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TBC Bank Group PLC (TBCG)

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Tuesday 18 August, 2020

TBC Bank Group PLC

Half-year Report

RNS Number : 3808W
TBC Bank Group PLC
18 August 2020
 

 

Click on, or paste the following link into your web browser, to view the full announcement in a PDF friendly version.

http://www.rns-pdf.londonstockexchange.com/rns/3808W_1-2020-8-17.pdf

 

 

 

TBC BANK GROUP PLC ("TBC Bank")

2Q AND 1H 2020 UNAUDITED CONSOLIDATED FINANCIAL RESULTS
 

Forward-Looking Statements

 

This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or the "Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others, the achievement of anticipated levels of profitability, growth, cost and recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Georgian economic, the impact of COVID-19, the political and legal environment, financial risk management and the impact of general business and global economic conditions.

 

None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects are based are accurate or exhaustive or, in the case of the assumptions, entirely covered in the document. These forward-looking statements speak only as of the date they are made, and subject to compliance with applicable law and regulation the Bank expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in the document to reflect actual results, changes in assumptions or changes in factors affecting those statements.

 

Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management's accounts and financial statements. The areas in which the management's accounts might differ from the International Financial Reporting Standards and/or U.S. generally accepted accounting principles could be significant; you should consult your own professional advisors and/or conduct your own due diligence for a complete and detailed understanding of such differences and any implications they might have on the relevant financial information contained in this presentation. Some numerical figures included in this report have been subjected to rounding adjustments. Accordingly, the numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.

 

 

Second Quarter and First Half of 2020 Unaudited Consolidated Financial Results Conference Call

 

TBC Bank Group PLC ("TBC PLC") publishes its unaudited consolidated financial results for the second quarter and half year of 2020 on Tuesday, 18 August 2020 at 7.00 am BST (10.00 am GET), while the results call will be held at 14.00 (BST) / 15.00 (CEST) / 9.00 (EST).

 

Please click the link below to join the webinar:

https://tbc.zoom.us/j/92746432667?pwd=bUs5SnRxeWp3Q3Y2V3NwMElZUmVIUT09

 

Webinar ID: 927 4643 2667

Password: 424396

Or use the following dial-ins:

Georgia: +995 7067 77954  or +995 3224 73988  or 800 100 293 (Toll Free)

Russian Federation: 8800 301 7427 (Toll Free) or 8800 100 6938 (Toll Free)

United Kingdom: 0 800 260 5801 (Toll Free) or 0 800 358 2817 (Toll Free) or 0 800 031 5717 (Toll Free)

US: 833 548 0282 (Toll Free) or 877 853 5257 (Toll Free) or 888 475 4499 (Toll Free) or 833 548 0276 (Toll Free)

Webinar ID: 927 4643 2667#, please dial the ID number slowly

Other international numbers available at: https://tbc.zoom.us/u/afRUs7Io5

The call will be held in two parts. The first part will be comprised of presentations and during the second part of the call, you will have the opportunity to ask questions.  All participants will be muted throughout the webinar.

 

Webinar Instructions:

For those participants who will be joining through the webinar, in order to ask questions, please use the "hand icon" that you will see at the bottom of the screen. The host will unmute those participants who have raised hands one after another. After the question is asked, the participant will be muted again. 

 

Call Instructions

For those participants who will be using the dial in number to join the webinar, please dial *9 to raise your hand.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contacts

 

 

Zoltan Szalai

Director of International Media and Investor Relations 

 

E-mail: [email protected] 

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: [email protected] 

Tel:  +(995 32) 227 27 27

Web: www.tbcbankgroup.com

Address: 7 Marjanishvili St. Tbilisi, Georgia 0102

Investor Relations Department

 

 

 

E-mail: [email protected] 

Tel:  +(995 32) 227 27 27

Web: www.tbcbankgroup.com

Address: 7 Marjanishvili St. Tbilisi, Georgia 0102

 

 

 

 

 

Table of Contents

 

2Q AND 1H 2020 Results Announcement

 

TBC Bank - Background

Financial Highlights

Letter from the Chief Executive Officer

Supporting stakeholders

Economic Overview

Unaudited Consolidated Financial Results Overview for 2Q 2020

Unaudited Consolidated Financial Results Overview for 1H 2020

Additional Disclosures

1)Subsidiaries of TBC Bank Group PLC

2)Our Ecosystems

3)Net gains from currency swaps

4)TBC Insurance

6) Main terms of shareholders' agreement with Yelo Bank

7) Loan book breakdown by stages according IFRS 9

Material Existing and Emerging Risks

Statement of Directors' Responsibilities

Unaudited Condensed Consolidated Interim Financial Statements

 

 

 

TBC Bank Group PLC ("TBC Bank")

 

TBC Bank Announces Unaudited 2Q and 1H 2020 Consolidated Financial Results

 

 European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.

 

The information in this announcement, which was approved by the Board of Directors on 17 August 2020, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019, which contained an unmodified audit report under Section 495 of the Companies Act 2006 (which did not make any statements under Section 498 of the Companies Act 2006) have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

 

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.6% of its business is concentrated, with a 38.5% market share by total assets. It offers retail, corporate, and MSME banking nationwide.

These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.

TBC Bank Group PLC's financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS.

Please note that there is an important update set out in paragraph 9 of the Material Existing and Emerging Risks section on page 49.

 

Changes in accounting policies, IAS 16

In 2Q 2020, the accounting policy in relation to subsequent measurement of land, buildings and construction in progress was changed from the revaluation model to the cost model. This led to the restatement of appropriate balance sheet amounts in 1Q 2020 and 2019, while no material impact was recorded in the income statement. 

Financial Highlights

In the first half 2020, our financial results were affected by the following non-recurring charges related to the COVID-19 pandemic:

· a net modification loss of financial instruments, in the amount of GEL 34.2 million (out of which GEL 30.6 million was accounted for in the first quarter and GEL 3.5 million in the second quarter) to reflect the decrease in the present value of cash-flows resulting from the loan repayment grace periods granted to borrowers; and

· an extra credit loss allowance booked in the first quarter, in the amount of GEL 215.7 million (or GEL 210.9 million for loans), to prepare for the potential impact of the COVID-19 pandemic on our borrowers. In the second quarter, we also created additional GEL 9.0 million COVID-19 related credit loss allowances for loans in our Azeri subsidiary, TBC Kredit. These charges resulted in additional COVID-19 related, not annulized  cost of risk in the amount of 1.7% in 2Q and 1H 2020.

· Without the above mentioned COVID-19 related charges, ROE and ROA amounted to 19.6% and 2.8% respectively in 2Q 2020, while in 1H 2020, ROE and ROA stood at 21.2% and 3.0% respectively.

 

The financial performance measures presented in this report show our reported figures only, while the impact of the above mentioned COVID-19 related, non-recurring charges is discussed in our 2Q financial results presentation available at our Investor Relations website at www.tbcbankgroup.com under the Results Announcement section.

 

 

 

 

 

2Q 2020 P&L Highlights 

Profit for the period amounted to GEL 126.2 million (2Q 2019: GEL 120.2 million)

Return on average equity (ROE) stood at 19.5% (2Q 2019: 21.1%[1])

Return on average assets (ROA) stood at 2.6% (2Q 2019: 3.0%1)

Cost to income of TBC Bank Group PLC stood at 38.5% (2Q 2019: 40.2%)

Standalone cost to income ratio of the Bank[2] was 32.3% (2Q 2019: 35.2%)

Cost of risk stood at 0.0%[3] (2Q 2019: 1.1%)

Net interest margin (NIM) stood at 4.3% (2Q 2019: 5.8%)

1H 2020 P&L Highlights 

Profit for the period amounted to GEL 69.2 million (1H 2019: GEL 253.5 million)

Return on average equity (ROE) stood at 5.2% (1H 2019: 22.8%[4])

Return on average assets (ROA) stood at 0.7% (1H 2019: 3.3%4)

Cost to income of TBC Bank Group PLC stood at 37.4% (1H 2019: 38.9%)

Standalone cost to income ratio of the Bank2 was 31.9% (1H 2019: 35.7%)

Cost of risk stood at 2.1%[5] (1H 2019: 1.3%)

Net interest margin (NIM) stood at 4.7% (1H 2019: 6.0%)

Balance Sheet Highlights as of 30 June 2020

Total assets amounted to GEL 19,813.4 million, up by 15.0% YoY

Gross loans and advances to customers stood at GEL 13,635.4 million, up by 22.4% YoY or at 18.1% on a constant currency basis

Net loans to deposits + IFI[6] funding stood at 105.3%, up by 13.9 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR), effective from 30 September 2019, stood at 127.5%

NPLs were 2.9%, down by 0.2 pp YoY

NPLs coverage ratios stood at 134.7%, or 246.7% with collateral, on 30 June 2020 compared to 97.9% or 206.0% with collateral, as of 30 June 2019

Total customer deposits amounted to GEL 10,420.3 million, up by 5.5% YoY or at 1.4% on constant currency basis

The Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 10.0% 12.7% and 17.2% respectively, while minimum eased regulatory requirements amounted to of 6.9%, 8.7%, and 13.3%, respectively.

Market Shares as of June 2020[7]

Market share by total assets reached 38.5%, down by 0.6 pp YoY

Market share by total loans was 39.5%, up by 1.0 pp YoY

Market share of total deposits reached 37.1%, down  by 3.9 pp YoY

2Q 2020 operating highlights

The number of affluent customers reached 91.0 thousand as of 30 June 2020, up by 173% YoY

96% of all transactions were conducted through digital channels (2Q 2019: 93%)

The penetration ratio for internet or mobile banking[8] stood at 48% for 2Q 2020 (2Q 2019: 44%)

The penetration ratio for mobile banking[9] stood at 45% for 2Q 2020 (2Q 2019: 39%)

 

Income Statement Highlights

 

 

 

 

 

 

in thousands of GEL

2Q'20

2Q'19

Change YoY

  1H'20

1H'19

Change

YoY

 

Net interest income

184,365

197,448

-6.6%

392,324

398,586

-1.6%

 

Net fee and commission income

39,517

43,534

-9.2%

83,069

85,341

-2.7%

 

Other operating non-interest income[10]

26,161

31,320

-16.5%

64,905

60,321

7.6%

 

Credit loss allowance

(11,314)

(33,372)

-66.1%

(259,051)

(66,467)

NMF

 

Operating income after credit loss allowance

238,729

238,930

-0.1%

281,247

477,781

-41.1%

 

Losses from modifications of financial instrument

(3,527)

-

NMF

(34,170)

-

NMF

 

Operating expenses

(96,331)

(109,383)

-11.9%

(202,160)

(211,897)

-4.6%

 

Profit before tax

138,871

129,547

7.2%

44,917

265,884

-83.1%

 

Income tax expense

(12,665)

(9,329)

35.8%

24,283

(12,344)

NMF

 

Profit for the period

126,206

120,218

5.0%

69,200

253,540

-72.7%

 

                     

 

 

Balance Sheet and Capital Highlights

Jun-20

Jun-19

Change

YoY

in thousands of GEL

 

 

 

Total Assets

19,813,429

17,227,131*

15.0%

Gross Loans

13,635,392

11,141,360

22.4%

Customer Deposits

10,420,330

9,876,813

5.5%

Total Equity

2,653,405

2,320,217*

14.4%

Regulatory Common Equity Tier I Capital (Basel III)

1,631,006

  1,678,050

-2.8%

Regulatory Tier I Capital (Basel III)

2,068,052

1,730,302

19.5%

Regulatory Total Capital (Basel III)

2,787,136

2,430,135

14.7%

Regulatory Risk Weighted Assets (Basel III)

16,249,475

13,986,201

16.2%

     

* Certain amounts do not correspond to the 2019 consolidated financial statement as they reflect the change in accounting policy for PPE from revaluation model to cost method in 2Q 2020.

 

 

 

 

 

 

 

Key Ratios

2Q'20

2Q'19

Change

YoY

1H'20

1H'19

Change YoY

ROE

19.5%

21.1%*

-1.6 pp

5.2%

22.8%*

-17.6 pp

ROA

2.6%

3.0%*

-0.4 pp

0.7%

3.3%*

-2.6 pp

NIM

4.3%

5.8%

-1.5 pp

4.7%

6.0%

-1.3 pp

Cost to income

38.5%

40.2%

-1.7 pp

37.4%

38.9%

-1.5 pp

Standalone cost to income of the Bank[11]

32.3%

35.2%

-2.9 pp

31.9%

35.7%

-3.8 pp

Cost of risk

0.0%**

1.1%

-1.1 pp

2.1%***

1.3%

0.8 pp

NPL to gross loans

2.9%

3.1%

-0.2 pp

2.9%

3.1%

-0.2 pp

NPLs coverage ratio exc. collateral

134.7%

97.9%

36.8 pp

134.7%

97.9%

36.8 pp

CET 1 CAR (Basel III)

10.0%

12.0%

-2.0 pp

10.0%

12.0%

-2.0 pp

Regulatory Tier 1 CAR (Basel III)

12.7%

12.4%

0.3 pp

12.7%

12.4%

0.3 pp

Regulatory Total CAR (Basel III)

17.2%

17.4%

-0.2 pp

17.2%

17.4%

-0.2 pp

Leverage (Times)

7.5x

7.4x****

0.1x

7.5x

7.4x****

0.1x

        

* Prior to change in PPE accounting policy from revaluation model to cost method, ROE stood at 20.7% and 22.3% for 2Q 2019 and 1H 2019, respectively, while ROA remained unchanged for both periods

** Ratio includes COVID-19 related TBC Kredit credit loss allowances for loans, in the amount of GEL 9.0 million, which given its non-recurring nature was not annualized

***Ratio includes COVID-19 related credit loss allowances for loans, in the amount of GEL 219.9 million, which given its non-recurring nature was not annualized

**** Prior to change in PPE accounting policy from revaluation model to cost method, Leverage stood at 7.3x for 2Q 2019 and 1H 2019

 

Letter from the Chief Executive Officer 

 

I would like to present our financial and operating results for the second quarter and first half of 2020 and update you on recent economic developments in the country.  I am pleased to say that the Georgian economy has started its recovery from the negative impacts of the pandemic and the performance of the group in the second quarter also fills me with confidence.

 

Georgia continues to manage the COVID-19 crisis effectively. The number of new cases remains very low and Georgia has been recognized by the EU as one of 13 epidemiologically safe countries outside the EU. International flights are expected to resume gradually starting from August, though a substantial recovery in tourism inflows is expected only in 2021. At the same time, remittances increased by 17.8% in June and exports have demonstrated much stronger dynamics than expected. The recovery in the domestic demand also appears strong, judging from the June imports rebound and rapid macro and sector indicators such as the increase in consumer spending and remittances[12]. Based on initial estimates, GDP declined by 7.7% in June, while it dropped by 16.6% and 13.5% in April and May, respectively. For the full year 2020, we maintain our earlier projection of around a 4.5-5.5% contraction of the economy and expect it to mostly recover to pre-crises levels in 2021. 

Government policies play an important role in mitigating the impact of the crisis. An updated state budget was approved in June with the 2020 deficit planned at 8.5%, mostly financed by additional external borrowings of about USD 1.6 billion. These additional funding would be sufficient even in case the performance of the economy is worse than assumed in the baseline scenario, part of which would be allocated to create a fiscal buffer of around 5% of GDP.Together with the fiscal stimulus, the monetary and the financial sector supervision policies have also been supportive. The NBG has continued to intervene to stabilize the currency rate during the pandemic. In addition, the NBG gradually cut the monetary policy rate to support GEL lending, while keeping a close eye on the inflation rate in the light of current uncertainties. The confidence in the banking system, as well as increasing capital and liquidity levels, continue to support the recovery.

Resilient financial performance

In the first half 2020, our financial results were affected by the following non-recurring charges related to the COVID-19 pandemic:

· a net modification loss of financial instruments, in the amount of GEL 34.2 million (out of which GEL 30.6 million[13] was accounted for in the first quarter and GEL 3.5 million[14] in the second quarter) to reflect the decrease in the present value of cash-flows resulting from the loan repayment grace periods granted to borrowers; and

· an extra credit loss allowance booked in the first quarter, in the amount of GEL 215.7 million (or GEL 210.9 million for loans), to prepare for the potential impact of the COVID-19 pandemic on our borrowers. In the second quarter, we also created additional GEL 9.0 million COVID- 19 related credit loss allowance in our Azeri subsidiary, TBC Kredit.

Consequently, in the first half 2020, our consolidated net profit stood at GEL 69.2 million. Over the same period, return on equity stood at 5.2% and return on assets stood at 0.7%.

In the second quarter 2020, our consolidated net profit amounted to GEL 126.2 million, up by 5% year-on-year. The growth in net profit was driven by recoveries in credit loss allowances and a reduction in operating expenses, which offset the reduction in operating income resulting from the slowdown in business activities due to the pandemic. Over the same period, we experienced pressure on our net interest margin, which decreased by 0.8pp quarter-on-quarter and stood at 4.3%, mainly due to high liquidity and respective pressure on GEL funding, a decrease in Libor and Fed rates, as well as an increase in the average GEL exchange rate QoQ.

 

On the positive side, in the second quarter 2020, our cost of risk stood at 0.0%[15] and our cost-to-income ratio amounted to 38.5%, down by 1.7 pp year-on-year due to our increased focus on cost efficiency. Also, the Bank's standalone cost-to-income ratio[16] stood at 32.3% in the second quarter 2020, down by 2.9 pp year-on-year.  As a result, our return on equity stood at 19.5% and return on assets stood at 2.6% over the same period. 

 

In constant currency terms, our loan book remained broadly stable on a quarter-on-quarter basis, growing by 1.9%, while our deposits decreased by 2.6%. As a result, our market share in total loans and total deposits stood at 39.5% and 37.1% respectively as of 30 June 2020.

 

Our liquidity and capital positions remain strong. As of 30 June 2020, our net stable funding (NSFR) and liquidity coverage ratios (LCR) stood at 128% and 125% respectively. As expected, in the second quarter, we started to generate significant buffers for our capital and our CET1, Tier 1 and total capital ratios increased by 0.5%, 0.8% and 0.9% respectively and stood at 10.0%, 12.7% and 17.2% correspondingly, comfortably above the minimum requirements.

Operating performance and recent developments

Our market leading internet and mobile banking services have proved crucial during the pandemic, allowing our customers to conduct most of their transactions remotely.  As a result, the number of internet or mobile banking users increased by 13% YoY and reached 633,000[17], leading to a 48% penetration level.

In terms of our strategic progress, I am delighted to inform you that on 29 June 2020, we launched our banking operation in Uzbekistan, initially in a pilot mode for "friends and family", and plan to extend our services to the broader population in fall 2020. In line with our asset-light and highly digitalized strategy, we will be serving our customers mainly through our online platform, Space, while our smart, next generation branches will be used primarily for client relationship purposes.  The first pilot branch has already opened.

I am also delighted to inform you that as a testimony to our commitment towards the highest standards of corporate social responsibility, TBC Bank became a member of the FTSE4Good Index Series[18] in June 2020. In addition, TBC Bank has been also rated as low risk in terms of its ESG performance by Sustainalytics[19] based on its most recent review on 4th March 2020.

Furthermore, I would like to inform you about changes in our management board and Board of Directors. Giorgi Shagidze, deputy CEO and CFO and member of the Board of Directors, intends to leave the group at the end of 2020 to explore other opportunities in a different field and/or geography. He will continue to perform his duties until the year-end in order to ensure a smooth transition to his successor. I would like to thank Giorgi for his crucial contribution towards bringing the group to the next level over the past 10 years and wish him success in his future endeavors. I would also like to welcome our new Independent Non-Executive Director, Abhijit Akerkar.  Mr Akerkar is an influential thought leader in Artificial Intelligence in banking and has 25 years of cross-disciplinary global experience operating at a strategic level at the forefront of technology with Lloyds Banking Group, McKinsey and Company, and HCL Technologies.

The board also intends to add one more independent non-executive director by the year-end and has commenced a search process to identify suitable candidates. The board intends to use this opportunity to further support diversity at the board level.

 

Finally, the bank was informed by the founders that they are taking steps to transfer their shares into a blind trust and expect this process to be completed before the year-end.

 

Outlook

Given the uncertainties associated with the COVID-19 pandemic, our focus in the short-term will be maintaining prudent capital and liquidity positions and, proactively managing asset quality and cost optimization.  At the same time, we will concentrate our efforts on supporting existing customers to withstand the negative impacts of COVID-19 rather than the acquisition of new clients.

 

In the medium term (3 to 5 years), we remain committed to our guidance: ROE of above 20%, a cost to income ratio below 35%, a dividend payout ratio of 25-35% and loan book growth of around 10-15%. 

I would like to finish my letter by expressing a deep appreciation to every single employee of the TBC Group for carrying on with their duties with professionalism and outstanding commitment during these challenging times.

 

 

Supporting stakeholders

Our stakeholders

TBC responded promptly to the spread of COVID-19 in its early stages by developing an anti-crisis plan for both employees and customers as well as extending its support to the community at large, while ensuring the financial stability of the Group, as discussed in the CEO letter.

 

Supporting our colleagues

First of all, for our front-offices staff, we have introduced appropriate social distancing and infection prevention measures

 

We also managed to change our operating model swiftly and started to move our back-office employees to remote working practices from mid-March. Already by the end of April, 95% of our back office-employees were working remotely.  This turned out to be very effective, leading to increase in efficiency levels, creativity and employee happiness. We intend to extend this flexible working arrangement post pandemic whereby the majority of our staff can choose remote working.

 

We feel a responsibility towards the well-being of each of our 7,800 employees and therefore we have made a decision not to make any redundancies during this year. However, in order to keep our costs under control, senior management decided to forgo their entire bonuses for 2020 and LTIP grants for the 2020 cycle and also to reduce the bonuses of middle and back-office managers by 50% and 30%, respectively. 

 

Supporting our customers

We have promptly mobilized all our efforts to provide full support to our customers and help them recover from the negative impacts of the COVID-19 pandemic. In this regard, with close cooperation with the National Bank of Georgia and the government, we have implemented the following initiatives:

 

· In March, we introduced a three-month grace period on principal and interest payments for individual and MSME customers as well as those corporate customers who are most affected by the current situation. The take-up rate per segments was as follows: 32%-corporate, 59%-MSME and 77%-retail;

· In addition, starting from June 10th, we extended the grace period for a further three months to our most vulnerable retail and micro customers, based on specific qualification criteria. The take-up rate per segments was as follows: 5%-corporate, 24%-MSME and 29%-retail;

· Since April, we have been actively participating in the government's support programme for MSME hotels, which envisages subsidies for 70-80% of interest on loans issued before 1st March 2020 for 6 months, based on certain criteria.  In May, this programme was extended to large hotels as well. By the end of July, we have already received subsidies for around 265 loans, with a total outstanding loan amount of GEL 44 million.

· Since second half of July, the Bank is also participating in the government loan guarantee programme, which envisages supporting certain businesses, which do not have sufficient collateral for a loan or do not meet some other underwriting criteria.  Under this programme, the government will guarantee the repayment of 90% of the principal amount in case of a new loan, and 30% in case of a restructured loan. A total of GEL 300 million has been allocated by the government to this programme; according to our estimates, 34% of this amount could be utilized by TBC Bank. By the end of July, we have received guarantees for 8 loans, with a total amount of GEL 6 million.

· From beginning of July, we started issuing loans under government support programmes for developers allowing customers to get a 4% interest subsidy or receive a 20% guarantee (in case of minimum 10% participation from the borrower side) for purchasing new apartments under GEL 200,000 for a duration of 5 years. By the end of July, we have disbursed around 283 such loans with a total amount of GEL 27 million.

 

Furthermore, we have provided additional incentives to our customers to use our market-leading digital banking platform, such as a temporary waiver of fees on money transfers and utilities payments in internet and mobile banking.

 

 

 

 

 

 

 

 

 

 

 

 

Supporting our communities

In order to support the Georgian population and reduce the damage caused by COVID-19, we have launched a special programme called  #TBCforyou.  Within the scope of this programme, we have undertaken several projects, including the following:

 

· More than 1,000 elderly people living in the capital and regions received food, medicine and other safety items;

· TBC has purchased 10,000 COVID-19 rapid tests and handed them over to the Ministry of Health;

· TBC has purchased laptops for 161 socially vulnerable students at six universities as well as for 100 socially vulnerable senior-grade students residing in different regions of Georgia. TBC will also cover their monthly internet fee until the end of the school year;

· TBC and VISA have launched a new initiative for companies called "Create your own online store", which helps companies to create their online store in a short period of time;

· A special platform was launched to allow people to support their favorite Georgian company by transferring money in return for a voucher, which they would be able to redeem once the business could operate normally.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Overview

Economic growth

Real GDP increased by 2.2% in the first quarter of 2020, already reflecting the economic damage caused by the spread of COVID-19 globally, though maintaining the positive dynamics carried over from the strong growth in 2019 (5.1% YoY). Thereafter, as strict mobility restrictions were introduced, the economy contracted by 16.6% in April, 13.5% in May and 7.7% in June. Accordingly, the Georgian economy dropped by 5.8% in the first half months of 2020 YoY. All sectors of the economy registered declines as the economy continued to operate under the strict mobility restrictions during for most of May. The smaller decrease in GDP in June compared to the previous two months is attributable to the removal of most of the restrictions starting from the end of May. As most of the sectors have been allowed to reopen in June, the annual GDP decline should continue to moderate going forward. According to TBC Capital estimates, in the baseline scenario the GDP drop is expected to be 4.5-5.5% before recovering by 4.0-5.0% in 2021. So far, the actual numbers remain broadly consistent with TBC Capital projections.

External sector

The tourism industry has been hit the hardest as tourism inflows went down by an estimated 96.7% YoY in 2Q 2020, following a 26.1% drop in 1Q 2020. Regular flights remain halted and will only gradually start to recover in August. Epidemiological developments in neighboring countries, which make up almost half of the total tourism revenues, also remain challenging. Much of 2020 is likely to be lost for the tourism industry, with domestic tourism compensating for only a fraction of the loss. On the other hand, Georgia maintains an image of being a safe destination as the spread of COVID-19 is at very low levels. This, together with its proven potential as an attractive tourism destination, should help the country to regain its position relatively quickly once the virus is contained.

The spread of COVID-19 and related restrictions have translated into a sharp adjustment of external trade in 2Q 2020, with exports of goods down by 24.8% YoY and imports by 32.8% YoY. The decline of exports moderated to 14.0% YoY in June from a 31.3% YoY decline in May 2020. The fall in imports also softened to 17.2% YoY (-36.8% YoY in May). Despite a continued improvement in the balance of trade in goods, the rate of improvement is starting to worsen as the recovery of domestic demand is quite strong. At the same time, stronger than expected performance in the remittance inflows is observed. Specifically, remittance inflows fell by 10.9% YoY in 2Q 2020, reflecting limited economic activity in most remitting countries. However, a recovery within the quarter was apparent as it moved from a low point of -42.3% YoY in April 2020 to strong growth of 17.6% in June 2020, though some of the recovery in digital transfers could be due to the restrictions of physical travel. 

FDI inflows in Georgia shrank by -41.7% YoY to USD 165.4 million in 1Q 2020, with the decline attributable to uncertainties related to COVID-19 along with one-off factors such as the completion of a BP pipeline project and transferring company ownerships from non-resident to resident units. The reinvestment of earnings made up slightly more than 80% of total FDI inflows, while debt and equity inflows shrank dramatically compared to the same period in the previous year.

The current account balance to GDP ratio stood at -11.0% in 1Q 2020, down 4.1 PP YoY. The widening CA deficit mostly reflects the worsened trade balance in goods (from -20.8% of GDP to -23.4% of GDP) as well as a lower surplus in services trade (from 9.7% of GDP to 6.6% of GDP), mostly on the back of declined tourism inflows. Current transfers somewhat improved, while the income account widened moderately. On the financing side, net FDI inflows almost halved from 6.4% of GDP in 1Q 2019 to 3.3% of GDP in 1Q 2020. At the same time, NBG selling reserves (2.6% of GDP) and other borrowings attracted mostly by commercial banks covered higher the CA deficit in 1Q 2020.

Fiscal stimulus 

Key budget parameters were revised substantially to accommodate a stimulus package to support the economy amid the COVID-19 related fallout. The budget deficit is currently projected at 8.5% of GDP for 2020, mostly to be financed by the additional external borrowing amounting to USD 1.6 billion. Higher spending will be diverted to both social spending as well as to support crisis-affected sectors. More importantly, secured funding is enough to finance the increased budget deficit, as well as to create a buffer of GEL 2.7 billion (5.4% of GDP), which will be available in case of further deterioration of the macro scenario, compared with the baseline one.

 

Credit growth

Bank credit growth also moderated to 13.9% YoY on FX adjusted terms as of June 2020, compared to 17.1% YoY growth by the end of 1Q 2020. In terms of the segments, corporate lending slowed to 22.6% from the 28.7% YoY growth registered in March 2020, while MSME lending also weakened to 14.1% YoY compared to 17.1% YoY in March. At the same time, retail lending, with 7.1% YoY growth by the end of 2Q 2020, remained relatively stable as weakening in the mortgage lending was partly offset by improving growth in non-mortgage loans. The latest indicators point to a recovery in mortgage credit, which was also supported by the relevant state housing stimulus package. However, on QoQ basis the growth was limited as expected.

Inflation, monetary policy and the exchange rate

Following an uptick in inflation in April and May 2020, mostly reflecting the increase of food prices, annual inflation retreated to 6.1% in June 2020 on the back of monthly decline of food prices as well as a continued fall in energy inflation. On the other hand, core inflation, the gauge of prices excluding energy and food, continued to accelerate to 6.6% YoY in June, compared to 3.7% YoY in March 2020. It is likely that the lagged effects of the undervalued exchange rate, coupled with the additional cost of companies related to the COVID-19 restrictions, are putting upward pressure on inflation. Despite some likely short-term effects of increasing costs, annual inflation is expected to continue to decline, reflecting the relative stability of the effective exchange rate, downward pressure from lower aggregate demand and the high base effects from the previous year. While commodity prices eased inflation pressures in the previous months, the effect going forward may reverse due to the solid recovery in oil and a number of other key commodity prices.

 

The NBG continued to ease monetary policy and delivered a 1.0 pp rate cut year-to-date, bringing the policy rate to 8.0% compared to 9.0% by the end of 2019. Despite still considerable uncertainties surrounding developments in aggregate demand, per the latest NBG projections, inflation is expected to decline towards the target rate of 3% in the first half of 2021.

 

As of the end of June 2020, the USD/GEL exchange rate of GEL depreciated by 17.0% YoY, while the EUR/GEL exchange rate depreciated by 5.5% YoY. The real effective exchange rate (REER) of the GEL weakened by 2.1% YoY in June 2020 while it appreciated by 1.4% MoM. The GEL REER likely remains undervalued from the medium as well as from the long-term perspective. NBG actively intervenes in the FX market to largely compensate the shortage of inflows. As of the end of July, NBG sold USD 270 million via the FX interventions (additional USD 11.5 million was sold on the interbank market without FX auctions in the first half of the year). NBG's International reserves, coupled with additional external borrowings in the amount of USD 1.6 billion as mentioned above, are expected to be sufficient to continue to supply FX to the market.

 

Going forward

According to the World Bank's Global Economic Prospects, which were updated in June 2020[20], the Georgian economy is expected to drop by 4.8% in 2020 and recover by 4% in 2021, which is broadly consistent with TBC Capital's projection of a 4.5-5.5% decline and a 4.0-5.0% recovery. Nevertheless, risks to the outlook remain considerable, but are likely mostly in the short term rather than the medium term. Once the virus is contained, the Georgian economy is likely to return to its trend growth rate of around 5.2%, as also indicated by the IMF's medium term projections[21]. Also, Georgia is well placed to benefit from some emerging opportunities related to potential changes in the structure of global supply chains as well as the increased tendency of teleworking.

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

 

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Financial Results Overview for 2Q 2020

This statement provides a summary of the unaudited business and financial trends for 2Q 2020 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS.

 

Changes in accounting policies, IAS 16

In 2Q 2020, the accounting policy in relation to subsequent measurement of land, buildings and construction in progress was changed from the revaluation model to the cost model. This led to the restatement of appropriate balance sheet amounts, in 1Q 2020 and 2019, while no material impact was recorded in the income statement. 

 

Net Interest Income

In 2  Q 2020, net interest income amounted to GEL 184.4 million, down by 6.6% YoY and 11.3% on a QoQ basis.

The YoY increase in interest income by GEL 52.8 million or 15.5% was primarily related to an increase in interest income from loans, which was driven by an increase in the gross loan portfolio of GEL 2,494.0 million, or 22.4%. This was partially offset by a 1.3 pp drop in loan yields across all segments, mainly related to decrease in Libor rate, currency devaluation, change in segment mix towards corporate, as well as competition. 

Over the same period, interest expense increased by GEL 62.9 million, or 42.0%, mainly driven by an increase in interest expense from Senior and AT1 Bonds issued in June and July 2019, respectively in the total amount of US$ 425 million, as well as an increase in the average balance of the NBG loan. Overall, the GEL cost of funding increased by 1.5 pp YoY mainly driven by an increase in the refinance rate as well as increased cost of GEL deposits. Over the same period, FC cost of funding remained unchanged despite the decrease in Libor rate, which was offset by cost of debt securities issued, as mentioned above.

The slight decrease in interest income on a QoQ basis by GEL 1.7 million or 0.4% was mainly triggered by a decrease in income from mandatory reserves placed at NBG due to the drop in the Federal funds rate. This decrease was partially offset by the increase in interest income from investment securities, in line with a growth in the respective portfolio of GEL 367.0 million or 17.9% over the same period.

QoQ interest expense increased by GEL 17.3 million, or 8.9%, which was primarily driven by increase in the interest expense on GEL borrowed funds from the NBG, related to an increase in the respective average balance mainly due to the change in GEL funding sources. This increase more than offset by the decrease in the refinance rate. The FC cost of funding remained unchanged despite a decrease in Libor rate, which was offset by a slight change in liability structure towards IFI funding.

Since 4Q 2019, we have re-classified net gains from currency swaps from other operating income to net interest income. In 2Q 2020, our net gains from currency swaps decreased by 43.1% YoY and 53.7% on a QoQ basis driven by the decline in the interest rate spread on the international markets, due to a decline in federal funds rate. More information about the re-classification is given in annex 3 on page 40.

In 2Q 2020, our NIM stood at 4.3%, down by 1.5 pp YoY and 0.8 pp on a QoQ basis.

In thousands of GEL

2Q'20

1Q'20

2Q'19

Change

YoY

Change QoQ

Interest income

393,114

394,779

340,301

15.5%

-0.4%

Interest expense

(212,714)

(195,377)

(149,820)

42.0%

8.9%

Net gains from currency swaps

3,965

8,557

6,967

-43.1%

-53.7%

Net interest income

184,365

207,959

197,448

-6.6%

-11.3%

 

 

 

 

 

 

NIM

4.3%

5.1%

5.8%

-1.5 pp

-0.8 pp

 

 

 

 

 

 

 

Net fee and commission income

 

In 2Q 2020, net fee and commission income totalled GEL 39.5 million, down by 9.2% YoY and 9.3% QoQ.

The YoY decrease was mainly related to a reduction in other net fee and commission income due to a decrease in cash transactions, as well as a decline in net fee and commission income from card operations, on the back of the slow-down of economic activity due to the COVID-19 pandemic. Furthermore, starting from 4Q 2019 we reclassified certain fees from our Uzbek subsidiary Payme (Inspired LLC) from other sub-category to settlement transactions, in the amount of  GEL 3.6 million in 2Q 2020. The decrease was partially offset by an increase in guarantees issued and letters of credit due to an increase in the respective portfolio.

On a QoQ basis, all major categories decreased due to the slowdown in business activities related to the COVID-19 pandemic. This effect was slightly offset by an increase in guarantees issued and letters of credit, due to increase in average portfolio. 

In thousands of GEL

2Q'20

1Q'20

2Q'19

Change YoY

Change QoQ

Net fee and commission income

 

 

 

 

 

Card operations

10,962

12,540

11,773

-6.9%

-12.6%

Settlement transactions

18,169

19,843

15,118

20.2%

-8.4%

Guarantees issued and letters of credit

9,498

8,421

7,155

32.7%

12.8%

Other

888

2,748

9,488

-90.6%

-67.7%

Total net fee and commission income

39,517

43,552

43,534

-9.2%

-9.3%

 

Other Non-Interest Income

 

Total other non-interest income decreased by 16.5% YoY and 32.5% QoQ, amounting to GEL 26.2 million in 2Q 2020.

 

Both the YoY and QoQ decreases were mainly related to a decline in net income from foreign currency operations. The former decrease was mainly attributable to the reduced scale of FX transactions across all segments, as a result of lower economic activities, as well as the reduced margin due to lower volatility.

Net insurance premium earned after claims and acquisition costs increased by 26.3% YoY, mainly related to the overall increase in the scale of the insurance business as well as decrease in claims during the lock-down period related to COVID-19 pandemic. More information about TBC insurance can be found in Annex 4 on page 41.

In thousands of GEL

2Q'20

1Q'20

2Q'19

Change YoY

Change QoQ

Other non-interest income

 

 

 

 

 

Net income from foreign currency operations

19,137

28,642

23,167

-17.4%

-33.2%

Net insurance premium earned after claims and acquisition costs[22]

5,481

4,800

4,338

26.3%

14.2%

Other operating income

1,543

5,302

3,815

-59.6%

-70.9%

Total other non-interest income

26,161

38,744

31,320

-16.5%

-32.5%

 

 

 

 

 

 

 

Credit Loss Allowance

 

Credit loss allowance for loans in 1Q 2020 amounted to GEL 241.0 million, out of which GEL 210.9 million was COVID-19 related as disused on page 5. The largest impact comes from the retail segment, followed by the MSME. In 2Q 2020, total credit loss allowance was mainly driven by MSME and corporate segments, which was offset by recovery of provisions in retail segment.  In addition, 2Q credit loss allowances includes COVID-19 related TBC Kredit credit loss allowances for loans in the amount of GEL 9.0 million.

In thousands of GEL

2Q'20

1Q'20

2Q'19

Change

YoY

Change

QoQ

Credit loss allowance for loan to customers

(8,191)

(241,025)

(30,067)

-72.8%

-96.6%

Credit loss allowance for other transactions

(3,123)

(6,712)

(3,305)

-5.5%

-53.5%

Total credit loss allowance

(11,314)

(247,737)

(33,372)

-66.1%

-95.4%

Operating income after credit loss allowance

238,729

42,518

238,930

-0.1%

NMF

 

 

 

 

 

 

Cost of risk

0.0%*

2.6%**

1.1%

-1.1 pp

-2.6 pp

* Ratio includes COVID-19 related TBC Kredit credit loss allowances for loans, in the amount of GEL 9.0 million, which given its non-recurring nature was not annualized

** Ratio includes COVID-19 related credit loss allowances for loans, in the amount of GEL 210.9 million, which given its non-recurring nature was not annualized

NMF - no meaningful figures

 

Operating Expenses

 

In 2Q 2020, we continue to implement cost efficiency across all levels. As a result, in 2Q 2020 our operating expenses decreased by 11.9% YoY and 9.0% QoQ. The reduction was mainly related to decrease in administrative and other expenses due to the COVID-19 effects and included discretionary administrative expenses such as advertising, marketing and consultation services as well as the impact from renegotiated rent expenses per IFRS 16 in the amount of GEL 4.2 million.

As a result, in 2Q 2020, our cost to income ratio stood at 38.5%, down by 1.7 pp YoY and up by 2.0 pp QoQ, while our standalone cost to income stood at 32.3% down by 2.9 pp YoY and up by 0.8 pp on a QoQ basis.

In thousands of GEL

2Q'20

1Q'20

2Q'19

Change YoY

Change QoQ

Operating expenses

 

 

 

 

 

Staff costs

(57,204)

(56,802)

(58,886)

-2.9%

0.7%

Provisions for liabilities and charges

(59)

136

1,241

NMF

NMF

Depreciation and amortization

(16,427)

(15,788)

(15,955)

3.0%

4.0%

Administrative & other operating expenses

(22,641)

(33,375)

(35,783)

-36.7%

-32.2%

Total operating expenses

(96,331)

(105,829)

(109,383)

-11.9%

-9.0%

 

 

 

 

 

 

Cost to income

38.5%

36.5%

40.2%

-1.7%

2.0 pp

Standalone Cost to income*

32.3%

31.5%

35.2%

-2.9 pp

0.8 pp

* For the ratio calculation all relevant group recurring costs are allocated to the bank

NMF - no meaningful figures

Net Income

 

In 2Q 2020, we generated  GEL 126.2 million in net profit up by 5.0% YoY, mainly due to recoveries in credit loss allowance and a decrease in operating expenses, which were offset by the reduction in operating income due to COVID-19 pandemic.

As a result, our ROE stood at 19.5%, down by 1.6 pp YoY, while ROA stood at 2.6%, down by 0.4 pp YoY.

In thousands of GEL

2Q'20

1Q'20

2Q'19

Change YoY

Change QoQ

Losses from modifications of financial instruments

(3,527)

(30,643)

-

NMF

-88.5%

Profit before tax

138,871

(93,954)

129,547

7.2%

NMF

Income tax expense

(12,665)

36,948

(9,329)

35.8%

NMF

Profit for the period

126,206

(57,006)

120,218

5.0%

NMF

 

 

 

 

 

 

ROE

19.5%

n/a

21.1%*

-1.6 pp

NMF

ROA

2.6%

n/a

3.0%*

-0.4 pp

NMF

*Prior to change in PPE accounting policy from revaluation model to cost method, ROE stood at 20.7% while  ROA remained unchanged in 2Q 2019

 

Funding and Liquidity

As of 30 June 2020, the total liquidity coverage ratio, as defined by the NBG, was 124.8%, above the 100% limit, while the LCR in GEL and FC stood at 141.0% and 117.3% respectively, above the respective limits of 75% and 100%.

However, in the light of COVID-19 pandemic, starting from May 2019, NBG removed minimum requirement on GEL LCR of 75%, for one year period. Despite ease of requirement, our internal limit of 75% remains unchanged and we continue to operate with high liquidity buffers.

As of 30 June 2020, NSFR stood at 127.5%, compared to the regulatory limit of 100%, effective from September 2019.

 

 

30-Jun-20

31-Mar-20

Change

 

 

 

 

 

 

 

 

Minimum net stable funding ratio, as defined by the NBG

100%

100%

00 pp

Net stable funding ratio as defined by the NBG

127.5%

124.7%

2.8 pp

 

 

 

 

  Net loans to deposits + IFI funding

105.3%

101.8%

3.5 pp

Leverage (Times)

7.5x

7.9x*

-0.4x

 

 

 

 

Minimum liquidity ratio, as defined by the NBG

30.0%

30.0%

0.0 pp

Liquidity ratio, as defined by the NBG

39.2%

30.6%

8.6 pp

 

 

 

 

Minimum total liquidity coverage ratio, as defined by the NBG

100.0%

100.0%

0.0 pp

Minimum LCR in GEL, as defined by the NBG

n/a

75.0%

NMF

Minimum LCR in FC, as defined by the NBG

100.0%

100.0%

0.0 pp

 

 

 

 

Total liquidity coverage ratio, as defined by the NBG

124.8%

107.6%

17.2 pp

LCR in GEL, as defined by the NBG

141.0%

107.0%

34.0 pp

LCR in FC, as defined by the NBG

117.3%

107.8%

9.5 pp

* Prior to change in PPE accounting policy from revaluation model to cost method, Leverage stood at 7.8x as of 31 March 2020

 

Regulatory Capital

As expected, in 2Q we started to generate sufficient capital buffers and our CET1, Tier 1 and Total Capital ratios increased by 0.9%, 0.7% and 0.5% respectively QoQ.

In 2Q, CET1 increased by 7.4% QoQ mainly due to net income generation, while Tier1 and Total Capital grew by only 4.0% and 0.7% respectively, since AT1 bonds and subordinated loans are denominated in FX and are thus negatively affected by GEL appreciation.

The QoQ decrease in RWA was mainly driven by the GEL appreciation in 2Q.

In thousands of GEL

30-Jun-20

31-Mar-20

Change QoQ

 

 

 

 

CET 1 Capital

1,631,006

1,518,950

7.4%

Tier 1 Capital

2,068,052

1,987,693

4.0%

Total Capital

2,787,136

2,767,850

0.7%

Total Risk-weighted Exposures

16,249,475

16,604,960

-2.1%

 

 

 

 

 

Minimum CET 1 ratio

6.9%

6.9%

0.0 pp

CET 1 Capital adequacy ratio

10.0%

9.1%

0.9 pp

 

 

 

 

Minimum Tier 1 ratio

8.7%

8.8%

-0.1 pp

Tier 1 Capital adequacy ratio

12.7%

12.0%

0.7 pp

 

 

 

 

Minimum total capital adequacy ratio

13.3%

13.3%

0.0 pp

Total Capital adequacy ratio

17.2%

16.7%

0.5 pp

 

Loan Portfolio

As of 30 June 2020, the gross loan portfolio reached GEL 13,635.4 million, down by 2.1% QoQ or up by 1.9% at a constant currency basis. The slowdown in lending relates to COVID-19 pandemic. The proportion of gross loans denominated in foreign currency decreased by 1.7 pp QoQ and accounted for 60.7% of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency increased by 0.1 pp QoQ and stood at 62.3%.

As of 30 June 2020, our market share in total loans stood at 39.5%, up by 0.1 pp QoQ. Our loan market share in legal entities was 39.2%, up by 0.7 pp over the same period, and our loan market share in individuals stood at 39.9%, down by 0.4 pp QoQ.

In thousands of GEL

30-Jun-20

31-Mar-20

Change QoQ

Loans and advances to customers

 

 

 

 

 

 

 

Retail

5,358,723

5,485,120

-2.3%

Retail loans  GEL

2,550,110

2,445,016

4.3%

Retail loans FC

2,808,613

3,040,104

-7.6%

Corporate

5,070,563

5,209,833

-2.7%

Corporate loans  GEL

1,331,062

1,358,616

-2.0%

Corporate loans FC

3,739,501

3,851,217

-2.9%

MSME

3,206,106

3,234,687

-0.9%

MSME loans  GEL

1,470,959

1,432,858

2.7%

MSME loans FC

1,735,147

1,801,829

-3.7%

Total loans and advances to customers

13,635,392

13,929,640

-2.1%

 

 

 

 

 

 

 

 

2Q'20

1Q'20

2Q'19

Change YoY

Change QoQ

Loan yields

9.7%

10.3%

11.0%

-1.3%

-0.6%

Loan yields  GEL

15.0%

15.5%

15.6%

-0.6%

-0.5%

Loan yields FC

6.5%

6.8%

7.8%

-1.3%

-0.3%

Retail Loan Yields

10.5%

11.2%

12.2%

-1.7%

-0.7%

Retail loan yields  GEL

15.7%

16.7%

18.4%

-2.7%

-1.0%

Retail loan yields FC

6.1%

6.4%

7.3%

-1.2%

-0.3%

Corporate Loan Yields

8.7%

9.0%

8.8%

-0.1%

-0.3%

Corporate loan yields  GEL

13.3%

13.3%

9.9%

3.4%

0.0%

Corporate loan yields FC

7.0%

7.2%

8.4%

-1.6%

-0.2%

MSME Loan Yields

10.2%

10.8%

11.5%

-1.3%

-0.6%

MSME loan yields  GEL

15.2%

15.6%

15.5%

-0.3%

-0.4%

MSME loan yields FC

6.1%

6.4%

7.8%

-1.7%

-0.3%

 

Loan Portfolio Quality

Total PAR 30 decreased by 1.0 pp on QoQ basis and stood at 1.3%. The decrease was driven by an improved performance across all segments. Our total NPLs stood at 2.9% and remained flat QoQ. However, COVID-19 impact has not been yet realized in those ratios mainly due to grace period offered to our customers.

 

Par 30

30-Jun-20

31-Mar-20

Change QoQ

Retail

1.3%

2.4%

-1.1 pp

Corporate

0.6%

1.6%

-1.0 pp

MSME

2.3%

3.2%

-0.9 pp

Total Loans

1.3%

2.3%

-1.0 pp

 

 

 

 

 

Non-performing Loans

30-Jun-20

31-Mar-20

Change QoQ

Retail

3.0%

2.9%

0.1 pp

Corporate

2.0%

2.1%

-0.1 pp

MSME

4.2%

4.3%

-0.1 pp

Total Loans

2.9%

2.9%

0.0 pp

 

NPL Coverage

Jun-20

Mar-20

 

Exc. Collateral

Incl. Collateral

Exc. Collateral

Incl. Collateral

 

 

Retail

187.6%

266.5%

199.5%

277.0%

 

 

Corporate

108.2%

268.3%

99.6%

238.4%

 

 

MSME

91.9%

206.7%

84.7%

201.5%

 

 

Total

134.7%

246.7%

133.8%

241.0%

 

 

        

 

 

Cost of risk 

Total cost of risk decreased by 1.1 pp YoY and 2.6 pp on QoQ basis and stood at 0.0%. Cost of risk in 2Q also includes the COVID-19 related TBC Kredit credit loss allowances for loans,  in the amount of GEL 9.0 million, which given its non-recurring nature has not been annualized.

In 2Q 2020, CoR was mainly driven by the charges in MSME and corporate segments, which were offset by reversal of credit loss allowances in retail segment.

Cost of Risk

2Q'20*

1Q'20**

2Q'19

Change YoY

Change QoQ

 

 

 

 

 

 

Retail

-0.7%

4.6%

2.4%

-3.1 pp

-5.3 pp

Corporate

0.3%

0.7%

-0.5%

0.8 pp

-0.4 pp

MSME

1.0%

2.1%

0.9%

0.1 pp

-1.1 pp

Total

0.0%

2.6%

1.1%

-1.1 pp

-2.6 pp

* Cost of risk in 2Q 2020 includes COVID-19 related TBC Kredit credit loss allowances for loans, in the amount of GEL 9 million, which given its non-recurring nature has not been annualized

** Cost of risk in 1Q 2020 includes COVID-19 related credit loss allowances for loans, in the amount of GEL 210.9 million, which given its non-recurring nature has not been annualized

 

Deposit Portfolio

The total deposits portfolio decreased by 7.0% QoQ and amounted to GEL 10,420.3 million, while on a constant currency basis, the deposit portfolio decreased by 2.6 pp. Furthermore, the decrease in the corporate segment was related to high liquidity, as well as currency appreciation in 2Q 2020. Without currency effect, the corporate book would have decreased by 14.6% QoQ. We have not observed any material impact on our deposit portfolio due to COVID-19.

The proportion of deposits denominated in foreign currency dropped by 0.6 pp QoQ and accounted for 65.6% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency decreased by 0.9 pp QoQ and stood at 67.2%.

As of 30 June 2020, our market share in deposits amounted to 37.1%, down by 2.7 pp QoQ and our market share in deposits to legal entities stood at 35.9%, down by 6.3 pp over the same period. Our market share in deposits to individuals stood at 38.1%, up by 0.2% QoQ.

In thousands of GEL

30-Jun-20

31-Mar-20

Change QoQ

Customer Accounts

 

 

 

 

 

 

 

Retail

6,019,291

6,166,759

-2.4%

Retail deposits  GEL

1,192,734

1,049,071

13.7%

Retail deposits FC

4,826,557

5,117,688

-5.7%

Corporate

3,222,718

3,892,288

-17.2%

Corporate deposits  GEL

1,833,301

2,248,487

-18.5%

Corporate deposits FC

1,389,417

1,643,801

-15.5%

MSME

1,178,321

1,150,103

2.5%

MSME deposits  GEL

555,530

483,750

14.8%

MSME deposits FC

622,791

666,353

-6.5%

Total Customer Accounts

10,420,330

11,209,150

-7.0%

 

 

 

2Q'20

1Q'20

2Q'19

Change

YoY

Change

QoQ

Deposit rates

3.4%

3.5%

3.4%

0.0%

-0.1%

Deposit rates GEL

6.4%

6.4%

5.8%

0.6%

0.0%

Deposit rates FC

1.9%

1.9%

2.1%

-0.2%

0.0%

Retail Deposit Yields

3.0%

2.8%

3.0%

0.0%

0.2%

Retail deposit rates GEL

6.0%

5.4%

5.3%

0.7%

0.6%

Retail deposit rates FC

2.3%

2.3%

2.4%

-0.1%

0.0%

Corporate Deposit Yields

5.1%

5.3%

4.9%

0.2%

-0.2%

Corporate deposit rates GEL

7.9%

8.2%

7.2%

0.7%

-0.3%

Corporate deposit rates FC

1.4%

1.5%

1.8%

-0.4%

-0.1%

MSME Deposit Yields

0.9%

0.9%

1.0%

-0.1%

0.0%

MSME deposit rates GEL

1.6%

1.5%

1.5%

0.1%

0.1%

MSME deposit rates FC

0.4%

0.3%

0.3%

0.1%

0.1%

 

 

 

 

 

 

 

 

 

 

 

Segment definition and PL

Business Segments

The segment definitions are as follows:

· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which have been granted facilities with more than GEL 5.0 million. Some other business customers may also be assigned to the corporate segment or transferred to the MSME segment on a discretionary basis;

· Retail - non-business individual customers; all individual customers are included in retail deposits;

· MSME - business customers who are not included in the corporate segment; or legal entities which have been granted a pawn shop loan; or individual customers of the fully-digital bank, Space; and

· Corporate centre and other operations - comprises the Treasury, other support and back office functions, and non-banking subsidiaries of the Group.

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

Income Statement by Segments

2Q'20

Retail

MSME

Corporate

Corp.Centre

Total

Interest income

141,343

81,388

114,371

56,012

393,114

Interest expense

(45,530)

(2,829)

(41,765)

(122,590)

(212,714)

Net gains from currency swaps

-

-

-

3,965

3,965

Net transfer pricing

(14,174)

(32,961)

(1,409)

48,544

-

Net interest income

81,639

45,598

71,197

(14,069)

184,365

Fee and commission income

43,615

5,009

12,673

3,741

65,038

Fee and commission expense

(20,686)

(2,378)

(2,087)

(370)

(25,521)

Net fee and commission income

22,929

2,631

10,586

3,371

39,517

Net insurance premium earned after claims and acquisition costs

-

-

-

5,481

5,481

Net income from foreign currency operations

7,769

5,789

10,462

(11,542)

12,478

Foreign exchange translation gains less losses/(losses less gains)

-

-

-

6,659

6,659

Net gains/(losses) from derivative financial instruments

-

-

-

(13)

(13)

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

-

-

-

(1,480)

(1,480)

Other operating income

941

65

210

1,867

3,083

Share of profit of associates

-

-

-

(47)

(47)

Other operating non-interest income and insurance profit

8,710

5,854

10,672

925

26,161

Credit loss allowance for loans to customers

5,671

(10,629)

(3,233)

-

(8,191)

Credit loss allowance for performance guarantees and credit related commitments

773

184

270

-

1,227

Credit loss allowance for investments in finance lease

-

-

-

(3,408)

(3,408)

Credit loss allowance for other financial assets

128

-

(282)

(834)

(988)

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

-

-

140

(94)

46

Profit/(loss) before G&A expenses and income taxes

119,850

43,638

89,350

(14,109)

238,729

Losses from modifications of financial instruments

(1,347)

(290)

(1,610)

(280)

(3,527)

Staff costs

(27,407)

(11,102)

(7,822)

(10,873)

(57,204)

Depreciation and amortization

(10,915)

(2,750)

(1,027)

(1,735)

(16,427)

Provision for liabilities and charges

-

-

-

(59)

(59)

Administrative and other operating expenses

(10,823)

(3,525)

(2,396)

(5,897)

(22,641)

Operating expenses

(49,145)

(17,377)

(11,245)

(18,564)

(96,331)

Profit/(loss) before tax

69,358

25,971

76,495

(32,953)

138,871

Income tax expense

(7,204)

(1,833)

(4,206)

578

(12,665)

Profit/(loss) for the year

62,154

24,138

72,289

(32,375)

126,206

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance Sheet

 

 

In thousands of GEL 

Jun-20

Mar-20

Cash and cash equivalents

981,803

1,127,242

Due from other banks

30,879

34,699

Mandatory cash balances with National Bank of Georgia

1,794,010

1,900,285

Loans and advances to customers

13,105,988

13,388,126

Investment securities measured at fair value through other comprehensive income

1,082,520

999,578

Bonds carried at amortized cost

1,335,415

1,051,603

Investments in finance leases

270,172

281,717

Investment properties

70,716

70,926

Current income tax prepayment

36,703

25,771

Deferred income tax asset

7,470

21,472*

Other financial assets

174,378

188,196

Other assets

258,349

245,359

Premises and equipment

345,064

343,193*

Right of use assets

62,865

58,182

Intangible assets

194,689

181,283

Goodwill

60,296

62,108

Investments in associates

2,112

2,792

TOTAL ASSETS 

19,813,429

19,982,532*

LIABILITIES 

 

 

Due to credit institutions

4,403,406

3,767,185

Customer accounts 

10,420,330

11,209,150

Lease liabilities

65,937

66,513

Other financial liabilities 

138,749

139,223

Current income tax liability 

692

465

Debt Securities in issue

1,396,141

1,488,024

Deferred income tax liability 

5

5

Provisions for liabilities and charges 

25,558

25,861

Other liabilities 

80,557

77,743

Subordinated debt 

628,649

683,227

TOTAL LIABILITIES 

17,160,024

17,457,396

EQUITY 

 

 

Share capital

1,682

1,682

Shares held by trust

(34,451)

(34,451)

Share premium

848,459

848,459

Retained earnings

2,029,545

1,904,716*

Group re-organisation reserve

(162,166)

(162,167)

Share based payment reserve

(31,808)

(36,177)

Revaluation reserve for premises

-

-

Fair value reserve

(1,492)

(1,454)

Cumulative currency translation reserve

(5,685)

(3,683)

Net assets attributable to owners

2,644,084

2,516,925*

Non-controlling interest 

9,321

8,211*

TOTAL EQUITY 

2,653,405

2,525,136*

TOTAL LIABILITIES AND EQUITY 

19,813,429

19,982,532*

     

* Certain amounts do not correspond to the 2019 consolidated financial statement as they reflect the change in accounting policy for PPE from revaluation model to cost method in 2Q 2020.

 

 

 

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

In thousands of GEL 

2Q'20

1Q'20

2Q'19

Interest income

393,114

394,779

340,301

Interest expense

(212,714)

(195,377)

(149,820)

Net gains from currency swaps

3,965

8,557

6,967

Net interest income

184,365

207,959

197,448

Fee and commission income

65,038

73,714

68,983

Fee and commission expense

(25,521)

(30,162)

(25,449)

Net fee and commission income

39,517

43,552

43,534

Net insurance premiums earned

13,385

13,233

8,663

Net insurance claims incurred and agents' commissions

(7,904)

(8,433)

(4,325)

Net insurance premium earned after claims and acquisition costs

5,481

4,800

4,338

Net income from foreign currency operations

12,478

36,928

17,580

Net gain/(losses) from foreign exchange translation

6,659

(8,286)

5,587

Net gains/(losses) from derivative financial instruments

(13)

(7)

(86)

Gains less losses from disposal of investment securities measured at fair value through other comprehensive income

(1,480)

278

79

Other operating income

3,083

4,894

3,650

Share of profit of associates

(47)

137

172

Other operating non-interest income

20,680

33,944

26,982

Credit loss allowance for loans to customers

(8,191)

(241,025)

(30,067)

Credit loss allowance for investments in finance lease

(3,408)

(870)

219

Credit loss allowance for performance guarantees and credit related commitments

1,227

(2,024)

(824)

Credit loss allowance for other financial assets

(988)

(3,234)

(2,389)

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

46

(584)

(311)

Operating profit after expected credit losses

238,729

42,518

238,930

Losses from modifications of financial instruments

(3,527)

(30,643)

-

Staff costs

(57,204)

(56,802)

(58,886)

Depreciation and amortization

(16,427)

(15,788)

(15,955)

(Provision for)/ recovery of liabilities and charges

(59)

136

1,241

Administrative and other operating expenses

(22,641)

(33,375)

(35,783)

Operating expenses

(96,331)

(105,829)

(109,383)

Profit/(loss) before tax

138,871

(93,954)

129,547

Income tax expense

(12,665)

36,948

(9,329)

Profit/(loss) for the period

126,206

(57,006)

120,218

Other comprehensive income:

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

Movement in fair value reserve

(38)

5,022

2,976

Exchange differences on translation to presentation currency

(2,002)

3,167

815

Items that will not be reclassified to profit or loss:

 

 

 

Revaluation of premises and equipment

 

 

 

Income tax recorded directly in other comprehensive income

 

 

 

Other comprehensive income for the period

(2,040)

8,189

3,791

Total comprehensive income for the period

124,166

(48,817)

124,009

Profit/(loss) attributable to:

 

 

 

 - Shareholders of TBCG

125,100

(57,475)

119,998

 - Non-controlling interest

1,106

469

220

Profit/(loss) for the period

126,206

(57,006)

120,218

Total comprehensive income is attributable to:

 

 

 

 - Shareholders of TBCG

123,060

(49,267)

123,785

 - Non-controlling interest

1,106

450

224

Totalcomprehensive income for the period

124,166

(48,817)

124,009

 

 

 

 

Consolidated Statement of Cash flows

In thousands of GEL

30-Jun-20

31-Mar-20

Cash flows from/(used in) operating activities

 

 

Interest received

579,414

343,993

Interest received on currency swaps

12,522

-

Interest paid

(404,923)

(143,355)

Fees and commissions received

131,347

70,010

Fees and commissions paid

(56,054)

(30,504)

Insurance and reinsurance received

43,373

22,347

Insurance claims paid

(13,458)

(11,259)

Income received from trading in foreign currencies

49,406

36,907

Other operating income received

2,860

2,535

Staff costs paid

(120,706)

(44,993)

Administrative and other operating expenses paid

(61,860)

(41,585)

Income tax paid

(11,983)

(80)

 

 

 

 

 

 

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

149,938

204,015

 

 

 

Net change in operating assets

 

 

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

 (183,202)

(74,492)

Loans and advances to customers

 (357,130)

(191,641)

Net investments in lease

 11,008

980

Other financial assets

 (33,976)

(48,589)

Other assets

 10,847

16,622

Net change in operating liabilities

 

 

Due to other banks

 85,357

35,387

Customer accounts

 (88,078)

163,321

Other financial liabilities

 11,915

62,034

Change in finance lease liabilities

-

(4,100)

Other liabilities and provision for liabilities and charges

3,838

3,275

 

 

 

 

 

 

Net cash (used in)/ from operating activities

(389,483)

166,811

 

 

 

 

 

 

Cash flows from/(used in) investing activities

 

 

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

(251,486)

(85,681)

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

-

24,984

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

180,702

57,266

Acquisition of bonds carried at amortised cost

(495,945)

(139,561)

Proceeds from redemption of bonds carried at amortised cost

171,137

100,970

Acquisition of premises, equipment and intangible assets

(74,550)

(44,151)

Proceeds from disposal of premises, equipment and intangible assets

24,172

12,836

Proceeds from disposal of investment property

3,128

3,129

Acquisition of subsidiaries and associates

936

 

 

 

 

 

 

 

Net cash used in investing activities

(441,906)

(70,208)

 

 

 

 

 

 

Cash flows from/(used in) financing activities

 

 

Proceeds from other borrowed funds

 1,615,016

1,321,226

Redemption of other borrowed funds

 (966,746)

(1,434,930)

Repayment of principal of lease liabilities

 (5,420)

-

Redemption of subordinated debt

-

-

Proceeds from debt securities in issue

171,531

70,516

Redemption of debt securities in issue

 (12,569)

-

 

 

 

Net cash flows from/(used in) financing activities

801,812

(43,188)

 

 

 

Effect of exchange rate changes on cash and cash equivalents

7,797

74,345

 

 

 

Net (decrease)/increase in cash and cash equivalents

(21,780)

123,659

Cash and cash equivalents at the beginning of the period

1,003,583

1,003,583

Cash and cash equivalents at the end of the period

981,803

1,127,242

 

Key Ratios

Average Balances

The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts, which were prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.

Key Ratios

 

 

 

 

 

 

 

Ratios (based on monthly averages, where applicable)

2Q'20

1Q'20

2Q'19

 

 

 

 

Profitability ratios:

 

 

 

ROE1

19.5%

n/a

21.1%*

ROA2

2.6%

n/a

3.0%*

ROE before credit loss allowance3

21.3%

28.7%

26.4%

Cost to income4

38.5%

36.5%

40.2%

NIM5

4.3%

5.1%

5.8%

Loan yields6

9.7%

10.3%

11.0%

Deposit rates7

3.4%

3.5%

3.4%

Yields on interest earning assets8

9.1%

9.7%

10.0%

Cost of funding9

5.0%

5.0%

4.5%

Spread10

4.1%

4.7%

5.5%

 

 

 

 

Asset quality and portfolio concentration:

 

 

 

Cost of risk11

0.0%**

2.6%***

1.1%

PAR 90 to Gross Loans12

1.0%

1.2%

1.3%

NPLs to Gross Loans13

2.9%

2.9%

3.1%

NPLs coverage14

134.7%

133.8%

97.9%

NPLs coverage with collateral15

246.7%

241.0%

206.0%

Credit loss level to Gross Loans16

3.9%

3.9%

3.1%

Related Party Loans to Gross Loans17

0.1%

0.1%

0.1%

Top 10 Borrowers to Total Portfolio18

8.2%

8.7%

 8.6%

Top 20 Borrowers to Total Portfolio19

12.3%

12.9%

 12.6%

 

 

 

 

Capital optimisation:

 

 

 

Net Loans to Deposits plus IFI Funding20

105.3%

101.8%

91.4%

Net Stable Funding Ratio21

127.5%

124.7%

138.1%****

Liquidity Coverage Ratio22

124.8%

107.6%

126.3%

Leverage23

7.5x

7.9x*****

7.4x*****

CET 1 CAR (Basel III)24

10.0%

9.1%

12.0%

Regulatory Tier 1 CAR (Basel III)25

12.7%

12.0%

12.4%

Regulatory Total 1 CAR (Basel III)26

17.2%

16.7%

17.4%

* Prior to change in PPE accounting policy from revaluation model to cost method, ROE stood at 20.7%, while ROA remained unchanged in 2Q 2019

** Cost of risk for 2Q 2020 includes COVID-19 related TBC Kredit credit loss allowances for loans, in the amount of GEL 9.0 million, which given its non-recurring nature has not been annualized

*** Cost of risk for 1Q 2020 includes COVID-19 related credit loss allowances for loans, in the amount of GEL 210.9 million, which given its non-recurring nature has not been annualized

**** Based on internal estimates

***** Prior to change in PPE accounting policy from revaluation model to cost method, Leverage stood at 7.8x and 7.3x for 1Q 2020 and 2Q 2019, respectively

 

 

 

 

 

 

 

 

 

 

Ratio definitions

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

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

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

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

5. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG that currently have negative interest, and includes other earning items from due from banks.

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

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

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

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

10. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).

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

12. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.

13. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with a well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.

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

15. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus the total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.

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

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

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

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

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

21. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined by NBG in line with Basel III guidelines.

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

23. Leverage equals total assets to total equity.

24. Regulatory CET 1 CAR equals CET 1 capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

25. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

26. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

 

Exchange Rates

To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 3.2845 as of 31 March 2020. As of 30 June 2020 the USD/GEL exchange rate equalled 3.0552. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 2Q 2020 of 3.1395, 1Q 2020 of 2.9267, 2Q 2019 of 2.7393.

 

 

 

 

 

 

 

Unaudited Consolidated Financial Results Overview for 1H 2020

This statement provides a summary of the unaudited business and financial trends for 1H 2020 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS.

 

Changes in accounting policies, IAS 16

In 2Q 2020, the accounting policy in relation to subsequent measurement of land, buildings and construction in progress was changed from the revaluation model to the cost model. This led to the restatement of appropriate balance sheet amounts, in 1Q 2020 and 2019, while no material impact was recorded in the income statement. 

 

Net Interest Income

In 1H 2020, net interest income amounted to GEL 392.3 million, down by 1.6% YoY, whereby interest income increased by 16.2% and interest expense increased by 40.3%.

The YoY increase in interest income was primarily related to an increase in interest income from loans, which was driven by an increase in the gross loan portfolio by GEL 2,494.0 million, or 22.4%. This effect was partially offset by a 1.1 pp drop in loan yields across all segments, mainly related to a decrease in Libor rate, currency devaluation, change in segment mix towards corporate, as well as competition. 

Our interest expense increased by 40.3%, which was primarily related to an increase in interest expense from the Senior and AT1 Bonds issued in June and July 2019, respectively in the amount of US$ 425 million, as well as growth in the average balance of the NBG loan. The other contributor was an increase in interest expense from deposits due to an   increase in respective portfolio of GEL 543.5 million. Overall, the GEL cost of funding increased by 1.3 pp YoY mainly driven by an increase in the refinance rate as well as the increased cost of GEL deposits. Over the same period, FC cost of funding increased by 0.1 pp despite the decrease in Libor rate, which was offset by cost of debt securities issued, as mentioned above.

In 1H 2020, our NIM stood at 4.7%, down by 1.3 pp YoY.

In thousands of GEL

1H'20

1H'19

Change YoY

Interest income

787,893

678,216

16.2%

Interest expense

(408,091)

(290,777)

40.3%

Net gains from currency swaps

12,522

11,147

12.3%

Net interest income

392,324

398,586

-1.6%

 

 

 

 

NIM

4.7%

6.0%

-1.3%

 

Net fee and commission income

 

In 1H 2020, net fee and commission income totalled GEL 83.1 million, down by 2.7% YoY.

 

The main driver for the YoY reduction was other net fee and commission income due to reduced cash transactions, as well as a decrease in fees from card operations on the back of a slow-down in economic activity due to the COVID-19 pandemic. Furthermore, starting from 4Q 2019 we reclassified certain fees from our Uzbek subsidiary Payme (Inspired LLC) from other sub-category to settlement transactions, in the amount of GEL 6.0 million in 1H 2020. This decrease was partially offset by an increase in fees from guarantees issued and letters of credit due to an increase in the respective portfolio.

 

In thousands of GEL

1H'20

1H'19

Change YoY

Net fee and commission income

 

 

 

Card operations

23,502

25,909

-9.3%

Settlement transactions

38,012

29,986

26.8%

Guarantees issued and letters of credit

17,919

13,261

35.1%

Other

3,636

16,185

-77.5%

Total net fee and commission income

83,069

85,341

-2.7%

 

Other Non-Interest Income

 

Total other non-interest income increased by 7.6% YoY and amounted to GEL 64.9 million in 1H 2020.

 

The YoY increase was mainly attributable to growth in net income from foreign currency operations and growth in the net insurance premium earned after claims and acquisition costs. The former increase was driven by an increase in the number and volume of FX transactions across all segments as well as increased the spread due to high volatility.

Net insurance premium earned after claims and acquisition costs increased by 27.4% YoY, mainly related to the overall increase of the insurance business as well as decrease in claims during the lock-down period related to COVID-19 pandemic. More information about TBC insurance can be found in Annex 4 on page 41.

In thousands of GEL

1H'20

1H'19

Change YoY

Other non-interest income

 

 

 

Net income from foreign currency operations

47,779

44,201

8.1%

Net insurance premium earned after claims and acquisition costs[23]

10,281

8,067

27.4%

Other operating income

6,845

8,053

-15.0%

Total other non-interest income

64,905

60,321

7.6%

 

 

 

 

 

       

 

Credit Loss Allowance

Total credit loss allowance in 1H 2020 amounted to GEL 259.1 million. This significant increase was driven by:

an extra credit loss allowance booked in the first quarter, in the amount of GEL 215.7 million (or GEL 210.9 million for loans), to prepare for the potential impact of the COVID-19 pandemic on our borrowers; and

COVID- 19 related credit loss allowances for loans in the amount of GEL 9.0 million, which was created in our Azeri subsidiary, TBC Kredit in the second quarter.

These impacts translated into additional 1.7% cost of risk, which given its non-recurring nature was not annualized.

 

In thousands of GEL

1H'20

1H'19

Change YoY

Credit loss allowance for loan to customers

  (249,216)

  (66,483)

NMF

Credit loss allowance for other transactions

  (9,835)

16

NMF

Total credit loss allowance

(259,051)

(66,467)

NMF

Operating income after credit loss allowance

281,247

477,781

-41.1%

 

 

 

 

Cost of risk

2.1%*

1.3%

0.8 pp

* Cost of risk for 1H 2020 consists COVID-19 related credit loss allowances in the amount of GEL 219.9 million, which given its non-recurring nature has not been annualized.

NMF - no meaningful figures

 

Operating Expenses

In 1H 2020, our total operating expenses decreased by 4.6% YoY, as a result of our increased focus on cost optimization. The decrease was mainly related to a decrease in administrating and other expenses due to COVID-19 effects and included discretionary administrative expenses such as advertising, marketing and consultation services as well as the impact from renegotiated rent expenses per IFRS 16 in the amount of GEL 4.2 million. Another driver was the reduced share based payment expense in staff cost, due to the   fact that management waived their right to receive their 2020 annual bonus and LTIP for the 2020-2022 performance period.

Thus, in 1H 2020 our cost to income ratio stood at 37.4%, down by 1.5 pp YoY, while our standalone cost to income was 31.9% down by 3.8 pp over the same period.

In thousands of GEL

1H'20

1H'19

Change YoY

Operating expenses

 

 

 

Staff costs

(114,006)

(116,639)

-2.3%

Provisions for liabilities and charges

77

1,441

-94.7%

Depreciation and amortization

(32,215)

(32,124)

0.3%

Administrative & other operating expenses

(56,016)

(64,575)

-13.3%

Total operating expenses

(202,160)

(211,897)

-4.6%

 

 

 

 

Cost to income

37.4%

38.9%

-1.5 pp

Standalone Cost to income*

31.9%

35.7%

-3.8 pp

* For the ratio calculation all relevant group recurring costs are allocated to the bank

 

 

 

 

Net Income

Due to the COVID-19 pandemic, the Group incurred losses from modifications of financial instruments related to COVID-19 in the amount of GEL 34.2 million, to reflect the decrease in the present value of cash-flows resulting from a three-month grace period granted to borrowers. The modifications are related to losses incurred on loans, advances to customers and investments in leases due to the COVID-19 events and are not expected to recur again in normal course of the business.

In 1H 2020, we generated a GEL 69.2 million profit, which was affected by the following COVID-19 related charges:

· a net modification loss of financial instruments in the amount of GEL 34.2 million, out of which GEL 3.5 million relates to 2Q 2020; and

· a COVID-19 related total credit loss allowance in the amount of GEL 224.7 million, out of which GEL 9.0 million is related to credit loss allowances of our Azeri subsidiary, TBC Kredit.

As a result, our ROE stood at 5.2%, down by 17.6 pp YoY, while ROA stood at 0.7%, down by 2.6 pp over the same period.

In thousands of GEL

1H'20

1H'19

Change YoY

Losses from modifications of financial instruments

(34,170)

-

NMF

Profit before tax

44,917

265,884

-83.1%

Income tax expense

24,283

(12,344)

NMF

Profit for the period

69,200

253,540

-72.7%

 

 

 

 

ROE

5.2%

22.8%*

-17.6 pp

ROA

0.7%

3.3%*

-2.6 pp

* Prior to change in PPE accounting policy from revaluation model to cost method, ROE stood at 22.3%, while ROA remained unchanged in 1H 2019

 

 

Funding and Liquidity

As of 30 June 2020, the total liquidity coverage ratio, as defined by the NBG, was 124.8%, above the 100% limit, while the LCR in GEL and FC stood at 141.0% and 117.3% respectively, above the respective limits of 75% and 100%.

However, in the light of COVID-19 pandemic, starting from May 2019, NBG removed minimum requirement on GEL LCR of 75%, for one year period. Despite ease of requirement, our internal limit of 75% remains unchanged and we continue to operate with high liquidity buffers.

As of 30 June 2020, NSFR stood at 127.5%, compared to the regulatory limit of 100%, effective from September 2019.

 

 

30-Jun-20

30-Jun-19

Change

YoY

 

 

 

 

 

 

 

 

Minimum net stable funding ratio, as defined by the NBG

100%

100%

0.0 pp

Net stable funding ratio as defined by the NBG

127.5%

138.1%*

-10.6%

 

 

 

 

  Net loans to deposits + IFI funding

105.3%

91.4%

13.9%

Leverage (Times)

7.5x

7.4x**

0.1x

 

 

 

 

Minimum liquidity ratio, as defined by the NBG

30.0%

30.0%

0.0%

Liquidity ratio, as defined by the NBG

39.2%

37.1%

2.1%

 

 

 

 

Minimum total liquidity coverage ratio, as defined by the NBG

100.0%

100.0%

0.0 pp

Minimum LCR in GEL, as defined by the NBG

n/a

75.0%

NMF

Minimum LCR in FC, as defined by the NBG

100.0%

100.0%

0.0 pp

 

 

 

 

Total liquidity coverage ratio, as defined by the NBG

124.8%

126.3%

-1.5 pp

LCR in GEL, as defined by the NBG

141.0%

100.4%

40.6 pp

LCR in FC, as defined by the NBG

117.3%

143.8%

-26.5 pp

*Based on internal estimates
**
Prior to change in PPE accounting policy from revaluation model to cost method, Leverage stood at 7.3x as of 30 June 2019

 

Regulatory Capital

In 1Q 2020, due to the COVID-19 pandemic, the NBG is implementing countercyclical measures to support the financial stability of the banking system and to ensure the provision of financial support to sectors of the economy affected by the current turmoil. In relation to capital adequacy requirements, the following measures have been taken:

· Postponing the phasing in of additional capital requirements planned in March 2020, with a 0.44 pp effect on TBC's CET 1;

· Allowing banks to use the conservation buffer (currently at 2.5pp on CET1) and 2/3 of CICR buffer resulted in the release of 1.0-2.0% of capital across our CET1, Tier 1 and Total CAR;

· Leaving open the possibility of releasing all pillar 2 buffers (remaining 1/3 CICR, HHI and Net Grape buffers) in the range of 1.0-4.0% of capital across our CET1, Tier 1 and Total CAR.

As of 30 June 2020, the Bank's CET 1, Tier 1 and Total Capital adequacy ratios stood at 10.0%, 12.7% and 17.2%, respectively, comfortably above the respective eased minimum requirements of 6.9%, 8.7% and 13.3%.

CET 1 ratio decreased by 2.0 pp on YoY basis mainly due to additional credit loss allowances created according to local standards in relation to the COVID 19 pandemic, increase in loan book and currency depreciation. These effects were offset by issuance of an AT1 instrument in July 2019 in the amount of USD 125 million, thus leading to an increase in Tier 1 Capital ratio by 0.3pp.  Over the same period, Total Capital Adequacy ratio decreased by 0.2pp mainly due to decrease in subordinated loan.

In thousands of GEL

30-Jun-20

30-Jun-19

Change YoY

 

 

 

 

CET 1 Capital

1,631,006

1,678,050

-2.8%

Tier 1 Capital

2,068,052

1,730,302

19.5%

Total Capital

2,787,136

2,430,135

14.7%

Total Risk-weighted Exposures

16,249,475

13,986,201

16.2%

 

 

 

 

Minimum CET 1 ratio

6.9%

8.3%

-1.4%

CET 1 Capital adequacy ratio

10.0%

12.0%

-2.0%

 

 

 

 

Minimum Tier 1 ratio

8.7%

10.3%

-1.6%

Tier 1 Capital adequacy ratio

12.7%

12.4%

0.3%

 

 

 

 

Minimum total capital adequacy ratio

13.3%

15.8%

-2.5%

Total Capital adequacy ratio

17.2%

17.4%

-0.2%

Loan Portfolio

As of 30 June 2020, the gross loan portfolio reached GEL 13,635.4 million, up by 22.4% YoY or up by 18.1% on a constant currency basis. The YoY increase was spread across all segments, with the largest contribution coming from the corporate segment, which was mainly driven by the acquisition of both large and mid-corporate clients. The proportion of gross loans denominated in foreign currency decreased by 0.8 pp YoY and accounted for 60.7 % of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency was up by 3.1 pp YoY and stood at 59.3%.

As of 30 June 2020, our market share in total loans stood at 39.5%, up by 1.0 pp YoY, while our loan market share in legal entities was 39.2%, up by 1.9 pp over the same period, and our loan market share in individuals stood at 39.9%, up by 0.3 pp QoQ.

In thousands of GEL

30-Jun-20

30-Jun-19

Change YoY

Loans and advances to customers

 

 

 

 

 

 

 

Retail

5,358,723

4,835,320

10.8%

Retail loans GEL

2,550,110

2,170,941

17.5%

Retail loans FC

2,808,613

2,664,379

5.4%

Corporate

5,070,563

3,658,340

38.6%

Corporate loans GEL

1,331,062

1,045,076

27.4%

Corporate loans FC

3,739,501

2,613,264

43.1%

MSME

3,206,106

2,647,700

21.1%

MSME loans GEL

1,470,959

1,251,812

17.5%

MSME loans FC

1,735,147

1,395,888

24.3%

Total loans and advances to customers

13,635,392

11,141,360

22.4%

 

1H'20

1H'19

Change YoY

 

Loan yields

10.1%

11.2%

-1.1 pp

 

Loan yields GEL

15.2%

16.0%

-0.8 pp

 

Loan yields FC

6.7%

8.0%

-1.3 pp

 

Retail Loan Yields

10.9%

12.5%

-1.6 pp

 

Retail loan yields GEL

16.2%

18.9%

-2.7 pp

 

Retail loan yields FC

6.3%

7.4%

-1.1 pp

 

Corporate Loan Yields

8.9%

9.2%

-0.3 pp

 

Corporate loan yields GEL

13.3%

10.4%

2.9 pp

 

Corporate loan yields FC

7.2%

8.7%

-1.5 pp

 

MSME Loan Yields

10.5%

11.5%

-1.0 pp

 

MSME loan yields GEL

15.4%

15.5%

-0.1 pp

 

MSME loan yields FC

6.3%

7.9%

-1.6 pp

 

        

 

Loan Portfolio Quality

The total par 30 decreased by 0.8 pp and stood at 1.3%, driven by the improved performance across all segments. Our NPL ratio was down by 0.2 pp and stood at 2.9%, which was attributable to the strong performance of the Retail and Corporate segments.  However, COVID-19 impact has not been yet realized in those ratios mainly due to grace period offered to our customers.

 

Par 30

30-Jun-20

30-Jun-19

Change YoY

Retail

1.3%

2.7%

-1.4 pp

Corporate

0.6%

1.0%

-0.4 pp

MSME

2.3%

2.8%

-0.5 pp

Total Loans

1.3%

2.1%

-0.8 pp

 

 

Non-performing Loans

30-Jun-20

30-Jun-19

Change YoY

Retail

3.0%

3.3%

-0.3 pp

Corporate

2.0%

2.1%

-0.1 pp

MSME

4.2%

4.2%

0.0 pp

Total Loans

2.9%

3.1%

-0.2 pp

 

 

NPL Coverage

Jun-20

Jun-19

 

Exc. Collateral

Incl. Collateral

Exc. Collateral

Incl. Collateral

Retail

187.6%

266.5%

113.8%

180.4%

Corporate

108.2%

268.3%

103.3%

299.1%

MSME

91.9%

206.7%

71.5%

179.0%

Total

134.7%

246.7%

97.9%

206.0%

Cost of risk 

The total cost of risk for 1H 2020 stood at 2.1%, up by 0.8 pp. The YoY increase was spread across all segments and was driven by an extra credit loss allowances booked in 1H 2020.

Cost of Risk

1H'20*

1H'19

Change YoY

 

 

 

 

Retail

3.3%

2.4%

0.9 pp

Corporate

0.7%

-0.3%

1.0 pp

MSME

2.3%

1.2%

1.1 pp

Total

2.1%

1.3%

0.8 pp

* Cost of risk in 1H comprises of COVID-19 related credit loss allowances in the amount of GEL 219.9 million, which given its non-recurring nature has not been annualized.

 

 

 

 

Deposit Portfolio

The total deposits portfolio increased by 5.5% YoY and amounted to GEL 10,420.3 million, while on a constant currency basis the total deposit portfolio increased by 1.4 pp over the same period. The proportion of deposits denominated in foreign currency dropped by 2.8 pp YoY and accounted for 65.6% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency increased by 5.1 pp YoY and stood at 64.2%.

As of 30 June 2020, our market share in deposits amounted to 37.1%, down by 3.9 pp YoY, and our market share in deposits to legal entities stood at 35.9%, down by 7.1 pp over the same period. Our market share in deposits to individuals stood at 38.1%, down by 1.4% QoQ.

In thousands of GEL

30-Jun-20

30-Jun-19

Change YoY

Customer Accounts

 

 

 

 

 

 

 

Retail

6,019,291

5,360,114

12.3%

Retail deposits GEL

1,192,734

1,044,181

14.2%

Retail deposits FC

4,826,557

4,315,933

11.8%

Corporate

3,222,718

3,510,179

-8.2%

Corporate deposits GEL

1,833,301

2,069,230

-11.4%

Corporate deposits FC

1,389,417

1,440,949

-3.6%

MSME

1,178,321

1,006,520

17.1%

MSME deposits GEL

555,530

557,163

-0.3%

MSME deposits FC

622,791

449,357

38.6%

Total Customer Accounts

10,420,330

9,876,813

5.5%

 

 

 

1H'20

1H'19

Change

YoY

Deposit rates

3.5%

3.4%

0.1 pp

Deposit rates GEL

6.4%

5.9%

0.5 pp

Deposit rates FC

1.9%

2.0%

-0.1 pp

Retail Deposit Yields

2.9%

2.9%

0.0 pp

Retail deposit rates GEL

5.7%

5.3%

0.4 pp

Retail deposit rates FC

2.3%

2.3%

0.0 pp

Corporate Deposit Yields

5.3%

4.9%

0.4 pp

Corporate deposit rates GEL

8.3%

7.4%

0.9 pp

Corporate deposit rates FC

1.5%

1.7%

-0.2 pp

MSME Deposit Yields

0.9%

0.9%

0.0 pp

MSME deposit rates GEL

1.6%

1.5%

0.1 pp

MSME deposit rates FC

0.3%

0.3%

0.0 pp

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment definition and PL

Business Segments

The segment definitions are as follows:

· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which have been granted facilities with more than GEL 5.0 million. Some other business customers may also be assigned to the corporate segment or transferred to the MSME segment on a discretionary basis;

· Retail - non-business individual customers; all individual customers are included in retail deposits;

· MSME - business customers who are not included in the corporate segment; or legal entities which have been granted a pawn shop loan; or individual customers of the fully-digital bank, Space; and

· Corporate centre and other operations - comprises the Treasury, other support and back office functions, and non-banking subsidiaries of the Group.

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

Income Statement by Segments

1H'20

Retail

MSME

Corporate

Corp.Centre

Total

Interest income

285,336

162,144

225,082

115,331

787,893

Interest expense

(86,768)

(5,426)

(87,181)

(228,716)

(408,091)

Net gains from currency swaps

-

-

-

12,522

12,522

Net transfer pricing

(32,744)

(64,097)

841

96,000

-

Net interest income

165,824

92,621

138,742

(4,863)

392,324

Fee and commission income

96,189

11,443

24,949

6,171

138,752

Fee and commission expense

(45,757)

(5,171)

(3,990)

(765)

(55,683)

Net fee and commission income

50,432

6,272

20,959

5,406

83,069

Net insurance premium earned after claims and acquisition costs

-

-

-

10,281

10,281

Net income from foreign currency operations

17,897

13,748

25,763

(8,002)

49,406

Foreign exchange translation gains less losses/(losses less gains)

-

-

-

(1,627)

(1,627)

Net gains/(losses) from derivative financial instruments

-

-

-

(20)

(20)

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

-

-

-

(1,202)

(1,202)

Other operating income

2,390

129

858

4,600

7,977

Share of profit of associates

-

-

-

90

90

Other operating non-interest income and insurance profit

20,287

13,877

26,621

4,120

64,905

Credit loss allowance for loans to customers

(160,861)

(61,728)

(26,627)

-

(249,216)

Credit loss allowance for performance guarantees and credit related commitments

(378)

(1,069)

650

-

(797)

Credit loss allowance for investments in finance lease

-

-

-

(4,278)

(4,278)

Credit loss allowance for other financial assets

(69)

-

(1,964)

(2,189)

(4,222)

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

-

-

8

(546)

(538)

Profit/(loss) before G&A expenses and income taxes

75,235

49,973

158,389

(2,350)

281,247

Losses from modifications of financial instruments

(22,547)

(7,068)

(2,675)

(1,880)

(34,170)

Staff costs

(54,421)

(23,331)

(14,894)

(21,360)

(114,006)

Depreciation and amortization

(21,738)

(5,422)

(2,028)

(3,027)

(32,215)

Provision for liabilities and charges

-

-

-

77

77

Administrative and other operating expenses

(28,272)

(9,284)

(5,803)

(12,657)

(56,016)

Operating expenses

(104,431)

(38,037)

(22,725)

(36,967)

(202,160)

Profit/(loss) before tax

(51,743)

4,868

132,989

(41,197)

44,917

Income tax expense

25,745

5,991

(8,990)

1,537

24,283

Profit/(loss) for the year

(25,998)

10,859

123,999

(39,660)

69,200

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance Sheet

 

In thousands of GEL 

Jun-20

Jun-19

Cash and cash equivalents

981,803

1,628,344

Due from other banks

30,879

27,860

Mandatory cash balances with National Bank of Georgia

1,794,010

1,841,237

Loans and advances to customers

13,105,988

10,801,264

Investment securities measured at fair value through other comprehensive income

1,082,520

908,158

Bonds carried at amortized cost

1,335,415

766,663

Investments in finance leases

270,172

220,871

Investment properties

70,716

79,114

Current income tax prepayment

36,703

19,417

Deferred income tax asset

7,470

1,753

Other financial assets

174,378

165,382

Other assets

258,349

211,850

Premises and equipment

345,064

322,089*

Right of use assets

62,865

61,555

Intangible assets

194,689

123,910

Goodwill

60,296

45,301

Investments in associates

2,112

2,363

TOTAL ASSETS 

19,813,429

17,227,131*

LIABILITIES 

 

 

Due to credit institutions

4,403,406

3,052,742

Customer accounts 

10,420,330

9,876,813

Lease liabilities

65,937

62,598

Other financial liabilities 

138,749

252,280

Current income tax liability 

692

727

Debt Securities in issue

1,396,141

848,838

Deferred income tax liability 

5

18,916*

Provisions for liabilities and charges 

25,558

20,116

Other liabilities 

80,557

85,882

Subordinated debt 

628,649

688,002

TOTAL LIABILITIES 

17,160,024

14,906,914*

EQUITY 

 

 

Share capital

1,682

1,672

Shares held by trust

(34,451)

-

Share premium

848,459

831,773

Retained earnings

2,029,545

1,676,687*

Group re-organisation reserve

(162,166)

(162,166)

Share based payment reserve

(31,808)

(37,968)

Fair value reserve

(1,492)

12,680

Cumulative currency translation reserve

(5,685)

(6,478)

Net assets attributable to owners

2,644,084

2,316,200*

Non-controlling interest 

9,321

4,017*

TOTAL EQUITY 

2,653,405

2,320,217*

TOTAL LIABILITIES AND EQUITY 

19,813,429

17,227,131*

    

* Figures calculated due to changed PPE accounting policy from revaluation model to cost method in 2Q 2020

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

In thousands of GEL 

1H'20

1H'19

Interest income

787,893

678,216

Interest expense

(408,091)

(290,777)

Net gains from currency swaps

12,522

11,147

Net interest income

392,324

398,586

Fee and commission income

138,752

129,885

Fee and commission expense

(55,683)

(44,544)

Net fee and commission income

83,069

85,341

Net insurance premiums earned

26,618

15,992

Net insurance claims incurred and agents' commissions

(16,337)

(7,925)

Net insurance premium earned after claims and acquisition costs

10,281

8,067

Net income from foreign currency operations

49,406

34,987

Net gain/(losses) from foreign exchange translation

(1,627)

9,214

Net gains/(losses) from derivative financial instruments

(20)

(245)

Gains less losses from disposal of investment securities measured at fair value through other comprehensive income

(1,202)

147

Other operating income

7,977

7,810

Share of profit of associates

90

341

Other operating non-interest income

54,624

52,254

Credit loss allowance for loans to customers

(249,216)

(66,483)

Credit loss allowance for investments in finance lease

(4,278)

178

Credit loss allowance for performance guarantees and credit related commitments

(797)

(392)

Credit loss allowance for other financial assets

(4,222)

580

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

(538)

(350)

Operating profit after expected credit losses

281,247

477,781

Losses from modifications of financial instruments

(34,170)

-

Staff costs

(114,006)

(116,639)

Depreciation and amortization

(32,215)

(32,124)

(Provision for)/ recovery of liabilities and charges

77

1,441

Administrative and other operating expenses

(56,016)

(64,575)

Operating expenses

(202,160)

(211,897)

Profit/(loss) before tax

44,917

265,884

Income tax expense

24,283

(12,344)

Profit/(loss) for the period

69,200

253,540

Other comprehensive income:

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

Movement in fair value reserve

4,984

3,999

Exchange differences on translation to presentation currency

1,165

457

Items that will not be reclassified to profit or loss:

 

 

Revaluation of premises and equipment

 

 

Income tax recorded directly in other comprehensive income

 

 

Other comprehensive income for the period

6,149

4,456

Total comprehensive income for the period

75,349

257,996

Profit/(loss) attributable to:

 

 

 - Shareholders of TBCG

67,625

253,235

 - Non-controlling interest

1,575

305

Profit/(loss) for the period

69,200

253,540

Total comprehensive income is attributable to:

 

 

 - Shareholders of TBCG

73,793

257,687

 - Non-controlling interest

1,556

309

Totalcomprehensive income for the period

75,349

257,996

 

 

 

 

Consolidated Statement of Cash Flows 

In thousands of GEL

30-Jun-20

30-Jun-19

Cash flows from/(used in) operating activities

 

 

Interest received

579,414

621,472

Interest received on currency swaps

12,522

11,147

Interest paid

(404,923)

(291,963)

Fees and commissions received

131,347

127,685

Fees and commissions paid

(56,054)

(44,370)

Insurance and reinsurance received

43,373

18,560

Insurance claims paid

(13,458)

(9,727)

Income received from trading in foreign currencies

49,406

46,119

Other operating income received

2,860

11,500

Staff costs paid

(120,706)

(123,342)

Administrative and other operating expenses paid

(61,860)

(81,397)

Income tax paid

(11,983)

(30,900)

 

 

 

 

 

 

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

149,938

254,784

 

 

 

Net change in operating assets

 

 

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

 (183,202)

(302,690)

Loans and advances to customers

 (357,130)

(385,945)

Net investments in lease

 11,008

(3,498)

Other financial assets

 (33,976)

19,610

Other assets

 10,847

2,869

Net change in operating liabilities

 

 

Due to other banks

 85,357

276,076

Customer accounts

 (88,078)

134,334

Other financial liabilities

 11,915

23,487

Other liabilities and provision for liabilities and charges

3,838

9,607

 

 

 

 

 

 

Net cash (used in)/from operating activities

(389,483)

28,633

 

 

 

 

 

 

Cash flows from/(used in) investing activities

 

 

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

(251,486)

(101,119)

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

180,702

210,174

Acquisition of bonds carried at amortised cost

(495,945)

(240,420)

Proceeds from redemption of bonds carried at amortised cost

171,137

126,113

Acquisition of premises, equipment and intangible assets

(74,550)

(51,490)

Proceeds from disposal of premises, equipment and intangible assets

24,172

11,023

Proceeds from disposal of investment property

3,128

9,508

Acquisition of subsidiaries and associates

936

(14,569)

 

 

 

 

 

 

Net cash used in investing activities

(441,906)

(50,780)

 

 

 

 

 

 

Cash flows from/(used in) financing activities

 

 

Proceeds from other borrowed funds

 1,615,016

553,781

Redemption of other borrowed funds

 (966,746)

(938,535)

Repayment of principal of lease liabilities

 (5,420)

(1,367)

Redemption of subordinated debt

  - 

(8,576)

Proceeds from debt securities in issue

 171,531

820,708

Redemption of debt securities in issue

 (12,569)

(5,805)

 

 

 

Net cash flows from financing activities

801,812

420,206

 

 

 

Effect of exchange rate changes on cash and cash equivalents

7,797

63,373

 

 

 

Net (decrease)/ increase in cash and cash equivalents

(21,780)

461,433

Cash and cash equivalents at the beginning of the period

1,003,583

1,166,911

Cash and cash equivalents at the end of the period

981,803

1,628,344

 

 

 

 

Key Ratios

Average Balances

The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts, which were prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.

 

Key Ratios

 

 

 

 

 

Ratios (based on monthly averages, where applicable)

1H'20

1H'19

 

 

 

Profitability ratios:

 

 

ROE1

5.2%

22.8%*

ROA2

0.7%

3.3%*

Pre-provision ROE3

25.2%

28.7%

Cost to income4

37.4%

38.9%

NIM5

4.7%

6.0%

Loan yields6

10.1%

11.2%

Deposit rates7

3.5%

3.4%

Yields on interest earning assets8

9.5%

10.4%

Cost of funding9

5.0%

4.5%

Spread10

4.4%

5.9%

 

 

 

Asset quality and portfolio concentration:

 

 

Cost of risk11

2.1%**

1.3%

PAR 90 to Gross Loans12

1.0%

1.3%

NPLs to Gross Loans13

2.9%

3.1%

NPLs coverage14

134.7%

97.9%

NPLs coverage with collateral15

246.7%

206.0%

Credit loss level to Gross Loans16

3.9%

3.1%

Related Party Loans to Gross Loans17

0.1%

0.1%

Top 10 Borrowers to Total Portfolio18

8.2%

 8.6%

Top 20 Borrowers to Total Portfolio19

12.3%

 12.6%

 

 

 

Capital optimisation:

 

 

Net Loans to Deposits plus IFI Funding20

105.3%

91.4%

Net Stable Funding Ratio21

127.5%

138.1%***

Liquidity Coverage Ratio22

124.8%

126.3%

Leverage23

7.5x

7.4x****

CET 1 CAR (Basel III)24

10.0%

12.0%

Regulatory Tier 1 CAR (Basel III)25

12.7%

12.4%

Regulatory Total 1 CAR (Basel III)26

17.2%

17.4%

* Prior to change in PPE accounting policy from revaluation model to cost method ROE stood at 22.3%, while ROA remained unchanged in 1H 2019

** Cost of risk in 1H comprises of COVID-19 related credit loss allowances in the amount of GEL 219.9 million, which given its non-recurring nature has not been annualized.

*** Based on internal estimates

****Prior to change in PPE accounting policy from revaluation model to cost method, Leverage stood at 7.3x for 1H 2019

 

 

 

 

 

 

 

 

Ratio definitions

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

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

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

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

5. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG that currently have negative interest, and includes other earning items from due from banks.

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

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

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

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

10. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).

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

12. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.

13. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with a well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.

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

15. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus the total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.

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

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

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

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

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

21. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined by NBG in line with Basel III guidelines.

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

23. Leverage equals total assets to total equity.

24. Regulatory CET 1 CAR equals CET 1 capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

25. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

26. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

 

Exchange Rates

To calculate the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.8687 as of 30 June 2019. As of 30 June 2020 the USD/GEL exchange rate equalled 3.0552. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 1H 2020 of 3.0419, 1H 2010 of 2.7038.

 

 

 

 

 

Additional Disclosures

1)  Subsidiaries of TBC Bank Group PLC[24] 

 

Ownership / voting
% as of 30 June 2020

Country

Year of incorporation

Industry

Total Assets 
(after elimination)

Subsidiary

Amount

GEL'000

% in TBC Group

JSC TBC Bank

99.9%

Georgia

1992

Banking

19,245,414

97.13%

  United Financial Corporation JSC

99.5%

Georgia

1997

Card processing

13,076

0.07%

  TBC Capital LLC

100.0%

Georgia

1999

Brokerage

14,961

0.08%

  TBC Leasing JSC

100.0%

Georgia

2003

Leasing

330,377

1.67%

  TBC Kredit LLC

100.0%

Azerbaijan

1999

Non-banking credit institution

18,127

0.09%

  TBC Pay LLC

100.0%

Georgia

2009

Processing

35,816

0.18%

  Index LLC

100.0%

Georgia

2011

Real estate management

977

0.00%

  TBC Invest LLC

100.0%

Israel

2011

PR and marketing

279

0.00%

JSC TBC Insurance

100.0%

Georgia

2014

Insurance

53,156

0.27%

  Redmed LLC

100.0%

Georgia

2019

E-commerce

692

0.00%

TBC International LLC

100.0%

Georgia

2019

Asset management

478

0.00%

  Swoop JSC

100.0%

Georgia

2010

Retail Trade

393

0.00%

  LLC Online Tickets

55.0%

Georgia

2015

Software Services

1,702

0.01%

  TKT UZ

75.00%

Uzbekistan

2019

Retail Trade

179

0.00%

  My.ge LLC

65.0%

Georgia

2008

E-commerce, Housing and Auto

7,079

0.04%

  LLC Vendoo (Geo)

100.0%

Georgia

2019

Retail Leasing

3,673

0.02%

  LLC Mypost

100.0%

Georgia

2019

Postal Service

404

0.00%

  LLC Billing Solutions

51.00%

Georgia

2019

Software Services

372

0.00%

  All property.ge LLC

90.0%

Georgia

2013

Real estate management

2,178

0.01%

  LLC F Solutions

100.00%

Georgia

2019

Software Services

7

0.00%

Inspired LLC

51.0%

Uzbekistan

2011

Processing

7,264

0.04%

LLC Vendoo (UZ Leasing)

100.00%

Uzbekistan

2019

Consumer financing

4,893

0.02%

 

 

 

 

2)  Our Ecosystems

Our mission: Make life easier

Financial services with a strong focus on digital:

Book value as of 30 June 2020 - GEL 2.5 billion;

Total assets as of 30 June 2020 - GEL 19.8 billion;

Number of customers as of 30 June 2020 - 2.7 million.

 

Ecosystems:

Revenue[25] - GEL 48.3 million for 2Q 2020, up by 53% YoY;

Net profit[26] - GEL 18.7  million for 2Q 2020, up by 26% YoY;

Number of visitors[27] in 2Q 2020 -6.2 million;

TBC Bank drives 27% of the ecosystems' revenue.

 

Our customer-centric ecosystems

We are increasing our touchpoints with customers by creating secure, customer-centric digital ecosystems, that help our customers to satisfy their needs in the most convenient and seamless way possible.

 

Our ambitions are to:

o Establish new standards of customer experience;

o Facilitate digital sales and engagement;

o Create new revenue streams;

o Collect more valuable customer data.

 

Payments ecosystem[28]

 

1H 20

1H 19

Change

Number of payments (million)

188.7

161.5

16.8%

Payments ecosystem

141.4

114.0

24.0%

Other payments business

47.3

47.5

-0.4%

Volume of payments (GEL billion)

72.6

78.0

-6.9%

Payments ecosystem

6.0

5.0

20.0%

Other payments business

66.6

73.0

-8.8%

 

We are Number 1 in E-com & POS transactions volume, with a market share of above 57%;[29]

We are among the world's best with over 86%[30] of payments being  contactless;

We have a great innovation record with a lot of "first in the region" payment innovations such as stickers, P2P, contactless cash withdrawal, Voice payments, Apple Pay, ATM QR withdrawal, TBC Bracelets and digital cards.

Our aspirations

Annual growth rate for payments commission income of 20% in the medium term.

 

 

 

 

 

3)  Net gains from currency swaps

 

In 2019, the Group entered into swap agreements denominated in foreign currencies in order to decrease its cost of funding. As the contracts reached a significant volume, the Group revisited the presentation of effects in the statement of profit or loss. Reclassifications from other non-interest operating income to net interest income have been recorded for the first three quarters in 2019.

 

 

In thousands of GEL

2Q'20

1Q'20

4Q'19

3Q'19

Net gains from currency swaps

3,965

8,557

9,054

8,355

 

 

4)  TBC Insurance

 

TBC Insurance is a rapidly growing, wholly owned subsidiary of TBC Bank and is the Bank's main bancassurance partner. The company was acquired by the Group in October 2016 and has since grown significantly, becoming the second largest player on the P&C and life insurance market and the largest player in the retail segment, holding 18.5% and 34.9% market shares,[31] without border motor third party liability (MTPL) insurance, respectively in 2Q 2020, based on internal estimates.

 

TBC Insurance serves both individual and legal entities and provides a broad range of insurance products covering motor, travel, personal accident, credit life and property, business property, liability, cargo, agro, and health insurance products. The company differentiates itself through its advanced digital channels, which include TBC Bank's award-winning internet and mobile banking applications, a wide network of self-service terminals, a web channel, and B-Bot, a Georgian-speaking chat-bot that is available through Facebook messenger.

 

In 2Q 2019, TBC Insurance entered the health insurance market with a focus on the premium segment. Our strategy is to focus on affluent individuals and capture the affluent market by leveraging our strong brand name, leading digital capabilities and cross-selling opportunities with payroll customers. Our medium-term target is to reach 25% market share in the premium health insurance business. In 2Q 2020, TBC Insurance health business line already attracted almost 12,000 active clients, up by 26.9% QoQ.

 

The total gross written premium in 2Q 2020 grew by 7.7% YoY and amounted to GEL 21.5 million, while net earned premium increased by 41.4% YoY. Starting from July 2019, we stopped re-insuring the motor portfolio, which led to an increase in net earned premium as a result of the decrease in re-insurance costs. On the other hand, this change led to increase in net claims. Overall, the impact on the net profit was marginally positive due to our well-diversified portfolio and prudent risk management.

 

In 2Q 2020, the net combined ratio[32] increased by 1.3 pp YoY and stood at 82.6%, driven by the health insurance business line; without the health insurance business, our net combined ratio would have been 79.4%, down by 2.8 pp.

 

In 2Q 2020, net profit increased substantially both YoY and QoQ, since we observed significant drop in motor and health insurance claims during the lock-down period related to the COVID-19 pandemic as well as our increased focus on cost optimization. 

 

TBC Insurance distributed a GEL 5 million dividend for the first time since the inception of operations in 2016.

 

Information excluding health insurance

2Q'20

1Q'20

2Q'19

1H'20

1H'19

In thousands of GEL

 

 

 

 

 

Gross written premium

18,849

18,294

19,557

37,143

37,028

Net earned premium[33]

15,535

16,002

12,218

31,537

22,895

Net profit

3,248

2,517

2,210

5,765

4,252

 

 

 

 

 

 

Net combined ratio

79.4%

86.3%

76.6%

82.9%

77.9%

 

Information including health insurance

2Q'20

1Q'20

2Q'19

1H'20

1H'19

In thousands of GEL

 

 

 

 

 

Gross written premium

21,540

20,195

19,991

41,735

37,462

Net earned premium

17,329

17,317

12,259

34,646

22,936

Net profit

3,109

1,928

1,803

5,037

3,807

 

 

 

 

 

 

Net combined ratio

82.6%

91.5%

81.3%

87.0%

80.6%

 

 

2Q 2019 figures are provided without subsidiaries of TBC Insurance: Swoop JSC, GE Commerce LTD, All Property LTD and 1Q 2020 and 2Q 2020 figures are given without Redmed LTD.

All figures in the above table are presented before consolidation eliminations.

 

6) Main terms of shareholders' agreement with Yelo Bank

 

TBC Bank and Yelo Bank (former Nikoil Bank) signed a shareholders agreement in January 2019 to merge our Azeri subsidiary, TBC Kredit (with total equity of USD 4.2 mln as of 30 June 2020) with Yelo Bank (with total equity of USD 29 mln as of 30 June 2020);

The transaction is subject to regulatory approval, which is pending;

Our share in the joint entity will be 8.34% with a call option to increase it to 50%+1 share within four years, based on a fixed price formula;

There is no capital commitment from TBC side;

We are refreshing our approach in light of the COVID-19 pandemic and our expansion into Uzbekistan;

The Group is assessing the feasibility of the completion of the transaction.

 

 

7) Loan book breakdown by stages according IFRS 9

 

Total (in million GEL)

Stage

Gross

% of total

Allowance

LLP rate*

1

11,332

83.1%

177

1.6%

2

1,899

13.9%

196

10.3%

3

404

3.0%

157

38.9%

Total

13,635

100.0%

530

3.9%

 

 

Corporate (in million GEL)

Stage

Gross

% of total

Allowance

LLP rate*

1

4,443

87.6%

49

1.1%

2

464

9.2%

6

1.3%

3

164

3.2%

54

32.9%

Total

5,071

100.0%

109

2.2%

 

 

MSME (in million GEL)

Stage

Gross

% of total

Allowance

LLP rate*

1

2,652

82.7%

40

1.5%

2

443

13.8%

45

10.2%

3

111

3.5%

38

34.2%

Total

3,206

100.0%

123

3.8%

 

 

Consumer (in million GEL)

Stage

Gross

% of total

Allowance

LLP rate*

1

1,560

79.5%

78

5.0%

2

341

17.4%

110

32.3%

3

61

3.1%

39

63.9%

Total

1,962

100.0%

227

11.6%

 

 

Mortgage (in million GEL)

Stage

Gross

% of total

Allowance

LLP rate*

1

2,678

78.8%

10

0.4%

2

651

19.2%

35

5.4%

3

68

2.0%

26

38.2%

Total

3,397

100.0%

71

2.1%

* LLP rate is defined as credit loss allowances divided by gross loans

 

 

 

Material Existing and Emerging Risks

Risk management is a critical pillar of the Group's strategy. It is essential to identify emerging risks and uncertainties that could adversely impact on the Group's performance, financial condition and prospects. This section analyses the principal risks and uncertainties the Group faces. However, we cannot exclude the possibility of the Group's performance being affected by as yet unknown risks and uncertainties other than those listed below.

The Board has undertaken a robust assessment of the principal risks facing the Group and the long-term viability of the Group's operations, in order to determine whether to adopt the going concern basis of accounting. The management has a reasonable expectation that the Group has sufficient resources to continue its business operations in the foreseeable future. In making this judgement, the management considered a wide range of current and future conditions including the Group's financial position, intentions, profitability of operations and access to financial resources. In the assessment of future conditions, the management performed a stress test exercise using a range of internally developed plausible macroeconomic scenarios and satisfied themselves that the Group's capital and liquidity positions are adequate to meet the regulatory requirements and continue in business for the foreseeable future.

Principal Risk and Uncertainties

1. PRINCIPAL RISK 

Credit risk is an integral part of the Group's business activities. As a provider of banking services, the Group is exposed to the risk of loss due to the failure of a customer or counterparty to meet their obligations to settle outstanding amounts in accordance with the agreed terms.

Risk description

Credit risk is the greatest material risk faced by the Group, given that the Group is engaged principally in traditional lending activities. The Group's customers include legal entities as well as individual borrowers.

Due to the high level of dollarization of Georgia's financial sector, currency-induced credit risk is a component of credit risk, which relates to risks arising from foreign currency-denominated loans to unhedged borrowers in the Group's portfolio. Credit risk also includes concentration risk, which is the risk related to credit portfolio quality deterioration as a result of large exposures to single borrowers or groups of connected borrowers, or loan concentration in certain economic industries. Losses may be further aggravated by unfavourable macroeconomic conditions. These risks are described in more detail as a separate principal risk.

COVID-19 has increased uncertainty and caused significant economic disruptions, with the hospitality & leisure, real estate management and development sectors especially adversely affected. Such economic disruptions may deteriorate the financial standing of borrowers and result in increased credit risk for the Group.

Risk mitigation

A comprehensive credit risk assessment framework is in place with a clear segregation of duties among the parties involved in the credit analysis and approval process. The credit assessment process is distinct across segments, and is further differentiated across various product types to reflect the differing natures of these asset classes. Corporate, SME and larger retail and micro loans are assessed on an individual basis, whereas the decision making process for smaller retail and micro loans is largely automated. The rules for manual and automated underwriting are developed by units within the risk function, which are independent from the origination and business development units. In the case of corporate and SME borrowers, the loan review process is conducted within specific sectoral cells, which accumulate deep knowledge of the corresponding sectoral developments.

The Group uses a robust monitoring system to react promptly to macro and micro developments, identify weaknesses in the credit portfolio and outline solutions to make informed risk management decisions. Monitoring processes are tailored to the specifics of individual segments, as well as encompassing individual credit exposures, overall portfolio performance and external trends that may impact on the portfolio's risk profile. Additionally, the Group uses a comprehensive portfolio supervision system to identify weakened credit exposures and take prompt, early remedial actions, when necessary.

Since the start of the pandemic the Bank granted 3-month payment holidays on principal and interest payments for individual and MSME customers as well as those corporate customers who have been affected by current situation. The take-up rate per segments were: 32% - corporate, 59% - MSME, 77% - retail and 55% of the total portfolio. In June, the 3-month payment holiday was extended for a further three months to its most vulnerable retail and micro customers, based on specific qualification criteria in order to support borrowers who have lost their main source of income during the COVID-19 pandemic. The take-up rate per segments were: 5% - corporate, 24% - MSME, 29% - retail and 19% of the total portfolio.

Additionally, the Bank actively performs stress testing and scenario analysis in order to check the resilience of borrowers under various stress conditions. Intensive financial monitoring is being carried out to duly identify the borrower's weakened financial and business prospects, aiming to offer restructuring tailored to their individual needs.

The Bank revised and tightened credit underwriting standards across all segments in light of COVID-19.

The Group's credit portfolio is structurally highly diversified across customer types, product types and industry segments, which minimizes credit risk at the Group level. As of 30 June 2020, the retail segment represented 39.3% of the total portfolio, which was split between mortgage and non-mortgage exposures 63.4% and 36.6%, respectively. No single business sector represented more than 8.9% of the total portfolio as of H1 2020.

Collateral represents the most significant credit risk mitigation tool for the Group, making effective collateral management one of the key risk management components. Collateral on loans extended by the Group may include, but is not limited to, real estate, cash deposits, vehicles, equipment, inventory, precious metals, securities and third party guarantees.

The Group has a largely collateralised portfolio in all its segments, with real estate representing a major share of collateral. As of 30 June 2020, 74.9% of the Group's portfolio was secured by cash, real estate or gold. A sound collateral management framework ensures that collateral serves as an adequate mitigating factor for credit risk management purposes.

2. PRINCIPAL RISK 

The Group faces currency-induced credit risk due to the high share of loans denominated in foreign currencies in the Group's portfolio.

A potential material GEL depreciation is one of the most significant risks that could negatively impact portfolio quality, due to the large presence of foreign currencies on the Group's balance sheet. Unhedged borrowers could suffer from an increased debt burden when their liabilities denominated in foreign currencies are amplified.

Risk description

A significant share of the Group's loans (and a large share of the total banking sector loans in Georgia) is denominated in currencies other than GEL, particularly in US$ and EUR. As of H1 2020, the local regulator, the National Bank of Georgia ("NBG") reported that 57.1% of total banking sector loans were denominated in foreign currencies. As of the same date, 60.7% of the Group's total gross loans and advances to customers (before provision for loan impairment) were denominated in foreign currencies.

The income of many customers is directly linked to foreign currencies via remittances, tourism or exports. Nevertheless, customers may not be protected against significant fluctuations in the GEL exchange rate against the currency of the loan. The US$/GEL rate remained volatile throughout H1 2020 and the GEL weakened 6.5% YTD. The GEL remains in free float and is exposed to many internal and external factors that in some circumstances could result in its depreciation.

Risk mitigation

Particular attention is paid to currency-induced credit risk, due to the high share of loans denominated in foreign currencies in the portfolio. The vulnerability to exchange rate depreciation is monitored in order to promptly implement an action plan, as and when needed. The ability to withstand certain exchange rate depreciation is incorporated into the credit underwriting standards, which also include significant currency devaluation buffers for unhedged borrowers. The NBG, under its responsible lending initiative, which came into force on 1 January 2019, introduced significantly more conservative PTI and LTV thresholds for unhedged retail borrowers, further limiting their exposure to currency induced credit risk. The NBG eased the above-mentioned regulation from April 2020. The changes are more relevant to hedged borrowers. For unhedged borrowers, PTI and LTV thresholds will remain significantly more conservative. In addition, the Group holds significant capital against currency-induced credit risk. Given the experience and knowledge built throughout the recent currency volatility, the Group is in a good position to promptly mitigate exchange rate depreciation risks.

3. PRINCIPAL RISK 

The Group's performance may be compromised by adverse developments in the economic environment.

A stronger contraction of the economy in Georgia and political instability related to the upcoming parliamentary elections could have a more significant impact on the repayment capacity of the borrowers, restraining their future investment and expansion plans. These occurrences would be reflected in the Group's portfolio quality and profitability, and would further impede portfolio growth rates. Negative macroeconomic developments could compromise the Group's performance through various parameters, such as exchange rate depreciation, a spike in interest rates, rising unemployment, a decrease in household disposable income, falling property prices, worsening loan collateralisation, or falling debt service capabilities of companies as a result of decreasing sales. Potential political and economic instability in neighbouring countries and Georgia's main trading partners could negatively impact the country's economic outlook through a worsening current account (e.g. decreased exports, tourism inflows, remittances and foreign direct investments).

Risk description

According to Geostat, real GDP increased by 2.2% in the first quarter of 2020 and fell sharply by 16.6% in April and by 13.5% in May as strict mobility restrictions were introduced. The decline moderated somewhat in June to -7.7%, which can be attributed to the easing of restrictions that began at the end of May 2020. The recovery started from June 2020, but it has been uneven with tourism related sectors remaining deeply negative as borders are still mostly closed with several flights only expected to resume from August 2020

On the other hand, other major sources of inflows displayed much better dynamics: exports fell by 31.3% YoY in May 2020 but moderated to -14.0% YoY in June, while remittance inflows even experienced positive growth, although to some extent that reflected an increase in electronic transfers as physical borders remain closed. Domestic demand dynamics also seem promising with a recovery in imports and a number of high-frequency indicators1 rebounding strongly after hitting lows in April-May.

Key budget parameters were revised substantially to accommodate a stimulus package to support the economy amid the COVID-19 related fallout. The budget deficit is currently projected at 8.5% of GDP for 2020, which will mostly be financed by external borrowing amounting to USD 1.7 billion (excl. repayments). Additional spending will be diverted both to social spending and to support crisis-affected sectors. More importantly, the secured funding is enough to finance the increased budget deficit, as well as to create an additional buffer of 2.7 billion GEL (5.4% of GDP), which will be available in case of further deterioration of the macro scenario, compared with the baseline one.

As of the end of June 2020, the USD/GEL exchange rate depreciated by 17.0% YoY, while the EUR/GEL exchange rate depreciated by 5.5% YoY. The real effective exchange rate (REER) of the GEL weakened by 2.1% YoY in June 2020 while it appreciated by 1.4% MoM. The NBG continues to sell FX reserves to address the shortage of inflows caused by the pandemic. Also, the central bank has been gradually cutting the monetary policy rate to support GEL lending, while taking into account wider uncertainties and its goal of bringing inflation down closer to its target. Bank credit growth also moderated to 13.9% YoY on FX adjusted terms as of June 2020, compared to 17.1% YoY growth by the end of 1Q 2020. So far, there are no signs of a "credit crunch" that could further exacerbate the impact of crises on the real economy.

Georgia remains vulnerable to further deterioration of the external and internal economic environment, which would further worsen key macroeconomic variables including GDP growth and exchange rate.

Risk mitigation

To decrease its vulnerability to economic cycles, the Group identifies cyclical industries and proactively manages its underwriting approach and clients within its risk appetite framework.

The Group has in place a macroeconomic monitoring process that relies on close, recurrent observation of the economic developments in Georgia, as well as in neighbouring countries, to identify early warning signals indicating imminent economic risks. This system allows the Group to promptly assess significant economic and political occurrences and analyse their implications for the Group's performance. The identified implications are duly translated into specific action plans with regards to reviewing the underwriting standards, risk appetite metrics or limits, including the limits for each of the most vulnerable industries.

Additionally, the stress testing and scenario analysis applied during the credit review and portfolio monitoring processes enable the Group to have an advance evaluation of the impact of macroeconomic shocks on its business. Resilience towards a changing macroeconomic environment is incorporated into the Group's credit underwriting standards. As such, borrowers are expected to withstand certain adverse economic developments through prudent financials, debt-servicing capabilities and conservative collateral coverage.

Taking into account the impact of the COVID-19 crisis on Georgia's economy, the Group has adjusted its risk management framework leveraging its already existing stress testing practices.

4. PRINCIPAL RISK 

The Group faces the capital risk of not meeting the minimum regulatory requirements. The Bank is regulated by the National Bank of Georgia (NBG). The regulation requires compliance with certain capital adequacy ratios. The local regulator has the right to impose additional regulations on a bank if it perceives excessive risks and uncertainties in that lender or in the market.  In addition, potential GEL depreciation would increase the Bank's risk weighted assets and impairment charges, which in turn would negatively affect the Bank's capital adequacy ratios. A 10% GEL depreciation translates into negative impacts of 0.86 pp, 0.75 pp and 0.58 pp on CET1, Tier 1 and Total Regulatory capital adequacy ratios, respectively.

 

Risk description

In light of the COVID-19 pandemic, the NBG implemented certain countercyclical measures in relation to capital adequacy requirements:

· Postponing the phasing in of concentration risk and the net GRAPE (General Risk Assessment Program) buffer capital requirements on CET1 capital, planned in March 2020;

· Allowing banks to use the conservation buffer and 2/3 of currency induced credit risk (CICR) buffer;

· Leaving open the possibility of releasing all the remaining pillar 2 buffers (remaining 1/3 CICR, concentration risk and Net Grape buffers) in case of necessity.

Whenever the Bank utilizes conservation and Pillar 2 buffers, it is restricted to make any capital distribution.

If the NBG changes the decision with regards to capital adequacy limits, the banking sector shall have one year to comply with the changes.

In March 2020, the Bank created additional credit loss allowances according to local standards to cover for potential COVID-19 related losses in the amount of 3.1% of the total loan book, which had a 2.19 pp impact on CET1 CAR.

As a result, the Bank's capitalization as of June 2020 stood at 10.0%, 12.7% and 17.2% compared to the regulatory minimum requirement of 6.9%, 8.7% and 13.3% for CET1, Tier 1 and Total capital, respectively. The ratios were well above the new regulatory minimums.

Risk mitigation

The Group undertakes stress-testing and sensitivity analysis to quantify extra capital consumption under different scenarios. Such analyses indicate that the Group holds sufficient capital to meet the current minimum regulatory requirements. Capital forecasts, as well as the results of the stress-testing and what-if scenarios, are actively monitored with the involvement of the Bank's Management Board and Risk Committee to ensure prudent management and timely actions when needed.

5. PRINCIPAL RISK 

The Group is exposed to regulatory and enforcement action risk. 

The Bank's activities are highly regulated and thus face regulatory risk. The NBG can increase prudential requirements across the whole sector as well as for specific institutions within it. Therefore, the Group's profitability and performance may be compromised by an increased regulatory burden.

Risk description

The NBG sets lending limits and other economic ratios (including, inter alia, lending, liquidity and investment ratios) in addition to mandatory capital adequacy ratios.

The NBG is also responsible for conducting investigations into specific transactions to ensure compliance with Georgian finance laws and regulations. In that regard, the Bank was subject to an inspection by the NBG in connection with certain transactions that took place in 2007 and 2008. The inspection alleged that these transactions between the Bank and certain entities were not in technical compliance with Georgian law regulating conflicts of interest. In February 2019, the Company, the Bank and the NBG issued a joint statement confirming the settlement of this investigation and stating that the Bank had fully complied with the normative economic requirements and limits set by the NBG.

In parallel, the Georgian Office of Public Prosecution launched an investigation into the same matter and has charged the founders of the Bank. The court case with the founders is ongoing. However, the founders have stood down from all their positions within the Group and the Bank.

Under Georgian banking regulations, the Bank is required, among other things, to comply with minimum reserve requirements and mandatory financial ratios, and regularly to file periodic reports. The Bank is also regulated by the tax code and other relevant laws in Georgia. Following the Company's listing on the London Stock Exchange's premium segment, the Group became subject to increased regulations from the UK Financial Conduct Authority. In addition to its banking operations, the Group also offers other regulated financial services products, including leasing, insurance and brokerage services.

TBC Bank's subsidiary has been granted a banking licence in Uzbekistan and has launched its banking operations there initially in a pilot mode for "friends and family", with plans to extend its services to the broader population in August 2020. As a result of this project, increased regulatory compliance requirements for the Group are anticipated.

Additionally, as part of the Group's international strategy, the ongoing merger between Yelo Bank (former Nikoil Bank) and TBC Kredit is subject to regulatory approval. If the approval is granted, the Group's intention is to increase its shareholding in the merged entity to over 50% over a four-year period. This will, in turn, increase the Group's exposure to the regulatory environment in Azerbaijan. However the Group is assessing the feasibility of the completion of the transaction.

The Group takes operational steps with the intention of ensuring compliance with the relevant legislation and regulations. The Group is also subject to financial covenants in its debt agreements. For more information, see page 114 in the Group's Reviewed Financial Statements.

Risk mitigation

The Group has established systems and processes to ensure full regulatory compliance, which are embedded in all levels of the Group's operations. The dedicated compliance department reports directly to the Chief Executive Officer and has a primary role in the management of regulatory compliance risk. The Group's Risk Committee is responsible for regulatory compliance at the Board level. In terms of banking regulations and Georgia's taxation system, the Group is closely engaged with the regulator to ensure that new procedures and requirements are discussed in detail before their implementation. Although the decisions made by regulators are beyond the Group's control, significant regulatory changes are usually preceded by a consultation period that allows all lending institutions to provide feedback and adjust their business practices.

Regarding the investigations by the NBG in February 2019, the Company, the Bank and the NBG issued a joint announcement confirming the settlement of this investigation. In response to the regulatory review and investigations, the founding shareholders have stood down from their roles within the Group and the Bank. The Company has implemented a mirror board structure strengthening the board with the new appointments. In addition, the Bank, with the assistance of external advisers, undertook a review of the Bank's relevant internal controls systems. Although these reviews did not identify any material deficiencies in the Bank's existing internal controls and compliance systems, they did make certain technical recommendations for further improvements in the Bank's processes and procedures, which are being implemented.

6. PRINCIPAL RISK 

The Group is exposed to concentration risk.

Banks operating in developing markets are typically exposed to both single-name and sector concentration risks.

The Group has large individual exposures to single-name borrowers whose potential default would entail increased credit losses and high impairment charges.

The Group's portfolio is well diversified across sectors, resulting in only a moderate vulnerability to sector concentration risks. However, should exposure to common risk drivers increase, the risks are expected to amplify correspondingly.

Risk description

The Group's loan portfolio is diversified, with maximum exposure to the single largest industry (Real Estate) standing at 8.9% of the loan portfolio as of H1 2020. This figure is reasonable and demonstrates adequate credit portfolio diversification.

As of H1 2020, exposure to the 20 largest borrowers stands at 12.3% of the loan portfolio, which is in line with the Group's target of alleviating concentration risk.

Risk mitigation

The Group constantly monitors the concentrations of its exposure to single counterparties, as well as sectors and common risk drivers, and it introduces limits for risk mitigation.

As part of its risk appetite framework, the Group limits both single-name and sector concentrations. Any considerable change in the economic or political environment, in Georgia as well as in neighbouring countries, will trigger the Group's review of the risk appetite criteria to mitigate emerging risk concentrations. Stringent monitoring tools are in place to ensure compliance with the established limits.

The NBG's capital framework includes a concentration buffer under Pillar 2 that helps to ensure that the Group remains adequately capitalised to mitigate concentration risks.

7. PRINCIPAL RISK 

Liquidity risk is inherent in the Group's operations.

While the Board believes that the Group currently has sufficient financial resources available to meet its obligations as they fall due, liquidity risk is inherent in banking operations and can be heightened by numerous factors. These include an overreliance on, or an inability to access, a particular source of funding, as well as changes in credit ratings or market-wide phenomena, such as the global financial crisis that commenced in 2007.

Access to credit for companies in emerging markets is significantly influenced by the level of investor confidence and, as such, any factors affecting investor confidence (e.g. a downgrade in credit ratings, central bank or state interventions, or debt restructurings in a relevant industry) could influence the price or the availability of funding for companies operating in any of these markets.

Risk description

Throughout H1 2020, the Group was in compliance with the minimum liquidity requirements set by the NBG. This is in addition to the Basel III guidelines, under which a conservative approach was applied to deposit withdrawal rates, depending on the concentration of client groups. From October 2019, the Bank's foreign currency mandatory reserve was fully categorized as a high quality liquid asset (HQLA) for regulatory LCR calculation purposes, which had a positive effect on the LCR ratio. In September 2019, the NBG also introduced a Net Stable Funding Ratio.

As of 30 June 2020, the net loan to deposits plus international financial institution funding ratio stood at 105.3%, the liquidity coverage ratio at 124.8%, and the net stable funding ratio at 127.5%. These figures are all comfortably above the NBG's minimum requirements or guidance for such ratios.

As a result of the COVID-19 pandemic, the NBG implemented certain countercyclical measures in relation to liquidity requirements:

· opened USD/GEL FX swap lines with unlimited amounts;

· removed  minimum requirement on GEL, LCR (>=75%) for one year period;

· allowed pledging a business loans for liquidity support purposes.

If necessary, the NBG will implement following measures:

· decreasing LCR limits;

· decreasing mandatory reserve requirements in foreign currency. 

Risk mitigation

To mitigate this risk, the Group holds a solid liquidity position and performs an outflow scenario analysis for both normal and stress circumstances to make sure that it has adequate liquid assets and cash inflows. The Group maintains a diversified funding structure to manage the respective liquidity risks. The Board believes there is adequate liquidity to withstand significant withdrawals of customer deposits, but the unexpected and rapid withdrawal of a substantial amount of deposits could have a material adverse impact on the Group's business, financial condition, and results of operations and/or prospects. As part of its liquidity risk management framework, the Group has a liquidity contingency plan in place outlining the risk indicators for different stress scenarios and respective action plans. The liquidity risk position and compliance with internal limits are closely monitored by the Assets and Liabilities Management Committee (ALCO).

8. PRINCIPAL RISK

Any decline in the Group's net interest income or net interest margin could lead to a reduction in profitability.

Net interest income accounts for the majority of the Group's total income. Consequently, fluctuations in its NIM affect the results of operations. The new regulations as well as high competition could drive interest rates down, compromising the Group's profitability. At the same time, the cost of funding is largely exogenous to the Group and is derived from both national and international markets.

Risk description

The majority of the Group's total income derives from net interest income. Consequently, the NIM's fluctuations affect the Group's results. In H1 2020, the NIM decreased by 1.3 pp YoY to 4.7%. The decrease was mainly driven by the market pressure on funding rate in local currency and the introduction of the responsible lending regulation from 1 January 2019, limiting the Bank's ability to lend money to higher-yield retail customers, as well as other factors such as foreign currency exchange rate depreciation.

The Group manages its direct exposure to the LIBOR and local refinancing rates through respective limits and appropriate pricing. As of 30 June 2020, GEL 5,988 million in assets (30%) and GEL 4,143 million in liabilities (24%) were floating, related to the LIBOR/FED/ ECB (deposit facility) rates, and as per internal judgment, whereas GEL 5,526 million of assets (28%) and GEL 3,595 million of liabilities (21%) were floating, related to the NBG's refinancing rate. The reprising maturity of floating liabilities within a one-year horizon exceeds the one of floating assets.

 

 

Risk mitigation

In 2020, the pressure on NIM is expected be partially offset by our increased focus on cost efficiency, while in the medium term, the increase in fee and commission income and other operating income will support the Bank's profitability.  

To mitigate the asset-liability maturity mismatch, in cases where loans are extended on fixed rather than floating terms, the interest rate risk is translated into price premiums, safeguarding against changes in interest rates.

9. PRINCIPAL RISK 

The threat posed by cyber-attacks has increased in recent years and it continues to grow. The risk of potential cyber-attacks, which have become more sophisticated, may lead to significant security breaches. Such risks change rapidly and require continued focus and investment.

Erroneous statement in TBC Bank Group PLC's Annual Report and Accounts for year ended 31 December 2019.

The following statement was included on Page 58 of the Strategic Report of the above accounts:

"We are conducting external audits and threat intelligence led cyber-attack readiness exercises on a regular basis, which provides us with a practical view of our information and cyber security position. It also gives us a benchmark against international best practices and helps to define readiness levels against real-world cyber threats. We are using it as one of the inputs in our continuous improvement cycle. The latest review was conducted in 2019 by Deloitte UK, which confirmed that our critical systems ensure high reliability against cyber threats."

We have been alerted to the fact that the last sentence, which refers to 'Deloitte UK's findings, is erroneous. Whilst Deloitte LLP did undertake a threat intelligence led cyber-attack readiness exercise, their findings were materially different to those presented in our Annual Report and, for the avoidance of doubt, their review did not confirm that our critical systems ensure high reliability against cyber threats. The review identified a number of security weaknesses and made recommendations for remedial actions, which the Bank is now implementing. Further, Deloitte LLP's review did not constitute any form of external audit or other assurance review.

Risk description

During the pandemic, the Bank's dependency on its IT systems further increased as around 95% of the Bank's back office employees are working remotely. Remote working practices may result in increased system and behavioural risks.

No major cyber-attack attempts have targeted Georgian commercial banks in recent years. Nonetheless, the Group's rising dependency on IT systems increases its exposure to potential cyber-attacks.

Risk mitigation

The Group actively monitors, detects and prevents risks arising from cyber-attacks. Staff members monitor developments on both the local and international markets to increase awareness of emerging forms of cyber-attacks. Intrusion prevention and Distributed Denial of Service (DDoS) protection systems are in place to protect the Group from external cyber-threats. Security incident and event monitoring systems, in conjunction with the respective processes and procedures, are in place to handle cyber-incidents effectively.

Processes are continuously updated and enhanced to respond to new potential threats. A data recovery policy is in place to ensure business continuity in case of serious cyber-attacks. In addition, an Information Security Steering Committee is actively involved in improving information security and business continuity management processes to minimise information security risks.

As a result of the COVID-19 pandemic, the Bank activated secure remote working policies, which ensure that homeworking environments are protected against relevant cyber-threats, and our security team provides effective oversight of teleworking channels. Additionally, awareness program and communication strategy was refreshed to increase the effectiveness of remote working capabilities.

 

 

 

 

 

 

 

 

 

10. PRINCIPAL RISK 

External and internal fraud risks are part of the operational risk inherent in the Group's business. Considering the increased complexity and diversification of operations, together with the digitalisation of the banking sector, fraud risks are evolving. Unless proactively managed, fraud events may materially impact the Group's profitability and reputation.

Risk description

External fraud events may arise from the actions of third parties against the Group, most frequently involving events related to banking cards, loans and cash. Internal fraud events arise from actions committed by the Group's employees, and such events happen less frequently.

During the reporting period, the Group faced only a few instances of fraud, none of which had a material impact upon the Group's profit and loss statement. Nonetheless, fraudsters are adopting new techniques and approaches to exploit various possibilities to illegally obtain funds. Fraud threats are relatively elevated in relation to COVID-19 due to the potential growth of external scams, the economic downturn and other related factors. Therefore, unless properly monitored and managed, the potential impact can become substantial.

 

Risk mitigation

The Group actively monitors, detects and prevents risks arising from fraud events, and permanent monitoring processes are in place to detect unusual activities in a timely manner. The risk and control self-assessment exercise focuses on identifying residual risks in key processes, subject to the respective corrective actions. Given our continuous efforts to monitor and mitigate fraud risks, together with the high sophistication of our internal processes, the Group ensures the timely identification and control of fraud-related activities.

11. PRINCIPAL RISK 

The Group is currently exposed to reputational risk. 

The media coverage in Georgia surrounding the founders of the Bank represents a risk to the reputation of the Group.

Risk description

There are principal risks that may arise from negative publicity surrounding TBC Bank and its public perception, as well as that of the banking sector in Georgia as a whole. In particular, media exposure in relation to TBC Bank and its founders has threatened to have an adverse impact on the Bank's operations. An inability to manage such reputational risks could have an adverse impact upon the Bank and its stakeholders, including its clients, employees and shareholders.

Risk mitigation

To mitigate possibility of reputational risks, the Bank works continuously to maintain strong brand recognition within its stakeholders. The Bank actively monitors its brand value by receiving feedback from stakeholders on an ongoing basis. The Group tries to identify early warning signs of potential reputational or brand damage in order to both mitigate it and elevate it to the attention of the Board before escalation. Dedicated internal and external marketing and communications teams are in place which have the responsibility to monitor risks, develop scenarios and create respective action plans. 

12. PRINCIPAL RISK 

The Group faces the risk that its strategic initiatives do not translate into long-term sustainable value for its stakeholders.

The Group's business strategy may not adapt to the environment of ever changing customer needs.

Risk description

The Group may face the risk of developing a business strategy that does not safeguard long-term value creation in an environment of changing customer needs, competitive environment and regulatory restrictions. In addition, the Group may be exposed to the risk that it will not be able to effectively deliver on its strategic priorities and thereby compromise its capacity for long-term value creation. Further, increased uncertainty together with the major economic and social disruptions caused by the COVID-19 pandemic may hamper the Group's ability to effectively develop and execute its strategic initiatives in a timely manner.

 

Risk mitigation

The Group conducts annual strategic review sessions involving the Bank's top and middle management in order to ensure that it remains on the right track and assesses business performance across different perspectives, concentrating analysis on key trends and market practices, both in the regional and global markets. In addition, the Bank continuously works with the world's leading consultants in order to enhance its strategy. Further, the Group conducts quarterly analysis and monitoring of metrics used to measure strategy execution, and in case of any significant deviations, it ensures the development of corrective or mitigation actions.

In light of the COVID-19 pandemic, the Group has reviewed its strategic priorities given an increased pressure on capital and people as well as emerging new opportunities. While the main themes have not changed, the Group has prioritized digital channels, customer centricity, data analytics and international expansion for the next three years ahead.

13. PRINCIPAL RISK 

The Group is exposed to risks related to its ability to attract and retain highly qualified employees.

A strong employee base is vital to the success of the Group.

Risk description

The Group faces the risk of losing of key personnel or the failure to attract, develop and retain skilled or qualified employees. In particular, the strategic decision to transform into a digital company entails increased demands on highly competent IT professionals across the Group. In addition, in order to adapt to the fast changing business environment, the Group needs to foster an "Agile" culture and equip employees with the necessary skills. In addition, COVID-19 has created additional HR challenges in relation to safeguarding employees' health and wellbeing, maintaining high efficiency levels as well as strong internal communication and a strong corporate culture.

Risk mitigation

The Group pays significant attention to human capital management strategies and policies, which include approaches to the recruitment, retention and development of talent, and offers competitive reward packages to its employees. The Group has also developed and implemented an "Agile" framework that aims to increase employee engagement and satisfaction. Moreover, the Bank has set up an IT academy to attract and train young professionals. The best students are offered employment at the Bank. In addition, the Bank has an in-house academy that provides various courses for employees in different fields.

In response to the COVID-19 pandemic, we have promptly moved our back-office employees to a remote working practise by equipping them with all the necessary IT infrastructure. At the same time, to ensure effective internal communication, we enhanced different digital channels to engage with our employees. Regular management meetings are being conducted with staff in order to keep them updated with the Group's strategic initiatives and financial position as well as address their concerns during this highly uncertain period. In addition, in order to promote our corporate culture, the Bank's internal Facebook group has become more active by posting employee profiles and sharing success stories.

In relation to our front-office employees, we have introduced appropriate safety and social distancing measures in our branches and offices in line with WHO recommendations. We have also introduced two-week shifts for the front office staff to mitigate the pandemic risk. In addition, financial benefits were given to employees with high-risk exposure.

Emerging Risks

 

Emerging risks are those that have large unknown components and may affect the performance of the Group over a longer time horizon. We believe the following risks have the potential to increase in significance over time and could have the same impact on the Group as the principal risks.

1. EMERGING RISK 

The Group is exposed to the risks inherent in international operations.

TBC Bank's subsidiary, TBC Bank in Uzbekistan, obtained a banking licence in April 2020 and has launched its banking operations in Uzbekistan, initially in a pilot mode for "friends and family", with plans to extend its services to the broader population in August 2020. The total amount of investment in 2020 from all shareholders is expected to amount to about US$ 40 million. TBC Group will hold around 51%. This investment exposes the Group to Uzbekistan's macro-economic political and regulatory environments, including exposure to risks arising from credit, market, operational and capital adequacy risks as well as risks related to COVID-19 in Uzbekistan. In addition, the Group is considering the feasibility of its expansion plans in Azerbaijan.

Currently, the Group's business activities are mainly concentrated in Georgia, but international activities are expected to contribute to around 30% of the Group's loan book over the medium to long-term.

Risk description

The risk posed by the operating environment in Uzbekistan and Azerbaijan may change the Group's risk profile as a result of this international expansion.

According to the latest IMF forecasts, Uzbekistan is a rapidly developing economy with over 5% real GDP growth projected in the medium term. The Uzbekistani economy is well diversified with no major reliance on a particular industry. It has one of the lowest public debts as a percentage of GDP in the region and high international reserves, implying macroeconomic stability as well as room for future high growth. The new government of Uzbekistan plans to reform the economy and open it up to foreign investment. While the operational environment in Uzbekistan can be assessed as attractive, there are important risks that could materially affect the Group's performance in the country. These risks include, but are not limited to, political instability, the slow pace of reforms, adverse developments in inflation and fluctuations in the exchange rate. As for the impact of COVID-19, per latest World Bank projections, Uzbekistan GDP is expected to still demonstrate positive growth of 1.5% in 2020. As for the recovery in 2021, it is expected to be a solid 6.6%.

Azerbaijan is a small, open economy with a high reliance on oil exports. The economy of Azerbaijan started to recover in 2017 after a contraction in 2016 that was caused by the significant decline in oil prices in the period 2014-2016. The combination of a slump in oil prices and COVID-19 related restrictions has again triggered recession in Azerbaijan and, according to the latest World Bank estimates, Azerbaijani GDP is expected to drop by 2.6% in 2020, before recovering by 2.2% in 2021. Furthermore, potential political instability and unfavourable developments in state regulations can also negatively affect the Group's business in Azerbaijan.

Risk mitigation

The Group's strategy is to follow an asset-light, limited capital investment approach with a strong focus on digital channels and to invest in stages, to make sure that we are comfortable with the results and the operating environment before committing additional investment. The Group plans to serve retail and MSME customers, which will in turn lead to a non-concentrated portfolio and subsequently to lower credit risk. The Group will partner with international financial institutions that intend to take a shareholding in the Uzbek bank in order to ensure the funding of our business plan and sufficient flexibility across our operations in Uzbekistan. 

The Group has been operating in Azerbaijan through a small microfinance organization for a number of years, which provides experience and knowledge of the local banking environment. In addition, our exposure in Azerbaijan is limited before the option is exercised. The Group will exercise the option only after it becomes comfortable with developments, including the operating environment. The management will focus on establishing a strong risk management function to ensure that all risks are managed and mitigated properly. The Group will leverage its strong risk management expertise to establish sound risk management practices in new jurisdictions.

Overall, from the Group's perspective, international expansion will result in the diversification of business lines and revenue streams, balancing the overall risk profile of the Group.

2. EMERGING RISK 

The Group is exposed to risks arising from climate change.

Risk description

The risks associated with climate change have both a physical impact arising from more frequent and severe weather changes and a transitional impact that may entail extensive policy, legal and technological changes to reduce the ecological footprint of households and businesses. For the Group, both of these risks can materialise through the impairment of asset values and deteriorating creditworthiness of our customers, which could result in the reduction of the Group's profitability. The Group may also become exposed to reputational risks as a result of its lending to, or other business operations with, customers deemed to be contributing to climate change.

Risk mitigation

The Group's objective is to act responsibly and manage the environmental and social risks associated with its operations in order to minimise negative impacts on the environment. This approach enables us to reduce our ecological footprint by using resources efficiently and promoting environmentally friendly measures in order to mitigate climate change.

The Group has in place an Environmental Policy, which governs its Environmental Management System (the "EMS") and promotes adherence of the Group's operations to the applicable environmental, health and safety and labour regulations and practices. We take all reasonable steps to support our customers in fulfilling their environmental and social responsibilities. Management of environmental and social risks is embedded in the Group's lending process through the application of the EMS. The Group has developed risk management procedures to identify, assess, manage and monitor environmental and social risks. These procedures are fully integrated in the Group's credit risk management process. Our Environmental Policy is fully compliant with Georgian environmental legislation and follows international best practices (the full policy is available at www.tbcbankgroup.com).

3. EMERGING RISK 

The Group's performance may be affected by LIBOR discontinuation and transition.

Risk description

There are a number of different types of financial instruments on the Group's balance sheet, each of which carries interest rates benchmarked to the London Interbank Offered Rate ("LIBOR"). LIBOR is also used by the Group in its risk measurement, accounting and valuation processes. In 2017, the FCA announced that it has agreed with LIBOR panel banks to sustain LIBOR until the end of 2021 and called on financial sector participants to start working towards the transition to other reference rates. The discontinuation of LIBOR and the process of transition exposes the Group to execution, conduct, financial and operational risks, and may result in earnings volatility, customer complaints and legal proceedings, or have other adverse impact on the Group's business and operations.

Risk mitigation

The Group is in the process of identifying the implications of such a transition to other reference rates on its risk profile by analysing its execution, conduct, financial and operational risks and how such risks could be addressed. TBC is proactively working with industry participants, such as the NBG, the Banking Association of Georgia and IFI lenders to facilitate orderly transition to other reference rates. The Group is starting its efforts to raise awareness of the transition, both internally and externally, to ensure that staff have all the necessary knowledge and tools to facilitate the transition and that all of the Group's customers are treated fairly. We actively monitor international as well as local transition-related developments to regulate and align the Group's transition process with market practice.

4. EMERGING RISK 

The spread of coronavirus (COVID-19) comes with unpredictable economic and social consequences.

Risk description

Although COVID-19 has been contained relatively successfully in Georgia, developments in some countries still indicate the high risk of a return of the virus and repeated mobility restrictions. This scenario could severely damage the recovery dynamics and result in a much deeper recession than assumed in the baseline scenario. In such a scenario, the macro environment worsens even further with a much stronger decrease in economic growth, increased unemployment, depreciation of the GEL, decreased commodity and real estate prices, impaired creditworthiness of the private sector, and higher financial and non-financial risks to the Group.

According to the state budget approved in June, the deficit is currently projected at 8.5% of GDP for 2020, mostly to be financed by external borrowing of around USD 1.6 billion. Additional spending will be diverted both to social spending and to support crisis-affected sectors. In the event of an adverse scenario developing, the economic hit could be partially mitigated by the utilization of the additional fiscal buffer of GEL 2.7 billion (5.4% of GDP), together with further likely support from international donors. Higher stimulus would likely be reflected in larger direct support of the most vulnerable sectors and individuals in the form of tax cuts, subsidies and social transfers as well as possibly in stronger capital spending.

Together with international support, it is also important to take into account that there were no signs of overheating of the Georgian economy during the pre-distress period, including the housing market. Therefore, once the virus is contained, most industries should recover relatively quickly, although the hospitality sector is likely to lag behind for an additional period.

Risk mitigation

The Group actively analyses adverse scenarios and their economic consequences. As part of the stress testing exercise, we have analysed multiple scenarios to ensure that the Group has sufficient liquidity and capital to meet updated regulatory capital and liquidity requirements. The NBG implemented countercyclical measures to support the financial stability of the banking system by relaxing capital and liquidity requirements.

In addition we have close communications with our business customers, discussing their strategies and sharing our outlook on the economy and its key sectors.

Also, we have close communications with our business customers discussing their strategies and sharing our outlook on the economy and its key sectors.

 

 

 

Statement of Directors' Responsibilities

Each of the Directors (the names of whom are set out below) confirm that to the best of their knowledge that:

· The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union;

· The interim management report herein includes a fair review of the information required by Disclosure Guidance and Transparency Rules 4.2.7R and 4.2.8R namely:

o an indication of important events that have occurred during the six months ended 30 June 2020 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

o any related party transactions in the six months ended 30 June 2020 that have materially affected the financial position or performance of TBC Bank during that period and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of TBC Bank in the six months ended 30 June 2020.

 

 

Signed on behalf of the Board by:

 

Vakhtang Butskhrikidze 

Giorgi Shagidze

 

CEO

 

Deputy CEO, CFO

 

17 August 2020

 

17 August 2020

 

 

 

TBC Bank Group PLC Board of Directors:

 

 

 

Chairman

 

Nikoloz Enukidze

 

 

 

Executive Directors

Non-executive Directors

Vakhtang Butskhrikidze (CEO) 

Nicholas Dominic Haag

Giorgi Shagidze (CFO)

Maria Luisa Cicognani

 

Tsira Kemularia

Eric J. Rajendra

Arne Berggren

Abhijit Akerkar

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-TBC BANK GROUP PLC

 

Condensed Consolidated Interim Financial

Statements (Unaudited)

 

 

30 June 2020

 

 

 

Contents

 

 

Independent review report

 

Unaudited Condensed Consolidated Interim Financial Statements

 

Condensed Consolidated Interim Statement of Financial Position .................................................................................................... 58

Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income..................................................... 59

Condensed Consolidated Interim Statement of Changes in Equity..................................................................................................... 61

Condensed Consolidated Interim Statement of Cash Flows............................................................................................................... 63

Notes to the Condensed Consolidated Interim Financial Statements.................................................................................................. 64

 

 

 

 

Independent review report to TBC Bank Group plc

Report on the Unaudited Condensed Consolidated Interim Financial Statements

Our conclusion

We have reviewed TBC Bank Group plc's Unaudited Condensed Consolidated Interim Financial Statements (the "interim financial statements") in the 2Q and 1H 2020 Financial Results of TBC Bank Group plc for the 6 month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

· the Condensed Consolidated Interim Statement of Financial Position as at 30 June 2020;

· the Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income for the period then ended;

· the Condensed Consolidated Interim Statement of Cash Flows for the period then ended;

· the Condensed Consolidated Interim Statement of Changes in Equity for the period then ended; and

· the Notes to the Condensed Consolidated Interim Financial Statements.

The interim financial statements included in the 2Q and 1H 2020 Financial Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2.1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The 2Q and 1H 2020 Financial Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the 2Q and 1H 2020 Financial Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the 2Q and 1H 2020 Financial Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Statements Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the 2Q and 1H 2020 Financial Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Edinburgh

17 August 2020

 

 

 

30 June 2020

31 December 2019*

31 December 2018*

In thousands of GEL

Note

(Unaudited)

 

 

 

 

 

 

 

Assets

 

 

 

 

Cash and cash equivalents

4

981,803

1,003,583

1,166,911

Due from other banks

5

30,879

33,605

47,316

Mandatory cash balances with the National Bank of Georgia

6

1,794,010

1,591,829

1,422,809

Loans and advances to customers

7

13,105,988

12,349,399

10,038,452

Investment securities measured at fair value through other comprehensive income

 

1,082,520

985,293

1,005,239

Bonds carried at amortized cost

 

1,335,415

1,022,684

654,203

Net investments in lease

 

270,172

256,660

203,802

Investment properties

 

70,716

72,667

84,296

Current income tax prepayment

 

36,703

25,695

2,116

Deferred income tax asset

22

7,470

2,173

2,097

Other financial assets

 

174,378

 133,736

167,518

Other assets

 

258,349

255,712

192,792

Premises and equipment

8

345,064

334,728

315,502

Right of use assets

 

62,865

59,693

Intangible assets

8

194,689

167,597

109,220

Goodwill

 

60,296

61,558

31,286

Investments in associates

 

2,112

2,654

2,432

 

 

 

 

 

 

 

 

 

 

Total assets

 

19,813,429

18,359,266

15,445,991

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

Due to credit institutions

9

4,403,406

3,593,901

3,031,503

Customer accounts

10

10,420,330

10,049,324

9,352,142

Other financial liabilities

 

138,749

113,609

98,714

Current  income tax liability

 

692

1,634

63

Debt securities in issue

12

1,396,141

1,213,598

13,343

Deferred income tax liability

22

5

18,888

19,793

Provisions for liabilities and charges

11

25,558

23,128

18,767

Other liabilities

 

80,557

95,161

104,337

Lease Liabilities

 

65,937

  59,898

Subordinated debt

13

628,649

591,035

650,919

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

17,160,024

15,760,176  

13,289,581

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

Share capital

14

1,682

1,682

1,650

Shares held by trust

 

(34,451)

(27,517)

Share premium

 

848,459

848,459

796,854

Retained earnings

 

2,029,545

1,961,172

1,531,561

Group reorganisation reserve

 

(162,166)

(162,166)

(162,166)

Share based payment reserve

15

(31,808)

(17,803)

(16,294)

Fair value reserve

 

(1,492)

  (6,476)

8,680

Cumulative currency translation reserve

 

(5,685)

(6,850)

(6,937)

 

 

 

 

 

 

 

 

 

 

Net assets attributable to owners

 

2,644,084

2,590,501

2,153,348

Non-controlling interest (NCI)

 

9,321

8,589

3,062

 

 

 

 

 

 

 

 

 

 

Total equity

 

2,653,405

2,599,090

2,156,410

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

19,813,429

18,359,266

15,445,991

 

 

 

 

 

*Certain amounts do not correspond to the 2019 consolidated financial statements as they reflect the adjustments made due to the change in accounting policy as described in Note 2. Restatement does not apply to Right of use assets as transition provisions for IFRS 16 have been adopted in 2019.

 

The financial statements on pages 58 to 121 were approved by the Board of Directors on 17 August 2020 and signed on its behalf on 17 August 2020 by:

 
___________________________   ______________________________

Vakhtang Butskhrikidze  Giorgi Shagidze

Chief Executive Officer   Chief Financial Officer

 

 

 

 

Six months ended

 

 

30 June 2020

30 June 2019

In thousands of GEL

Note

(Unaudited)

(Unaudited)

 

 

 

 

Interest income

18

787,893

 678,216

Interest expense

18

(408,091)

 (290,777)

Net gains on currency swaps

18

12,522

11,147

 

 

 

 

 

 

 

 

Net interest income

 

392,324

398,586

 

 

 

 

 

 

 

 

Fee and commission income

19

138,752

 129,885

Fee and commission expense

19

(55,683)

 (44,544)

 

 

 

 

 

 

 

 

Net fee and commission income

 

83,069

85,341

 

 

 

 

 

 

 

 

Net insurance premiums earned

 

26,618

 15,992

Net insurance claims incurred and agents' commissions

 

(16,337)

(7,925)

 

 

 

 

 

 

 

 

Insurance Profit

 

10,281

8,067

 

 

 

 

 

 

 

 

Net gains from trading in foreign currencies

 

49,406

34,987

Net (losses)/gains from foreign exchange translation

 

(1,627)

 9,214

Net losses from derivative financial instruments

 

(20)

 (245)

Net (losses)/gains from disposal of investment securities measured at fair value through other comprehensive income

 

(1,202)

147

Other operating income

20

7,977

7,810

Share of profit of associates

 

90

341

 

 

 

 

 

 

 

 

Other operating non-interest income

 

54,624

52,254

 

 

 

 

 

 

 

 

Credit loss allowance for loan to customers

7

(249,216)

  (66,483)

(Charge to)/recovery of credit loss allowance for net investments in leases

 

(4,278)

178

Credit loss allowance for performance guarantees and credit related commitments

11

(797)

(392)

(Charge to)/recovery of credit loss allowance for other financial assets

 

(4,222)

580

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

 

(538)

(350)

 

 

 

 

 

 

 

 

Operating profit after expected credit  losses

 

281,247

477,781

 

 

 

 

 

 

 

 

Losses from modifications of financial instruments

7

(34,170)

-

 

 

 

 

 

 

 

 

Staff costs

 

(114,006)

(116,639)

Depreciation and amortisation

8

(32,215)

(32,124)

Recovery of provision for liabilities and charges

 

77

1,441 

Administrative and other operating expenses

21

(56,016)

(64,575)

 

 

 

 

 

 

 

 

Operating expenses

 

(202,160)

(211,897)

 

 

 

 

 

 

 

 

Profit before tax

 

44,917

265,884

 

 

 

 

 

 

 

 

Income tax credit/(expense)

22

24,283

(12,344)

 

 

 

 

 

 

 

 

Profit for the period

 

69,200

253,540

 

 

 

 

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss:

 

 

 

Movement in fair value reserve

 

4,984

3,999

Exchange differences on translation to presentation currency

 

1,165

457

 

 

 

 

 

 

 

 

Other comprehensive income for the period

 

6,149

4,456

 

 

 

 

 

 

 

 

Total comprehensive income for the PERIOD

 

75,349

257,996

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

30 June 2020

30 June 2019

 

In thousands of GEL

Note

(Unaudited)

(Unaudited)

 

 

 

 

 

Profit is attributable to:

 

 

 

- Shareholders of TBCG

 

67,625

  253,235

- Non-controlling interest

 

1,575

 305

 

 

 

 

Profit for the period

 

69,200

253,540

 

 

 

 

 

 

 

 

Total comprehensive income is attributable to:

 

 

 

- Shareholders of TBCG

 

73,793

 257,687

- Non-controlling interest

 

1,556

 309

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

75,349

257,996

 

 

 

 

 

 

 

 

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

 

 

 

- Basic earnings per share

16

1.24

4.64

- Diluted earnings per share

16

1.23

4.62

 

 

 

 

       

 

 

 

In thousands of GEL

Note

 

 

 

 

Net assets attributable to owners

 

 

Share

capital

Shares held by trust

Share pre-mium

Group reorganisation reserve

Share based payments reserve

Revaluation reserve for premises

Fair value reserve

Cumulative currency translation reserve

Retained

earnings

Total

Non-control-ling interest

Total

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 31 December 2018

 

1,650

-

796,854

(162,166)

(16,294)

57,240

8,680

(6,937)

1,523,879

2,202,906

3,062

2,205,968

Change in accounting policy IAS 16

 

-

-

-

-

-

(57,240)

-

-

7,682

(49,558)

-

(49,558)

Balance as of 31 December 2018*

 

1,650

-

796,854

(162,166)

(16,294)

-

8,680

(6,937)

1,531,561

2,153,348

3,062

2,156,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the six months ended 30 June 2019 (unaudited)

 

-

-

-

-

-

-

-

-

253,235

253,235

305

253,540

Other comprehensive income/(loss) for six months ended 30 June 2019 (unaudited)

 

-

-

-

-

-

-

3,999

  453

-

4,452

4

4,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) for six months ended 30 June 2019 (unaudited)

 

-

-

-

-

-

-

3,999

453

253,235

257,687

309

257,996

Share issue

14

22

-

34,919

-

(34,941)

-

-

-

-

-

-

Share based payment expense

15

 - 

-

 - 

-

13,267

-

-

-

-

13,267

(25)

13,242

Business Combination

 

 - 

-

 - 

-

 - 

-

-

 - 

 - 

-

838

838

Purchase of additional interest from NCI

 

 - 

-

 - 

-

 - 

-

-

 - 

 - 

-

(104)

(104)

Dividends declared

 

-

-

-

-

-

-

-

-

(108,622)

(108,622)

-

(108,622)

Balance as of 30 June 2019 (unaudited)*

 

1,672

-

831,773

(162,166)

(37,968)

-

12,679

(6,484)

1,676,174

2,315,680

4,080

2,319,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 31 December 2019

 

 1,682

(27,517)

848,459

 (162,166)

 (17,803)

56,374

(6,476)

(6,850)

1,953,364

2,639,067

8,589

2,647,656

Change in accounting policy IAS 16

 

-

-

-

-

-

(56,374)

-

-

7,808

(48,566)

-

(48,566)

Balance as of 31 December 2019 restated*

 

1,682

(27,517)

848,459

(162,166)

(17,803)

-

(6,476)

(6,850)

1,961,172

2,590,501

8,589

2,599,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the six months ended 30 June 2020 (unaudited)

 

-

-

-

-

-

-

-

-

67,625

67,625

1,575

69,200

Other comprehensive income/(loss) for six months ended 30 June 2020 (unaudited)

 

-

-

-

-

-

-

4,984

1,184

-

6,168

(19)

6,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) for six months ended 30 June 2020 (unaudited)

 

-

 

  -

-

-

-

-

4,984

1,184

67,625

73,793

1,556

75,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share based payment expense

15

-

-

-

-

6,063

-

-

-

-

6,063

(28)

6,035

Delivery of shares to employees under SBP scheme

 

-

18,559

-

-

(20,068)

-

-

-

-

(1,509)

-

(1,509)

Share buy-back

 

-

(25,493)

-

-

-

-

-

-

-

(25,493)

-

(25,493)

Other movements

 

-

-

-

-

-

-

-

(19)

748

729

(796)

(67)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 30 June 2020 (unaudited)

 

1,682

(34,451)

848,459

(162,166)

(31,808)

-

(1,492)

(5,685)

2,029,545

2,644,084

9,321

2,653,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Certain amounts do not correspond to the 2019 consolidated financial statements and 2019 interim financial statements as they reflect the adjustments made due to the change in accounting policy as described in Note 2.

 

 

 

Six months ended

 

In thousands of GEL

Note

30 June 20 (Unaudited)

30 June 2019 (Unaudited)

 

 

 

 

Cash flows from/(used in) operating activities

 

 

 

Interest received

 

 579,414

 621,472

Interest received on currency swaps

 

 12,522

11,147

Interest paid

 

 (404,923)

 (291,963)

Fees and commissions received

 

 131,347

 127,685

Fees and commissions paid

 

 (56,054)

 (44,370)

Insurance and reinsurance received

 

 43,373

 18,560

Insurance claims paid

 

 (13,458)

 (9,727)

Income received from trading in foreign currencies

 

 49,406

 46,119

Other operating income received

 

 2,860

 11,500

Staff costs paid

 

 (120,706)

 (123,342)

Administrative and other operating expenses paid

 

 (61,860)

 (81,397)

Income tax paid

 

 (11,983)

 (30,900)

 

 

 

 

 

 

 

 

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

 

149,938

254,784

 

 

 

 

 

 

 

 

Net change in operating assets

 

 

 

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

 

 (183,202)

 

(302,690)

Loans and advances to customers

 

 (357,130)

 (385,945)

Net investments in lease

 

 11,008

 (3,498)

Other financial assets

 

 (33,976)

19,610

Other assets

 

 10,847

 2,869

Net change in operating liabilities

 

 

 

Due to other banks

 

 85,357

 276,076

Customer accounts

 

 (88,078)

 134,334

Other financial liabilities

 

 11,915

 23,487

Other liabilities and provision for liabilities and charges

 

3,838

 9,607

 

 

 

 

 

 

 

 

Net cash (used in)/from operating activities

 

(389,483)

28,634

 

 

 

 

 

 

 

 

Cash flows from/(used in) investing activities

 

 

 

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

 

 (251,486)

  (101,119)

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

 

 180,702

  210,174

Acquisition of bonds carried at amortised cost

 

 (495,945)

  (240,420)

Proceeds from redemption of bonds carried at amortised cost

 

 171,137

  126,113

Acquisition of premises, equipment and i ntangible assets

 

 (74,550)

  (51,490)

Proceeds from disposal of premises, equipment and i ntangible assets

8

 24,172

  11,023

Proceeds from disposal of investment property

 

 3,128

  9,508

Acquisition of subsidiaries and associates

 

 936

(14,569)

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(441,906)

(50,780)

 

 

 

 

 

 

 

 

Cash flows from/(used in) financing activities

 

 

 

Proceeds from other borrowed funds

 

 1,615,016

  553,781

Redemption of other borrowed funds

 

 (966,746)

  (938,535)

Repayment of principal of lease liabilities

 

 (5,420)

  (1,367)

Redemption of subordinated debt

 

  - 

  (8,576)

Proceeds from debt securities in issue

12

 171,531

  820,708

Redemption of debt securities in issue

 

 (12,569)

(5,805)

 

 

 

 

 

 

 

 

Net cash flows from financing activities

 

801,812

420,206

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

7,797

63,373

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(21,780)

461,433

 

 

 

 

Cash and cash equivalents at the beginning of the period

4

1,003,583

1,166,911

 

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

4

981,803

1,628,344

 

 

 

 

 

1  Introduction

Principal activity.  TBC Bank Group PLC ("TBCG" or "Group") is a public limited liability company, incorporated in England and Wales. TBCG held 99.88% of the share capital of JSC TBC Bank (hereafter the "Bank") as at 30 June 2020 (31 December 2019: 99.88%), thus representing the Bank's ultimate parent company. The Bank is a parent of a group of companies incorporated in mainly in Georgia, Azerbaijan and Uzbekistan, their primary business activities include providing banking, leasing, brokerage and card processing services to corporate and individual customers. The Group's list of subsidiaries is provided below.

The shares of TBCG ("TBCG Shares") were admitted to the Premium Listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities effective on 10 August 2016 (the "Admission", Note14). TBC Bank Group PLC's registered legal address is Elder House St Georges Business Park, 207 Brooklands Road, Weybridge, Surrey, KT13 0TS. Registered number of TBC Bank Group PLC is 10029943. The Bank is the Group's main operating unit and it accounts for most of the Group's activities.

JSC TBC Bank was incorporated on 17 December 1992 and is domiciled in Georgia. The Bank is a joint stock company limited by shares and was set up in accordance with Georgian regulations. The Bank's registered address and place of business is 7 Marjanishvili Street, 0102 Tbilisi, Georgia.

The Bank's principal business activity is universal banking operations that include corporate, small and medium enterprises, retail and micro operations within Georgia. In 2018, the Bank launched its fully-digital bank, Space. The Bank has been operating since 20 January 1993 under a general banking license issued by the National Bank of the Georgia ("NBG").

The Group had 156 branches and 7,854 employees mainly within Georgia as at 30 June 2020 (30 June 2019: 146 branches and 7,266 employees).

As at 30 June 2020 and 31 December 2019, the following shareholders directly owned more than 5% of the total outstanding shares of the Group. Other shareholders individually owned less than 5% of the outstanding shares. As at 30 June 2020 and 31 December 2019, the Group had no ultimate controlling party. Other includes individual as well as corporate shareholders.

Shareholders

 

 

 

 

30 June 2020
Ownership interest

31 December 2019
Ownership interest

 

 

 

 

European Bank for Reconstruction and Development

 

8.04%

8.04%

Dunross & Co.

 

7.06%

6.61%

Schroder Investment Management

 

5.52%

6.48%

JPMorgan Asset Management

 

4.35%

6.22%

Badri Japaridze*

 

6.00%

6.00%

Liquid Crystal International N.V. LLC

 

5.04%

5.55%

Mamuka Khazaradze*

 

3.60%

4.71%

Other

 

60.39%

56.39%

 

 

 

 

 

 

 

 

Total

 

100.00%

100.00%

 

 

 

 

* Represents direct ownership of the shares for Mamuka Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial ownership of 8.64% (2019: 10.26%) and Badri Japaridze has beneficial ownership of 6.00%, (2019: 6.00%).

 

 

 

 

 

1  Introduction (Continued)

The condensed consolidated interim financial statements ("financial statements") include the following principal subsidiaries:

 

Subsidiary Name

Proportion of voting rights and ordinary share capital

 

 

 

30 June 2020

31 December 2019

Principal place of business or incorporation

Year of incorpo-ration

Industry

 

 

 

 

 

 

JSC TBC Bank

99.88%

99.88%

Tbilisi, Georgia

1992

Banking

United Financial Corporation JSC

99.53%

99.53%

Tbilisi, Georgia

1997

Card processing

TBC Capital LLC

100.00%

100.00%

Tbilisi, Georgia

1999

Brokerage

TBC Leasing JSC

100.00%

100.00%

Tbilisi, Georgia

2003

Leasing

TBC Kredit LLC

100.00%

100.00%

Baku, Azerbaijan

1999

Non-banking credit institution

TBC Pay LLC

100.00%

100.00%

Tbilisi, Georgia

2009

Processing

TBC Invest LLC

100.00%

100.00%

Ramat Gan,Israel

2011

PR and marketing

Index LLC

100.00%

100.00%

Tbilisi, Georgia

2011

Real estate management

JSC TBC Insurance

100.00%

100.00%

Tbilisi, Georgia

2014

Insurance

    Redmed  LLC

100.00%

100.00%

Tbilisi, Georgia

2019

Insurance

TBC International LLC

100.00%

100.00%

Tbilisi, Georgia

2019

Asset management

  Swoop JSC

100.00%

100.00%

Tbilisi, Georgia

2010

Retail Trade

  Online Tickets LLC

55.00%

55.00%

Tbilisi, Georgia

2015

Computer and Software Services

  TKT UZ

75.00%

75.00%

Tashkent, Uzbekistan

2019

Retail Trade

  My.Ge LLC

65.00%

65.00%

Tbilisi, Georgia

2019

E-Commerce

  Mypost LLC

100.00%

100.00%

Tbilisi, Georgia

2019

Postal Service

  Billing Solutions LLC

51.00%

51.00%

Tbilisi, Georgia

2019

Software Services

  Vendoo LLC (Geo)

100.00%

100.00%

Tbilisi, Georgia

2019

Retail Leasing

  Allproperty.ge LLC

90.00%

90.00%

Tbilisi, Georgia

2013

Real estate management

  F Solutions LLC

100.00%

100.00%

Tbilisi, Georgia

2019

Software Services

  Support LLC

100.00%

N/A

Tashkent, Uzbekistan

2020

Asset Management

Inspired LLC

51.00%

51.00%

Tashkent, Uzbekistan

2011

Processing

VENDOO LLC (UZ Leasing)

100.00%

100.00%

Tashkent, Uzbekistan

2019

Retail Leasing

TBC Bank JSCB

100.00%

N/ A

Tashkent, Uzbekistan

2020

Banking

 

 

 

 

 

 

 

The consolidated financial statements include the following associates:

 

Company Name

Proportion of voting rights and ordinary share capital held as of 30 June

Principal place of business or incorporation

Year of incorpo-ration

Industry

2020

2019

 

 

 

JSC Credit Information Bureau Creditinfo Georgia

21.08%

21.08%

Tbilisi, Georgia

2005

Financial intermediation

 

 

 

 

 

 

 

The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries.

 

The Group's corporate structure consists of a number of related undertakings, comprising subsidiaries and associates, which are not consolidated due to immateriality. A full list of these undertakings, the country of incorporation is set out below.

 

 

 

 

 

1  Introduction (Continued)

 

Company Name

Proportion of voting rights and ordinary share capital

 

 

 

30 June

2020

31 December 2019

Principal place of business or incorporation

Year of incorpo-ration

Industry

 

 

 

 

 

 

TBC Invest International Ltd

100.00%

100.00%

Tbilisi, Georgia

2016

Investment Vehicle

University Development Fund[35]

33.33%

33.33%

Tbilisi, Georgia

2007

Education

Natural Products of Georgia LLC

25.00%

25.00%

Tbilisi, Georgia

2001

Trade, Service

Mobi Plus JSC

14.81%

14.81%

Tbilisi, Georgia

2009

Data monitoring and processing

GRDC

1.75%

1.75%

Tbilisi, Georgia

2008

Investment Real Estate

Georgian Card JSC

0.15%

0.15%

Tbilisi, Georgia

1997

Plastic Card Services

Georgian Securities Central Depositor

0.05%

0.05%

Tbilisi, Georgia

1999

Finance, Service

JSC Givi Zaldastanishvili American Academy In Georgia

14%

14.48%

Tbilisi, Georgia

2001

Education

United Clearing Centre

18.75%

18.75%

Tbilisi, Georgia

2008

Clearing Centre

Banking and Finance Academy of Georgia

16.67%

16.67%

Tbilisi, Georgia

1998

Education

Tbilisi's City JSC

1.80%

1.80%

Tbilisi, Georgia

2007

Education

TBC Trade

100.00%

100.00%

Tbilisi, Georgia

2008

Trade, Service

Mineral Oil Distribution Corporation JSC

9.90%

9.90%

Tbilisi, Georgia

2009

Data monitoring and processing

 

 

 

 

 

 

 

 

 

 

2  Summary of Significant Accounting Policies, Critical Accounting Estimates, and Judgements in Applying Accounting Policies

2.1 Basis of preparation

These interim financial statements for the six months ended 30 June 2020 for TBC Bank Group PLC and its subsidiaries (together referred to as the "Group") has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting as adopted by the European Union. These interim financial statements do not include all the notes of the type normally included in an annual consolidated financial statements. Accordingly, this report is to be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2019, which have been prepared in accordance with IFRS as adopted by the European Union.

The interim financial statements are presented in thousands of Georgian Lari ("GEL thousands"), except per-share amounts and unless otherwise indicated.

These interim financial statements have been reviewed, not audited. Auditor's review conclusion is included in this report.

Going Concern. The Board of Directors of TBC Bank Group PLC has prepared these interim financial statements on a going concern basis. In making this judgement, management considered the Group's financial position, current intentions, profitability of operations and access to financial resources. Management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. In reaching this assessment, the directors have specifically considered the implications of the COVID-19 pandemic upon the Group's performance and projected funding and capital position and also taken into account the impact of further stress scenarios. On this basis, the directors are satisfied that the Group will maintain adequate levels of funding and capital for the foreseeable future.

Foreign currency translation. At 30 June 2020  the closing rate of exchange used for translating foreign currency balances was USD 1 = GEL 3.0552 (31 December 2019: USD 1 = GEL 2.8677); EUR 1 = GEL 3.4466  (31 December 2019: EUR 1 = GEL 3.2095); GBP 1 = GEL 3.7671 (31 December 2019: GBP 1 = GEL 3.7593),  AZN 1 = GEL 1.7972 (31 December 2019: AZN 1 = GEL 1.7377), UZS 1000 = GEL 0.3003 (31 December 2019: UZS 1000 = GEL 0.3098),

Except as described below, the same accounting policies and methods of computation were followed in the preparation of this interim financial statements as compared with the annual consolidated financial statements of the Group for the year ended 31 December 2019.

Interim period tax measurement. Interim period income tax expense is accrued using the effective tax rate that would be applicable to expected total annual earnings, that is, the estimated weighted average annual effective income tax rate applied to the pre-tax income of the interim period.

Amendment to IFRS 16, Leases (COVID-19-Related Rent Concessions). In May 2020, the IASB issued an amendment to IFRS 16 to provide an option for lessees to account for rent concessions occurring as a direct consequence of the COVID-19 pandemic as if they were not lease modifications. The amendment is effective from 1 June 2020. The group has adopted this option, and the effect on the Group's financial statements is not material.

 

Changes in accounting policies, IAS 16. In 2020, the Group changed the accounting policy in relation to subsequent measurement for Land, buildings and construction in progress. The Group now applies the cost model, where assets are carried at cost less accumulated depreciation and any accumulated impairment. Prior to this change, the Group applied revaluation model: it carried Land, buildings and construction in progress at a revalued amount being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.The Group believes that the cost model provides more relevant and consistent information, as well as it enables investors to make accurate comparisons across the banking industry, since the application of the cost model is a common and widespread market practice. The balance sheet accounts for the affected periods where restated accordingly, while the prior period income statement accounts remained the same, due to the fact that the change did not have material impact on them. Change did not have material effect on EPS amounts.

 

 

 

 

 

 

2.1  Basis of preparation (Continued)

 

Effects on respective periods are disclosed below:

 

In thousands of GEL

31 December 2019

Change in accounting policy

31 December 2019

Restated

 

 

 

 

Assets:

 

 

 

 

 

 

 

 Premises, Equipment and Intangible Assets

385,736

(51,008)

334,728

 

 

 

 

Liabilities:

 

 

 

 Deferred income tax liability

21,332

(2,444)

18,888

 

 

 

 

Equity:

 

 

 

Retained earnings

1,953,364

7,808

1,961,172

Revaluation reserve for premises

56,374

(56,374)

-

 

 

 

 

 

 

 

 

In thousands of GEL

31 December 2018

Change in accounting policy

31 December 2018

Restated

 

 

 

 

Assets:

 

 

 

 

 

 

 

 Premises, Equipment and Intangible Assets

367,503

(52,001)

315,502

 

 

 

 

Liabilities:

 

 

 

 Deferred income tax liability

22,237

(2,444)

19,793

 

 

 

 

Equity:

 

 

 

Retained earnings

1,523,879

7,682

1,531,561

Revaluation reserve for premises

57,240

(57,240)

-

 

 

 

 

 

 

2.2 Critical accounting estimates and judgements in applying accounting policies

ECL measurement. Measurement of ECLs is a significant estimate that involves forecasting future economic conditions, longer the term of forecasts more management judgment is applied and those judgements may be the source of uncertainty. Details of ECL measurement methodology are disclosed in Note 24. The following components have a major impact on credit loss allowance: definition of default, definition of significant increase in credit risk (SICR), probability of default ("PD"), exposure at default ("EAD"), and loss given default ("LGD"), as well as models of macro-economic scenarios. The Group regularly reviews and validates the models and inputs to the models to reduce any differences between expected credit loss estimates and actual credit loss experience.

Significant increase in credit risk ("SICR"). The Bank applies both qualitative and quantitative indicators to determination of SICR considering all reasonable and supportable information available without undue cost and effort, on past events, current conditions and future behavioural aspects of particular portfolios. The Bank tries to identify indicators of increase in credit risk of individual instruments prior to delinquency and incorporates significant assumptions in the model in doing so. One of such judgement is determination of thresholds of significant increase in credit risk. The effects of respective sensitivity are described below:

In thousands of GEL

30 June 2020

31 December 2019

 

 

 

20% decrease in SICR thresholds

 

Increase impairment allowance on loans and advances by GEL 1,046

Increase impairment allowance on loans and advances by GEL 1,954

Change of the Bank's cost of credit risk ratio by 1 basis points

Change of the Bank's cost of credit risk ratio by 2 basis points

 

 

 

 

 

 

10% increase in Stage 2 exposures

Increase impairment allowance on loans and advances by GEL 3,145

Increase impairment allowance on loans and advances by GEL 2,380

Change of the Bank's cost of credit risk ratio by 3 basis points

Change of the Bank's cost of credit risk ratio by 2 basis points

 

 

 

Risk parameters: Probability of default (PD) and Loss given default (LGD) parameters are one of the key drivers of expected credit losses. The effects of respective sensitivity are described below:

In thousands of GEL

30 June 2020

31 December 2019

 

 

 

10% increase (decrease) in PD estimates

 

Increase (decrease) impairment allowance on loans and advances by GEL 30,484 (GEL 36,520)

Increase (decrease) impairment allowance on loans and advances by GEL 17,427 (GEL 17,547)

Change of the Bank's cost of credit risk ratio by 23 (28) basis points

Change of the Bank's cost of credit risk ratio by 16 (16) basis points

 

 

 

 

 

 

10% increase (decrease) in LGD estimates

 

Increase (decrease) impairment allowance on loans and advances by GEL 43,646 (GEL 45,761)

Increase (decrease) impairment allowance on loans and advances by GEL 24,758 (GEL 26,604)

Change of the Bank's cost of credit risk ratio by 33 (35) basis points

Change of the Bank's cost of credit risk ratio by 22 (24) basis points

 

 

 

 

Main drivers for COVID-19 related provision charges were an increase in PD parameter as a result of an application of macroeconomic overlay, increased haircut applied to the market value of collateral to reflect the expected decrease in real estate prices and prepayment rates downward adjustment for future one-year period.

 

 

 

 

 

 

 

 

 

3  New Accounting Pronouncements

Minor amendments to IFRSs

The IASB has published a number of minor amendments some of which has not yet been endorsed for use in the EU. The Group has not early adopted any of the amendments effective after 31 December 2019 and it expects they will have an insignificant effect, when adopted, on the consolidated financial statements of the Group.

Major new IFRSs

IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognizing the profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss making, an entity will be recognizing the loss immediately The Group is currently assessing the impact of the interpretation on its financial statements.

4  Cash and Cash Equivalents

In thousands of GEL

30 June 2020

31 December 2019

 

 

 

Cash on hand

659,556

650,700

Cash balances with the National Bank of Georgia (other than mandatory reserve deposits)

52,906

35,132

Correspondent accounts and overnight placements with other banks

258,076

191,420

Placements with and receivables from other banks with original maturities of less than three months

11,365

126,360

 

 

 

 

 

 

Total gross amount of cash and cash equivalents

981,903

1,003,612

 

 

 

Less: Credit loss allowance

(100)

(29)

 

 

 

 

Total carrying amount of cash and cash equivalents

981,803

1,003,583

 

 

 

As 30 June 2020, 89% of the correspondent accounts and overnight placements with other banks was placed with OECD (The Organization for Economic Co-operation and Development) banking institutions (31 December 2019: 85%).

As 30 June 2020, GEL 11,366 thousand was placed on an interbank term deposits with one Georgian bank and none with the OECD banks (31 December 2019: GEL11,348 thousand with one non-OECD bank and GEL 115,012 thousand with two OECD banks).

 

5  Due from Other Banks

Amounts due from other banks include placements with original maturities of more than three months that are not collateralised and do not represent past due amounts at the 30 June 2020 and 31 December 2019. As 30 June 2020, GEL 10,979 thousand (31 December 2019: GEL 11,836 thousand) was kept on deposits as restricted cash. Refer to Note 25 for the estimated fair value of amounts due from other banks.

As 30 June 2020, the Group had no loan issued to any bank, with original maturities of more than three months and with aggregated amounts above GEL 5,000 thousand (31 December 2019: none).

 

6  Mandatory cash balances with the National Bank of Georgia

Mandatory cash balances with the National Bank of Georgia ("NBG") represent amounts deposited with the NBG. Resident financial institutions are required to maintain an interest-earning obligatory reserve with the NBG, the amount of which depends on the level of funds attracted by the financial institutions. The Group earned up to 8.25%, (0.25%) and (0.7%) annual interest in GEL, USD and EUR respectively on mandatory reserve with NBG in 2020 (2019: 6.0%, 0.8% and (0.6%) in GEL, USD and EUR respectively.

 

In April 2020, Fitch Ratings has affirmed Georgia's Long-Term Foreign and Local Currency Issuer Default Rating (IDRs) at 'BB' and has revised the Outlook to Negative from Stable. The issue ratings on Georgia's senior unsecured foreign- and local-currency bonds are also affirmed at' BB'. The Country Ceiling is affirmed at 'BBB- 'and the Short-term Foreign and Local- Currency IDRS are affirmed at 'B'.

7  Loans and Advances to Customers

In thousands of GEL

30 June 2020

31 December 2019

 

 

 

Corporate loans

5,070,563

4,660,473

Consumer loans

1,962,108

 1,884,006

Mortgage loans

3,396,615

 3,169,197

Loans to micro, small and medium enterprises

3,206,106

 2,948,279

 

 

 

Total gross loans and advances to customers

13,635,392

12,661,955

 

 

 

Less: credit loss allowance

(529,404)

(312,556)

 

 

 

 

 

 

Total carrying amount of loans and advances to customers

13,105,988

12,349,399

 

 

 

 

7  Loans and Advances to Customers (Continued)

As 30 June 2020, loans and advances to customers carried at GEL 614,832 thousand have been pledged to local banks or other financial institutions as collateral with respect to other borrowed funds (31 December 2019: GEL 474,480 thousand).

In 2020, the Group made re-segmentation as disclosed in Note 17. Some of the clients were re-allocated to the different segments.

The following tables disclose the changes in the credit loss allowance and gross carrying amount for loans and advances to customers carried at amortised cost between the beginning and the end of the reporting periods. The following movements are described in the tables below:

· Transfers between Stage 1, 2 and 3 due to balances experiencing significant increase (or decrease) of credit risk or becoming defaulted in the period, and the consequent "step up" (or "step down") between 12-month and Lifetime ECL. It should be noted, that:

Movement does not include exposures of loans, which were issued and repaid during the period;

For loans, which existed at the beginning of the period, opening exposures are disclosed as transfer amounts;

For newly issued loans, starting exposures are disclosed as transfer amount;

For the loan exposures which changed stage several times during the period, transfers between starting and ending stage is disclosed.

· Newly originated or purchased gives us information regarding gross loans and corresponding expected credit losses issued during the period (however, exposures which were issued and repaid during the period and issued to refinance existing loans are excluded);

· The line, derecognised during the period refers to starting balance of loans which were repaid or written-off during the period (gross exposure and corresponding expected credit losses, however, exposures which were issued and repaid during the period and repaid by newly issued refinancing loans are excluded);

· Net repayments refers to net changes in gross carrying amounts, consisting of withdrawal of loan and repayment;

· Net write offs refer to write off of loans during the period, while net of written off and recoveries refer to already written off loans for ECL;

· Foreign exchange translations of assets denominated in foreign currencies and effect to translation in presentational currency for foreign subsidiary;

· Net re-measurement, due to stage transfers and risk parameters changes, refers to the movements in ECL as a result of transfer of exposure between stages or changes in risk parameters and forward looking expectations.

 

For presentation purposes, amounts are rounded to the nearest thousands of GEL, which in certain cases are disclosed as nil.

 

7  Loans and Advances to Customers (Continued)

Corporate loans

Gross carrying amount

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2020

4,434,685

104,409

121,379

4,660,473

39,153

1,969

39,628

80,750

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (363,236)

 366,356

 (3,120)

 - 

 (3,171)

 3,253

 (82)

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (32,464)

 (13,190)

 45,654

 - 

 (163)

 (1,305)

 1,468

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 11,288

 (11,288)

 - 

 - 

 166

 (166)

 - 

 - 

New originated or purchased

 469,844

 - 

 - 

 469,844

 9,512

 - 

 - 

 9,512

Derecognised during the period

 (99,799)

 (55)

 (2,862)

 (102,716)

 (3,987)

 (11)

 (1,071)

 (5,069)

Net repayments

 (200,350)

 (3,037)

 (5,624)

 (209,011)

 - 

 - 

 - 

 - 

Resegmentation

 27,220

 - 

 - 

 27,220

 91

 - 

 - 

 91

Net Write-offs

 - 

 - 

 - 

 - 

 - 

 - 

 125

 125

Net remeasurement due to stage transfers and risk parameters changes

 - 

 - 

 - 

 - 

 4,870

 2,071

 11,011

 17,952

Modifications

 (2,091)

 (728)

 132

 (2,687)

 - 

 - 

 - 

 - 

Foreign exchange  movements

 196,905

 21,997

 8,538

 227,440

 2,043

 197

 2,951

 5,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

4,442,002

464,464

164,097

5,070,563

48,514

6,008

54,030

108,552

 

 

 

 

 

 

 

 

 

7  Loans and Advances to Customers (Continued)

Corporate loans

Gross carrying amount

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2019

2,903,313

138,715

135,261

3,177,289

32,940

4,994

43,571

81,505

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (167,699)

 171,769

 (4,070)

 - 

 (2,653)

 2,653

 - 

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (11,763)

 (79)

 11,842

 - 

 (2,661)

 - 

 2,661

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 19,415

 (19,415)

 - 

 - 

 736

 (736)

 - 

 - 

New originated or purchased

 648,386

 - 

 - 

 648,386

 12,666

 - 

 - 

 12,666

Derecognised during the period

(159,780)

(12,940)

(17,273)

(189,993)

(4,335)

469

(6,675)

(10,541)

Net repayments

 (190,985)

 (50,062)

 (12,603)

 (253,650)

 - 

 - 

 - 

 - 

Resegmentation

 119,408

 711

 - 

 120,119

 837

 75

 - 

 912

Net Write-offs

 - 

 - 

 - 

 - 

 - 

 - 

 572

 572

Net remeasurement due to stage transfers and risk parameters changes

 - 

 - 

 - 

 - 

 137

 (690)

 (5,958)

 (6,511)

Foreign exchange  movements

 139,759

 9,386

 7,044

 156,189

 - 

 - 

 - 

 - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2019

 3,300,054

 238,085

 120,201

 3,658,340

 37,667

 6,765

 34,171

 78,603

 

 

 

 

 

 

 

 

 

 

 

Loans to micro, small and medium enterprises

 

 

Gross carrying amount

 

 

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2020

2,650,261

204,699

93,319

2,948,279

18,341

18,593

29,211

66,145

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (292,430)

 297,657

 (5,227)

 - 

 (3,762)

 5,231

 (1,469)

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (7,278)

 (22,749)

 30,027

 - 

 (488)

 (2,831)

 3,319

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 32,938

 (32,938)

  - 

 - 

 3,287

 (3,287)

  - 

 - 

New originated or purchased

 476,744

  - 

  - 

 476,744

 11,170

  - 

  - 

 11,170

Derecognised during the period

 (194,995)

 (14,872)

 (2,663)

 (212,530)

 (3,239)

 (1,155)

 (1,069)

 (5,463)

Net repayments

 (69,938)

 (2,812)

 (7,300)

 (80,050)

  - 

  - 

  - 

 - 

Resegmentation

 (28,301)

  - 

  - 

 (28,301)

 (91)

  - 

  - 

 (91)

Net Write-offs

  - 

  - 

 (8,725)

 (8,725)

  - 

  - 

 (5,504)

 (5,504)

Net remeasurement due to stage transfers and risk parameters changes

  - 

  - 

  - 

 - 

 14,058

 26,475

 12,839

 53,372

Modification

 (4,790)

 (1,350)

 (315)

 (6,455)

  - 

  - 

  - 

 - 

Foreign exchange movements

 90,073

 15,440

 4,542

 110,055

 876

 1,160

 1,058

 3,094

Other movements

 112

 46

 6,931

 7,089

  - 

  - 

  - 

  - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 2,652,396

 443,121

 110,589

 3,206,106

 40,152

 44,186

 38,385

 122,723

 

 

 

 

 

 

 

 

 

           

7  Loans and Advances to Customers (Continued)

Loans to micro, small and medium enterprises

Gross carrying amount

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2019

2,210,725

193,049

92,820

2,496,594

 19,301

 22,379

 29,334

 71,014

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (130,631)

 133,823

 (3,192)

 -

 (3,613)

 5,462

 (1,849)

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (16,515)

 (29,982)

 46,497

 -

 (1,859)

 (4,798)

 6,657

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 31,837

 (31,837)

 - 

 - 

 2,921

 (2,921)

 - 

 - 

New originated or purchased

 564,817

 - 

 - 

 564,817

 7,630

 - 

 - 

 7,630

Derecognised during the period

 (165,252)

 (21,507)

 (14,088)

 (200,847)

 (1,244)

 (2,305)

 (2,312)

 (5,861)

Net repayments

 (132,446)

 (19,047)

 (15,845)

 (167,338)

 - 

 - 

 - 

 - 

Resegmentation

 (119,163)

 (786)

 - 

(119,949)

 (836)

 (78)

 - 

 (914)

Net Write-offs

 - 

 - 

 (14,041)

 (14,041)

 - 

 - 

 (5,699)

 (5,699)

Net remeasurement due to stage transfers and risk parameters changes

 - 

 - 

 - 

 - 

 (2,971)

 7,605

 8,957

 13,591

Foreign exchange  movements

 77,199

 6,695

 4,570

 88,464

 8

 1

 326

 335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2019

 2,320,571

 230,408

 96,721

 2,647,700

 19,337

 25,345

 35,414

 80,096

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

Gross carrying amount

 

 

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2020

1,593,262

216,817

73,927

1,884,006

36,724

52,439

44,793

133,956

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (189,868)

 198,858

 (8,990)

 - 

 (19,486)

 24,134

 (4,648)

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (11,156)

 (21,424)

 32,580

 - 

 (1,239)

 (5,796)

 7,035

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 32,915

 (32,651)

 (264)

 - 

 9,396

 (9,181)

 (215)

 - 

New originated or purchased

 382,704

  - 

  - 

 382,704

 37,196

  - 

  - 

 37,196

Derecognised during the period

 (163,490)

 (22,160)

 (3,519)

 (189,169)

 4,072

 (7,201)

 (1,733)

 (4,862)

Net repayments

 (97,337)

 1,813

 (1,224)

 (96,748)

  - 

  - 

  - 

 - 

Resegmentation

 1,000

  - 

  - 

 1,000

  - 

  - 

  - 

 - 

Net Write-offs

  - 

  - 

 (32,569)

 (32,569)

  - 

  - 

 (28,706)

 (28,706)

Net remeasurement due to stage transfers and risk parameters changes

  - 

  - 

  - 

 - 

 10,830

 55,436

 21,913

 88,179

Modification

 (9,293)

 (2,879)

 (323)

 (12,495)

  - 

  - 

  - 

 - 

Foreign exchange movements

 19,770

 3,430

 1,132

 24,332

 154

 395

 573

 1,122

Other Movements

 1,625

 (853)

 275

 1,047

  - 

  - 

  - 

 - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

1,560,132

340,951

61,025

1,962,108

77,647

110,226

39,012

226,885

 

 

 

 

 

 

 

 

 

          

7  Loans and Advances to Customers (Continued)

Consumer loans

Gross carrying amount

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2019

1,641,993

265,673

81,850

1,989,516

42,903

59,245

54,575

156,723

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (116,970)

 122,462

 (5,492)

 - 

 (9,701)

 12,244

 (2,543)

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (31,878)

 (52,798)

 84,676

 - 

 (2,978)

 (12,634)

 15,612

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 62,544

 (62,544)

 - 

 - 

 12,388

 (12,388)

 - 

 - 

New originated or purchased

 317,555

 - 

 - 

 317,555

 15,126

 - 

 - 

 15,126

Derecognised during the period

 (96,268)

 (24,561)

 (71,162)

 (191,991)

 (380)

 (6,742)

 (4,244)

 (11,366)

Net repayments

 (246,739)

 (22,287)

 62,094

 (206,932)

 - 

 - 

 - 

 - 

Resegmentation

 4,772

 1,244

 698

 6,714

 19

 104

 235

 358

Net Write-offs

 - 

 - 

 (64,522)

 (64,522)

 - 

 - 

 (57,740)

 (57,740)

Net remeasurement due to stage transfers and risk parameters changes

 - 

 - 

 - 

 - 

 (18,991)

 15,663

 51,849

 48,521

Foreign exchange  movements

 21,588

 2,296

 1,276

 25,160

 9

 - 

 24

 33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2019

 1,556,597

 229,485

 89,418

 1,875,500

 38,395

 55,492

 57,768

 151,655

 

 

 

 

 

 

 

 

 

Mortgage loans

Gross carrying amount

Credit loss allowance

 

In thousands of GEL

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

Stage 1

(12-months ECL)

Stage 2

(lifetime ECL for SICR)

Stage 3

(lifetime ECL for credit im-paired)

Total

 

 

 

 

 

 

 

 

 

At 1 January 2020

2,873,726

231,169

64,302

3,169,197

1,471

9,686

20,548

31,705

 

 

 

 

 

 

 

 

 

Transfers:

 

 

 

 

 

 

 

 

- to lifetime (from Stage 1 and Stage 3 to Stage 2)

 (439,319)

 450,378

 (11,059)

 - 

 (796)

 4,048

 (3,252)

 - 

- to defaulted (from Stage 1 and Stage 2 to Stage 3)

 (2,175)

 (10,293)

 12,468

 - 

 (184)

 (594)

 778

 - 

- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1)

 26,832

 (26,832)

  - 

 - 

 562

 (562)

  - 

 - 

New originated or purchased

 250,303

  - 

  - 

 250,303

 517

  - 

  - 

 517

Derecognised during the period

 (53,086)

 (22,854)

 123

 (75,817)

 445

 (871)

 (862)

 (1,288)

Net repayments

 (94,357)

 (61)

 (1,742)

 (96,160)

  - 

  - 

  - 

 - 

Resegmentation

 81

  - 

  - 

 81

  - 

  - 

  - 

 - 

Net Write-offs

  - 

  - 

 (379)

 (379)

  - 

  - 

 (115)

 (115)

Net remeasurement due to stage transfers and risk parameters changes

  - 

  - 

  - 

 - 

 7,412

 22,448

 7,095

 36,955

Modification

 (5,218)

 (1,928)

 (341)

 (7,487)

  - 

  - 

  - 

 - 

Foreign exchange movements

 120,909

 30,746

 3,663

 155,318

 395

 1,678

 1,398

 3,471

Other movements

 295

 (20)

 1,284

 1,559

  - 

  - 

  - 

 - 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

2,677,991

650,305

68,319