3rd Quarter Results

RNS Number : 4488H
TBC Bank Group PLC
15 November 2018
 

 

TBC BANK GROUP PLC ("TBC Bank")

3Q AND 9M 2018 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.

 

 

 

 

 

Third Quarter and Nine Months of 2018 Unaudited Financial Results Conference Call

 

 

TBC Bank Group PLC ("TBC PLC") will release its unaudited consolidated financial results for the third quarter and nine-month of  2018 on Thursday, 15 November 2018 at 7.00 am GMT (11.00 am GET).

 

On that day, Vakhtang Butskhrikidze, CEO, and Giorgi Shagidze, CFO, will host a conference call to discuss the results.

 

Date & time:  Thursday, 15 November 2018 at 14.00 (GMT) / 15.00 (CET) / 9.00 (EST)

                                    

Please dial-in approximately five minutes before the start of the call quoting the password TBC:

 

 

 

Password:

TBC

UK Toll Free:

0808 109 0700

Standard International Access:

+44 (0) 20 3003 2666

USA Toll Free:

1 866 966 5335

New York New York:                                               

+1 212 999 6659

Russia Toll Free:

8 10 8002 4902044

Moscow:

+7 (8) 495 249 9843

 

Replay Numbers

 

Replay Passcode:

5808754

UK Toll Free:

0800 633 8453

Standard International Access:                               

+44 (0) 20 8196 1998

USA Toll Free:

1 866 583 1035

Russia Toll Free:

8 10 8002 4832044

Moscow:

+7 (8) 495 249 9840

 

 

Contacts

 

 

Zoltan Szalai

Director of International Media and Investor Relations  

 

E-mail:  ZSzalai@Tbcbank.com.ge 

Tel:  +44 (0) 7908 242128

Web: www.tbcbankgroup.com

Address:  68 Lombard St, London EC3V 9LJ, United Kingdom 

 

Anna Romelashvili                                             

Head of Investor Relations

 

E-mail:  IR@tbcbank.com.ge 

Tel:  +(995 32) 227 27 27

Web: www.tbcbankgroup.com

Address: 7 Marjanishvili St. Tbilisi, Georgia 0102

 

Investor Relations Department

 

 

 

E-mail:  IR@tbcbank.com.ge 

Tel:  +(995 32) 227 27 27

Web: www.tbcbankgroup.com

Address: 7 Marjanishvili St. Tbilisi, Georgia 0102

 

 

 

 

Table of Contents

 

3Q and 9M 2018 Results Announcement

 

TBC Bank - Background

Financial Highlights

Recent Developments

Letter from the Chief Executive Officer

Economic Overview

Unaudited Consolidated Financial Results Overview for 3Q 2018

Unaudited Consolidated Financial Results Overview for 9M 2018

Additional Disclosures

 

 

 

 

TBC BANK Group PLC ("TBC Bank")

 

TBC Bank Announces Unaudited 3Q and 9M 2018 and Consolidated Financial Results:

Net Profit for 3Q 2018 up by 23.8% YoY to GEL 107.4 million

Net Profit for 9M 2018 up by 16.8% YoY to GEL 307.3 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.

 

 

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.7% of its business is concentrated, and where it has 37.2% market share by total assets. TBC Bank 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.

In 4Q 2016, TBC Bank acquired Bank Republic which has been consolidated into the Group's results.

 

 

Financial Highlights

3Q 2018 P&L Highlights                                                        

§ Net profit amounted to GEL 107.4 million (3Q 2017: GEL 86.8 million; 2Q 2018: GEL 102.4 million)

§ Return on equity (ROE) amounted to 21.2% (3Q 2017: 19.8%; 2Q 2018: 21.3%)

§ Return on assets (ROA) amounted to 3.1 % (3Q 2017: 2.9%; 2Q 2018: 3.2%)

§ Total operating income amounted to GEL 278.1 million, up by 34.3% YoY and up by 7.6% QoQ

§ Cost to income was 37.4% (3Q 2017: 40.5%; 2Q 2018: 35.6%)

§ Cost of risk stood at 1.9% (3Q 2017: 1.3%; 2Q 2018: 1.8%)

§ FX adjusted cost of risk stood at 1.5% (3Q 2017 1.2%; 2Q 2018: 1.7%)

§ Net interest margin (NIM) stood at 6.9% (3Q 2017: 6.2%; 2Q 2018: 7.1%)

§ Risk adjusted net interest margin (NIM) stood at 5.4% (3Q 2017: 5.0%; 2Q 2018: 5.5%)

 

9M 2018 P&L Highlights

§ Net profit amounted to GEL 307.3 million (9M 2017: GEL 263.2 million)

§ Return on equity (ROE) amounted to of 21.2% (9M 2017: 20.9%)

§ Return on assets (ROA) was 3.1% (9M 2017: 3.2%)

§ Total operating income for the period was up by 25.5% YoY to GEL 775.2 million

§ Cost to income stood at 37.0% (9M 2017: 42.1%)

§ Cost of risk on loans stood at 1.7% (9M 2017: 1.2%)

§ Net interest margin (NIM) stood at 7.0% (9M 2017: 6.5%)

§ Risk adjusted net interest margin (NIM) stood at 5.3% (9M 2017: 5.1%)

Balance Sheet Highlights as of 30 September 2018

§ Total assets amounted to GEL 14,424.0 million as of 30 September 2018, up by 18.8% YoY and up by 6.2% QoQ

§ Gross loans and advances to customers stood at GEL 9,622.6 million as of 30 September 2018, up by 23.9% YoY and up by 8.2% QoQ

§ Net loans to deposits + IFI funding stood at 88.0% and Net Stable Funding Ratio (NSFR) stood at 118.0%

§ NPLs were 3.1%, down by 0.4pp YoY and unchanged QoQ

§ NPLs coverage ratios stood at 113.2%, or 209.0% with collateral, on 30 September 2018 compared, to 80.5% or 206.8% with collateral, as of 30 September 2017[1] and 116.1%, or 216.1% with collateral on 30 June 2018

§ Total customer deposits amounted to GEL 8,740 million as of 30 September 2018, up by 23.2% YoY and up by 10.2% QoQ

§ As of 30 September 2018, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.8% and 16.4% respectively, while minimum requirements amounted to 10.3% and 15.8%

Market Shares[2]

§ Market share in total assets reached 37.2% as of 30 September 2018, up by 0.7pp YoY and up by 0.1pp QoQ

§ Market share in total loans was 38.4% as of 30 September 2018, up by 0.2pp YoY and up by 0.1pp QoQ

§ In terms of individual loans, TBC Bank had a market share of 39.9% as of 30 September 2018, down by 0.6pp YoY and up by 0.1pp QoQ. The market share for legal entity loans was 36.6%, up by 1.0pp YoY and up by 0.1pp QoQ

§ Market share of total deposits reached 40.3% as of 30 September 2018, up by 1.7pp YoY and up by 0.8pp QoQ

§ Market share of individual deposits attained to 41.1%, up by 0.2pp YoY and down by 0.1pp QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 39.4%, up by 3.5pp YoY and up by 1.9pp QoQ.

 

 

Recent Developments

 

Recent and Upcoming Regulations

·      On 1 September 2018, a 50% effective interest cap on loans was introduced, although we do not expect it to have any material impact on TBC Bank's performance;

·      Other regulatory initiatives are also expected to come into force  by the end of 2018, including the following:  1) an increase in the limit, below which loans cannot be issued to individuals in foreign currency, from GEL 100,000 to GEL 200,000, 2) an introduction of new caps on PTI and LTV ratios and 3) a regulation on loans to customers without verified income.

·      While final details are not known yet, these regulations are expected to support further de-dollarization and it might decrease the retail loan growth rate in the short to medium term. Therefore, we are revising our medium term annual loan growth rate guidance to 10-15%. However, our other targets remain unchanged with return on equity above 20%, cost to income ratio below 35% and a dividend pay-out ratio of 25-35%.  

 

Georgia ranks 6th in 2019 "Doing Business" report

·      Georgia continues its remarkable progress on the World Bank's Doing Business rankings. According to the 2019 Ease of Doing Business report, Georgia ranks 6th among 190 countries surveyed globally; up from the 9th in the previous year. Georgia stands just after Korea and before Norway and it outscores all CEE countries.

TBC Bank Group PLC announces Board changes

·      TBC Bank has appointed two female board members, Maria Luisa Cicognani and Tsira Kemularia, as Independent Non-Executive Directors. They will also serve as Supervisory Board members of TBC PLC's main subsidiary - JSC TBC Bank. Following the appointment of Ms Cicognani and Ms Kemularia, Stefano Marsaglia and Stephan Wilcke have stepped down from the TBC PLC Board and the Supervisory Board of JSC TBC Bank.

 

TBC Bank and FMO Sign a GEL 103 Million Loan Agreement

·      TBC Bank has signed a loan agreement in the amount of GEL 103 million with FMO, the Netherlands Development Finance Company. The five-year loan facility will be used primarily to finance young entrepreneurs running micro, small and medium size enterprises in Georgia, as well as young retail customers requiring mortgage loans. The local currency funding will be obtained by FMO through a public bond placement on the Georgian Stock Exchange.

TBC Bank and EIB Sign EUR 30 Million Loan Agreement

·      TBC Bank has signed a loan agreement in the amount of EUR 30 million with the European Investment Bank (EIB). The five-year loan facility will primarily be used to finance small and medium size enterprises in Georgia.

 

TBC Bank wins the Best Private Bank in Georgia 2018 award from PWM and The Banker Magazines

 

·      TBC Bank has been named the Best Private Bank in Georgia 2018 by Professional Wealth Management (PWM) and The Banker magazines. This prestigious award is acknowledgement of TBC Bank's continuous efforts to deliver exceptional private banking services in Georgia. Participants were evaluated against a set of growth and performance measures, as well as on their particular private banking services.

 

TBC Bank wins Two Global Digital Awards from Global Finance Magazine

 

§ TBC Bank has been named the world's Best in Social Media Marketing and Services 2018 and the world's Best Integrated Consumer Banking Site 2018 by Global Finance Magazine.  In the list of winners TBC Bank stands among some of the world's leading banks.

 

 

TBC Bank wins the Best Foreign Exchange Provider 2019 in Georgia from Global Finance Magazine

 

§ TBC Bank has been named the Best Foreign Exchange Provider 2019 in Georgia by Global Finance Magazine. The winners were chosen based on extensive criteria including transaction volume, market share, scope of global coverage, customer service, competitive pricing and innovative technologies.

 

 

 

Additional Information Disclosure

Additional historical information for certain P&L, balance sheet and capital items, and on asset quality is disclosed on our Investor Relations website on http://tbcbankgroup.com/ under the Financial Highlights section.

 

 

Letter from the Chief Executive Officer

I am delighted to present our strong financial results for the third quarter in 2018 and a brief overview of the recent economic developments, as well as give you an update on our international plans. 

In the third quarter, we recorded a consolidated net profit of GEL 107.4 million, up by 23.8% year-on-year. Our return on equity amounted to 21.2%, up by 1.4 percentage points year-on-year, while our return on assets was 3.1%, up by 0.2 percentage points year-on-year.

 

We continued to deliver on our promises and achieved a net interest margin at 6.9% during the quarter, within the range of our short-term guidance. Over the same period, our net fee and commission income grew by 23.9% year-on-year, consistent with our annual growth guidance and mainly driven by the increasing number of card and settlement transactions.  Our cost to income ratio decreased by 3.1 percentage points year-on-year to 37.4%.

 

During the quarter, our loan book grew by 23.9% year-on-year, bringing our market share to 38.4%, up by 0.2 percentage points year-on-year. Our asset quality remained sound, with FX adjusted cost of risk at 1.5% and non-performing loans at 3.1%. Over the same period, our customer accounts grew by 23.2% year-on-year, increasing our market share to 40.3%, up by 1.7 percentage points year-on-year.

Our capital and liquidity ratios continued to remain solid.  As of 30 September 2018, our tier 1 and total capital adequacy ratios (CAR) per Basel III guidelines stood at 12.8% and 16.4% respectively, compared to the corresponding minimum requirement of 10.3% and 15.8%. At the same time, our net loans to deposits + IFI funding ratio stood at 88.0% and the net stable funding ratio (NSFR) was 118.0%. 

 

I am particularly pleased with the achievements of our digital strategy as the number of transactions and sales volume through digital channels continue to grow. As a result, in the third quarter of 2018 our offloading ratio was 90%[3], while 47%[4] of all sales were completed via digital channels in September 2018. In addition, our recently launched, fully-digital bank, Space, continued to rapidly attract new customers and had approximately 186,000 users as of 30 September 2018. 

 

The growth of the Georgian economy remains solid despite increased uncertainties in the region, contractionary fiscal policy and one-offs related to some large infrastructure projects. In the third quarter, real GDP[5] grew by 4.0%, while growth in September reached 5.6%. Investment demand has been the major contributor to growth, supported by healthy business lending as well as the strong pace of reforms aimed at improving the business environment in the country. Georgia ranked 6th out of 190 countries in the recently released "Doing Business 2019 report", up from 9th position in the previous year. While the growth of total external inflows slowed during the quarter, mostly due the situation in Turkey and Iran, it still remained in double digits thanks to the geographically diversified sources of inflows. During the quarter exports of goods increased by 21.1% year-on-year, mainly supported by exports to CIS countries. Over the same period, remittances grew by 12.0% year-on-year and tourism inflows expanded by 11.7% year-on-year, mainly driven by EU countries.  Despite the temporary negative spill-overs from some neighbouring countries, the Georgian economy is expected to continue its solid growth, with the IMF projecting an average of 5.0% annual GDP growth over the next five years.

 

Finally, I would like to welcome our two new board members: Maria Luisa Cicognani and Tsira Kemularia, who joined our Board as independent Non-Executive Directors. Ms. Cicognani and Ms. Kemularia have extensive international experience at some of the world's leading institutions and will bring valuable perspectives and expertise to our Board.

 

Following the increase in diversity of our Board and our continued efforts to improve corporate governance, including implementation of the new executive compensation system, we expect substantial improvement in our governance scores, and we are very pleased to see ISS upgrading our score to 4 as of 1 November 2018.  

 

Outlook

On 1 September 2018, a 50% effective interest rate cap on loans was introduced, although we do not expect it to have any material impact on TBC Bank's performance. Other regulatory initiatives are also expected to come into force by the end of 2018, including the following:

 

·      An increase in the limit below which loans cannot be issued to individuals in a foreign currency, from GEL 100,000 to GEL 200,000;

·      The introduction of new caps on PTI and LTV ratios; and

·      Regulation of loans to customers without verified income.

 

While the final details are not known yet, these regulations are expected to support further de-dollarisation and they may also decrease the retail loan growth rate in the short-to-medium term. Therefore, we are revising our medium term annual loan growth rate guidance to 10-15%. However, our other targets remain unchanged: a return on equity above 20%, a cost to income ratio below 35% and a dividend pay-out ratio of 25-35%.

 

Regarding our insurance business, I am very pleased with its results. Starting from this year, we have become the second largest player on the P&C insurance market and the largest player in the retail segment, holding 18.3% and 30.0% market shares[6] respectively, based on internal  estimates. In the third quarter, the number of customers grew steadily and totaled around 300,000, up by 113% year-on-year.

 

While Georgia will remain our main focus, the vast expertise we have built in the last three decades, including our advanced digital banking technology, should provide us with a strong competitive advantage to carefully enter selected new markets and start growing our banking business beyond Georgia.

 

In this context, I would like to provide you with an update on the progress made in our international strategy:

 

Azerbaijan 

Following the completion of due diligence of Nikoil Bank, our Board of Directors is expected to approve the transaction on 16th November, after which we will sign the definitive agreements. The next step is obtaining the regulatory approval, which could take up to a few months. After the merger is completed, TBC Bank will hold up to 10% of the merged entity and will have an option to acquire the number of shares needed to achieve 50%+1 share of the merged entity within 3 years, based on a fixed price formula.

 

In parallel, we have started to develop and implement the new strategy of the merged entity. The bank will be serving retail and MSME customers and will have a strong focus on digital offerings including our fully-digital bank, Space. The main shareholder of Nikoil has already recapitalised the bank by investing USD 45 million by September 2018. A further capital increase has also been agreed upon, whereby TBC Bank will be investing, consistent with its 10% shareholding, between three and five million US dollars each year subject to reaching appropriate KPIs by the merged entity. Within three years, we expect the bank to have USD 1,400 million in its loan book, USD 200 million in total equity and a return on equity of above 20%.

I am very pleased that we are establishing an outstanding team for the merged entity. In addition to the CEO, Nikoloz Shurgaia, who has extensive international banking experience and education, the following new members have joined the team:

•     Chief Operating Officer - Nukri Tetrashvili, former CEO of  TBC Kredit 

•     Chief Digital Officer -Senior Digital Manager with a solid track record at large Georgian bank

•     Chief Risk Officer - David Tediashvili, former Head of Retail Credit Risk Department at TBC Bank

•     Chief Financial Officer - Emil Dushdurov, former Associate Director, Deal Advisory at KPMG Azerbaijan

 

Uzbekistan

I would like to present our progress in our quest to expand our digital banking offerings not only in the Caucasus region, but also in Central Asia, namely in Uzbekistan. This is still at the concept phase and subject to approvals, including from the local authorities. Therefore, the project could change as we progress.

 

Uzbekistan is a very attractive market with a large and growing population of 32 million and with retail and MSME loans to GDP ratio[7] of below 5% as of the end 2017. Georgia and Uzbekistan have good cultural links, share a similar past dating back to the Soviet Union times and are both part of China's One Belt One Road initiative.

 

We believe that now is the right time to enter this market as the country has embarked on a path of reforms, many of which have been designed based on advice given by former Georgian government officials, and is creating a business friendly environment.

 

We aspire to build a greenfield, next generation bank for retail and MSME customers with a primary focus on digital channels including our fully-digital bank, Space. We also plan to operate hi-tech, asset-light branches with digital offerings.

 

We would like to establish the bank in partnership with international financial institutions and a local partner. Our plans foresee a minimum 51% shareholding and an initial investment of USD 20-30 million. We have already secured preliminary interest from certain international financial institutions and we are in the process of finding a local partner.

 

Our medium to long-term financial aspirations for the Uzbek subsidiary is to contribute above 20% to TBC Bank Group PLC's assets and income and to achieve sustainable ROE up to 25%.

 

On the one hand, our planned expansion in Azerbaijan and Uzbekistan should allow us to reach out to a population of around 40 million compared to just 4 million in Georgia, offering us tremendous new growth opportunities given the competitive advantages of our products and services. On the other hand, we plan 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.

 

We will aim to transfer our international aspirations into specific financial targets within the period of one year.

 

 

Economic Overview[8]

Economic growth

Economic growth remained at solid 5.5% in 2Q 2018. In nominal terms, the GDP increased by 10.6% YoY over the same period. Amid increased uncertainties in the countries across the region, a contractionary fiscal policy and one-offs related to large infrastructure projects, growth slowed to 4.0% in 3Q 2018, with latest September growth at 5.6%,  in line with initial estimates of the national statistics' office Geostat. Reflecting the increased uncertainties in the external sector IMF revised GDP growth projections to 5.0% for 2018, down from 5.5% projected previously.

Structural reforms continue to support the domestic as well as foreign investment growth. According to the World Bank's "Doing Business 2019" report, Georgia further strengthened its position and ranked 6th among the 190 countries surveyed - up by 3 steps  from the 9th position in previous year. With this position, Georgia stands among the countries such as Hong Kong, Korea, Norway, while outperforming all of the CEE countries. Continued tax reform contributes significantly to the strengthening of Georgia's position in "Doing Business 2019" rankings. Total tax and contribution rate as a percentage of corporate taxes currently stand at 9.9%, among the lowest globally, down from 16.4% in 2018[9].

The investment demand has fuelled growth in 2Q 2018. Investment increased by 26.4% YoY in nominal terms and amounted to 34% of GDP over the last four quarters ending 2Q 2018, the highest level since 2006. The increase was driven by solid growth in capital investments (+21.2% YoY) as well as investments in inventory (+81.8% YoY). Consumption rose by 6.9% YoY in nominal terms as of 2Q 2018.

In 2Q 2018 trade and repairs (+10.5% YoY), manufacturing (+7.6% YoY), real estate (+13.8% YoY), and financial intermediation (+22.0% YoY) were the fastest growing sectors, contributing the most to real GDP growth, while agriculture (-3.3% YoY) and construction (-7.1% YoY) sectors contracted. The drop in the construction sector was primarily due to the one-off factors related to fiscal underspending on several large scale infrastructure projects as well as finalization of the South Caucasus pipeline expansion project.

Consolidated budget posted the surplus of an estimated 0.7% of GDP both in 3Q 2018 and in the first nine months of 2018. These figures imply sizeable contractionary impact of fiscal policy as budget deficit stood at 3.3% in 3Q 2017 and 2.0% in first nine months of 2017. In 3Q 2018 tax revenues increased by 8.7% YoY, over the same period total spending declined modestly by 0.5% YoY.

The contractionary impact of the fiscal spending was balanced by the economy's accelerated bank lending. As of September 2018 the total bank loan portfolio increased by 19.1%[10] YoY. Loans to SME and corporate segment increased by a solid 20.3% and 19.8% YoY respectively. Retail loan growth also remained strong at 18.1%, primarily driven by the increase of mortgage loans. The NBG's regulation related to the non-mortgage lending introduced back in May 2018 have resulted in slowdown of this segment. 

The growth of total external inflows from exports, tourism and remittances slowed in 3Q 2018 amid increased uncertainties in some of Georgia's economic partners. Despite the negative impact mostly from Turkey and Iran, the growth of inflows remains in double digits thanks to their geographically diversified sources.

Exports of goods increased by a solid 21.1%[11] YoY in 3Q 2018. The growth was driven by growing exports to CIS countries (+41.9% YoY). Over the same period exports to EU decreased modestly by 1.7% YoY, while the exports to other countries increased by 9.5% YoY. The sharp drop of the Turkish lira and sanctions on Iranian oil exports negatively affected the growth of exports to these countries and dropped by 15% YoY and 28.8% YoY respectively. The share of Turkey and Iran in Georgia's total exports fell to 6.8% in 3Q 2018, thus the negative spillovers from these countries should be limited going forward.

After a 23.2% increase in the first half of 2018, the growth in imports retreated to 11.8% YoY in 3Q 2018, reflecting the expected slower economic growth in 3Q as well as restrictions on non-mortgage loans having negative impact on the imports of durable consumer goods. The trade deficit widened by only 6.4% in 3Q 2018 compared to the 20.5% growth 1H 2018. Declining growth rate of the trade deficit was evident since March 2018 with even improvement in September.

In 3Q 2018 tourism inflows grew by 11.7% YoY. The increase of visitors from the EU was steepest at 39.0% YoY. Visitors from the CIS countries increased by 9.6% YoY while the visitors from other countries went up by 4.0% YoY. The latter was negatively affected primarily by declining visitors from Iran (-26.3% YoY).

Remittances grew by 12.0% YoY in 3Q 2018 with EU countries remaining the major driver of growth. Private money transfers slowed from the CIS (+3.6% YoY) and other countries (7.5% YoY). In the same period sizeable decline in remittances from Turkey in 3Q 2018 (-13.8%) was the main drag on growth. Inflows also declined from Russia (-1.6% YoY) albeit more moderately.

The current account (CA) deficit was traditionally fully financed by FDIs and remained broadly unchanged from previous year, standing at 9.2% of GDP as of last four quarters ending 2Q 2018.

Important to mention that in the 3rd quarter 2018 NBG bought 62.5 mln USD, indicating that FX inflows are sufficient for higher growth and without negative impact of fiscal spending on domestic demand exchange rate would not have been necessarily depreciated.

In September, the USD/GEL exchange rate depreciated by 0.9% YTD and by 5.6% YoY. In the same period, the EUR/GEL exchange rate appreciated by 2.4% YTD and weakened by 3.6% YoY. Real effective exchange rate of GEL could be undervalued following the appreciation of Turkish lira and some USD/GEL weakness in Sept-October 2018. As of October 31 GEL real effective exchange rate was around same levels as in Jan-Feb 2018, close to its peak depreciation by the end of November 2017.

 

Inflation and monetary policy

 

CPI inflation stood at 2.7% in September, slightly below the NBG's 3% target. The core inflation remained around 1pp below the headline inflation, the difference being mostly driven by rising oil prices. The NBG started to gradually ease the monetary policy by cutting its refinancing rate by 0.25pp to 7% in July 2018. NBG left the policy rate unchanged at 7% during their September and October meetings. NBG expects to decrease interest rates going forward, however depending on external as well as domestic developments.

 

Going forward

 

Despite the temporary negative spillovers from the neighboring countries, the Georgian economy is expected to continue its solid performance. According to the IMF projections, growth is expected to average at 5% over the next five years. Solid growth projections are backed by the continuous reforms to further strengthen the economy as an attractive business destination. Furthermore, tax-free access to almost all major markets in the region enables Georgia to continue to diversify its export markets and increase the economy's resilience against headwinds.

More information on the Georgian economy and financial sector can be found at www.tbcresearch.ge

 

 

Unaudited Consolidated Financial Results Overview for 3Q 2018

 

This statement provides a summary of the unaudited business and financial trends for 3Q 2018 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

Starting from 1 January 2018, TBC Bank adopted IFRS 9 and IFRS 15. Therefore, the comparative information for 2017 is not comparable to the information presented for 2018.

Please note, that there might be slight differences in previous periods' figures due to rounding.

Income Statement Highlights

 

 

 

 

 

in thousands of GEL

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

Net Interest Income

       199,612

    188,204

    146,546

36.2%

6.1%

Net Fee and Commission Income

         39,384

      39,162

      31,790

23.9%

0.6%

Other Operating Non-Interest Income

         39,093

      31,052

      28,758

35.9%

25.9%

Credit Loss Allowance

       (47,650)

     (35,091)

     (27,097)

75.8%

35.8%

Operating Income after Credit Loss Allowance

       230,439

    223,327

    179,997

28.0%

3.2%

Operating Expenses

     (104,103)

     (92,090)

     (83,910)

24.1%

13.0%

Profit Before Tax

       126,336

    131,237

      96,087

31.5%

-3.7%

Income Tax Expense

       (18,952)

     (28,799)

       (9,327)

NMF

-34.2%

Profit for the Period

       107,384

    102,438

      86,760

23.8%

4.8%

  NMF - no meaningful figures

 

 

Balance Sheet and Capital Highlights

 

 

 

 

 

 

 

 

 

 

 

 

Sep-18

Jun-18

Change QoQ

in thousands of GEL

GEL

USD

GEL

USD

 

Total Assets

 14,423,997

 5,515,658

 13,583,510

 5,540,671

6.2%

Gross Loans

   9,622,563

 3,679,616

   8,895,947

 3,628,629

8.2%

Customer Deposits

   8,740,449

 3,342,300

   7,932,585

 3,235,677

10.2%

Total Equity

   2,055,951

    786,184

   1,943,684

    792,823

5.8%

Regulatory Tier I Capital (Basel III)*

   1,580,547

    604,393

   1,498,857

    611,379

5.5%

Regulatory Total Capital (Basel III)*

   2,020,501

    772,629

   1,908,398

    778,430

5.9%

Regulatory Risk Weighted Assets (Basel III)*

 12,305,756

 4,705,654

 11,200,354

 4,568,590

9.9%

               

*As per new NBG regulation which came into force in December 2017

 

 

Key Ratios

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

ROE

21.2%

21.3%

19.8%

1.4%

-0.1%

ROA

3.1%

3.2%

2.9%

0.2%

-0.1%

Cost to Income

37.4%

35.6%

40.5%

-3.1%

1.8%

Cost of Risk

1.9%

1.8%

1.3%

0.6%

0.1%

FX adjusted Cost of Risk

1.5%

1.7%

1.2%

0.3%

-0.2%

NPL to Gross Loans

3.1%

3.1%

3.5%

-0.4%

0.0%

Regulatory Tier 1 CAR (Basel III)*

12.8%

13.4%

10.8%

2.0%

-0.6%

Regulatory Total CAR (Basel III)*

16.4%

17.0%

14.5%

1.9%

-0.6%

Leverage (Times)

7.0x

7.0x

6.8x

0.2x

0.0x

*The 2018 figures are given as per new NBG regulation, which came into force in December 2017, while the 3Q 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines.

 

 

  

 

Income Statement Discussion

 

Net interest Income

 

In thousands of GEL

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

Loans and Advances to Customers

    288,435

        270,378

        225,467

27.9%

6.7%

Investment Securities Measured at Fair Value through Other Comprehensive Income

      15,310

          11,968

          12,657

21.0%

27.9%

Due from Other Banks

        5,537

            7,027

            4,524

22.4%

-21.2%

Bonds Carried at Amortised Cost

      10,994

            9,842

            9,785

12.4%

11.7%

Investment in Leases

      10,415

            8,937

            5,819

79.0%

16.5%

Interest Income

    330,691

        308,152

        258,252

28.0%

7.3%

Customer Accounts

      68,727

          64,804

          59,329

15.8%

6.1%

Due to Credit Institutions

      51,989

          44,785

          42,407

22.6%

16.1%

Subordinated Debt

      10,033

            9,959

            9,494

5.7%

0.7%

Debt Securities in Issue

           330

               400

               476

-30.7%

-17.5%

Interest Expense

    131,079

        119,948

        111,706

17.3%

9.3%

Net Interest Income

    199,612

        188,204

        146,546

36.2%

6.1%

 

 

 

 

 

 

Net Interest Margin

6.9%

7.1%

6.2%

0.7%

-0.2%

NMF - no meaningful figures

 

3Q 2018 to 3Q 2017 Comparison

Net interest income increased by GEL 53.1 million, or 36.2%, to GEL 199.6 million, compared to 3Q 2017, driven by a GEL 72.4 million, or 28.0%, higher interest income and a GEL 19.4 million, or 17.3%, higher interest expense.

Interest income grew by GEL 72.4 million, or 28.0%, YoY to GEL 330.7 million, mainly due to an increase in interest income from loans and advances to customers of GEL 63.0 million or 27.9%, which is primarily related to an increase in gross loan portfolio of GEL 1,854.9 million, or 23.9%, YoY. This effect was further magnified by a 0.5pp rise in loan yields, which was mainly driven by an increase in rates on GEL denominated loans by 1.4pp to 17.9% which offset the decrease in yields on FC denominated loans by 0.3pp to 8.5%. The growth in interest income also resulted from a higher interest income from investment in leases (through our subsidiary), due to an increase in the size of the respective portfolio, as well as increase in yields. Yields on interest earning assets expanded by 0.5pp to 11.4%, compared to 3Q 2017.

The GEL 19.4 million, or 17.3%, YoY growth in interest expense to GEL 131.1 million in 3Q 2018 was mainly due to GEL 9.4 million, or 15.8%, increase in interest expense on customer accounts and GEL 9.6 million, or 22.6%, increase in interest expense on amounts due to credit institutions. The increase in interest expense on customer accounts was attributable to a GEL 1,643.9 million, or 23.2%, growth in the respective portfolio. This effect was slightly offset by a 0.1pp drop in the cost of deposits to 3.3%, which resulted from a 0.4pp decrease in the cost of FC denominated deposits to 2.1% and a 0.1pp decrease in the cost of LC denominated deposits to 5.6%. The increase in interest expense on amounts due to credit institutions was attributable to a GEL 305.3 million, or 11.4% increase in the respective portfolio and a 0.5pp increase in effective rates on the amounts due to credit institutions, up to 7.1%, mainly related to higher libor rate.  The cost of funding decreased by 0.1p p and stood at 4.4%.

Consequently, NIM stood at 6.9% in 3Q 2018, compared to 6.2% in 3Q 2017, while the risk adjusted NIM stood at 5.4%, compared to 5.0% in 3Q 2017.

 

 

3Q 2018 to 2Q 2018 Comparison

On a QoQ basis, net interest income grew by 6.1% as a result of a 7.3% higher interest income and a 9.3% higher interest expense.

The GEL 22.5 million, or 7.3%, QoQ increase in interest income mainly resulted from the growth in interest income on loans by GEL 18.1 million, or 6.7%. This in turn was due to an increase in loan portfolio by GEL 726.6 million, or 8.2%. The increase in interest income was also magnified by a rise in interest income from investment securities by GEL 3.3 million, or 27.9%, due to both growth in the respective portfolio and an increase in the respective yield by 0.1pp to 7.2%. The increase was slightly offset by the drop in interest income from due from credit institutions by GEL 1.5 million, or 21.2%, mainly driven by the decrease in respective yield by 1.1pp to 2.0%.  The yield on interest earning assets decreased by 0.3pp to 11.4%, compared to 2Q 2018.

The GEL 11.1 million, or 9.3%, QoQ increase in interest expense was primarily due to the GEL 7.2 million, or 16.1%, increase in interest expense on amounts due to credit institutions. The main driver was a rise in the respective effective rate by 0.2pp to 7.1%, related to rise in libor rate. Another contributor to the rise in interest expense was the GEL 3.9 million, or 6.1% higher interest expense on customer accounts. This, resulted from the GEL 807.9 million, or 10.2%, increase in the respective portfolio, while the cost of deposits remained flat and stood at 3.3%. The cost of funding remained stable at 4.4%.

Consequently, on a QoQ basis, NIM decreased by 0.2pp and stood at 6.9%. Meanwhile risk adjusted NIM decreased by 0.1pp compared to the previous quarter and stood at 5.4%.

 

Fee and Commission Income

 

 

 

 

 

 

 

 

 

 

 

In thousands of GEL

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

Card Operations

      28,227

      25,274

      20,662

36.6%

11.7%

Settlement Transactions

      17,709

      17,454

      15,170

16.7%

1.5%

Guarantees Issued

        4,652

        4,859

        4,295

8.3%

-4.3%

Issuance of Letters of Credit

        2,021

        1,289

           990

NMF

56.8%

Cash Transactions

        3,950

        4,543

        4,576

-13.7%

-13.1%

Foreign Currency Exchange Transactions

           482

           406

           420

14.8%

18.7%

Other

        2,512

        4,440

        2,439

3.0%

-43.4%

Fee and Commission Income

          59,553

          58,265

          48,552

22.7%

2.2%

Card Operations

          14,730

          12,975

          11,409

29.1%

13.5%

Settlement Transactions

            2,037

            2,143

            1,897

7.4%

-4.9%

Guarantees Issued

               426

               313

               758

-43.8%

36.1%

Letters of Credit

               433

               327

               239

81.2%

32.4%

Cash Transactions

            1,524

            1,242

            1,177

29.5%

22.7%

Foreign Currency Exchange Transactions

                (4)

                   3

                   3

NMF

NMF

Other

            1,023

            2,100

            1,279

-20.0%

-51.3%

Fee and Commission Expense

          20,169

          19,103

          16,762

20.3%

5.6%

Card Operations

      13,497

      12,299

        9,253

45.9%

9.7%

Settlement Transactions

      15,672

      15,311

      13,273

18.1%

2.4%

Guarantees

        4,226

        4,546

        3,537

19.5%

-7.0%

Letters of Credit

        1,588

           962

           751

NMF

65.1%

Cash Transactions

        2,426

        3,301

        3,399

-28.6%

-26.5%

Foreign Currency Exchange Transactions

           486

           403

           417

16.5%

20.6%

Other

        1,489

        2,340

        1,160

28.4%

-36.4%

Net Fee And Commission Income

          39,384

          39,162

          31,790

23.9%

0.6%

                       

 

3Q 2018 to 3Q 2017 Comparison

In 3Q 2018, net fee and commission income totalled GEL 39.4 million, up by GEL 7.6 million, or 23.9%, compared to 3Q 2017. This mainly resulted from an increase in net fee and commission income from card operations of GEL 4.2 million, or 45.9% and an increase in net fee and commission income from settlement transactions of GEL 2.4 million, or 18.1%.

The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 17.4% and 13.9% respectively. The increase in net fee and commission income from settlement transactions was mainly related to our subsidiary, TBC Pay, driven by increased number of transactions and the growth in net fee and commission income from our affluent retail sub-segment, TBC Status.

3Q 2018 to 2Q 2018 Comparison

On a QoQ basis, net fee and commission income increased by GEL 0.2 million, or 0.6%, compared to 2Q 2018. This was primarily driven by an increase in net fee and commission income from card transactions of GEL 1.2 million, or 9.7%.  The rise was partially offset by the decline in other net fee and commission income by GEL 0.9 million, mainly due to the arrangement fee received in 2Q 2018 related to one corporate client in the amount of GEL 1.3 million. The decrease in cash transactions of GEL 0.9 million was due to reclassification of fees received from remittances to settlement transactions in 3Q 2018.

 

Other Operating Non-Interest Income and Gross Insurance Profit

 

 

 

 

 

In thousands of GEL

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

Net Income from Foreign Currency Operations

      31,040

      23,251

      20,330

52.7%

33.5%

Share of Profit of Associates

           294

           340

             84

NMF

-13.5%

Gains Less Losses/(Losses Less Gains) from Derivative Financial Instruments

            (56)

           396

              (1)

NMF

NMF

Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income

               2

              -  

              -  

NMF

NMF

Revenues from Cash-In Terminal Services

           237

           226

           241

-1.7%

4.9%

Revenues from Operational Leasing

        1,671

        1,567

        1,623

3.0%

6.6%

Gain from Sale of Investment Properties

           492

           855

           404

21.8%

-42.5%

Gain from Sale of Inventories of Repossessed Collateral

           868

           100

           756

14.8%

NMF

Revenues from Non-Credit Related Fines

             62

           111

             29

NMF

-44.1%

Gain on Disposal of Premises and Equipment

             36

           154

             66

-45.5%

-76.6%

Other

        1,324

           799

        3,453

-61.7%

65.7%

Other Operating Income

        4,690

        3,812

        6,572

-28.6%

23.0%

Gross Insurance Profit[12]

        3,123

        3,253

        1,773

76.1%

-4.0%

Other Operating Non-Interest Income and Gross Insurance Profit

      39,093

      31,052

      28,758

35.9%

25.9%

NMF - no meaningful figures

 

 

 

 

 

                           

 

3Q 2018 to 3Q 2017 Comparison 

Total other operating non-interest income and gross insurance profit grew by GEL 10.3 million, or 35.9%, to GEL 39.1 million in 3Q 2018. This primarily resulted from the growth in net income from foreign currency operations by GEL 10.7 million, or 52.7% and the increase in gross insurance profit of GEL 1.4 million, or 76.1%. Higher  net income from foreign currency operations resulted from an increased number and volume of FX transactions, as well as larger margins, driven by higher exchange rate volatility. The increase was partially offset by the drop in other operating income by GEL 1.9 million, or by 28.6%, due to higher one-off incomes in 3Q 2017.

Higher gross insurance profit resulted from a sharp increase in the number of customers by around 60,000, which in turn led to a high increase in gross written premium by 84.4% YoY to GEL 15,833 thousand on a stand-alone basis. More information about TBC insurance can be found in annex 23 on page 47.

3Q 2018 to 2Q 2018 Comparison

On a QoQ basis, total other operating non-interest income and gross insurance profit increased by GEL 8.0 million, or by 25.9%. This mainly resulted from the growth in net income from foreign currency operations by GEL 7.8 million, or by 33.5%, related to a higher turnover of FX operations and higher foreign exchange margins, that were mainly caused by increased quarter-on-quarter volatility of exchange rate. Another contributor was other operating income, which grew by GEL 0.9 million or 23.0%. This was partially offset by the decline in losses less gains from derivative financial instruments by GEL 0.5 million.

Credit Loss Allowance

 

 

 

 

 

In thousands of GEL

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

Credit Loss Allowance for Loan to Customers

     (43,345)

     (37,982)

     (25,036)

73.1%

14.1%

Credit Loss Allowance for Investments in Finance Lease

          (493)

          (252)

          (285)

73.0%

95.6%

Credit Loss Allowance for Performance Guarantees and Credit Related Commitments

            (24)

        1,375

          (680)

-96.5%

NMF

Credit Loss Allowance for Other Financial Assets

       (3,706)

        1,950

       (1,096)

NMF

NMF

Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income

            (29)

            (12)

              -  

NMF

NMF

Credit Loss Allowance for Financial Assets Measured at Amortised Cost

            (53)

          (170)

              -  

NMF

-68.8%

Total Credit Loss Allowance

     (47,650)

     (35,091)

     (27,097)

75.8%

35.8%

Operating Income after Credit Loss Allowance

    230,439

    223,327

    179,997

28.0%

3.2%

 

 

 

 

 

 

Cost of Risk

1.9%

1.8%

1.3%

0.6%

0.1%

NMF - no meaningful figures

 

 

 

 

 

 

 

3Q 2018 to 3Q 2017 Comparison

In 3Q 2018, total credit loss allowance grew by GEL 20.6 million to GEL 47.7 million compared to 3Q 2017.

This was primarily attributable to an increase in credit loss allowance for loans to customers of GEL 18.3 million, mainly driven by local currency depreciation and recoveries of credit loss allowance in corporate segment in 3Q 2017. Another contributor to the increase was credit loss allowance on other financial assets by GEL 2.6 million.

 

In 3Q 2018, the cost of risk stood at 1.9% (1.5% without the FX effect), compared to 1.3% (1.2% without the FX effect) in 3Q 2017.

3Q 2018 to 2Q 2018 Comparison

On a QoQ basis, total credit loss allowance grew by GEL 12.6 million to GEL 47.7 million.

This was mainly driven by an increase in credit loss allowance for loans to customers by GEL 5.3 million and an increase in credit loss allowance for other financial assets by GEL 5.7 million. The increase was fully attributable to local currency depreciation.

 

In 3Q 2018, the cost of risk stood at 1.9% (1.5% without the FX effect), compared to 1.8% (1.7% without the FX effect) in 2Q 2018.

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

In thousands of GEL

3Q'18

2Q'18

3Q'17

Change YoY

Change QoQ

Staff Costs

      54,294

      50,732

      46,620

16.5%

7.0%

Provisions for Liabilities and Charges

        4,000

              -  

              -  

NMF

NMF

Depreciation and Amortization

      11,944

      10,992

        9,317

28.2%

8.7%

Professional services

        4,107

        1,498

        3,834

7.1%

NMF

Advertising and marketing services

        7,193

        7,117

        3,492

NMF

1.1%

Rent

        6,016

        5,843

        5,635

6.8%

3.0%

Utility services

        1,702

        1,453

        1,533

11.0%

17.1%

Intangible asset enhancement

        2,628

        2,572

        2,177

20.7%

2.2%

Taxes other than on income

        1,799

        1,946

        1,763

2.0%

-7.6%

Communications and supply

        1,558

        1,160

        1,067

46.0%

34.3%

Stationary and other office expenses

        1,021

        1,324

        1,157

-11.8%

-22.9%

Insurance

        1,063

           483

          (271)

NMF

NMF

Security services

           517

           506

           477

8.4%

2.2%

Premises and equipment maintenance

        2,167

        1,128

        1,142

89.8%

92.1%

Business trip expenses

           578

           669

           468

23.5%

-13.6%

Transportation and vehicles maintenance

           703

           413

           386

82.1%

70.2%

Charity

           181

           281

           346

-47.7%

-35.6%

Personnel training and recruitment

           465

           233

           191

NMF

99.6%

Write-down of current assets to fair value less         costs to sell

          (436)

          (567)

          (189)

NMF

-23.1%

Loss on disposal of inventory

             36

             80

               2

NMF

-55.0%

Loss on disposal of investment properties

              -  

             30

              -  

NMF

-100.0%

Loss on disposal of premises and equipment

             99

             58

           135

-26.7%

70.7%

Impairment of intangible assets

              -  

              -  

             66

-100.0%

NMF

Acquisition costs

              -  

              -  

        1,063

-100.0%

NMF

Gross change in IBNR[13]

              -  

              -  

          (391)

-100.0%

NMF

Other

        2,468

        4,139

        3,890

-36.6%

-40.4%

Administrative and Other Operating Expenses

      33,865

      30,366

      27,973

21.1%

11.5%

Operating Expenses

    104,103

      92,090

      83,910

24.1%

13.0%

Profit before Tax

    126,336

    131,237

      96,087

31.5%

-3.7%

Income Tax Expense

     (18,952)

     (28,799)

       (9,327)

NMF

-34.2%

Profit for the Period

    107,384

    102,438

      86,760

23.8%

4.8%

 

 

 

 

 

 

Cost to Income

37.4%

35.6%

40.5%

-3.1%

1.8%

ROE

21.2%

21.3%

19.8%

1.4%

-0.1%

ROA

3.1%

3.2%

2.9%

0.2%

-0.1%

3Q 2018 to 3Q 2017 Comparison

In 3Q 2018, total operating expenses expanded by GEL 20.2 million, or by 24.1% YoY to GEL 104.1 million, primarily due to an increase in staff costs of GEL 7.7 million, or 16.5% YoY driven by increased scale of business and higher performance bonuses. Another contributor to the increase was administrative expenses, which grew by GEL 5.9 million, or 21.1%, mainly related to uneven spending of advertising and marketing services during the year.

As a result, cost to income ratio decreased to 37.4% in 3Q 2018, compared to 40.5% in 3Q 2017.

 

3Q 2018 to 2Q 2018 Comparison

On a QoQ basis, total operating expenses grew by GEL 12.0 million, or 13.0%. This was primarily attributable to a GEL 3.6 million, or 7.0% rise in staff cost, related to increased scale of business and higher performance bonuses and a GEL 3.5 million, or 11.5% increase in administrative expenses, mainly related to professional services that are not equally spent during the year. The increase in provision to liabilities and charges by GEL 4.0 million, also contributed to the growth of total operating expense.

 

As a result, the cost to income ratio expanded by 1.8pp from 35.6%, compared to 2Q 2018.

 

Net Income

Net income for the third quarter increased by GEL 5.0 million, or 4.8%, QoQ and by GEL 20.6 million, or 23.8%, YoY and amounted to GEL 107.4 million.

As a result, ROE stood at 21.2%, up by 1.4pp YoY and down by 0.1pp QoQ, while ROA stood at 3.1%, up by 0.2pp YoY but down by 0.1 pp QoQ.

 

Balance Sheet Discussion

 

 

 

In thousands of GEL

Sep-18

Jun-18

Change QoQ

Cash, Due from Banks and Mandatory Cash Balances with NBG

      2,693,455

      2,681,809

0.4%

Loans and Advances to Customers (Net)

      9,279,982

      8,574,580

8.2%

Financial Securities

      1,386,239

      1,295,570

7.0%

Fixed and Intangible Assets & Investment Property

         549,938

         540,455

1.8%

Other Assets

         514,383

         491,096

4.7%

Total Assets

    14,423,997

    13,583,510

6.2%

Due to Credit Institutions

      2,981,269

      3,097,602

-3.8%

Customer Accounts

      8,740,449

      7,932,585

10.2%

Debt Securities in Issue

           13,027

           19,641

-33.7%

Subordinated Debt

         412,803

         397,576

3.8%

Other Liabilities

         220,499

         192,422

14.6%

Total Liabilities

    12,368,047

    11,639,826

6.3%

Total Equity

      2,055,950

      1,943,684

5.8%

           

 

Assets

On a QoQ basis, total assets increased by GEL 840.5 million, or 6.2%, mainly due to a GEL 705.4 million, or 8.2%, increase in net loans to customers. The QoQ increase in total assets also resulted from a GEL 11.7 million or 0.4% rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 90.7 million or 7.0% increase in financial securities.

 

As of 30 September 2018, the gross loan portfolio reached GEL 9,622.6 million, up by 8.2% QoQ. At the same time, gross loans denominated in foreign currency accounted for 59.2% of total loans, compared to 58.5% as of 30 June 2018.

 

 

Asset Quality

Borrowers with FX income

 

 

30-Sep-18

30-June-18

Segments

% of FX loans

of which borrowers with FX income**

% of FX loans

of which borrowers with FX income**

Retail

53.7%

28.1%

50.6%

26.9%

Consumer

18.9%

26.1%

18.2%

25.6%

Mortgage

81.9%

28.5%

80.4%

27.2%

Corporate

73.3%

52.5%*

76.7%

53.5%

MSME

52.1%

14.9%

51.8%

14.3%

Total Loan Portfolio

59.2%

34.4%

58.5%

34.4%

 (Based on internal estimates)

* Pure exports account for 7.3%  of total Corporate FX denominated loans

** FX income implies both direct and indirect income

 

 

PAR 30 by Segments and Currencies

Sep-18

Jun-18

 

GEL

FC

Total

GEL

FC

Total

Corporate

0.0%

1.1%

0.8%

0.0%

0.4%

0.3%

Retail

4.5%

1.7%

3.0%

3.7%

1.8%

2.7%

MSME

1.8%

3.6%

2.7%

1.6%

3.7%

2.7%

Total

2.9%

1.9%

2.3%

2.5%

1.7%

2.0%

Loans overdue by more than 30 days to gross loans

 

 

 

 

 

 

 

Total

Total PAR 30 increased by 0.3pp QoQ and stood at 2.3%. The increase was attributable to retail and corporate loan book.

 

Retail Segment

The retail segment's PAR 30 amounted to 3.0%, up by 0.3pp QoQ. The increase was mainly attributable to credit cards, fast consumer and other higher yield products.

 

Corporate

The corporate segment's PAR 30 amounted to 0.8%, up by 0.5pp QoQ. Increase in corporate segment was mainly attributable to unusually low overdue amounts in 2Q 2018.

 

MSME

The MSME segment's PAR 30 remained stable QoQ and stood at 2.7% as of 30 September 2018.

 

 

 

 

 

 

 

 

NPLs

Sep-18

Jun-18

 

GEL

FC

Total

GEL

FC

Total

Corporate

1.2%

3.2%

2.6%

1.5%

3.2%

2.8%

Retail

3.7%

2.4%

3.0%

2.8%

2.9%

2.9%

MSME

2.3%

5.7%

4.1%

2.2%

5.7%

4.0%

Total

2.8%

3.4%

3.1%

2.4%

3.6%

3.1%

 

Total

Total NPLs was stable on QoQ basis and stood at 3.1%. 

 

Retail Segment

The retail segment's NPLs remained broadly stable QoQ and stood at 3.0%.

 

Corporate

The corporate segment's NPLs stood at 2.6%, down by 0.2pp on a QoQ due to significant increase in corporate loan book.

 

MSME

The MSME segment's NPLs remained broadly stable on QoQ basis and stood at 4.1%.

 

 

 

 

 

 

NPLs Coverage

Sep-18

Jun-18

 

Exc. Collateral

Incl. Collateral

Exc. Collateral

Incl. Collateral

Corporate

104.3%

242.5%

99.2%

232.1%

Retail

140.8%

206.4%

153.9%

226.8%

MSME

80.8%

184.8%

76.9%

187.6%

Total

113.2%

209.0%

116.1%

216.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                           

 

Liabilities

As of 30 September 2018, TBC Bank's total liabilities amounted to GEL 12,368.0 million, up by GEL 728.2 million, or 6.3%, QoQ. The rise was primarily due to a GEL 807.9 million, or 10.2%, increase in customer accounts and was partially offset by the decline in amounts due to credit institutions by GEL 116.3 million, or 3.8%.  

 

Liquidity

As of 30 September 2018 the Bank's liquidity ratio, as defined by the NBG, stood at 31.9%, compared to 33.3% as of 30 June 2018. As of 30 September 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 111.6%, above the 100.0% limit, while the LCR in GEL and FC stood at 86.5% and 128.1% respectively, above the respective limits of 75% and 100%.

 

Total Equity

As of 30 September 2018, TBC's total equity totalled GEL 2,056.0 million, up by GEL 112.3 million from GEL 1,943.7 million as of 30 June 2018. The QoQ change in equity was mainly due to increase in net income GEL 102.4 million.

 

Regulatory Capital

According to the new methodology introduced at the end of 2017, as of 30 September 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.8% and 16.4%, respectively, compared to the minimum required levels of 10.3% and 15.8%. In comparison, as of 30 June 2018, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.4% and 17.0%, respectively, compared to the minimum required levels of 10.2% and 15.6%.

 

In 30 September 2018, the Bank's Basel III Tier 1 Capital amounted to GEL 1,580.5 million, up by GEL 81.6 million, or 5.5%, compared to June 2018, due to increase in net income.  The Bank's Basel III Total Capital amounted to GEL 2,020.5 million, up by GEL 112.1 million, or 5.9%, QoQ. Risk weighted assets stood at GEL 12,305.8 million as of 30 September 2018, compared to GEL 11,200.4 million as of 30 June 2018, mainly related to the increased loan book.

 

 

Results by Segments and Subsidiaries

The segment definitions are as follows (updated in 2018):

·      Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been granted facilities of 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;

·      MSME (Micro, Small and Medium) - business customers who are not included in either the corporate or the retail segments; or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank - Space;

·      Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;

·      Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;

Business customers are all legal entities or individuals who have been granted a loan for business purpose.

Income Statement by Segments

3Q'18

Retail

MSME

Corporate

Corp.Centre

Total

Interest Income

     153,360

       69,807

      66,930

      40,594

    330,691

Interest Expense

     (31,545)

        (2,409)

     (34,773)

     (62,352)

   (131,079)

Net Transfer Pricing

     (19,335)

      (22,160)

      10,577

      30,918

              -  

Net Interest Income

     102,480

       45,238

      42,734

        9,160

    199,612

Fee and Commission Income

          43,967

             5,537

            9,765

               284

          59,553

Fee and Commission Expense

       (16,655)

          (1,757)

         (1,671)

               (86)

        (20,169)

Net fee and Commission Income

          27,312

             3,780

            8,094

               198

          39,384

Gross Insurance Profit

                  -  

                   -  

                  -  

            3,123

            3,123

Net income from foreign currency operations

            8,539

             5,445

          11,767

          (1,113)

          24,638

Foreign Exchange Translation Gains Less Losses/(Losses Less Gains)

                  -  

                   -  

                  -  

            6,402

            6,402

Net Losses from Derivative Financial Instruments

               (44)

                   -  

                  -  

               (12)

               (56)

Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income

                  -  

                   -  

                  -  

                   2

                   2

Other Operating Income

            1,688

                140

            2,367

               495

            4,690

Share of profit of associates

                  -  

                   -  

                  -  

               294

               294

Other Operating Non-Interest Income and Insurance Profit

          10,183

             5,585

          14,134

            9,191

          39,093

Credit Loss Allowance for Loan to Customers

     (29,063)

        (6,543)

       (7,739)

              -  

     (43,345)

Credit Loss Allowance for Performance Guarantees and Credit Related Commitments

            (41)

           (663)

           763

            (83)

            (24)

Credit Loss Allowance for Investments in Finance Lease

               -  

               -  

              -  

          (493)

          (493)

Credit Loss Allowance for Other Financial Assets

            (90)

               -  

       (2,580)

       (1,036)

       (3,706)

Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income

               -  

               -  

            (85)

             56

            (29)

Credit Loss Allowance for Financial Assets Measured at Amortised Cost

               -  

               -  

              -  

            (53)

            (53)

Profit before G&A Expenses and Income Taxes

     110,781

       47,397

      55,321

      16,940

    230,439

Staff Costs

        (29,098)

        (10,293)

          (8,298)

          (6,605)

        (54,294)

Depreciation and Amortization

          (9,557)

         (1,301)

             (584)

             (502)

        (11,944)

Provision for liabilities and charges

                  -  

                   -  

                  -  

          (4,000)

          (4,000)

Administrative and Other Operating Expenses

        (20,726)

          (4,989)

          (2,451)

          (5,699)

        (33,865)

Operating Expenses

     (59,381)

      (16,583)

     (11,333)

     (16,806)

   (104,103)

Profit before Tax

       51,400

       30,814

      43,988

           134

    126,336

Income Tax Expense

       (6,794)

        (4,408)

       (6,570)

       (1,180)

     (18,952)

Profit for the Year

       44,606

       26,406

      37,418

       (1,046)

    107,384

 

 

Portfolios by Segments

 

 

In thousands of GEL

Sep-18

Jun-18

Loans and Advances to Customers

 

 

 

 

 

Consumer

     1,958,883

       1,975,426

Mortgage

     2,452,157

       2,185,630

Pawn

          35,357

            35,393

Retail

     4,446,397

       4,196,449

Corporate

     2,891,628

       2,581,612

MSME

     2,284,538

       2,117,886

Total Loans and Advances to Customers (Gross)

     9,622,563

       8,895,947

Less: Credit loss allowance for Loans to Customers

       (342,581)

        (321,367)

Total Loans and Advances to Customers (Net)

     9,279,982

       8,574,580

 

 

 

Customer Accounts

 

 

 

 

 

Retail

     4,850,586

       4,467,638

Corporate

     2,920,526

       2,559,449

MSME

        969,337

          905,498

Total Customer Accounts

     8,740,449

       7,932,585

Retail Banking

As of 30 September 2018, retail loans stood at GEL 4,446.4 million, up by GEL 249.9 million, or 6.0%, QoQ and they accounted for 39.9% market share of total individual loans. As of the same date foreign currency loans represented 53.7% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 4,850.6 million, up by GEL 382.9 million, or 8.6%, QoQ and accounted for 41.1% market share of total individual deposits. As of 30 September 2018 term deposits accounted for 53.4% of the total retail deposit portfolio, while foreign currency deposits represented 83.0% of the total.

In 3Q 2018, retail loan yields and deposit rates stood at 14.1% and 2.7%, respectively. The segment's cost of risk on loans was 2.7% .The retail segment contributed 41.5%, or GEL 44.6 million, to the total net income in 3Q 2018.

Corporate Banking

As of 30 September 2018, corporate loans amounted to GEL 2,891.6 million, up by GEL 310.0 million, or 12.0%, QoQ. Foreign currency loans accounted for 73.3% of the total corporate loan portfolio. The market share of total legal entities loans stood at 36.6%.

As of the same date, corporate deposits totalled GEL 2,920.5 million, up by GEL 361.1 million, or 14.1%, QoQ. Foreign currency corporate deposits represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 39.4%.

In 3Q 2018, corporate loan yields and deposit rates stood at 9.6% and 4.9%, respectively. In the same period, the cost of risk on loans was 1.1%. In terms of profitability, the corporate segment's net profit reached GEL 37.4 million, or 34.8%, of the total net income.

MSME Banking

As of 30 September 2018, MSME loans amounted to GEL 2,284.5, up by GEL 166.7 million, or 7.9%, QoQ. Foreign currency loans accounted for 52.1% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 969.3 million, up by GEL 63.8 million, or 7.0%, QoQ. Foreign currency MSME deposits represented 47.5% of the total MSME deposit portfolio.

In 3Q 2018, MSME loan yields and deposit rates stood at 12.6% and 1.0% respectively, while the cost of risk on loans was 1.2%. In terms of profitability, net profit for the MSME segment amounted to GEL 26.4 million, or 24.6%, of the total net income.

 

Consolidated Financial Statements of TBC Bank Group PLC

 

Consolidated Balance Sheet

 

 

In thousands of GEL 

Sep-18

Jun-18

Cash and cash equivalents

      1,114,672

      1,605,163

Due from other banks

         152,010

           42,469

Mandatory cash balances with National Bank of Georgia

      1,426,773

      1,034,177

Loans and advances to customers

      9,279,982

      8,574,580

Investment securities measured at fair value through other comprehensive income

         868,060

         817,876

Bonds carried at amortised cost

         518,179

         477,694

Investments in associates

             2,220

             1,925

Investments in finance leases

         183,715

         172,027

Investment properties

           78,274

           78,094

Current income tax prepayment

             7,650

             7,369

Deferred income tax asset

             2,499

             2,331

Other financial assets

         103,520

         107,741

Other assets

         186,061

         171,046

Premises and equipment

         375,002

         374,414

Intangible assets

           96,662

           87,947

Goodwill

           28,718

           28,657

TOTAL ASSETS    

    14,423,997

    13,583,510

LIABILITIES     

 

 

Due to Credit Institutions

      2,981,269

      3,097,602

Customer accounts    

      8,740,449

      7,932,585

Other financial liabilities   

           90,966

           88,320

Current income tax liability  

                  30

                  26

Debt Securities in issue

           13,027

           19,641

Deferred income tax liability  

           27,202

           22,980

Provisions for liabilities and charges 

           16,329

           11,732

Other liabilities     

           85,972

           69,364

Subordinated debt    

         412,803

         397,576

TOTAL LIABILITIES    

    12,368,047

    11,639,826

EQUITY     

 

 

Share capital

             1,650

             1,650

Share premium

         796,854

         796,808

Retained earnings

      1,372,798

      1,261,578

Group reorganisation reserve

        (162,166)

        (162,166)

Share based payment reserve

          (18,689)

          (21,085)

Revaluation reserve for premises

           64,962

           64,962

Revaluation reserve for available-for-sale securities

             4,875

             2,541

Cumulative currency translation reserve

            (7,277)

            (7,345)

Net assets attributable to owners

      2,053,007

      1,936,943

Non-controlling interest    

             2,943

             6,741

TOTAL EQUITY    

      2,055,950

      1,943,684

TOTAL LIABILITIES AND EQUITY  

    14,423,997

    13,583,510

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 

 

 

In thousands of GEL 

3Q'18

2Q'18

3Q'17

Interest income 

    330,691

    308,152

    258,252

Interest expense

   (131,079)

   (119,948)

   (111,706)

Net interest income

    199,612

    188,204

    146,546

Fee and commission income

      59,553

      58,265

      48,552

Fee and commission expense

     (20,169)

     (19,103)

     (16,762)

Net Fee and Commission Income

      39,384

      39,162

      31,790

Net insurance premiums earned

        5,976

        6,168

        2,590

Net insurance claims incurred and agents' commissions

       (2,853)

       (2,915)

          (817)

Insurance Profit

        3,123

        3,253

        1,773

Net income from foreign currency operations  

      24,638

      21,701

      18,085

Net gain/(losses) from foreign exchange translation

        6,402

        1,550

        2,245

Net gains/(losses) from derivative financial instruments

            (56)

           396

              (1)

Gains less Losses from disposal of Investment Securities measured at fair value through other comprehensive income

               2

              -  

              -  

Other operating income

        4,690

        3,812

        6,572

Share of profit of associates

           294

           340

             84

Other operating non-interest income

      35,970

      27,799

      26,985

Credit loss allowance for loan to customers

     (43,345)

     (37,982)

     (25,036)

Credit loss allowance for investments in finance lease

          (493)

          (252)

          (285)

Credit loss allowance for performance guarantees and credit related commitments

            (24)

        1,375

          (680)

Credit loss allowance for other financial assets

       (3,706)

        1,950

       (1,096)

Credit loss allowance for financial assets measured at fair value through other comprehensive income

            (29)

            (12)

              -  

Credit loss allowance for financial assets measured at amortised cost

            (53)

          (170)

              -  

Operating income after credit loss allowance for impairment

    230,439

    223,327

    179,997

Staff costs

     (54,294)

     (50,732)

     (46,620)

Depreciation and amortization

     (11,944)

     (10,992)

       (9,317)

(Provision for)/ recovery of liabilities and charges

       (4,000)

              -  

              -  

Administrative and other operating expenses

     (33,865)

     (30,366)

     (27,973)

Operating expenses

   (104,103)

     (92,090)

     (83,910)

Profit before tax

    126,336

    131,237

      96,087

Income tax expense

     (18,952)

     (28,799)

       (9,327)

Profit for the period

    107,384

    102,438

      86,760

Other Comprehensive income:

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

Revaluation of available for-sale-investments

        2,365

       (1,547)

        1,929

Exchange differences on translation to presentation currency

             71

             81

           399

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

        2,436

       (6,617)

        2,328

Total comprehensive income for the Period

    109,820

      95,821

      89,088

Profit attributable to:

 

 

 

 - Shareholders of TBCG

    106,779

    102,589

      85,523

 - Non-controlling interest

           605

          (151)

        1,237

Profit for the period

    107,384

    102,438

      86,760

Total comprehensive income is attributable to:

 

 

 

 - Shareholders of TBCG

    109,183

      96,060

      87,883

 - Non-controlling interest

           637

          (239)

        1,205

Total comprehensive income for the Period

    109,820

      95,821

      89,088

           

 

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)

3Q'18

2Q'18

3Q'17

ROE1

21.2%

21.3%

19.8%

ROA2

3.1%

3.2%

2.9%

ROE before credit loss allowance3

30.7%

28.6%

26.1%

Cost to Income4

37.4%

35.6%

40.5%

Cost of Risk5

1.9%

1.8%

1.3%

FX adjusted Cost of Risk6

1.5%

1.7%

1.2%

NIM7

6.9%

7.1%

6.2%

Risk Adjusted NIM8

5.4%

5.5%

5.0%

Loan Yields9

12.4%

12.5%

11.9%

Risk Adjusted Loan Yields10

10.9%

10.8%

10.7%

Deposit rates11

3.3%

3.3%

3.4%

Yields on interest Earning Assets12

11.4%

11.7%

10.9%

Cost of Funding13

4.4%

4.4%

4.5%

Spread14

7.0%

7.3%

6.4%

PAR 90 to Gross Loans15

1.3%

1.1%

1.6%

NPLs to Gross Loans16

3.1%

3.1%

3.5%

NPLs coverage17

113.2%

116.1%

80.5%*

NPLs coverage with collateral18

209.0%

216.1%

206.8%*

Credit Loss Level to Gross Loans19

3.6%

3.6%

2.8%*

Related Party Loans to Gross Loans20

0.1%

0.1%

0.1%

Top 10 Borrowers to Total Portfolio21

10.3%

9.2%

8.3%

Top 20 Borrowers to Total Portfolio22

14.1%

13.2%

12.5%

Net Loans to Deposits plus IFI Funding23

88.0%

89.5%

91.5%

Net Stable Funding Ratio24

118.0%

127.8%

134.5%

Liquidity Coverage Ratio25

111.6%

119.2%

115.0%

Leverage26

7.0x

7.0x

6.8x

Regulatory Tier 1 CAR (Basel III)27

12.8%

13.4%

10.8%**

Regulatory Total 1 CAR (Basel III)28

16.4%

17.0%

14.5%**

           

* Figures per IAS39

** 3Q 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

 

 

 

Ratio definitions

1. Return on average total equity (ROE) equals net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; Annualised where applicable.

2. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period. Annualised where applicable.

3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.

4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).

5. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.

6. FX adjusted cost of risk equal cost of risk at constant currency.

7. 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.

8. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.

9. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.

10. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.

11. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; Annualised where applicable.

12. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; Annualised where applicable.

13. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; Annualised where applicable.

14. 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).

15. 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.

16. 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.

17. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.

18. 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.

19. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.

20. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

21. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.

22. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.

23. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

24. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III.

25. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined by the NBG.

26. Leverage equals total assets to total equity.

27. 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.

28. 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 2.4516 as of 30 June 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4767 as of 30 September 2017. As of 30 September 2018 the USD/GEL exchange rate equalled 2.6151. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 3Q 2018 of 2.5295, 2Q 2018 of 2.4460, 3Q 2017 of 2.4232.

 

 

 

 

Unaudited Consolidated Financial Results Overview for 9M 2018

 

This statement provides a summary of the unaudited business and financial trends for 9M 2018 for TBC Bank Group plc and its subsidiaries. Quarterly financial information and trends are unaudited.

Starting from 1 January 2018, TBC Bank adopted IFRS 9 and IFRS 15. Therefore, the comparative information for 2017 is not comparable to the information presented for 2018.

Please note, that there might be slight differences in previous periods' figures due to rounding.

 

Income Statement Highlights

 

 

 

in thousands of GEL

9M'18

9M'17

Change YoY

Net Interest Income

       563,219

    438,620

28.4%

Net Fee and Commission Income

       113,466

      87,007

30.4%

Other Operating Non-Interest Income

         98,521

      92,041

7.0%

Credit Loss Allowance

     (122,203)

     (70,472)

73.4%

Operating Income after Credit Loss Allowance

       653,003

    547,196

19.3%

Operating Expenses

     (287,125)

   (259,760)

10.5%

Profit Before Tax

       365,878

    287,436

27.3%

Income Tax Expense

       (58,530)

     (24,263)

141.2%

Profit for the Period

       307,348

    263,173

16.8%

 

Balance Sheet and Capital Highlights

 

 

 

 

 

Sep-18

Sep-17

Change YoY

in thousands of GEL

GEL

USD

GEL

USD

 

Total Assets

  14,423,997

 5,515,658

  12,136,922

 4,900,441

18.8%

Gross Loans

    9,622,563

 3,679,616

    7,767,634

 3,136,284

23.9%

Customer Deposits

    8,740,449

 3,342,300

    7,096,523

 2,865,314

23.2%

Total Equity

    2,055,950

    786,184

    1,790,307

    722,860

14.8%

Regulatory Tier I Capital (Basel III)*

    1,580,547

    604,393

    1,354,679

    546,969

16.7%

Regulatory Total Capital (Basel III)*

    2,020,501

    772,629

    1,821,822

    735,584

10.9%

Regulatory Risk Weighted Assets (Basel III)*

  12,305,756

 4,705,654

  12,560,644

 5,071,524

-2.0%

                       

*September 2018 figures are given per new NBG regulation, which came into force in December 2017, while September 2017 figures are given based on previous regulation in accordance  with Basel II/III guidelines

 

 

Key Ratios

9M'18

9M'17

Change YoY

ROE

21.2%

20.9%

0.3%

ROA

3.1%

3.2%

-0.1%

Cost to Income

37.0%

42.1%

-5.1%

Cost of Risk

1.7%

1.2%

0.5%

FX adjusted Cost of Risk

1.7%

1.4%

0.3%

NPL to Gross Loans

3.1%

3.5%

-0.4%

Regulatory Tier 1 CAR (Basel III)*

12.8%

10.8%

2.0%

Regulatory Total CAR (Basel III)*

16.4%

14.5%

1.9%

Leverage (Times)

7.0x

6.8x

0.2x

*September 2018 figures are given per new NBG regulation, which came into force in December 2017, while September 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines

 

 

 

 

 

Income Statement Discussion

Net Interest Income

 

 

 

In thousands of GEL

9M'18

9M'17

Change YoY

Loans and Advances to Customers

    814,866

    664,220

22.7%

Investment Securities Measured at Fair Value through Other Comprehensive Income

      40,445

      31,744

27.4%

Due from Other Banks

      17,482

        9,433

85.3%

Bonds Carried at Amortised Cost

      28,873

      25,035

15.3%

Investment in Leases

      27,026

      15,486

74.5%

Interest Income

    928,692

    745,918

24.5%

Customer Accounts

    196,453

    167,740

17.1%

Due to Credit Institutions

    138,251

    111,360

24.1%

Subordinated Debt

      29,632

      26,681

11.1%

Debt Securities in Issue

        1,137

        1,517

-25.0%

Interest Expense

    365,473

    307,298

18.9%

Net Interest Income

    563,219

    438,620

28.4%

 

 

 

 

Net Interest Margin

7.0%

6.5%

0.5%

           

9M 2018 to 9M 2017 Comparison

In 9M 2018, net interest income grew by GEL 124.6 million, or 28.4%, YoY to GEL 563.2 million, resulting from a GEL 182.8 million, or 24.5%, higher interest income and a GEL 58.2 million or 18.9% higher interest expense.

Interest income grew by GEL 182.8 million, or 24.5%, YoY to GEL 928.7 million. This was mainly driven by an increase in interest income from loans and advances to customers of GEL 150.7 million, or 22.7%, which is primarily related to a rise in the gross loan portfolio by GEL 1,854.9 million, or 23.9%, YoY. This effect was further magnified by a 0.4pp increase in loan yields to 12.4%, which was driven by a rise in rates on GEL denominated loans of 1.2pp that was partially offset by the decrease in yields on FC denominated loans by 0.6pp. Another contributor to the increase in interest income was investment in leases, which was up by GEL 11.5 million, or 74.5%. This resulted from a significant increase in the size of such receivables by GEL 72.5 million, or 65.2%, and magnified by an increase in the respective yield of 1.1pp, up to 22.3%. Yields on interest earning assets expanded by 0.4pp to 11.5%, compared to 9M 2017.

The YoY growth in interest expense by GEL 58.2 million or 18.9% to a GEL 365.5 million in 9M 2018 was mainly due to 17.1% increase in interest expense on customer accounts by GEL 28.7 million and a rise in interest expense on amounts due to credit institutions by GEL 26.9 million or 24.1%. The higherinterest expense on customer accounts was attributable to a GEL 1,643.9 million, or 23.2%, growth in the respective portfolio, partially offset by a 0.1pp decline in the cost of deposit down to 3.3%, which resulted from by a 0.4pp decrease in cost of deposits of FC denominated deposits. Another contributor to the increase in interest expense was the portfolio of amounts due to credit institutions, up by GEL 305.4 million, or 11.4%, and a 0.6pp higher effective rate on the respective portfolio, which stood at 7.0%, mainly related to the rise in libor rate. As a result, the cost of funding remained stable on a YoY basis at 4.4%.

Consequently, NIM was 7.0% in 9M 2018, compared to 6.5% in 9M 2017.

 

 

 

Fee and Commission Income

 

 

 

In thousands of GEL

9M'18

9M'17

Change in %

Card Operations

      75,237

      60,907

23.5%

Settlement Transactions

      51,402

      43,328

18.6%

Guarantees Issued

      13,731

      10,367

32.4%

Issuance of Letters of Credit

        4,382

        4,449

-1.5%

Cash Transactions

      12,938

      12,046

7.4%

Foreign Currency Exchange Transactions

        1,378

        1,003

37.4%

Other

        9,584

        6,171

55.3%

Fee and Commission Income

    168,652

    138,271

22.0%

Card Operations

      38,173

      35,414

7.8%

Settlement Transactions

        6,322

        5,282

19.7%

Guarantees Issued

        1,045

        1,319

-20.8%

Letters of Credit

        1,020

           705

44.7%

Cash Transactions

        3,883

        3,282

18.3%

Foreign Currency Exchange Transactions

               1

             92

-98.9%

Other

        4,742

        5,170

-8.3%

Fee and Commission Expense

      55,186

      51,264

7.7%

Card Operations

      37,064

      25,493

45.4%

Settlement Transactions

      45,080

      38,046

18.5%

Guarantees

      12,686

        9,048

40.2%

Letters of Credit

        3,362

        3,744

-10.2%

Cash Transactions

        9,055

        8,764

3.3%

Foreign Currency Exchange Transactions

        1,377

           911

51.2%

Other

        4,842

        1,001

NMF

Net Fee and Commission Income

    113,466

      87,007

30.4%

             

NMF - no meaningful figures

 

9M 2018 to 9M 2017 Comparison

In 9M 2018, net fee and commission income totalled GEL 113.5 million, up by GEL 26.5 million, or 30.4%, compared to 9M 2017. This mainly resulted from an increase in net fee and commission income from card operations of GEL 11.6 million, or 45.4% and an increase in net fee and commission income from settlement transactions of GEL 7.0 million, or 18.5%.

 

The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 17.4% and 13.9% respectively. The increase in net fee and commission income from settlement transactions was mainly related to our subsidiary, TBC Pay, driven by a higher number of transactions and the growth in net fee and commission income from our affluent retail sub-segment, TBC Status.

 

 

Other Operating Non-Interest Income and Gross Insurance Profit

 

 

In thousands of GEL

9M'18

9M'17

Change in %

Net Income from Foreign Currency Operations

      73,845

      65,759

12.3%

Share of Profit of Associates

           942

           661

42.5%

Gains Less Losses/(Losses Less Gains) from Derivative Financial Instruments

           357

            (39)

NMF

Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income

               2

              -  

NMF

Revenues from Cash-In Terminal Services

        1,490

           838

77.8%

Revenues from Operational Leasing

        4,813

        5,134

-6.3%

Gain from Sale of Investment Properties

        2,389

        1,578

51.4%

Gain from Sale of Inventories of Repossessed Collateral

        1,073

        1,701

-36.9%

Revenues from Non-Credit Related Fines

           316

           125

NMF

Gain on Disposal of Premises and Equipment

           235

           257

-8.6%

Other

        4,637

      11,173

-58.5%

Other Operating Income

      14,953

      20,806

-28.1%

Gross Insurance Profit[14]

        8,422

        4,854

73.5%

Other Operating Non-Interest Income and Gross Insurance Profit

      98,521

      92,041

7.0%

NMF - no meaningful figures

 

 

 

 

9M 2018 to 9M 2017 Comparison

Total other operating non-interest income and gross insurance profit increased by GEL 6.5 million, or 7.0%, to GEL 98.5 million in 9M 2018. This mainly resulted from the rise in net income from foreign currency operations by GEL 8.1 million, or 12.3%, mainly due to increased clients' FX transactions, broadly consistent with the business scale growth. Another contributor was gross insurance profit up by GEL 3.6 million, or 73.5%. The increase was partially offset by the drop in other operating income by GEL 5.9 million or 28.1%, related to the higher one-off incomes in 9M 2017.

The increase in gross insurance profit was related to the hike in the number of customers by around 60,000, which in turn led to a high increase in gross written premium by 124.4% YoY on a stand-alone basis. More information about TBC insurance can be found in annex 23 on page 47.

 

Credit Loss Allowance

 

 

 

In thousands of GEL

9M'18

9M'17

Change in %

Credit Loss Allowance for Loan to Customers

   (109,325)

     (65,403)

67.2%

Credit Loss Allowance for Investments in Finance Lease

          (986)

          (414)

NMF

Credit Loss Allowance for Performance Guarantees and Credit Related Commitments

       (2,524)

           866

NMF

Credit Loss Allowance for Other Financial Assets

       (9,175)

       (5,521)

66.2%

Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income

            (64)

              -  

NMF

Credit Loss Allowance for Financial Assets Measured at Amortised Cost

          (129)

              -  

NMF

Total Credit Loss Allowance

   (122,203)

     (70,472)

73.4%

Operating Income after Credit Loss Allowance

    653,003

    547,196

19.3%

 

 

 

 

Cost of Risk

1.7%

1.2%

0.5%

NMF - no meaningful figures

 

 

 

9M 2018 to 9M 2017 Comparison

In 9M 2018, total credit loss allowance increased by GEL 51.7 million to GEL 122.2 million, compared to 9M 2017. The main contributor to the growth was credit loss allowance for loans to customers up by GEL 43.9 million. The increase was attributable to the corporate segment following a high recovery of credit loss in 9M 2017.

 

Operating Expenses

 

 

 

In thousands of GEL

9M'18

9M'17

Change in %

Staff Costs

    157,141

    148,995

5.5%

Provisions for Liabilities and Charges

        4,000

       (2,495)

NMF

Depreciation and Amortization

      33,407

      26,840

24.5%

Professional services

        8,566

        9,659

-11.3%

Advertising and marketing services

      18,837

      10,289

83.1%

Rent

      17,723

      17,224

2.9%

Utility services

        4,889

        4,552

7.4%

Intangible asset enhancement

        7,694

        6,958

10.6%

Taxes other than on income

        5,401

        4,576

18.0%

Communications and supply

        3,751

        2,868

30.8%

Stationary and other office expenses

        3,528

        3,397

3.9%

Insurance

        2,031

        1,705

19.1%

Security services

        1,518

        1,476

2.8%

Premises and equipment maintenance

        4,331

        3,839

12.8%

Business trip expenses

        1,567

        1,376

13.9%

Transportation and vehicles maintenance

        1,494

        1,184

26.2%

Charity

           742

           763

-2.8%

Personnel training and recruitment

           874

           918

-4.8%

Write-down of current assets to fair value less costs to sell

       (1,006)

          (373)

NMF

Loss on disposal of inventory

           136

        1,188

-88.6%

Loss on disposal of investment properties

             60

           385

-84.4%

Loss on disposal of premises and equipment

           435

           306

42.2%

Impairment of intangible assets

              -  

        1,916

-100.0%

Acquisition costs

              -  

        1,887

-100.0%

Other

      10,006

      10,327

-3.1%

Administrative and Other Operating Expenses

      92,577

      86,420

7.1%

Operating Expenses

    287,125

    259,760

10.5%

Profit before Tax

    365,878

    287,436

27.3%

Income Tax Expense

     (58,530)

     (24,263)

141.2%

Profit for the Period

    307,348

    263,173

16.8%

 

 

 

 

Cost to Income

37.0%

42.1%

-5.1%

ROE

21.2%

20.9%

0.3%

ROA

3.1%

3.2%

-0.1%

NMF - no meaningful figures

 

 

 

 

 

 

 

9M 2018 to 9M 2017 Comparison

In 9M 2018, total operating expenses expanded by GEL 27.4 million, or 10.5%, YoY. This mainly resulted from an increase in staff costs of GEL 8.1 million, or 5.5%, an increase in depreciation and amortisation of GEL 6.6 million, or 24.5% and an increase in administrative expenses by GEL 6.2 million, or 7.1%, mainly related to the growth of advertising and marketing services. The growth across the board was related to the overall growth of the business scale and higher performance.

As a result, cost to income ratio was 37.0% in 9M 2018, 5.1pp lower than the 42.1% in 9M 2017.

Income Tax

In 9M 2018, TBC Bank reversed the one-off deferred tax gain, which was recognised in 2016 due to the recent amendment to the Georgian Tax Code in relation to corporate income tax. The amendment, which came into force on 12 June 2018, postponed the tax relief for re-invested profit from 1 January 2019 to 1 January 2023 for financial institutions. This reversal has resulted in a GEL 17.4 million expense on the profit and loss statement and a GEL 5.1 million reduction in equity in 9M 2018.

Net Income

Net income for 9M increased by GEL 44.1 million, or 16.8%, YoY and stood at GEL 307.3 million.

As a result, ROE stood at 21.2%, up by 0.3pp YoY, and ROA stood at 3.1%, down by 0.1pp YoY.

 

Balance Sheet Discussion

 

 

 

In thousands of GEL

Sep-18

Sep-17

Change YoY

Cash, Due from Banks and Mandatory Cash Balances with NBG

      2,693,455

    2,507,912

7.4%

Loans and Advances to Customers (Net)

      9,279,982

    7,549,061

22.9%

Financial Securities

      1,386,239

    1,113,373

24.5%

Fixed and Intangible Assets & Investment Property

         549,938

       480,045

14.6%

Other Assets

         514,383

       486,531

5.7%

Total Assets

    14,423,997

  12,136,922

18.8%

Due to Credit Institutions

      2,981,269

    2,675,930

11.4%

Customer Accounts

      8,740,449

    7,096,523

23.2%

Debt Securities in Issue

           13,027

         19,818

-34.3%

Subordinated Debt

         412,803

       411,193

0.4%

Other Liabilities

         220,499

       143,151

54.0%

Total Liabilities

    12,368,047

  10,346,615

19.5%

Total Equity

      2,055,950

    1,790,307

14.8%

 

Assets

As of 30 September 2018, the Group's total assets amounted to GEL 14,424.0 million, up by GEL 2,287.1 million, or 18.8%, YoY. The increase was mainly due to a rise in net loans to customers of GEL 1,730.9 million, or by 22.9%, YoY. It also resulted from a GEL 185.5 million, or 7.4%, rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 272.9 million, or 24.5%, increase in financial securities, compared to 30 September 2017.

As of 30 September 2018, the gross loan portfolio reached GEL 9,622.6 million, up by 23.9% YoY while proportion of gross loans denominated in foreign currency remained unchanged on a YoY basis and accounted for 59.2% of total loans.

 

  

Asset Quality

 

 

 

 

 

 

 

PAR 30 by Segments and Currencies

Sep-18

Sep-17

 

GEL

FC

Total

GEL

FC

Total

Corporate

0.0%

1.1%

0.8%

0.3%

2.8%

2.1%

Retail

4.5%

1.7%

3.0%

3.2%

2.2%

2.7%

MSME

1.8%

3.6%

2.7%

1.7%

4.1%

3.2%

Total

2.9%

1.9%

2.3%

2.3%

2.9%

2.7%

Loans overdue by more than 30 days to gross loans

 

 

 

 

 

 

                       

 

Total

The total PAR 30 has declined by 0.4pp YoY. The YoY decrease is related to the improvements across the corporate and MSME segments by 1.3pp and 0.5pp respectively.

 

Retail Segment

The retail segment's PAR 30 increased by 0.3pp and amounted to 3.0% on a YoY basis, mainly driven by credit cards and other higher yield products, aligned with the respective yield increases.

 

Corporate

The corporate segment's PAR 30 decreased by 1.3pp YoY. The decrease was driven by improved performance of the corporate loan book.

 

MSME

The MSME segment's PAR 30 decreased by 0.5pp YoY.  YoY decrease was driven by the improved performance of both micro and SME portfolios.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPLs

Sep-18

Sep-17

 

GEL

FC

Total

GEL

FC

Total

Corporate

1.2%

3.2%

2.6%

0.3%

4.7%

3.4%

Retail

3.7%

2.4%

3.0%

2.8%

3.1%

2.9%

MSME

2.3%

5.7%

4.1%

2.7%

6.0%

4.8%

Total

2.8%

3.4%

3.1%

2.3%

4.3%

3.5%

                       

 

Total

Total NPLs stood at 3.1%, down by 0.4pp on YoY basis, mainly driven by the improved performance of the corporate and MSME loan books.

 

Retail Segment

The retail segment's NPLs remained broadly stable and stood at 3.0%.

 

Corporate

The corporate NPLs stood at 2.6%, down by 0.8pp on YoY basis, due to overall improved performance of the corporate loan book.

 

MSME

The MSME NPLs declined by 0.7pp on a YoY basis, and stood at 4.1%, driven by improved performance in NPLs in both the micro and SME portfolios.

 

 

 

 

 

 

 

NPLs Coverage

Sep-18

Sep-17

 

Exc. Collateral

Incl. Collateral

Exc. Collateral

Incl. Collateral

Corporate

104.3%

242.5%

52.5%

256.8%

Retail

140.8%

206.4%

120.6%

201.6%

MSME

80.8%

184.8%

49.7%

172.5%

Total

113.2%

209.0%

80.5%

206.8%

             

 

NPLs Coverage

YoY total credit loss allowance coverage grew from 80.5% to 113.2%. The key driver of the increase was the transition to the IFRS 9 methodology.

 

Liabilities

As of 30 September 2018, TBC Bank's total liabilities amounted to GEL 12,368.0 million, up by GEL 2,021.4 million, or 19.5% YoY. This was primarily due to a GEL 305.4 million, or 11.4%, increase in amounts due to credit institutions and a hike in customer accounts of GEL 1,643.9 million, or 23.2%. Total liabilities also expanded, due to an increase in deferred income tax liability of GEL 26.4 million, which was mainly related to the reversal of the deferred tax gain, as mentioned above. 

 

Liquidity

As of 30 September 2018, the Bank's liquidity ratio, as defined by the NBG, stood at 31.9%, compared to 35.3% as of 30 September 2017. As of 30 September 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 111.6%, above the 100.0% limit, while the LCR in GEL and FC stood at 86.5% and 128.1% respectively, above the respective limits of 75% and 100%.

 

Total Equity

As of 30 September 2018, TBC's total equity amounted to GEL 2,056.0 million, up by GEL 265.6 million or by 14.8% from GEL 1,790.3 million as of 30 September 2017. This YoY change in equity was mainly due to net profit contribution of GEL 404.1 million during the last 12 months, which was mostly offset by dividend distribution of GEL 88.9 million in May 2018 and by IFRS 9 transition effect in the amount of GEL 63.7 million as of 1 January 2018.

 

Regulatory Capital

According to the newly introduced methodology, as of 30 September 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.8% and 16.4%, respectively, compared to the minimum required levels of 10.3% and 15.8%.

 

In 30 September 2018, The Bank's Basel III Tier 1 Capital amounted to GEL 1,580.5 million. The Bank's Basel III Total Capital totalled GEL 2,020.5 million. Risk weighted assets amounted to GEL 12,305.8 million as of 30 September 2018.

 

 

 

Results by Segments and Subsidiaries

The segment definitions are as follows (updated in 2018):

·      Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been granted facilities of 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;

·      MSME (Micro, Small and Medium) - business customers who are not included in either the corporate or the retail segments; or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank-Space;

·      Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;

·      Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;

Business customers are all legal entities or individuals who have been granted a loan for business purpose.

 

Income Statement by Segments

 

 

 

 

 

 

 

 

 

 

 

9M'18

Retail

MSME

Corporate

Corp.Centre

Total

Interest Income

     452,367

     182,341

    184,768

    109,216

    928,692

Interest Expense

     (90,496)

        (7,326)

     (98,632)

   (169,019)

   (365,473)

Net Transfer Pricing

     (62,039)

      (60,158)

      26,745

      95,452

              -  

Net Interest Income

     299,832

     114,857

    112,881

      35,649

    563,219

Fee and Commission Income

     122,297

       16,158

      28,164

        2,033

    168,652

Fee and Commission Expense

    (45,062)

      (4,966)

      (4,931)

         (227)

    (55,186)

Net fee and Commission Income

       77,235

       11,192

      23,233

        1,806

    113,466

Gross Insurance Profit

              -  

               -  

              -  

        8,422

        8,422

Net income from foreign currency operations

       20,418

       15,475

      31,583

      (4,056)

      63,420

Foreign Exchange Translation Gains Less Losses/(Losses Less Gains)

              -  

               -  

              -  

      10,425

      10,425

Net Losses from Derivative Financial Instruments

           (44)

               -  

              -  

           401

           357

Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income

              -  

               -  

              -  

               2

               2

Other Operating Income

         6,367

            505

        6,943

        1,138

      14,953

Share of profit of associates

              -  

               -  

              -  

           942

           942

Other Operating Non-Interest Income

       26,741

       15,980

      38,526

      17,274

      98,521

Credit Loss Allowance for Loan to Customers

     (83,935)

      (16,315)

       (9,075)

              -  

   (109,325)

Credit Loss Allowance for Performance Guarantees and Credit Related Commitments

          (136)

           (703)

       (1,116)

          (569)

       (2,524)

Credit Loss Allowance for Investments in Finance Lease

              -  

               -  

              -  

          (986)

          (986)

Credit Loss Allowance for Other Financial Assets

       (3,933)

               (2)

       (3,277)

       (1,963)

       (9,175)

Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income

              -  

               -  

          (116)

             52

            (64)

Credit Loss Allowance for Financial Assets Measured at Amortised Cost

              -  

               -  

              -  

          (129)

          (129)

Profit before G&A Expenses and Income Taxes

     315,804

     125,009

    161,056

      51,134

    653,003

Staff Costs

      (91,893)

      (29,823)

     (21,668)

       (13,757)

   (157,141)

Depreciation and Amortization

     (26,930)

        (3,643)

        (1,622)

         (1,212)

     (33,407)

Provision for liabilities and charges

                  -  

                   -  

                  -  

         (4,000)

       (4,000)

Administrative and Other Operating Expenses

     (60,157)

      (13,260)

        (6,047)

       (13,113)

     (92,577)

Operating Expenses

    (178,980)

      (46,726)

      (29,337)

       (32,082)

   (287,125)

Profit before Tax

     136,824

       78,283

    131,719

      19,052

    365,878

Income Tax Expense

     (18,254)

      (11,716)

     (19,874)

       (8,686)

     (58,530)

Profit for the Year

     118,570

       66,567

    111,845

      10,366

    307,348

 

 

 

Portfolios by Segments

 

 

In thousands of GEL

30-Sep-2018

30-Sep-2017

Loans and Advances to Customers

 

 

 

 

 

Consumer

  1,958,883

  1,972,012

Mortgage

  2,452,157

  1,900,186

Pawn

       35,357

       34,862

Retail

  4,446,397

  3,907,060

Corporate

  2,891,628

  2,128,478

MSME

  2,284,538

  1,732,096

Total Loans and Advances to Customers (Gross)

  9,622,563

  7,767,634

Less: Credit loss allowance for Loans to Customers

   (342,581)

    (218,573)

Total Loans and Advances to Customers (Net)

  9,279,982

  7,549,061

 

 

 

Customer Accounts

 

 

 

 

 

Retail

  4,850,586

  4,015,754

Corporate

  2,920,526

  2,130,763

MSME

     969,337

     950,006

Total Customer Accounts

  8,740,449

  7,096,523

Retail Banking

As of 30 September 2018, retail loans stood at GEL 4,446.4 million, up by GEL 539.3 million, or 13.8%, YoY and accounted for 39.9% market share of total individual loans. As of 30 June 2018, foreign currency loans represented 53.7% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 4,850.6 million, up by GEL 834.8 million, or 20.8%, YoY accounting for 41.1% market share of total individual deposits. As of 30 September 2018, term deposits accounted for 53.4% of the total retail deposit portfolio, while foreign currency deposits represented 83.0% of the total retail deposit portfolio.

In 9M 2018, retail loan yields and deposit rates stood at 14.4% and 2.7%, respectively. The segment's cost of risk on loans was 2.7%.The retail segment contributed 38.6%, or GEL 118.6 million, to the total net income in 9M 2018.

Corporate Banking

As of 30 September 2018, corporate loans amounted to GEL 2,891.6 million, up by GEL 763.1 million, or 35.9%, YoY. Foreign currency loans accounted for 73.3% of the total corporate loan portfolio. The market share of total legal entities loans stood at 36.6%.

As of the same date, corporate deposits totalled GEL 2,920.5 million, up by GEL 789.7 million, or 37.1%, YoY. Foreign currency corporate deposits represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 39.4%.

In 9M 2018, corporate loan yields and deposit rates stood at 9.4% and 5.1%, 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 111.8 million, or 36.4% of the total net income.

MSME Banking

As of 30 September 2018, MSME loans amounted to GEL 2,284.5, up by GEL 552.4 million, or 31.9%, YoY. Foreign currency loans accounted for 52.1% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 969.3 million, up by GEL 19.3 million, or 2.0%, YoY. Foreign currency MSME deposits represented 47.5% of the total MSME deposit portfolio.

In 9M 2018, MSME loan yields and deposit rates stood at 12.1% and 1.0% respectively, while the cost of risk on loans was 1.1%. In terms of profitability, net profit for the MSME segment amounted to GEL 66.6 million, or 21.7%, of the total net income.

 

Consolidated Financial Statements of TBC Bank Group PLC

 

Consolidated Balance Sheet

 

 

In thousands of GEL 

Sep-18

Sep-17

Cash and cash equivalents

      1,114,672

    1,445,521

Due from other banks

         152,010

         41,696

Mandatory cash balances with National Bank of Georgia

      1,426,773

    1,020,695

Loans and advances to customers

      9,279,982

    7,549,061

Investment securities Measured at Fair Value through Other Comprehensive Income

         868,060

       685,210

Bonds carried at amortised cost

         518,179

       428,163

Investments in associates

             2,220

           1,309

Investments in finance leases

         183,715

       111,223

Investment properties

           78,274

         88,750

Current income tax prepayment

             7,650

         18,380

Deferred income tax asset

             2,499

           3,592

Other financial assets

         103,520

       113,942

Other assets

         186,061

       209,428

Premises and equipment

         375,002

       321,431

Intangible assets

           96,662

         69,864

Goodwill

           28,718

         28,657

TOTAL ASSETS    

    14,423,997

  12,136,922

LIABILITIES     

 

 

Due to Credit Institutions

      2,981,269

    2,675,930

Customer accounts    

      8,740,449

    7,096,523

Other financial liabilities   

           90,966

         59,616

Current income tax liability  

                  30

              362

Debt Securities in issue

           13,027

         19,818

Deferred income tax liability  

           27,202

              851

Provisions for liabilities and charges 

           16,329

         11,072

Other liabilities    

           85,972

         71,250

Subordinated debt    

         412,803

       411,193

TOTAL LIABILITIES    

    12,368,047

  10,346,615

EQUITY     

 

 

Share capital

             1,650

           1,605

Share premium

         796,854

       714,651

Retained earnings

      1,372,798

    1,137,497

Group reorganisation reserve

        (162,166)

     (162,166)

Share based payment reserve

          (18,689)

           7,291

Revaluation reserve for premises

           64,962

         70,045

Revaluation reserve for available-for-sale securities

             4,875

              863

Cumulative currency translation reserve

            (7,277)

         (7,301)

Net assets attributable to owners

      2,053,007

    1,762,485

Non-controlling interest    

             2,943

         27,822

TOTAL EQUITY    

      2,055,950

    1,790,307

TOTAL LIABILITIES AND EQUITY  

    14,423,997

  12,136,922

 

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 

 

In thousands of GEL 

9M'18

9M'17

Interest income 

    928,692

    745,918

Interest expense

   (365,473)

   (307,298)

Net interest income

    563,219

    438,620

Fee and commission income

    168,652

    138,271

Fee and commission expense

     (55,186)

     (51,264)

Net Fee and Commission Income

    113,466

      87,007

Net insurance premiums earned

      16,578

        8,972

Net insurance claims incurred and agents' commissions

       (8,156)

       (4,118)

Insurance Profit

        8,422

        4,854

Net income from foreign currency operations

      63,420

      61,477

Net gain/(losses) from foreign exchange translation

      10,425

        4,282

Net gains/(losses) from derivative financial instruments

           357

            (39)

Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income

               2

              -  

Other operating income

      14,953

      20,806

Share of profit of associates

           942

           661

Other operating non-interest income

      90,099

      87,187

Credit loss allowance for loan to customers

   (109,325)

     (65,403)

Credit loss allowance for investments in finance lease

          (986)

          (414)

Credit loss allowance for performance guarantees and credit related commitments

       (2,524)

           866

Credit loss allowance for other financial assets

       (9,175)

       (5,521)

Credit loss allowance for financial assets measured at fair value through other comprehensive income

            (64)

              -  

Credit loss allowance for financial assets measured at amortised cost

          (129)

              -  

Operating income after credit loss allowance

    653,003

    547,196

Staff costs

   (157,141)

   (148,995)

Depreciation and amortization

     (33,407)

     (26,840)

(Provision for)/ recovery of liabilities and charges

       (4,000)

        2,495

Administrative and other operating expenses

     (92,577)

     (86,420)

Operating expenses

   (287,125)

   (259,760)

Profit before tax

    365,878

    287,436

Income tax expense

     (58,530)

     (24,263)

Profit for the period

    307,348

    263,173

Other Comprehensive income:

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

Revaluation of available for-sale-investments

        3,192

        4,544

Exchange differences on translation to presentation currency

             85

           241

Items that will not be reclassified to profit or loss:

 

 

Income tax recorded directly in other comprehensive income

       (5,151)

          (422)

Other comprehensive income for the Period

       (1,874)

        4,363

Total comprehensive income for the Period

    305,474

    267,536

Profit attributable to:

 

 

 - Shareholders of TBCG

    305,126

    259,043

 - Non-controlling interest

        2,222

        4,130

Profit for the period

    307,348

    263,173

Total comprehensive income is attributable to:

 

 

 - Shareholders of TBCG

    303,273

    263,406

 - Non-controlling interest

        2,201

        4,130

Total comprehensive income for the Period

    305,474

    267,536

       

 

 

Consolidated Statements of Cash Flows

 

 

In thousands of GEL

30-Sep-18

30-Sep-17

Cash flows from/(used in) operating activities

 

 

Interest received

        898,534

 726,012

Interest paid

    (357,224)

 (304,258)

Fees and commissions received

       180,489

 139,408

Fees and commissions paid

 (55,190)

 (51,358)

Insurance premium received

18,045

 13,908

Insurance claims paid

 (7,803)

 (5,946)

Income received from trading in foreign currencies

63,420

 61,478

Other operating income received

4,379

 9,638

Staff costs paid

 (153,876)

 (143,370)

Administrative and other operating expenses paid

 (97,685)

 (78,995)

Income tax paid

 (24,758)

 (42,785)

Cash flows from operating activities before changes in operating assets and liabilities

468,331

323,732

Net change in operating assets

 

 

Due from other banks and mandatory cash balances with the National Bank of Georgia

 (479,208)

 (73,036)

Loans and advances to customers

 (1,064,695)

 (777,837)

Investment in finance lease

 (37,065)

 (20,647)

Other financial assets

38,446

 (11,776)

Other assets

 (9,900)

 1,119

Net change in operating liabilities

 

 

Due to other banks

116,376

 (219,247)

Customer accounts

887,193

 914,052

Other financial liabilities

 (9,738)

 (4,403)

Other liabilities and provision for liabilities and charges

6,484

 1,241

Net cash from operating activities

(83,776)

133,198

Cash flows from/(used in) investing activities

 

 

Acquisition of investment securities measured at fair value through other comprehensive income

 (479,092)

 (514,803)

Proceeds from redemption at maturity of investment securities measured at fair value through other comprehensive income

272,477

 269,640

Acquisition of bonds carried at amortised cost

 (235,480)

 (247,035)

Proceeds from redemption of bonds carried at amortised cost

167,258

 198,380

Acquisition of premises, equipment and intangible assets

 (55,321)

 (47,410)

Disposal of premises, equipment and intangible assets

1,140

 1,436

Proceeds from disposal of investment property

8,448

 7,831

Acquisition of subsidiaries, net of cash acquired

 -   

 (350)

Net cash used in investing activities

(320,570)

(332,311)

Cash flows from/(used in) financing activities

 

 

Proceeds from other borrowed funds

 1,456,759

 1,464,205

Redemption of other borrowed funds

 (1,250,372)

 (771,829)

Proceeds from subordinated debt

 -

 60,188

Redemption of subordinated debt

 (32,166)

 -  

Proceeds from debt securities in issue

 (7,446)

 -  

Redemption of debt securities in issue

-

 (2,075)

Dividends paid

 (85,483)

 (67,927)

Issue of ordinary shares

 -

 29

Net cash flows from financing activities

81,292

682,591

Effect of exchange rate changes on cash and cash equivalents

6,249

16,863

Net increase in cash and cash equivalents

(316,805)

500,341

Cash and cash equivalents at the beginning of the year

     1,431,477

       945,180

Cash and cash equivalents at the end of the year

1,114,672

1,445,521

 

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)

9M'18

9M'17

ROE1

21.2%

20.9%

ROA2

3.1%

3.2%

ROE before credit loss allowance3

29.6%

26.6%

Cost to Income4

37.0%

42.1%

Cost of Risk5

1.7%

1.2%

FX adjusted Cost of Risk6

1.7%

1.4%

NIM7

7.0%

6.5%

Risk Adjusted NIM8

5.3%

5.1%

Loan Yields9

12.4%

12.0%

Risk Adjusted Loan Yields10

10.7%

10.6%

Deposit rates11

3.3%

3.4%

Yields on interest Earning Assets12

11.5%

11.1%

Cost of Funding13

4.4%

4.4%

Spread14

7.1%

6.6%

PAR 90 to Gross Loans15

1.3%

1.6%

NPLs to Gross Loans16

3.1%

3.5%

NPLs coverage17

113.2%

80.5%*

NPLs coverage with collateral18

209.0%

206.8%*

Credit Loss Level to Gross Loans19

3.6%

2.8%*

Related Party Loans to Gross Loans20

0.1%

0.1%

Top 10 Borrowers to Total Portfolio21

10.3%

8.3%

Top 20 Borrowers to Total Portfolio22

14.1%

12.5%

Net Loans to Deposits plus IFI Funding23

88.0%

91.5%

Net Stable Funding Ratio24

118.0%

134.5%

Liquidity Coverage Ratio25

111.6%

115.0%

Leverage26

7.0x

6.8x

Regulatory Tier 1 CAR (Basel III)27

12.8%

10.8%**

Regulatory Total 1 CAR (Basel III)28

16.4%

14.5%**

* Figures per IAS39

**9M 2017 figures are based on previous regulation in accordance with Basel II/III guidelines

 

 

 

 

Ratio definitions

1. Return on average total equity (ROE) equals net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; Annualised where applicable.

2. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period. Annualised where applicable.

3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.

4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).

5. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.

6. FX adjusted cost of risk equal cost of risk at constant currency.

7. 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.

8. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.

9. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.

10. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.

11. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; Annualised where applicable.

12. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; Annualised where applicable.

13. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; Annualised where applicable.

14. 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).

15. 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.

16. 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.

17. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.

18. 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.

19. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.

20. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

21. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.

22. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.

23. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

24. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III.

25. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined by the NBG.

26. Leverage equals total assets to total equity.

27. 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.

28. 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 2.4516 as of 30 June 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4767 as of 30 September 2017. As of 30 September 2018 the USD/GEL exchange rate equalled 2.6151. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 3Q 2018 of 2.5295, 2Q 2018 of 2.4460, 3Q 2017 of 2.4232.

 

 

Additional Disclosures

Subsidiaries of TBC Bank Group PLC[15]  

 

Ownership / voting
% as of 30 September 2018

Country

Year of incorporation

Industry

Total Assets 
(after elimination)

Subsidiary

Amount

GEL'000

% in TBC Group

JSC TBC Bank

99.9%

Georgia

1992

Banking

14,029,388

97.26%

    United Financial Corporation JSC

98.7%

Georgia

1997

Card processing

9,511

0.07%

    TBC Capital LLC

100.0%

Georgia

1999

Brokerage

9,505

0.07%

    TBC Leasing JSC

99.6%

Georgia

2003

Leasing

245,348

1.70%

    TBC Kredit LLC

100.0%

Azerbaijan

1999

Non-banking credit institution

37,996

0.26%

    Banking System Service Company LLC

100.0%

Georgia

2009

Information services

762

0.01%

    TBC Pay LLC

100.0%

Georgia

2009

Processing

33,924

0.24%

    Index LLC

100.0%

Georgia

2011

Real estate management

344

0.00%

    Real Estate Management Fund JSC

100.0%

Georgia

2010

Real estate management

21

0.00%

    TBC Invest LLC

100.0%

Israel

2011

PR and marketing

239

0.00%

    BG LLC*

0.0%

Georgia

2018

Asset management

5,626

0.04%

JSC TBC Insurance

100.0%

Georgia

2014

Insurance

48,242

0.33%

    Swoop JSC

98.13%

Georgia

2010

Retail Trade

813

0.01%

    GE Commerce LTD

100.0%

Georgia

2018

Retail Trade

223

0.00%

(*) In July 2018 the Group obtained de facto control over BG LLC

1) Earnings per Share

In GEL

9m 2018

9m 2017

Earnings per share for profit attributable to the owners of the Group:

 

 

- Basic earnings per share

5.67

4.92

- Diluted earnings per share

5.62

4.85

Source: IFRS Consolidated

 

In GEL

3Q 2018

3Q 2017

Earnings per share for profit attributable to the owners of the Group:

 

 

- Basic earnings per share

1.97

1.62

- Diluted earnings per share

1.95

1.59

Source: IFRS Consolidated

2) Sensitivity Scenario

Sensitivity Scenario

30-Sep-18

10% Currency Devaluation Effect

NIM*

 

-0.17%

Technical Cost of Risk

 

+0.15%

Regulatory Total Capital per new NBG regulation

2,021

2,043

Regulatory Capital adequacy ratios tier 1 and total capital per new NBG regulation decrease by

 

0.68% - 0.79%

(*) Linear depreciation is assumed for NIM sensitivity analysis

Source: IFRS statements and Management Figures

3) FC Details for Selected P/L Items

Selected P&L Items 3Q 2018

FC % of Respective Totals

Interest Income

38%

Interest Expense

50%

Fee and Commission Income

32%

Fee and Commission Expense

65%

Administrative Expenses

15%

Source: IFRS statements and Management figures

4) Open Interest Rate Position as of 30 September 2018

 

Open interest rate  position in GEL

GEL     - 132 m

 

Open interest rate position in FC

GEL 1,963 m

 

GEL m

% share in totals

 

 

GEL m

% share in totals

Assets

2,407

17%

 

Assets

3,740

26%

Securities with fixed yield(≤1y)*

455

33%

 

Nostro**

63

11%

Securities with floating yield

49

4%

 

NBG Reserves**

1,427

90%

Loans with Floating yield

1,780

19%

 

NBG Deposits

47

3%

Reserves in NBG

120

8%

 

Libor Loans

2,192

23%

Interbank loans& Deposits & Repo

3

0%

 

Interest Rate Swap

11

 

Liabilities

2,275

18%

 

 

 

 

Current accounts***

464

5%

 

Liabilities

1,777

14%

Saving accounts***

535

6%

 

 Senior Loans

1,456

52%

Refinancing Loan of NBG

632

23%

 

 Subordinated Loans

321

78%

Interbank Loans &Deposits & Repo

77

38%

 

 

 

 

IFI Borrowings

567

20%

 

 

 

 

 

 

 

 

 

 

 

(*) 62% 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 March, 2016 according to NBG regulation is it possible  to apply negative interest rates on NBG reserves and correspondent accounts, therefore these two items close the gap in case of both upward and downward movement of Libor rate.

(***) The Bank considers that current and saving deposits promptly react to interest rate changes on the market (within 1-month prior notification).

Source: IFRS Group Data

 

5) Yields and Rates

 

 

 

 

 

 

 

 

 

 

 

Yields and Rates

3Q'18

2Q'18

1Q'18

4Q'17

3Q'17

Loan yields

12.4%

12.5%

12.3%

12.3%

11.9%

Retail loan yields  GEL

20.8%

21.3%

20.5%

19.7%

19.2%

Retail loan yields FX

7.9%

8.0%

8.4%

8.8%

8.5%

Retail Loan Yields

14.1%

14.7%

14.6%

14.2%

13.8%

Corporate loan yields  GEL

11.0%

11.4%

11.2%

12.2%

11.0%

Corporate loan yields FX

9.1%

8.7%

8.6%

9.2%

8.6%

Corporate Loan Yields

9.6%

9.4%

9.2%

10.0%

9.2%

MSME loan yields  GEL

16.6%

15.9%

15.0%

13.6%

13.1%

MSME loan yields FX

8.9%

8.5%

8.9%

9.4%

9.4%

MSME Loan Yields

12.6%

12.0%

11.3%

10.9%

10.7%

Deposit rates

3.3%

3.3%

3.3%

3.5%

3.4%

Retail deposit rates GEL

4.4%

4.3%

4.4%

4.4%

4.0%

Retail deposit rates FX

2.3%

2.4%

2.5%

2.7%

2.8%

Retail Deposit Yields

2.7%

2.7%

2.8%

2.9%

3.0%

Corporate deposit rates GEL

7.5%

7.9%

8.0%

8.5%

8.3%

Corporate deposit rates FX

2.0%

1.9%

2.0%

2.1%

2.2%

Corporate Deposit Yields

4.9%

5.2%

5.2%

5.3%

5.2%

MSME deposit rates GEL

1.7%

1.7%

1.8%

2.1%

2.2%

MSME deposit rates FX

0.4%

0.4%

0.5%

0.8%

0.7%

MSME Deposit Yields

1.0%

1.0%

1.1%

1.4%

1.4%

Yields on Securities

7.8%

7.7%

8.1%

6.9%

8.4%

Source: IFRS Consolidated

 

 

6) Risk Adjusted Yields & Cost of Risk 

 

 

 

 

 

Risk-adjusted Yields

3Q'18

2Q'18

1Q'18

4Q'17

3Q'17

Loan yields

10.9%

10.8%

10.6%

11.1%

10.7%

Retail Loan Yields

11.6%

12.1%

11.6%

12.2%

10.8%

Corporate Loan Yields

9.0%

8.5%

9.3%

9.6%

11.1%

MSME Loan Yields

11.8%

11.1%

9.8%

10.4%

9.9%

 

 

 

 

 

 

 

3Q'18

2Q'18

1Q'18

4Q'17

3Q'17

 

 

 

 

 

 

Cost of Risk

1.9%

1.8%

1.3%

1.4%

1.3%

Retail

2.7%

2.6%

2.7%

2.0%

3.2%

Corporate

1.1%

0.9%

-0.8%

0.7%

-1.7%

MSME

1.2%

1.0%

1.0%

0.7%

0.9%

 

 

 

 

 

 

Source: IFRS Consolidated

 

7) Loan Quality per NBG

 

Sub-Standard, Doubtful and Loss (SDL) Loans Ratio per NBG

 

Sep-18

Jun-18

Mar-18

Dec-17

Sep-17

SDL Loans as % of Gross Loans

3.8%

3.3%

3.1%

3.2%

3.4%

  Source: NBG

 

8) Cross Sell Ratio[16] and Number Active Products

 

Sep-18

Jun-18

Mar-18

Dec-17

Sep-17

Cross Sell Ratio

3.85

3.89

3.88

3.94

3.79

Number of Active Products (in millions)

4.58

4.64

4.58

4.50

4.06

Source: Management figures

 

 

9) Diversified Deposit Base

 

Status: monthly income >=GEL 3,000 or loans/deposits >=GEL 30,000

VIP: deposit >=USD 100,000 as well as on discretionary basis; WM: >=USD 100,000 as well as on discretionary basis

Wealth Management includes UHNW and HNW non-resident clients

 

 

30 September 2018

Volume of Deposits

Number of Deposits

MASS

39%

92.4%

STATUS

30%

7.1%

VIP

23%

0.4%

Wealth Management for non-resident clients

8%

0.1%

 Source: Management figures

 

 

 

10) Loan Concentration

 

Sep-18

Jun-18

Mar-18

Dec-17

Sep-17

Top 20 Borrowers as % of total portfolio

14.1%

13.2%

13.4%

12.4%

12.5%

Top 10 Borrowers as % of total portfolio

10.3%

9.2%

9.4%

8.2%

8.3%

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)

 

3Q 18

3Q 17

3Q 16

3Q 15

Internet banking number of transactions

2,308

2,175

1,828

1,511

Mobile banking number of transactions

6,833

3,953

1,814

780

Source: Management figures

 

12) Penetration Ratios of Digital Channels

 

Sep-18

Sep-17

Sep-16

Sep-15

IB&MB Penetration Ratio

40%

35%

34%

26%

Mobile Banking Penetration Ratio

34%

27%

20%

12%

Source: Management figures

13) Number of Active Clients (in thousands)

 

Sep-18

Sep-17

Sep-16

Sep-15

Internet or mobile banking

478

375

269

182

Mobile banking

406

289

162

84

Source: Management figures

14) Distribution of Transactions in Digital Channels

 

3Q 18

Mobile Banking

23%

Internet Banking

11%

Branches

10%

TBC Pay terminals

22%

ATMs

33%

Other

1%

 

90% of all transactions are conducted in digital channels

 

15) Distribution of Sales in Channels

 

3Q 18

3Q 17

3Q 16

IB, MB, ATM, Web

47%

25%

24%

Branches & Call Center

53%

75%

76%

53% of sales are conducted in digital channels*

* Only products that are sold in digital channels are counted

16) Digital Sales of Products

 

3Q 18

3Q 17

3Q 16

Deposits

64%

55%

52%

Pre-approved loans

68%

18%

12%

Debit cards

17%

7%

-

17) POS Terminal Transactions

 

 

Sep-18

Jun-18

Mar-18

Dec-17

Sep-17

POS number of transactions (in millions)

24.1

22.3

17.9

16.4

13.2

POS volume of transactions (in mln GEL)

986

850

661

631

543

* Data includes e-commerce and excludes transactions at POS terminals in TBC Bank's branches

 

 

18) Net outflow of borrowed funds

Subordinated and Senior Loans' Principal Amount Outflow by Year (USD million)

 

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

35

136

201

263

121

94

40

46

65

5

 

Out of USD 35 million cash outflow in 2018, USD 24 million has already been repaid by November 13

 

Source: Management figures, revolving non IFI loans from NBG are excluded

19) NPL Build Up (in GEL millions)

NPLs

NPLs as of Jun-18

Real Growth

FX Effect

Write-Offs

Repossessed

NPLs as of Sep-18

Retail

120

49

4

(37)

(2)

134

Corporate

72

-

5

-

-

77

MSME

85

9

4

(5)

(1)

92

Total

277

58

12

(41)

(3)

303

 

 

20) Net Write-Offs, 3Q 2018

 

 

 

 In GEL millions

Write-Offs

Recoveries

Net Write-Offs

Retail

(31)

5

(26)

Corporate

-

1

1

MSME

(4)

6

2

Total

(35)

12

(23)

Source: IFRS Consolidated

 

 

21) Portfolio Breakdown by Collateral Types as of 30-Sep-18

Cash Cover

2%

Gold

3%

Inventory

9%

Real Estate

65%

Third Party Guarantees

6%

Other

2%

Unsecured

13%

Source: IFRS Consolidated

 

 

22) Loan to Value by Segments as of 30-Sep-18

 

 

 

 

Retail

Corporate

MSME

Total

47%

46%

44%

46%

Mortgage loan's LTV stood at 47%

 

 

           

 

23) TBC Insurance

TBC Insurance is a wholly owned subsidiary of the Company and the Bank's main bancassurance partner. The Group acquired it in October 2016 and it has been growing rapidly since then. TBC Insurance's product offering comprises motor, travel, personal accident, credit life and property, business property, liability, and cargo insurance products which are sold through a broad range of channels, including insurance agents, auto dealerships, web platforms, as well as TBC Bank's market-leading multichannel network.

 

In line with the Group's digitalisation strategy, TBC Insurance actively uses digital channels to market and sell its products. In 2017, TBC Insurance launched on the local market the first insurance chat bot, B Bot, which sells different types of insurance products. B Bot is fun to use and is quickly gaining popularity among clients, especially the younger generation. Another popular sales channel is the wide network of TBC Bank's self-service terminals, where customers can buy travel, casualty and collision (CASCO), and motor third-party liability (MTPL) insurance in a very short time. In addition, travel insurance can be purchased through TBC Bank's internet and mobile banking services; more products are planned to be added to this channel in 2018, including payment protection insurance (PPI), CASCO and MTPL.

 

The insurance business delivered outstanding financial results. Starting from 2018, TBC Insurance is the number two player on P&C insurance market and the largest player in the retail segment, with market shares[17] of 18.1% and 30% respectively as of Q3 2018, based on internal estimates. In Q3 2018, number of customers increased by 25% YoY and remained broadly stable QoQ due to increased focused on cross-selling. In third quarter, TBC insurance posted GEL 15,833 thousand in gross written premium, up by 84.4% YoY and net earned premium reached GEL 9,841 thousand, up by 112.9% in respective period. In addition, net combined ratio decreased to 79% in 3Q 2018 from 92% of the same period in 2017. As a result, net profit amounted to GEL 2,243 thousand in 3Q 2018 compared to GEL 885 thousand in 3Q 2017.

 

In thousands of GEL

3Q'18

2Q'18

1Q'18

4Q'17

3Q'17

Gross written premium

15,833

14,677

12,494

12,153

8,584

Net earned premium[18]

9,841

8,804

6,458

5,881

4,622

Net profit

2,243

1,497

1,260

601

885

 

3Q'18

2Q'18

1Q'18

4Q'17

3Q'17

Net combined ratio

79%

81%

76%

93%

92%

 

 

Sep-2018

      Jun-2018

      Mar-2018

Dec-2017

Sep-2017

Market share

18.1%

17.9%

19.0%

13.3%

10.9%

Number of clients

299,238

296,341

295,607

276,848

239,472

 

 

24) Regulatory Capital

Total Capital and Tier 1 Capital Limits

 

Q3 2018 Actual

2018  F

2019 F

2020 F

2021 F

 

Tier 1

Total

Tier 1

Total

Tier 1

Total

Tier 1

Total

Tier 1

Total

Minimum Requirement

6.0%

8.0%

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%

2.5%

2.5%

Counter-Cyclical Buffer

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Systemic Buffer

0.0%

0.0%

1.0%

1.0%

1.5%

1.5%

2.0%

2.0%

2.5%

2.5%

Pillar 1 buffers

8.5%

10.5%

9.5%

11.5%

10.0%

12.0%

10.5%

12.5%

11.0%

13.0%

In addition, the Pillar 2 buffers in tier 1 will be in the range of 1.5%-2.5% in 2018 and gradually increase to the range of 2.5%-4.0% by 2021. The Pillar 2 buffers in total capital will be in the range of 3.0%-5.0% from 2018 to 2021

 


25) Space - fully digital bank

Date

# of app. downloads

# of registered customers

30-May-2018

69,510

38,598

30-Jun-2018

99,646

47,657

30-Jul-2018

128,205

55,699

30-Aug-2018

155,267

63,435

30-Sep-2018

186,044

72,447

 

26) International strategy: expansion into Azerbaijan market

Timeline

Before September  

USD 45 mln was injected in capital by Nikoil shareholder in order to recapitalize the bank

September 

Team formation

October    

Strategy developed, shared and approved

November  

Completion of confirmatory due diligence

Next Steps

Obtain regulatory approval for the merger, which might take up to 3 months

 

 

Strengthening Management Team

 

Existing management team of the joint entity

CEO  

Nikoloz Shurghaia

First Deputy CEO, Head of MSME 

Hajinski Farhad Ismailbey

Deputy CEO, Head of Retail            

Tagiyev Fuad Rauf

 

 

 

New management team of the joint entity

COO   

Nukri Tetrashvili, former CEO at TBC Kredit 

CDO  

Senior Digital Manager with a solid track record at large Georgian bank

CRO   

David Tediashvili, former Head of Retail Credit Risk Department at TBC Bank

CFO   

Emil Dushdurov, former Associate Director, Deal Advisory at KPMG Azerbaijan

 

 

 

 

 

 

Three year vision

 

 

 In USD millions

3Q results of Nikoil Bank*

Mid-term targets of joint entity

Loan Portfolio

c. 240

c. 1,400

Equity

c. 36

c. 200

ROE

NMF

20%+

*Based on management accounts

 

 

 

•    Core segments: Retail and MSME (not large SMEs and Corporates)

•   Product offerings: A hybrid of Nikoil Bank and TBC Bank products adapted to the local needs and offered primarily through digital channels, including Space Bank

•    Until call option is exercised, TBC Bank's shareholding in joint entity will be up to 10%

•    Our additional estimated investment during next three years will be consistent with our 10% shareholding and  is estimated to be around USD 3-5 mln for each  year

•    Call option can be exercised within the three year period after the merger based on the fixed price formula to reach 50%+1 shareholding

•    TBC Bank will contribute to the development and execution of the merged entity's strategy and intends to use its Georgian banking sector expertise to support Nikoil Bank's local growth in its targeted retail and MSME customer markets

 

 

 

27) International strategy: digital greenfield bank in Uzbekistan

This is a concept and initial aspirations at this stage and is subject to approvals (including approvals from the authorities), therefore it could change as we progress

Why Uzbekistan?

•     Large underpenetrated market:

•     with more than 32 million population

•     below 5% retail and MSME loan to GDP[19]

•     Similar past during USSR and good cultural links

•     Right time given implementation of reforms, many of which were designed by former Georgian government officials

•     Welcoming environment

•     Both Uzbekistan and Georgia are included into China's One Belt One Road initiative

 

Timeline

October 2018          -

Official meetings held and our interest confirmed to the Central Bank

1-3 months              -

Confirmation period from the government and central bank

1-3 months              -

Pre-licensing process  takes 1-3 months from submission of  pre-license application

1-6 months              -

Final license process takes 1-6 months from obtaining  pre-license

Our strategy

•     Build a next generation bank for retail and MSME

•     Focus on alternative channels including Space, a fully-digital bank

•     Operate asset light, high-tech branches

Main highlights

•     Initial investments from TBC Bank around USD 20-30 mln, resulting in 51% shareholding

•     Other investors will include IFIs (EBRD and IFC have expressed  interest) and local shareholder

•     All further investments will be subject to achievement of certain KPIs

•     Medium to long-term financial targets after license is granted:

•     Contribute 20% + TBC Bank Group PLC's assets and/or income

•     Achieve sustainable ROE up to 25%

 

28) Nikoil Bank Financials

Profit & Loss Statement

In thousands of USD 

3Q'18

2Q'18

3Q'17

Interest income 

3,706

3,410

4,041

Interest expense

(2,150)

(2,491)

(2,799)

Net interest income

1,556

919

1,242

Fee and commission income

738

694

641

Fee and commission expense

(285)

(270)

(166)

Net Fee and Commission Income

453

424

475

Net income from foreign currency operations

234

483

172

Net gain/(losses) from foreign exchange translation

104

64

86

Other operating non-interest income

338

547

258

Credit loss allowance of loans

(20,447)

(27,537)

1,014

Credit loss allowance of other financial assets

(121)

367

(609)

Operating income after credit loss allowance

(18,221)

(25,280)

2,380

Staff costs

(1,425)

(1,373)

(1,236)

Depreciation and amortisation

(316)

(342)

(488)

Administrative and other operating expenses

(1,161)

(934)

(1,080)

Operating expenses

(2,902)

(2,649)

(2,804)

Profit before tax

(21,123)

(27,929)

(424)

Income tax expense

-

-

-

Profit for the period

(21,123)

(27,929)

(424)

 

 

Balance Sheet

In thousands of USD

30-Sep-18

30-Jun-18

30-Sep-17

Cash and cash equivalents

35,099

41,206

46,431

Due from other banks

21,190

26,676

7,372

Net Loans

129,544

147,444

156,722

Investment securities measured at fair value through other comprehensive income

26,371

21,208

8,481

Current income tax prepayment

2

23

311

Deferred income tax asset

768

768

768

Other financial assets

13,533

12,386

9,419

Other assets

396

398

1,495

Premises and equipment (Net)

5,576

5,571

6,356

Intangible assets (Net)

1,991

2,066

2,151

TOTAL ASSETS

234,470

257,746

239,506

Due to other banks

23,152

21,944

23,711

Customer Accounts

127,591

152,704

135,593

Other borrowed funds

38,876

37,173

34,494

Other financial liabilities

4,125

4,075

3,865

Subordinated debt

5,000

15,000

19,679

TOTAL LIABILITIES

198,744

230,896

217,342

Share capital

174,118

144,118

108,529

Additional paid-in-capital

500

500

500

Retained earnings

(138,891)

(117,768)

(86,865)

TOTAL EQUITY

35,727

26,850

22,164

TOTAL LIABILITIES AND EQUITY

234,470

257,746

239,506

 

[1] 30 September 2017 ratios are calculated per IAS 39

[2] 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

[3] The number of transactions conducted in remote channels divided by total number of transactions.

[4] For products being offered though remote channels.

[5] As per initial estimates of Geostat.

[6] Source: Insurance State Supervision Service of Georgia.

[7]  Source: CBU and commercial banks

 

[8] Latest available information

[9] Doing Business 2019 report 

[10] Excluding exchange rate effect

[11] Growth in USD terms

[12] Gross insurance profit can be reconciled to the standalone net insurance profit (as shown in annex 23 on page 47) as follows: gross insurance profit  less credit loss allowance, administrative expenses and taxes, plus fee and commission income and net interest income

[13] Incurred but not reported

[14] Gross insurance profit can be reconciled to the standalone net insurance profit as follows (as shown in annex 23 on page 47): gross insurance profit  less credit loss allowance, administrative expenses and taxes, plus  fee and commission income net interest income

[15] TBC Bank Group PLC became the parent company of JSC TBC Bank on 10 August 2016.

[16] Cross-sell ratio is defined as the number of active products divided by the number of active customers.

[17] Source: Insurance State Supervision Service of Georgia

[18] Net earned premium equals earned premium minus reinsurer's share of earned premium

[19] Source: CBU and commercial banks


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
QRTDMMMMKKDGRZG
UK 100

Latest directors dealings