,089 1,564 195,653
Share issue 23 41,984 - (38,670) - - - - 3,337 - 3,337
Share based
payment
expense 15 - - - 7,757 - - - - 7,757 (885) 6,872
Conversion of
shares 22 40,173 - - - - - (17,837) 22,358 (22,358) -
Dividends
declared - - - - - - - (88,869) (88,869) (116) (88,985)
Balance as of
30 June 2018
(unaudited) 1,650 796,808 (162,166) (21,085) 64,962 2,541 (7,345) 1,261,578 1,936,943 6,741 1,943,684
Balance as of
1 January
2019 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
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) - - - - - 3,999 457 - 4,456 - 4,456
Total
comprehensive
income/(loss)
for six
months ended
30 June 2019
(unaudited) - - - - - 3,999 457 253,235 257,691 305 257,996
Share issue 22 34,919 - (34,941) - - - - - - -
Share based
payment
expense 15 - - - 13,267 - - - - 13,267 (25) 13,242
Business
Combination 29 - - - - - - - - - 838 838
Purchase of
additional
interest from
NCI - - - - - - - - - (104) (104)
Dividends
declared - - - - - - - (108,622) (108,622) - (108,622)
Transfer of
revaluation
surplus to RE
and other
movements - - - - (634) - - 321 (313) - (313)
Balance as of
30 June 2019
(unaudited) 1,672 831,773 (162,166) (37,968) 56,606 12,680 (6,478) 1,668,810 2,364,929 4,076 2,369,005
TBC Bank Group PLC
Condensed Consolidated Interim Statement of Cash Flows
Six months ended
In thousands of GEL Note 30 June 2019 (Unaudited) 30 June 2018 (Unaudited)
Cash flows from/(used in) operating activities
Interest received 632,619 573,644
Interest paid (291,963) (234,845)
Fees and commissions received 127,685 118,805
Fees and commissions paid (44,370) (35,025)
Insurance premium received 18,560 10,973
Insurance claims paid (9,727) (5,898)
Income received from trading in foreign currencies 46,119 38,782
Other operating income received 11,500 (2,672)
Staff costs paid (123,342) (111,715)
Administrative and other operating expenses paid (81,397) (59,836)
Income tax paid (30,900) (10,151)
Cash flows from operating activities before changes in
operating assets and liabilities 254,784 282,062
Net change in operating assets
Due from other banks and mandatory cash balances with the
National Bank of Georgia (302,690) (51,957)
Loans and advances to customers (385,945) (671,825)
Investment in finance lease (3,498) (34,101)
Other financial assets 19,610 40,231
Other assets 2,869 (879)
Net change in operating liabilities
Due to other banks 276,076 126,870
Customer accounts 134,334 430,568
Other financial liabilities 23,487 (10,995)
Lease liabilities (1,367) N/A
Other liabilities and provision for liabilities and charges 9,607 (215)
Net cash flows from operating activities 27,267 109,759
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value
through other comprehensive income (101,119) (395,898)
Proceeds from redemption at maturity of investment
securities measured at fair value through
other comprehensive income 210,174 239,593
Acquisition of bonds carried at amortised cost (240,420) (166,188)
Proceeds from redemption of bonds carried at amortised cost 126,113 142,432
Acquisition of premises, equipment and intangible assets (51,490) (34,241)
Proceeds from disposal of premises, equipment and
intangible assets 11,023 1,015
Proceeds from disposal of investment property 9,508 6,898
Acquisition of subsidiaries and associates (14,569) -
Net cash used in investing activities (50,780) (206,389)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 553,781 1,468,097
Redemption of other borrowed funds (938,535) (1,044,435)
Proceeds from subordinated debt - -
Redemption of subordinated debt (8,576) (7,688)
Proceeds from debt securities in issue 12 820,708 28
Redemption of debt securities in issue (5,805)
Dividends paid 14 - (85,484)
Net cash flows from financing activities 421,573 330,518
Effect of exchange rate changes on cash and cash
equivalents 63,373 (60,202)
Net increase in cash and cash equivalents 461,433 173,686
Cash and cash equivalents at the beginning of the period 4 1,166,911 1,431,477
Cash and cash equivalents at the end of the period 4 1,628,344 1,605,163
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 2019 (31 December 2018:
99.88%), thus representing the Bank's ultimate parent company.
Together with the Bank and subsidiaries, TBCG makes up a group of
companies. The Bank is a parent of a group of companies
incorporated in Georgia and Azerbaijan, their primary business
activities include providing banking, leasing, brokerage and card
processing services to corporate and individual customers. Group's
subsidiary JSC TBC Insurance provides insurance services in
property, casualty, motor and life insurance throughout
Georgia.
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", Note14). TBC Bank Group PLC's registered legal address
is 6 St. Andrew Street, London, United Kingdom EC4A 3AE. 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 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 146 branches and 7,266 employees within Georgia as
at 30 June 2019 (30 June 2018: 149 branches and 7,065
employees).
As of 30 June 2019 and 31 December 2018, 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 of 30 June 2019 and 31
December 2018 the Group had no ultimate controlling party. Other
includes individual as well as corporate shareholders.
30 June 2019 31 December 2018
Shareholders Ownership interest Ownership interest
European Bank for Reconstruction and Development 8.09% 8.18%
JPMorgan Asset Management 7.28% 8.40%
Schroder Investment Management 6.67% 7.08%
Badri Japaridze* 6.37% 6.08%
Mamuka Khazaradze* 6.32% 6.19%
Dunross & Co. 5.93% 5.51%
Other 59.34% 58.56%
Total 100.00% 100.00%
* Represents direct ownership of the shares for Mamuka
Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial
ownership of 11.90% (31 December 2018: 13.54%) and Badri Japaridze
has beneficial ownership of 6.37% (31 December 2018: 6.77%)
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
Company Name 30 June 2019 31 December 2018 incorporation
JSC TBC Bank 99.88% 99.88% Tbilisi, Georgia 1992 Banking
United Financial
Corporation JSC 98.67% 98.67% Tbilisi, Georgia 1997 Card processing
TBC Capital LLC 100.00% 100.00% Tbilisi, Georgia 1999 Brokerage
TBC Leasing JSC 100.00% 99.61% Tbilisi, Georgia 2003 Leasing
Non-banking credit
TBC Kredit LLC 100.00% 100.00% Baku, Azerbaijan 1999 institution
Banking System
Service Company Information
LLC 100.00% 100.00% Tbilisi, Georgia 2009 services
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
BG LLC* 0.00% 0.00% Tbilisi, Georgia 2018 Asset management
JSC TBC Insurance 100.00% 100.00% Tbilisi, Georgia 2014 Insurance
LLC TBC
International 100.00% 0.00% Tbilisi, Georgia 2019 Asset management
GE Commerce LTD 100.00% 100.00% Tbilisi, Georgia 2018 Retail Trade
Swoop JSC 100.00% 100.00% Tbilisi, Georgia 2010 Retail Trade
LLC Online
Tickets 55.00% 26.00% Tbilisi, Georgia 2015 Software Services
Real estate
LLC Allproperty 90.00% 0.00% Tbilisi, Georgia 2013 management
Tashkent,
Inspired LLC 51.00% 0.00% Uzbekistan 2011 Processing
* The Group has de-facto control over the subsidiary (control
without legal form of ownership)
The consolidated financial statements include the following
associates:
Proportion of voting rights and Principal place of Year of
ordinary share capital held as of 30 business or incorpo-ration
June incorporation Industry
Company Name 2019 2018
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.
Proportion of voting rights and
ordinary share capital
30 June 31 December 2018 Principal place of Year of Industry
2019 business or incorpo-ration
Company Name incorporation
TBC Invest
International Ltd 100.00% 100.00% Tbilisi, Georgia 2016 Investment Vehicle
University
Development Fund 33.33% 33.33% Tbilisi, Georgia 2007 Education
In January 2019, TBC Bank signed an agreement with Nikoil Open
Join-Stock Company Investment Commercial Bank ("Nikoil Bank") and
its shareholders to develop joint business in Azerbaijan. The
agreement assumes transfer by TBC Bank of 100% share interest in
TBC Kredit to Nikoil Bank in exchange for around 8% of share
interest in Nikoil Bank. TBC Bank receives a right to acquire
additional shareholding in Nikoil Bank (controlling interest)
within four years at TBC's sole discretion. Shareholders of Nikoil
bank also receive right to sell their remaining shareholdings to
TBC Bank in case the Bank exercises its right to acquire additional
shareholding in Nikoil Bank. The whole arrangement is still subject
to regulatory approval in Azerbaijan.
TBC Kredit is planned to be merged with Nikoil Bank. Subject to
the completion of the merger, TBC Bank would contribute to the
development and execution of the merged entity's strategy. TBC Bank
would be represented on the board of Nikoil Bank and, together with
Nikoil management, would play a crucial role in the future
development of the company. TBC Bank intends to use its Georgian
banking sector expertise, including its newly-launched fully
digital bank, Space, to support Nikoil Bank's local growth in its
targeted retail and MSME customer markets.
2 Summary of Significant Accounting Policies, Critical
Accounting Estimates, and Judgements in Applying Accounting
Policies
2.1 Basis of preparation
These condensed consolidated interim financial statements for
the six months ended 30 June 2019 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
condensed consolidated 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 2018, which have been
prepared in accordance with IFRSs as adopted by the European Union
and any public announcements made by TBC Bank Group PLC during the
interim reporting period.
The condensed consolidated interim financial statements are
presented in thousands of Georgian Lari ("GEL thousands"), except
per-share amounts and unless otherwise indicated.
These condensed consolidated 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 condensed consolidated 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.
Foreign currency translation. At 30 June 2019 the closing rate
of exchange used for translating foreign currency balances was USD
1 = GEL 2.8687(31 December 2018: USD 1 = GEL 2.6766); EUR 1 = GEL
3.2657 (31 December 2018: EUR 1 = GEL 3.0701); GBP 1 = GEL 3.6384
(31 December 2018: GBP 1 = GEL 3.3955).
Except as described below, the same accounting policies and
methods of computation were followed in the preparation of this
condensed consolidated interim financial statements as compared
with the annual consolidated financial statements of the Group for
the year ended 31 December 2018.
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.
New accounting policy for leases by the Group as a lessee. The
Group adopted IFRS 16, Leases, using modified retrospective method
and applied certain simplifications or practical expedients. Refer
to section 2.3 below.
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. 20% decrease in SICR thresholds would increase
impairment allowance on loans and advances by GEL 2,426thousand (31
December 2018: GEL 2,056 thousand) and would result in a change of
the Bank's cost of credit risk ratio by 5 basis points (31 December
2018: 2 basis points). 10% increase in Stage 2 exposures would
increase impairment allowance on loans and advances by GEL 2,548
thousand (31 December 2018: GEL 2,723 thousand) and would result in
a change of the Bank's cost of credit risk ratio by 5 basis points
(31 December 2018: 3 basis points).
Risk parameters: Probability of default (PD) and Loss given
default (LGD) parameters are one of the key drivers of expected
credit losses. A 10% increase (decrease) in PD estimates at 30 June
2019 would increase (decrease) impairment allowance on loans and
advances by GEL 19,434 thousand (GEL 19,459 thousand) (31 December
2018: increase (decrease) by GEL 18,876 thousand (GEL 18,942
thousand)) and would result in a change of the Bank's cost of
credit risk ratio by 37 (37) basis points (31 December 2018: 21
(21) basis points). As for the LGD ratio, a 10% increase (decrease)
in LGD estimates at 30 June 2019 would increase (decrease)
impairment allowance on loans and advances by GEL 27,998 thousand
(GEL 29,740 thousand) (31 December 2018: increase (decrease) by GEL
28,185 thousand (GEL 28,012 thousand)) and would result in a change
of the Bank's cost of credit risk ratio by 54 (57) basis points (31
December 2018: 31 (31) basis points).
Macro-economic scenarios: The Bank incorporates forward-looking
information with three macro-economic scenarios to calculate
unbiased and probability weighted ECL. They represent the Baseline
scenario (most likely outcome) and two less likely scenarios,
referred as the Upside (better than Baseline) and Downside (worse
than Baseline). Weight for the baseline scenario is set to 50% and
25% weight (31 December 2018: 50% and 25% weight) is applied for
each less likely scenarios.
To set the weight assigned to upside forward looking
macro-economic set of assumptions to 15% and respectively increase
the weight of the downside level assumptions from current 25% to
35% would increase impairment allowance on loans and advances by
GEL 4,870 thousand and would result in a change of the Bank's cost
of credit risk ratio by 9 basis points as at June 2019 (31 December
2018: increase by GEL 4,860 thousand would result in a change of
the Bank's cost of credit risk ratio by 5 basis points).
2.3 Adoption of new and revised standards
Initial application of IFRS 16
IFRS 16 replaces IAS 17 Leases for annual periods beginning on
or after 1 January 2019. The group has adopted IFRS 16
retrospectively from 1 January 2019 with certain simplifications,
and has not restated comparatives for the 2018 reporting period, as
permitted under the specific transitional provisions in the
standard (modified retrospective approach). The reclassifications
and the adjustments arising from the new leasing rules are
therefore recognised in the opening balance sheet on 1 January
2019. The comparative information for 2018 is reported under IAS 17
and is not comparable to the information presented for 2019.
On adoption of IFRS 16, the group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rates as of 1 January 2019 which were applied on a portfolio basis
of leases with reasonably similar characteristics.
The average incremental borrowing rates applied to the lease
liabilities on 1 January 2019 was 3.77% for USD denominated
contracts and 9.19% for GEL denominated contracts.
In applying IFRS 16 for the first time, the group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases.
The group has also elected not to reassess whether a contract
is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
group relied on its assessment made applying IAS 17 in determining
whether an arrangement contains a Lease.
The Group did not have finance leases balances outstanding as at
31 December 2018. TBC has made no adjustments where the Group acts
as lessor, in either a finance or operating lease, of physical
assets it owns. Where TBC acts as an intermediate lessor, i.e.,
enters into a head lease and subleases the asset to a third party,
the sublease has been classified as either a finance or operating
lease based primarily on whether the sublease term consumes the
majority of the remaining useful life of the right-of-use asset
arising from the head lease as at the transition date. The
following table reconciles the obligations in respect of operating
leases as at 31 December 2018 to the opening lease liabilities
recognized on 1 January 2019:
Differences arising from the adoption of IFRS 16 as of 1 January
2019 are disclosed below:
In thousands of GEL 1 January 2019
Total future minimum lease payments for non-cancellable
operating leases disclosed as at 31 December 2018. 11,022
- Future lease payments that are due in periods
subject to lease extension options that are reasonably
certain to be exercised 58,573
- Effect of discounting to present value (8,552)
Total effect on the Lease Liability as at 1 January
2019 61,043
Of which are:
- Current lease liabilities 11,467
- Non-current lease liabilities 49,576
2.3 Adoption of new and revised standards (continued)
The right-of use assets were measured at the amount equal to the
lease liability. There were no onerous lease contracts that would
have required an adjustment to the right-of-use assets at the date
of initial application. The recognised right-of-use assets mostly
relate to the branches and office buildings.
The change in accounting policy affected the following items in
the balance sheet on 1 January 2019:
-- right-of-use assets - increase by GEL 61,043 thousand;
-- lease liabilities - increase by GEL 61,043 thousand.
The net impact on retained earnings on 1 January 2019 was
nil.
IFRS 16 subsequent recognition and policies
As at 30 June the balances of Right of the use asset and the
Lease liability are GEL 61,555 thousand and GEL 62,598 thousand
respectively. The interest charge on lease liabilities presented
within interest expense amounted GEL 1,182 thousand, recognized
within interest expense. During the first six month period of 2019,
the weighted average lease term was approximately 5 years and
depreciation expense of right-of-use assets amounted GEL 6,590
thousand.
TBC predominantly enters into lease contracts, or contracts that
include lease components, as a lessee of real estate, including
offices, retail branches and service centers. TBC identifies
non-lease components of a contract and accounts for them separately
from lease components.
When TBC is lessee in a lease arrangement, TBC recognizes a
lease liability and corresponding right-of-use (RoU) asset at the
commencement of the lease term when TBC acquires control of the
physical use of the asset. The lease liability is measured based on
the present value of the lease payments over the lease term,
discounted using TBC's incremental borrowing rate. Interest expense
on the lease liability is presented within Interest expense from
financial instruments. The RoU asset is recorded at an amount equal
to the lease liability but is adjusted for rent prepayments,
initial direct costs, any costs to refurbish the leased asset or
lease incentives received. The RoU asset is depreciated over the
shorter of the lease term or the useful life of the underlying
asset, with the depreciation presented within depreciation expense
in statement of comprehensive income.
Lease payments generally include fixed payments. When the lease
contains an extension or termination option that the Group
considers reasonably certain to be exercised, the expected rental
payments or costs of termination are included within the lease
payments used to generate the lease liability. TBC does not
typically enter into leases with purchase options or residual value
guarantees.
Where TBC acts as lessor or sublessor under a finance lease, a
receivable is recognized and measured at amortized cost at an
amount equal to the present value of the aggregate of the lease
payments plus any unguaranteed residual value that TBC expects to
recover at the end of the lease term.
Initial direct costs are also included in the initial
measurement of the lease receivable. Lease payments received during
the lease term are allocated as repayments of the outstanding
receivable.
Interest income reflects a constant periodic rate of return on
TBC's net investment using the interest rate implicit in the lease
(or, for subleases, the rate for the head lease). TBC reviews the
estimated unguaranteed residual value annually, and if the
estimated residual value to be realized is less than the amount
assumed at lease inception, a loss is recognized for the expected
shortfall. Where TBC acts as a lessor or sublessor in an operating
lease of owned real estate, TBC recognizes the operating lease
income on a straight-line basis over the lease term.
2.3 Adoption of new and revised standards (continued)
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the group. Each lease payment is
allocated between the liability and interest expense. The interest
expense is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payment that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option, and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Right-of-use assets are measured at cost comprising the
following at initial recognition:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs, and
-- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture or the items below
the market value of USD 5,000.
Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the group. These terms are
used to maximize operational flexibility in terms of managing
contracts. The majority of extension and termination options held
are exercisable only by the group and not by the respective lessor.
The key assumptions applied by the Group on making decisions
regarding lease term are follows:
Judgements in determining the lease term
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated). The assessment is reviewed if a significant
event or a significant change in circumstances occurs which affects
this assessment and that is within the control of the lessee.
As for the adoption date management has reassessed expected
lease terms for the branch offices. The assessment was performed by
retail sales department taking into account a few criteria, namely:
location, profitability and strategic importance of the branch
offices. Based on the analysis performed, management identified and
recorded expected terms for the lease contracts, subject to lease
extension options that are reasonably certain to be exercised.
Adoption of other Standards and Interpretations
The adopted accounting policies are consistent with those of the
previous financial year. There were no other new or amended
standards or interpretations that resulted in a change of the
accounting policy except described above.
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
2018 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 recognising 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
recognising the loss immediately. The Group is currently assessing
the impact of the new standard on its financial statements.
4 Cash and Cash Equivalents
31 December
In thousands of GEL 30 June 2019 2018
Cash on hand 674,466 491,928
Cash balances with the National Bank of
Georgia (other than mandatory reserve deposits) 91,051 118,749
Correspondent accounts and overnight placements
with other banks 440,849 371,902
Placements with and receivables from other
banks with original maturities of less than
three months 422,083 184,429
Total gross amount of cash and cash equivalents 1,628,449 1,167,008
Less: Credit loss allowance (105) (97)
Total carrying amount of cash and cash equivalents 1,628,344 1,166,911
As of 30 June 2019, 95.3% of the correspondent accounts and
overnight placements with other banks are placed with OECD banking
institutions (31 December 2018: 95%).
As of 30 June 2019, GEL 399,004 thousand was placed on interbank
term deposits with three OECD banks and GEL 23,080 with two
Georgian bank (31 December 2018: GEL 13,383 thousand with one
non-OECD bank and GEL 171,046 thousand with two OECD bank).
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 2019 and 31
December 2018. As of 30 June 2019 GEL 10,339 thousand (31 December
2018: GEL 15,725 thousand) were kept on deposits as restricted
cash. Refer to Note 27 for the estimated fair value of amounts due
from other banks.
As of 30 June 2019 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 (2018: one bank in the
amount of GEL 19,311 thousand).
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 6.50%, 0.25% and (0.6%) annual interest in GEL, USD
and EUR respectively on mandatory reserve with NBG in the six
months ended 30 June 2019 (30 June 2018: 5.0%, 1.0% and (0.4%) in
GEL, USD and EUR respectively).
In February 2019 Fitch Ratings has upgraded Georgia's long-term
foreign and local currency Issuer Default Ratings (IDRs) to 'BB'
from 'BB-'. The Outlook is Stable. The issue ratings on Georgia's
long-term senior unsecured foreign- and local-currency bonds
upgraded to 'BB' from 'BB-'. The Country Ceiling upgraded to 'BBB-'
from 'BB' and the Short-term foreign and local currency IDR
affirmed at 'B'.
7 Loans and Advances to Customers
30 June 31 December
In thousands of GEL 2019 2018
Corporate 3,658,341 3,177,289
Consumer 1,875,500 1,989,516
Mortgage 2,959,819 2,709,183
Loans to micro, small and medium enterprises 2,647,700 2,496,594
Total gross loans and advances to customers 11,141,360 10,372,582
Less: credit loss allowance (340,096) (334,130)
Total carrying amount of loans and advances
to customers 10,801,264 10,038,452
In 2019, the Group made re-segmentation as disclosed in Note 17.
Some of the clients were reallocated to different segments.
The following table discloses 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 period. Below main movements in the table are
described:
-- Transfers between Stage 1, 2 and 3 due to balances
experiencing significant increases (or decreases) of credit risk or
becoming credit-impaired 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 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 exposures which changed stage several times during the
period, transfers between starting and ending stage is
disclosed.
-- New originated or purchased gives us information regarding
gross loans and corresponding credit impairment 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 credit impairment 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 consisting of withdrawal of loan and repayment;
-- Write off line refers to write off of loans during the period;
-- Recovery section refers to recoveries of already written off loans during the period;
-- Foreign exchange translations of assets denominated in
foreign currencies and effect to translation in presentational
currency for foreign subsidiary.
-- Net remeasurement 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.
As of 30 June 2019 loans and advances to customers carried at
GEL 358,230 thousand have been pledged to local banks or other
financial institutions as collateral with respect to other borrowed
funds (31 December 2018: GEL 228,454 thousand).
Movements in the expected credit loss allowance during the six
months ended 30 June 2019 are as follows:
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 31 December
2018 2,903,313 138,715 135,261 3,177,289 32,940 4,994 43,571 81,505
Resegmentation 119,408 711 - 120,119 837 75 - 912
At 1 January 2019 3,022,721 139,426 135,261 3,297,408 33,777 5,069 43,571 82,417
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) (167,699) 171,769 (4,070) - (2,653) 2,653 - -
- to
credit-impaired
(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) - - - -
Write-offs - - - - - - 572 572
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - 137 (690) (5,958) (6,511)
FX movements 139,759 9,386 7,045 156,190 - - - -
At 30 June 2019 3,300,054 238,085 120,202 3,658,341 37,667 6,765 34,171 78,603
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
(12-months ECL for credit (12-months for credit
In thousands of GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 31 December 2017 2,041,538 325,919 107,935 2,475,392 21,208 15,036 31,719 67,963
Resegmentation 53,704 1,216 - 54,920 185 - - 185
At 1 January 2018 2,095,242 327,135 107,935 2,530,312 21,393 15,036 31,719 68,148
Transfers:
- to lifetime (from
Stage 1 and Stage
3 to Stage 2) (33,294) 37,738 (4,444) - (932) 952 (20) -
- to credit-impaired
(from Stage 1 and
Stage 2 to Stage
3) (26,330) (14,452) 40,782 - (15,865) (57) 15,922 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 36,023 (36,023) - - 126 (126) - -
New originated or
purchased 812,742 - - 812,742 24,507 - - 24,507
Derecognised during
the period (340,551) (27,897) (40,250) (408,698) (3,255) (731) (12,102) (16,088)
Net repayments (207,680) (42,210) (10,387) (260,277) - - - -
Write-offs - - (321) (321) - - 1,726 1,726
Net remeasurement
due to stage
transfers
and risk parameters
changes - - - - (2,702) (2,442) (1,678) (6,822)
FX movements (77,829) (9,395) (4,936) (92,160) - - - -
At 30 June 2018 2,258,323 234,896 88,379 2,581,598 23,272 12,632 35,567 71,471
Loans to micro, Gross carrying amount Credit loss allowance
small and medium
enterprises
In thousands of Stage Stage Stage Total Stage Stage Stage 3 Total
GEL 1 2 3 1 2
(12-months (lifetime (lifetime (12-months (lifetime (lifetime
ECL) ECL for ECL for ECL) ECL ECL for
SICR) credit for credit
im-paired) SICR) im-paired)
At 31 December
2018 2,210,725 193,049 92,820 2,496,594 19,301 22,379 29,334 71,014
Resegmentation (119,163) (786) - (119,949) (836) (78) - (914)
At 1 January 2019 2,091,562 192,263 92,820 2,376,645 18,465 22,301 29,334 70,100
Transfers:
- to lifetime
(from
Stage 1 and Stage
3 to Stage 2) (130,631) 133,823 (3,192) 0 (3,613) 5,462 (1,849) -
- to
credit-impaired
(from Stage 1 and
Stage 2 to Stage
3) (16,515) (29,982) 46,497 0 (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) - - - -
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
FX 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
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 31 December
2017 1,630,103 149,799 64,770 1,844,672 9,894 11,890 24,468 46,252
Resegmentation 112,814 32,474 2,740 148,028 3,596 2,424 927 6,947
At 1 January 2018 1,742,917 182,273 67,510 1,992,700 13,490 14,314 25,395 53,199
Transfers:
- to lifetime
(from
Stage 1 and Stage
3 to Stage 2) (92,577) 101,058 (8,481) - (3,102) 5,014 (1,912) -
- to
credit-impaired
(from Stage 1 and
Stage 2 to Stage
3) (13,640) (17,094) 30,734 - (608) (3,163) 3,771 -
- to 12-months
ECL (from Stage
2 and Stage 3 to
Stage 1) 27,348 (27,348) - - 811 (811) - -
New originated
or purchased 548,941 - - 548,941 7,382 - - 7,382
Derecognised
during
the period (185,804) (17,854) (13,119) (216,777) (1,481) (1,122) (6,501) (9,104)
Net repayments (125,379) (15,971) (1,851) (143,201) - - - -
Write-offs - - (9,992) (9,992) - - (4,675) (4,675)
Net remeasurement
due to stage
transfers
and risk
parameters
changes - - - - (303) 10,946 8,357 19,000
FX movements (46,321) (5,451) (2,006) (53,778) (19) (21) (366) (406)
At 30 June 2018 1,855,485 199,613 62,795 2,117,893 16,170 25,157 24,069 65,396
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 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 31 December 2018 1,641,993 265,673 81,850 1,989,516 42,903 59,245 54,575 156,723
Resegmentation 4,772 1,244 698 6,714 19 104 235 358
At 1 January 2019 1,646,765 266,917 82,548 1,996,230 42,922 59,349 54,810 157,081
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 credit-impaired
(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) - - - -
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
FX 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
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 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 31 December 2017 1,788,523 301,923 72,981 2,163,427 42,066 64,309 48,195 154,570
Resegmentation (164,022) (33,629) (2,740) (200,391) (3,764) (2,422) (927) (7,113)
At 1 January 2018 1,624,501 268,294 70,241 1,963,036 38,302 61,887 47,268 147,457
Transfers:
- to lifetime (from
Stage 1 and Stage
3 to Stage 2) (167,119) 172,812 (5,693) - (8,415) 9,660 (1,245) -
- to credit-impaired
(from Stage 1 and
Stage 2 to Stage
3) (29,524) (39,130) 68,654 - (4,255) (3,301) 7,556 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 57,116 (57,116) - - 2,520 (2,520) - -
New originated or
purchased 709,714 - - 709,714 33,591 - - 33,591
Derecognised during
the period (203,757) (38,065) (56,405) (298,227) (4,868) (5,607) (43,153) (53,628)
Net repayments (311,045) (30,967) 39,349 (302,663) - - - -
Write-offs - - (43,971) (43,971) - - (33,647) (33,647)
Net remeasurement
due to stage
transfers
and risk parameters
changes - - - - (9,952) 11,056 63,603 64,707
FX movements (13,874) (2,191) (1,302) (17,367) (29) (6) (72) (107)
At 30 June 2018 1,666,012 273,637 70,873 2,010,522 46,894 71,169 40,310 158,373
Mortgage loans Gross carrying amount Credit loss allowance
In thousands of Stage Stage Stage Total Stage Stage Stage Total
GEL 1 2 3 1 2 3
(12-months (lifetime (lifetime (12-months (lifetime (lifetime
ECL) ECL for ECL for ECL) ECL ECL for
SICR) credit for credit
im-paired) SICR) im-paired)
At 31 December
2018 2,470,603 194,410 44,170 2,709,183 1,696 9,166 14,026 24,888
Resegmentation (5,016) (1,170) (698) (6,884) (20) (102) (235) (357)
At 1 January 2019 2,465,587 193,240 43,472 2,702,299 1,677 9,063 13,791 24,531
Transfers:
- to lifetime
(from
Stage 1 and Stage
3 to Stage 2) (127,153) 133,830 (6,677) - (498) 2,426 (1,928) -
- to
credit-impaired
(from Stage 1 and
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) - - - -
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
FX 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 1,539 11,123 17,080 29,742
Mortgage 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
(12-months ECL for credit (12-months ECL for credit
In thousands of GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 31 December 2017 1,839,707 189,887 40,136 2,069,730 1,371 9,336 12,102 22,809
Resegmentation (2,495) (61) - (2,556) (17) (2) - (19)
At 1 January 2018 1,837,212 189,826 40,136 2,067,174 1,354 9,334 12,102 22,790
Transfers:
- to lifetime (from
Stage 1 and Stage
3 to Stage 2) (91,879) 100,517 (8,638) - (335) 1,240 (905) -
- to credit-impaired
(from Stage 1 and
Stage 2 to Stage
3) (3,910) (14,134) 18,044 - (710) (1,551) 2,261 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 41,331 (41,331) - - 305 (400) 95 -
New originated or
purchased 452,562 - - 452,562 1,331 - - 1,331
Derecognised during
the period (85,457) (21,831) (3,974) (111,262) (116) (1,215) (1,680) (3,011)
Net repayments (124,644) (11,714) (913) (137,271) - - - -
Write-offs - - (1,933) (1,933) - - 1,031 1,031
Net remeasurement
due to stage
transfers
and risk parameters
changes - - - - (369) 3,955 541 4,127
FX movements (72,007) (9,627) (2,004) (83,638) (9) (27) (105) (141)
At 30 June 2018 1,953,208 191,706 40,718 2,185,632 1,451 11,336 13,340 26,127
Loans to micro, small and
In thousands of GEL Corporate loans Consumer loans Mortgage loans medium enterprises Total
Credit loss allowance as of
1 January 2019 81,505 156,723 24,888 71,014 334,130
Resegmentation effect 767 - - (767) -
Credit loss allowance during
the period (3,669) 59,421 5,417 23,556 84,725
Amounts written off during
the period as uncollectible - (64,522) (650) (14,042) (79,214)
Effect of translation to
presentation currency - 33 87 335 455
Credit loss allowance as of
30 June 2019 78,603 151,655 29,742 80,096 340,096
Loans and advances to customers written off in the first half of
2019 included loans to customers in the gross amount of GEL 6,806
thousand issued in 2019 and GEL 32,829 thousand issued in previous
years.
Movements in the expected credit loss allowance during the six
months ended 30 June 2018 were as follows:
In thousands of Loans to micro, small
GEL Corporate loans Consumer loans Mortgage loans and medium enterprises Total
Credit loss
allowance as
of 1 January
2018 67,963 154,570 22,809 46,252 291,594
Resegmentation 446 (14,889) (21) 14,464 -
effect
Credit loss 3,383 62,749 5,402 15,050 86,584
allowance
during the
period
Amounts written (321) (43,951) (1,922) (9,965) (56,159)
off during the
period as
uncollectible
Effect of - (106) (141) (405) (652)
translation to
presentation
currency
Credit loss
allowance as
of 30 June
2018 71,471 158,373 26,127 65,396 321,367
Economic sector risk concentrations within the customer loan
portfolio are as follows:
30 June 2019 31 December 2018
In thousands of GEL Amount % Amount %
Individual 4,810,901 43% 4,677,328 45%
Energy and Utilities 970,932 9% 776,204 7%
Hotels and Leisure 913,244 8% 759,605 7%
Real Estate 688,291 6% 564,197 5%
Food Industry 659,409 6% 570,810 6%
Trade 549,187 5% 445,290 4%
Agriculture 460,080 4% 418,432 4%
Construction 448,005 4% 359,549 3%
Pawn Shops 272,640 2% 278,384 3%
Healthcare 242,208 2% 220,756 2%
Services 205,084 2% 180,045 2%
Automotive 199,842 2% 156,241 2%
Transportation 118,118 1% 80,075 1%
Metals and Mining 93,781 1% 100,855 1%
Financial Services 84,691 1% 71,617 1%
Communication 39,719 1% 229,522 2%
Other 385,228 3% 483,672 5%
Total Gross loans and advances to customers 11,141,360 100% 10,372,582 100%
As of 30 June 2019 the Group had 200 borrowers (31 December
2018: 170 borrowers) with aggregated gross loan amounts above GEL
5,000 thousand. The total aggregated amount of these loans was GEL
3,464,602 thousand (31 December 2018: GEL 3,054,314 thousand) or
31.1% of the gross loan portfolio (31 December 2018: 29.4%).
Analysis by credit quality of loans outstanding as of 30 June
2019 is as follows:
Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for credit impaired)
Corporate loans risk
category
- Very low 3,108,279 2,156 - 3,110,435
- Low 187,872 219,849 - 407,721
- Moderate 3,903 16,080 - 19,983
- High - - - -
- Default - - 120,202 120,202
Gross carrying amount 3,300,054 238,085 120,202 3,658,341
Credit loss allowance (37,667) (6,765) (34,171) (78,603)
Carrying amount 3,262,387 231,320 86,031 3,579,738
Consumer loans risk
category
- Very low 1,088,263 5,422 - 1,093,685
- Low 329,746 19,011 - 348,757
- Moderate 138,588 180,202 - 318,790
- High - 24,850 - 24,850
- Default - - 89,418 89,418
Gross carrying amount 1,556,597 229,485 89,418 1,875,500
Credit loss allowance (38,395) (55,492) (57,768) (151,655)
Carrying amount 1,518,202 173,993 31,650 1,723,845
Mortgage loans risk
category
- Very low 2,474,180 30,154 - 2,504,334
- Low 170,112 79,019 - 249,131
- Moderate 14,666 125,022 - 139,688
- High - 14,253 - 14,253
- Default - - 52,413 52,413
Gross carrying amount 2,658,958 248,448 52,413 2,959,819
Credit loss allowance (1,539) (11,123) (17,080) (29,742)
Carrying amount 2,657,419 237,325 35,333 2,930,077
Stage 1 Stage 2 Stage 3 Total
In thousands of (12-months (lifetime ECL (lifetime ECL
GEL ECL) for SICR) for credit impaired)
Loans to MSME risk
category
- Very low 1,935,037 23,886 - 1,958,923
- Low 359,854 95,454 - 455,308
- Moderate 25,680 96,862 - 122,542
- High - 14,206 - 14,206
- Default - - 96,721 96,721
Gross carrying amount 2,320,571 230,408 96,721 2,647,700
Credit loss allowance (19,337) (25,345) (35,414) (80,096)
Carrying amount 2,301,234 205,063 61,307 2,567,604
Analysis by credit quality of loans outstanding as of 31
December 2018 is as follows:
Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for credit impaired)
Corporate loans risk
category
- Very low 2,712,885 6,417 - 2,719,302
- Low 189,086 130,798 - 319,884
- Moderate 1,344 1,238 - 2,582
- High - 260 - 260
- Default - - 135,261 135,261
Gross carrying amount 2,903,315 138,713 135,261 3,177,289
Credit loss allowance (32,940) (4,994) (43,571) (81,505)
Carrying amount 2,870,375 133,719 91,690 3,095,784
Consumer loans risk
category
- Very low 1,118,057 3,373 - 1,121,430
- Low 349,406 19,874 - 369,280
- Moderate 174,530 212,707 - 387,237
- High - 29,719 - 29,719
- Default - - 81,850 81,850
Gross carrying amount 1,641,993 265,673 81,850 1,989,516
Credit loss allowance (42,903) (59,245) (54,575) (156,723)
Carrying amount 1,599,090 206,428 27,275 1,832,793
Mortgage loans risk
category
- Very low 2,268,634 20,051 - 2,288,685
- Low 177,273 62,060 - 239,333
- Moderate 24,696 104,550 - 129,246
- High - 7,749 - 7,749
- Default - - 44,170 44,170
Gross carrying amount 2,470,603 194,410 44,170 2,709,183
Credit loss allowance (1,696) (9,166) (14,026) (24,888)
Carrying amount 2,468,907 185,244 30,144 2,684,295
Stage 1 Stage 2 Stage 3 Total
(12-months (lifetime ECL (lifetime
In thousands of ECL) for SICR) ECL for credit
GEL impaired)
Loans to MSME risk
category
- Very low 1,865,077 16,285 - 1,881,362
- Low 324,306 72,742 - 397,048
- Moderate 21,342 84,520 - 105,862
- High - 19,502 - 19,502
- Default - - 92,820 92,820
Gross carrying
amount 2,210,725 193,049 92,820 2,496,594
Credit loss allowance (19,273) (22,379) (29,362) (71,014)
Carrying amount 2,191,452 170,670 63,458 2,425,580
The tables above provide an analysis of the loan portfolio based
on credit quality. As at January 1, 2018 the group implemented
provisioning methodology in accordance with IFRS 9.
The Group conducts collective assessment of the borrowers on a
monthly basis. As for the individual assessment, it is performed
quarterly.
The amount and type of collateral required depend 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, stocks, 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").
The effect of collateral as of 30 June 2019:
Over-collateralised assets Under-collateralised assets
Carrying value of the Value of collateral Carrying value of the Value of
In thousands of GEL assets assets collateral
Corporate 3,017,921 7,274,274 640,420 832,360
Consumer 1,102,892 2,506,369 772,608 279,896
Mortgage 2,869,687 5,965,668 90,132 1,464,718
Loans to micro, small and
medium enterprises 2,294,035 5,429,670 353,665 215,504
Total 9,284,535 21,175,981 1,856,825 2,792,478
The effect of collateral as of 31 December 2018:
Over-collateralised assets Under-collateralised assets
Carrying value of the Value of collateral Carrying value of the Value of collateral
In thousands of GEL assets assets
Corporate loans 2,857,207 6,516,492 320,082 47,249
Consumer loans 1,213,594 2,543,720 775,922 34,242
Mortgage loans 2,663,362 5,404,518 45,821 28,934
Loans to micro, small
and medium enterprises 2,340,847 5,324,290 155,747 68,110
Total 9,075,010 19,789,020 1,297,572 178,535
The effect of collateral is determined by comparing the fair
value of collateral to outstanding gross loans and advances in the
reporting date.
At the central level a specific unit manages collateral to
ensure that they serve as an adequate mitigation for credit risk
management purposes. In line with the Group's internal policies,
collateral provided to loans are evaluated by the Internal
Appraisal Group (external reviewers are used in case of loans to
related parties or specific cases when complex objects are
appraised). The Internal Appraisal Group is part of the collateral
management unit and, in order to ensure adequate and objective
appraisal procedures, it is independent from the loan granting
process. Real estate collateral of significant value is
re-evaluated annually by internal appraisers. Statistical methods
are used to monitor the value of real estate collateral that are of
non-significant value and other types of collaterals such as
movable assets and precious metals.
Collateral values include the contractual price of third-party
guarantees, which, due to their nature, are capped at the loan's
carrying value. The values of third-party guarantees in the tables
above amounted to GEL 24,349 thousand and GEL 527,498 thousand as
of 30 June 2019 and 31 December 2018, respectively. These
third-party guarantees are not taken into consideration when
assessing the impairment allowance. Refer to Note 27 for the
estimated fair value of each class of loans and advances to
customers. Interest rate analysis of loans and advances to
customers is disclosed in Note 24. Information on related party
balances is disclosed in Note 28.
8 Premises, Equipment and Intangible Assets
Land, Office and Construction Total Intangible Total
Premises and Other in premises and Assets
leasehold equipment* progress equipment
In thousands of GEL improvements
Carrying amount at 1 January
2018 197,924 78,534 90,455 366,913 83,492 450,405
Additions 3,724 20,034 856 24,614 11,810 36,424
Disposals (2,578) (2,962) - (5,540) (75) (5,615)
Transfer 1,596 - (1,596) - - -
Effect of translation to
presentation currency (cost) (37) (62) - (99) (16) (115)
(Impairment charge)/reversal
of impairment to profit or
loss (164) (14) - (178) - (178)
Depreciation/amortisation
charge (2,808) (10,753) - (13,561) (7,338) (20,899)
Elimination of accumulated
depreciation/amortisation on
disposals 1,201 958 - 2,159 65 2,224
Effect of translation to
presentation currency
(accumulated depreciation) 36 70 - 106 9 115
Carrying amount at 30 June
2018 198,894 85,805 89,715 374,414 87,947 462,361
Cost or valuation at 30 June
2018 235,659 208,758 89,715 534,132 135,553 669,685
Accumulated
depreciation/amortisation
including accumulated
impairment loss (36,765) (122,953) - (159,718) (47,606) (207,324)
Carrying amount at 1 January 2019 213,592 88,781 65,131 367,504 109,220 476,724
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)
Revaluation - 5 - 5 - 5
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 212,101 89,076 72,145 373,322 123,910 497,232
Cost or valuation at 30 June 2019 254,825 225,080 72,145 552,050 190,938 742,988
Accumulated depreciation/amortisation including
accumulated impairment loss (42,724) (136,004) - (178,728) (67,028) (245,756)
*Office and other equipment include furniture and fixtures,
computer and office equipment, motor vehicles as well as other
equipment.
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 2019 31 December 2018
Due to other banks
Correspondent accounts and overnight placements 12,234 23,273
Deposits from banks 261,153 136,161
Short-term loans from banks 170,188 -
Total due to other banks 443,575 159,434
Other borrowed funds
Borrowings from foreign banks and financial institutions 2,227,596 2,065,560
Borrowings from local banks and financial institutions 340,323 769,911
Borrowings from Ministry of Finance 1,083 1,520
Borrowings from other financial institutions 40,165 35,078
Total other borrowed funds 2,609,167 2,872,069
Total amounts due to credit institutions 3,052,742 3,031,503
10 Customer Accounts
In thousands of GEL 30 June 2019 31 December 2018
State and public organisations
- Current/settlement accounts 850,984 667,553
- Term deposits 568,312 538,311
Other legal entities
- Current/settlement accounts 2,852,831 2,791,092
- Term deposits 244,572 251,215
Individuals
- Current/demand accounts 2,479,482 2,426,597
- Term deposits 2,880,632 2,677,374
Total customer accounts 9,876,813 9,352,142
State and public organisations include government owned profit
orientated businesses.
Economic sector concentrations within customer accounts are as
follows:
30 June 2019 31 December 2018
In thousands of GEL Amount % Amount %
Individual 5,360,114 54% 5,103,971 55%
Government Sector 811,579 8% 531,964 6%
Trade 534,431 5% 550,527 6%
Construction 520,912 6% 613,973 7%
Services 401,901 4% 360,084 4%
Transportation 361,531 4% 422,281 5%
Financial Services 346,419 4% 394,336 4%
Energy and Utilities 299,987 3% 397,653 4%
Real Estate 199,358 2% 207,227 2%
Hotels and Leisure 113,606 1% 102,529 1%
Healthcare 99,093 1% 76,464 1%
Agriculture 43,085 0% 35,884 0%
Metals and Mining 14,295 0% 12,479 0%
Other 770,502 9% 542,770 5%
Total customer accounts 9,876,813 100% 9,352,142 100%
As of 30 June 2019 the Group had 327 customers (31 December
2018: 305 customers) with balances above GEL 3,000 thousand. Their
aggregate balance was GEL 4,587,861 thousand (2018: GEL 4,117,881
thousand) or 46.5% of total customer accounts (31 December 2018:
44.0%).
As of 30 June 2019 included in customer accounts are deposits of
GEL 2,835 thousand and GEL 120,218 thousand (31 December 2018: GEL
6,766 thousand and GEL 158,306 thousand) held as collateral for
irrevocable commitments under letters of credit and guarantees
issued, respectively. Refer to Note 26. As of 30 June 2019,
deposits held as collateral for loans to customers amounted to GEL
368,148 thousand (31 December 2018: GEL 270,787 thousand).
Refer to Note 27 for the disclosure of the fair value of
customer accounts. Information on related party balances is
disclosed in Note 28.
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 2018 2,751 3,578 2,894 9,223
Charges less releases recorded in profit or loss 1,811 203 501 2,515
Effect of translation to presentation currency (6) - - (6)
Carrying amount at 30 June 2018 4,556 3,781 3,395 11,732
Carrying amount at 1 January 2019 4,393 5,424 8,950 18,767
Charges less releases recorded in profit or loss 1,133 (741) 898 1,290
Effect of translation to presentation currency 59 - - 59
Carrying amount as of 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 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 for undrawn
exposures the Bank distinguishes between revocable and irrevocable
loan commitments. For revocable commitments the Bank does not
create impairment allowance. As for the irrevocable undisbursed
exposures the Bank estimates 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 2,339 thousand (30 June 2018: GEL
15 thousand) that are included in net claims incurred.
12 Debt securities in issue
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"). 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 of 30 June 2019, subordinated debt comprised of:
In thousands of GEL Start Date Maturity Currency Outstanding Outstanding
Date amount amount
in original in GEL
currency
Deutsche Investitions und
Entwicklungsgesellschaft
MBH 26-Jun-13 15-Jun-20 USD 7,514 21,554
Nederlandse Financierings-Maatschappij
Voor Ontwikkelingslanden
N.V. 19-Dec-13 15-Apr-23 USD 25,971 74,504
Kreditanstalt für Wiederaufbau
Bankengruppe 10-Jun-14 8-May-21 GEL 6,399 6,399
Kreditanstalt für Wiederaufbau
Bankengruppe 4-May-15 8-May-21 GEL 6,998 6,998
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,330 43,979
European Fund for Southeast
Europe 18-Dec-15 18-Dec-25 USD 7,676 22,020
European Fund for Southeast
Europe 15-Mar-16 15-Mar-26 USD 7,675 22,016
Asian Development Bank (ADB) 18-Oct-16 18-Oct-26 USD 50,618 145,209
Private lenders 8-Jun-17 19-Dec-24 USD 25,226 72,365
Subordinated Bond 17-Aug-18 30-Nov-22 USD 10,105 28,988
Global climate partnership
fund 20-Nov-18 20-Nov-28 USD 25,076 71,936
ResponsAbility SICAV (Lux)
Microfinance Leaders 30-Nov-18 30-Nov-28 USD 1,007 2,888
ResponsAbility SICAV (Lux)
Financial inclusion fund 30-Nov-18 30-Nov-28 USD 3,120 8,952
ResponsAbility Micro and
SME finance fund 30-Nov-18 30-Nov-28 USD 5,941 17,043
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-25 USD 14,920 42,800
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-28 USD 14,918 42,794
European Fund for Southeast
Europe 21-Dec-18 21-Dec-28 USD 20,064 57,557
Total subordinated debt 688,002
As of 31 December 2018, subordinated debt comprised of:
Start Date Maturity Date Currency Outstanding amount Outstanding amount
in original in GEL
In thousands of GEL currency
Deutsche Investitions und
Entwicklungsgesellschaft
MBH 26-Jun-13 15-Jun-20 USD 7,509 20,100
Nederlandse
Financierings-Maatschappij
Voor Ontwikkelingslanden
N.V. 19-Dec-13 15-Apr-23 USD 29,213 78,191
Kreditanstalt für
Wiederaufbau Bankengruppe 10-Jun-14 8-May-21 GEL 6,161 6,161
Kreditanstalt für
Wiederaufbau Bankengruppe 4-May-15 8-May-21 GEL 6,737 6,737
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,312 40,983
European Fund for Southeast
Europe 18-Dec-15 18-Dec-25 USD 7,666 20,520
European Fund for Southeast
Europe 15-Mar-16 15-Mar-26 USD 7,665 20,516
Asian Development Bank (ADB) 18-Oct-16 18-Oct-26 USD 50,617 135,482
Private lenders 30-Jun-17 30-Jun-23 USD 25,218 67,497
Subordinated Bond 17-Aug-18 30-Nov-22 USD 10,109 27,057
Global climate partnership
fund 20-Nov-18 20-Nov-28 USD 25,111 67,211
ResponsAbility SICAV (Lux)
Microfinance Leaders 30-Nov-18 30-Nov-28 USD 1,007 2,695
ResponsAbility SICAV (Lux)
Financial inclusion fund 30-Nov-18 30-Nov-28 USD 3,121 8,354
ResponsAbility Micro and SME
finance fund 30-Nov-18 30-Nov-28 USD 5,943 15,906
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-25 USD 14,916 39,923
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-28 USD 14,915 39,923
European Fund for Southeast
Europe 21-Dec-18 21-Dec-28 USD 20,049 53,663
Total subordinated debt 650,919
The debt ranks after all other creditors in case of liquidation.
Refer to Note 27 for the disclosure of the fair value of
subordinated debt.
14 Share Capital
Number of Share capital
In thousands of GEL except for number of shares ordinary shares
As of 1 January 2018 52,931,867 1,605
Shares issued 618,640 21
Scrip dividend issued 58,762 2
Share exchange 635,060 22
As of 31 December 2018 54,244,329 1,650
Shares issued 615,175 22
As of 30 June 2019 54,859,504 1,672
As of 30 June 2019 the total authorised number of ordinary
shares was 54,859,504 shares (31 December 2018: 54,244,329 shares).
Each share has a nominal value of one British Penny. All issued
ordinary shares are fully paid and entitled to dividends.
On 21 March 2019, 615,175 new ordinary shares of TBC Bank Group
PLC were admitted to the premium segment of the London Stock
Exchange. The Offer Shares were issued pursuant to the terms of the
TBC PLC group long term incentive plan and rank pari passu in all
respects with TBC PLC's existing ordinary shares.
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. The respective
dividend payable is recorded in the Statement of Financial Position
as at 30 June 2019.
On 8 March 2018, 618,640 new ordinary shares of TBC Bank Group
PLC were admitted to the premium segment of the London Stock
Exchange. The Offer Shares were issued pursuant to the terms of the
TBC PLC group long term incentive plan and rank pari passu in all
respects with TBC PLC's existing ordinary shares.
On 24 April 2018 635,060 new ordinary shares of TBC Bank Group
PLC were admitted to the premium segment of the London Stock
Exchange. The Offer Shares were issued pursuant to the terms of a
private offer to the holders of the ordinary shares of JSC TBC Bank
who have tendered Bank shares pursuant to the Offer. The holders of
Bank shares are individuals that did not participate in the tender
offer to holders made in 2016 or 2017 by TBC Bank Group PLC.
Holders of Bank shares received one Offer Share for each Bank Share
tendered pursuant to the Offer.
On 21 May 2018, at the Annual General Meeting, TBC Bank Group
PLC's shareholders agreed on a dividend of GEL 1.64 per share,
based on the 2017 audited financial statements. The dividend was
recorded on 24 May 2018 and on 22 June 2018 shareholders received
the payment of the total GEL 85,484 dividends. Scrip dividend
shares amounted to 58,762 and were issued on 22th of June.
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 the fourth year 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.
December 2018 arrangements:
In December 2018, the Bank's Supervisory Board approved
following new compensation schemes for the top management. The
Group considered 28 December 2018 as the grant date. Arrangements
are discussed in below paragraphs:
Deferred share salary plan
Part of the top management salary is given in the form of shares
and despite being salary, is still intended to promote the
long-term success of the Group by closely aligning executive
directors' and shareholders' interests. The new system is enforced
from January 2019 through 2021. Shares are usually delivered during
the first quarter of the second year (i.e. the year after the work
is performed) and the exact date is determined by the Remuneration
Committee. Once shares are delivered, they remain subject to
continued employment; 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.
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 by the
Remuneration Committee based on responsibilities and market data
and are set out in a directors' service contracts with the Group.
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. The new system is
enforced from January 2019 through 2021. Shares are usually
delivered during the first quarter of the second year (i.e. the
year after the work is performed) and the exact date is determined
by the remuneration committee. Once shares are delivered, they
remain subject to continued employment; 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 the nominee for the participants and the participants are
entitled to receive dividends.
KPIs are set by the Remuneration Committee at the beginning of
each year in relation to that year. To the extent that the KPIs are
achieved, the Remuneration Committee may decide 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
(but not necessarily their specific weightings) will be disclosed
in the annual report published in the performance year. However,
the precise targets are commercially sensitive and will be
disclosed retrospectively. 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 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).
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.
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 our 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
performance conditions over the 3 year performance period. The new
system will be enforced from 2021 through 2023. Shares are usually
delivered during the first quarter of the fourth year (i.e. the
year after the performance period ends) and the exact date is
determined by the remuneration committee. Once shares are
delivered, they remain subject to 2 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.
The awards may be granted in the form of conditional share awards,
options or restricted share awards. Performance Conditions are set
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. 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 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
and treasury shares, the LTIP is limited to using 10% in 10 years
for employee plans and 5% 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 for the award are set by the
Committee each year. The Remuneration Committee's current view is
that performance conditions will include: 1) a measure of
efficiency (e.g. ROE) 2) a measure of share price performance (e.g.
EPS/TSR) 3) a measure of customer experience Weightings of these
measures may vary year-on-year. The performance period is three
year.
Tabular information on both of the schemes is given below:
In GEL except for number of shares 30 June 2019 31 December 2018
Number of unvested shares at the beginning of the period 2,121,129 2,284,773
Number of shares granted 1,610,159 -
Change in estimates of number of shares expected to be granted** (57,058) -
Change in estimate of number of shares expected to vest based on
performance conditions (16,501) 166,377
Number of shares vested (519,130) (330,021)
Number of unvested shares at the end of the period 3,138,599 2,121,129
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 -
Value at grant date per share (GEL) Deferred share salary plan 50.16 -
Value at grant date per share (GEL) Deferred bonus plan 50.16 -
Value at grant date per share (GEL) LTIP* 50.16 -
30 June 2019 30 June 2018
Expense on equity-settled part (GEL thousand) 13,245 6,872
Expense on cash-settled part (GEL thousand) 491 6,734
Expense recognised as staff cost during the period (GEL thousand) 13,736 13,606
*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.
Liability in respect of the cash-settled part of the award
amounted to GEL 2,503 thousand as of 30 June 2019 (31 December
2018: GEL 11,001 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.
On 30 June 2019 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 and decreased estimated number of shares to vest by
16,501 (30 June 2018: increased by 194,060).
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 2019 30 June 2018
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 253,235 198,347
Weighted average number of ordinary shares
in issue 54,587,603 53,563,016
Basic earnings per ordinary share attributable
to the owners of the Bank (expressed in GEL
per share) 4.64 3.70
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 2019 30 June 2018
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 - 253,235 198,347
Weighted average number of ordinary shares
in issue adjusted for the effects of all dilutive
potential ordinary shares during the period 54,840,290 54,056,392
Diluted earnings per ordinary share attributable
to the owners of the Bank (expressed in GEL
per share) 4.62 3.67
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 2019
the Group made the re-segmentation after which some of the clients
were reallocated to different segments - GEL 128 million of loans
and customers amount was transferred from MSME to Corporate
segment. In the tables below is disclosed the information as of 30
June 2019 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 of 30 June 2019 and 31 December 2018.
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 24.
A summary of the Group's reportable segments as of 30 June 2019
with updated segmentation and also without re-segmentation effect
(for comparative reasons) and 30 June 2018 is provided below:
Per new
segmentation:
Corpo-rate Retail MSME Corpo-rate centre Total
In thousands of and other
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)
- Inter-segment
interest
income/(expense) 24,584 (33,609) (47,567) 56,592 -
- Net interest
income 102,023 182,457 89,549 13,410 387,439
- 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 10,120 341 46,119
- 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 19,665 71,468
- 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
investments in
finance 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 3,658,341 4,835,319 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
Per old segmentation:
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2019
- Interest income 151,181 288,909 147,972 90,154 678,216
- interest expense (78,940) (72,842) (5,160) (133,835) (290,777)
- Inter-segment interest
income/(expense) 26,500 (33,609) (49,483) 56,592 -
- Net interest income 98,741 182,458 93,329 12,911 387,439
- Fee and commission income 23,625 92,008 11,741 2,511 129,885
- Fee and commission expense (3,250) (37,257) (3,789) (248) (44,544)
- Net Fee and commission income 20,375 54,751 7,952 2,263 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 21,579 13,370 10,829 341 46,119
- 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 22,619 17,654 11,530 19,665 71,468
- Credit loss allowance for loans
to customers 5,752 (55,517) (16,718) - (66,483)
- Credit loss allowance for
performance guarantees and credit
related commitments (899) 421 86 - (392)
- Credit loss allowance for
investments in finance 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 149,278 199,859 96,178 32,465 477,781
- 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 122,545 69,087 58,133 16,119 265,884
- Income tax expense (14,491) (6,985) (5,493) 14,625 (12,344)
- Profit for the period 108,054 62,102 52,640 30,744 253,540
30 June 2019
Total gross loans and advances to
customers reported 3,505,849 4,835,319 2,800,192 - 11,141,360
Total customer accounts reported 3,478,134 5,360,114 1,038,565 - 9,876,813
Total credit related commitments
and performance guarantees 1,954,266 222,636 281,461 - 2,458,363
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2018
- Interest income 117,838 299,007 112,534 68,622 598,001
- interest expense (63,859) (58,951) (4,917) (106,667) (234,394)
- Inter-segment interest
income/(expense) 16,168 (42,704) (37,998) 64,534 -
- Net interest income 70,147 197,352 69,619 26,489 363,607
- Fee and commission income 18,399 78,330 10,621 1,749 109,099
- Fee and commission expense (3,260) (28,407) (3,209) (141) (35,017)
- Net Fee and commission income 15,139 49,923 7,412 1,608 74,082
- Net insurance premiums earned - - - 10,602 10,602
- Net insurance claims incurred - - - (5,303) (5,303)
- Insurance Profit - - - 5,299 5,299
- Net gains from trading in foreign
currencies 19,816 11,879 10,030 (2,943) 38,782
- Net losses from foreign exchange
translation - - - 4,023 4,023
- Net losses from derivative
financial instruments - - - 413 413
- Other operating income 4,576 4,679 365 643 10,263
- Share of profit of associates - - - 648 648
- Other operating non-interest
income 24,392 16,558 10,395 8,083 59,428
- Credit loss allowance for loans
to customers (1,336) (54,872) (9,772) - (65,980)
- Credit loss allowance for
performance guarantees and credit
related commitments (1,879) (95) (40) (486) (2,500)
- Credit loss allowance for
investments in finance lease - - - (493) (493)
- Credit loss allowance for other
financial assets (697) (3,843) (2) (927) (5,469)
- Credit loss allowance for
financial assets measured at fair
value through OCI (31) - - (81) (112)
- Profit before administrative and
other expenses and income taxes 105,735 205,023 77,612 34,193 422,563
- Staff costs (13,370) (62,795) (19,530) (7,152) (102,847)
- Depreciation and amortisation (1,038) (17,373) (2,342) (710) (21,463)
- Provision for liabilities and
charges - - - - -
- Administrative and other
operating expenses (3,596) (39,431) (8,271) (7,414) (58,712)
- Operating expenses (18,004) (119,599) (30,143) (15,276) (183,022)
- Profit before tax 87,731 85,424 47,469 18,917 239,541
- Income tax expense (13,304) (11,460) (7,308) (7,506) (39,578)
- Profit for the period 74,427 73,964 40,161 11,411 199,963
31 December 2018
Total gross loans and advances to
customers reported 3,177,289 4,698,699 2,496,594 - 10,372,582
Total customer accounts reported 3,230,653 5,103,971 1,017,518 - 9,352,142
Total credit related commitments
and performance guarantees 1,578,184 246,639 246,824 - 2,071,647
Reportable segments' assets were reconciled to total assets as
follows:
In thousands of GEL 30 June 2019 31 December 2018
Total segment assets (gross loans and advances to customers) 11,141,360 10,372,582
Provision for loan impairment (340,096) (334,130)
Cash and cash equivalents 1,628,344 1,166,911
Mandatory cash balances with National Bank of Georgia 1,841,237 1,422,809
Due from other banks 27,860 47,316
Investment securities measured at fair value through other comprehensive
income 861,529 1,005,239
Repurchase Receivable 179,762 -
Bonds carried at amortized cost 633,530 654,203
Investments in subsidiaries and associates 2,363 2,432
Current income tax prepayment 19,417 2,116
Deferred income tax asset 1,753 2,097
Other financial assets 165,382 167,518
Investments in finance leases 220,871 203,802
Right of use assets 61,555 -
Other assets 211,850 192,792
Premises and equipment 373,322 367,504
Intangible assets 123,910 109,220
Investment properties 79,114 84,296
Goodwill 45,301 31,286
Total assets per statement of financial position 17,278,364 15,497,993
Reportable segments' liabilities are reconciled to total
liabilities as follows:
In thousands of GEL 30 June 2019 31 December 2018
Total segment liabilities (customer accounts) 9,876,813 9,352,142
Due to Credit institutions 3,052,742 3,031,503
Debt securities in issue 848,838 13,343
Current income tax liability 727 63
Deferred income tax liability 21,361 22,237
Provisions for liabilities and charges 20,116 18,767
Other financial liabilities 252,280 98,714
Other liabilities 85,882 104,337
Lease Liabilities 62,598 N/A
Subordinated debt 688,002 650,919
Total liabilities per statement of financial position 14,909,359 13,292,025
18 Interest Income and Expense
In thousands of GEL 30 June 2019 30 June 2018
Interest income calculated using effective
interest method
Loans and advances to customers 582,899 526,431
Bonds carried at amortised cost 23,410 17,879
Investment securities measured at fair
value through OCI 36,950 25,135
Due from other banks 11,630 11,946
Other interest income
Investments in leases 23,327 16,610
Total interest income 678,216 598,001
Interest expense
Customer accounts 155,634 127,727
Due to credit institutions 100,032 86,262
Subordinated debt 31,748 19,599
Debt Securities in issue 2,054 806
Lease liability 1,309 N/A
Total interest expense 290,777 234,394
Net interest income 387,439 363,607
During the six months ended 30 June 2019 the interest accrued on
impaired loans amounted to GEL 17,964 thousand (30 June 2018: GEL
13,887 thousand).
19 Fee and Commission Income and Expense
In thousands of GEL 30 June 2019 30 June 2018
Fee and commission income
Fee and commission income in respect
of financial instruments not at fair
value through profit or loss:
- Card operations 60,084 47,010
- Settlement transactions 36,609 33,693
- Guarantees issued 12,546 9,079
- Cash transactions 6,706 8,988
- Issuance of letters of credit 2,319 2,360
- Foreign exchange operations 1,388 896
- Other 10,233 7,073
Total fee and commission income 129,885 109,099
Fee and commission expense
Fee and commission expense in respect
of financial instruments not at fair
value through profit or loss:
- Card operations 34,174 23,443
- Settlement transactions 6,622 4,285
- Cash transactions 1,603 2,359
- Guarantees received 864 620
- Letters of credit 740 588
- Foreign exchange operations 31 5
- Other 510 3,717
Total fee and commission expense 44,544 35,017
Net fee and commission income 85,341 74,082
20 Other Operating Income
In thousands of GEL 30 June 2019 30 June 2018
Revenues from operational leasing 1,660 3,142
Gain on disposal of premises and equipment 1,370 199
Gain from sale of investment properties 630 1,896
Gain from sale of inventories of repossessed
collateral 582 205
Revenues from sale of cash-in terminals 443 1,253
Revenues from non-credit related fines 165 254
Other 2,959 3,314
Total other operating income 7,809 10,263
Revenue from operational leasing is wholly attributable to
investment properties. The carrying value of
inventories of repossessed collateral disposed of in the period
ended 30 June 2019 was GEL 5,980 thousand (30 June 2018: GEL 10,663
thousand).
21 Administrative and Other Operating Expenses
30 June 30 June
In thousands of GEL 2019 2018
Professional services 12,046 4,459
Advertising and marketing services 9,461 11,644
Intangible asset enhancement 5,976 5,066
Expenses related to lease contracts* 5,826 11,707
Premises and equipment maintenance 4,765 2,163
Taxes other than on income 3,713 3,603
Utility services 3,570 3,188
Communications and supply 2,782 2,193
Stationery and other office expenses 2,251 2,507
Charity 1,279 561
Business trip expenses 1,065 989
Security services 1,025 1,002
Transportation and vehicle maintenance 903 792
Personnel training and recruitment 596 409
Insurance 508 968
Loss on disposal of premises and equipment 251 336
Loss on disposal of inventories 52 100
Loss on disposal of investment properties 38 60
Impairment of Premises & Equipment - 178
Write-down of current assets to fair value
less costs to sell (251) (570)
Other 8,719 7,357
Total administrative and other operating
expenses 64,575 58,712
*as at 1 January 2019, the group adopted IFRS 16, under which
contracts that do not qualify for lease arrangements, short-term
lease expenses, low-value lease expenses and non-lease components
of contracts (GEL 618 thousand, GEL 3,278 thousand, GEL 733 thousand
and GEL 1,198 thousand for the six months period ended) are expensed
under this category of administrative expenses, previously recognized
in rent expenses under IAS 17
During 6m 2019, under IFRS 16, GEL 1,309 thousand is recognized
under interest expense from lease liability (Note 18) and GEL
6,590 thousand is recognized within depreciation and amortization
in statement of profit or loss and other comprehensive income.
22 Income Taxes
As at 30 June 2019, the statutory income tax rate applicable to
the majority of the Group's income is 15% (six months ended 30 June
2018: 15%). On 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 Net Debt Reconciliation
The table below sets out an analysis of our debt and the
movements in our debt for each of the periods presented. The debt
items are those that are reported as financing in the statement of
cash flows.
Liabilities from financing activities
Other borrowed Debt Securities Subordinated Lease Liabilities Total
In thousands of GEL funds in Issue debt
Net debt at 1 January
2019 2,872,072 13,343 650,919 - 3,536,334
Cash flows (471,557) 798,537 (40,238) (5,771) 280,971
Foreign exchange
adjustments 116,649 32,102 45,345 4,517 198,613
Other non-cash movements 92,003 4,856 31,976 63,852 192,687
Net debt at 30 June
2019 2,609,167 848,838 688,002 62,598 4,208,605
Liabilities from financing activities
Other borrowed Debt Securities Subordinated Total
In thousands of GEL funds in Issue debt
Net debt at 1 January
2018 2,534,496 20,695 426,788 2,981,979
Cash flows 340,409 (755) (25,922) 313,732
Foreign exchange
adjustments (67,066) (1,106) (22,733) (90,905)
Other non-cash movements 82,158 807 19,443 102,408
Net debt at 30 June
2018 2,889,997 19,641 397,576 3,307,214
24 Financial and Other Risk Management
TBC Bank Group's strong risk governance reflects the importance
placed by the Board and the Group's Risks, Ethics and Compliance
Committee on shaping the risk strategy and managing credit,
financial and non-financial risks. All components necessary for
comprehensive risk governance are embedded into risk organization
structure: enterprise risk management; credit, financial and
non-financial risks management; risk reporting & supporting IT
infrastructure; cross-risk analytical tools and techniques such as
capital adequacy management and stress-testing. Comprehensive,
transparent and prudent risk governance facilitates understanding
and trust from multiple stakeholders, ensures sustainability and
resiliency of the business model and positioning of risk management
as Group's competitive advantage and strategic enabler.
The TBC Bank Group's governance structure ensures adequate
oversight and accountabilities as well as clear segregation of
duties. The Risks, Ethics and Compliance Committee is responsible
for taking all the day-to-day decisions relating to the Group apart
from those that are reserved for the Board. Namely, the committee
carries out following duties: 1) Review and assessment of the
Group's risk management strategy, risk appetite and tolerance, risk
management system and risk policies; 2) Review and monitoring of
the processes for compliance with laws, regulations and ethical
codes of practice; 3) monitoring of the remediation of internal
control deficiencies identified by internal and external auditors
around compliance, ethics and risk management functions; 4) Annual
self-assessment of the committee's performance and reporting of the
results to the Board; 5) Review of the key risk management
framework and other policy documents and make recommendations to
the Board for their approval.
On the Bank level, risk management is the duty of the
Supervisory Board, which has the overall responsibility to set the
tone at the top and monitor compliance with established objectives.
At the same time, Management Board governs and directs Groups'
daily activities.
Both the Supervisory Board and the Management Board have
established dedicated risk committees. Risk, Ethics and Compliance
Committee of Supervisory Board approves Bank's Risk Appetite,
supervises risk profile and risk governance practice within the
Bank while Audit Committee is responsible for implementation of key
accounting policies and facilitation of activities of internal and
external auditors.
Management Board Risk Committee is established to guide
group-wide risk management activities and monitor major risk trends
to make sure risk profile complies with the established Risk
Appetite of the Group.
Operational Risk Committee makes decisions related to
operational risk governance while Asset-Liability Management
Committee ("ALCO") is responsible for implementation of ALM
policies.
The Management Board of the Group and, the Supervisory Board and
Senior Management of the Bank govern risk objectives through Risk
Appetite Statement ("RAS") which sets desired risk profile and
respective risk limits for different economic environments. Risk
Appetite ("RA") establishes monitoring and reporting
responsibilities as well as escalation paths for different trigger
events and limit breaches which as well prompt risk teams to
establish and implement agreed mitigation actions. In order to
effectively implement Risk Appetite in the Group's day-to-day
operations, the RA metrics are cascaded into more granular business
unit level limits. That way risk allocation is established across
different segments and activities. The Board level oversight
coupled with the permanent involvement of the Senior Management in
TBC Group risk management ensures the clarity regarding risk
objectives, intense monitoring of risk profile against risk
appetite, prompt escalation of risk-related concerns and
establishment of remediation actions.
The daily management of individual risks is based on the
principle of the three lines of defense. While business lines are
primary risk owners, risk teams assume the function of the second
line defense. This role is performed through sanctioning
transactions as well as tools and techniques for risk
identification, analysis, measurement, monitoring and reporting.
The committees are established at operational levels in charge of
making transaction-level decisions that comprise of component of
clear and sophisticated delegations of the authority framework
based on "four-eye principle". All new products/projects go through
the risk teams to assure risks are analyzed comprehensively.
Such control arrangements guarantee that the Bank takes informed
risk-taking decisions that are adequately priced, avoiding taking
risks that are beyond the Group's established threshold. Within the
Risk Organization the below teams manage the credit, liquidity,
market, operational and other non-financial risks:
-- Enterprise Risk Management (ERM);
-- Credit Risk Management;
-- Underwriting (Credit sanctioning);
-- Restructuring and Collections;
-- Financial Risk Management;
-- Operational Risk Management.
The strong and independent structure enables fulfilment of all
the required risk management functions within the second line of
defense by highly skilled professionals with a balanced mix of
credentials in banking and real sectors both on the local and
international markets.
In addition to the above-mentioned risk teams, the Compliance
Department (reporting directly to CEO) is specifically in charge of
AML and compliance risk management. As the third line of defense,
the Internal Audit Department provides an independent and objective
assurance and recommendations to Group that facilitates further
improvement of operations and risk management.
For the management of each significant risk, the Bank puts in
place specific policies and procedures, governance tools and
techniques, methodologies for risk identification, assessment and
quantification. Sound risk reporting systems and IT infrastructure
are important tools for efficient risk management of TBC Bank.
Thus, significant emphasis and investments are made by the Bank to
constantly drive the development of required solutions.
Comprehensive reporting framework is in place for the Management
Board of the Group and the Supervisory Board and the Senior
Management of the Bank that enables intense oversight over risk
developments and taking early remedial actions upon necessity.
Beyond the described risk governance components, compensation
system features one of the most significant tools for introducing
incentives for staff, aligned with the Bank's long term interests
to generate sustainable risk-adjusted returns. The risk Key
Performance Indicators ("KPIs") are incorporated into both the
business line and the risk staff remunerations. The performance
management framework differentiates risk staff incentives to
safeguard the independence from business areas that they supervise
and at the same time enable attraction and maintenance of qualified
professionals. For that purpose, the Bank overweighs risk KPIs for
risk and control staff and caps the share of variable
remuneration.
Credit risk
The Group is exposed to credit risk, which is the risk that a
customer or counterparty will be unable to meet its obligation to
settle outstanding amounts. The Group's exposure to credit risk
arises as a result of its lending operations and other transactions
with counterparties giving rise to financial assets. Maximum
exposure to credit risk of on-balance sheet items equals their
carrying values. For maximum exposure on off-balance sheet
commitments refer to Note 26.
Credit risks include: risks arising from transactions with
individual counterparties, concentration risk, currency-induced
credit risks and residual risks.
- Risks arising from transactions with individual counterparties
are the loss risk related to default or non-fulfillment of
contracts due to deterioration in the counterparty's credit
quality;
- Concentration risk is the risk related to the quality
deterioration due to large exposures provided to single borrowers
or a group of connected borrowers, or loan concentration in certain
economic industries;
- Currency-induced credit risks relate to risks arising from
foreign currency-denominated loans in the Group's portfolio;
- Residual risks result from applying credit risk-mitigation
techniques, which could not satisfy expectation in relation to
received collateral.
Comprehensive risk management methods and processes are
established as part of the Group's risk management framework to
manage credit risk effectively. The main principles for Group's
credit risk management are: establish a prudent credit risk
environment; operate under a sound credit-granting process; and
maintain efficient processes for credit risk identification,
measurement, control and monitoring. Respective policies and
procedures establish a framework for lending decisions reflecting
the Group's tolerance for credit risk. This framework includes
detailed and formalised credit evaluation and collateral appraisal
processes, administration and documentation, credit approval
authorities at various levels, counterparty and industry
concentration limits, and clearly defined roles and
responsibilities of entities and staff involved in the origination,
monitoring and management of credit.
Credit Approval
The Group strives to ensure a sound credit-granting process by
establishing well-defined credit granting criteria and building up
an efficient process for the comprehensive assessment of a
borrower's risk profile. The concept of three lines of defense is
embedded in the credit risk assessment framework, with a clear
segregation of duties among the parties involved in the credit
assessment process.
The credit assessment process differs across segments, being
further differentiated across various product types reflecting the
different natures of these asset classes. Corporate, SME and larger
retail and micro loans are assessed on an individual basis with
thorough analysis of the borrower's creditworthiness and structure
of the loan; whereas smaller retail and micro loans are mostly
assessed in an automated way applying respective scoring models for
the loan approval. Lending guidelines for business borrowers have
been tailored to individual economic sectors, outlining key lending
criteria and target ratios within each industry.
The Loan Approval Committees are responsible to review the
credit applications and approve the credit products. Different Loan
Approval Committees with clearly defined delegation authority are
in place for the approval of credit exposures to Corporate, MSME
and Retail customers (except those products which are assessed
applying scorecards). The composition of a Loan Approval Committee
depends on aggregated liabilities of the borrower and the
borrower's risk profile. Credit risk managers (as members of
respective Loan Approval Committees) ensure that the borrower and
the proposed credit exposure risks are thoroughly analysed. A loan
to the Bank's top 20 borrowers or exceeding 5% of the Bank's
regulatory capital requires the review and the approval of the
Supervisory Board's Risk, Ethics and Compliance Committee. This
committee also approves transactions with related parties resulting
in exposures to individuals and legal entities exceeding GEL 150
and 200 thousand, respectively.
Credit Risk Monitoring
The Group's risk management policies and processes are designed
to identify and analyse risk in a timely manner, and monitor
adherence to predefined limits by means of reliable and timely
data. The Group dedicates considerable resources to gain a clear
and accurate understanding of the credit risk faced across various
business segments. The Group uses a robust monitoring system to
react timely 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 they encompass
individual credit exposures, overall portfolio performance and
external trends that may impact the portfolios risk profile. Early
warning signals serve as an important early alert system for the
detection of credit deteriorations, leading to mitigating
actions.
Complex monitoring system is in place for monitoring of
individual counterparties with frequency of monitoring depending on
the borrower's risk profile and exposure. 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. Watch category is used as one of the
qualitative indicators for transferring of exposures to Stage 2 for
the corporate and SME borrowers. For retail and micro borrowers
along with other portfolio level indicators, portfolio breakdown
across risk categories is monitored on a regular basis. In case
there are indicators that portfolio distribution across risk
categories deteriorates above the predefined threshold it might
trigger transferring the respective portfolio to stage 2, as long
as deterioration signs are in place.
Reports relating to the credit quality of the credit portfolio
are presented to the Board's Risk, Ethics and Compliance Committees
on a quarterly basis. By comparing current data with historical
figures and analysing forecasts, the management believes that it is
capable identifying risks and responding to them by amending its
policies in a timely manner.
Credit Risk Mitigation
Credit decisions are based primarily on the borrower's repayment
capacity and creditworthiness; in addition, the Group uses credit
risk mitigation tools such as collateral and guarantees to reduce
the credit risk. The reliance that can be placed on these
mitigation factors is carefully assessed for legal certainty and
enforceability, market valuation of collateral and counterparty
risk of the guarantor.
A centralised unit for collateral management governs the Group's
view and strategy in relation to collateral management and ensures
that collateral serves as an adequate mitigating factor for credit
risk management purposes. The collateral management framework
consists of a sound independent appraisal process, haircut system
throughout the underwriting process, monitoring and
revaluations.
Credit Risk Restructuring and Collection
A comprehensive portfolio supervision system is in place to
identify weakened or problem credit exposures in a timely manner
and to take prompt remedial actions. Dedicated restructuring units
manage weakened borrowers across all business segments. The Bank
differentiates between two types of restructuring considering the
severity of financial weakness of the borrowers. For the
measurement of ECL, restructured borrowers may be classified either
in Stage 2 or Stage 3. The primary goal of the restructuring units
is to rehabilitate the borrower and return to the performing
category or to Stage 1. The sophistication and complexity of
rehabilitation process differs based on the type and size of
exposure.
A centralised monitoring team monitors retail borrowers in
delinquency, which coupled with branches' efforts, are aimed at
maximizing collection. The specialised software is applied for
early collection processes management. Specific strategies are
tailored to different sub-groups of customers, reflecting
respective risk levels, so that greater effort is dedicated to
customers with a higher risk profile. Correcting the delinquency at
early stage limits the amount of exposures becoming past due more
than 30 days (one of the criteria indicating SICR) and transferred
to Stage 2.
Dedicated recovery units manage loans with higher risk profile.
Corporate and SME borrowers are transferred to a recovery unit in
case of a strong probability that a material portion of the
principal amount will not be paid and the main stream of recovery
is no longer the borrower's cash flow. Retail and micro loans are
generally transferred to the recovery unit or external collection
agencies (in the case of unsecured loans) at 90 days overdue,
although they may be transferred earlier if it is evident that the
borrower is unable to repay the loan.
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.
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 credit-impaired 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 credit-impaired. The exposures for
which the credit-impaired 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.
Definition of default
Financial assets for which the Group observed occurrence of one
or more loss events are classified in Stage 3. For purposes of
disclosure, the Group fully aligned the definition of default with
the definition of credit-impaired assets. 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.
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 credit impaired;
-- borrower is classified as "watch".
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 credit impaired 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. For revolving products,
the Bank estimates the EAD based on the expected limit utilisation
percentage conditional on the default event.
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. 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.
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 with weights of 50%, 25% and 25% assigned to each
scenario respectively.
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.
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.
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
off-shore 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 geographical concentration of the Group's assets and
liabilities as of 30 June 2019 is set out below:
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 798,873 819,155 10,316 1,628,344
Due from other banks 14,115 13,745 - 27,860
Mandatory cash balances with National
Bank of Georgia 1,841,237 - - 1,841,237
Loans and advances to customers 10,249,693 136,928 414,643 10,801,264
Investment securities measured
at fair value through other comprehensive
income 395,852 465,677 0 861,529
Bonds carried at amortised cost 633,530 - - 633,530
Repurchase receivables 179,762 - - 179,762
Investments in leases 219,254 - 1,617 220,871
Other financial assets 164,735 405 242 165,382
Total financial assets 14,497,051 1,435,910 426,818 16,359,779
Non-financial assets 914,898 51 3,636 918,585
Total assets 15,411,949 1,435,961 430,454 17,278,364
Liabilities
Due to credit institutions 954,299 2,036,769 61,674 3,052,742
Customer accounts 8,084,558 804,576 987,679 9,876,813
Debt securities in issue 848,838 - - 848,838
Other financial liabilities 251,915 365 - 252,280
Lease liabilities 62,598 - - 62,598
Subordinated debt 101,052 440,568 146,382 688,002
Total financial liabilities 10,303,260 3,282,278 1,195,735 14,781,273
Non-financial liabilities 118,449 660 8,977 128,086
Total liabilities 10,421,709 3,282,938 1,204,712 14,909,359
Net balance sheet position 4,990,240 (1,846,977) (774,258) 2,369,005
Performance guarantees 628,331 339,933 238,257 1,206,521
Credit related commitments 1,244,046 3,280 4,515 1,251,841
The geographical concentration of the Group's assets and
liabilities as of 31 December 2018 is set out below:
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 650,575 515,159 1,177 1,166,911
Due from other banks 28,418 12,852 6,046 47,316
Mandatory cash balances with National
Bank of Georgia 1,422,809 - - 1,422,809
Loans and advances to customers 9,526,939 121,713 389,800 10,038,452
Investment securities measured
at fair value through other comprehensive
income 1,004,564 - 675 1,005,239
Bonds carried at amortised cost 654,203 - - 654,203
Investments in leases 202,850 - 952 203,802
Other financial assets 166,899 329 290 167,518
Total financial assets 13,657,257 650,053 398,940 14,706,250
Non-financial assets 788,042 55 3,646 791,743
Total assets 14,445,299 650,108 402,586 15,497,993
Liabilities
Due to credit institutions 1,154,327 1,811,299 65,877 3,031,503
Customer accounts 7,790,236 697,753 864,153 9,352,142
Debt securities in issue 7,927 - 5,416 13,343
Other financial liabilities 98,379 296 39 98,714
Subordinated debt 94,264 420,031 136,624 650,919
Total financial liabilities 9,145,133 2,929,379 1,072,109 13,146,621
Non-financial liabilities 144,386 525 493 145,404
Total liabilities 9,289,519 2,929,904 1,072,602 13,292,025
Net balance sheet position 5,155,780 (2,279,796) (670,016) 2,205,968
Performance guarantees 684,810 291,795 219,207 1,195,812
Credit related commitments 870,446 3,751 1,638 875,835
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 2019, the Bank
maintained an aggregate open currency position of 1.8% of
regulatory capital (2018: 7.6%). 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.
Currency risk management framework is governed through the
Market Risk Management Policy, market risk management procedure and
relevant methodologies. In 2016 within the ICAAP framework the Bank
developed methodology for allocating capital charges for FX risk
following Basel guidelines.
On 13 August 2018, the NBG introduced new regulation regarding
the changing of OCP calculation method, according to this
regulation, from March 2019, special reserves assigned to FX
balance-sheet assets would be deducted gradually for OCP
calculation purposes and fully implemented by September 2020 in
line with the transition period defined by the NBG.
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 all provisions
to be denominated in the local 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 of 30 June 2019 As of 31 December 2018
Monetary Monetary Deri-vatives Net Monetary Monetary Deri-vatives Net
In financial financial balance financial financial balance
thousands assets liabilities sheet assets liabilities sheet
of GEL position position
Georgian
Lari 6,341,862 5,034,692 231,722 1,538,892 5,920,867 4,663,300 86,122 1,343,689
US Dollars 7,816,629 8,724,107 917,232 9,754 7,309,173 7,445,413 323,306 187,066
Euros 1,987,218 932,664 (1,046,713) 7,841 1,375,295 948,398 (409,565) 17,332
Other 214,070 88,509 (110,314) 15,247 100,915 89,498 (458) 10,959
Total 16,359,779 14,779,972 (8,073) 1,571,734 14,706,250 13,146,609 (595) 1,559,046
To assess the currency risk the Bank performs a value-at-risk
("VAR") sensitivity analysis on a quarterly basis. The analysis
calculates the effect on the Group's income determined by possible
worst movement of currency rates against the Georgian Lari, with
all other variables held constant. To identify the maximum expected
losses resulting from currency fluctuations, a 99% confidence level
is defined based on the monthly variations in exchange rates over 3
year look-back period. During the six months ended 30 June 2019 and
the year ended 31 December 2018 the sensitivity analysis did not
reveal any significant potential effect on the Group's equity:
31 December
In thousands of GEL 30 June 2019 2018
Maximum loss (VAR, 99% confidence level) (1,201) (8,890)
Maximum loss (VAR,95% confidence level) (811) (6,162)
Interest rate risk
The Bank's deposits and approximately half of the loans offered
by TBC are at fixed interest rates, while a portion of the Bank's
borrowings is at a floating interest rate. The Bank's floating rate
borrowings are, to a certain extent, hedged by the NBG paying a
floating rate on the minimum reserves that the Bank holds with the
NBG. In case of need, the Bank shall enter into interest rate
hedging agreements (IRR swap, IRR cap, Cross-currency swaps) 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. Currency and interest rate 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 on NBG reserves
and Nostros are calculated as benchmark minus margin whereby, for
benchmark, Federal funds rate and ECB rates are conside red 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 2019
Total financial assets 6,146,966 3,693,216 958,489 5,561,108 16,359,779
Total financial liabilities 5,416,241 2,873,916 1,091,405 5,399,711 14,781,273
Net interest sensitivity
gap as of 30 June 2019 730,725 819,300 (132,916) 161,397 1,578,506
31 December 2018
Total financial assets 4,782,800 3,610,949 1,017,711 5,295,712 14,707,172
Total financial liabilities 4,563,135 3,337,999 948,719 4,297,701 13,147,554
Net interest sensitivity
gap as of 31 December 2018 219,665 272,950 68,992 998,011 1,559,618
At 30 June 2019, if interest rates had been 100 basis points
higher, with all other variables held constant, profit would have
been GEL 12,574 thousands higher, mainly as a result of higher
interest income on variable interest assets. Other comprehensive
income would have been GEL 8,433 thousand higher (30 June 2018: GEL
8,503 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 that date had been 100 basis points lower
with all other variables held constant, profit for the year would
have been GEL 12,005 thousands lower, mainly as a result of lower
interest income on variable interest assets. Other comprehensive
income would have been GEL8,044 thousand lower (30 June 2018: GEL
8,086 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.
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. Under the ICAAP framework, TBC
Bank reserves capital in 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, as well as minimum
liquidity ratio defined 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 also monitors compliance with NBG LCR
limits.
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. TBC Bank also
stress tests the results of liquidity through large shock scenarios
set by the NBG.
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 sets
deposit concentration limits for large deposits and deposits of
non-Georgian residents in its deposit portfolio.
Net Stable Funding ratio is calculated based on the IFRS
consolidated financial statements. In addition, for internal
purposes TBC Bank calculates NSFR ratio on the basis of standalone
financial statements prepared in accordance with NBG's accounting
rules.
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 retail deposits in its
strategy and sets the loan to deposit ratio limits.
The loan to deposit ratio (defined as total value of net loans
divided by total value of deposits) stood at 109.4% and 107.3%, at
the 30 June 2019 and 31 December 2018, respectively.
Market liquidity risk
Market liquidity risk is the risk that the Bank cannot easily
offset or eliminate a position at the then-current market price
because of inadequate market depth or market disruption. To manage
it, TBC Bank follows Basel III guidelines on high-quality liquidity
asset eligibility in order to ensure that the Bank's high-quality
liquid assets can be sold without causing a significant movement in
the price and with minimum loss of value.
In addition, TBC Bank has a liquidity contingency plan, which is
part of the Bank's overall prudential liquidity policy and is
designed to ensure that TBC Bank is able to meet its funding and
liquidity requirements and maintain its core business operations in
deteriorating liquidity conditions that could arise outside the
ordinary course of its business.
The Bank calculates its liquidity ratio on a daily basis in
accordance with the NBG's requirements.
The Liquidity Ratio: The limit is set by the NBG for average
liquidity ratio, which is calculated as the ratio of average liquid
assets to average liabilities for the respective month, including
borrowings from financial institutions and part of off-balance
sheet liabilities with residual maturity up to 6 months.
NBG LCR is calculated by reference to the qualified liquid
assets divided by 30-day cash net outflows defined as per NBG
guidelines. The limit is set by the NBG as per total LCR also by
currency (GEL, FX). To promote larization in the country of
Georgia, NBG defines lower limit for GEL LCR than that for FX LCR.
In addition, NBG mandatory Regulatory reserves in FX currency is
only considered at 75% per LCR calculation purposes. As announced
by the NBG on 13 March 2019, from April to May, 2019 mandatory
reserves requirements gradually increased from 25% to 30% for
customer deposits in foreign currencies. For wholesale funding and
Certificates of Deposits, the NBG requires the Bank to reserve 30%
of its unsubordinated foreign currency wholesale funding for
borrowings with a remaining maturity of less than one year (which
increased gradually from 25% to 30%), 15% for foreign currency
borrowings with a remaining maturity of one to two years (which
gradually increased from 10% to 15%) and 5% of its unsubordinated
Georgian Lari wholesale funding for borrowings with a remaining
maturity of less than one year. There is no minimum reserves
requirement for Georgian Lari Certificates of Deposits.
As of 30 June the ratios were well above the prudential limit
set by the NBG as follows:
31 December
30 June 2019 2018
Average Liquidity Ratio 37.1% 33.3%
Total Liquidity Coverage Ratio 126.3% 113.9%
GEL Liquidity Coverage Ratio 100.4% 102.5%
FX Liquidity Coverage Ratio 143.8% 121.1%
According to daily cash flow forecasts and the surplus in
liquidity standing, the Treasury Department places funds in
short-term liquid assets , largely made up of short-term risk-free
securities, interbank deposits and other inter-bank facilities, to
ensure that sufficient liquidity is maintained within the Group as
a whole.
Maturity analysis
The table below summarizes the maturity analysis of the Group's
financial liabilities, based on remaining undiscounted contractual
obligations as of 30 June 2019 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 of 30 June
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 902,004 486,467 1,819,514 189,102 3,397,087
Customer accounts - individuals 3,215,408 1,499,066 719,912 27,523 5,461,909
Customer accounts - other 4,144,187 250,169 211,547 107,041 4,712,944
Other financial liabilities 216,095 12,009 - - 228,104
Lease Liabilities 23,549 12,271 37,418 13,536 86,774
Subordinated debt 2,993 91,427 375,169 612,210 1,081,799
Debt securities in issue 8,882 - 1,086,522 - 1,095,404
Gross settled forwards 1,258,414 79,150 - - 1,337,564
Performance guarantees 100,219 447,442 631,646 27,215 1,206,522
Financial guarantees 40,282 183,957 78,763 4,466 307,468
Other credit related commitments 944,373 - - - 944,373
Total potential future payments
for financial obligations 10,856,406 3,061,958 4,960,491 981,093 19,859,948
The maturity analysis of financial liabilities as of 31 December
2018 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 950,084 372,517 1,909,587 187,454 3,419,642
Customer accounts - individuals 3,152,851 1,408,710 628,831 27,397 5,217,789
Customer accounts - other 3,821,862 208,250 137,275 195,007 4,362,394
Other financial liabilities 77,522 21,192 - - 98,714
Subordinated debt 5,267 71,519 388,594 588,197 1,053,577
Debt securities in issue 366 13,847 - - 14,213
Gross settled forwards 567,259 16,008 - - 583,267
Performance guarantees 119,959 349,354 671,333 55,166 1,195,812
Financial guarantees 9,932 44,703 51,337 - 105,972
Other credit related commitments 769,863 - - - 769,863
Total potential future payments
for financial obligations 9,474,965 2,506,100 3,786,957 1,053,221 16,821,243
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.
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 of 30 June 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 1,628,344 - - - 1,628,344
Due from other banks 13,773 - 14,087 - 27,860
Mandatory cash balances with
National Bank of Georgia 1,841,237 - - - 1,841,237
Loans and advances to customers 1,157,037 2,060,109 4,517,828 3,066,290 10,801,264
Investment securities measured
at fair value through other
comprehensive income 861,529 - - - 861,529
Bonds carried at amortised cost 64,358 99,748 432,383 37,041 633,530
Repurchase receivables 43,148 55,814 15,166 65,634 179,762
Investments in finance leases 36,170 61,234 121,017 2,450 220,871
Other financial assets 144,206 21,164 - 12 165,382
Total financial assets 5,789,802 2,298,069 5,100,482 3,171,427 16,359,779
Liabilities
Due to Credit institutions 884,417 389,724 1,602,273 176,328 3,052,742
Customer accounts 1,014,153 121,467 - 8,741,193 9,876,813
Debt securities in issue 8,521 - 840,317 - 848,838
Other financial liabilities 236,811 12,390 1,443 1,635 252,279
Lease liabilities 2,833 11,890 35,975 11,901 62,599
Subordinated debt 599 41,540 165,103 480,760 688,002
Total financial liabilities 2,147,334 577,011 2,645,111 9,411,817 14,781,273
Credit related commitments and
performance guarantees
Performance guarantees 5,586 - - - 5,586
Financial guarantees 4,683 - - - 4,683
Other credit related
commitments 96,986 - - - 96,986
Credit related commitments and
performance guarantees 107,255 - - - 107,255
Net liquidity gap as of 30 June
2019 3,535,213 1,721,058 2,455,370 (6,240,390) 1,471,251
Cumulative gap as of 30 June
2019 3,535,213 5,256,271 7,711,641 1,471,251
The management believes that the Group has sufficient liquidity
to meet its current on- and off-balance sheet obligations. As of 31
December 2018 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 1,166,911 - - - 1,166,911
Due from other banks 27,153 11,075 9,088 - 47,316
Mandatory cash balances with
National Bank of Georgia 1,422,809 - - - 1,422,809
Loans and advances to customers 1,090,521 2,056,149 4,152,436 2,739,346 10,038,452
Investment securities measured
at fair value through other
comprehensive income 1,005,239 - - - 1,005,239
Bonds carried at amortised cost 119,489 92,877 368,843 72,994 654,203
Repurchase receivables - - - -
Investments in finance leases 31,133 56,432 113,087 3,150 203,802
Other financial assets 131,586 34,268 1,664 - 167,518
Total financial assets 4,994,841 2,250,801 4,645,118 2,815,490 14,706,250
Liabilities
Due to Credit institutions 933,511 271,993 1,653,575 172,424 3,031,503
Customer accounts 997,594 128,395 - 8,226,153 9,352,142
Debt securities in issue 112 13,231 - - 13,343
Other financial liabilities 77,522 21,192 - - 98,714
Subordinated debt 3,048 23,246 182,986 441,639 650,919
Total financial liabilities 2,011,787 458,057 1,836,561 8,840,216 13,146,621
Credit related commitments and
performance guarantees
Performance guarantees 4,393 - - - 4,393
Financial guarantees 5,424 - - - 5,424
Other credit related
commitments 103,029 - - - 103,029
Credit related commitments and
performance guarantees 112,846 - - - 112,846
Net liquidity gap as of 31
December 2018 2,870,208 1,792,744 2,808,557 (6,024,726) 1,446,783
Cumulative gap as of 31
December 2018 2,870,208 4,662,952 7,471,509 1,446,783
The management believes that the Group has sufficient liquidity
to meet its current on- and off-balance sheet obligations.
In order to assess the possible outflow of the bank's customer
accounts management applied value-at-risk analysis. The statistical
data was used on the basis of a holding period of one month for a
look-back period of five years with a confidence level of 99%. The
value at risk analysis was performed for the following maturity
gaps: (0-1 months), (0-3 months), (0-6 months) and (0-12 months),
based on which the maximum percentage of deposits' outflow was
calculated.
Management believes that in spite of a substantial portion of
customers' accounts being on demand, diversification of these
deposits by number and type of depositors, and the past experience
of the Group would indicate that these customer accounts provide a
long-term and stable source of funding for the Group. Moreover, the
Group's liquidity risk management includes estimation of maturities
for its current deposits. The estimate is based on statistical
methods applied to historic information on the fluctuations of
customer account balances.
Operating environment
Most of the Group's business is based in Georgia. Emerging
economies, such as Georgia's, are subject to rapid change and are
vulnerable to global market conditions and economic downturns.
Consequently, operations in Georgia may be exposed to certain risks
that are not typically associated with those in developed markets.
Nevertheless, over the last few years the Georgian government has
embarked on a number of civil, criminal, tax, administrative, and
commercial reforms that have positively affected the overall
investment climate of the country. Today Georgia has an
international reputation as a country with a favourable investment
environment. Georgia continued to progress in the report "Doing
Business 2019" by the World Bank (WB) and International Financing
Corporation (IFC) ranking as the 6th easiest country in the world
to do business (out of 190) - up by 2 steps compared to the
previous year rankings. The country improved its ranking in almost
all categories, confirming its position as a regional leader and
outperforming most of the EU economies. Georgia also boasts low
corruption levels, a low tax burden, and high transparency of its
institutions, according to the number of surveys by international
institutions. Recognizing the resilience of the Georgia's economy
and high growth potential, Standard & Poor's improved the
outlook to Georgia's credit rating from "stable" to "positive".
According to Geostat's initial estimates, real GDP increased by
4.9% in the first half of 2019. While the credit growth has
moderated, the inflows were reasonably strong and unlike 2018, the
fiscal stance was expansionary. At the same time, the flight ban
imposed by Russia will lower growth going forward. According to TBC
Research estimates, GDP is still expected to increase by over 4%
for the FY 2019 and 2020.
In terms of the sectors, transport and communications (+12.7%
YoY), as well as trade and repairs sector (+6.7% YoY), contributed
most to the growth. At the same time, education (+15.7% YoY) and
healthcare sectors (+11.4% YoY) increased substantially, mainly due
to the higher budget spending on education (+57.7% YoY) and
healthcare (+14.4% YoY) in Q1 2019.
Similarly, strong growth was observed in hotels and restaurants
(+13.1% YoY), and real estate (+11.1% YoY). All other major sectors
also increased with the exception of construction (-9.6% YoY),
agriculture (-0.3% YoY), and manufacturing (-1.3% YoY). Decline of
the construction sector was broadly expected to reflect the
finalization of BP's pipeline construction project. Also, the
decline of construction sector was aggravated by the weakness of
residential buildings construction related to the slower mortgage
growth and tighter construction permit regulations. On the other
hand, strong government capital expenditures partly offset the
decline.
The trade balance continued to improve in Q2 2019 with the
exports of goods up by 10.3% while the imports fell further by
6.1%. As a result, the trade deficit improved significantly by
15.7% YoY over the same period, all in USD terms. Tourism inflows
growth also accelerated to an estimated 15.5% in Q2 2019, compared
to the 5.0% growth in Q1 2019. Remittance inflows went up by 9.3%
YoY over the same period - somewhat faster growth compared to
previous quarter.
FDI inflows decreased by 6.3% YoY in the USD terms from USD 300
million in Q1 2018 to USD 281 million in Q1 2019 (in the EUR and
the GEL, 1.9% and 0.9% YoY increase, respectively). As in 2018, the
finalization of South Caucasus Pipeline Extension Project and the
change of ownership of non-resident companies to residents likely
played a role in Q1 2019 as well. As of the last four quarters
ending in Q1 2019, FDI inflows still stood at a strong 7.3% of GDP.
Furthermore, 2018 gross fixed capital formation was at a solid
33.3% of GDP.
The CA balance improvement trend continued in Q1 2019 as well,
with the deficit to same quarter GDP ratio at 6.2% - being
historically low with an improvement of 5.7 percentage points YoY
and with the strongest contribution of the trade in goods. The
positive tendency has likely sustained in Q2 as well, judging from
the trade balance, tourism and remittances inflows as above
described figures suggest. Over the last 4 quarters, the current
account deficit to GDP ratio stood at 6.4%, also improving by 1.3
percentage points compared to the previous quarter. Despite the
reduction, FDI inflows at 6.6% of GDP remained the key source of
financing the CA deficit. At the same time, over the first six
months of 2019 the NBG bought USD 216 million or around 3% of the
same period GDP, indicating that the inflows were sufficient even
for higher growth. Recent restriction on flights from Russia to
Georgia will have substantial impact on tourism inflows. However,
according to TBC Research, taking into account the increase in
tourism inflows from other destinations and the strengthening
external balance, the impact should be manageable[27]
Bank credit growth came in at 14.1% YoY in June 2019 being 1.4
pp higher compared to the 12.7% in the previous month. In terms of
the segments, corporate loans were the main driver of the
acceleration with an 18.0% YoY growth rate, partly thanks to the
one-off transactions. On top of that, MSME lending also increased
by a solid 17.2% YoY. On the other hand, retail lending continues
to moderate. Mortgage lending growth slowed to 25.7% YoY, while
non-mortgage lending declined by around the same 5.6% rate on an
annual basis, similar to previous months. At the same time, there
are ongoing discussions on a possible revision of the retail credit
regulatory framework. The NBG assesses around 13% credit growth to
be moderate.
The annual inflation stood at 4.3% in June 2019, over the same
period, while core inflation[28] came in at 3.6%.
As of the end of June 2019, USD/GEL exchange rate of GEL
depreciated by 17.0% YoY, while EUR/GEL exchange rate depreciated
by 14.4% YoY. GEL also depreciated compared to the major trading
country currencies, as evidenced by the weaker effective exchange
rate. As of July 15th, estimated real effective exchange rate was
around 10% below its medium term average, also indicating the
potential pressures on the inflation.
According to the IMF's recently published World Economic
Outlook[29], Georgian economy is projected to increase at 4.6% in
2019 and by 5.0% in 2020. Thereafter, the economy is expected to
expand at by 5.2%. Based on TBC Research estimates, taking into
account the Russian flights ban, growth over the next 12 months
should stand at around 4% with somewhat higher growth rates
expected for FY 2019 and 2020.
25 Management of Capital
The Group's objectives in terms of capital management are to
maintain appropriate levels of capital to support the business
strategy, meet regulatory and stress testing-related requirements
and safeguard the Group's ability to continue as a going concern.
Additionally, the Group's capital management objectives entail
ensuring that the Bank complies with the capital requirements set
by the Basel Capital Accord 1988 capital adequacy ratios as
stipulated by borrowing agreements. The compliance with capital
adequacy ratios set by the NBG is monitored monthly with the
reports outlining their calculation and are reviewed and signed by
the Bank's CFO and Deputy CFO.
The Bank and the Group complied with all its internally and
externally imposed capital requirements throughout the six months
periods ended 30 June 2019 and the year 2018.
In December 2017, the NBG has introduced updated capital
framework that is more compliant with Basel III guidelines. Under
updated capital framework capital requirements are divided into
Pillar 1 minimum requirement, Pillar 2 requirement and combined
buffer. Details regarding the capital requirements are outlined
below:
Pillar 1 Minimum Requirements
-- The updated Pillar 1 minimum requirements are 4.5%, 6% and 8%
for Common Equity Tier 1, Tier 1 and Total Regulatory Capital
respectively.
Pillar 2 Requirements
-- A currency induced credit risk (CICR) buffer for un-hedged FX
loans denominated in foreign currencies;
-- Concentration buffer for sectoral and single borrower exposure;
-- The need for the net stress buffer will be assessed based on
stress testing results provided by the Group;
-- A General Risk-assessment Programme (GRAPE) buffer defined by
the regulator, is applied based on the Bank's specific risks.
Combined buffer is set directly on Common Equity Tier 1 and
consists of certain buffers:
-- The capital conservation buffer (which was incorporated in
minimum capital requirements) is set at 2.5%;
-- A systemic risk buffer will be introduced for systematically
important banks over the 4 years period; A systemic risk buffer as
of June 2019 equals to 1%;
-- A countercyclical capital buffer is set at 0%;
Under the NBG regulation 56% of capital required under pillar 2
should be held by Common Equity Tier 1 Capital, while 75% of the
capital should be held through Tier 1 capital and 100% of capital
should be held through Total Regulatory Capital. For the purposes
to comply with this requirements, pillar 2 requirements will be
implemented over a four year period.
As of June 2019, Banks Pillar 2 requirement is 1.8%, 2.4% and
5.2% for Common Equity Tier 1, Tier 1 and Total Regulatory Capital
respectively
In addition, based on the updated methodology, specific PTI
(payment to income) and LTV (loan to value) thresholds were
introduced. For the exposures which do not fall into pre-defined
limits for PTI and LTV ratios, higher risk weights were
applied.
NBG Basel II Capital adequacy ratio
Both Tier 1 and Total capital adequacy ratios are calculated
based on the Basel III methodology introduced by NBG.
The table below presents the capital adequacy ratios as well as
minimum requirements set by the NBG.
In thousands of GEL 30 June 2019 31 December 2018
Tier 1 Capital 1,730,302 1,678,716
Tier 2 Capital 699,834 672,553
Regulatory capital 2,430,136 2,351,269
Risk-weighted Exposures
Credit Risk Weighted Exposures 12,425,570 11,458,497
Risk Weighted Exposures for Market Risk 43,638 179,381
Risk Weighted Exposures for Operational Risk 1,516,993 1,516,993
Total Risk-weighted Exposures 13,986,201 13,154,871
Minimum Tier 1 ratio 11.9% 11.8%
Tier 1 Capital adequacy ratio 12.4% 12.8%
Minimum total capital adequacy ratio 16.7% 16.7%
Total Capital adequacy ratio 17.4% 17.9%
The breakdown of the Bank's assets into the carrying amounts
based on NBG accounting rules and relevant risk-weighted exposures
as of 30 June 2019 and 31 December 2018 are given in the tables
below:
30 June 2019
In thousands of GEL Carrying Value RW amount
Cash, cash equivalents, Interbank Exposures and Securities 4,994,745 2,096,098
Gross loans and accrued interests, 10,025,120 7,848,726
Repossessed Assets 54,830 54,830
Fixed Assets and intangible assets 584,681 297,943
Other assets 1,226,244 1,290,090
minus general provision, penalty and interest provision (38,639) (38,639)
Total 16,846,981 11,549,048
Total Off-balance 3,844,260 876,523
Market Risk 43,638 43,638
Operational Risk 809,063 1,516,993
Total Amount 21,543,942 13,986,202
31 December 2018
In thousands of GEL Carrying Value RW amount
Cash, cash equivalents, Interbank Exposures and Securities 4,181,199 1,625,289
Gross loans and accrued interests, 9,206,646 7,203,609
Repossessed Assets 46,755 46,755
Fixed Assets and intangible assets 508,582 287,403
Other assets 1,428,945 1,639,128
minus general provision, penalty and interest provision (37,705) (37,705)
Total 15,334,422 10,764,479
Total Off-balance 2,694,174 694,018
Market Risk 179,381 179,381
Operational Risk 809,063 1,516,993
Total Amount 19,017,040 13,154,871
Capital adequacy ratio under Basel Capital Accord 1988
The Group and the Bank are also subject to minimum capital
requirements established by covenants stated in loan agreements.
These requirements include capital adequacy levels calculated in
accordance with the requirements of the Basel Accord, as defined in
the International Convergence of Capital Measurement and Capital
Standards (updated April 1998) and Amendment to the Capital Accord
to incorporate market risks (updated November 2005), commonly known
as Basel I. The composition of the Group's capital calculated in
accordance with Basel Accord is as follows:
30 June 31 December 2018
In thousands of GEL 2019
Tier 1 capital
Share capital 542,204 542,204
Retained earnings and disclosed reserves 1,664,835 1,509,990
Less: Goodwill (29,459) (29,459)
Non-controlling interest 417 527
Total tier 1 capital 2,177,997 2,023,262
Tier 2 capital
Revaluation reserves 62,768 58,995
General Reserve 170,122 129,739
Subordinated debt (included in tier 2 capital) 550,289 548,508
Total tier 2 capital 783,179 737,242
Total capital 2,961,176 2,760,504
Credit risk weighted assets (including
off-balance obligations) 13,609,779 10,379,124
Less: General Reserve (169,974) (204,391)
Market Risk 93,044 210,916
Total Risk-weighted assets 13,532,849 10,385,649
Minimum Tier 1 ratio 4.0% 4.0%
Tier 1 Capital adequacy ratio 16.1% 19.5%
Minimum total capital adequacy ratio 8.0% 8.0%
Total Capital adequacy ratio 21.9% 26.6%
Following the Basel I guidelines the General Reserve is defined
by the management as the minimum among the following:
a) IFRS provisions created on loans without impairment trigger
event
b) 2% of loans without impairment trigger event
c) 1.25% of total RWA (Risk Weighted Assets)
The breakdown of the Group's assets into the carrying amounts
and relevant risk-weighted exposures as of 30 June 2019 and 31
December 2018 provided in the tables below:
In thousands of GEL 30 June 2019
Risk weighted Exposures Carrying Value RW amount
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other
banks,
investment securities measured at fair value through other comprehensive income 5,157,454 307,485
Gross loans and accrued interests 11,141,360 11,138,983
Repossessed assets 146,844 146,844
Fixed assets and intangible assets 579,336 549,878
Other assets 501,714 501,714
Total 17,526,708 12,644,904
Total Off-balance 3,816,230 964,876
Less: Loan loss provision minus General Reserve (169,974) (169,974)
Market Risk 93,044 93,044
Total Amount 21,266,008 13,532,850
In thousands of GEL 31 December 2018
Risk weighted Exposures Carrying Value RW amount
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other
banks,
investment securities measured at fair value through other comprehensive income 4,285,970 244,844
Gross loans and accrued interests 10,372,582 8,281,144
Repossessed assets 124,643 124,643
Fixed assets and intangible assets 504,035 474,576
Other assets 499,747 499,747
Total 15,786,977 9,624,954
Total Off-balance 2,674,697 754,170
Less: Loan loss provision minus General Reserve (204,391) (204,391)
Market Risk 210,916 210,916
Total Amount 18,468,199 10,385,649
26 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 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 2019 and 31 December 2018 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 2019 and as of 31 December
2018.
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 2019 31 December 2018
Financial guarantees issued 175,800 -
Undrawn credit lines 944,373 769,863
Letters of credit issued 131,668 105,972
Total credit related commitments (before provision) 1,251,841 875,835
Provision for credit related commitments (4,683) (5,424)
Total credit related commitments 1,247,158 870,411
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 of 30 June 2019 included in undrawn credit lines
above were GEL 492,696 thousand (31 December 2018: GEL 344,360
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 of 30 June 2019 is GEL 1,206,521 thousand and GEL
5,586 thousand (31 December 2018: GEL 1,195,812 thousand and GEL
4,393 thousand).
Fair value of credit related commitments and financial
guarantees were GEL 3,781 thousand as of 30 June 2019 (31 December
2018: GEL 5,424 thousand). Total credit related commitments and
performance guarantees are denominated in currencies as
follows:
In thousands of GEL 30 June 2019 31 December 2018
Georgian Lari 1,002,857 853,965
US Dollars 1,109,682 955,829
Euro 292,934 218,091
Other 52,890 43,762
Total 2,458,363 2,071,647
Capital expenditure commitments. As of 30 June 2019, the Group
has contractual capital expenditure commitments amounting to GEL
19,614 thousand (31 December 2018: GEL 12,210 thousand).
27 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 2019 31 December 2018
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 - 3,742 - 3,742 - 14,982 - 14,982
- Corporate bonds - 595,820 - 595,820 - 548,864 - 548,864
- Ministry of Finance
Treasury Bills - 259,487 - 259,487 - 372,927 - 372,927
Netherlands Government
Bonds - - - - - 66,760 - 66,760
Repurchase receivables
- Ministry of Finance
Treasury Bills - 46,628 - 46,628 - - - -
Foreign exchange forwards
and gross settled currency
swaps, included in other
financial assets or due
from banks - 6,512 - 6,512 - 1,490 - 1,490
NON-FINANCIAL Assets
- Premises and leasehold
improvements - - 283,040 283,040 - - 277,798 277,798
Total ASSETS RECURRING
FAIR VALUE MEASUREMENTS - 912,189 283,040 1,195,229 - 1,005,023 277,798 1,282,821
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 - 14,583 - 14,583 - 2,085 - 2,085
Total Liabilities RECURRING
FAIR VALUE MEASUREMENTS - 14,583 - 14,583 - 2,085 - 2,085
There were no transfers between levels during the six months
ended 30 June 2019 (2018: none).
(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 2019 2018 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 905,677 1,003,533 ("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 6,512 1,490 value calculations rate
Total ASSETS RECURRING
FAIR VALUE MEASUREMENTS 912,189 1,005,023
LIABILITIES CARRIED AT
FAIR VALUE
FINANCIAL LIABILITIES
Other financial liabilities
- Interest rate swaps included Swap model Observable yield
in other financial liabilities using present curves
- - value calculations
- Foreign exchange forwards Forward pricing Official exchange
included in other financial using present rate, risk-free
liabilities 14,583 2,085 value calculations rate
Total RECURRING FAIR VALUE
MEASUREMENTS at level 2 14,583 2,085
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 2019 (2018: none).
For details the techniques and inputs used for Level 3 recurring
fair value measurement of (as well as reconciliation of movements
in) premises refer to Note 8. The unobservable input to which the
fair value estimate for premises is most sensitive is price per
square meter: the higher the price per square meter,
the higher the fair value.
(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 2019 31 December 2018
In thousands of Level Level Level Carrying Level Level Level Carrying
GEL 1 2 3 Value 1 2 3 Value
Financial Assets
Cash and cash
equivalents 674,466 953,878 - 1,628,344 491,928 674,983 - 1,166,911
Due from other
banks - 27,860 - 27,860 - 47,316 - 47,316
Mandatory cash
balances
with the NBG - 1,841,237 - 1,841,237 - 1,422,809 - 1,422,809
Loans and advances
to customers:
- Corporate
loans - - 3,852,641 3,562,894 - - 3,212,490 3,095,784
- Consumer loans - - 1,847,843 1,723,845 - 1,970,006 1,832,793
- Mortgage loans - - 2,973,959 2,930,077 - - 2,702,768 2,684,295
- MSME - - 2,653,743 2,552,569 - - 2,440,078 2,425,580
Repurchase
receivables - 138,692 - 133,135 - - - -
Bonds carried at
amortised cost - 640,133 - 632,723 - 660,916 - 654,203
Investments in
leases - - 223,591 220,871 - - 207,579 203,802
Other financial
assets - - 158,870 158,870 - - 166,028 166,028
NON-FINANCIAL
Assets - -
Investment
properties,
at cost - - 90,058 79,114 - - 97,425 84,296
Total ASSETS 674,466 3,601,800 11,800,705 15,491,539 491,928 2,806,024 10,796,374 13,783,817
FINANCIAL
liabilities
Due to credit
institutions - 3,055,749 - 3,052,742 - 3,028,180 - 3,031,503
Customer accounts - 6,183,298 3,709,554 9,876,813 - 5,885,242 3,482,741 9,352,142
Debt securities
in issue - 848,838 - 848,838 - 13,343 - 13,343
Other financial
liabilities - 300,294 - 300,294 - 96,629 - 96,629
Subordinated debt - 687,472 - 688,002 - 648,802 - 650,919
Total Liabilities - 11,075,651 3,709,554 14,766,689 - 9,672,196 3,482,741 13,144,536
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 2019 (2018: none).
28 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 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: 5.3% - 36.0%) 1,175 11,863
Credit loss allowance for loans and
advances to customers - 10
Customer accounts (contractual interest
rate: 0% - 11.5 %) 17,976 8,222
Performance guarantees 5,782 -
Provision on performance guarantees 24 -
The income and expense items with related parties except from
key management compensation during 30 June 2019 were as
follows:
Significant Key management
In thousands of GEL shareholders personnel
Interest income 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
The aggregate loan amounts advanced to, and repaid, by related
parties during 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)
As of 31 December 2018, 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: 0.4% - 48.0%) 1,614 11,407
Credit loss allowance for loans and
advances to customers - 9
Customer accounts (contractual interest
rate: 0.0% - 10.2 %) 27,095 21,328
Performance guarantees 10,216 -
Provision on performance guarantees 36 -
The income and expense items with related parties except from
key management compensation during 30 June 2018 were as
follows:
Significant Key management
In thousands of GEL shareholders personnel
Interest income 9 248
Interest expense 222 111
Gains less losses from trading in foreign
currencies 74 35
Foreign exchange translation gains
less losses 4 (343)
Fee and commission income 38 27
Fee and commission expense 304 -
Administrative and other operating
expenses (excluding staff costs) 51 198
Aggregate amounts of loans advanced to and repaid by related
parties during the six months ended 30 June 2018 were as
follows:
Significant Key management
In thousands of GEL shareholders personnel
Amounts advanced to related parties during
the period 275 3,160
Amounts repaid by related parties during
the period (305) (2,404)
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
2019 2018 2019 2018
Salaries and bonuses 6,263 6,426 151 270
Cash settled bonuses related
to share-based compensation (1,627) 5,253 - 8,395
Equity-settled share-based compensation 9,444 5,537 - -
Total 14,080 17,216 151 8,665
-
Included in salaries and bonuses for six months ended 30 June
2019 GEL 1,782 thousand relates to compensation for directors of
TBCG paid by TBC Bank Group PLC (six months ended 30 June 2018: GEL
1,387 thousand).
29 Business combination
Acquisition of Inspired LLC
In May 2019 TBC bank group PLC finalized acquisition process of
LLC Inspired - the leading payment platform "Payme". The acquired
interest amounted 51% of total shareholding. The transaction is in
line with the Group's international expansion strategy of
operations. The consideration amounted USD 5.5 million.
The acquisition-date fair value of the total purchase
consideration in Georgian Lari is follows:
In thousands of GEL
Cash consideration paid 14,981
Total purchase consideration 14,981
The consideration paid by the Group was based on results of an
appraisal of the acquiree's business taken as a whole. However, in
accordance with IFRS 3 "Business Combinations", the Group must
account for acquisitions based on fair values of the identifiable
assets acquired and liabilities and contingent liabilities assumed.
These two different approaches can lead to differences; and, as set
out in the table below, recognition of goodwill. Details of the
assets and liabilities acquired and goodwill arising is as
follows:
Provisional Fair
In thousands of GEL Values
Cash and cash equivalents 223
Due from other banks 424
Other financial assets 676
Premises and equipment 379
Intangible assets 212
Other assets 79
Other liabilities (159)
Fair value of net assets of subsidiary 1,834
Non-controlling interest (868)
Goodwill arising from the acquisition 14,015
Total purchase consideration 14,981
Less: cash and cash equivalents of subsidiary
acquired (223)
Outflow of cash and cash equivalents on
acquisition 14,758
The goodwill is primarily attributable to the profitability of
the acquired business and the positive synergies expected to
arise.
30 Events after the reporting period
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.
In July 2019, the Bank prepaid obligation towards one of the
lenders of amount of USD 9.2 million as at transaction date. In
August 2019, the Bank also prepaid its subordinated debt towards
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden
N.V., of amount USD 26.9 Million.
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 8 Bulachauri Street, 0160, 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 23 Chkheidze Street, 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
GE Commerce LTD 3 Chavchavadze Avenue, 0128, Tbilisi, Georgia
Swoop JSC 4 Chavchavadze Avenue, 0162, Tbilisi, Georgia
LLC Allproperty 4 Besiki street,46/10, Tbilisi, Georgia
LLC TBC International 07 Marjanishvili Street, 0102, Tbilisi, Georgia
Inspired LLC Tashkent, 100100, Bobura street, 22A
BG LLC 07 Marjanishvili Street, 0102, Tbilisi, Georgia
[1] Excluding one-off items. Detailed information and effects
are given in Annex 26 on pages 51-52
[2] Excluding one-off items. Detailed information and effects
are given in Annex 26 on pages 51-52
[3] International Financial Institutions
[4] 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
[5] Net Promoter Score
[6] Investment figures are converted into GEL using exchange
rate of 2.8687 as of 30 June 2019
([7]) The difference between the underlying and reported net
profit figures in the second quarter 2019 was caused by the one-off
consulting costs in the amount of GEL 5.6 million related to the to
the past events about TBC Bank
[8] See "Russian Sanctions: Manageable Impact on the Growth and
Still Betting on the GEL" at www.tbcresearch.ge.
[9] See "Russian Sanctions: Manageable Impact on the Growth and
Still Betting on the GEL" at www.tbcresearch.ge.
[10] CPI inflation excluding the prices of food and beverages,
energy, transport and administered prices
[11] IMF WEO April 2019 update
[12]Gross insurance profit can be reconciled to the standalone
net insurance profit (as shown in Annex 23 on page 49) as follows:
gross insurance profit less credit loss allowance, administrative
expenses and taxes, plus fee and commission income and net interest
income
[13] Non-health insurance includes P&C and life
insurance
[14] As at 1 January 2019, the group adopted IFRS 16, under
which short term and low value lease contracts, also contracts that
do not qualify for lease arrangements and taxes on lease contracts
are expensed under this category of administrative expenses
[15] Gross insurance profit can be reconciled to the standalone
net insurance profit as follows (as shown in Annex 23 on page 49):
gross insurance profit less credit loss allowance, administrative
expenses and taxes, plus fee and commission income net interest
income
[16] Non-health insurance includes P&C and life
insurance
[17] As at 1 January 2019, the group adopted IFRS 16, under
which short term and low value lease contracts, as well as
contracts that do not qualify for lease arrangements and taxes on
lease contracts, are expensed under this category of administrative
expenses
[18] TBC Bank Group PLC became the parent company of JSC TBC
Bank on 10 August 2016
[19] Cross-sell ratio is defined as the number of active
products divided by the number of active customers
[20]Based on internal estimates
[21]Or 17.9% and 27.1% respectively, with MTPL insurance.
Starting from March 1, 2018 border MTPL was introduced and GWP was
divided evenly between 17 insurance companies, therefore it has
decreased our market share
[22] Non-health insurance includes P&C and life
insurance
([23]) Net insurance claims plus acquisition costs and
administrative expenses divided net earned premium
([24]) Net earned premium equals earned premium minus
reinsurer's share of earned premium
[25] After taking into account USD 125 million Additional Tier 1
perpetual subordinated bond issued in June 2019
[26] After taking into account USD 125 million Additional Tier 1
perpetual subordinated bond issued in June 2019
[27] See "Russian Sanctions: Manageable Impact on the Growth and
Still Betting on the GEL" at www.tbcresearch.ge.
[28] CPI inflation excluding the prices of food and beverages,
energy, transport and administered prices.
[29] IMF WEO April 2019 update
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August 15, 2019 02:11 ET (06:11 GMT)
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