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TBC Bank Group PLC (TBCG)

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Thursday 15 August, 2019

TBC Bank Group PLC

Half-year Report

RNS Number : 1554J
TBC Bank Group PLC
15 August 2019
 

 

TBC BANK GROUP PLC ("TBC Bank")

2Q AND 1H 2019 UNAUDITED CONSOLIDATED FINANCIAL RESULTS


 

Forward-Looking Statements

 

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

 

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

 

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

 

 

 

 

 

 

Contacts

 

 

Zoltan Szalai

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 2019 Results Announcement

 

TBC Bank - Background

Financial Highlights

Recent Developments

Support from NBG and International Partners

Additional Funding

Development of Customer Focused Ecosystems.

Letter from the Chief Executive Officer

Economic Overview

Unaudited Consolidated Financial Results Overview for 2Q 2019

Unaudited Consolidated Financial Results Overview for 1H 2019

Additional Disclosures

Principal Risks and Uncertainties

Statement of Directors' Responsibilities

Unaudited Condensed Consolidated Interim Financial Information

  

 

TBC Bank Group PLC ("TBC Bank")

 

TBC Bank Announces Unaudited 2Q and 1H 2019 Consolidated Financial Results:

Underlying[1] Net Profit for 2Q 2019 up by 4.3% YoY to GEL 125.0 million

Underlying1 Net Profit for 1H 2019 up by 18.8% YoY to GEL 258.3 million

 

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

The preliminary unaudited and not reviewed results were published on 29 July 2019. This report contains a more detailed information on the same results.

 

The information in this announcement, which was approved by the Board of Directors on 14 August 2019, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018, which contained an unmodified audit report under Section 495 of the Companies Act 2006 (which did not make any statements under Section 498 of the Companies Act 2006) have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.7% of its business is concentrated, with a 39.1% market share by total assets. It offers retail, corporate, and MSME banking nationwide.

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

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group classifies and separately discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, as one-off items in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure and the reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 26 section on pages 51-52.

Financial Highlights

2Q 2019 P&L Highlights 

§ Underlying1 net profit amounted to GEL 125.0 million (2Q 2018: GEL 119.9 million; 1Q 2019: GEL 133.3 million)

§ Reported net profit amounted to GEL 120.2 million (2Q 2018: GEL 102.4 million; 1Q 2019: GEL 133.3 million)

§ Underlying1 return on equity (ROE) amounted to 21.5% (2Q 2018: 24.9%; 1Q 2019: 23.8%)

§ Reported return on equity (ROE) amounted to 20.7% (2Q 2018: 21.3%; 1Q 2019: 23.8%)

§ Underlying1 return on assets (ROA) amounted to 3.1 % (2Q 2018: 3.7%; 1Q 2019: 3.6%)

§ Reported return on assets (ROA) amounted to 3.0% (2Q 2018: 3.2%; 1Q 2019: 3.6%)

§ Total operating income amounted to GEL 272.3 million, up by 5.4% YoY and up by 0.1% QoQ

§ Underlying1 cost to income was 38.1% (2Q 2018: 35.6%; 1Q 2019: 37.7%)

§ Reported cost to income was 40.2% (2Q 2018: 35.6%; 1Q 2019: 37.7%)

§ Cost of risk stood at 1.1% (2Q 2018: 1.8%; 1Q 2019: 1.4%)

§ FX adjusted cost of risk stood at 0.8% (2Q 2018: 1.7%; 1Q 2019: 1.4%)

§ Net interest margin (NIM) stood at 5.6% (2Q 2018: 7.1%; 1Q 2019: 6.1%)

§ Risk adjusted net interest margin (NIM) stood at 4.8% (2Q 2018: 5.5%; 1Q 2019: 4.7%)

1H 2019 P&L Highlights

§ Underlying[2] net profit amounted to GEL 258.3 million (1H 2018: GEL 217.4 million)

§ Reported net profit amounted to GEL 253.5 million (1H 2018: GEL 200.0 million)

§ Underlying2 return on equity (ROE) of 22.7% (1H 2018: 23.0%)

§ Reported return on equity (ROE) amounted to of 22.3% (1H 2018: 21.2%)

§ Underlying2 return on assets (ROA) was 3.3% (1H 2018: 3.4%)

§ Reported return on assets (ROA) was 3.3% (1H 2018: 3.1%)

§ Total operating income for the period was up by 9.5% YoY to GEL 544.2 million

§ Underlying2 cost to income stood at 37.9% (1H 2018: 36.8%)

§ Reported cost to income stood at 38.9% (1H 2018: 36.8%)

§ Cost of risk on loans stood at 1.3% (1H 2018: 1.6%)

§ FX adjusted cost of risk stood at 1.2% (1H 2018: 1.7%)

§ Net interest margin (NIM) stood at 5.8% (1H 2018: 7.0%)

§ Risk adjusted net interest margin (NIM) stood at 4.6% (1H 2018: 5.3%)

Balance Sheet Highlights as of 30 June 2019

§ Total assets amounted to GEL 17,278.4 million as of 30 June 2019, up by 27.2% YoY and up by 13.9% QoQ

§ Gross loans and advances to customers stood at GEL 11,141.4 million as of 30 June 2019, up by 25.2% YoY and up by 7.5% QoQ

§ Net loans to deposits + IFI[3] funding stood at 91.4% and Net Stable Funding Ratio (NSFR) stood at 130.4%

§ NPLs were 3.1%,  unchanged YoY and down by 0.2pp QoQ

§ NPLs coverage ratios stood at 97.9%, or 206.0% with collateral, on 30 June 2019 compared, to 116.1% or 216.1% with collateral, as of 30 June 2018 and 100.1%, or 210.8% with collateral, as of 31 March 2019

§ Total customer deposits amounted to GEL 9,876.8 million as of 30 June 2019, up by 24.5% YoY and up by 7.7% QoQ

§ As of 30 June 2019, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.4% and 17.4% respectively, while minimum requirements amounted to 11.9% and 16.7%

Market Shares[4]

§ Market share by total assets reached 39.1% as of 30 June 2019, up by 2.0pp YoY and up by 1.7pp QoQ

§ Market share by total loans was 38.5% as of 30 June 2019, up by 0.2pp YoY and up by 0.1pp QoQ

§ In terms of individual loans, TBC Bank had a market share of 39.6% as of 30 June 2019, down by 0.2pp YoY and up by 0.3pp QoQ. The market share for legal entity loans was 37.3%, up by 0.8pp YoY and down by 0.1pp QoQ

§ Market share of total deposits reached 41.0% as of 30 June 2019, up by 1.5pp YoY and up by 0.6pp QoQ

§ Market share of individual deposits stood at to 39.5%, down by 1.7pp YoY and unchanged on QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 42.8%, up by 5.3pp YoY and up by 1.4pp QoQ.

 

 

Recent Developments

 

Buyback of shares

•     The Company has initiated a share buyback programme on 29 July 2019 (for more information please see our press release at www.tbcbankgroup.com)

 

Board changes

•     In July 2019, the Chairman Mamuka Khazaradze and Deputy Chairman Badri Japaridze stepped down from the board of TBC Bank Group PLC, to focus on the allegations made against them regarding historic transactions that took place in 2007 and 2008. The Board has appointed Senior Independent Director Nikoloz Enukidze to serve as the Chairman of TBC Bank Group PLC, based on his deep knowledge of the Bank, prior Chairmanship roles in the banking sector and extensive regional and international experience. (For more information please see our press release at www.tbcbankgroup.com) 

•     TBC Bank also strengthened its supervisory board by appointing Jyrki Koskelo as a member and Chairman of the TBC Bank Supervisory Board in May 2019 and Arne Berggren as a member of the TBC Bank Supervisory Board in July 2019.

•      Mr Koskelo serves and has served as a board member and senior advisor in multiple emerging market focused banks and companies. Prior to joining TBC, he held a number of senior leadership positions during his 24 years at the International Financial Corporation.

•      Mr Berggren currently serves as a member of the board of Bank of Cyprus and Piraeus Bank and has extensive experience of senior leadership and advisory roles in prominent financial institutions including the IMF, World Bank, Swedbank, Carnegie Investment Bank AB and the Swedish Ministry of Finance and Bank Support Authority.

Awards

•     Best Bank in Georgia from EMEA Finance Magazine - TBC Bank has been awarded the Best Bank in Georgia 2019 by the Global EMEA Finance magazine. This award is confirmation of the Bank's outstanding financial performance, advanced digital capabilities and consistent focus on providing a superior customer experience. Alongside this, TBC Bank won the award for Best Investment Bank in Georgia 2018, whilst its subsidiary TBC Capital was named the Best Broker in Georgia 2018.

•      Best Bank in Georgia 2019 award from Euromoney - TBC Bank has been named The Best Bank in Georgia 2019 at the Euromoney Awards for Excellence ceremony. The award recognizes our continuous efforts to provide the highest standard of customer experience in Georgia and develop the best multichannel capabilities in the region, while delivering consistently superior financial results.

 

Internal control systems' review

TBC Bank, with the assistance of one of the big four audit firms, has undertaken benchmarking and review of its AML and Related Party policies and procedures compliance with local and international requirement. These reviews did not identify any material deficiencies.

 

 

Support from NBG and International Partners

National Bank of Georgia (NBG)

On 26 July 2019, the NBG issued the following statement: "In the light of recent events, National Bank of Georgia welcomes the decision of the founding shareholders to step down from the Board of Directors of TBC Bank Group PLC (which is a London based 100% shareholder of JSC TBC Bank).

National Bank of Georgia emphasizes that TBC Bank is one of the leading financial organization in the country and the region. It is a strong and robust financial institution. Since April 2019, Mamuka Khazaradze and Badri Japaridze no longer serve as the Supervisory Board members of JSC TBC Bank and the recent events will not have any impact on the operations of the bank."

The full statement is available on the following website: www.nbg.gov.ge

European Bank for Reconstruction and Development (EBRD)

On 25 July 2019, EBRD issued the following statement: "The EBRD notes the recent board changes at TBC Bank Group PLC. The bank is a solid financial institution led by a strong management and an independent board of directors.

We welcome the decision by the chairman and the deputy chairman of the bank to step down from the board at this time to focus on allegations made against them in a legal dispute.

We also welcome the strengthening of the board with the addition of independent directors with extensive executive level experience in financial institutions.

We expect a fair and transparent due process and a prompt resolution of the case with no adverse impact on the operations of the bank.

Meanwhile, the EBRD as a longstanding partner, shareholder and lender of TBC Bank will continue to work with and support TBC Bank Group PLC."

The full statement is available on the following website: www.ebrd.com

International Finance Corporation (IFC)

On 25 July 2019, IFC issued the following statement: "IFC, a member of the World Bank Group, is aware of the developments around TBC Bank, noting the recent board changes at TBC Bank Group PLC. We welcome the decision by the chairman and the deputy chairman of the bank to step down from the board to focus on legal proceedings.

We note the leading role of TBC Bank in Georgia's banking sector and expect a fair and transparent resolution of the case, with no adverse consequences for the bank's operations. IFC was the first international financial institution to become a shareholder of TBC Bank in 2000, and we will continue to support TBC Bank Group PLC.

The banking sector's growth is critical for the development of other sectors of the economy and our continued emphasis will be on strengthening the financial sector and increasing access to finance for businesses."

The full statement is available on the following website: www.ifc.org

  

Additional Funding

Senior Unsecured Bonds

In June 2019, TBC Bank successfully issued debut USD 300 million 5-year 6.0% yield senior unsecured bonds, representing the lowest ever yield achieved by a Georgian issuer in the international debt capital markets.

Main Terms

Status

Senior unsecured

Currency

USD

Issue Size

300,000,000

Maturity

5 years

Interest Rate

5.750% per annum payable semi-annually

Denomination

USD 200,000 x USD 1,000

Listing

Euronext Dublin / Georgian Stock Exchange

 

Additional Tier 1 Bond

In July 2019, TBC Bank successfully issued USD 125 million 10.75% yield Additional Tier 1 Capital Perpetual Subordinated Notes, which represents the largest and lowest coupon Additional Tier 1 issue ever to have been priced by a Georgian issuer.

Main Terms

Status

Additional Tier 1 Capital Perpetual Subordinated Notes

Currency

USD

Issue Size

125,000,000

Maturity

Perpetual, 5 year non call

Interest Rate

10.775% per annum payable semi-annually

Denomination

USD 200,000 x USD 1,000

Listing

Euronext Dublin / Georgian Stock Exchange

 

IFI Funding

To meet future funding needs when and as required by the business, we have been working with our long term IFI partners - EBRD, ADB, EIB, FMO, DEG, Proparco, BSTDB, OFID, CDB, AIIB, Blue Orchard, EFSE, GCPF,GCF - on a funding pipeline of up to USD 900 million in total in 2019-2020, both in local currency and USD.

 

Under such approach, we have signed an agreement and attracted USD 10 million from ResponsAbility Investments AG.. The funds will be used to support SME Business growth.

 

Furthermore, we have signed a Continuing Agreement for Reimbursement of Trade Advances (CARTA) with Citibank. The trade finance framework agreement will primarily be used to finance trade activities of local importers and exporters in Georgia.

 

 

Development of Customer Focused Ecosystems

 

In order to integrate better with our customers, we have started to develop customer focused ecosystems, which are closely linked with our financial products and services and enable us to create synergies with our core banking offerings.

E-commerce

Our strategy is to develop an innovative e-commerce market place in Georgia, comprising:

§ An asset light platform (Intermediation);

§ A diverse products range and fast delivery within 24 hours; and

§ Exceptional customer service - NPS[5] 80%+;

Our estimated investment for the next two years will be around USD 2-3 million, or GEL6-9 million[6].

Our Progress

§ The soft launch of the marketplace took place in April and the full launch took place in May 2019.

§ In 2Q 2019, Vendoo developed an analytical system, a logistics system, an SMS communication system and service monitoring for customers, as well as a portal for merchants for managing their assortment and sales.

§ In addition, Vendoo enriched its existing product offering (comprising of electronics and  personal care products) with gardening & housing, toys and household chemistry.

 

Real Estate

Our strategy is to create the first housing ecosystem in the region, with the following features:

§ An intuitive design & exceptional customer experience; and

§ A diverse products range.

Our estimated investment for the next two years is set at around USD 2 million, or GEL 6 million6.

Our Progress

§ We completed the rebranding process and launched a beta version of the platform in May 2019. The full launch is planned in October 2019.

§ We have introduced the first real-estate valuation service in Georgia, which provides independent valuation certificate within 24 hours.

§ We have developed a premier agent service for brokers, which will allow them to enhance their value proposition.

§ We have launched a customer contact center.

 

 

 

 

Additional Information Disclosure

The following materials in connection with TBC PLC's financial results are disclosed on our Investor Relations website on http://tbcbankgroup.com/ under Results Announcement section:

  • 2Q and 1H 2019 Results Report
  • 2Q 2019 Results Call Presentation

 

 

Letter from the Chief Executive Officer

 

I would like to start my letter with an update about the recent board changes. As we announced last week due to recent developments, regarding historic transactions that took place in 2007 and 2008, the Chairman and Deputy Chairman have decided to step down from the board of TBC Bank Group PLC with immediate effect. They have both arrived at this decision after careful consideration in order to ensure that the allegations made against them do not affect the Group. Following their resignation, the Board has appointed, with immediate effect, Senior Independent Director Nikoloz Enukidze to serve as the Chairman of TBC Bank Group PLC. I would like to thank both the Chairman and Deputy Chairman for their invaluable contribution to the bank and welcome the appointment of Mr Enukidze with whom we have enjoyed excellent working relationship over past 6 years.

 

Despite recent board changes, we continue to operate in our usual manner capitalising on our leading market share, strong capital and liquidity positions and operational excellence for the benefit of our shareholders. I welcome the supporting statements made by the NBG, EBRD and IFC in support of TBC. In light of our strong financial position and current share price, we have initiated a share buyback programme that was approved by the board yesterday.

Now I am pleased to present our financial results for the second quarter 2019 and first half of 2019.

In the second quarter of 2019, we achieved an underlying consolidated net profit[7] of GEL 125.0 million, up by 4.3% year-on-year (our consolidated net reported profit was GEL 120.2 million, up by 17.4% year-on-year). The growth was mainly driven by an increase in net fee and commission income and other operating income, which was largely offset by a rise in operating expenses. Our operating expenses increased by 18.8% year-on-year, or by 12.7% on an underlying basis.  Over the same period, provision expenses decreased by 4.9%, resulting in cost of risk of 1.1% (or FX adjusted cost of risk of 0.8%), driven by the decreasing share of higher-yield and higher-risk loans and improved performance across all segments.  In the second quarter 2019, net interest income increased only by 1.2% year-on-year. The pressure on net interest income was related to a continued impact of the regulation implemented in January 2019, that limits the ability of banks to lend money to higher-yield retail customers, an increase in minimum reserve requirements for foreign currency funds, as well as competition in interest rates. As a result, net interest margin decreased by 0.5 percentage points quarter-on-quarter and stood at 5.6%.  Our underlying return on equity reached 21.5%, while the underlying return on assets was 3.1% (our reported return on equity was 20.7%, while reported return on assets stood at 3.0%).

In the first half of 2019, our underlying net profit7 stood at GEL 258.3 million, up by 18.8% year-on-year, which resulted in an underlying return on equity of 22.7% and an underlying return on assets of 3.3% (our consolidated reported net profit was GEL 253.5 million, up by 26.8% year-on-year, while our reported return on equity was 22.3%, and reported return on assets stood at 3.3%).

Regarding balance sheet growth, our loan book expanded by 25.2% year-on-year, or by 14.7% at a constant currency rate. As a result, our market share increased to 38.5%, up by 0.2 percentage points year-on-year. Over the same period, customer accounts grew by 24.5% year-on-year, or by 13.4% at a constant currency rate leading to a market share of 41.0%, up by 1.5 percentage points year-on-year.

We continue to operate with a strong capital base and a robust liquidity position.  As of 30 June 2019, our total capital adequacy ratio (CAR) per Basel III guidelines stood at 17.4%, above the minimum requirement of 16.7%, while our tier I capital ratio was 12.4%, also above the minimum requirement of 11.9%.  The proceeds from the issuance of AT1 bonds in the amount of USD 125 million will be reflected in our capital in July, increasing our total and tier 1 capital by approximately 2.5 percentage points.  Our regulatory liquidity coverage ratio stood at 126% (which will be increased by around 12 percentage points by AT1), compared to the minimum requirement of 100%, while the ratio of net loans to deposits + IFI funding was 91% and the net stable funding ratio (NSFR) was 130%.

According to Geostat's initial estimates, real GDP increased by 4.9% in the first 5 months of 2019. While credit growth has moderated, external inflows were reasonably strong and, unlike in 2018, the fiscal stance was expansionary. Also, the current account deficit has narrowed in the first quarter and this tendency is likely to be sustained in the second quarter as well, driven by the improved trade balance and the growth in tourism and remittances inflows. Going forward, the recent restriction on flights from Russia to Georgia will have a substantial impact on tourism inflows. However, according to TBC Research, taking into account the increase in tourism inflows from other destinations and the strengthening external balance, the growth will be still positive[8]. In terms of GDP growth, according to TBC Research as well as the National Bank of Georgia, real GDP is expected to increase by more than 4.0% in 2019, once again underlining the high growth potential and the resilience of the economy.

In May 2019, TBC Insurance entered the health insurance market. Our strategy is to focus on affluent individuals and to capture the affluent market by leveraging our strong brand name and cross-selling opportunities with payroll customers. Our medium term target is to reach 25% market share in the premium health insurance business.

I would also like to update you on the progress that we made in development of our ecosystems:

§ Vendoo: The full launch of the platform took place in May 2019, and during the second quarter Vendoo focused on developing its various internal systems. In addition, Vendoo enriched its existing product offering (comprised of electronics and personal care products) with gardening & housing, toys and household chemistry and is already selling up to 15,000 different items. 

§ Livo: We completed the rebranding process and launched the beta version of the platform in May 2019, and we have already reached around 9,000 users daily. The full launch is planned in October 2019. We have introduced the first real-estate valuation service in Georgia, which provides an independent valuation certificate within 24 hours.  We have also developed a premier agent service for brokers, which will allow them to enhance their value proposition, and we have launched a customer contact center.

We have also made progress in our international ventures:

§ In Azerbaijan, Nikoil bank is in the process of a significant reorganization, which includes re-branding and a shift to digitalization. It has also opened four new branches during the second quarter 2019.

§ In Uzbekistan, before the license is granted, we are working on core banking implementation, team formation and branch concept. At the same time, our newly acquired payment company, Payme, continued to grow rapidly, increasing its number of customers by 10.9% quarter-on-quarter to reach 1.4 million, while its revenue increased by 19.7% over the same quarter and amounted to around USD 700,000.

In terms of funding, I am pleased to report that in June 2019, our subsidiary, JSC TBC Bank successfully issued its first senior Eurobond in the amount of USD 300 million with a 5-year maturity and a coupon rate of 5.75% per annum, payable semi-annually. The bonds are priced at 6% yield, which represents the lowest ever yield achieved by a Georgian issuer in the international debt capital markets.  The notes are listed on the regulated market of Euronext Dublin and on the Georgian Stock Exchange, making it the first dual-listed international offering of senior unsecured notes from Georgia. In July 2019, JSC TBC Bank also issued USD 125 million additional Tier 1 capital perpetual subordinated notes at 10.75% yield.  This is the largest ever additional Tier 1 issue by a Georgian issuer, priced at the lowest ever coupon. The notes are listed on the regulated market of Euronext Dublin and on the Georgian Stock Exchange, making it the first dual-listed international offering of additional Tier 1 capital notes from Georgia.

Moreover, JSC TBC Bank strengthened its supervisory board by appointing Jyrki Koskelo as a member and Chairman of the JSC TBC Bank Supervisory Board in May 2019, and Arne Berggren as a member of the JSC TBC Bank Supervisory Board in July 2019.  Mr Koskelo serves and has served as a board member and senior advisor in multiple emerging market focused banks and companies. Prior to joining TBC, he held number of senior leadership positions during his 24 years at The International Financial Corporation. Mr Berggren currently serves as a member of the board of Bank of Cyprus and Piraeus Bank and has extensive experience at senior leadership and advisory roles in prominent financial institutions including the IMF, World Bank, Swedbank, Carnegie Investment Bank AB and the Swedish Ministry of Finance and Bank Support Authority.

Finally, I would like to reiterate our medium term targets: ROE of above 20%, cost to income ratio below 35%, dividend pay-out ratio of 25-35% and loan book growth of 10-15%.

 

 

Economic Overview

Economic growth

According to Geostat's initial estimates, real GDP increased by 4.9% in the first half of 2019. While the credit growth has moderated, the inflows were reasonably strong and unlike 2018, the fiscal stance was expansionary. At the same time, the flight ban imposed by Russia will lower growth going forward. According to TBC Research estimates, GDP is still expected to increase by over 4% for the FY 2019 and 2020.

In terms of the sectors, transport and communications (+12.7% YoY), as well as the trade and repairs sector (+6.7% YoY), contributed the most to the growth. At the same time, the education (+15.7% YoY) and healthcare sectors (+11.4% YoY) increased substantially, mainly due to higher budget spending on education (+57.7% YoY) and healthcare (+14.4% YoY) in 1Q 2019.

Similarly, strong growth was observed in hotels and restaurants (+13.1% YoY), and real estate (+11.1% YoY). All of the other major sectors also increased, with the exception of construction (-9.6% YoY), agriculture (-0.3% YoY), and manufacturing (-1.3% YoY). The decline in the construction sector was broadly expected to reflect the finalization of BP's pipeline construction project. The decline in the construction sector was also aggravated by the weakness of residential buildings construction, which is related to the slower mortgage growth and tighter construction permit regulations. On the other hand, strong government capital expenditures partly offset the decline.

The trade balance continued to improve in 2Q 2019 with exports of goods up by 10.3% while imports fell by 6.1%. As a result, the trade deficit improved significantly by 15.7% YoY over the same period, all in USD terms. The growth in tourism inflows also accelerated to an estimated 15.5% in 2Q 2019, compared to the 5.0% growth in 1Q 2019. Remittance inflows went up by 9.3% YoY over the same period, which is somewhat faster growth than in the previous quarter.

FDI inflows decreased by 6.3% YoY in the USD terms from 300 million USD in 1Q 2018 to 281 million USD in 1Q 2019 (in EUR and GEL, 1.9% and 0.9% YoY increase, respectively). As in 2018, the finalization of the South Caucasus Pipeline Extension Project and the change of ownership of non-resident companies to residents likely played a role in 1Q 2019 as well.  As of the last four quarters ending in 1Q 2019, FDI inflows still stood at a strong 7.3% of GDP. Furthermore, 2018 gross fixed capital formation was at a solid 33.3% of GDP

The current account balance improvement trend continued in 1Q 2019 as well, with a deficit to same quarter GDP ratio of 6.2%: this is historically low, reflecting an improvement of 5.7pp YoY, with the strongest contribution coming from trade in goods. This positive tendency has likely been sustained in 2Q as well, judging from the trade balance, tourism and remittances inflows, as the figures described above suggest. Over the last four quarters, the current account deficit to GDP ratio stood at 6.4%, which is improvement of 1.3pp compared to the previous quarter. Despite the reduction, FDI inflows, which stood at 6.6% of GDP, remained the key source of financing the current account deficit. At the same time, over the first six months of 2019 the NBG bought 216 million USD, or around 3% of GDP over the same period, indicating that the inflows were sufficient for even higher growth. The recent restriction on flights from Russia to Georgia will have a substantial impact on tourism inflows. However, according to TBC Research, taking into account the increase in tourism inflows from other destinations and the strengthening external balance, the impact should be manageable[9].

Bank credit growth came in at 14.1% YoY in June 2019 being 1.4 pp higher compared to the 12.7% in the previous month. In terms of the segments, corporate loans were the main driver of the acceleration with a 18.0% YoY growth rate, partly thanks to the one-off transactions. On top of that, MSME lending also increased by a solid 17.2% YoY. On the other hand, retail lending continues to moderate. Mortgage lending growth slowed to 25.7% YoY, while non-mortgage lending declined by around the same 5.6% rate on an annual basis, similar to previous months. At the same time, there are ongoing discussions on a possible revision of the retail credit regulatory framework. The NBG assesses around 13% credit growth to be moderate.

 

Inflation and the exchange rate

An annual inflation stood at 4.3% in June 2019, over the same period, while core inflation[10] came in at 3.6%.

As of the end of June 2019, the USD/GEL exchange rate of GEL depreciated by 17.0% YoY, while the EUR/GEL exchange rate depreciated by 14.4% YoY. GEL also depreciated compared to the major trading country currencies, as evidenced by the weaker effective exchange rate. As of July 15th, the estimated real effective exchange rate was around 10% below its medium term average, also indicating potential pressures on inflation.

On 24 July meeting, the Monetary Policy Committee (MPC) of the National Bank of Georgia decided to keep the policy rate unchanged at 6.5%. According to the NBG, the GEL was assessed as being undervalued and if the upward pressure from the exchange rate on inflation continues, the central bank will consider the monetary policy tightening, as well.

Going forward

According to the IMF's recently published World Economic Outlook[12], the Georgian economy is projected to grow by 4.6% in 2019 and 5.0% in 2020. Thereafter, the economy is expected to expand by 5.2%. Based on TBC Research estimates, taking into account the Russian flights ban, growth over the next 12 months should stand at around 4% with somewhat higher growth rates expected for FY 2019 and 2020.

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

 

 

Unaudited Consolidated Financial Results Overview for 2Q 2019

This statement provides a summary of the unaudited business and financial trends for 2Q 2019 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited. The preliminary unaudited and not reviewed results were published on 29 July 2019. This report contains a more detailed information on the same results.

Starting from 1 January 2019, TBC Bank adopted IFRS 16. Therefore, the comparative information for 2018 is not comparable to the information presented for 2019.

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group classifies and separately discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, as one-off items in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure and the reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 26 section on pages 51-52.

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

Income Statement Highlights

 

 

 

 

 

in thousands of GEL

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Net interest income

           190,481

        196,958

           188,204

1.2%

-3.3%

Net fee and commission income

             43,534

          41,807

             39,162

11.2%

4.1%

Other operating non-interest income

             38,287

          33,181

             31,052

23.3%

15.4%

Credit loss allowance

 (33,372)

         (33,095)

 (35,091)

-4.9%

0.8%

Operating income after credit loss allowance

           238,930

        238,851

           223,327

7.0%

0.0%

Operating expenses

 (109,383)

       (102,514)

 (92,090)

18.8%

6.7%

Reported profit before tax

           129,547

        136,337

           131,237

-1.3%

-5.0%

Underlying profit before tax

           135,152

        136,337

           131,237

3.0%

-0.9%

Reported income tax expense

 (9,329)

           (3,015)

 (28,799)

-67.6%

NMF

Underlying income tax expense

 (10,170)

           (3,015)

 (11,373)

-10.6%

NMF

Reported profit for the period

           120,218

        133,322

           102,438

17.4%

-9.8%

Underlying profit for the period

           124,982

        133,322

           119,864

4.3%

-6.3%

  NMF - no meaningful figures

Balance Sheet and Capital Highlights

 

 

 

 

 

 

Jun-19

Mar-19

Change QoQ

in thousands of GEL

GEL

USD

GEL

USD

 

Total assets

  17,278,364

 6,023,064

  15,172,306

5,637,329

13.9%

Gross loans

  11,141,360

 3,883,766

  10,366,915

3,851,867

7.5%

Customer deposits

    9,876,813

 3,442,958

    9,166,789

3,405,956

7.7%

Total equity

    2,369,005

    825,811

    2,347,756

872,318

0.9%

Regulatory tier I capital (Basel III)

    1,730,302

    603,166

    1,746,745

649,010

-0.9%

Regulatory total capital (Basel III)

    2,430,135

    847,121

    2,421,461

899,703

0.4%

Regulatory risk weighted assets (Basel III)

  13,986,201

 4,875,449

  12,689,740

4,714,922

10.2%

               

The Jun-19 figures are converted into US$ using exchange rate of 2.8786 as of 30 June 2019, while Mar-19 figures are converted using exchange rate of 2.6914 as of 31 March 2019

Key Ratios

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Underlying ROE

21.5%

23.8%

24.9%

-3.4 pp

-2.3 pp

Reported ROE

20.7%

23.8%

21.3%

-0.6 pp

-3.1 pp

Underlying ROA

3.1%

3.6%

3.7%

-0.6 pp

-0.5 pp

Reported ROA

3.0%

3.6%

3.2%

-0.2 pp

-0.6 pp

NIM

5.6%

6.1%

7.1%

-1.5 pp

-0.5 pp

Underlying cost to income

38.1%

37.7%

35.6%

2.5 pp

0.4 pp

Reported cost to income

40.2%

37.7%

35.6%

4.6 pp

2.5 pp

Cost of risk

1.1%

1.4%

1.8%

-0.7 pp

-0.3 pp

FX adjusted cost of risk

0.8%

1.4%

1.7%

-0.9 pp

-0.6 pp

NPL to gross loans

3.1%

3.3%

3.1%

0.0 pp

-0.2 pp

Regulatory Tier 1 CAR (Basel III)

12.4%

13.8%

13.4%

-1.0 pp

-1.4 pp

Regulatory Total CAR (Basel III)

17.4%

19.1%

17.0%

0.4 pp

-1.7 pp

Leverage (Times)

7.3x

6.5x

7.0x

0.3x

0.8x

 

Income Statement Discussion

 Net Interest Income

 

In thousands of GEL

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Loans and advances to customers

    290,844

    292,055

      270,378

7.6%

-0.4%

Investment securities measured at fair value through other comprehensive income

      17,016

      19,934

        11,968

42.2%

-14.6%

Due from other banks

        5,764

        5,866

          7,027

-18.0%

-1.7%

Bonds carried at amortized cost

      13,981

        9,429

          9,842

42.1%

48.3%

Investment in leases

      12,696

      10,631

          8,937

42.1%

19.4%

Interest income

    340,301

    337,915

      308,152

10.4%

0.7%

Customer accounts

      80,500

      75,133

        64,804

24.2%

7.1%

Due to credit institutions

      50,786

      49,246

        44,785

13.4%

3.1%

Subordinated debt

      16,076

      15,672

          9,959

61.4%

2.6%

Finance lease

           672

           637

                -  

NMF

5.5%

Debt securities in issue

        1,786

           269

             400

NMF

NMF

Interest expense

    149,820

    140,957

      119,948

24.9%

6.3%

Net interest income

    190,481

    196,958

      188,204

1.2%

-3.3%

 

 

 

 

 

 

Net interest margin

5.6%

6.1%

7.1%

-1.5%

-0.5 pp

NMF - no meaningful figures

 

2Q 2019 to 2Q 2018 Comparison

Net interest income increased by GEL 2.3 million, or 1.2%, to GEL 190.5 million, compared to 2Q 2018, driven by a GEL 32.1 million, or 10.4%, higher interest income and a GEL 29.9 million, or 24.9%, higher interest expense.

Interest income grew by GEL 32.1 million, or 10.4%, YoY to GEL 340.3 million, mainly due to an increase in interest income from loans and advances to customers of GEL 20.5 million, or 7.6%. This is primarily related to an increase in the gross loan portfolio of GEL 2,245.4 million, or 25.2%, YoY. This effect was slightly offset by a 1.5 pp drop in loan yields, which was mainly driven by decreased loan yields on retail loans. The 2.5pp drop in yields on retail loans was primarily driven by a continued impact of the NGB's regulation effective from January 2019, which  limits the banks' ability to lend money to higher-yield retail customers. The gain in interest income was also driven by the growth in interest income from financial securities (comprised of investment securities measured at fair value through other comprehensive income and bonds carried at amortized cost) by GEL 9.2 million, or 42.1%, which resulted from a significant increase in the respective portfolios. Yields on investment securities remained stable on a YoY basis. The yield on interest earning assets decreased by 1.7 pp to 10.0%, compared to 2Q 2019.

The GEL 29.9 million, or 24.9%, YoY growth in interest expense to GEL 149.8 million in 2Q 2019 was mainly due to a GEL 15.7 million, or 24.2%, increase in interest expense on customer accounts, a GEL 6.1 million, or 61.4%, increase in interest expense on subordinated debt and a GEL 6.0 million, or 13.4% increase in interest expense on amounts due to credit institutions. The higher interest expense on customer accounts was attributable to a GEL 1,944.2 million, or 24.5%, growth in the respective portfolio, further magnified by a 0.1pp increase in the cost of customer accounts attributable to the increased share of LC denominated deposits in total deposits. The rise in interest expense on subordinated debt was attributable to a GEL 290.4 million, or 73.0%, increase in the respective portfolio. This effect was slightly offset by a 0.4 pp decrease in the cost of subordinated debt to 9.6%. The increase in interest expense on amounts due to credit institutions was mainly driven by an increase in the average respective portfolio, slightly offset by a 0.1 pp drop in the respective cost. The cost of funding increased by 0.1 p p and stood at 4.5%.

Consequently, NIM stood at 5.6% in 2Q 2019, compared to 7.1% in 2Q 2018, while risk adjusted NIM stood at 4.8%, compared to 5.5% in 2Q 2018.

 

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, net interest income decreased by 3.3% as a result of a 0.7% higher interest income and a 6.3% higher interest expense.

The increase in interest income by GEL 2.4 million, or 0.7%, QoQ mainly resulted from the growth in interest income on investments in leases by GEL 2.1 million, or 19.4% and a GEL 1.6 million increase in interest income on financial securities (comprised of investment securities measured at fair value through other comprehensive income and bonds carried at amortized cost). The rise in interest income on investments in leases was due to a GEL 12.6 million, or 6.1%, increase in the respective portfolio. This effect was further magnified by a 2.8 pp rise in yields on investments in leases. The increase in financial securities was mainly driven by a GEL 124.1 million or 8.0% growth in the respective portfolios and a 0.2 pp rise in the respective yields. The increase was offset a GEL 1.2 million or by 0.4%, decline in interest income on loans to customers, which was  driven by a drop of 0.5 pp in loan yields to 11.0%. This resulted from a 0.6 pp decline in yields on retail deposits, related to NBG's new regulation, as mentioned above.  This effect was partially offset by a GEL 774.4 million or by 7.5%, increase in the gross loan portfolio. The yield on interest earning assets decreased by 0.5 pp to 10.0%, compared to 1Q 2019.

The GEL 8.9 million, or 6.3%, QoQ increase in interest expense was primarily due to the GEL 5.4 million, or 7.1%, rise in interest expense on customer accounts. The main driver was a GEL 710.0 million, or 7.7%, increase in the portfolio of customer accounts and a 0.1 pp rise in the cost of customer accounts to 3.4%. Other contributors to the increased interest expense were a GEL 1.5 million rise in interest expense on debt securities in issue and a GEL 1.5 million increase in interest expense on amounts due to credit institutions, both of which were related to an increase in the respective portfolios by GEL 835.4 million and GEL 360.2 million. The cost of funding remained stable at 4.5%.

Consequently, on a QoQ basis, NIM decreased by 0.5 pp and stood at 5.6%. Meanwhile risk adjusted NIM increased by 0.1 pp from 4.7% in 1Q 2019.

 

Fee and Commission Income

 

 

 

 

In thousands of GEL

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Card operations

      31,598

      28,486

        25,274

25.0%

10.9%

Settlement transactions

      18,992

      17,617

        17,454

8.8%

7.8%

Guarantees issued

        6,689

        5,857

          4,859

37.7%

14.2%

Issuance of letters of credit

        1,279

        1,040

          1,289

-0.8%

23.0%

Cash transactions

        3,537

        3,169

          4,543

-22.1%

11.6%

Foreign currency exchange transactions

           631

           757

             406

55.4%

-16.6%

Other

        6,257

        3,976

          4,440

40.9%

57.4%

Fee and commission income

      68,983

      60,902

        58,265

18.4%

13.3%

Card operations

      19,825

      14,350

        12,975

52.8%

38.2%

Settlement transactions

        3,873

        2,749

          2,143

80.7%

40.9%

Guarantees issued

           462

           402

             313

47.6%

14.9%

Letters of credit

           351

           389

             327

7.3%

-9.8%

Cash transactions

           586

        1,017

          1,242

-52.8%

-42.4%

Foreign currency exchange transactions

               3

             28

                 3

0.0%

-89.3%

Other

           349

           160

          2,100

-83.4%

NMF

Fee and commission expense

      25,449

      19,095

        19,103

33.2%

33.3%

Card operations

      11,773

      14,136

        12,299

-4.3%

-16.7%

Settlement transactions

      15,119

      14,868

        15,311

-1.3%

1.7%

Guarantees

        6,227

        5,455

          4,546

37.0%

14.2%

Letters of credit

           928

           651

             962

-3.5%

42.5%

Cash transactions

        2,951

        2,152

          3,301

-10.6%

37.1%

Foreign currency exchange transactions

           628

           729

             403

55.8%

-13.9%

Other

        5,908

        3,816

          2,340

NMF

54.8%

Net fee and commission income

      43,534

      41,807

        39,162

11.2%

4.1%

                 

NMF - no meaningful figures

 

2Q 2019 to 2Q 2018 Comparison

In 2Q 2019, net fee and commission income totalled GEL 43.5 million, up by GEL 4.4 million, or 11.2%, compared to 2Q 2018. This mainly resulted from an increase in other net fee and commission income of GEL 3.6 million and an increase in net fee and commission income from guarantees of GEL 1.7 million, or 37.0%.

The rise in other net fee and commission income was related to the reclassification of certain fee expenses from this category to settlement transactions. Without this reclassification, net fee and commission income from settlement transactions would have increased by GEL 0.6 million, or by 3.7% driven by our affluent retail sub-segment, TBC Status. The increase in net fee and commission income from guarantees was mainly related to an increase in the respective portfolio of GEL 559.2 million, or 67.9%.

 

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, net fee and commission income increased by GEL 1.7 million, or 4.1%, compared to 1Q 2019. This was primarily driven by an increase in other net fee and commission income of GEL 2.1 million, or 54.8%, a GEL 0.8 million, or 14.2%, increase in net fee and commission income from guarantees and a GEL 0.8 million, or 37.1%, increase in net fee and commission income from cash transactions, partially offset by a GEL 2.4 million, or 16.7%, decrease in net fee and commission income from card operations.

The rise in other net fee and commission income was mainly due to the increased brokerage activities of our subsidiary, TBC Capital. The increase in net fee and commission income from guarantees was mainly driven by the growth of the respective portfolio by GEL 172.4 million, or 14.3%. The decrease in net interest income from card operations was mainly driven by the depreciation of the local currency, as fee expenses are mostly denominated in FC. 

 

Other Operating Non-Interest Income and Gross Insurance Profit

 

 

 

 

In thousands of GEL

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Net income from foreign currency operations

          30,119

          25,214

23,251

29.5%

19.5%

Share of profit of associates

               172

               169

340

-49.4%

1.8%

Gains less losses/(losses less gains) from derivative financial instruments

                (71)

              (158)

396

NMF

-55.1%

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

                 79

                 68

-  

NMF

16.2%

Revenues from sale of cash-in terminals

               228

               214

226

0.9%

6.5%

Revenues from operational leasing

               797

               863

1,567

-49.1%

-7.6%

Gain from sale of investment properties

               482

               148

855

-43.6%

NMF

Gain from sale of inventories of repossessed collateral

               321

               260

100

NMF

23.5%

Revenues from non-credit related fines

                 97

                 68

111

-12.6%

42.6%

Gain on disposal of premises and equipment

               140

            1,231

154

-9.1%

-88.6%

Other

            1,585

            1,375

799

98.4%

15.3%

Other operating income

            3,650

            4,159

3,812

-4.2%

-12.2%

Gross insurance profit[13]

            4,338

            3,729

3,253

33.4%

16.3%

Other operating non-interest income and gross insurance profit

          38,287

          33,181

31,052

23.3%

15.4%

NMF - no meaningful figures

 

 

 

 

 

                           

2Q 2019 to 2Q 2018 Comparison 

Total other operating non-interest income and gross insurance profit grew by GEL 7.2 million, or 23.3%, to GEL 38.3 million in 2Q 2019. This primarily resulted from the growth in net income from foreign currency operations by GEL 6.9 million, or 29.5%, and an increase in gross insurance profit of GEL 1.1 million, or 33.4%. This increase was slightly offset by a GEL 0.8 million, or 49.1% drop in revenues from operational leasing. Higher net income from foreign currency operations resulted from an increased number and volume of FX transactions in the retail and corporate segments.

The growth in gross insurance profit was related to the increase in non-health[13] insurance business as well as entry into a new business line, health insurance in May 2019. More information about TBC insurance can be found in Annex 23 on page 49.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, total other operating non-interest income and gross insurance profit increased by GEL 5.1 million, or by 15.4%. This mainly resulted from the growth in net income from foreign currency operations by GEL 4.9 million, or 19.5%, mainly related to the increased number and volume of FX transactions across all segments, as well as the higher volatility of the local currency.

Credit Loss Allowance

 

 

 

 

 

In thousands of GEL

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Credit loss allowance for loans to customers

     (30,067)

     (36,416)

      (37,982)

-20.8%

-17.4%

Credit loss allowance for investments in finance lease

           219

            (41)

           (252)

NMF

NMF

Credit loss allowance for performance guarantees and credit related commitments

          (824)

           432

          1,375

NMF

NMF

Credit loss allowance for other financial assets

       (2,389)

        2,969

          1,950

NMF

NMF

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

          (311)

            (39)

             (182)

NMF

NMF

Total credit loss allowance

     (33,372)

     (33,095)

      (35,091)

-4.9%

0.8%

Operating income after credit loss allowance

    238,930

    238,851

      223,327

7.0%

0.0%

 

 

 

 

 

 

Cost of risk

1.1%

1.4%

1.8%

-0.7 pp

-0.3 pp

NMF - no meaningful figures

 

 

 

 

 

 

 

2Q 2019 to 2Q 2018 Comparison 

In 2Q 2019, total credit loss allowance declined by GEL 1.7 million, or by 4.9% to GEL 33.4 million compared to 2Q 2018.

This was primarily attributable to a drop in credit loss allowance for loans to customers by GEL 7.9 million, or 20.8%, which was mainly driven by recoveries in the corporate segment in 2Q 2019, as well as portfolio product mix change. This decrease was partially offset by increases in credit loss allowances for other financial assets and for performance guarantees and credit related commitments by GEL 4.2 million and GEL 2.2 million, respectively.

In 2Q 2019, the cost of risk stood at 1.1% (0.8% without the FX effect), compared to 1.8% (1.7% without the FX effect) in 2Q 2018.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, total credit loss allowance increased by GEL 0.3 million, or 0.8%, to GEL 33.4 million.

This was mainly driven by an increase in credit loss allowance for other financial assets of GEL 5.4 million and a GEL 1.3 million increase in credit loss allowance for performance guarantees and credit related commitments. The rise in credit loss allowance for other financial assets was primarily related to the recovery of a single corporate debtor in 1Q 2019. The increase was partially offset by a drop in credit loss allowance for loans to customers of GEL 6.3 million, or 17.4%, which was mainly attributable to an improvement in the performance of the corporate and MSME segments, as well as portfolio product mix change.

In 2Q 2019, the cost of risk stood at 1.1% (0.8% without the FX effect), compared to 1.4% (1.4% without the FX effect) in 1Q 2019.

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

In thousands of GEL

2Q'19

1Q'19

2Q'18

Change YoY

Change QoQ

Staff costs

      58,886

      57,753

        50,732

16.1%

2.0%

Provisions for liabilities and charges

       (1,241)

          (200)

                -  

NMF

NMF

Depreciation and amortization

      15,955

      16,169

        10,992

45.2%

-1.3%

Professional services

        8,520

        3,526

          1,498

NMF

NMF

Advertising and marketing services

        4,983

        4,478

          7,117

-30.0%

11.3%

Expenses related to lease contracts[14]

        3,196

        2,630

          -

NMF

21.5%

Rent

-

-

5,843

NMF

NMF

Utility services

        1,623

        1,947

          1,453

11.7%

-16.6%

Intangible asset enhancement

        3,234

        2,741

          2,572

25.7%

18.0%

Taxes other than on income

        1,896

        1,817

          1,946

-2.6%

4.3%

Communications and supply

        1,348

        1,435

          1,160

16.2%

-6.1%

Stationary and other office expenses

        1,133

        1,119

          1,324

-14.4%

1.3%

Insurance

           278

           229

             483

-42.4%

21.4%

Security services

           521

           504

             506

3.0%

3.4%

Premises and equipment maintenance

        2,730

        2,035

          1,128

NMF

34.2%

Business trip expenses

           656

           409

             669

-1.9%

60.4%

Transportation and vehicles maintenance

           493

           410

             413

19.4%

20.2%

Charity

           275

        1,004

             281

-2.1%

-72.6%

Personnel training and recruitment

           305

           291

             233

30.9%

4.8%

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

          (251)

              -  

           (567)

-55.7%

NMF

Loss on disposal of Inventory

             37

             14

               80

-53.8%

NMF

Loss on disposal of investment properties

             38

              -  

               30

26.7%

NMF

Loss on disposal of premises and equipment

             19

           233

               58

-67.2%

-91.8%

Other

        4,749

        3,970

          4,139

14.7%

19.6%

Administrative and other operating expenses

      35,783

      28,792

        30,366

17.8%

24.3%

Operating expenses

    109,383

    102,514

        92,090

18.8%

6.7%

Profit before tax

    129,547

    136,337

      131,237

-1.3%

-5.0%

Income tax expense

       (9,329)

       (3,015)

      (28,799)

-67.6%

NMF

Profit for the period

    120,218

    133,322

      102,438

17.4%

-9.8%

 

 

 

 

 

 

Cost to income

40.2%

37.7%

35.6%

4.6 pp

2.5 pp

ROE

20.7%

23.8%

21.3%

-0.6 pp

-3.1 pp

ROA

3.0%

3.6%

3.2%

-0.2 pp

-0.6 pp

NMF - no meaningful figures

 

2Q 2019 to 2Q 2018 Comparison

In 2Q 2019, total operating expenses expanded by GEL 17.3 million, or 18.8%, YoY to GEL 109.4 million, primarily due to an increase in staff costs of GEL 8.2 million, or 16.1%, YoY and a rise in professional services of GEL 7.0 million. The growth in staff cost was mainly driven by the increase in share price over the three year period for the purpose of top and middle management share based bonuses (while the change in the number of shares did not have material effect). The increase in professional services was mainly attributable to one-off consulting fees in the amount of GEL 5.6 million, in relation to the recent events regarding historic matters surrounding TBC Bank. For further details, please see the following press release.  Without these one-off costs operating expenses would have increased by 12.7%.

As a result, cost to income ratio increased by 4.6 pp (or by 2.5 pp on an underlying basis) from 35.6% in 2Q 2018.

 

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, total operating expenses grew by GEL 6.9 million, or 6.7%. This was primarily attributable to a GEL 5.0 million rise in professional services and a GEL 1.1 million, or 2.0%, increase in staff costs. The increase in professional services was related to one-off costs as mentioned above. Without these one-off costs operating expenses would have increased by 1.2%.

 

As a result, the cost to income ratio expanded by 2.5 pp (or by 0.4 pp on an underlying basis) from 37.7%, compared to 1Q 2019.

 

 

Net Income

Reported net income for the second quarter decreased by GEL 13.1 million, or 9.8%, QoQ and increased by GEL 17.8 million, or 17.4%, YoY and amounted to GEL 120.2 million. Underlying net income decreased by GEL 8.3 million, or 6.3%, QoQ and increased by GEL 5.1 million, or 4.3%, YoY and amounted to GEL 125.0 million.

As a result, underlying ROE stood at 21.5%, down by 3.4 pp YoY and by 2.3 pp QoQ, while underlying ROA stood at 3.1%, down by 0.6 pp YoY but by 0.5 pp QoQ. Reported ROE stood at 20.7%, down by 0.6 pp YoY and by 3.1 pp QoQ, while reported ROA stood at 3.0%, down by 0.2 pp YoY but by 0.6 pp QoQ.

 

 

Balance Sheet Discussion

 

 

 

In thousands of GEL

Jun-19

Mar-19

Change QoQ

Cash, due from banks and mandatory cash balances with NBG

       3,497,441

      2,373,893

47.3%

Loans and advances to customers (Net)

     10,801,264

    10,029,320

7.7%

Financial securities

       1,674,821

      1,550,767

8.0%

Fixed and intangible assets & investment property

          576,346

         570,047

1.1%

Right of use assets

            61,555

           60,951

1.0%

Other assets

          666,937

         587,328

13.6%

Total assets

     17,278,364

    15,172,306

13.9%

Due to credit institutions

       3,052,742

      2,692,585

13.4%

Customer accounts

       9,876,813

      9,166,789

7.7%

Debt securities in issue

          848,838

           13,415

NMF

Subordinated debt

          688,002

         664,330

3.6%

Other liabilities

          442,964

         287,431

54.1%

Total liabilities

     14,909,359

    12,824,550

16.3%

Total equity

       2,369,005

      2,347,756

0.9%

           

 

Assets

On a QoQ basis, total assets rose by GEL 2,106.1 million, or 13.9%, mainly due to a GEL 1,123.5 million, or 47.3%, increase in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 771.9 million, or 7.7%, growth in net loans to customers. The expansion in liquid assets was primarily attributable to the rise in mandatory reserve requirements in FC effective from May 2019.  

 

As of 30 June 2019, the gross loan portfolio reached GEL 11,141.4 million, up by GEL 774.4 million, or by 7.5% QoQ. Without the currency effect, the loans to customers would have increased by 3.3% QoQ. At the same time, gross loans denominated in foreign currency accounted for 59.9 % of total loans, compared to 59.6% as of 31 March 2019.

 

 

Asset Quality

Borrowers with FX income

 

 

30-Jun-19

31-Mar-19

Segments

% of FX loans

of which borrowers with FX income**

% of FX loans

of which borrowers with FX income**

Retail

55.1%

30.0%

56.0%

28.7%

Non-mortgage

20.6%

23.5%

19.9%

23.6%

Mortgage

77.0%

31.1%

81.1%

29.6%

Corporate

71.4%

50.9%*

70.0%

51.4%*

MSME

52.7%

12.8%

52.2%

14.3%

Total loan portfolio

59.9%

34.6%

59.6%

34.4%

 (Based on internal estimates)

* Pure exports account for 5.8% and 6.4% of total corporate FX denominated loans as at 30 June 2019 and 31 March 2019, respectively

** FX income implies both direct and indirect income

 

 

PAR 30 by Segments and Currencies

Jun-19

Mar-19

 

GEL

FC

Total

GEL

FC

Total

Corporate

1.7%

0.7%

1.0%

1.1%

1.2%

1.2%

Retail

3.6%

1.9%

2.7%

4.4%

1.8%

2.9%

MSME

2.0%

3.4%

2.8%

2.7%

3.5%

3.1%

Total

2.7%

1.8%

2.1%

3.2%

1.9%

2.4%

Loans overdue by more than 30 days to gross loans

 

 

 

 

 

 

 

Total

Total PAR 30 improved by 0.3 pp QoQ, standing at 2.1%. The improvement was attributable to all three segments.

 

Retail Segment

The retail segment's PAR 30 amounted to 2.7%, down by 0.2 pp QoQ mainly driven by consumer loans.

 

Corporate

The corporate segment's PAR 30 improved by 0.2 pp QoQ and amounted to 1.0%.

 

MSME

The MSME segment's PAR 30 improved by 0.3 pp QoQ and stood at 2.8%, mainly attributable to improved performance of both SME and Micro sub segments.

 

 

 

 

 

 

 

 

NPLs

Jun-19

Mar-19

 

GEL

FC

Total

GEL

FC

Total

Corporate

1.5%

2.3%

2.1%

1.7%

3.0%

2.6%

Retail

4.2%

2.6%

3.3%

4.3%

2.3%

3.2%

MSME

2.7%

5.6%

4.2%

3.0%

5.6%

4.4%

Total

3.2%

3.1%

3.1%

3.3%

3.2%

3.3%

 

Total

Total NPLs improved by 0.2 pp on a QoQ basis and stood at 3.1%, primarily attributable to the corporate and MSME segments.

 

Retail Segment

The retail segment's NPLs remained broadly stable QoQ and stood at 3.3%.

 

Corporate

The corporate segment's NPLs dropped by 0.5 pp QoQ and stood at 2.1%, mainly attributable to improved performance of two non- performing corporate borrowers as well as corporate loan book growth effect.

 

MSME

The MSME segment's NPLs decreased by 0.2 pp on a QoQ basis and stood at 4.2%. QoQ improvement is driven by improved performance of both SME and Micro sub segments.

 

NPLs Coverage

Jun-19

Mar-19

 

Exc. Collateral

Incl. Collateral

Exc. Collateral

Incl. Collateral

Corporate

103.3%

299.1%

95.4%

288.7%

Retail

113.8%

180.4%

123.8%

190.0%

MSME

71.5%

179.0%

71.4%

175.2%

Total

97.9%

206.0%

100.1%

210.8%

 

 

 

 

 

 

 

 

 

 

 

Liabilities

As of 30 June 2019, TBC Bank's total liabilities amounted to GEL 14,909.4 million, up by GEL 2,084.8 million, or 16.3%, QoQ. This primarily resulted from a GEL 835.4 million increase in debt securities in issue and a GEL 710.0 million or 7.7%, increase in customer accounts.  

As of 30 June 2019, TBC Bank's customer accounts amounted to GEL 9,876.8, up by 3.5% on a constant currency. At the same time, customer accounts in foreign currency accounted for 62.8% of total customer accounts, compared to 63.2% as of 31 March 2019.

 

Liquidity

As of 30 June 2019, the Bank's liquidity ratio, as defined by the NBG, stood at 37.1%, compared to 35.9% as of 31 March 2019 and above the NBG limit of 30%. As of 30 June 2019, the total liquidity coverage ratio (LCR), as defined by the NBG, was 126.3%, above the 100.0% limit. The LCR in GEL and FC stood at 100.4% and 143.8% respectively, above the respective limits of 75% and 100%.

 

Total Equity

As of 30 June 2019, TBC's total equity totalled GEL 2,369.0 million, up by GEL 21.2 million from GEL 2,347.8 million as of 31 March 2019. The QoQ change in equity was mainly due to an increase in net income of GEL 120.2 million, which was partially offset by a declared dividend in the amount of GEL 108.6 million.

 

Regulatory Capital

As of 30 June 2019, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.4% and 17.4%, respectively, compared to the minimum required levels of 11.9% and 16.7%. In comparison, as of 31 March 2019, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.8% and 19.1%, respectively, higher than the minimum required levels of 11.9% and 16.7%.

 

In 30 June 2019, the Bank's Basel III Tier 1 Capital amounted to GEL 1,730.3 million, down by GEL 16.4 million, or 0.9%, compared to March 2019, due to dividend declared in 2Q 2019, which was partially offset by net income.  The Bank's Basel III Total Capital amounted to GEL 2,430.1 million, up by GEL 8.7 million, or 0.4%, QoQ. The increase in total capital was attributable to the increase in net income as well as the increase in general reserves of loans to customers, mainly driven by the GEL depreciation. This increase was partially offset by the declared dividend. Risk weighted assets stood at GEL 13,986.2 million as of 30 June 2019, up by GEL 1,296.5 million, or 10.2%, compared to March 2019, mainly related to the increase in loan book as well as the rise in mandatory cash reserves in FC.

 


 

Results by Segments and Subsidiaries

The segment definitions are as follows (updated in 2019):

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

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

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

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

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

 

Income Statement by Segments

2Q'19

Retail

MSME

Corporate

Corp.Centre

Total

Interest income

143,095

72,421

78,451

          46,334

        340,301

Interest expense

 (38,176)

 (2,478)

 (40,520)

 (68,646)

 (149,820)

Net transfer pricing

 (16,585)

 (24,103)

12,998

          27,690

                  -  

Net interest income

88,334

45,840

           50,929

            5,378

        190,481

Fee and commission income

47,987

6,110

           12,752

            2,134

          68,983

Fee and commission expense

 (21,529)

 (2,123)

 (1,647)

 (150)

 (25,449)

Net fee and commission income

26,458

3,987

11,105

            1,984

          43,534

Gross insurance profit

                     -  

                     -  

                   -  

            4,338

            4,338

Net income from foreign currency operations

7,211

5,673

10,081

            1,567

          24,532

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

-  

-  

                   -  

            5,587

            5,587

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

 (71)

-  

                   -  

                  -  

 (71)

Net losses from derivative financial instruments

-  

-  

                   -  

                 79

                 79

Other operating income

2,094

241

776

               539

            3,650

Share of profit of associates

-  

-  

               -  

               172

               172

Other operating non-interest income and insurance profit

9,234

5,914

10,857

          12,282

          38,287

Credit loss allowance for loans to customers

 (28,158)

 (5,740)

3,831

                  -  

         (30,067)

Credit loss allowance for performance guarantees and credit related commitments

                    28

 (189)

 (663)

                  -  

              (824)

Credit loss allowance for investments in finance lease

-  

-  

                   -  

               219

               219

Credit loss allowance for other financial assets

55

-  

 (854)

 (1,590)

 (2,389)

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

-  

-  

 (281)

 (30)

 (311)

Profit before G&A expenses and income taxes

95,951

49,812

74,924

          18,243

        238,930

Staff costs

 (32,939)

 (11,831)

 (9,510)

 (4,606)

 (58,886)

Depreciation and amortization

 (12,355)

 (1,909)

 (777)

 (914)

 (15,955)

Provision for liabilities and charges

                    -  

-  

                   -  

            1,241

            1,241

Administrative and other operating expenses

 (22,076)

 (6,123)

 (4,640)

 (2,944)

 (35,783)

Operating expenses

 (67,370)

 (19,863)

 (14,927)

 (7,223)

 (109,383)

Profit before tax

28,581

29,949

59,997

          11,020

        129,547

Income tax expense

 (1,768)

 (1,679)

 (4,684)

 (1,198)

 (9,329)

Profit for the year

26,813

28,270

55,313

            9,822

        120,218

 

 

Portfolios by Segments

 

 

In thousands of GEL

Jun-19

Mar-19

Loans and advances to customers

 

 

 

 

 

Non-mortgage

    1,875,501

    1,882,816

Mortgage

    2,959,819

    2,695,457

Retail

    4,835,320

    4,578,273

Corporate

    3,658,340

    3,364,911

MSME

    2,647,700

    2,423,731

Total loans and advances to customers (Gross)

  11,141,360

  10,366,915

Less: credit loss allowance for loans to customers

     (340,096)

     (337,595)

Total loans and advances to customers (Net)

  10,801,264

  10,029,320

 

 

 

Customer accounts

 

 

 

 

 

Retail

    5,360,114

    4,914,927

Corporate

    3,510,179

    3,316,436

MSME

    1,006,520

       935,426

Total Customer accounts

    9,876,813

    9,166,789

 

Retail Banking

As of 30 June 2019, retail loans stood at GEL 4,835.3 million, up by GEL 257.0 million, or 5.6%, QoQ and accounted for 39.6% market share of total individual loans. Without  the currency effect, retail loans would have increased by 1.8%. As of the same date, foreign currency loans represented 55.1% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 5,360.1 million, up by GEL 445.2 million, or 9.1%, QoQ and accounted for 39.5% market share of total individual deposits. Without the currency effect, retail deposits would have increased by 3.5%. As of 30 June 2019, term deposits accounted for 53.7% of the total retail deposit portfolio, while foreign currency deposits represented 80.5% of the total.

In 2Q 2019, retail loan yields and deposit rates stood at 12.2% and 3.0%, respectively. The segment's cost of risk on loans was 2.4% . The retail segment contributed 22.3%, or GEL 26.8 million, to the total net income in 2Q 2019.

 

Corporate Banking

As of 30 June 2019, corporate loans amounted to GEL 3,658.3 million, up by GEL 293.4 million, or 8.7%, QoQ. Foreign currency loans accounted for 71.4% of the total corporate loan portfolio. Without the currency effect, corporate loans would have increased by 3.7%. The market share of total legal entities loans stood at 37.3%.

As of the same date, corporate deposits totalled GEL 3,510.2 million, up by GEL 193.7 million, or 5.8%, QoQ. Foreign currency corporate deposits represented 41.1% of the total corporate deposit portfolio. Without the currency effect, corporate deposits would have increased by 3.1%. The market share of total legal entities deposits stood at 42.8%.

In 2Q 2019, corporate loan yields and deposit rates stood at 8.8% and 4.9%, respectively. In the same period, the cost of risk on loans was -0.5%. In terms of profitability, the corporate segment's net profit reached GEL 55.3 million, or 46.0%, of the total net income.

 

MSME Banking

As of 30 June 2019, MSME loans amounted to GEL 2,647.7, up by GEL 224.0 million, or 9.2%, QoQ. Without the currency effect, MSME loans would have increased by 5.5%. Foreign currency loans accounted for 52.7% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 1,006.5 million, up by GEL 71.1 million, or 7.6%, QoQ. Without the currency effect, MSME deposits would have increased by 4.5%. Foreign currency MSME deposits represented 44.6% of the total MSME deposit portfolio.

In 2Q 2019, MSME loan yields and deposit rates stood at 11.5% and 1.0%, respectively, while the cost of risk on loans was 0.9%. In terms of profitability, net profit for the MSME segment amounted to GEL 28.3 million, or 23.5%, of the total net income.

 

 

Consolidated Financial Statements of TBC Bank Group PLC

 

Consolidated Balance Sheet

 

 

 

In thousands of GEL 

Jun-19

Mar-19

 

Cash and cash equivalents

       1,628,344

         927,830

 

Due from other banks

            27,860

           29,981

 

Mandatory cash balances with National Bank of Georgia

       1,841,237

      1,416,082

 

Loans and advances to customers

     10,801,264

    10,029,320

 

Investment securities measured at fair value through other comprehensive income

          908,158

         889,137

 

Bonds carried at amortized cost

          766,663

         661,630

 

Investments in finance leases

          220,871

         208,243

 

Investment properties

            79,114

           84,055

 

Current income tax prepayment

            19,417

           11,102

 

Deferred income tax asset

              1,753

             1,973

 

Other financial assets

          165,382

         124,093

 

Other assets

          211,850

         207,518

 

Premises and equipment

          373,322

         366,327

 

Right of use assets

            61,555

           60,951

 

Intangible assets

          123,910

         119,665

 

Goodwill

            45,301

           31,798

 

Investments in associates

              2,363

             2,601

 

TOTAL ASSETS    

     17,278,364

    15,172,306

 

LIABILITIES     

 

 

 

Due to credit institutions

       3,052,742

      2,692,585

 

Customer accounts    

       9,876,813

      9,166,789

 

Lease liabilities

            62,598

           58,276

 

Other financial liabilities   

          252,280

         113,145

 

Current income tax liability  

                 727

                  36

 

Debt Securities in issue

          848,838

           13,415

 

Deferred income tax liability  

            21,361

           19,337

 

Provisions for liabilities and charges 

            20,116

           18,250

 

Other liabilities    

            85,882

           78,387

 

Subordinated debt    

          688,002

         664,330

 

TOTAL LIABILITIES    

     14,909,359

    12,824,550

 

EQUITY     

 

 

 

Share capital

              1,672

             1,672

 

Share premium

          831,773

         831,773

 

Retained earnings

       1,668,810

      1,657,330

 

Group reorganisation reserve

        (162,166)

        (162,166)

 

Share based payment reserve

          (37,968)

          (43,080)

 

Revaluation reserve for premises

            56,606

           56,701

 

Fair value reserve

            12,680

             9,702

 

Cumulative currency translation reserve

            (6,478)

            (7,295)

 

Net assets attributable to owners

       2,364,929

      2,344,637

 

Non-controlling interest    

              4,076

             3,119

 

TOTAL EQUITY    

       2,369,005

      2,347,756

 

TOTAL LIABILITIES AND EQUITY  

     17,278,364

    15,172,306

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 

 

 

In thousands of GEL 

2Q'19

1Q'19

2Q'18

Interest income 

    340,301

    337,915

      308,152

Interest expense

   (149,820)

   (140,957)

    (119,948)

Net interest income

    190,481

    196,958

      188,204

Fee and commission income

      68,983

      60,902

        58,265

Fee and commission expense

     (25,449)

     (19,095)

      (19,103)

Net fee and commission income

      43,534

      41,807

        39,162

Net insurance premiums earned

        8,663

        7,329

          6,168

Net insurance claims incurred and agents' commissions

       (4,325)

       (3,600)

        (2,915)

Insurance profit

        4,338

        3,729

          3,253

Net income from foreign currency operations  

      24,532

      21,587

        21,701

Net gain/(losses) from foreign exchange translation

        5,587

        3,627

          1,550

Net gains/(losses) from derivative financial instruments

            (71)

          (158)

             396

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

             79

             68

                -  

Other operating income

        3,650

        4,159

          3,812

Share of profit of associates

           172

           169

             340

Other operating non-interest income

      33,949

      29,452

        27,799

Credit loss allowance for loans to customers

     (30,067)

     (36,416)

      (37,982)

Credit loss allowance for investments in finance lease

           219

            (41)

           (252)

Credit loss allowance for performance guarantees and credit related commitments

          (824)

           432

          1,375

Credit loss allowance for other financial assets

       (2,389)

        2,969

          1,950

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

          (311)

            (39)

             (182)

Operating income after credit loss allowance for impairment

    238,930

    238,851

      223,327

Staff costs

     (58,886)

     (57,753)

      (50,732)

Depreciation and amortization

     (15,955)

     (16,169)

      (10,992)

(Provision for)/ recovery of liabilities and charges

        1,241

           200

                -  

Administrative and other operating expenses

     (35,783)

     (28,792)

      (30,366)

Operating expenses

   (109,383)

   (102,514)

      (92,090)

Profit before tax

    129,547

    136,337

      131,237

Income tax expense

       (9,329)

       (3,015)

      (28,799)

Profit for the period

    120,218

    133,322

      102,438

Other comprehensive income:

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

Movement in fair value reserve

        2,976

        1,023

        (1,547)

Exchange differences on translation to presentation currency

           815

          (358)

               81

Items that will not be reclassified to profit or loss:

 

 

 

Income tax recorded directly in other comprehensive income

              -  

              -  

        (5,151)

Other comprehensive income for the period

        3,791

           665

        (6,617)

Total comprehensive income for the period

    124,009

    133,987

        95,821

Profit attributable to:

 

 

 

 - Shareholders of TBCG

    119,998

    133,237

      102,589

 - Non-controlling interest

           220

             85

           (151)

Profit for the period

    120,218

    133,322

      102,438

Total comprehensive income is attributable to:

 

 

 

 - Shareholders of TBCG

    123,785

    133,902

        96,060

 - Non-controlling interest

           224

             85

           (239)

Total comprehensive income for the period

    124,009

    133,987

        95,821

                 

 

Key Ratios

Average Balances

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

   Key Ratios

 

 

 

 

 

 

 

Ratios (based on monthly averages, where applicable)

2Q'19

1Q'19

2Q'18

Underlying ROE1

21.5%

23.8%

24.9%

Reported ROE2

20.7%

23.8%

21.3%

Underlying ROA3

3.1%

3.6%

3.7%

Reported ROA4

3.0%

3.6%

3.2%

ROE before credit loss allowance5

26.4%

29.7%

28.6%

Underlying cost to income6

38.1%

37.7%

35.6%

Reported cost to income7

40.2%

37.7%

35.6%

Cost of risk8

1.1%

1.4%

1.8%

FX adjusted cost of risk9

0.8%

1.4%

1.7%

NIM10

5.6%

6.1%

7.1%

Risk adjusted NIM11

4.8%

4.7%

5.5%

Loan yields12

11.0%

11.5%

12.5%

Risk adjusted loan yields13

10.2%

10.1%

10.8%

Deposit rates14

3.4%

3.3%

3.3%

Yields on interest earning assets15

10.0%

10.5%

11.7%

Cost of funding16

4.5%

4.5%

4.4%

Spread17

5.5%

6.0%

7.3%

PAR 90 to gross loans18

1.3%

1.3%

1.1%

NPLs to gross loans19

3.1%

3.3%

3.1%

NPLs coverage20

97.9%

100.1%

116.1%

NPLs coverage with collateral21

206.0%

210.8%

216.1%

Credit loss level to gross loans22

3.1%

3.3%

3.6%

Related party loans to gross loans23

0.1%

0.1%

0.1%

Top 10 borrowers to total portfolio24

8.6%

9.6%

9.2%

Top 20 borrowers to total portfolio25

12.6%

13.5%

13.2%

Net loans to deposits plus IFI funding26

91.4%

90.5%

89.5%

Net stable funding ratio27

130.4%

123.8%

128.7%

Liquidity coverage ratio28

126.3%

117.5%

119.2%

Leverage29

7.3x

6.5x

7.0x

Regulatory Tier 1 CAR (Basel III)30

12.4%

13.8%

13.4%

Regulatory Total 1 CAR (Basel III)31

17.4%

19.1%

17.0%

           

 

 

 

Ratio definitions

1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period adjusted for the respective one-off items; Annualized where applicable.

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

3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period. Annualised where applicable.

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

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

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

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

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

9. FX adjusted cost of risk is calculated based on currency rates of the respective prior periods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

29. Leverage equals total assets to total equity.

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

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

 

 

Exchange Rates

To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.6914 as of 31 March 2019. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4516 as of 30 June 2018. As of 30 June 2019 the USD/GEL exchange rate equalled 2.8687. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 2Q 2019 of 2.7393, 1Q 2019 of 2.6680, 2Q 2018 of 2.4460.

Unaudited Consolidated Financial Results Overview for 1H 2019

This statement provides a summary of the unaudited business and financial trends for 1H 2019 for TBC Bank Group plc and its subsidiaries. The semi-annual financial information and trends are reviewed. The preliminary unaudited and not reviewed results were published on 29 July 2019. This report contains a more detailed information on the same results.

Starting from 1 January 2019, TBC Bank adopted IFRS 16. Therefore, the comparative information for 2018 is not comparable to the information presented for 2019.

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

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group classifies and separately discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, as one-off items in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure and the reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 26 section on pages 51-52.

Income Statement Highlights

 

 

 

in thousands of GEL

1H'19

1H'18

Change YoY

Net interest income

             387,439

        363,607

6.6%

Net fee and commission income

               85,341

          74,082

15.2%

Other operating non-interest income

               71,468

          59,428

20.3%

Credit loss allowance

             (66,467)

         (74,554)

-10.8%

Operating income after credit loss allowance

             477,781

        422,563

13.1%

Operating expenses

           (211,897)

       (183,022)

15.8%

Reported profit before tax

             265,884

        239,541

11.0%

Underlying profit before tax

             271,489

        239,541

13.3%

Reported income tax expense

             (12,344)

         (39,578)

-68.8%

Underlying income tax expense

             (13,185)

         (22,152)

-40.5%

Reported profit for the period

             253,540

        199,963

26.8%

Underlying profit for the period

             258,304

        217,389

18.8%

 

Balance Sheet and Capital Highlights

 

 

 

 

 

Jun-19

Jun-18

Change YoY

in thousands of GEL

GEL

USD

GEL

USD

 

Total assets

   17,278,364

 6,023,064

  13,583,510

 5,540,671

27.2%

Gross loans

   11,141,360

 3,883,766

    8,895,947

 3,628,629

25.2%

Customer deposits

     9,876,813

 3,442,958

    7,932,585

 3,235,677

24.5%

Total equity

     2,369,005

    825,811

    1,943,684

    792,823

21.9%

Regulatory tier I capital (Basel III)

     1,730,302

    603,166

    1,498,857

    611,379

15.4%

Regulatory total capital (Basel III)

     2,430,135

    847,121

    1,908,398

    778,430

27.3%

Regulatory risk weighted assets (Basel III)

   13,986,201

 4,875,449

  11,200,354

 4,568,589

24.9%

                       

The Jun-19 figures are converted into US$ using exchange rate of 2.8786 as of 30 June 2019, while Jun-18 figures are converted using exchange rate of 2.4516 as of 30 June 2018

Key Ratios

1H'19

1H'18

Change YoY

Underlying ROE

22.7%

23.0%

-0.3 pp

Reported ROE

22.3%

21.2%

1.1 pp

Underlying ROA

3.3%

3.4%

-0.1 pp

Reported ROA

3.3%

3.1%

0.2 pp

NIM

5.8%

7.0%

-1.2 pp

Underlying cost to income

37.9%

36.8%

1.1 pp

Reported cost to income

38.9%

36.8%

2.1 pp

Cost of risk

1.3%

1.6%

-0.3 pp

FX adjusted cost of risk

1.2%

1.7%

-0.5 pp

NPL to gross loans

3.1%

3.1%

0.0 pp

Regulatory Tier 1 CAR (Basel III)

12.4%

13.4%

-1.0 pp

Regulatory Total CAR (Basel III)

17.4%

17.0%

0.4 pp

Leverage (Times)

7.3x

7.0x

0.3x

 

Income Statement Discussion

Net Interest Income

 

 

 

In thousands of GEL

1H'19

1H'18

Change YoY

Loans and advances to customers

        582,899

    526,431

10.7%

Investment securities measured at fair value through other comprehensive income

          36,950

      25,135

47.0%

Due from other banks

          11,630

      11,946

-2.6%

Bonds carried at amortized cost

          23,410

      17,879

30.9%

Investment in leases

          23,327

      16,610

40.4%

Interest income

        678,216

    598,001

13.4%

Customer accounts

        155,634

    127,727

21.8%

Due to credit institutions

        100,032

      86,262

16.0%

Subordinated debt

          31,748

      19,599

62.0%

Finance lease

            1,309

              -  

NMF

Debt securities in issue

            2,054

           806

NMF

Interest expense

        290,777

    234,394

24.1%

Net interest income

        387,439

    363,607

6.6%

 

 

 

 

Net interest margin

5.8%

7.0%

-1.2 pp

           

NMF - no meaningful figures

 

1H 2019 to 1H 2018 Comparison

In 1H 2019, net interest income grew by GEL 23.8 million, or 6.6%, YoY to GEL 387.4 million, resulting from a GEL 80.2 million, or 13.4%, higher interest income and a GEL 56.4 million, or 24.1%, higher interest expense.

Interest income grew by GEL 80.2 million, or 13.4%, YoY to GEL 678.2 million. This was mainly driven by an increase in interest income from loans and advances to customers of GEL 56.5 million, or 10.7%, which was primarily related to a rise in the gross loan portfolio of GEL 2,245.4 million, or 25.2%, YoY. This effect was partially offset by a 1.2 pp drop in loan yields to 11.2%, which was driven by a decrease in yield on retail loans by 2.1pp. This drop in yields on retail loans was primarily driven by a continued impact of the NGB's regulation effective from January 2019, which  limits the banks' ability to lend money to higher-yield retail customers. Another contributor to the increase in interest income was the interest income from financial securities (comprised of investment securities measured at fair value through other comprehensive income and bonds carried at amortized cost), which rose by GEL 17.3 million, or 40.3%. This resulted from an increase in the respective portfolio by GEL 379.3 million, or by 29.3%. The yield on investment securities decreased on a YoY basis by 0.3pp, mainly driven by a decrease in the refinance rate. Yields on interest earning assets decreased by 1.4 pp to 10.2%, compared to 1H 2018.

The YoY growth in interest expense by GEL 56.4 million, or 24.1%, to GEL 290.8 million in 1H 2019 was mainly due to a 21.8% increase in interest expense on customer accounts of GEL 27.9 million and a rise in interest expense on amounts due to credit institutions by GEL 13.8 million, or by 16.0%. The higher interest expense on customer accounts was attributable to a GEL 1,944.2 million, or 24.5%, growth in the respective portfolio. The cost of customer accounts remained broadly stable at 3.4%. The increase in interest expense on amounts due to credit institutions was mainly driven by an increase in the average respective portfolio, further magnified by a 0.1 pp rise in the cost of amount due to credit institutions. As a result, the cost of funding increased by 0.1 pp on a YoY basis and stood at 4.5%.

Consequently, NIM was 5.8% in 1H 2019, compared to 7.0% in 1H 2018.

 

 

Fee and Commission Income

 

 

In thousands of GEL

1H'19

1H'18

Change YoY

Card operations

          60,084

      47,010

27.8%

Settlement transactions

          36,609

      33,693

8.7%

Guarantees issued

          12,546

        9,079

38.2%

Issuance of letters of credit

            2,319

        2,360

-1.7%

Cash transactions

            6,706

        8,988

-25.4%

Foreign currency exchange transactions

            1,388

           896

54.9%

Other

          10,233

        7,073

44.7%

Fee and commission income

        129,885

    109,099

19.1%

Card operations

          34,174

      23,443

45.8%

Settlement transactions

            6,622

        4,285

54.5%

Guarantees issued

               864

           620

39.4%

Letters of credit

               740

           588

25.9%

Cash transactions

            1,603

        2,359

-32.0%

Foreign currency exchange transactions

                 31

               5

NMF

Other

               510

        3,717

-86.3%

Fee and commission expense

          44,544

      35,017

27.2%

Card operations

          25,910

      23,567

9.9%

Settlement transactions

          29,987

      29,408

2.0%

Guarantees

          11,682

        8,459

38.1%

Letters of credit

            1,579

        1,772

-10.9%

Cash transactions

            5,103

        6,629

-23.0%

Foreign currency exchange transactions

            1,357

           891

52.3%

Other

            9,723

        3,356

NMF

Net fee and commission income

          85,341

      74,082

15.2%

         

NMF - no meaningful figures

 

1H 2019 to 1H 2018 Comparison

In 1H 2019, net fee and commission income totalled GEL 85.3 million, up by GEL 11.3 million, or 15.2%, compared to 1H 2018. This mainly resulted from an increase in other net fee and commission income of GEL 6.4 million and an increase in net fee and commission income from guarantees of GEL 3.2 million, or 38.1%.

 

The rise in other net fee and commission income was related to the reclassification of certain fee expenses from this category to settlement transactions. Without reclassification, net fee and commission income from settlement transactions would have increased by GEL 2.1 million, or by 7.1%, driven by our affluent retail sub-segment, TBC Status. The increase in net fee and commission income from guarantees was mainly attributable to a GEL 559.2 million, or 67.9% increase in the respective portfolio.

 

 

Other Operating Non-Interest Income and Gross Insurance Profit

 

 

In thousands of GEL

1H'19

1H'18

Change YoY

Net income from foreign currency operations

          55,333

      42,805

29.3%

Share of profit of associates

               341

           648

-47.4%

Gains less losses/(losses less gains) from derivative financial instruments

             (229)

           413

NMF

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

               147

              -  

NMF

Revenues from sale of cash-in terminals

               443

        1,253

-64.6%

Revenues from operational leasing

            1,660

        3,142

-47.2%

Gain from sale of investment properties

               630

        1,896

-66.8%

Gain from sale of inventories of repossessed collateral

               582

           205

NMF

Revenues from non-credit related fines

               165

           254

-35.0%

Gain on disposal of premises and equipment

            1,370

           199

NMF

Other

            2,959

        3,314

-10.7%

Other operating income

            7,809

      10,263

-23.9%

Gross insurance profit[16]

            8,067

        5,299

52.2%

Other operating non-interest income and gross insurance profit

          71,468

      59,428

20.3%

NMF - no meaningful figures

 

 

 

 

           

1H 2019 to 1H 2019 Comparison

Total other operating non-interest income and gross insurance profit increased by GEL 12.0 million, or 20.3%, to GEL 71.5 million in 1H 2019. This mainly resulted from a rise in net income from foreign currency operations of GEL 12.5 million, or 29.3%, mainly due to the increased number and volume of FX transactions across all of the segments. Another contributor was gross insurance profit, which rose by GEL 2.8 million, or 52.2%, but was slightly offset by a decrease in revenues from operational leasing of GEL 1.5 million, or 47.2%.

The growth in gross insurance profit was related to the increase in the non-health[16] insurance business as well as entry into new business line, health insurance in May 2019. More information about TBC insurance can be found in Annex 23 on page 49. 

 

Credit Loss Allowance

 

 

 

In thousands of GEL

1H'19

1H'18

Change YoY

Credit loss allowance for loans to customers

        (66,483)

     (65,980)

0.8%

Credit loss allowance for investments in finance lease

               178

          (493)

NMF

Credit loss allowance for performance guarantees and credit related commitments

             (392)

       (2,500)

-84.3%

Credit loss allowance for other financial assets

               580

       (5,469)

NMF

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

             (350)

          (112)

NMF

Total credit loss allowance

        (66,467)

     (74,554)

-10.8%

Operating income after credit loss allowance

        477,781

    422,563

13.1%

 

 

 

 

Cost of risk

1.3%

1.6%

-0.3 pp

NMF - no meaningful figures

 

 

 

 

 

 

 

1H 2019 to 1H 2018 Comparison

In 1H 2019, total credit loss allowance decreased by GEL 8.1 million, or 10.8%, to GEL 66.5 million, compared to 1H 2018. The main contributors to the decline were credit loss allowance for other financial assets and credit loss allowance for performance guarantees and credit related commitments by GEL 6.0 million and by GEL 2.1 million respectively. The decrease in credit loss allowance for other financial assets was mainly driven by the high base in 1H 2018 related to one large corporate debtor.

 

Operating Expenses

 

 

 

In thousands of GEL

1H'19

1H'18

Change in %

Staff Costs

        116,639

    102,847

13.4%

Provisions for Liabilities and Charges

          (1,441)

              -  

NMF

Depreciation and Amortization

          32,124

      21,463

49.7%

Professional services

          12,046

        4,459

NMF

Advertising and marketing services

            9,461

      11,644

-18.7%

Expenses related to lease contracts[17]

5,826

-

NMF

Rent

            -

      11,707

NMF

Utility services

            3,570

        3,188

12.0%

Intangible asset enhancement

            5,976

        5,066

18.0%

Taxes other than on income

            3,713

        3,603

3.1%

Communications and supply

            2,782

        2,193

26.9%

Stationary and other office expenses

            2,251

        2,507

-10.2%

Insurance

               508

           968

-47.5%

Security services

            1,025

        1,002

2.3%

Premises and equipment maintenance

            4,765

        2,163

NMF

Business trip expenses

            1,065

           989

7.7%

Transportation and vehicles maintenance

               903

           792

14.0%

Charity

            1,279

           561

NMF

Personnel training and recruitment

               596

           409

45.7%

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

             (251)

          (570)

-56.0%

Loss on disposal of Inventory

                 52

           100

-48.0%

Loss on disposal of investment properties

                 38

             60

-36.7%

Loss on disposal of premises and equipment

               251

           336

-25.3%

Other

            8,719

        7,535

15.7%

Administrative and other operating expenses

          64,575

      58,712

10.0%

Operating expenses

        211,897

    183,022

15.8%

Profit before tax

        265,884

    239,541

11.0%

Income tax expense

        (12,344)

     (39,578)

-68.8%

Profit for the period

        253,540

    199,963

26.8%

 

 

 

 

Cost to income

38.9%

36.8%

2.1 pp

ROE

22.3%

21.2%

1.1 pp

ROA

3.3%

3.1%

0.2 pp

NMF - no meaningful figures

 

 

 

1H 2019 to 1H 2018 Comparison

In 1H 2019, total operating expenses expanded by GEL 28.9 million, or 15.8%, YoY. This mainly resulted from an increase in: staff costs by GEL 13.8 million, or 13.4%; depreciation and amortisation by GEL 10.7 million, or 49.7%; and administrative expenses by GEL 5.9 million, or 10.0% (mainly related to the growth of professional services). The growth in staff costs was mainly driven by a higher scale of business and by the increase in share price over the three year period for the purpose of top and middle management share based bonuses (while the change in the number of shares did not have material effect). The increase in depreciation and amortization was primarily related to IFRS 16. Higher professional services were mainly attributable to one-off consulting fees in the amount of GEL 5.6 million, in relation to the recent events regarding historic matters surrounding TBC Bank. For further details, please see the following press release. Without these one-off costs, operating expenses would have increased by 12.7%.

As a result, the cost to income ratio increased by 2.1 pp (or by 1.1 pp on an underlying basis) from 36.8% in 1H 2018.

Net Income

Reported net income for 1H 2019 increased by GEL 53.6 million, or 26.8%, YoY and stood at GEL 253.5 million, while underlying net income increased by GEL 40.9 million, or 18.8%, YoY and amounted to GEL 258.3 million.

As a result, underlying ROE stood at 22.7%, down by 0.3pp YoY, while underlying ROA stood at 3.3%, down by 0.1pp YoY. Reported ROE stood at 22.3%, up by 1.1pp YoY, and reported ROA stood at 3.3%, up by 0.2pp YoY.

 

Balance Sheet Discussion

 

 

 

In thousands of GEL

Jun-19

Jun-18

Change YoY

Cash, due from banks and mandatory cash balances with NBG

      3,497,441

     2,681,809

30.4%

Loans and advances to customers (Net)

    10,801,264

     8,574,580

26.0%

Financial securities

      1,674,821

     1,295,570

29.3%

Fixed and intangible assets & investment property

         576,346

        540,455

6.6%

Right of use assets

           61,555

                 -  

NMF

Other assets

         666,937

        491,096

35.8%

Total assets

    17,278,364

   13,583,510

27.2%

Due to credit institutions

      3,052,742

     3,097,602

-1.4%

Customer accounts

      9,876,813

     7,932,585

24.5%

Debt securities in issue

         848,838

          19,641

NMF

Subordinated debt

         688,002

        397,576

73.0%

Other liabilities

         442,964

        192,422

NMF

Total liabilities

    14,909,359

   11,639,826

28.1%

Total equity

      2,369,005

     1,943,684

21.9%

 

Assets

As of 30 June 2019, the Group's total assets amounted to GEL 17,278.4 million, up by GEL 3,694.9 million, or 27.2%, YoY. The increase was mainly due to a rise in net loans to customers of GEL 2,226.7 million, or 26.0%, YoY. Another contributor to the increase was a GEL 815.6 million, or 30.4%, rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG), compared to 30 June 2018, which was primarily attributable to the rise in mandatory reserve requirements in FC effective from May 2019.

As of 30 June 2019, the gross loan portfolio reached GEL 11,141.4 million, up by 25.2% YoY, while the proportion of gross loans denominated in foreign currency increased by 1.4 pp on a YoY basis and accounted for 59.9% of total loans. Without the currency effect, loans to customers would have increased by 14.7% YoY.

 

Asset Quality

 

 

 

 

 

 

 

PAR 30 by Segments and Currencies

Jun-19

Jun-18

 

GEL

FC

Total

GEL

FC

Total

Corporate

1.7%

0.7%

1.0%

0.0%

0.4%

0.3%

Retail

3.6%

1.9%

2.7%

3.7%

1.8%

2.7%

MSME

2.0%

3.4%

2.8%

1.6%

3.7%

2.7%

Total

2.7%

1.8%

2.1%

2.5%

1.7%

2.0%

Loans overdue by more than 30 days to gross loans

 

 

 

 

 

 

                       

 

Total

The total PAR 30 has remained broadly stable on a YoY basis and stood at 2.1% as of 30 June 2019.

 

Retail Segment

The retail segment's PAR 30 remained stable on a YoY basis and stood at 2.7% as of 30 June 2019.

 

Corporate

The corporate segment's PAR 30 increased by 0.7 pp YoY, mainly driven few corporate clients.

 

MSME

The MSME segment's PAR 30 remained broadly stable on a YoY basis and stood at 2.8% as of 30 June 2019.

 

 

 

 

 

 

 

 

 

NPLs

Jun-19

Jun-18

 

GEL

FC

Total

GEL

FC

Total

Corporate

1.5%

2.3%

2.1%

1.5%

3.2%

2.8%

Retail

4.2%

2.6%

3.3%

2.8%

2.9%

2.9%

MSME

2.7%

5.6%

4.2%

2.2%

5.7%

4.0%

Total

3.2%

3.1%

3.1%

2.4%

3.6%

3.1%

                     

 

Total

Total NPLs remained stable on a YoY basis and stood at 3.1% as of 30 June 2019.

 

Retail Segment

The retail segment's NPLs increased by 0.4 pp on a YoY basis to 3.3% as of 30 June 2019, mainly driven by consumer loans.

 

Corporate

The corporate NPLs decreased by 0.7pp on a YoY basis and stood at 2.1% as of as of 30 June 2019. This was mainly attributable to improved performance of two non- performing corporate borrowers as well as corporate loan book growth effect.

 

MSME

The MSME NPLs increased by 0.2 pp on a YoY basis and stood at 4.2% as of 30 June 2019.

 

 

 

 

 

 

 

 

NPLs Coverage

Jun-19

Jun-18

 

Exc. Collateral

Incl. Collateral

Exc. Collateral

Incl. Collateral

Corporate

103.3%

299.1%

99.2%

232.1%

Retail

113.8%

180.4%

153.9%

226.8%

MSME

71.5%

179.0%

76.9%

187.6%

Total

97.9%

206.0%

116.1%

216.1%

             

 

 

Liabilities

As of 30 June 2019, TBC Bank's total liabilities amounted to GEL 14,909.4 million, up by GEL 3,269.5 million, or 28.1%, YoY. This was primarily due to a GEL 1,944.2 million, or 24.5%, increase in customer accounts and a hike in debt securities in issue of GEL 829.2 million.

As of 30 June 2019, TBC Bank's customer accounts amounted to GEL 9,876.8 million, up by 13.4% on a constant currency. At the same time, customer accounts in foreign currency accounted for 62.8% of total customer accounts, compared to 67.2% as of 30 June 2018.

 

Liquidity

As of 30 June 2019, the Bank's liquidity ratio, as defined by the NBG, stood at 37.1%, compared to 33.3% as of 30 June 2018 and above the NBG limit of 30%. As of 30 June 2019, the total liquidity coverage ratio (LCR), as defined by the NBG, was 126.3%, above the 100.0% limit, while the LCR in GEL and FC stood at 100.4% and 143.8% respectively, above the respective limits of 75% and 100%.

 

Total Equity

As of 30 June 2019, TBC's total equity amounted to GEL 2,369.0 million, up by GEL 425.3 million or by 21.9% from GEL 1,943.7 million as of 30 June 2018. This YoY change in equity was mainly due to a net profit contribution of GEL 491.0 million during the last 12 months, which was slightly offset by a declared dividend in the amount of GEL 108.6 million.

 

Regulatory Capital

As of 30 June 2019, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.4% and 17.4%, respectively, compared to the minimum required levels of 11.9% and 16.7%.

 

As of 30 June 2019, The Bank's Basel III Tier 1 Capital amounted to GEL 1,730.3 million, up by GEL 231.4 million or 15.4%, compared to June 2018, due to an increase in net income. The Bank's Basel III Total Capital totalled GEL 2,430.1 million, up by GEL 521.7 million, or by 27.3%.  The increase in total capital was attributable to the increase in net income and the attraction of new subordinated loans. Risk weighted assets amounted to GEL 13,986.2 million as of 30 June 2019, up by GEL 2,785.8 million, or by 24.9%, compared to June 2018, mainly related to loan book growth primarily due to the GEL depreciation, as well as the increase in mandatory reserves in FC.

 

 

 

Results by Segments and Subsidiaries

The segment definitions are as follows (updated in 2019):

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

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

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

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

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

Income Statement by Segments

 

 

 

 

 

 

 

 

 

 

 

1H'19

Retail

MSME

Corporate

Corp.Centre

Total

Interest income

288,909

141,797

157,355

90,155

678,216

Interest expense

 (72,842)

 (4,682)

 (79,418)

 (133,835)

 (290,777)

Net transfer pricing

 (33,609)

 (47,566)

24,583

56,592

-  

Net interest income

182,458

89,549

102,520

12,912

387,439

Fee and commission income

92,008

11,365

24,002

2,510

129,885

Fee and commission expense

 (37,256)

 (3,789)

 (3,250)

 (249)

 (44,544)

Net fee and commission income

54,752

7,576

20,752

2,261

85,341

Gross insurance profit

-  

                   -  

                  -  

8,067

8,067

Net income from foreign currency operations

13,370

10,119

22,288

342

46,119

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

-  

                   -  

                  -  

9,214

9,214

Net losses from derivative financial instruments

 (219)

                   -  

                  -  

 (10)

 (229)

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

-  

                   -  

                  -  

147

147

Other operating income

4,503

701

1,040

1,565

7,809

Share of profit of associates

-  

                   -  

                  -  

341

341

Other operating non-interest income

17,654

10,820

23,328

19,666

71,468

Credit loss allowance for loans to customers

 (55,517)

 (15,225)

4,259

-  

 (66,483)

Credit loss allowance for performance guarantees and credit related commitments

421

 (6)

 (807)

-  

 (392)

Credit loss allowance for investments in finance lease

-  

                   -  

                  -  

178

178

Credit loss allowance for other financial assets

93

                   -  

3,010

 (2,523)

580

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

-  

                   -  

 (320)

 (30)

 (350)

Profit before G&A expenses and income taxes

199,861

92,714

152,742

32,464

477,781

Staff costs

 (66,073)

 (23,199)

 (17,674)

 (9,693)

 (116,639)

Depreciation and amortization

 (24,854)

 (3,924)

 (1,494)

 (1,852)

 (32,124)

Provision for liabilities and charges

-  

                   -  

                  -  

1,441

1,441

Administrative and other operating expenses

 (39,845)

 (10,923)

 (7,565)

 (6,242)

 (64,575)

Operating expenses

 (130,772)

 (38,046)

 (26,733)

 (16,346)

 (211,897)

Profit before tax

69,089

54,668

126,009

16,118

265,884

Income tax expense

 (6,985)

 (5,429)

 (14,555)

14,625

 (12,344)

Profit for the year

62,104

49,239

111,454

30,743

253,540

 

 

Portfolios by Segments

 

 

In thousands of GEL

Jun-19

Jun-18

Loans and advances to customers

 

 

 

 

 

Non-mortgage

    1,875,501

  2,010,819

Mortgage

    2,959,819

  2,185,630

Retail

    4,835,320

  4,196,449

Corporate

    3,658,340

  2,581,612

MSME

    2,647,700

  2,117,886

Total loans and advances to customers (Gross)

  11,141,360

  8,895,947

Less: credit loss allowance for loans to customers

     (340,096)

    (321,367)

Total loans and advances to customers (Net)

  10,801,264

  8,574,580

 

 

 

Customer Accounts

 

 

 

 

 

Retail

    5,360,114

  4,467,638

Corporate

    3,510,179

  2,559,449

MSME

    1,006,520

     905,498

Total Customer Accounts

    9,876,813

  7,932,585

       

Retail Banking

As of 30 June 2019, retail loans stood at GEL 4,835.3 million, up by GEL 638.9 million, or 15.2%, YoY and accounted for 39.6% market share of total individual loans. Without the currency effect, retail loans would have increased by 6.3%. As of 30 June 2019, foreign currency loans represented 55.1% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 5,360.1 million, up by GEL 892.5 million, or 20.0%, YoY and accounted for 39.5% market share of total individual deposits. Without the currency effect, retail deposits would have increased by 6.2%. As of 30 June 2019, term deposits accounted for 53.7% of the total retail deposit portfolio, while foreign currency deposits represented 80.5% of the total retail deposit portfolio.

In 1H 2019, retail loan yields and deposit rates stood at 12.5% and 2.9%, respectively. The segment's cost of risk on loans was 2.4%. The segment contributed 24.5%, or GEL 62.1 million, to the total net income in 1H 2019.

Corporate Banking

As of 30 June 2019, corporate loans amounted to GEL 3,658.3 million, up by GEL 1,076.7 million, or 41.7%, YoY. Foreign currency loans accounted for 71.4% of the total corporate loan portfolio. Without the currency effect, corporate loans would have increased by 27.5%. The market share of total legal entities loans stood at 37.3%.

As of the same date, corporate deposits totalled GEL 3,510.2 million, up by GEL 950.7 million, or 37.1%, YoY. Foreign currency corporate deposits represented 41.1% of the total corporate deposit portfolio. Without the currency effect, corporate deposits would have increased by 29.1%. The market share of total legal entities deposits stood at 42.8%.

In 1H 2019, corporate loan yields and deposit rates stood at 9.2% and 4.9%, respectively. In the same period, the cost of risk on loans was -0.3%. In terms of profitability, the corporate segment's net profit reached GEL 111.5 million, or 44.0% of the total net income.

MSME Banking

As of 30 June 2019, MSME loans amounted to GEL 2,647.7 million, up by GEL 529.8 million, or 25.0%, YoY. Foreign currency loans accounted for 52.7% of the total MSME portfolio. Without the currency effect, MSME loans would have increased by 15.7%.

As of the same date, MSME deposits stood at GEL 1,006.5 million, up by GEL 101.0 million, or 11.2%, YoY. Foreign currency MSME deposits represented 44.6% of the total MSME deposit portfolio. Without the currency effect, MSME deposits would have increased by 4.2%.

In 1H 2019, MSME loan yields and deposit rates stood at 11.5% and 0.9% respectively, while the cost of risk on loans was 1.2%. In terms of profitability, net profit for the MSME segment amounted to GEL 49.2 million, or 19.4%, of the total net income.

 

 

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance Sheet

 

 

In thousands of GEL 

Jun-19

Jun-18

Cash and cash equivalents

      1,628,344

     1,605,163

Due from other banks

           27,860

          42,469

Mandatory cash balances with National Bank of Georgia

      1,841,237

     1,034,177

Loans and advances to customers

    10,801,264

     8,574,580

Investment securities measured at fair value through other comprehensive income

         908,158

        817,876

Bonds carried at amortized cost

         766,663

        477,694

Investments in finance leases

         220,871

        172,027

Investment properties

           79,114

          78,094

Current income tax prepayment

           19,417

            7,369

Deferred income tax asset

             1,753

            2,331

Other financial assets

         165,382

        107,741

Other assets

         211,850

        171,046

Premises and equipment

         373,322

        374,414

Right of use assets

           61,555

                 -  

Intangible assets

         123,910

          87,947

Goodwill

           45,301

          28,657

Investments in associates

             2,363

            1,925

TOTAL ASSETS    

    17,278,364

   13,583,510

LIABILITIES     

 

 

Due to credit institutions

      3,052,742

     3,097,602

Customer accounts    

      9,876,813

     7,932,585

Lease liabilities

           62,598

                 -  

Other financial liabilities   

         252,280

          88,320

Current income tax liability  

                727

                 26

Debt Securities in issue

         848,838

          19,641

Deferred income tax liability  

           21,361

          22,980

Provisions for liabilities and charges 

           20,116

          11,732

Other liabilities    

           85,882

          69,364

Subordinated debt    

         688,002

        397,576

TOTAL LIABILITIES    

    14,909,359

   11,639,826

EQUITY     

 

 

Share capital

             1,672

            1,650

Share premium

         831,773

        796,808

Retained earnings

      1,668,810

     1,261,578

Group reorganisation reserve

        (162,166)

      (162,166)

Share based payment reserve

          (37,968)

        (21,085)

Revaluation reserve for premises

           56,606

          64,962

Fair value reserve

           12,680

            2,541

Cumulative currency translation reserve

            (6,478)

          (7,345)

Net assets attributable to owners

      2,364,929

     1,936,943

Non-controlling interest    

             4,076

            6,741

TOTAL EQUITY    

      2,369,005

     1,943,684

TOTAL LIABILITIES AND EQUITY  

    17,278,364

   13,583,510

 

 

 

 

 

 

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 

 

In thousands of GEL 

1H'19

1H'18

Interest income 

        678,216

    598,001

Interest expense

      (290,777)

   (234,394)

Net interest income

        387,439

    363,607

Fee and commission income

        129,885

    109,099

Fee and commission expense

        (44,544)

     (35,017)

Net fee and commission income

          85,341

      74,082

Net insurance premiums earned

          15,992

      10,602

Net insurance claims incurred and agents' commissions

          (7,925)

       (5,303)

Insurance profit

            8,067

        5,299

Net income from foreign currency operations

          46,119

      38,782

Net gain/(losses) from foreign exchange translation

            9,214

        4,023

Net gains/(losses) from derivative financial instruments

             (229)

           413

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

               147

              -  

Other operating income

            7,809

      10,263

Share of profit of associates

               341

           648

Other operating non-interest income

          63,401

      54,129

Credit loss allowance for loans to customers

        (66,483)

     (65,980)

Credit loss allowance for investments in finance lease

               178

          (493)

Credit loss allowance for performance guarantees and credit related commitments

             (392)

       (2,500)

Credit loss allowance for other financial assets

               580

       (5,469)

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

             (350)

          (112)

Operating income after credit loss allowance

        477,781

    422,563

Staff costs

      (116,639)

   (102,847)

Depreciation and amortization

        (32,124)

     (21,463)

(Provision for)/ recovery of liabilities and charges

            1,441

              -  

Administrative and other operating expenses

        (64,575)

     (58,712)

Operating expenses

      (211,897)

   (183,022)

Profit before tax

        265,884

    239,541

Income tax expense

        (12,344)

     (39,578)

Profit for the period

        253,540

    199,963

Other comprehensive income:

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

Movement in fair value reserve

            3,999

           827

Exchange differences on translation to presentation currency

               457

             14

Items that will not be reclassified to profit or loss:

 

 

Revaluation of premises and equipment

                  -  

              -  

Income tax recorded directly in other comprehensive income

                  -  

       (5,151)

Other comprehensive income for the period

            4,456

       (4,310)

Total comprehensive income for the period

        257,996

    195,653

Profit attributable to:

 

 

 - Shareholders of TBCG

        253,235

    198,347

 - Non-controlling interest

               305

        1,616

Profit for the period

        253,540

    199,963

Total comprehensive income is attributable to:

 

 

 - Shareholders of TBCG

        257,687

    194,089

 - Non-controlling interest

               309

        1,564

Total comprehensive income for the period

        257,996

    195,653

 

 

Consolidated Statements of Cash Flows

 

 

In thousands of GEL

30-Jun-19

30-Jun-18

Cash flows from/(used in) operating activities

 

 

Interest received

632,619

573,644

Interest paid

 (291,963)

 (234,845)

Fees and commissions received

127,685

118,805

Fees and commissions paid

 (44,370)

 (35,025)

Insurance premium received

18,560

10,973

Insurance claims paid

 (9,727)

 (5,898)

Income received from trading in foreign currencies

46,119

38,782

Other operating income received

 11,500

 (2,672)

Staff costs paid

 (123,342)

 (111,715)

Administrative and other operating expenses paid

 (81,397)

 (59,836)

Income tax paid

 (30,900)

 (10,151)

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

254,784

282,062

Net change in operating assets

 

 

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

 (302,690)

 (51,957)

Loans and advances to customers

 (385,945)

 (671,825)

Investment in finance lease

 (3,498)

 (34,101)

Other financial assets

37,044

40,231

Other assets

2,869

 (879)

Net change in operating liabilities

 

 

Due to other banks

276,076

126,870

Customer accounts

134,334

430,568

Other financial liabilities

6,053

 (10,995)

Financial lease liabilities

 (1,367)

                    -  

Other liabilities and provision for liabilities and charges

9,607

 (215)

Net cash from operating activities

27,267

109,759

Cash flows from/(used in) investing activities

 

 

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

 (101,119)

 (395,898)

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

210,174

239,593

Acquisition of bonds carried at amortized cost

 (240,420)

 (166,188)

Proceeds from redemption of bonds carried at amortized cost

126,113

142,432

Acquisition of premises, equipment and intangible assets

 (51,490)

 (34,241)

Disposal of premises, equipment and intangible assets

11,023

1,015

Proceeds from disposal of investment property

9,508

6,898

Acquisition of subsidiaries, net of cash acquired

 (14,569)

-  

Net cash used in investing activities

 (50,780)

 (206,389)

Cash flows from/(used in) financing activities

 

 

Proceeds from other borrowed funds

553,781

1,468,097

Redemption of other borrowed funds

 (938,535)

 (1,044,435)

Redemption of subordinated debt

(8,576)

 (7,688)

Proceeds from debt securities in issue

820,708

28

Redemption of debt securities in issue

 (5,805)

-  

Dividends paid

-  

 (85,484)

Net cash flows from financing activities

421,573

330,518

Effect of exchange rate changes on cash and cash equivalents

63,373

 (60,202)

Net increase in cash and cash equivalents

461,433

173,686

Cash and cash equivalents at the beginning of the year

1,166,911

1,431,477

Cash and cash equivalents at the end of the year

1,628,344

1,605,163

         

 

 

Key Ratios

Average Balances

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

Key Ratios

 

 

 

 

 

Ratios (based on monthly averages, where applicable)

1H'19

1H'18

Underlying ROE1

22.7%

23.0%

Reported ROE2

22.3%

21.2%

Underlying ROA3

3.3%

3.4%

Reported ROA4

3.3%

3.1%

ROE before credit loss allowance5

28.1%

29.1%

Underlying cost to income6

37.9%

36.8%

Reported Cost to income7

38.9%

36.8%

Cost of risk8

1.3%

1.6%

FX adjusted cost of risk9

1.2%

1.7%

NIM10

5.8%

7.0%

Risk adjusted NIM11

4.6%

5.3%

Loan yields12

11.2%

12.4%

Risk adjusted loan yields13

10.0%

10.7%

Deposit rates14

3.4%

3.3%

Yields on interest earning assets15

10.2%

11.6%

Cost of funding16

4.5%

4.4%

Spread17

5.7%

7.1%

PAR 90 to gross loans18

1.3%

1.1%

NPLs to gross loans19

3.1%

3.1%

NPLs coverage20

97.9%

116.1%

NPLs coverage with collateral21

206.0%

216.1%

Credit loss level to gross loans22

3.1%

3.6%

Related party loans to gross loans23

0.1%

0.1%

Top 10 borrowers to total portfolio24

8.6%

9.2%

Top 20 borrowers to total portfolio25

12.6%

13.2%

Net loans to deposits plus IFI funding26

91.4%

89.5%

Net stable funding ratio27

130.4%

128.7%

Liquidity coverage ratio28

126.3%

119.2%

Leverage29

7.3x

7.0x

Regulatory Tier 1 CAR (Basel III)30

12.4%

13.4%

Regulatory Total 1 CAR (Basel III)31

17.4%

17.0%

 

 

  

Ratio definitions

1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period adjusted for the respective one-off items; Annualized where applicable.

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

3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period. Annualised where applicable.

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

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

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

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

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

9. FX adjusted cost of risk is calculated based on currency rates of the respective prior periods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

29. Leverage equals total assets to total equity.

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

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

 

 

Exchange Rates

To calculate the YoY growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4516 as of 30 June 2018. As of 30 June 2019, the USD/GEL exchange rate equalled 2.8687. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 1H 2019 of 2.7038, 1H 2018 of 2.4656.

 

Additional Disclosures

Subsidiaries of TBC Bank Group PLC[18]  

 

Ownership / voting
% as of 30 June 2019

Country

Year of incorporation

Industry

Total Assets 
(after elimination)

Subsidiary

Amount

GEL'000

% in TBC Group

JSC TBC Bank

99.9%

Georgia

1992

Banking

16,791,968

97.18%

    United Financial Corporation JSC

98.7%

Georgia

1997

Card processing

7,867

0.05%

    TBC Capital LLC

100.0%

Georgia

1999

Brokerage

7,198

0.04%

    TBC Leasing JSC

100.0%

Georgia

2003

Leasing

289,004

1.67%

    TBC Kredit LLC

100.0%

Azerbaijan

1999

Non-banking credit institution

27,712

0.16%

    Banking System Service Company LLC

100.0%

Georgia

2009

Information services

983

0.01%

    TBC Pay LLC

100.0%

Georgia

2009

Processing

37,303

0.22%

    Index LLC

100.0%

Georgia

2011

Real estate management

866

0.01%

    Real Estate Management Fund JSC*

0.0%

Georgia

2010

Real estate management

21

0.00%

    TBC Invest LLC

100.0%

Israel

2011

PR and marketing

157

0.00%

    BG LLC*

0.0%

Georgia

2018

Asset management

17,018

0.10%

JSC TBC Insurance

100.0%

Georgia

2014

Insurance

67,431

0.39%

TBC International LLC

100.0%

Georgia

2019

Asset management

2,824

0.02%

    Swoop JSC

100.0%

Georgia

2010

Retail Trade

637

0.00%

    GE Commerce LTD

100.0%

Georgia

2018

Retail Trade

3,239

0.02%

    LLC Online Tickets

55.0%

Georgia

2015

Software Services

1,746

0.01%

    All property ge LLC

90.0%

Georgia

2013

Real estate management

920

0.01%

Inspired LLC

51.0%

Uzbekistan

2011

Processing

2,988

0.02%

(*)The Group has de facto control over the subsidiaries (control without legal form of ownership)

1) Earnings per Share

In GEL

1H 2019

1H 2018

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

 

 

- Basic earnings per share

4.64

3.70

- Diluted earnings per share

4.62

3.67

Source: IFRS Consolidated

 

In GEL

2Q 2019

2Q 2018

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

 

 

- Basic earnings per share

2.19

1.90

- Diluted earnings per share

2.17

1.88

Source: IFRS Consolidated

 

2) Sensitivity Scenario

Sensitivity Scenario

30-Jun-19

10% Currency Devaluation Effect

NIM*

 

-0.15%

Technical Cost of Risk

 

+0.12%

Regulatory Total Capital

2,430

2,472

Regulatory Capital adequacy ratios tier 1 and total capital decrease by

 

0.64% - 0.80%

(*) Linear depreciation is assumed for NIM sensitivity analysis

Source: IFRS statements and Management Figures

 

3) The share of selected FC denominated P/L Items

Selected P&L Items 2Q 2019

FC % of Respective Totals

Interest income

39%

Interest expense

51%

Fee and commission income

34%

Fee and commission expense

66%

Administrative expenses

16%

Source: IFRS statements and Management figures

4) Open Interest Rate Position as of 30 June 2019

 

Open interest rate position in GEL

GEL     886 m

 

Open interest rate position in FC

GEL 3,462 m

 

GEL m

% share in totals

 

 

GEL m

% share in totals

Assets

3,654

21%

 

Assets

5,261

30%

Securities with fixed yield(≤1y)*

372

22%

 

Nostro**

172

19%

Securities with floating yield

551

33%

 

NBG reserves**

1,841

95%

Loans with floating yield

2,575

23%

 

NBG deposits

0

0%

Reserves in NBG

146

8%

 

Libor loans

3,248

29%

Interbank loans& deposits & repo

10

1%

 

Interest rate swap

0

0%

Liabilities

2,768

19%

 

 

 

 

Current accounts***

898

9%

 

Liabilities

1,799

12%

Saving accounts***

589

6%

 

Senior loans

1,369

40%

Refinancing loan of NBG

604

17%

 

Subordinated loans

430

63%

Interbank loans &deposits & repo

171

38%

 

 

 

 

IFI borrowings

506

15%

 

 

 

 

 

 

 

 

 

 

 

(*) 46% of the less than 1-year securities are maturing in 6 months.

(**) Income on NBG reserves and Nostros are calculated as benchmark minus margin whereby benchmarks are correlated with Libor. From June 2018, according to NBG regulation is it possible to apply negative interest rates on NBG reserves and correspondent accounts. However, negative rate is floored by 0% in case of USD and by (-0.6)% in case of EUR accounts.

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

 

 

 

5) Yields and Rates

 

 

 

 

 

 

Yields and Rates

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

 

Loan yields

11.0%

11.5%

12.2%

12.4%

12.5%

Loan yields GEL

15.6%

16.5%

17.4%

17.9%

18.3%

 

 

Loan yields FX

7.8%

8.2%

8.7%

8.5%

8.4%

 

 

Retail Loan Yields

12.2%

12.8%

13.6%

14.1%

14.7%

 

Retail loan yields GEL

18.4%

19.6%

20.7%

20.8%

21.3%

 

Retail loan yields FX

7.3%

7.4%

7.8%

7.9%

8.0%

 

Corporate Loan Yields

8.8%

9.5%

10.0%

9.6%

9.4%

 

Corporate loan yields GEL

9.9%

10.8%

10.9%

11.0%

11.4%

 

Corporate loan yields FX

8.4%

9.0%

9.7%

9.1%

8.7%

 

MSME Loan Yields

11.5%

11.7%

12.2%

12.6%

12.0%

 

MSME loan yields GEL

15.5%

15.7%

16.2%

16.6%

15.9%

 

MSME loan yields FX

7.8%

8.1%

8.6%

8.9%

8.5%

 

Deposit rates

3.4%

3.3%

3.1%

3.3%

3.3%

 

Deposit rates GEL

5.8%

5.9%

5.3%

5.6%

5.8%

 

Deposit rates FX

2.1%

1.9%

2.0%

2.1%

2.1%

 

Retail Deposit Yields

3.0%

2.8%

2.6%

2.7%

2.7%

 

Retail deposit rates GEL

5.3%

5.4%

4.6%

4.4%

4.3%

 

Retail deposit rates FX

2.4%

2.2%

2.2%

2.3%

2.4%

 

Corporate Deposit Yields

4.9%

4.9%

4.5%

4.9%

5.2%

 

Corporate deposit rates GEL

7.2%

7.5%

6.8%

7.5%

7.9%

 

Corporate deposit rates FX

1.8%

1.6%

1.8%

2.0%

1.9%

 

MSME Deposit Yields

1.0%

0.9%

1.0%

1.0%

1.0%

 

MSME deposit rates GEL

1.5%

1.4%

1.6%

1.7%

1.7%

 

MSME deposit rates FX

0.3%

0.3%

0.3%

0.4%

0.4%

 

Yields on Securities

7.7%

7.5%

7.6%

7.8%

7.7%

                         

Source: IFRS Consolidated

 

6) Risk Adjusted Yields & Cost of Risk 

 

 

 

 

 

Risk-adjusted Yields

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

Loan yields

10.2%

10.1%

10.9%

10.9%

10.8%

Retail Loan Yields

10.0%

10.4%

10.6%

11.6%

12.1%

Corporate Loan Yields

9.8%

9.6%

10.1%

9.1%

8.6%

MSME Loan Yields

10.9%

10.1%

12.4%

11.8%

11.1%

 

 

 

 

 

 

 

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

 

 

 

 

 

 

Cost of Risk

1.1%

1.4%

1.4%

1.9%

1.8%

Retail

2.4%

2.4%

2.9%

2.7%

2.6%

Corporate

-0.5%

-0.1%

0.1%

1.1%

0.9%

MSME

0.9%

1.6%

-0.1%

1.2%

1.0%

 

 

 

 

 

 

Source: IFRS Consolidated

 

7) Loan Quality per NBG

 

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

 

Jun-19

Mar-19

Dec-18

Sep-18

Jun-18

SDL loans as % of gross loans

3.7%

3.9%

3.6%

3.8%

3.3%

  Source: NBG

 

8) Cross Sell Ratio[19] and Number Active Products

 

Jun-19

Mar-19

Dec-18

Sep-18

Jun-18

Cross sell ratio

3.68

3.75

3.81

3.85

3.89

Number of active products (in million)

4.52

4.58

4.62

4.58

4.64

Source: Management's figures.

 

 

9) Diversified Deposit Base

 

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

High-net-worth individuals >= deposit 100,000 USD as well as on discretionary basis

 

 

30 June 2019

Volume of Deposits

Number of Deposits

MASS

35%

90.3%

STATUS

34%

9.2%

High-net-worth individuals

31%

0.5%

 Source: Management figures

 

  

10) Loan Concentration

 

Jun-19

Mar-19

Dec-18

Sep-18

Jun-18

Top 20 borrowers as % of total portfolio

12.6%

13.5%

14.2%

14.1%

13.2%

Top 10 borrowers as % of total portfolio

8.6%

9.6%

10.1%

10.3%

9.2%

Related party loans as % of total portfolio

0.1%

0.1%

0.1%

0.1%

0.1%

 Source: IFRS consolidated

 

 

11) Number of Transactions in Digital Channels (in thousands)

 

2Q 19

2Q 18

2Q 17

2Q 16

Internet banking number of transactions

2,171

2,584

2,166

1,797

Mobile banking number of transactions

8,984

6,266

3,163

1,485

Source: Management figures

 

12) Penetration Ratios of Digital Channels

 

2Q 19

2Q 18

2Q 17

2Q 16

Internet or mobile banking penetration ratio*

41%

40%

33%

33%

Mobile banking penetration ratio**

37%

33%

25%

19%

Source: Management figures

* Internet or Mobile Banking penetration equals active clients of Interment or Mobile Banking divided by total active clients

** Mobile Banking penetration equals active clients of Mobile Banking divided by total active clients

13) Number of Active Clients (in thousands)

 

Jun-19

Jun-18

Jun-17

Jun -16

Internet or mobile banking

508

479

340

246

Mobile banking

451

391

254

141

Source: Management figures

14) Distribution of Transactions in Digital Channels

 

2Q 19

Mobile Banking

30%

Internet Banking

9%

Branches

7%

TBC Pay terminals

19%

ATMs

34%

Other

1%

 

93% of all transactions are conducted in digital channels

 

15) Distribution of Sales in Channels

 

2Q 19

2Q 18

2Q 17

2Q 16

Digital Channels

41%

42%

25%

26%

Branches & call Center

59%

58%

75%

74%

41% of selected retail products are sold through digital channels*

* For products being offered through remote channels: pre-approved loans, credit cards, limit increase of credit cards and opening of savings and term accounts

16) Percentage of Selected Product Sales in Digital Channels

 

2Q 19

2Q 18

2Q 17

Pre-approved loans

20%*

49%

12%

Credit cards

5%

6%

8%

Saving and term accounts

67%

63%

53%

Credit card limit increase

54%*

85%

82%

* The decrease is due to new regulations
 

17) POS Terminal Transactions

 

Jun-19

1Q 19

4Q 18

3Q 18

2Q 18

POS number of transactions (in millions)

30.5

26.6

27.4

24.1

22.3

POS volume of transactions (in mln GEL)

1,165

1,017

1,117

986

850

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

18) Funding repayment ladder

Senior, Subordinated Loans' and Debt Securities in Issue's Principal Amount Outflow by Year (USD million)

 

 

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

Senior loans

 91

 179

 260

 110

 87

 37

 28

 11

 5

 -  

Subordinated loans

 3

 14

 11

 11

 32

 1

 41

 73

 15

 35

Debt securities in issue

-

-

-

-

-

300

-

-

-

-

Total

94

193

271

121

119

338

69

84

20

35

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

 

19) NPL Build Up (in GEL million)

NPLs

NPLs as of  Mar-19

Real Growth

FX Effect

Write-Offs

Repossessed

NPLs as of Jun-19

Retail

144

46

4

(31)

(4)

159

Corporate

87

(14)

4

-

(1)

76

MSME

106

13

5

(7)

(5)

112

Total

337

45

13

(38)

(10)

347

 

 

20) Net Write-Offs, 2Q 2019

 

 

 

 In GEL million

Write-Offs

Recoveries

Net Write-Offs

Retail

(31)

5

(26)

Corporate

-

-

-

MSME

(7)

5

(2)

Total

(38)

10

(28)

Source: IFRS Consolidated

 

 

21) Portfolio Breakdown by Collateral Types as of 30-Jun-19

Cash cover

2%

Gold

2%

Inventory

9%

Real estate

68%

Third party guarantees

6%

Other

1%

Unsecured

12%

Source: IFRS Consolidated

 

22) Loan to Value by Segments as of 30-Jun-19

 

 

 

 

Retail

Corporate

MSME

Total

55%

50%

48%

51%

 

Mortgage loan's LTV stood at 51%

 

 

 

 

   

23) TBC Insurance

TBC Insurance is a rapidly growing, wholly owned subsidiary of TBC Bank and it is the Bank's main bancassurance partner. The company was acquired by the Group in October 2016 and it has since grown significantly. In 2Q 2019[20], TBC Insurance held a total market share of 19.0%[21] without border motor third party liability (MTPL) insurance,  while its market share in retail segment stood at 31.5%21.

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

From 2Q 2019, TBC Insurance entered the health insurance market with a focus on the premium segment. Our strategy is to focus on affluent individuals and capture the affluent market by leveraging our strong brand name, leading digital capabilities and cross selling opportunities with payroll customers. Our medium term target is to reach 25% market share in the premium health insurance business. In 2Q 2019, TBC Insurance already attracted GEL 434.7 thousand gross written premium in health insurance.

In 2Q 2019, TBC Insurance achieved strong growth results in non-health[22] business lines. The gross written premium grew by 33.2% YoY and amounted to GEL 19.6 million. Over the same period, the net combined ratio[23] decreased by 4.4 pp and stood at 76.6%. As a result, the net profit for 2Q 2019 stood at GEL 2.2 million.

In thousands of GEL (excl. health insurance)

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

Gross written premium

19,557

17,471

17,075

15,833

14,677

Net earned premium[24]

12,218

10,677

10,554

9,841

8,804

Net profit

2,210

2,042

2,556

2,271

1,497

 

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

Net combined ratio

76.6%

82.8%

80.7%

78.8%

81.0%

Market share

19.0%

22.8%

23.0%

20.7%

18.5%

 

 

In thousands of GEL (incl. health insurance)

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

Gross written premium

19,991

17,471

17,075

15,833

14,677

Net earned premium25

12,259

10,677

10,554

9,841

8,804

Net profit

1,803

2,004

2,556

2,271

1,497

 

2Q'19

1Q'19

4Q'18

3Q'18

2Q'18

Net combined ratio

81.3%

82.8%

80.7%

78.8%

81.0%

 

*Based on internal estimate.

Figures are provided without subsidiaries of TBC Insurance:  Swoop JSC, GE Commerce LTD, All Property LTD.

   

24) Regulatory Capital

Total Capital and Tier 1 Capital Limits

 

 

30-Jun-2019 Actual

31-Dec-2019 F

31-Dec-2020 F

31-Dec-2021 F

 

Tier 1

Total

Tier 1

Total

Tier 1

Total

Tier 1

Total

Minimum requirement

6.0%

8.0%

6.0%

8.0%

6.0%

8.0%

6.0%

8.0%

Conservation buffer

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

Counter-cyclical buffer

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Systemic buffer

1.0%

1.0%

1.5%

1.5%

2.0%

2.0%

2.5%

2.5%

Pillar 1 buffers

9.5%

11.5%

10.0%

12.0%

10.5%

12.5%

11.0%

13.0%

Pillar 2

2.4%

5.2%

2.9%

5.2%

3.2%

4.7%

3.1-3.8%

4.1-5.1%

Total

11.9%

16.7%

12.9%

17.2%

13.7%

17.2%

14.1-14.8%

17.1-18.1%

 

25) NBG Initiatives

The new regulation on responsible lending to individuals

Starting from January 2019, the National Bank of Georgia has adopted the regulation on responsible lending to individuals, which replaces the former regulation introduced in May 2018. The regulation requires financial institutions to conduct solvency analysis of a borrower before issuing a loan and it also sets new limits on Payment to Income (PTI) and Loan to Value (LTV) for individual loans. The thresholds are different for domestic and foreign currency loans in order to protect a borrower and the financial system against the risks stemming from exchange rate fluctuations.

Maximum Payment to Income Ratios:

Monthly income, net (in GEL) 

For non-hedged borrower

in case of maximum/contractual maturity

For hedged borrowers

in case of maximum/contractual maturity

<1,000

20% / 25%

25% / 35%

>=1,000-2,000<

35% / 45%

>=2,000-4,000<

25% / 30%

45% / 55%

>=4,000

30% / 35%

50% / 60%

Maximum Loan to Value Ratios:

Maximum loan to value ratio (LTV) for GEL loans

    85%

Maximum loan to value ratio (LTV) for foreign currency loans

    70% 

 

Maximum tenures:

Mortgage

15 years

Consumer mortgages collateralized by real estate

10 years

Auto loans

6 years

Other consumer loans

4 years

 

Minimum reserve requirements

In May 2019, the NBG updated its requirements on mandatory reserves. Currently the reserve requirements on funds attracted in the national currency amount to 5%, and stand at 30% for funds attracted in a foreign currency, up from 25%. Borrowed funds with a remaining maturity of over one year in the national currency, and over two years in a foreign currency, are exempt from reserve requirements. For foreign currency liabilities with a remaining maturity of 1-2 years, the reserve requirement amounts to 15%, up from 10%. Capital, and funds equalized to capital, are exempt from the required reserve norms.

26) Reconciliation of reported IFRS consolidated figures with underlying numbers 

in thousands of GEL 

2Q 2019

1H 2019

Reported net interest income

190,481

387,439

Reported net fee and commission income

43,534

85,341

Reported gross insurance profit

4,338

8,067

Reported other operating income

33,949

63,401

Reported operating income

272,302

544,248

Reported total provision expenses

(33,372)

(66,467)

Reported operating income after provisions

238,930

477,781

Reported operating expenses

(109,383)

(211,897)

One-off consulting fees

(5,605)

(5,605)

Underlying operating expenses

(103,778)

(206,292)

 

 

 

Reported profit before tax

129,547

265,884

Underlying profit before tax

135,152

271,489

 

 

 

Reported income tax

(9,329)

(12,344)

Effect on tax of one-off items

841

841

Underlying income tax

(10,170)

(13,185)

 

 

 

Reported net profit

120,218

253,540

Underlying net profit

124,982

258,304

 

 

 

Reported non-controlling interest (NCI)

220

305

Effect on NCI of one-off items

               -  

               -  

Underlying NCI

220

305

Reported net profit less NCI

119,998

253,235

Underlying net profit less NCI

124,762

257,999

 

in thousands of GEL 

2Q 2019

1H 2019

Average reported equity attributable to the PLC's equity holders

2,325,788

2,293,159

Adjustment for one-off items on monthly average basis

         2,306

         3,807

Average underlying equity attributable to the PLC's equity holders

2,328,094

2,296,966

Average reported total assets

15,988,280

15,634,558

Adjustment for one-off items on monthly average basis

               -  

               -  

Average underlying total assets

15,988,280

15,634,558

 

 

2Q 2019

1H 2019

Reported cost to income

40.2%

38.9%

Underlying cost to income (APM)

38.1%

37.9%

Reported return on equity

20.7%

22.3%

Underlying return on equity (APM)

21.5%

22.7%

Reported return on assets

3.0%

3.3%

Underlying return on assets (APM)

3.1%

3.3%

 

in thousands of GEL 

2Q 2018

1H 2018

Reported net interest income

188,204

363,607

Reported net fee and commission income

39,162

74,082

Reported gross insurance profit

3,253

5,299

Reported other operating income

27,799

54,129

Reported operating income

258,418

497,117

Reported total provision expenses

(35,091)

(74,554)

Reported operating income after provisions

223,327

422,563

Reported operating expenses

-92,090

(183,022)

 

 

 

Reported profit before tax

131,237

239,541

 

 

 

Reported income tax

(28,799)

(39,578)

Reversal of the one-off deferred tax gain

(17,426)

(17,426)

Underlying income tax

(11,373)

(22,152)

 

 

 

Reported net profit

102,438

199,963

Underlying net profit

119,864

217,389

 

 

 

Reported non-controlling interest (NCI)

(151)

1,616

Effect on NCI of one-off items

               -  

               -  

Underlying NCI

(151)

1,616

Reported net profit less NCI

102,589

198,347

Underlying net profit less NCI

120,015

215,773

 

in thousands of GEL 

2Q 2018

1H 2018

Average reported equity attributable to the PLC's equity holders

1,928,838

1,887,954

Adjustment for one-off items on monthly average basis

         4,357

         3,799

Average underlying equity attributable to the PLC's equity holders

1,933,195

1,891,753

Average reported total assets

12,979,958

12,811,990

Adjustment for one-off items on monthly average basis

               -  

               -  

Average underlying total assets

12,979,958

12,811,990

 

 

2Q 2018

1H 2018

Reported return on equity

21.3%

21.2%

Underlying return on equity (APM)

24.9%

23.0%

Reported return on assets

3.2%

3.1%

Underlying return on assets (APM)

3.7%

3.4%

 

27) Space - fully digital bank

Date

# of app. downloads

# of registered customers

 

loans in thousands GEL

30-Sep-2018

186,044

72,447

5,814

31-Dec-2018

258,846

93,994

14,693

31-Mar-2019

292,423

114,675

16,843

30-Jun-2019

365,563

133,624

22,047

 

Space development costs amounted GEL 1.4 million before the launch in May 2018.

 

28) International strategy: expansion into Azerbaijan market

Main highlights

•     TBC Bank and Nikoil Bank agreed on shareholders agreement in late December 2018 and signed it in early January 2019. According to which our shareholding in the joint entity will be 8.34% The transaction is subject to regulatory approval

•     Currently bank is in the process of significant reorganization which includes re-branding and shift to digitalization

•     In 2Q 2019 Nikoil Bank opened four new branches.

 

Strengthening Management Team

 

Existing management team of the joint entity

CEO   -

Nikoloz Shurghaia

First Deputy CEO, Head of MSME  -

Farhad Hajinski

Deputy CEO, Head of Retail             -

Fuad Tagiyev

 

New management team of the joint entity

COO   -

Nukri Tetrashvili, former CEO at TBC Kredit 

CDM  -

David Birman, former Chief Digital Officer at Bank of Georgia

CRO   -

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

CFO   -

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

CIO   -

Avtandil Tabatadze, former strategic projects manager at TBC Bank

 

 

     

Current Developments

 

 

Loans Disbursements (USD '000)

Number of customers

2Q 2018

18,721

62,685

1Q 2019

25,030

66,691

2Q 2019

32,912

78,422

 

Mid-term vision

 

 

 

 In USD millions

2Q 2019 results of Nikoil Bank*

Mid-term targets of joint entity

 

Loan portfolio

c. 205

c. 1,400

 

Equity

c. 35

c. 200

 

ROE

NMF

20%+

 

*Based on management accounts.

 

 

 

 

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

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

 

29) International strategy: digital greenfield bank in Uzbekistan

This is still in the concept stage and subject to approval (including approval from the authorities), therefore it could change as we progress. The pre-license is expected in 2019.

 

Why Uzbekistan?

•     Large underpenetrated market:

•     with a population of more than 33.45 million

•     retail loans to GDP stood at 7.2% at the end of 2018

•     Similar history as part of the Soviet Union and good cultural links

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

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

•     No digital bank operates in Uzbekistan currently

Strategic Positioning

•     Build a next generation bank for retail and MSME

•     Focus on digital channels and SPACE

•     Operate asset light, smart branches

•     Establishing the highest standards of corporate governance

•     Simple and intuitive products and processes

•     Transparent and straightforward commissions structure

•     Best customer experience

•     Automated decision making system.

 Main highlights

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

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

•     Achieve sustainable ROE up to 25%

•     Cost to income ratio below 35%

Our Uzbek and Azerbaijan subsidiaries together will contribute c. 30% to the Group's loan book.

Upcoming Events

·      Opening pilot branch in 2019 for a proof of concept

·      Core banking implementation with local IT company

·      Multichannel development including Space

Define user experience

Testing of main processes among 100 clients including: onboarding, account opening and card ordering

·      Client contact center development

·      Our international partners, EBRD and IFC have expressed their interest to participate in this project subject to completion of their internal procedures and approvals

·      We have reached an agreement on main terms with Uzbek-Oman Investment Company (UOIC) to act as our local partner.

 

 

30) Payme

Main Highlights

·      TBC Bank Group PLC has entered into an agreement to acquire a 51% stake in LLC Inspired, a leading profitable payment platform in Uzbekistan under the Payme brand

·      The consideration for the 51% stake is USD 5.5 million, implying a valuation of USD 10.8 million for Payme

·      TBC Bank has also entered into a put/call arrangement for the remaining 49% of Payme, which, in normal circumstances, may only be exercised between the fourth and seventh anniversary of the date of completion of the transaction

·      The exercise price will depend on a set of parameters including Payme's revenue, EBIT and the number of active customers that Payme achieves.

Strategic Positioning and Next Steps

The transaction is in line with TBC Bank's international strategy to expand its regional operations, giving us the immediate access to a large customer base in the country and use our core digital strengths in Georgia to innovate in the Uzbekistani market.

We are planning to enrich the product base of Payme by launching the following new products by the end of 2019:

·      Money transfers;

·      Cards and wallets;

·      Loyalty cards;

·      Instant check-out;

·      Ticketing.

Management Team

·      The management team and founders will remain with Payme on a long-term basis and will continue to be actively involved in the development and execution of Payme's strategy. One of the founders of Payme, Sarvar Ruzmatov became the CEO and Nodir Gulyamov was appointed as Deputy CEO.

·      We also appointed a new CFO, Abdukhalil Rashidov, who has 12-year experience in banking sector and will be a valuable addition to the management team.

·      The supervisory board has been formatted which is chaired by Giorgi Shagidze and consists of Nikoloz Kurdiani, Lasha Gurgenidze, Abdul-Aziz Abdul-Axadov and Bakhrom Khodjaev.

Payme Financial and Operating Highlights*

In million USD 

2Q 19

Growth QoQ

Growth YTD

Revenue

0.7

19.7%

46.0%

Net profit

0.5

33.6%

131.1%

Number of customers

1.4

10.9%

26.1%

* Source: Based on Payme's unaudited management accounts

Product Types

§  Utility and Top-up 

§  E-commerce Acquiring and Payment GW

§  P2P

§  White Label Mobile Banking

§  Loan Repayment

§  Invoicing System

§  mPOS for QR Payments

§  Personal Finance Manager

 

31) Nikoil Bank Financials

Profit & Loss Statement

In thousands of USD 

2Q'19

1Q'19

2Q'18

Interest income 

5,066

4,610

        3,416  

Interest expense

(2,245)

(2,069)

(2,491)  

Net interest income

2,821

2,541

        925  

Fee and commission income

699

551

           690  

Fee and commission expense

(282)

(267)

(269)  

Net Fee and Commission Income

417

284

           421  

Net income from foreign currency operations

175

176

           595  

Net gain/(losses) from foreign exchange translation

(6)

(1)

           (45)  

Other operating non-interest income

169

175

           550  

Credit loss allowance of loans

923

2,326

(27,537)  

Credit loss allowance of other financial assets

97

44

366  

Operating income after credit loss allowance

4,427

5,370

(25,275)  

Staff costs

(2,759)

(2,036)

(1,372)  

Depreciation and amortisation

(339)

(321)

(342)  

Administrative and other operating expenses

(1,573)

(1,165)

(935)  

Operating expenses

(4,671)

(3,522)

(2,649)  

Profit before tax

(244)

1,848

(27,924)  

Income tax expense

                       -  

                       -  

-

Profit for the period

(244)

1,848

(27,924)

 

 Balance Sheet

 

In thousands of USD

30-Jun-19

31-Mar-19

30-Jun-18

Cash and cash equivalents

21,871

44,711

41,206

Due from other banks

53,381

36,654

26,676

Net Loans

138,556

135,655

147,789

Investment securities measured at fair value through other comprehensive income

10,316

7,085

21,208

Current income tax prepayment

7

4

3

Deferred income tax asset

768

768

768

Other financial assets

12,628

10,252

12,368

Other assets

2,127

1,100

582

Premises and equipment (Net)

5,625

5,663

5,571

Intangible assets (Net)

1,775

1,849

2,068

TOTAL ASSETS

247,054

243,741

258,239

Due to other banks

4,152

20,152

21,944

Customer Accounts

154,648

136,900

153,586

Other borrowed funds

40,417

41,112

36,291

Other financial liabilities

7,502

4,998

4,076

Subordinated debt

5,000

5,000

15,000

TOTAL LIABILITIES

211,719

208,162

230,897

Share capital

204,706

204,705

144,118

Additional paid-in-capital

500

500

500

Retained earnings

(169,871)

(169,626)

(117,276)

TOTAL EQUITY

35,335

35,579

27,342

TOTAL LIABILITIES AND EQUITY

247,054

243,741

258,239

 

 

Principal Risks and Uncertainties

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

The Board has undertaken a robust assessment of the principal risks facing the Group and long-term viability of the Group's operations, in order to determine whether to adopt the going concern basis of accounting.

1. PRINCIPAL RISK

Credit risk is an integral part of the Group's business activities.

As a provider of banking services, the Group is exposed to the risk of loss due to the failure of a customer or counterparty to meet its obligations to settle outstanding amounts in accordance with agreed terms.

Risk description

Credit  risk  is the  most  material risk  faced  by the  Group since  it is engaged mainly  in traditional lending  activities. The Group's customers include legal entities as well as individual borrowers.

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

Risk mitigation

A comprehensive credit  risk assessment framework is in place with a clear segregation of duties among parties involved in the credit analysis and approval process. The credit   assessment process is distinct   across segments, and is further differentiated across various product types to reflect the differing natures of these asset classes. Corporate, SME and  larger  retail and  micro   loans   are assessed on  an  individual  basis, whereas the  decision- making   process for  smaller  retail and   micro   loans   is largely  automated. Individual application underwriting and automated underwriting rules are performed by units within the risk function that is independent from origination and business development units.

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

The Group's credit  portfolio is structurally highly diversified across customer types,  product types  and  industry segments which  minimizes credit  risk  at  Group  level.  As of 30 June 2019 retail segment represented 43.4% % of the total portfolio which was split between mortgage and non-mortgage 61.2% and 38.8%, respectively. In business banking, no single industry represented more than 8.7% of the total portfolio at the end of June 2019.

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

The Group has a largely collateralised portfolio in all its segments, with real estate representing a major share of collateral. As of 30 June 2019, 72.5% of the Group's portfolio was secured by cash, real estate or gold. Sound collateral management framework ensures that collateral serves as an adequate mitigating factor for credit risk management purposes.

 

2. PRINCIPAL RISK

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

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

Risk description

A significant share of the Group's loans (and a large share of the total banking sector loans in Georgia) is denominated  in currencies other than GEL, particularly in US$. As of 30 June 2019, the NBG reported that 57.1% of the total banking sector loans were denominated in foreign currencies. As of the same date, 59.9% of the Group's total gross loans and advances to customers (before provision for loan impairment) were denominated in foreign currencies.

The income of many customers is directly linked to the foreign currency via remittances, or exports in case of business borrowers. Nevertheless, customers may not be protected against significant fluctuations in the GEL exchange rate against the currency of the loan.

The US$/GEL rate remained volatile in the first half of 2019. As of 30 June 2019, USD has substantially strengthened against GEL by 17.0 % YoY and appreciated against the 2018 average GEL exchange rate by 13.2%. According to the NBG July 24th the Monetary Policy Committee statement, the current nominal effective exchange rate seems to be more undervalued than the size of the current shock would suggest. 

The NBG continues to operate under its inflation-targeting framework. The GEL remains in free float and is exposed to many internal and external factors that in some circumstances could result in depreciation against the US$.

Risk mitigation

Particular attention is paid to currency-induced credit risk due to the high share of loans denominated in foreign currencies in the portfolio. The vulnerability to the exchange rate depreciation is monitored in order to promptly implement an action plan, as and when needed. The ability to withstand certain exchange rate depreciation is incorporated into the credit underwriting standards, which also include significant currency devaluation buffers for unhedged borrowers. In addition, the Group holds significant capital against currency-induced credit risk, which was showed by the regulatory stress test as well. Details of stress test are described on pages 118 to 119 of TBC Bank Group PLC Annual Report 2018. Given the experience and knowledge built throughout the recent currency volatility, the Group is in a good position to promptly mitigate exchange rate depreciation risks.

In January 2019, the Government authorities continued their efforts to reduce the economy's dependence on foreign currency financing by increasing the cap to GEL 200,000 under which loans are required to be disbursed in local currency.  In addition, the NBG, under its responsible lending initiative, which came into force on 1 January 2019, introduced significantly more conservative PTI and LTV thresholds for unhedged retail borrowers further limiting the exposure to currency induced credit risk.

3. PRINCIPAL RISK

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

A slowdown of economic growth in Georgia would have an adverse impact on the repayment capacity of the borrowers, restraining their future investment and expansion plans. These occurrences would be reflected in the Group's portfolio quality and profitability and would also impede the portfolio growth rates. Negative macroeconomic developments could compromise the Group's performance through various parameters, such as exchange rate depreciation, a spike in interest rates, rising unemployment, decrease in household disposable income, falling property values, worsening loan collateralisation, or falling debt service capabilities of companies as a result of decreasing sales.

Potential political and economic instability in the neighbouring and main trading partner countries could negatively impact Georgia's economic outlook through a worsening current account (e.g. decreased exports, tourism inflows, remittances and foreign direct investments).

Risk description

According to the Geostat's initial estimates, the real GDP increased by 4.9% in the first half of 2019. While the credit growth has moderated, the inflows were reasonably strong and unlike 2018, fiscal stance was expansionary. It is expected that the newly imposed Russian flight ban will lower the growth going forward. However, according to TBC Research estimates, GDP is still expected to increase somewhat higher than 4.0% for the full year 2019 and 2020.

The CA balance improvement trend continued in 1Q 2019 with the deficit to same quarter GDP ratio standing at 6.2% - being historically low with an improvement of 5.7 percentage points YoY and with the strongest contribution of the trade in goods. The positive tendency is likely to be sustained in 2Q as well, judging from the trade balance, tourism and remittances inflows. Over the last 4 quarters, the current account deficit to GDP ratio stood at 6.4%, up by 1.3 percentage points compared to the previous quarter. Despite the reduction, FDI inflows at 6.6% of GDP remained the main source of financing the CA deficit. At the same time, in the first half 2019, the NBG bought USD 216 million reserves or around 3.0% of the same period GDP, indicating that the external inflows were sufficient even for higher growth.

The annual inflation stood at 4.3% in June 2019. The above target price increase was primarily due to higher excise tax on tobacco. As of July 15, estimated real effective exchange rate was by around 10% below its medium term average, likely indicating the potential pressures on the inflation unless GEL appreciates back in the coming months.

In the first half 2019, the system-wide credit growth has moderated primarily driven by the weaker retail lending activity. As of June 2019, estimated credit to GDP ratio was somewhat above its long-term trend when measured at current exchange rate, however, the gap was negative at constant exchange rate.

Overall, from a macro perspective there were no signs of building up of system wide risks in the first half of 2019. At the same time, Georgia remains vulnerable to external and to some extent internal shocks, which could have adverse impact on the Georgian economy resulting in lower growth or, in some severe circumstances, a contraction of the economy. These negative developments could also have a negative impact on the GEL exchange rate.

Risk mitigation

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

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

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

4. PRINCIPAL RISK

The Group encounters the capital risk of not meeting the minimum regulatory requirements, which may compromise growth and strategic targets.

The Bank is regulated by the National Bank of Georgia (NBG). The regulations and various terms of its funding and other arrangements require compliance with certain capital adequacy and other ratios. At the same time, the local regulator has the right to impose additional regulations on a bank if it perceives excessive risks and uncertainties in that lender or in the market In addition, potential GEL depreciation would increase the Bank's risk weighted assets and impairment charges, which in turn will negatively affect the Bank's regulatory capital adequacy ratios. A 10% GEL depreciation translates into negative impact of 82bps, 80bps (70bps[25]) and 64bps (53bps25)bps on CET1, Tier 1 and Total Regulatory capital adequacy ratios, respectively.

Risk description

In December 2017 the NBG introduced a new capital adequacy framework. The updated regulation divides the current capital requirement across Pillar 1 and Pillar 2 buffers that are introduced gradually over a four-year period. As of year-end 2018, the Bank's minimum capital requirement increased by 1.5% for Tier 1 and 3.7% for Total Capital compared to the end of 2017. The increase in minimum requirements is driven by introduction of systemic risk, concentration and GRAPE buffers.

The Bank's capitalisation as of June 2019 stood at 12.0%, 12.4% and 17.4% well above the regulatory minimum requirement of 9.8%, 11.9% and 16.7% for CET 1, Tier 1 and total capital, respectively. In June 2019, the Bank issued USD 125 million additional Tier 1 perpetual bond, which will be included in the Bank's Tier 1 and Total Capital in July;

The Bank's capitalisation as of 30 June 2019 with AT1 would have been 12.0%, 14.9% and 19.9% for CET 1, Tier 1 and total regulatory capital, respectively.

Risk mitigation

The Group undertakes stress-testing and sensitivity analysis to quantify extra capital consumption under different scenarios. Such analyses indicate that the Group holds sufficient capital to meet the minimum regulatory requirements.

Capital forecasts, as well as the results of the stress-testing and what-if scenarios, are actively monitored with the involvement of the Bank's Management Board and Risk Committee to ensure prudent management and timely actions when needed.

5. PRINCIPAL RISK

The Group is exposed to regulatory and enforcement action risk.

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

Risk description

The Bank is regulated by the NBG, who sets lending limits and other economic ratios (including, inter alia, lending, liquidity and investment ratios) in addition to mandatory capital adequacy ratios. During 2018, the NBG introduced several regulatory changes concerning the responsible lending standards. The details are outlined in the RECC report on pages 133 to 135 of TBC Bank Group PLC Annual Report 2018

Under the Georgian banking regulations, the Bank is required, among other things, to comply with minimum reserve requirements and mandatory financial ratios and regularly file periodic reports. The Bank is also regulated by respective tax code or other relevant laws in Georgia.

Following the Company's listing on the London Stock Exchange's premium segment, the Group became subject to increased regulations from the UK Financial Conduct Authority. In addition to its banking operations, the Group also offers other regulated financial services products, including leasing, insurance and brokerage services. 

As part of the Group's international strategy, the ongoing merger between Nikoil Bank and TBC Kredit is subject to regulatory approval and the Group's intention is to increase over the four year period its shareholding in the merged entity to over 50%. This will, in turn, increase the Group's exposure to the regulatory environment in Azerbaijan. In addition, TBC Bank is working on the green field project in Uzbekistan. This project is currently in the development phase and is subject to approvals, including from the local authorities, which further increases regulatory compliance requirements for the Group.

The Group's operations remain in full compliance with all relevant legislation and regulations. The Group is also subject to financial covenants in its debt agreements. For more information, see pages 138-139 in the Group's Reviewed Financial Statements.

Risk mitigation

The Group has established systems and processes to ensure full regulatory compliance, which are embedded in all levels of the Group's operations.

The dedicated compliance department reports directly to the Chief Executive Officer and bears the primary responsibility for regulatory compliance.

The Group's RECC is responsible for regulatory compliance at the Board level.

In terms of banking regulations and Georgia's taxation system, the Group is closely engaged with the regulator to ensure that new procedures and requirements are discussed in detail before their implementation. There was also an extensive dialogue with the regulator regarding the new regulation on responsible lending.

Together with the new regulation on responsible lending, the government introduced initiatives to ensure continuous broad access to financing. These include simplification of the tax code to incentivize income registration rate.

Although decisions made by regulators are beyond the Group's control, significant regulatory changes are usually preceded by a consultation period that allows all lending institutions to provide feedback and adjust their business practice.

Investigation related to the historic transactions that took place in 2007 and 2008

The NBG is also responsible for conducting investigations into specific transactions to ensure compliance with Georgian finance laws and regulations. In that regard, the Bank was subject to an inspection by the NBG in connection with certain transactions, which took place in 2007 and 2008. The inspection alleged that these transactions between the Bank and certain entities were not in technical compliance with the Georgian law regulating conflicts of interest. In February 2019, the Company, the Bank and the NBG issued a joint statement confirming the settlement of this investigation and that the Bank fully complies with economic normative requirements and limits set by the NBG. As part of the settlement, the Bank paid approximately GEL 1 million fine; In addition, TBC's Chairman and Deputy Chairman of supervisory board stepped down from their roles. The respective regulatory disclosures in this regards can be found at www.tbcbankgroup.com under regulatory news section.

Furthermore, TBC Bank, with the assistance of one of the big four audit firms has, undertaken benchmarking and review of its AML and related Party Policies and procedures compliance with local and international requirement. These reviews did not identify any material deficiencies.

Separately, it is noted that the Georgian Office of Public Prosecution has also launched an investigation into the same matter and has made charges against the founders of TBC Bank. On 24 July, the Chairman and Deputy Chairman have decided to step down from the board of TBC Bank Group PLC with immediate effect. They have both arrived at this decision after careful consideration in order to ensure that the allegations made against them do not affect the Group and to be able to concentrate on refuting those allegations. The respective regulatory disclosures in this regards can be found at www.tbcbankgroup.com under regulatory news section.

On 26 July 2019, the NBG issued the following statement: "In the light of recent events, National Bank of Georgia welcomes the decision of the founding shareholders to step down from the Board of Directors of TBC Bank Group PLC (which is a London based 100% shareholder of JSC TBC Bank). National Bank of Georgia emphasizes that TBC Bank is one of the leading financial organization in the country and the region. It is a strong and robust financial institution. Since April 2019, Mamuka Khazaradze and Badri Japaridze no longer serve as the Supervisory Board members of JSC TBC Bank and the recent events will not have any impact on the operations of the bank." The full statement is available on the following website: www.nbg.gov.ge

6. PRINCIPAL RISK

The Group is exposed to concentration risk.

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

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

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

Risk description

The Group's loan portfolio is diversified, with maximum exposure to the single largest industry (energy and utility) standing at 8.7% of the loan portfolio as of 30 June 2019. This figure is reasonable and it demonstrates an adequate credit portfolio diversification.

At the end of June 2019 the exposure to the 20 largest borrowers improved by 0.9pp on QoQ basis and stands at 12.6% of the loan portfolio, which is in line with the Group's target of alleviating concentration risk.

Risk mitigation

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

As part of its risk appetite framework, the Group limits both single-name and sector concentrations. Any considerable change in the economic or political environment, in Georgia as well as its neighbouring countries, will trigger the Group's review of the risk appetite criteria to mitigate emerging risk concentrations. Stringent monitoring tools are in place to ensure compliance with the established limits. In addition, the Bank has dedicated restructuring teams to manage borrowers with financial difficulties. When it is deemed necessary, clients are transferred to such teams for a more efficient handling and, ultimately, to limit resulting credit risk losses.

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

7. PRINCIPAL RISK

Liquidity risk is inherent in the Group's operations.

While the Board believes that the Group currently has sufficient financial resources available to meet its obligations as they fall due, liquidity risk is inherent in banking operations and can be heightened by numerous factors. These include an overreliance on, or an inability to access, a particular source of funding, as well as changes in credit ratings or market-wide phenomena, such as the global financial crisis that commenced in 2007 or any unexpected rapid withdrawals due to loss in consumer confidence, an erosion of trust in financial institutions or a period of social, economic or political instability. In the first quarter of 2019, TBC experienced a higher volatility of deposit flows. Deposits (excluding a liquidity-neutral deposit from the Ministry of Finance) decreased by GEL 323.8 million or 3.5% (excluding foreign currency effects) in the first three months of 2019 compared to 31 December 2018. The decrease was primarily driven by retail deposit reductions (mostly in January and February, which were recovered in the following months) prior to the settlement with the NBG as well as the effects of seasonality.

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

Risk description

Throughout 2018 and 1H 2019, the Group was in compliance with the risk appetite limits, as well as the minimum liquidity requirements set by the NBG, which introduced a liquidity coverage ratio in 2017. This is in addition to the Basel III guidelines, under which a conservative approach was applied to the weighting of mandatory reserves and to the deposit withdrawal rates, depending on the concentration of client groups. As of 30 June 2019, the net loan to deposits plus international financial institution funding ratio stood at 91.4%, the liquidity coverage ratio at 126.3% (138.1%[27]), and the net stable funding ratio at 130.4% (133.8%1). These figures are all comfortably above the NBG's minimum requirements or guidance for such ratios.

Risk mitigation

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

8. PRINCIPAL RISK

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

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

Risk description

The majority of the Group's total income derives from net interest income. Consequently, NIM's fluctuations affect the Group's results. In 1H 2019, the NIM decreased by 1.1 pp YTD to 5.8%, mainly driven by the change of segment / product mix as a result of NBG responsible lending regulation, intensified competition in interest rates, increase in mandatory reserve requirements for FC funding, as well as high liquidity before the bonds are deployed . 

The recent regulation regarding the responsible lending, as well as a one-off impact from the high liquidity after recent bonds issuance before its deployment, will further impact the Group's NIM negatively with the estimated range of 30-50 bps in 3Q 2019 and is expected to stabilize in 4Q 2019.

The Group manages its direct exposure to the LIBOR and local refinancing rates through respective limits and appropriate pricing. As of 30 June 2019, GEL 5,261 million in assets (30%) and GEL 1,799 million in liabilities (12%) were floating, related to the LIBOR/FED/ECB (deposit facility) rates, whereas GEL 3,654 million of assets (21%) and GEL 2,768 million of liabilities (19%) were floating, related to the NBG's refinancing rate. However, the assets are still longer term than liabilities.

Risk mitigation

The current high margin levels, the increase in fee and commission income and continuous cost optimization efforts safeguard against margin declines and profitability concerns for the Group. The Group continues to actively work on the  margin management program, which includes an adequate pricing framework and profitability analysis to further assist in the decision making process. In addition, the recent NBG regulation, which limits consumer financing and shifts retail lending to mortgages, positively impacts the cost of credit risk, thus supporting to sustain the risk adjusted NIM. To mitigate asset-liability maturity mismatch, in cases where loans are extended on fixed rather than floating terms, the interest rate risk is translated into price premiums, safeguarding against changes in the interest rates.

9. PRINCIPAL RISK

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

Risk description

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

Risk mitigation

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

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

10. PRINCIPAL RISK

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

Risk description

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

During the reporting period, the Group faced only a few instances of fraud events, none of which had a material impact upon the Group's profit and loss statement. Nonetheless, fraudsters are adopting new techniques and approaches to exploit various possibilities to illegally obtain funds. Therefore, unless properly monitored and managed, the potential impact can become substantial.

Risk mitigation

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

11. PRINCIPAL RISK

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

The Group is expanding its international presence in Azerbaijan and Uzbekistan. The expansion exposes the Group to new macro-economic, political and regulatory environments, including exposure to risks arising from credit, market, operational and capital adequacy risks in local jurisdictions.

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

Risk description

The risk posed by the external environment in Uzbekistan and Azerbaijan may change the Group's risk profile as a result of international expansion. According to the latest IMF forecasts, Uzbekistan is a rapidly developing economy with above 5% real GDP growth projection in the medium term.

The Uzbekistani economy is well diversified with no major reliance on a particular industry. It has one of the lowest public debts as a percentage of GDP in the region and high international reserve implying the macroeconomic stability as well as room for future high growth. The new government of Uzbekistan plans to reform the economy and open it up to foreign investments.

While the operational environment in Uzbekistan can be assessed as attractive, there are important risks, which can materially affect the Group's performance in the country. These risks include, but are not limited to, the political instability, low pace of reforms, adverse developments in inflation and fluctuations in the exchange rate.

Azerbaijan economy has high reliance on oil exports. The economy of Azerbaijan started to recover in 2017 after the contraction in 2016 caused by the significant decline in oil prices in the period of 2014-2016 years. The IMF projects Azerbaijan's economic growth rate to improve to 3.4% in 2019 and to average at 2.0% over the next 5 years. Along with the stabilisation in oil prices and exchange rate, annual inflation remained stable in 1H 2019. Azerbaijan's economic recovery has also contributed to the strengthening of its financial sector and gradual recovery of the lending to the economy. Despite relatively more stable environment, Azerbaijan's growth is still significantly depends on oil prices and any adverse developments in oil prices could negatively affect the growth perspectives and exchange rate. Furthermore, potential political instability and unfavorable developments in the state regulations can also negatively affect the Groups business in Azerbaijan. 

Risk mitigation

The Group' strategy is to follow an asset-light, limited capital investment approach with a strong focus on digital channels and to invest in stages to make sure that we are comfortable with the results and the operating environment before committing additional investment.

The Group plans to serve retail and MSME customers leading to non-concentrated portfolio, leading to the lower credit risk.

The Group will maintain close relationship with the IFIs to ensure business plan funding flexibility across many different options. In particular, the IFIs will be the Group's partners in Uzbekistan.

The Group has been operating in Azerbaijan through a small microfinance organisation for a number of years, which provides experience and knowledge of local banking environment. In addition, in Azerbaijan the exposure is limited before the option is exercised. The Group will exercise the option only after it becomes comfortable with the development, including operating environment.

The management will focus on establishing strong risk management function to ensure that all risks are managed and mitigated properly. The Group will leverage on its strong risk management expertise to establish sound risk management practices in new jurisdictions.

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

 

Statement of Directors' Responsibilities

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

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

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

o an indication of important events that have occurred during the six months ended 30 June 2019 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

o any related party transactions in the six months ended 30 June 2019 that have materially affected the financial position or performance of TBC Bank during that period and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of TBC Bank in the six months ended 30 June 2019.

 

Signed on behalf of the Board by:

 

Vakhtang Butskhrikidze         

Giorgi Shagidze

 

CEO

 

Deputy CEO, CFO

 

14 August 2019

 

14 August 2019

 

 

 

TBC Bank Group PLC Board of Directors:

 

 

 

Chairman

 

Nikoloz Enukidze

 

 

 

Executive Directors

Non-executive Directors

Vakhtang Butskhrikidze (CEO)         

Nicholas Dominic Haag

Giorgi Shagidze (CFO)

Maria Luisa Cicognani

 

Tsira Kemularia

 

 

 

 

 

 

 

 

TBC BANK GROUP PLC

 

International Financial Reporting Standards

Condensed Consolidated Interim Financial

Statements (Unaudited)

 

 

30 June 2019

Contents

 

 

Independent review report

 

Unaudited Condensed Consolidated Interim Financial Information

 

Condensed Consolidated Interim Statement of Financial Position ........................................................................................... 71

Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income....................................... 72

Condensed Consolidated Interim Statement of Changes in Equity...........................................................................................74

Condensed Consolidated Interim Statement of Cash Flows...................................................................................................... 76

Notes to the Condensed Consolidated Interim Financial Statements........................................................................................ 77

Independent review report to TBC Bank Group plc

Report on the Unaudited Condensed Consolidated Interim Financial Statements

Our conclusion

We have reviewed TBC Bank Group plc's Unaudited Condensed Consolidated Interim Financial Statements (the "interim financial statements") in the 2Q and 1H Consolidated Financial Results of TBC Bank Group plc for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·      the condensed consolidated interim statement of financial position as at 30 June 2019;

·      the condensed consolidated interim statement of profit or loss and other comprehensive income for the period then ended;

·      the condensed consolidated interim statement of cash flows for the period then ended;

·      the condensed consolidated interim statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

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

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

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

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

What a review of interim financial statements involves

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

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

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

PricewaterhouseCoopers LLP

Chartered Accountants

Edinburgh

     August 2019

 

 

TBC Bank Group PLC 
Condensed Consolidated Interim Statement of Financial Position

 

 

30 June 2019

31 December 2018

In thousands of GEL

Note

(Unaudited)

 

 

 

 

 

Assets

 

 

 

Cash and cash equivalents

4

  1,628,344

1,166,911

Due from other banks

5

   27,860

47,316

Mandatory cash balances with the National Bank of Georgia

6

  1,841,237

1,422,809

Loans and advances to customers

7

10,801,264

10,038,452

Investment securities measured at fair value through other comprehensive income

 

   861,529

1,005,239

Repurchase Receivable

 

179,762

-

Bonds carried at amortized cost

 

    633,530

654,203

Investments in associates

 

  2,363

2,432

Investments in finance leases

 

220,871

203,802

Investment properties

 

79,114

84,296

Current income tax prepayment

 

19,417

2,116

Deferred income tax asset

 

1,753

2,097

Other financial assets

 

165,382

167,518

Other assets

 

  211,850

192,792

Right of use assets

2

61,555

N/A  

Premises and equipment

8

373,322

367,504

Intangible assets

8

123,910

109,220

Goodwill

 

45,301

31,286

 

 

 

 

 

 

 

 

Total assets

 

17,278,364

15,497,993

 

 

 

 

 

 

 

 

Liabilities

 

 

 

Due to credit institutions

9

3,052,742

3,031,503

Customer accounts

10

9,876,813

9,352,142

Other financial liabilities

 

252,280

98,714

Current  income tax liability

 

727

63

Debt securities in issue

12

848,838

13,343

Deferred income tax liability

22

21,361

22,237

Provisions for liabilities and charges

11

20,116

18,767

Other liabilities

 

85,882

104,337

Lease Liabilities

2

62,598

N/A

Subordinated debt

13

688,002

650,919

 

 

 

 

 

 

 

 

Total liabilities

 

14,909,359

13,292,025

 

 

 

 

 

 

 

 

EQUITY

 

 

 

Share capital

14

1,672

1,650

Share premium

14

831,773

796,854

Retained earnings

 

1,668,810

1,523,879

Group reorganisation reserve

 

(162,166)

(162,166)

Share based payment reserve

15

(37,968)

(16,294)

Revaluation reserve for premises

 

56,606

57,240

Fair value reserve

 

12,680

8,680

Cumulative currency translation reserve

 

(6,478)

(6,937)

 

 

 

 

 

 

 

 

Net assets attributable to owners

 

2,364,929

2,202,906

Non-controlling interest

 

4,076

3,062

 

 

 

 

 

 

 

 

Total equity

 

2,369,005

2,205,968

 

 

 

 

 

 

 

 

Total liabilities and equity

 

17,278,364

15,497,993

 

 

 

 

 

The financial statements on pages 71 to 148 were approved by the Board of Directors on 14 August 2019 and signed on its behalf on 15 August 2019 by:

______________________________                                     ______________________________

Vakhtang Butskhrikidze                                                                 Giorgi Shagidze

Chief Executive Officer                                                               Chief Financial Officer

 

TBC Bank Group PLC 
Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

 

 

 

Six months ended

 

 

30 June 2019

30 June 2018

In thousands of GEL

Note

(Unaudited)

(Unaudited)

 

 

 

 

Interest income

18

 678,216

598,001

Interest expense

18

 (290,777)

(234,394)

 

 

 

 

 

 

 

 

Net interest income

 

387,439

363,607

 

 

 

 

 

 

 

 

Fee and commission income

19

 129,885

109,099

Fee and commission expense

19

 (44,544)

(35,017)

 

 

 

 

 

 

 

 

Net fee and commission income

 

85,341

74,082

 

 

 

 

 

 

 

 

Net insurance premiums earned

 

 15,992

10,602

Net insurance claims incurred and agents' commissions

 

(7,925)

(5,303)

 

 

 

 

 

 

 

 

Insurance Profit

 

8,067

5,299

 

 

 

 

 

 

 

 

Net gains from trading in foreign currencies

 

 46,119

 38,782

Net gains from foreign exchange translation

 

 9,214

 4,023

Net (losses)/gains from derivative financial instruments

 

 (229)

 413

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

20

147

-

Other operating income

 

7,809

10,263

Share of profit of associates

 

341

648

 

 

 

 

 

 

 

 

Other operating non-interest income

 

63,401

54,129

 

 

 

 

 

 

 

 

Credit loss allowance for loan to customers

7

  (66,483)

 (65,980)

Recovery of/(Charge to) credit loss allowance for investments in finance lease

 

178

 (493)

Credit loss allowance for performance guarantees and credit related commitments

11

(392)

 (2,500)

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

 

580

 (5,469)

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

 

(350)

 (112)

 

 

 

 

 

 

 

 

Operating income after credit impairment losses

 

477,781

422,563

 

 

 

 

 

 

 

 

Staff costs

 

(116,639)

 (102,847)

Depreciation and amortisation

8

(32,124)

 (21,463)

(Provision for)/recovery of provision for liabilities and charges

 

1,441   

 -  

Administrative and other operating expenses

21

(64,575)

 (58,712)

 

 

 

 

 

 

 

 

Operating expenses

 

(211,897)

(183,022)

 

 

 

 

 

 

 

 

Profit before tax

 

265,884

239,541

 

 

 

 

 

 

 

 

Income tax expense

22

(12,344)

(39,578)

 

 

 

 

 

 

 

 

Profit for the period

 

253,540

199,963

 

 

 

 

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss:

 

 

 

Movement in fair value reserve

 

3,999

 827

Exchange differences on translation to presentation currency

 

457

14  

Items that will not be reclassified to profit or loss:

 

 

 

Income tax recorded directly in other comprehensive income

 

-  

(5,151)

 

 

 

 

 

 

 

 

Other comprehensive income for the period

 

4,456

(4,310)

 

 

 

 

 

 

 

 

Total comprehensive income for the PERIOD

 

257,996

195,653

 

 

 

 

 

 

 

 

 

TBC Bank Group PLC 
Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

 

 

 

Six months ended

 

 

30 June 2019

30 June 2018

In thousands of GEL

Note

(Unaudited)

(Unaudited)

 

 

 

 

Profit is attributable to:

 

 

 

- Shareholders of TBCG

 

 253,235

         198,347

- Non-controlling interest

 

 305

1,616

 

 

 

 

Profit for the period

 

253,540

199,963

 

 

 

 

 

 

 

 

Total comprehensive income is attributable to:

 

 

 

- Shareholders of TBCG

 

 257,687

194,089

- Non-controlling interest

 

 309

 1,564

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

257,996

195,653

 

 

 

 

 

 

 

 

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

 

 

 

- Basic earnings per share

16

4.64

3.70

- Diluted earnings per share

16

4.62

3.67

 

 

 

 

           

 

 

TBC Bank Group PLC 
Condensed Consolidated Interim Statement of Changes in Equity

In thousands of GEL

Note

 

 


Net assets attributable to owners

  Non-control-ling interest

Total

 equity

 

Share

capital

Share pre-mium

Group reorganisation reserve

Share based payments reserve

Revaluation reserve for premises

Fair value reserve

Cumulative currency translation reserve

Retained

earnings

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 1 January 2018

 

 

1,605

714,651

(162,166)

9,828

70,045

1,730

(7,359)

1,169,937

1,798,271

28,536

1,826,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the six months ended 30 June 2018 (unaudited)

 

-

-

-

-

-

-

-

198,347

198,347

1,616

199,963

Other comprehensive income/(loss) for six months ended 30 June 2018 (unaudited)

 

-

-

-

-

(5,083)

811

  14

-

(4,258)

(52)

(4,310)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) for six months ended 30 June 2018 (unaudited)

 

-

-

-

-

(5,083)

811

14

198,347

194,089

1,564

195,653

 

 

 

 

 

 

 

 

 

 

 

 

 

Share issue

 

23

41,984

-

(38,670)

-

-

-

-

3,337

-

3,337

Share based payment expense

15

 -  

 -  

-

7,757

-

-

-

-

7,757

(885)

6,872

Conversion of shares

 

22

40,173

-

-

-

-

-

(17,837)

22,358

(22,358)

-

Dividends declared

 

-

-

-

-

-

-

-

(88,869)

(88,869)

(116)

(88,985)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 30 June 2018 (unaudited)

 

  1,650

796,808

    (162,166)

(21,085)

64,962

2,541

(7,345)

1,261,578

1,936,943

6,741

1,943,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 1 January 2019

 

1,650

796,854

(162,166)

 (16,294)

 57,240

 8,680

 (6,937)

1,523,879

2,202,906

 3,062

2,205,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-

-

-

-

-

-

-

253,235

253,235

305

253,540

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

 

-

-

-

-

-

3,999

  457

-

4,456

-

4,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-

-

-

-

-

3,999

457

253,235

257,691

305

257,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share issue

 

22

34,919

-

(34,941)

-

-

-

-

-  

-

-

Share based payment expense

15

 -  

 -  

-

13,267

-

-

-

-

13,267

(25)

13,242

Business Combination

29

 -  

 -  

-

 -  

 -  

-

 -  

 -  

-

838

838

Purchase of additional interest from NCI

 

 -  

 -  

-

 -  

 -  

-

 -  

 -  

-

(104)

(104)

Dividends declared

 

-

-

-

-

-

-

-

(108,622)

(108,622)

-

(108,622)

Transfer of revaluation surplus to RE and other movements

 

-

-

-

-

(634)

-

-

321

(313)

-

(313)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 30 June 2019 (unaudited)

 

1,672

831,773

(162,166)

(37,968)

56,606

12,680

(6,478)

1,668,810

2,364,929

4,076

2,369,005

 

 

 

 

 

 

 

 

 

 

 

 

 

                                   

TBC Bank Group PLC 
Condensed Consolidated Interim Statement of Cash Flows

 

 

Six months ended

 

In thousands of GEL

Note

30 June 2019 (Unaudited)

30 June 2018 (Unaudited)

 

 

 

 

Cash flows from/(used in) operating activities

 

 

 

Interest received

 

 632,619

573,644

Interest paid

 

 (291,963)

(234,845)

Fees and commissions received

 

 127,685

118,805

Fees and commissions paid

 

 (44,370)

(35,025)

Insurance premium received

 

  18,560

10,973

Insurance claims paid

 

  (9,727)

(5,898)

Income received from trading in foreign currencies

 

 46,119

38,782

Other operating income received

 

  11,500

(2,672)

Staff costs paid

 

 (123,342)

(111,715)

Administrative and other operating expenses paid

 

 (81,397)

(59,836)

Income tax paid

 

 (30,900)

(10,151)

 

 

 

 

 

 

 

 

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

 

254,784

282,062

 

 

 

 

 

 

 

 

Net change in operating assets

 

 

 

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

 

 

(302,690)

 

(51,957)

Loans and advances to customers

 

 (385,945)

(671,825)

Investment in finance lease

 

 (3,498)

(34,101)

Other financial assets

 

19,610

40,231

Other assets

 

 2,869

(879)

Net change in operating liabilities

 

 

 

Due to other banks

 

 276,076

126,870

Customer accounts

 

 134,334

430,568

Other financial liabilities

 

  23,487

(10,995)

Lease liabilities

 

 (1,367)

N/A

Other liabilities and provision for liabilities and charges

 

 9,607

(215)

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

27,267

109,759

 

 

 

 

 

 

 

 

Cash flows from/(used in) investing activities

 

 

 

 

 

 

 

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

 

          (101,119)

(395,898)

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

 

            210,174

239,593

Acquisition of bonds carried at amortised cost

 

          (240,420)

(166,188)

Proceeds from redemption of bonds carried at amortised cost

 

            126,113

142,432

Acquisition of premises, equipment and intangible assets

 

             (51,490)

(34,241)

Proceeds from disposal of premises, equipment and intangible assets

 

              11,023

1,015

Proceeds from disposal of investment property

 

                 9,508

6,898

Acquisition of subsidiaries and associates

 

(14,569)

-

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(50,780)

(206,389)

 

 

 

 

 

 

 

 

Cash flows from/(used in) financing activities

 

 

 

Proceeds from other borrowed funds

 

            553,781

1,468,097

Redemption of other borrowed funds

 

          (938,535)

(1,044,435)

Proceeds from subordinated debt

 

                         -

-

Redemption of subordinated debt

 

               (8,576)

(7,688)

Proceeds from debt securities in issue

12

  820,708

28

Redemption of debt securities in issue

 

(5,805)

 

Dividends paid

14

   -

(85,484)

 

 

 

 

 

 

 

 

Net cash flows from financing activities

 

421,573

330,518

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

63,373

(60,202)

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

461,433

173,686

 

 

 

 

Cash and cash equivalents at the beginning of the period

4

1,166,911

1,431,477

 

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

4

1,628,344

1,605,163

 

 

 

 

 

1           Introduction

Principal activity.  TBC Bank Group PLC ("TBCG" or "Group") is a public limited liability company, incorporated in England and Wales. TBCG held 99.88% of the share capital of JSC TBC Bank (hereafter the "Bank") as at 30 June 2019 (31 December 2018: 99.88%), thus representing the Bank's ultimate parent company. Together with the Bank and subsidiaries, TBCG makes up a group of companies. The Bank is a parent of a group of companies incorporated in Georgia and Azerbaijan, their primary business activities include providing banking, leasing, brokerage and card processing services to corporate and individual customers. Group's subsidiary JSC TBC Insurance provides insurance services in property, casualty, motor and life insurance throughout Georgia.

The shares of TBCG ("TBCG Shares") were admitted to the Premium Listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities effective on 10 August 2016 (the "Admission", Note14). TBC Bank Group PLC's registered legal address is 6 St. Andrew Street, London, United Kingdom EC4A 3AE. Registered number of TBC Bank Group PLC is 10029943. The Bank is the Group's main operating unit and it accounts for most of the Group's activities.

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

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

The Group had 146 branches and 7,266 employees within Georgia as at 30 June 2019 (30 June 2018: 149 branches and 7,065 employees).

As of 30 June 2019 and 31 December 2018, the following shareholders directly owned more than 5% of the total outstanding shares of the Group. Other shareholders individually owned less than 5% of the outstanding shares. As of 30 June 2019 and 31 December 2018 the Group had no ultimate controlling party. Other includes individual as well as corporate shareholders.

Shareholders

 

 

 

 

30 June 2019
Ownership interest

31 December 2018
Ownership interest

 

 

 

 

European Bank for Reconstruction and Development

 

8.09%

8.18%

JPMorgan Asset Management

 

7.28%

8.40%

Schroder Investment Management

 

6.67%

7.08%

Badri Japaridze*

 

6.37%

6.08%

Mamuka Khazaradze*

 

6.32%

6.19%

Dunross & Co.

 

5.93%

5.51%

Other

 

59.34%

58.56%

 

 

 

 

 

 

 

 

Total

 

100.00%

100.00%

 

 

 

 

* Represents direct ownership of the shares for Mamuka Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial ownership of 11.90% (31 December 2018: 13.54%) and Badri Japaridze has beneficial ownership of 6.37% (31 December 2018: 6.77%)

 

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

 

Company Name

Proportion of voting rights and ordinary share capital

 

 

 

30 June 2019

31 December 2018

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

98.67%

98.67%

Tbilisi, Georgia

1997

Card processing

TBC Capital LLC

100.00%

100.00%

Tbilisi, Georgia

1999

Brokerage

TBC Leasing JSC

100.00%

99.61%

Tbilisi, Georgia

2003

Leasing

TBC Kredit LLC

100.00%

100.00%

Baku, Azerbaijan

1999

Non-banking credit institution

Banking System Service Company LLC

100.00%

100.00%

Tbilisi, Georgia

2009

Information services

TBC Pay LLC

100.00%

100.00%

Tbilisi, Georgia

2009

Processing

TBC Invest LLC

100.00%

100.00%

Ramat Gan, Israel

2011

PR and marketing

Index LLC

100.00%

100.00%

Tbilisi, Georgia

2011

Real estate management

BG LLC*

0.00%

0.00%

Tbilisi, Georgia

2018

Asset management

JSC TBC Insurance

100.00%

100.00%

Tbilisi, Georgia

2014

Insurance

LLC TBC International

100.00%

0.00%

Tbilisi, Georgia

2019

Asset management

    GE Commerce LTD

100.00%

100.00%

Tbilisi, Georgia

2018

Retail Trade

    Swoop JSC

100.00%

100.00%

Tbilisi, Georgia

2010

Retail Trade

    LLC Online Tickets

55.00%

26.00%

Tbilisi, Georgia

2015

Software Services

    LLC Allproperty

90.00%


0.00%

Tbilisi, Georgia

2013

Real estate management

Inspired LLC

51.00%

0.00%

Tashkent, Uzbekistan

2011

Processing

 

 

 

 

 

 

* The Group has de-facto control over the subsidiary (control without legal form of ownership)

 

The consolidated financial statements include the following associates:

 

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

2019

2018

 

 

 

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.

 

 

Company Name

Proportion of voting rights and ordinary share capital

 

 

 

30 June

2019

31 December 2018

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

33.33%

33.33%

Tbilisi, Georgia

2007

Education

 

 

 

 

 

 

 

In January 2019, TBC Bank signed an agreement with Nikoil Open Join-Stock Company Investment Commercial Bank ("Nikoil Bank") and its shareholders to develop joint business in Azerbaijan. The agreement assumes transfer by TBC Bank of 100% share interest in TBC Kredit to Nikoil Bank in exchange for around 8% of share interest in Nikoil Bank. TBC Bank receives a right to acquire additional shareholding in Nikoil Bank (controlling interest) within four years at TBC's sole discretion. Shareholders of Nikoil bank also receive right to sell their remaining shareholdings to TBC Bank in case the Bank exercises its right to acquire additional shareholding in Nikoil Bank. The whole arrangement is still subject to regulatory approval in Azerbaijan.

TBC Kredit is planned to be merged with Nikoil Bank. Subject to the completion of the merger, TBC Bank would contribute to the development and execution of the merged entity's strategy. TBC Bank would be represented on the board of Nikoil Bank and, together with Nikoil management, would play a crucial role in the future development of the company. TBC Bank intends to use its Georgian banking sector expertise, including its newly-launched fully digital bank, Space, to support Nikoil Bank's local growth in its targeted retail and MSME customer markets.

 

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

2.1 Basis of preparation

These condensed consolidated interim financial statements for the six months ended 30 June 2019 for TBC Bank Group PLC and its subsidiaries (together referred to as the "Group") has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting as adopted by the European Union. These condensed consolidated interim financial statements do not include all the notes of the type normally included in an annual consolidated financial statements. Accordingly, this report is to be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2018, which have been prepared in accordance with IFRSs as adopted by the European Union and any public announcements made by TBC Bank Group PLC during the interim reporting period.

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

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

Going Concern. The Board of Directors of TBC Bank Group PLC has prepared these condensed consolidated interim financial statements on a going concern basis. In making this judgement, management considered the Group's financial position, current intentions, profitability of operations and access to financial resources. Management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern.

Foreign currency translation. At 30 June 2019  the closing rate of exchange used for translating foreign currency balances was USD 1 = GEL 2.8687(31 December 2018: USD 1 = GEL 2.6766); EUR 1 = GEL 3.2657 (31 December 2018: EUR 1 = GEL 3.0701); GBP 1 = GEL 3.6384 (31 December 2018: GBP 1 = GEL 3.3955).

Except as described below, the same accounting policies and methods of computation were followed in the preparation of this condensed consolidated interim financial statements as compared with the annual consolidated financial statements of the Group for the year ended 31 December 2018.

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

New accounting policy for leases by the Group as a lessee. The Group adopted IFRS 16, Leases, using modified retrospective method and applied certain simplifications or practical expedients. Refer to section 2.3 below.

 

2.2 Critical accounting estimates, and judgements in applying accounting policies

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

Significant increase in credit risk ("SICR"). The Bank applies both qualitative and quantitative indicators to determination of SICR considering all reasonable and supportable information available without undue cost and effort, on past events, current conditions and future behavioural aspects of particular portfolios. The Bank tries to identify indicators of increase in credit risk of individual instruments prior to delinquency and incorporates significant assumptions in the model in doing so. One of such judgement is determination of thresholds of significant increase in credit risk. 20% decrease in SICR thresholds would increase impairment allowance on loans and advances by GEL 2,426thousand (31 December 2018: GEL 2,056 thousand) and would result in a change of the Bank's cost of credit risk ratio by 5 basis points (31 December 2018: 2 basis points). 10% increase in Stage 2 exposures would increase impairment allowance on loans and advances by GEL 2,548 thousand (31 December 2018: GEL 2,723 thousand) and would result in a change of the Bank's cost of credit risk ratio by 5 basis points (31 December 2018: 3 basis points).

Risk parameters: Probability of default (PD) and Loss given default (LGD) parameters are one of the key drivers of expected credit losses. A 10% increase (decrease) in PD estimates at 30 June 2019 would increase (decrease) impairment allowance on loans and advances by GEL 19,434 thousand (GEL 19,459 thousand) (31 December 2018: increase (decrease) by GEL 18,876 thousand (GEL 18,942 thousand)) and would result in a change of the Bank's cost of credit risk ratio by 37 (37) basis points (31 December 2018: 21 (21) basis points). As for the LGD ratio, a 10% increase (decrease) in LGD estimates at 30 June 2019 would increase (decrease) impairment allowance on loans and advances by GEL 27,998 thousand (GEL 29,740 thousand) (31 December 2018: increase (decrease) by GEL 28,185 thousand (GEL 28,012 thousand)) and would result in a change of the Bank's cost of credit risk ratio by 54 (57) basis points (31 December 2018: 31 (31) basis points).

Macro-economic scenarios: The Bank incorporates forward-looking information with three macro-economic scenarios to calculate unbiased and probability weighted ECL. They represent the Baseline scenario (most likely outcome) and two less likely scenarios, referred as the Upside (better than Baseline) and Downside (worse than Baseline). Weight for the baseline scenario is set to 50% and 25% weight (31 December 2018: 50% and 25% weight) is applied for each less likely scenarios.

To set the weight assigned to upside forward looking macro-economic set of assumptions to 15% and respectively increase the weight of the downside level assumptions from current 25% to 35% would increase impairment allowance on loans and advances by GEL 4,870 thousand and would result in a change of the Bank's cost of credit risk ratio by 9 basis points as at June 2019 (31 December 2018: increase by GEL 4,860 thousand would result in a change of the Bank's cost of credit risk ratio by 5 basis points).

 

2.3 Adoption of new and revised standards

 

Initial application of IFRS 16

 

IFRS 16 replaces IAS 17 Leases for annual periods beginning on or after 1 January 2019. The group has adopted IFRS 16 retrospectively from 1 January 2019 with certain simplifications, and has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard (modified retrospective approach). The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The comparative information for 2018 is reported under IAS 17 and is not comparable to the information presented for 2019.

On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rates as of 1 January 2019 which were applied on a portfolio basis of leases with reasonably similar characteristics.

The average incremental borrowing rates applied to the lease liabilities on 1 January 2019 was 3.77% for USD denominated contracts and 9.19% for GEL denominated contracts.

In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:

 

·      the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

·      the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases.

 

The group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying IAS 17 in determining whether an arrangement contains a Lease.

 

The Group did not have finance leases balances outstanding as at 31 December 2018. TBC has made no adjustments where the Group acts as lessor, in either a finance or operating lease, of physical assets it owns. Where TBC acts as an intermediate lessor, i.e., enters into a head lease and subleases the asset to a third party, the sublease has been classified as either a finance or operating lease based primarily on whether the sublease term consumes the majority of the remaining useful life of the right-of-use asset arising from the head lease as at the transition date. The following table reconciles the obligations in respect of operating leases as at 31 December 2018 to the opening lease liabilities recognized on 1 January 2019:

Differences arising from the adoption of IFRS 16 as of 1 January 2019 are disclosed below:

 

In thousands of GEL

1 January 2019

 

 

Total future minimum lease payments for non-cancellable operating leases disclosed as at 31 December 2018.

11,022

 

 

-       Future lease payments that are due in periods subject to lease extension options that are reasonably certain to be exercised

58,573

-       Effect of discounting to present value

(8,552)

 

 

 

 

Total effect on the Lease Liability as at 1 January 2019

61,043

 

 

Of which are:

 

-       Current lease liabilities

11,467

-       Non-current lease liabilities

49,576

 

 

 

 

 

 

2.3 Adoption of new and revised standards (continued)

 

The right-of use assets were measured at the amount equal to the lease liability. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. The recognised right-of-use assets mostly relate to the branches and office buildings.

The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

·      right-of-use assets - increase by GEL 61,043 thousand;

·      lease liabilities - increase by GEL 61,043 thousand.

The net impact on retained earnings on 1 January 2019 was nil.

 

IFRS 16 subsequent recognition and policies

As at 30 June the balances of Right of the use asset and the Lease liability are GEL 61,555 thousand and GEL 62,598 thousand respectively. The interest charge on lease liabilities presented within interest expense amounted GEL 1,182 thousand, recognized within interest expense. During the first six month period of 2019, the weighted average lease term was approximately 5 years and depreciation expense of right-of-use assets amounted GEL 6,590 thousand.

 

TBC predominantly enters into lease contracts, or contracts that include lease components, as a lessee of real estate, including offices, retail branches and service centers. TBC identifies non-lease components of a contract and accounts for them separately from lease components.

 

When TBC is lessee in a lease arrangement, TBC recognizes a lease liability and corresponding right-of-use (RoU) asset at the commencement of the lease term when TBC acquires control of the physical use of the asset. The lease liability is measured based on the present value of the lease payments over the lease term, discounted using TBC's incremental borrowing rate. Interest expense on the lease liability is presented within Interest expense from financial instruments. The RoU asset is recorded at an amount equal to the lease liability but is adjusted for rent prepayments, initial direct costs, any costs to refurbish the leased asset or lease incentives received. The RoU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset, with the depreciation presented within depreciation expense in statement of comprehensive income.

 

Lease payments generally include fixed payments. When the lease contains an extension or termination option that the Group considers reasonably certain to be exercised, the expected rental payments or costs of termination are included within the lease payments used to generate the lease liability. TBC does not typically enter into leases with purchase options or residual value guarantees.

 

Where TBC acts as lessor or sublessor under a finance lease, a receivable is recognized and measured at amortized cost at an amount equal to the present value of the aggregate of the lease payments plus any unguaranteed residual value that TBC expects to recover at the end of the lease term.

Initial direct costs are also included in the initial measurement of the lease receivable. Lease payments received during the lease term are allocated as repayments of the outstanding receivable.

Interest income reflects a constant periodic rate of return on TBC's net investment using the interest rate implicit in the lease (or, for subleases, the rate for the head lease). TBC reviews the estimated unguaranteed residual value annually, and if the estimated residual value to be realized is less than the amount assumed at lease inception, a loss is recognized for the expected shortfall. Where TBC acts as a lessor or sublessor in an operating lease of owned real estate, TBC recognizes the operating lease income on a straight-line basis over the lease term.

 

 

2.3 Adoption of new and revised standards (continued)

 

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and interest expense. The interest expense is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

 

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

 

·      fixed payments (including in-substance fixed payments), less any lease incentives receivable;

·      variable lease payment that are based on an index or a rate;

·      amounts expected to be payable by the lessee under residual value guarantees;

·      the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

·      payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

 

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

 

Right-of-use assets are measured at cost comprising the following at initial recognition:

 

·      the amount of the initial measurement of lease liability;

·      any lease payments made at or before the commencement date less any lease incentives received;

·      any initial direct costs, and

·      restoration costs.

 

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture or the items below the market value of USD 5,000.

 

Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the group. These terms are used to maximize operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor. The key assumptions applied by the Group on making decisions regarding lease term are follows:

 

Judgements in determining the lease term

 

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

 

As for the adoption date management has reassessed expected lease terms for the branch offices. The assessment was performed by retail sales department taking into account a few criteria, namely: location, profitability and strategic importance of the branch offices. Based on the analysis performed, management identified and recorded expected terms for the lease contracts, subject to lease extension options that are reasonably certain to be exercised.

Adoption of other Standards and Interpretations

The adopted accounting policies are consistent with those of the previous financial year. There were no other new or amended standards or interpretations that resulted in a change of the accounting policy except described above.

 

3            New Accounting Pronouncements

Minor amendments to IFRSs

The IASB has published a number of minor amendments some of which has not yet been endorsed for use in the EU. The Group has not early adopted any of the amendments effective after 31 December 2018 and it expects they will have an insignificant effect, when adopted, on the consolidated financial statements of the Group.

Major new IFRSs

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

 

4        Cash and Cash Equivalents

In thousands of GEL

30 June 2019

31 December 2018

 

 

 

Cash on hand

 674,466

491,928

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

 91,051

118,749

Correspondent accounts and overnight placements with other banks

 440,849

371,902

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

 422,083


184,429

 

 

 

 

 

 

Total gross amount of cash and cash equivalents

1,628,449

1,167,008

 

 

 

Less: Credit loss allowance

(105)

(97)

 

 

 

 

Total carrying amount of cash and cash equivalents

1,628,344

1,166,911

 

 

 

As of 30 June 2019, 95.3% of the correspondent accounts and overnight placements with other banks are placed with OECD banking institutions (31 December 2018: 95%).

As of 30 June 2019, GEL  399,004 thousand was placed on interbank term deposits with three OECD banks and GEL  23,080 with two Georgian bank (31 December 2018: GEL  13,383 thousand with one non-OECD bank and GEL 171,046 thousand with two OECD bank).

 

 

5        Due from Other Banks

Amounts due from other banks include placements with original maturities of more than three months that are not collateralised and do not represent past due amounts at the 30 June 2019 and 31 December 2018. As of 30 June 2019 GEL 10,339 thousand (31 December 2018: GEL 15,725 thousand) were kept on deposits as restricted cash. Refer to Note 27 for the estimated fair value of amounts due from other banks.

As of 30 June 2019 the Group had no loan issued to any bank, with original maturities of more than three months and with aggregated amounts above GEL 5,000 thousand (2018: one bank in the amount of GEL 19,311 thousand).

 

 

6        Mandatory cash balances with the National Bank of Georgia

Mandatory cash balances with the National Bank of Georgia ("NBG") represent amounts deposited with the NBG. Resident financial institutions are required to maintain an interest-earning obligatory reserve with the NBG, the amount of which depends on the level of funds attracted by the financial institutions. The Group earned up to 6.50%, 0.25% and (0.6%) annual interest in GEL, USD and EUR respectively on mandatory reserve with NBG in the six months ended 30 June 2019 (30 June 2018: 5.0%, 1.0% and (0.4%) in GEL, USD and EUR respectively).

In February 2019 Fitch Ratings has upgraded Georgia's long-term foreign and local currency Issuer Default Ratings (IDRs) to 'BB' from 'BB-'. The Outlook is Stable. The issue ratings on Georgia's long-term senior unsecured foreign- and local-currency bonds upgraded to 'BB' from 'BB-'. The Country Ceiling upgraded to 'BBB-' from 'BB' and the Short-term foreign and local currency IDR affirmed at 'B'.

7        Loans and Advances to Customers

In thousands of GEL

30 June 2019

31 December 2018

 

 

 

Corporate

 3,658,341

3,177,289

Consumer

 1,875,500

1,989,516

Mortgage

 2,959,819

2,709,183