REG - TBC Bank Group PLC - 1st Quarter Results
RNS Number : 4046NTBC Bank Group PLC20 May 2020
TBC BANK GROUP PLC ("TBC Bank")
1Q 2020 UNAUDITED CONSOLIDATED FINANCIAL RESULTS
Forward-Looking Statements
This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or the "Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others, the achievement of anticipated levels of profitability, growth, cost and recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Georgian economic, impact of COVID-19, 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.
First Quarter 2020 Unaudited Consolidated Financial Results
TBC Bank Group PLC ("TBC PLC") will release its first quarter 2020 unaudited consolidated financial results on Wednesday, 20 May 2020 at 7.00 am BST (10.00 am GET), while the results call will be held at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT).
The detailed agenda of the call is given below:
Agenda
14.00 - 14.15 Government and NBG response to COVID-19 - Papuna Lezhava, Vice Governor of the National Bank of Georgia
14.15 - 14.25 Macro overview - Otar Nadaraia, Chief Economist
14.25 - 14.35 Strategic and operating review - Vakhtang Butskhrikidze, CEO
14.35 - 14.45 Financial review - Giorgi Shagidze, Deputy CEO, CFO
14.45 - 14.55 Risk management - Nino Masurashvili, Deputy CEO, CRO
14.55 - 15.30 Q&A
Please click the link below to join the webinar:
https://tbc.zoom.us/j/94292196126?pwd=cjBNZ1hhQmdVdyt4L2lVc1NmblRqQT09
Meeting ID: 942 9219 6126
Password: 848124
Or use the following dial-ins:
o Georgia: +995 3224 73988 or +995 7067 77954 or 800 100 293 (Toll Free)
o Russian Federation: 8800 100 6938 (Toll Free) or 8800 301 7427 (Toll Free)
o United Kingdom: 0 800 031 5717 (Toll Free) or 0 800 260 5801 (Toll Free) or 0 800 358 2817 (Toll Free)
o US: 877 853 5257 (Toll Free) or 888 475 4499 (Toll Free) or 833 548 0276 (Toll Free) or 833 548 0282 (Toll Free)
Webinar ID: 942 9219 6126#, please dial the ID number slowly
Other international numbers available at: https://tbc.zoom.us/u/acsM3n7M8Q
The call will be held in two parts. The first part will be comprised of presentations and during the second part of the call, you will have the opportunity to ask questions. All participants will be muted throughout the webinar.
Webinar Instructions:
For those participants who will be joining through the webinar, In order to ask questions, please use "hand icon" which you will see at the bottom of the screen. The host will unmute those participants one after another who have raised hands. After the questions is asked, participant will be muted again.
Call Instructions
For those participants who will be using dial in number to join the webinar, please dial *9 to raise the hand.
Contacts
Zoltan Szalai
Director of International Media and Investor Relations
E-mail: ZSzalai@Tbcbank.com.ge
Tel: +44 (0) 7908 242128
Web: www.tbcbankgroup.com
Address: 68 Lombard St, London EC3V 9LJ, United Kingdom
Anna Romelashvili
Head of Investor Relations
E-mail: IR@tbcbank.com.ge
Tel: +(995 32) 227 27 27
Web: www.tbcbankgroup.com
Address: 7 Marjanishvili St. Tbilisi, Georgia 0102
Investor Relations Department
E-mail: IR@tbcbank.com.ge
Tel: +(995 32) 227 27 27
Web: www.tbcbankgroup.com
Address: 7 Marjanishvili St. Tbilisi, Georgia 0102
Table of Contents
1Q 2020 Results Announcement
Letter from the Chief Executive Officer
Georgia is fighting the virus more effectively
Our employee and customer support
Our focus to withstand COVID-19 impact
Unaudited Consolidated Financial Results Overview for 1Q 2020
1) Subsidiaries of TBC Bank Group PLC
3) Reconciliation of reported IFRS consolidated figures with the numbers without COVID-19 impact
4) Net gains from currency swaps
6) Main terms of shareholders' agreement with Yelo Bank
7) Loan book breakdown by stages according IFRS 9
TBC Bank Group PLC ("TBC Bank")
1Q 2020 Consolidated Financial Results:
Profit for the period without COVID-19 impact[1] for 1Q 2020 up by 14.3% YoY to GEL 152.4 million
European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.
TBC Bank - Background
TBC Bank is the largest banking group in Georgia, where 99.6% of its business is concentrated, with a 38.4% market share by total assets. It offers retail, corporate, and MSME banking nationwide.
These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.
TBC Bank Group PLC's financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group separately classifies and discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, 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 (APM) and the reconciliation of the profit and loss items without COVID-19 impact with the reported profit and loss items and the respective ratios are given under Annex 3 section on pages 31-32.
1Q 2020 Highlights
Due to the COVID-19 pandemic, the following non-recurring charges were made to the profit and loss statement:
o Modifications, in the amount of GEL 30.6 million, related to losses incurred on loans and advances to customers and investments in leases to reflect the decrease in the present value of cash-flows resulting from to the three-months grace period granted to borrowers. The grace periods were granted due to COVID-19 pandemic.
o Front-loaded, extra сredit loss allowance was created, in the amount of GEL 215.7 million (or GEL 210.9 million for loan сredit loss allowance), to prepare for the potential impact of the COVID-19 pandemic on the Georgian economy, resulting in an additional 1.7% cost of risk for the first quarter.
1Q 2020 P&L Highlights [2]
o Profit for the period without COVID-19 impact amounted to GEL 152.4 million (1Q 2019: GEL 133.3 million)
o Reported profit/(loss) for the period amounted to GEL (57.0) million (1Q 2019: GEL 133.3 million)
o Return on average equity (ROE) without COVID-19 impact stood at 22.4% (1Q 2019: 23.8%)
o Return on average assets (ROA) without COVID-19 impact stood at 3 .3% (1Q 2019: 3.6%)
o Pre-provision ROE stood at 28.7% (1Q 2019: 29.7%)
o Cost to income of TBC Bank Group PLC stood at 36.5% (1Q 2019: 37.7%)
o Standalone cost to income ratio of the Bank[3] was 31.5% (1Q 2019: 34.8%)
o Cost of risk without the COVID-19 impact stood at 0.9% (1Q 2019: 1.4%)
o COVID-19 related cost of risk stood at 1.7% (not annualized)
o Net interest margin (NIM) stood at 5.1% (1Q 2019: 6.2%)
o Risk adjusted net interest margin[4] (NIM) stood at 4.2% (1Q 2019: 4.8%)
Balance Sheet Highlights as of 31 March 2020
o Total assets amounted to GEL 20,030.6 million as of 31 March 2020, up by 32.0% YoY
o Gross loans and advances to customers stood at GEL 13,929.6 million as of 31 March 2020, up by 34.4% YoY or at 19.6% on a constant currency basis
o Net loans to deposits + IFI[5] funding stood at 101.8%, up by 11.3 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR), effective from 30 September 2019, stood at 128.2%
o NPLs were 2.9%, down by 0.4 pp YoY
o NPLs coverage ratios stood at 133.8%, or 107.2% with collateral, on 31 March 2020 compared to 100.1% or 110.5% with collateral, as of 31 March 2019
o Total customer deposits amounted to GEL 11,209.1 million as of 31 March 2020, up by 22.3% YoY or at 7.8% on constant currency basis
o As of 31 March 2020, the Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 9.1%, 12.0% and 16.7% respectively, while minimum eased regulatory requirements amounted to of 6.9%, 8.8%, and 13.3%. respectively
Market Share[6]
o Market share by total assets reached 38.4% as of 31 March 2020, up by 1.0 pp YoY
o Market share by total loans was 39.4% as of 31 March 2020, up by 1.0 pp YoY
o Market share of total deposits reached 39.8% as of 31 March 2020, down by 0.6 pp YoY
1Q 2020 operating highlights
o The number of affluent customers reached 90.0 thousand as of 31 March 2020, up by 108% YoY
o 94% of all transactions were conducted through digital channels (1Q 2019: 92%)
o The number of digital transactions amounted to 21.0 million, up by 19.0% YoY, while the number of branch transactions stood at 1.4 million, up by 13.8% YoY
o The penetration ratio for internet or mobile banking[7] stood at 48% for 1Q 2020 (1Q 2019: 44%)
o The penetration ratio for mobile banking[8] stood at 44% for 1Q 2020 (1Q 2019: 39%)
Income Statement Highlights
in thousands of GEL
1Q'20
4Q'19
1Q'19
Change
YoY
Change
QoQ
Net interest income
207,959
209,318
201,137
3.4%
-0.6%
Net fee and commission income
43,552
54,844
41,806
4.2%
-20.6%
Other operating non-interest income[9]
38,745
40,075
29,003
33.6%
-3.3%
Reported credit loss allowance
(247,737)
224
(33,095)
NMF
NMF
Credit loss allowance without COVID-19 impact
(32,036)
224
(33,095)
-3.2%
NMF
Reported operating income after credit loss allowance
42,519
304,461
238,851
-82.2%
-86.0%
Operating income after credit loss allowance without COVID-19 impact*
258,220
304,461
238,851
8.1%
-15.2%
Losses from modifications related to COVID-19
(30,643)
-
-
NMF
NMF
Operating expenses
(105,830)
(127,124)
(102,514)
3.2%
-16.8%
Reported profit/(loss) before tax
(93,954)
177,337
136,337
NMF
NMF
Profit/(loss) before tax without COVID-19 impact*
152,390
177,337
136,337
11.8%
-14.1%
Reported income tax expense
36,948
(17,313)
(3,015)
NMF
NMF
COVID-19 related tax effect
(36,951)
-
-
NMF
NMF
Income tax expense without COVID-19 impact*
(3)
(17,313)
(3,015)
NMF
NMF
Reported profit/(loss) for the period
(57,006)
160,024
133,322
NMF
NMF
Profit/(loss) for the period without COVID-19 impact*
152,387
160,024
133,322
14.3%
-4.8%
*Without COVID-19 related credit loss allowances and losses from modifications
Balance Sheet and Capital Highlights
Mar-20
Dec-19
Mar-19
Change
YoY
Change
QoQ
in thousands of GEL
Total Assets
20,030,573
18,410,274
15,172,306
32.0%
8.8%
Gross Loans
13,929,640
12,661,955
10,366,915
34.4%
10.0%
Customer Deposits
11,209,150
10,049,324
9,166,789
22.3%
11.5%
Total Equity
2,573,177
2,647,655
2,347,756
9.6%
-2.8%
Regulatory Common Equity Tier I Capital (Basel III)
1,518,950
1,871,892
1,698,420
-10.6%
-18.9%
Regulatory Tier I Capital (Basel III)
1,987,693
2,281,706
1,746,745
13.8%
-12.9%
Regulatory Total Capital (Basel III)
2,767,850
2,974,029
2,421,461
14.3%
-6.9%
Regulatory Risk Weighted Assets (Basel III)
16,604,960
15,590,927
12,689,740
30.9%
6.5%
Key Ratios
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
ROE
22.4%*
24.7%
23.8%
-1.4 pp
-2.3 pp
ROA
3.3%*
3.5%
3.6%
-0.3 pp
-0.2 pp
Pre-provision ROE
28.7%
24.7%
29.7%
-1.0 pp
4.0 pp
NIM
5.1%
5.3%
6.2%
-1.1 pp
-0.2 pp
Risk adjusted NIM
4.2%**
5.4%
4.8%
-0.6 pp
-1.2 pp
Cost to income
36.5%
41.8%
37.7%
-1.2 pp
-5.3 pp
Standalone cost to income of the Bank
31.5%
36.2%
34.8%
-3.3 pp
4.7 pp
Cost of risk without COVID-19 impact
0.9%*
-0.2%
1.4%
-0.5 pp
1.1 pp
COVID-19 related cost of risk (not annualized)
1.7%
-
-
NMF
NMF
NPL to gross loans
2.9%
2.7%
3.3%
-0.4 pp
0.2 pp
NPLs coverage ratio exc. collateral
133.8%
91.1%
100.1%
33.7 pp
42.7 pp
CET 1 CAR (Basel III)
9.1%
12.0%
13.4%
-4.3 pp
-2.9 pp
Regulatory Tier 1 CAR (Basel III)
12.0%
14.6%
13.8%
-1.8 pp
-2.6 pp
Regulatory Total CAR (Basel III)
16.7%
19.1%
19.1%
-2.4 pp
-2.4 pp
Leverage (Times)
7.8x
7.0x
6.5x
1.3x
0.8x
* Ratios without COVID-19 related credit loss allowances and losses from modifications.
** Risk adjusted NIM for 1Q 2020 equals NIM adjusted with cost of risk without COVID-19 effect.
Letter from the Chief Executive Officer
I would like to update you on the measures that we have taken to adjust to the new environment and withstand the challenges caused by COVID-19, as well as present our financial and operating results for the first quarter 2020. I would also like briefly to discuss Georgia's macroeconomic outlook and the government's actions to mitigate the negative impacts of the pandemic.
Georgia has been fighting COVID-19 quite effectively by imposing strict shut-down measures in a timely manner, starting from mid-March. As a result, the number of COVID-19 cases has been relatively low compared to other countries. As the peak is believed to have passed, starting from the beginning of May, the country is gradually opening up and it is expected that most business activities will be resumed by mid-summer.
On the back of this development, monthly estimates of GDP growth demonstrate a gradual deterioration in economic activity in Georgia since the beginning of 2020. In 1Q 2020, real GDP increased 1.5% YoY, while the March growth estimate was negative 2.7% YoY. After solid 17.6% YoY growth in January, tourism inflows decreased by 5.2% YoY in February and dropped sharply by around 70% in March. In the same month, exports of goods and remittance inflows also took a hit, though much more moderately with 22.1% and 9.0% YoY declines respectively. Imports of goods also adjusted by 13.4% YoY. As the containment measures became more stringent in April 2020, growth is expected to turn even more negative in second quarter 2020 before it starts to turn positive.
Alongside the relatively successful containment of the COVID-19 outbreak, the government also managed to secure the necessary resources to cushion the shock on the economy and the exchange rate. Given the announcement of around USD 1.6 bn in additional funding for the Ministry of Finance and the National Bank of Georgia ("NBG"), the fiscal sector is expected to be strongly expansionary, partly offsetting the negative impact on growth. Furthermore, the government announced a substantial international package of support to the private sector. Meanwhile, the NBG has introduced a more active FX intervention policy to increase the FX supply to the economy during this period of distress. Overall, based on the latest IMF projections, the Georgian economy is expected to contract by 4.0% for the full year 2020 before recovering to a growth of 4.0% in 2021. Our own macro projections indicate a 4.5-5.5% slowdown in 2019 and 4.0-5.0% growth in 2021.
The NBG has implemented counter-cyclical measures to support the financial stability of the banking system and to ensure the provision of financial support to sectors of the economy affected by the current turmoil. The measures include a significant reduction in capital adequacy requirements and standby liquidity support incentives. In addition, the NBG coordinated the creation of loan loss provisions across the banking system.
In terms of our operating results, we have managed to change our operating model swiftly and continue with our daily operations with minimum disruption, while maintaining the health, safety and well-being of our staff and customers as the number one priority. We have introduced a number of additional security and infection prevention measures in our branch network. We have also introduced remote working practices for most of our head office and back office units. As a result, today, 95% of our head office and back office staff (including those in our call center) are working from home, while our market-leading digital banking platform allows our customers to continue with almost all of their banking transactions from the safety of their own homes. Overall, the total number of digital transactions grew by 19% year-on-year, mainly driven by increased number of transactions conducted in mobile banking. As a result, the off-loading ratio amounted to 94%, while mobile banking penetration ratios stood at 44%, up by 5.1 pp year-on-year in the first quarter 2020. In order to support our customers during this difficult period, in March we introduced a three-month grace period on principal and interest payments for all our individual and MSME customers as well as those corporate customers whose business is most exposed in the current situation.
Due to the COVID-19 pandemic, we have accounted for the following non-recurring charges to our profit and loss statement in the first quarter 2020, leading to a net loss of GEL 57.0 million:
o a net modification loss, in the amount of GEL 30.6 million, to reflect the decrease in the present value of cash-flows resulting from the three-month grace period granted to borrowers; and
o An extra, front-loaded credit loss allowances, in the amount of GEL 215.7 million (or GEL 210.9 million for loans), to prepare for the potential impact of the COVID-19 pandemic on the Georgian economy, resulting in an additional 1.7% cost of risk for the first quarter. Excluding this additional provision, the annualized cost of risk stood at 0.9%.
Without COVID-19 impact, we recorded an operating income of GEL 290.3 million, up by 6.7% year-on-year, mainly driven by growth in net interest income and FX income. Over the same period, our net interest margin stood at 5.1%, down by 0.2 pp compared with the previous quarter, primarily due to pressure on FC loan yields driven by the decrease in the libor rate, the increase in GEL cost of funding, as well as currency depreciation. At the same time, our operating expenses remained broadly stable YoY, leading to a cost-to-income ratio of 36.5%, down by 1.2% pp year-on-year. Consequently, our net profit without COVID-19 impact stood at GEL 152.4 million in the first quarter 2020, which resulted in return of equity without COVID-19 impact and return on assets without COVID-19 impact of 22.4% and 3.3% respectively.
In constant currency terms, our loan book remained broadly stable on a quarter-on-quarter basis, growing by 3.2%, while our deposits increased by 2.3%. As a result, our market share in total loans and total deposits stood at 39.4% and 39.8% respectively as of 31 March 2020.
Our liquidity and capital positions remain strong. As of 30 March 2020, our net stable funding (NSFR) and liquidity coverage ratios (LCR) stood at 124.7% (128.7% April 2020) and 107.6% (117.3% April 2020) respectively. After the impact of the currency depreciation and additional provisions related to the potential impact of COVID-19, our CET1, Tier 1 and Total CAR stood at 9.1%, 12.0% and 16.7% respectively as of 31 March 2020, above the corresponding eased minimum regulatory requirements of 6.9%, 8.8% and 13.3%. As already announced, with the aim of preserving capital, our Board of Directors has decided not to recommend the payment of dividends at the upcoming annual general meeting.
In a significant development, in April 2020 we obtained our banking licence in Uzbekistan, which will allow us to start our operations in June 2020. Our strategy is to establish a greenfield, next-generation banking ecosystem for retail and MSME customers in Uzbekistan with a primary focus on digital and partnership-driven channels. Given the current operating environment and the impact of COVID-19, we have further optimised our business model with enhanced emphasis on asset-light and cost-efficient operations.
We have already invested USD 12.6 million into the charter capital of our Uzbek bank and expect to invest an additional USD 9.4 million by the end of 2020. Potential new shareholders, including the European Bank for Reconstruction and Development, the International Finance Corporation and the Uzbek-Oman Investment Company, have also expressed their interest in participating in an additional capital increase by our Uzbek bank later this year, subject to their internal approvals. We will remain the majority shareholder with 51% interest.
Our Uzbek payments subsidiary, Payme, continued to grow rapidly in the first quarter of 2020. Its revenue increased by 47% YoY, while its EBITDA increased by 21%. The number of customers reached 2 million as of 31 March 2020.
Going forward
In light of the COVID-19 pandemic, we have reviewed our strategic priorities given increased pressure on capital and people as well as emerging new opportunities. We have refreshed our strategic priorities for the next 3 years. While the main themes have not changed, we have prioritized digital channels, customer centricity, data analytics and international expansion.
At the same time we will be concentrating on prudent management of our capital and liquidity positions, leveraging our robust risk management system to closely monitor and proactively manage asset quality. In parallel, we will be focusing on cost optimization with the aim of keeping the Bank's cost to income flat for 2020 compared to 2019, despite the pressure on revenues and the currency depreciation. In this regard, management has decided to forgo their entire bonuses for 2020 and LTIP grants for the 2020 cycle.
The crisis has provided a strong validation of our digital strategy and has also revealed a number of opportunities that we will be exploring to further enhance our operational model. I feel confident that we are well positioned to achieve sustainable growth and to deliver superior results to our shareholders in the medium-term, despite the short-term challenges caused by COVID-19. Therefore, 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 around 10-15%.
Operating Overview
Georgia is fighting the virus more effectively
Georgian economy is opening up from the lock-down
o From May 11, all kinds of production have been re-opened as well as retail and whole-sale stores that do not sell clothes or shoes.
o From May 18, the beauty salons have been re-opened as well.
o All businesses regardless of category will have to abide by hygiene standards set by the Ministry of Health, including maintaining social distancing measures, wearing a mask in closed commercial and other spaces.
o Also, all restrictions on entry and exit to Tbilisi have been lifted from May 11.
o The gathering of more than 3 people has been allowed starting from May 18.
o State of Emergency will be lifted on May 22.
o Georgia's domestic tourism is expected to re-open from June 15 and from July 1 the country will start receiving international tourists.
Our employee and customer support
Our employee
o We have introduced additional security and infection prevention measures in our branch network including glass barriers for customer facing employees and antiseptic solutions for the employees and customers.
o Operational model change has been implemented very swiftly, with about 2,200 people, i.e. 95% of head and back offices (as well as call center) already working from home.
o No loss of productivity or even increased productivity in some cases.
Our customers
o We have granted a 3-month grace period on principal and interest payments for individual and MSME customers as well as those corporate customers who are most affected by the current situation. The take-up rate per segments is as follows: 32%-corporate, 59%-MSME and 77%-retail.
o We have provided additional incentives to our customers to use our market-leading digital banking platform such as a temporary waiver of fees on money transfers and utilities payments in internet and mobile banking.
COVID-19 related charges
Due to the COVID-19 pandemic, the following non-recurring charges were made to our profit and loss statement:
Net modification losses, in the amount of GEL 30.6 million
o These modifications are related to losses incurred on loans and advances to customers and investments in leases to reflect the decrease in the present value of cash-flows resulting to the three-months grace period granted to borrowers.
o The grace periods were granted due to COVID-19 pandemic and are not expected to recur once business returns to normal.
Front-loaded, extra credit loss allowance, in accordance with IFRS 9 in the amount of GEL 215.7 million (or GEL 210.9 million for loans)
o These provisions were created to prepare for the potential impact of the COVID-19 pandemic on the Georgian economy, resulting in additional 1.7% cost of risk for the first quarter.
o For the purpose of collective assessment, the provisions were created based on assessment of macro parameters in baseline and downside scenarios, while in corporate segment, the Bank performed individual assessment for the majority of potentially vulnerable borrowers and assigned individual provisions
Due to the COVID-19 pandemic, the following non-recurring charges were made to our regulatory capital:
o According to local standards, the additional credit loss allowance stood at 3.1% of the loan book. As a result, our CET1 ratio decreased by 2.19% as of 31 March 2020.
Our focus to withstand COVID-19 impact
Liquidity
Attracted a number of new borrowings with a total amount of USD 153.6 million in April 2020 and have built a strong funding pipeline for the end of the year for total amount of USD 450 million.
As of 30 April 2020, LCR amounted to 117.3%, while NSFR stood at 128.3%.
Liquidity coverage ratio (LCR)
107.6%
Minimum LCR requirement
100%
Net stable funding ratio (NSFR)
124.7%
Minimum NSFR requirement
100%
Ratios as of 31 March 2020
Capital
The Board has decided not to recommend dividends at the upcoming AGM to support capital positions.
CET 1 Capital adequacy ratio
9.1%
Minimum CET 1 requirements
6.9%
Tier 1 Capital adequacy ratio
12.0%
Minimum Tier 1 requirements
8.8%
Total Capital adequacy ratio
16.7%
Minimum total Capital adequacy requirements
13.3%
Ratios as of 31 March 2020
Asset quality
Closely monitor and proactively manage asset quality
NPL to gross loans
2.9%
COVID-19 related cost of risk (not annualized)
1.7%
Cost of risk without COVID-19 effect
0.9%
Ratios as of 31 March 2020
Profitability & cost control
Working on cost optimization program including forgoing entire top management annual bonuses for 2020 and LTIP grants for the 2020 cycle. Our target is to maintain flat cost to income ratio for the bank in 2020 compared to 2019 (35.9%) and achieve comfortable profitability level.
Bank standalone cost to income
31.5%
Cost to income
36.5%
Pre-provision ROE
28.7%
Ratios as of 31 March 2020
TBC Uzbekistan
Our strategy is to establish a greenfield, next-generation banking ecosystem for retail and MSME customers in Uzbekistan with a primary focus on digital and partnership-driven channels. Given the current operating environment and impact from COVID-19, we have further optimised our business model with the enhanced emphasis on asset-light and cost-efficient operations.
Product offerings:
o Current and savings accounts;
o Cash loans, salary backed loans and car loans;
o Cards, mobile application and transactional capabilities;
o Point-of-sale consumer finance operations;
o Close cooperation with Payme, our Uzbek payments subsidiary.
Funding:
o TBC PLC has already invested USD 12.6 million into the charter capital of the Bank and expects to invest an additional USD 9.4 million by the end of 2020.
o We have already secured interest from our potential partners: EBRD, IFC and the Uzbek-Oman Investment Company.
o Additional capital increase is planned later this year from our partners.
o Our plans foresee a minimum 51% shareholding.
Financial targets:
Run-rate break-even is planned by the end of 2022 and our medium-term targets are:
o ROE-in the range of TBC Group's target
o Loan book up to USD 700 million
The team:
o The Bank will be run by an experienced management board headed by Chief Executive Officer Sandro Rtveladze, who previously held the role of Group Head of Retail Banking at Bayport Financial Services and prior to that was Deputy CEO at Liberty Bank in Georgia.
Our mid-term targets
o In the light of COVID-19 pandemic, we have reviewed our strategic priorities given increased pressure on capital and people as well as emerging new opportunities.
o We have refreshed our strategic priorities for the next 3 years. While the main themes have not changed, we have prioritized digital channels, customer centricity, data analytics and international expansion.
o We believe our strategy of digital enabled growth and customer centricity will make TBC even more distinctive, given the acceleration of trends we see.
Our mid-term targets remain unchanged
Mid-term Targets
Actual Performance Q1 2020
Annual loan book growth (gross)[11]
10-15%
34.4%/19.6%*
ROE[12]
20%+
N/A
Cost to income ratio[13]
< 35%
36.5%
Dividend payout ratio[14]
25-35%
No dividend in 2020**
* Growth at constant currency
** The Board has decided not to recommend dividends at the upcoming AGM to support capital positions
Additional Information Disclosure
The following materials in connection with TBC PLC's financial results are disclosed on our Investor Relations website at http://tbcbankgroup.com/ under the Results Announcement section.
Economic Overview
Economic growth and external sector
The rapid spread of COVID-19 globally has taken its toll on the domestic economy, with its first impact apparent in February 2020. While the strong growth registered in 2019 (+5.1% YoY) carried over in January 2020 (+5.1% YoY), estimated GDP growth moderated to 2.2% YoY in February and slipped to negative 2.7% YoY in March, as a state of emergency was announced on 21st of March with a number of restrictions on domestic and international economic activity. According to initial estimates, almost all sectors declined in March 2020 with the exception of construction and ICT. Estimated GDP growth in 1Q 2020 remained at positive 1.5% YoY.
The tourism industry, which is one of the major pillars of the Georgian economy, has been hit hardest. Following the exceptional performance of tourism inflows in January, which grew 17.6% YoY in USD terms, inflows receded by 5.2% YoY in February and fell by an estimated 70% YoY in March. Exports of goods showed a similar tendency, although the drop in March was relatively soft at 22.1% YoY. Reflecting increased uncertainties, a sharp deterioration in business and consumer sentiments and record low oil prices, imports also fell by 13.4% YoY in March 2020, which meant that the trade balance improved by 6.8% over the same period. As far as the existing evidence suggests, remittance inflows proved more resilient and declined only by 9.0% YoY in March 2020, despite being affected both by lower oil prices and RUB depreciation, and by stringent measures introduced in some key remitting countries such as Italy and Spain.
Inflation, monetary policy and exchange rate
Since the beginning of the year, as the USD/Gel exchange rate strengthened and the high base effect came into play, inflation retreated to 6.1% YoY as of March 2020, compared to 7.0% YoY by the end of 2019. However, following the sharp depreciation of the GEL by the end of March, compounded by supply side constraints, inflation increased to 6.9% YoY in April 2020, mostly driven by higher food prices, while non-food inflation retreated on the back of lower fuel prices as well as weak domestic demand. At the peak of its depreciation, the GEL nominal effective exchange rate weakened by 11.6% compared to the end 2019, before regaining some of its value. In response to sharp exchange rate fluctuations, the NBG sold USD 100 mln in March and an additional USD 20 mln by the end of April. On top of the traditional interventions mechanism, the central bank introduced a facility to intervene daily on the FX market to smooth out the excess volatility of the currency without resisting the underlying trend of the exchange rate.
Despite the depreciated exchange rate and somewhat higher inflation in April 2020, the central bank started a gradual exit from its tight monetary stance in response to expected downward pressures on inflation once the short-term supply side shock fades. The policy rate was reduced by 0.5 pp by the end of April 2020 and the central bank pledged to continue to exit gradually from its tight monetary stance, with the pace of movement depending on changes in terms of inflation expectations. According to the central bank, inflation will remain elevated over the next several months and it will start to decline by the second half of the year, before reaching the target of 3% in the first half of 2021.
Fiscal policy
In response to the deteriorating economic outlook, the Ministry of Finance started to mobilize external financing to scale up social as well as business support initiatives to mitigate the potential damage from the COVID-19 outbreak and ensure macroeconomic stability. The existing program with the IMF enabled the country to tap donor financing in a timely manner. The total amount of secured external financing for the government and the central bank amounted to USD 1.6 bn, which should be sufficient for the country to finance its spending needs as well as to fill the gap in the balance of payments through central bank interventions. According to the IMF, the budget deficit is expected to come in at 8.5% - an indication of a highly expansionary fiscal stance. With these additional borrowings, the government is expected to launch an unemployment support scheme for those who lost their jobs during the COVID-19 outbreak as well as different social support schemes. In addition, tax breaks, a credit guarantee fund and specific sectoral programs are expected to be put in place to steer the economy through these uncharted waters. In addition, the government announced around USD 1.5 bn in direct international support to the private sector.
Going forward
The unprecedented economic difficulties stemming from the COVID-19 pandemic have created enormous challenges for the Georgian economy. The first signs regarding the size of the fallout from the virus outbreak were already visible in March 2020. A somewhat steeper decline is expected in April-May 2020 before the state of emergency is lifted gradually, when different sectors will likely start to recover. Overall, per latest projections of the IMF, GDP is likely to fall by 4% YoY in 2020 before recovering by 4.0% YoY in 2021. Azerbaijan is also expected to face a 2.2% contraction in 2020 and to recover only modestly by 0.7% YoY in 2021. At the same time, Uzbekistan stands out in the broader region as one of a very few countries which will maintain growth at a positive 1.8% in 2020 before expanding strongly by 7.0% in 2021.
Unaudited Consolidated Financial Results Overview for 1Q 2020
This statement provides a summary of the unaudited business and financial trends for 1Q 2020 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.
TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group separately classifies and discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, 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 (APM) and the reconciliation of the profit and loss items without COVID-19 impact with the reported profit and loss items and the respective ratios are given in Annex 3 on pages 31-32. Please note, that there might be slight differences in previous periods' figures due to rounding.
Net Interest Income
In 1Q 2020, net interest income amounted to GEL 208.0 million, up by 3.4% YoY and down by 0.6% on a QoQ basis.
The YoY increase in interest income was primarily related to an increase in interest income from loans, which was related to an increase in the gross loan portfolio by GEL 3,562.7 million, or 34.4%, as well as currency depreciation. This effect was partially offset by a 1.2 pp drop in loan yields across all segments in line with the overall market trend as well the responsible lending regulation that was effective from 1 January 2019, limiting the Bank's ability to disburse loans to higher yield retail customers.
Over the same period, interest expense increased by GEL 54.4 million, or 38.6%, which was mainly related to interest expense from bonds issued in summer 2019, as well as an increase in the NBG loan. Another driver was increased interest expense from deposits, which was related to both the growth in the respective portfolio by 22.3% YoY and an increase in deposit cost by 0.2 pp over the same period, driven by an increase in GEL deposits cost related to currency devaluation.
The QoQ increase in interest income was mainly due to an increase in the loan portfolio by GEL 1,267.7 million, or 10.0%, this effect was partially offset by a 0.6 pp drop in loan yield, related to an increase in FC loan yields driven by a rise in libor rate. Over the same period, interest expense increased by GEL 3.5 million, or 1.8%, mainly related to the growth in the respective portfolio by 11.5%, as well as increased in GEL cost of fund by 0.4 pp.st
Since 4Q 2019, we re-classified net gains from currency swaps from other operating income to net interest income. In 1Q 2020, our net gains from currency swaps decreased by 5.5% QoQ driven by decline in the interest rate spread on the international markeSts. More information about re-classification is given in annex 4 on page 32.
Thus, our NIM was 5.1%, down by 1.1 pp YoY and 0.2 pp on a QoQ basis, while our risk adjusted NIM for the period amounted to 4.2%, down by 0.6 pp YoY and 1.2 pp QoQ.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
Interest income
394,779
392,154
337,915
16.8%
0.7%
Interest expense
(195,377)
(191,891)
(140,957)
38.6%
1.8%
Net gains from currency swaps
8,557
9,055
4,179
NMF
-5.5%
Net interest income
207,959
209,318
201,137
3.4%
-0.6%
NIM
5.1%
5.3%
6.2%
-1.1 pp
-0.2 pp
Risk adjusted NIM
4.2%*
5.4%
4.8%
-0.6 pp
-1.2 pp
* Risk adjusted NIM for 1Q 2020 equals NIM adjusted with cost of risk without COVID-19 effect
Net fee and commission income
In 1Q 2020, net fee and commission income totalled GEL 43.6 million, up by 4.2% YoY and down by 20.6% QoQ.
The YoY rise was mainly driven by an increase in net fee and commission income from settlement transactions, and guarantees and letters of credit issued. The former increase was mainly driven by the increase in the number of TBC Status's clients (our affluent retail sub-segment),up by 108% YoY to 90.0 thousands, while the latter increase was related to an increase in the respective portfolio by GEL 747.5 million, or 57.5% YoY.
On a QoQ basis, the decrease was spread across all categories, related to seasonality and the overall slow-down of business operations due to the COVID-19 outbreak.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
Net fee and commission income
Card operations
12,540
16,649
14,136
-11.3%
-24.7%
Settlement transactions
19,843
24,887
14,868
33.5%
-20.3%
Guarantees issued and letters of credit
8,421
8,831
6,106
37.9%
-4.6%
Other
2,748
4,477
6,697
-59.0%
-38.6%
Total net fee and commission income
43,552
54,844
41,807
4.2%
-20.6%
Other Non-Interest Income
Total other non-interest income increased by 33.6% YoY and decreased by 3.3% QoQ, amounting to GEL 38.7 million in 1Q 2020.
The YoY increase was mainly attributable to strong growth in net income from foreign currency operations, which was driven by an increase in the number and volume of FX transactions across all segments as well as increased spread due to the higher volatility of the local currency in 1Q 2020.
The slight decrease QoQ was related to the decrease in other operating income and net insurance premium earned after claims and acquisition costs due to seasonality. This decrease was partially offset by the increase in net income from foreign currency operations, due to the higher volatility of the local currency, as mentioned above.
Net insurance premium earned after claims and acquisition costs increased by 28.7% YoY, mainly related to the overall increase of the insurance business. More information about TBC insurance can be found in Annex 5 on page 33.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
Other non-interest income
Net income from foreign currency operations
28,642
28,006
21,036
36.2%
2.3%
Net insurance premium earned after claims and acquisition costs[15]
4,800
5,659
3,729
28.7%
-15.2%
Other operating income
5,303
6,410
4,238
25.1%
-17.3%
Total other non-interest income
38,745
40,075
29,003
33.6%
-3.3%
Credit Loss Allowance
Credit loss allowance for loans in 1Q 2020 amounted to GEL 241.0 million, out of which GEL 210.9 million was COVID-19 related, which translated into additional 1.7% cost of risk. The largest impact comes from the retail segment, followed by the MSME.
Other credit loss allowance amounted to GEL 6.7 million, out of which GEL 4.8 million was COVID-19 related.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Change
YoY
Change
QoQ
Credit loss allowance for loan to customers without COVID-19 impact*
(30,158)
5,148
(36,416)
17.2%
NMF
COVID-19 related credit loss allowance for loans
(210,867)
-
-
NMF
NMF
Credit loss allowance for other transactions without COVID-19 impact*
(1,878)
(4,924)
3,321
NMF
-61.9%
COVID-19 related credit loss allowance for other transactions
(4,834)
-
-
NMF
NMF
Reported total credit loss allowance
(247,737)
224
(33,095)
NMF
NMF
Total credit loss allowance without COVID-19 impact*
(32,036)
224
(33,095)
-3.2%
NMF
Reported operating income after credit loss allowance
42,519
304,461
238,851
-82.2%
-86.0%
Operating income after credit loss allowance without COVID-19 impact*
258,220
304,461
238,851
8.1%
-15.2%
COVID-19 related cost of risk (not annualized)
1.7%
-
-
NMF
NMF
Cost of risk without COVID-19 impact
0.9%*
-0.2%
1.4%
-0.5 pp
1.1 pp
*COVID-19 impact is related to the credit loss allowances
NMF - no meaningful figures
Operating Expenses
In 1Q 2020, total operating expenses increased by 3.2% YoY and decreased by 16.8% QoQ, amounting to GEL 105.8 million.
On a QoQ basis, the decrease in staff cost was driven by a decline in share base payment expense, due to the fact that management waived their right to receive 2020 annual bonus and LTIP for the 2020-2022 performance period as well as seasonality. Administrative & other expenses also decreased QoQ due to seasonality. At the same time, the increase in depreciation was caused by a high base in 4Q 2019, due to amendments in the depreciation period of certain assets.
As a result, in 1Q 2020, our cost to income ratio stood at 36.5%, down by 1.2 pp YoY and 5.3 pp QoQ.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
Operating expenses
Staff costs
(56,802)
(68,934)
(57,753)
-1.6%
-17.6%
Provisions for liabilities and charges
133
(2,632)
200
-33.5%
NMF
Depreciation and amortization
(15,788)
(9,921)
(16,169)
-2.4%
59.1%
Administrative & other operating expenses
(33,375)
(45,637)
(28,792)
15.9%
-26.9%
Total operating expenses
(105,830)
(127,124)
(102,514)
3.2%
-16.8%
Cost to income
36.5%
41.8%
37.7%
-1.2 pp
-5.3 pp
NMF - no meaningful figures
Net Income
Due to the COVID-19 pandemic, the Group incurred a losses from modifications related to COVID-19, in the amount of GEL 30.6 million, to reflect the decrease in the present value of cash-flows resulting from a three-month grace period granted to borrowers. The modifications are related to losses incurred on loans and advances to customers and investments in leases due to the COVID-19 events and are not expected to recur again in normal course of the business.
In 1Q 2020, we recorded a net loss of GEL 57.0 million due to the following COVID-19 related charges: a net modification loss of GEL 30.6 million and COVID-19 related total credit loss allowance in the amount of GEL 215.7 million.
Our net income without COVID-19 impact for the first quarter amounted to GEL 152.4 million, up by 14.3%, YoY and down by 4.8% QoQ. The increase was mainly due to growth in net interest income and FX income.
Income tax expense without COVID-19 impact is calculated as follows: the reported income tax is reduced by the COVID-19 related tax expense, in the amount of GEL 37.0 million, which is 15% of COVID-19 losses from modification and credit loss allowances of GEL 30.6 million and GEL 215.7 million, respectively.
As a result, our ROE without COVID-19 impact stood at 22.4%, down by 1.4 pp YoY and 2.3 pp QoQ, while ROA without COVID-19 impact stood at 3.3%, down by 0.3 pp YoY and 0.2 pp QoQ.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
Losses from modifications related to COVID-19
30,643
-
-
NMF
NMF
Reported profit/(loss) before tax
(93,954)
177,337
136,337
NMF
NMF
Profit/(loss) before tax without COVID-19 impact*
152,390
177,337
136,337
11.8%
-14.1%
Reported income tax expense
36,948
(17,313)
(3,015)
NMF
NMF
COVID-19 related tax expense
(36,951)
-
-
-
-
Income tax expense without COVID-19 impact*
(3)
(17,313)
(3,015)
NMF
NMF
Reported profit/(loss) for the period
(57,006)
160,024
133,322
NMF
NMF
Profit/(loss) for the period without COVID-19 impact*
152,387
160,024
133,322
14.3%
-4.8%
ROE
22.4%*
24.7%
23.8%
-1.4 pp
-2.3 pp
ROA
3.3%*
3.5%
3.6%
-0.3 pp
-0.2 pp
*COVID-19 impact is related to the credit loss allowances and losses from modifications
Funding and Liquidity
As of 30 April 2020, the total liquidity coverage ratio, as defined by the NBG, was 117.3%, above the 100% limit, while the LCR in GEL and FC stood at 113.6% and 119.0% respectively, above the respective limits of 75% and 100%.
As of 30 April 2020, NSFR stood at 128.3%, compared to regulatory limit of 100%, effective from September 2019.
31-Mar-20
31-Dec-19
31-Mar-19
Change
YoY
Change QoQ
Minimum net stable funding ratio, as defined by the NBG
100%
100%
100%
0.0 pp
00 pp
Net stable funding ratio as defined by the NBG
124.7%
126.7%
128.2%*
-3.5 pp
-2.0 pp
Net loans to deposits + IFI funding
101.8%
104.8%
90.5%
11.3 pp
-3.0 pp
Leverage (Times)
7.8x
7.0x
6.5x
1.3x
0.8 pp
Minimum liquidity ratio, as defined by the NBG
30.0%
30.0%
30.0%
0.0 pp
0.0 pp
Liquidity ratio, as defined by the NBG
30.6%
32.2%
35.9%
-5.3 pp
-1.6 pp
Minimum total liquidity coverage ratio, as defined by the NBG
100.0%
100.0%
100.0%
0.0 pp
0.0 pp
Minimum LCR in GEL, as defined by the NBG
75.0%
75.0%
75.0%
0.0 pp
0.0 pp
Minimum LCR in FC, as defined by the NBG
100.0%
100.0%
100.0%
0.0 pp
0.0 pp
Total liquidity coverage ratio, as defined by the NBG
107.6%
110.1%
117.5%
-9.9 pp
-2.5 pp
LCR in GEL, as defined by the NBG
107.0%
83.7%
111.9%
-4.9 pp
23.3 pp
LCR in FC, as defined by the NBG
107.8%
128.4%
122.2%
-14.4 pp
-20.6 pp
*Based on internal estimates
Regulatory Capital
Due to the COVID-19 pandemic, the NBG is implementing countercyclical measures to support the financial stability of the banking system and to ensure provision of financial support to sectors of the economy affected by the current turmoil. In relation to capital adequacy requirements, the following measures have been taken:
o Postponing the phasing in of additional capital requirements planned in March 2020, with a 0.44 pp effect on TBC's CET 1;
o Allowing banks to use the conservation buffer (currently at 2.5pp on CET1) and 2/3 of CICR buffer resulted in the release of 1.0-2.0% of capital across our CET1, Tier 1 and Total CAR;
o Leaving open the possibility of releasing all pillar 2 buffers (remaining 1/3 CICR, HHI and Net Grape buffers) in the range of 1.0-4.0% of capital across our CET1, Tier 1 and Total CAR.
As of 31 March 20, the Bank's CET 1, Tier 1 and Total Capital adequacy ratios stood at 9.1%, 12.0% and 16.7%, respectively, above the respective eased minimum requirements of 6.9%, 8.8% and 13.3%.
Total capital, Tier 1 capital and CET 1 capital decreased by 18.9%, 12.9% and 6.9% on a QoQ basis, respectively. The main reason for this decrease was additional provision charges created according to local standards in relation to the COVID 19 pandemic, in the amount of 3.1% of the loan book. The QoQ growth in risk-weighted assets was mainly related to the currency depreciation.
In thousands of GEL
31-Mar-20
31-Dec-19
31-Mar-19
Change YoY
Change QoQ
CET 1 Capital
1,518,950
1,871,892
1,698,420
-10.6%
-18.9%
Tier 1 Capital
1,987,693
2,281,706
1,746,745
13.8%
-12.9%
Total Capital
2,767,850
2,974,029
2,421,461
14.3%
-6.9%
Total Risk-weighted Exposures
16,604,960
15,590,927
12,689,740
30.9%
6.5%
Minimum CET 1 ratio
6.9%
10.4%
9.8%
-2.9 pp
-3.5 pp
CET 1 Capital adequacy ratio
9.1%
12.0%
11.9%
-2.8 pp
-2.9 pp
Minimum Tier 1 ratio
8.8%
12.5%
11.9%
-3.1 pp
-3.7 pp
Tier 1 Capital adequacy ratio
12.0%
14.6%
14.7%
-2.7 pp
-2.6 pp
Minimum total capital adequacy ratio
13.3%
17.5%
16.7%
-3.4 pp
-4.2 pp
Total Capital adequacy ratio
16.7%
19.1%
19.4%
-2.7 pp
-2.4 pp
Loan Portfolio
As of 31 March 2020, the gross loan portfolio reached GEL 13,929.6 million, up by 34.4% YoY and 10.0% QoQ, or by 19.6% YoY and 3.2% QoQ at a constant currency basis.
The YoY increase was spread across all segments, with the largest contribution from the corporate segment. The latter was driven by the acquisition of both large and mid-corporate clients, as well as by the re-segmentation of certain clients from the MSME segment in 1Q 2020 in the amount of GEL 88.7 million. The proportion of gross loans denominated in foreign currency increased by 2.8 pp YoY and 3.7 pp QoQ and accounted for 62.4 % of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency increased by 1.2 pp QoQ and stood at 59.9%.
As of 31 March 2020, our market share in total loans stood at 39.4% up by 1.0 pp YoY and down by 0.1 pp QoQ. While our loan market share in legal entities was 38.5%, up by 1.1 pp and down by 0.4 pp QoQ, and our loan market share in individuals stood at 40.0%, up by 1.0 pp YoY and 0.3 pp QoQ.
In thousands of GEL
31-Mar-20
31-Dec-19
31-Mar-19
Change YoY
Change QOQ
Loans and advances to customers
Retail
5,485,120
5,053,203
4,578,273
19.8%
8.5%
Retail loans GEL
2,445,016
2,386,750
2,015,721
21.3%
2.4%
Retail loans FC
3,040,104
2,666,453
2,562,552
18.6%
14.0%
Corporate
5,209,833
4,660,473
3,364,911
54.8%
11.8%
Corporate loans GEL
1,358,616
1,424,309
1,010,283
34.5%
-4.6%
Corporate loans FC
3,851,217
3,236,164
2,354,628
63.6%
19.0%
MSME
3,234,687
2,948,279
2,423,730
33.5%
9.7%
MSME loans GEL
1,432,858
1,419,804
1,158,605
23.7%
0.9%
MSME loans FC
1,801,829
1,528,475
1,265,125
42.4%
17.9%
Total loans and advances to customers
13,929,640
12,661,955
10,366,914
34.4%
10.0%
1Q'20
4Q'19
1Q'19
Change YoY
Change QoQ
Loan yields
10.3%
10.9%
11.5%
-1.2 pp
-0.6 pp
Loan yields GEL
15.5%
15.7%
16.5%
-1.0 pp
-0.2 pp
Loan yields FC
6.8%
7.6%
8.2%
-1.4 pp
-0.8 pp
Retail Loan Yields
11.2%
11.8%
12.8%
-1.6 pp
-0.6 pp
Retail loan yields GEL
16.7%
17.1%
19.6%
-2.9 pp
-0.4 pp
Retail loan yields FC
6.4%
7.1%
7.4%
-1.0 pp
-0.7 pp
Corporate Loan Yields
9.0%
9.7%
9.5%
-0.5 pp
-0.7 pp
Corporate loan yields GEL
13.3%
13.3%
10.8%
2.5 pp
0.0 pp
Corporate loan yields FC
7.3%
8.2%
9.0%
-1.7 pp
-0.9 pp
MSME Loan Yields
10.8%
11.3%
11.7%
-0.9 pp
-0.5 pp
MSME loan yields GEL
15.6%
15.7%
15.7%
-0.1 pp
-0.1 pp
MSME loan yields FC
6.4%
7.2%
8.1%
-1.7 pp
-0.8 pp
Loan Portfolio Quality
Without COVID-19 impact, total PAR 30 was up by 0.6 pp QoQ or down by 0.1 pp YoY, and stood at 2.3% as of 31 March 2020. The QoQ increase was driven by all segments.
Over the same period, NPL ratio improved by 0.4pp YoY before COVID-19 effect, due to overall improved performance of the book as well as portfolio growth and remained broadly stable QoQ. The COVID-19 impact is not yet realized partially due to payment holidays offered to our customers.
On a QoQ basis, NPL coverage ratio increased due to COVID-19 related credit loss allowance and currently stable NPL level.
Par 30
31-Mar-20
31-Dec-19
31-Mar-19
Change YoY
Change QoQ
Retail
2.4%
2.1%
2.9%
-0.5 pp
0.3 pp
Corporate
1.6%
0.5%
1.2%
0.4 pp
1.1 pp
MSME
3.2%
2.8%
3.1%
0.1 pp
0.4 pp
Total Loans
2.3%
1.7%
2.4%
-0.1 pp
0.6 pp
Non-performing Loans
31-Mar-20
31-Dec-19
31-Mar-19
Change YoY
Change QoQ
Retail
2.9%
3.0%
3.2%
-0.3 pp
-0.1 pp
Corporate
2.1%
1.8%
2.6%
-0.5 pp
0.3 pp
MSME
5.9%
3.8%
4.4%
1.5 pp
2.1 pp
Total Loans
2.9%
2.7%
3.3%
-0.4 pp
0.2 pp
NPL Coverage
Mar-20
Dec-19
Mar-19
Exc. Collateral
Incl. Collateral
Exc. Collateral
Incl. Collateral
Exc. Collateral
Incl. Collateral
Corporate
99.8%
238.6%
97.1%
241.4%
95.4%
288.7%
Retail
199.5%
277.0%
111.1%
182.9%
123.8%
190.0%
MSME
84.7%
201.5%
59.7%
173.7%
71.4%
175.2%
Total
133.8%
241.0%
91.1%
194.2%
100.1%
210.8%
Cost of risk
The total cost of risk without COVID-19 effect for 1Q 2020 stood at 0.9%, down by 0.5 pp YoY and up by 1.1 pp QoQ. The QoQ decrease was due to unusually low impairment charges in 4Q 2019 across all segments, while YoY decrease is driven by retail and MSME segments.
Cost of Risk
1Q'20 ratios without COVID-19 impact
1Q'20 COVID-19
impact on cost of risk*
4Q'19
1Q'19
Change YoY without COVID-19 impact
Change QoQ without COVID-19 impact
Retail
1.8%
2.8%
0.3%
2.4%
-0.6 pp
1.5 pp
Corporate
0.3%
0.4%
-0.2%
-0.1%
0.4 pp
0.5 pp
MSME
0.6%
1.5%
-1.0%
1.6%
-1.0 pp
1.6 pp
Total
0.9%
1.7%
-0.2%
1.4%
-0.5 pp
1.1 pp
* Not annualized
Deposit Portfolio
The total deposits portfolio increased by 22.3% YoY and 11.5% QoQ and amounted to GEL 11,209.2 million, while on a constant currency basis the total deposit portfolio was up by 7.8% YoY and 2.3% QoQ. The proportion of deposits denominated in foreign currency increased by 3.1pp YoY or 0.4 pp on a QoQ basis and accounted for 66.3% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency decreased by 2.7 pp QoQ and stood at 63.2%.
As of 31 March 2020, our market share in deposits amounted to 39.8%, down by 0.6 pp and up by 0.8 pp QoQ and our market share in deposits to legal entities stood at 42.1%, up by 0.8 pp YoY and 1.5 pp QoQ. Our market share in deposits to individuals stood at 37.9%, down by 1.6% YoY, and remained the same QoQ.
In thousands of GEL
31-Mar-20
31-Dec-19
31-Mar-19
Change YoY
Change QoQ
Customer Accounts
Retail
6,166,759
5,673,917
4,914,927
25.5%
8.7%
Retail deposits GEL
1,049,071
1,098,681
945,632
10.9%
-4.5%
Retail deposits FC
5,117,688
4,575,236
3,969,295
28.9%
11.9%
Corporate
3,892,288
3,187,319
3,316,436
17.4%
22.1%
Corporate deposits GEL
2,248,487
1,735,746
1,925,243
16.8%
29.5%
Corporate deposits FC
1,643,801
1,451,573
1,391,193
18.2%
13.2%
MSME
1,150,103
1,188,088
935,426
22.9%
-3.2%
MSME deposits GEL
483,750
594,388
504,039
-4.0%
-18.6%
MSME deposits FC
666,353
593,700
431,387
54.5%
12.2%
Total Customer Accounts
11,209,150
10,049,324
9,166,789
22.3%
11.5%
1Q'20
4Q'19
1Q'19
Change
YoY
Change
QoQ
Deposit rates
3.5%
3.4%
3.3%
0.2 pp
0.1 pp
Deposit rates GEL
6.4%
6.0%
5.9%
0.5 pp
0.4 pp
Deposit rates FC
1.9%
2.0%
1.9%
0.0 pp
-0.1 pp
Retail Deposit Yields
2.8%
2.9%
2.8%
0.0 pp
-0.1 pp
Retail deposit rates GEL
5.4%
5.1%
5.4%
0.0 pp
0.3 pp
Retail deposit rates FC
2.3%
2.3%
2.2%
0.1 pp
0.0 pp
Corporate Deposit Yields
5.3%
5.1%
4.9%
0.4 pp
0.2 pp
Corporate deposit rates GEL
8.2%
7.9%
7.5%
0.7 pp
0.3 pp
Corporate deposit rates FC
1.5%
1.5%
1.6%
-0.1 pp
0.0 pp
MSME Deposit Yields
0.9%
0.9%
0.9%
0.0 pp
0.0 pp
MSME deposit rates GEL
1.5%
1.5%
1.4%
0.1 pp
0.0 pp
MSME deposit rates FC
0.3%
0.3%
0.3%
0.0 pp
0.0 pp
Segment definition and PL
Business Segments
The segment definitions are as follows:
· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which have been granted facilities with more than GEL 5.0 million. Some other business customers may also be assigned to the corporate segment or transferred to the MSME segment on a discretionary basis;
· Retail - non-business individual customers; all individual customers are included in retail deposits;
· MSME - business customers who are not included in the corporate segment; or legal entities which have been granted a pawn shop loan; or individual customers of the fully-digital bank, Space; and
· Corporate centre and other operations - comprises the Treasury, other support and back office functions, and non-banking subsidiaries of the Group.
Business customers are all legal entities or individuals who have been granted a loan for business purposes.
Income Statement by Segments
1Q'20
Retail
MSME
Corporate
Corp.Centre
Total
Interest income
143,993
80,756
110,711
59,319
394,779
Interest expense
(41,238)
(2,597)
(45,416)
(106,126)
(195,377)
Net gains from currency swaps
-
-
-
8,557
8,557
Net transfer pricing
(18,570)
(31,136)
2,250
47,456
-
Net interest income
84,185
47,023
67,545
9,206
207,959
Fee and commission income
52,574
6,434
12,276
2,430
73,714
Fee and commission expense
(25,071)
(2,793)
(1,903)
(395)
(30,162)
Net fee and commission income
27,503
3,641
10,373
2,035
43,552
Net insurance premium earned after claims and acquisition costs
-
-
-
4,800
4,800
Net income from foreign currency operations
10,128
7,959
15,301
3,540
36,928
Foreign exchange translation gains less losses/(losses less gains)
-
-
-
(8,286)
(8,286)
Net gains/(losses) from derivative financial instruments
-
-
-
(7)
(7)
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
-
-
-
278
278
Other operating income
1,449
64
648
2,733
4,894
Share of profit of associates
-
-
-
137
137
Other operating non-interest income and insurance profit
11,577
8,023
15,949
3,195
38,744
Credit loss allowance for loans to customers
(166,532)
(51,099)
(23,394)
-
(241,025)
Credit loss allowance for performance guarantees and credit related commitments
(1,151)
(1,253)
380
-
(2,024)
Credit loss allowance for investments in finance lease
-
-
-
(870)
(870)
Credit loss allowance for other financial assets
(197)
-
(1,682)
(1,355)
(3,234)
Credit loss allowance for financial assets measured at fair value through other comprehensive income
-
-
(132)
(452)
(584)
Profit/(loss) before G&A expenses and income taxes
(44,615)
6,335
69,040
11,759
42,518
Losses from modifications related to COVID-19
(21,200)
(6,778)
(1,065)
(1,600)
(30,643)
Staff costs
(27,014)
(12,229)
(7,072)
(10,487)
(56,802)
Depreciation and amortization
(10,823)
(2,672)
(1,001)
(1,293)
(15,789)
Provision for liabilities and charges
-
-
-
136
136
Administrative and other operating expenses
(17,449)
(5,759)
(3,407)
(6,760)
(33,375)
Operating expenses
(55,286)
(20,660)
(11,480)
(18,403)
(105,830)
Profit/(loss) before tax
(121,102)
(21,102)
56,495
8,245
(93,954)
Income tax expense
32,949
7,824
(4,784)
959
36,948
Profit/(loss) for the year
(88,154)
(13,278)
51,711
(7,286)
(57,006)
Income Statement without COVID-19 impact[16] by Segments
1Q'20
Retail
MSME
Corporate
Corp.Centre
Total
Interest income
143,993
80,756
110,711
59,319
394,779
Interest expense
(41,238)
(2,597)
(45,416)
(106,126)
(195,377)
Net gains from currency swaps
-
-
-
8,557
8,557
Net transfer pricing
(18,570)
(31,136)
2,250
47,456
-
Net interest income
84,185
47,023
67,545
9,206
207,959
Fee and commission income
52,574
6,434
12,276
2,430
73,714
Fee and commission expense
(25,071)
(2,793)
(1,903)
(395)
(30,162)
Net fee and commission income
27,503
3,641
10,373
2,035
43,552
Net insurance premium earned after claims and acquisition costs
-
-
-
4,800
4,800
Net income from foreign currency operations
10,128
7,959
15,301
3,540
36,928
Foreign exchange translation gains less losses/(losses less gains)
-
-
-
(8,286)
(8,286)
Net gains/(losses) from derivative financial instruments
-
-
-
(7)
(7)
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
-
-
-
278
278
Other operating income
1,449
64
648
2,733
4,894
Share of profit of associates
-
-
-
138
138
Other operating non-interest income and insurance profit
11,577
8,023
15,949
3,196
38,745
Credit loss allowance for loans to customers
(22,685)
(4,216)
(3,255)
-
(30,156)
Credit loss allowance for performance guarantees and credit related commitments
375
51
678
-
1,104
Credit loss allowance for investments in finance lease
-
-
-
(870)
(870)
Credit loss allowance for other financial assets
2
-
(177)
(1,355)
(1,530)
Credit loss allowance for financial assets measured at fair value through other comprehensive income
-
-
(132)
(452)
(584)
Profit/(loss) before G&A expenses and income taxes
100,957
54,522
90,981
11,760
258,220
Staff costs
(27,014)
(12,229)
(7,072)
(10,487)
(56,802)
Depreciation and amortization
(10,823)
(2,672)
(1,001)
(1,293)
(15,789)
Provision for liabilities and charges
-
-
-
136
136
Administrative and other operating expenses
(17,449)
(5,759)
(3,407)
(6,760)
(33,375)
Operating expenses
(55,286)
(20,660)
(11,480)
(18,404)
(105,830)
Profit/(loss) before tax
45,671
33,862
79,501
-6,644
152,390
Income tax expense
7,933
(420)
(8,235)
719
-3
Profit/(loss) for the year
53,604
32,502
72,206
(5,925)
152,387
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
In thousands of GEL
Mar-20
Dec-19
Mar-19
Cash and cash equivalents
1,127,242
1,003,583
927,830
Due from other banks
34,699
33,605
29,981
Mandatory cash balances with National Bank of Georgia
1,900,285
1,591,829
1,416,082
Loans and advances to customers
13,388,126
12,349,399
10,029,320
Investment securities measured at fair value through other comprehensive income
999,578
985,293
889,137
Bonds carried at amortized cost
1,051,603
1,022,684
661,630
Investments in finance leases
281,717
256,660
208,243
Investment properties
70,926
72,667
84,055
Current income tax prepayment
25,771
25,695
11,102
Deferred income tax asset
19,028
2,173
1,973
Other financial assets
188,196
133,736
124,093
Other assets
245,359
255,712
207,519
Premises and equipment
393,678
385,736
366,327
Right of use assets
58,182
59,693
60,951
Intangible assets
181,283
167,597
119,665
Goodwill
62,108
61,558
31,798
Investments in associates
2,792
2,654
2,601
TOTAL ASSETS
20,030,573
18,410,274
15,172,307
LIABILITIES
Due to credit institutions
3,767,185
3,593,901
2,692,585
Customer accounts
11,209,150
10,049,324
9,166,789
Lease liabilities
66,513
59,898
58,277
Other financial liabilities
139,223
113,608
113,144
Current income tax liability
465
1,634
36
Debt Securities in issue
1,488,024
1,213,598
13,415
Deferred income tax liability
5
21,331
19,337
Provisions for liabilities and charges
25,861
23,128
18,250
Other liabilities
77,743
95,162
78,387
Subordinated debt
683,227
591,035
664,330
TOTAL LIABILITIES
17,457,396
15,762,619
12,824,550
EQUITY
Share capital
1,682
1,682
1,672
Shares held by trust
(34,451)
(27,516)
-
Share premium
848,459
848,459
831,773
Retained earnings
1,896,450
1,953,364
1,657,330
Group re-organisation reserve
(162,167)
(162,167)
(162,166)
Share based payment reserve
(36,177)
(17,803)
(43,080)
Revaluation reserve for premises
56,249
56,374
56,701
Fair value reserve
(1,454)
(6,476)
9,702
Cumulative currency translation reserve
(3,683)
(6,850)
(7,295)
Net assets attributable to owners
2,564,908
2,639,067
2,344,637
Non-controlling interest
8,269
8,588
3,119
TOTAL EQUITY
2,573,177
2,647,655
2,347,756
TOTAL LIABILITIES AND EQUITY
20,030,573
18,410,274
15,172,306
Consolidated Statement of Profit or Loss and Other Comprehensive Income
In thousands of GEL
1Q'20
4Q'19
1Q'19
Interest income
394,779
392,154
337,915
Interest expense
(195,377)
(191,891)
(140,957)
Net gains from currency swaps
8,557
9,055
4,179
Net interest income
207,959
209,318
201,137
Fee and commission income
73,714
86,751
60,902
Fee and commission expense
(30,162)
(31,907)
(19,096)
Net fee and commission income
43,552
54,844
41,807
Net insurance premiums earned
13,233
12,386
7,329
Net insurance claims incurred and agents' commissions
(8,433)
(6,727)
(3,600)
Net insurance premium earned after claims and acquisition costs
4,800
5,659
3,729
Net income from foreign currency operations
36,928
19,026
17,409
Net gain/(losses) from foreign exchange translation
(8,286)
8,980
3,627
Net gains/(losses) from derivative financial instruments
(7)
(4)
(158)
Gains less losses from disposal of investment securities measured at fair value through other comprehensive income
278
20
68
Other operating income
4,894
6,276
4,159
Share of profit of associates
137
118
169
Other operating non-interest income
33,944
34,416
25,274
Credit loss allowance for loans to customers
(241,025)
5,148
(36,416)
Credit loss allowance for investments in finance lease
(870)
615
(41)
Credit loss allowance for performance guarantees and credit related commitments
(2,024)
(290)
432
Credit loss allowance for other financial assets
(3,234)
(5,165)
2,969
Credit loss allowance for financial assets measured at fair value through other comprehensive income
(584)
(84)
(39)
Operating income after credit loss allowance for impairment
42,518
304,461
238,851
Losses from modifications related to COVID-19
(30,643)
-
-
Staff costs
(56,802)
(68,934)
(57,753)
Depreciation and amortization
(15,788)
(9,921)
(16,169)
(Provision for)/ recovery of liabilities and charges
136
(2,632)
200
Administrative and other operating expenses
(33,375)
(45,637)
(28,792)
Operating expenses
(105,829)
(127,124)
(102,514)
Profit/(loss) before tax
(93,954)
177,337
136,337
Income tax expense
36,948
(17,313)
(3,015)
Profit/(loss) for the period
(57,006)
160,024
133,322
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve
5,022
(13,828)
1,023
Exchange differences on translation to presentation currency
3,167
(483)
(358)
Items that will not be reclassified to profit or loss:
Revaluation of premises and equipment
-
(539)
Income tax recorded directly in other comprehensive income
-
-
Other comprehensive income for the period
8,189
(14,311)
126
Total comprehensive income for the period
(48,817)
145,713
133,448
Profit/(loss) attributable to:
- Shareholders of TBCG
(57,475)
159,416
133,237
- Non-controlling interest
469
608
85
Profit/(loss) for the period
(57,006)
160,024
133,322
Total comprehensive income is attributable to:
- Shareholders of TBCG
(49,267)
145,122
133,363
- Non-controlling interest
450
591
85
Total comprehensive income for the period
(48,817)
145,713
133,448
Consolidated Statements of Cash Flows
In thousands of GEL
31-Mar-20
31-Dec-19
31-Mar-19
Cash flows from/(used in) operating activities
Interest received
343,993
1,388,852
332,214
Interest paid
(143,355)
(647,427)
(128,621)
Fees and commissions received
70,010
282,715
61,001
Fees and commissions paid
(30,504)
(106,526)
(19,076)
Insurance premium received
22,347
76,101
15,568
Insurance claims paid
(11,259)
(21,787)
(2,083)
Income received from trading in foreign currencies
36,907
79,287
21,588
Other operating income received
2,535
44,248
(7,403)
Staff costs paid
(44,993)
(216,465)
(68,852)
Administrative and other operating expenses paid
(41,585)
(169,582)
(39,165)
Income tax paid
(80)
(70,413)
(15,619)
Cash flows from operating activities before changes in operating assets and liabilities
204,015
639,003
149,551
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia
(74,492)
(22,009)
44,243
Loans and advances to customers
(191,641)
(2,013,577)
(14,169)
Investment in finance lease
980
(43,719)
(9)
Other financial assets
(48,589)
19,612
49,780
Other assets
16,622
1,577
(6,977)
Net change in operating liabilities
Due to other banks
35,387
(1,938)
159,324
Customer accounts
163,321
272,023
(199,925)
Other financial liabilities
62,034
(8,267)
11,798
Change in finance lease liabilities
(4,100)
(6,453)
(3,202)
Other liabilities and provision for liabilities and charges
3,275
5,816
2,039
Net cash flows (used in)/from operating activities
166,811
(1,157,932)
192,452
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive income
(85,681)
(1,781,816)
(29,994)
Proceeds from disposal of investment securities measured at fair value through other comprehensive income
24,984
240,603
19,182
Proceeds from redemption at maturity of investment securities measured at fair value through other comprehensive income
57,266
1,598,536
126,739
Acquisition of subsidiaries, net of cash acquired
-
(39,297)
(596)
Acquisition of bonds carried at amortised cost
(139,561)
(613,383)
(119,747)
Proceeds from redemption of bonds carried at amortised cost
100,970
216,871
98,613
Acquisition of premises, equipment and intangible assets
(44,151)
(120,333)
(24,729)
Proceeds from disposal of premises, equipment and intangible assets
12,836
13,225
4,965
Cash acquired
-
2,996
-
Proceeds from disposal of investment property
3,129
13,338
1,414
Net cash used in investing activities
(70,208)
(469,260)
75,847
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds
1,321,226
1,819,899
267,489
Redemption of other borrowed funds
(1,434,930)
(1,392,897)
(778,163)
Proceeds from subordinated debt
-
-
-
Redemption of subordinated debt
-
(104,079)
-
Proceeds from debt securities in issue
70,516
1,176,049
(14)
Redemption of debt securities in issue
-
(14,296)
-
Dividends paid
-
(91,928)
-
Net cash flows from financing activities
(43,188)
1,392,748
(510,687)
Effect of exchange rate changes on cash and cash equivalents
74,345
71,116
3,306
Net increase in cash and cash equivalents
123,659
(163,328)
(239,082)
Cash and cash equivalents at the beginning of the year
1,003,583
1,166,911
1,166,911
Cash and cash equivalents at the end of the year
1,127,242
1,003,583
927,829
Key Ratios
Average Balances
The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts, which were prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.
Key Ratios
Ratios (based on monthly averages, where applicable)
1Q'20
4Q'19
1Q'19
Profitability ratios:
ROE1
22.4%*
24.7%
23.8%
ROA2
3.3%*
3.5%
3.6%
Pre-provision ROE3
28.7%
24.7%
29.7%
Cost to income4
36.5%
41.8%
37.7%
NIM5
5.1%
5.3%
6.2%
Risk Adjusted NIM6
4.2%**
5.4%
4.8%
Loan yields7
10.3%
10.9%
11.5%
Risk adjusted loan yields8
9.4%**
11.0%
10.1%
Deposit rates9
3.5%
3.4%
3.3%
Yields on interest earning assets10
9.7%
9.9%
10.5%
Cost of funding11
5.0%
4.9%
4.5%
Spread12
5.0%
5.2%
6.0%
Asset quality and portfolio concentration:
Cost of risk without COVID-19 impact13
0.9%*
-0.2%
1.4%
COVID-19 related cost of risk stood14
1.7%
-
-
PAR 90 to Gross Loans15
1.2%
1.1%
1.3%
NPLs to Gross Loans16
2.9%
2.7%
3.3%
NPLs coverage17
133.8%
91.1%
100.1%
NPLs coverage with collateral18
241.0%
194.2%
210.8%
Credit loss level to Gross Loans19
3.9%
2.5%
3.3%
Related Party Loans to Gross Loans20
0.1%
0.1%
0.1%
Top 10 Borrowers to Total Portfolio21
8.7%
8.3%
9.6%
Top 20 Borrowers to Total Portfolio22
12.9%
12.3%
13.5%
Capital optimisation:
Net Loans to Deposits plus IFI Funding23
101.8%
104.8%
90.5%
Net Stable Funding Ratio24
124.7%
126.7%
128.2%***
Liquidity Coverage Ratio25
107.6%
110.1%
117.5%
Leverage26
7.8x
7.0x
6.5x
CET 1 CAR (Basel III)27
9.1%
12.0%
13.4%
Regulatory Tier 1 CAR (Basel III)28
12.0%
14.6%
13.8%
Regulatory Total 1 CAR (Basel III)29
16.7%
19.1%
19.1%
* COVID-19 impact is related to the credit loss allowances and losses from modifications
** Risk adjusted ratios for 1Q 2020 adjusted with cost of risk without COVID-19 effect
*** Based on internal estimates
Ratio definitions
1. Return on average total equity (ROE) equals net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; annualised where applicable.
2. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period; annualised where applicable.
3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by the monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.
4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).
5. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG that currently have negative interest, and includes other earning items from due from banks.
6. Risk adjusted net Interest Margin is NIM minus the cost of risk without one-offs and the currency effect.
7. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; annualised where applicable.
8. Risk adjusted Loan yield is loan yield minus the cost of risk without one-offs and currency effect.
9. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised where applicable.
10. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised where applicable.
11. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where applicable.
12. 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).
13. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; annualised where applicable.
14. COVID-19 related cost of risk equals additional credit loss allowance to cover pentation losses in relation to COVID-19, divided by gross loan portfolio; not annualized.
15. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.
16. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with a well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.
17. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.
18. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus the total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.
19. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.
20. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
21. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.
22. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.
23. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.
24. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined by NBG in line with Basel III guidelines.
25. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.
26. Leverage equals total assets to total equity.
27. Regulatory CET 1 CAR equals CET 1 capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
28. 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.
29. 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 2.8677 as of 31 December 2019. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.6914 as of 31 March 2019. As of 31 March 2020 the USD/GEL exchange rate equalled 3.2845. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 1Q 2020 of 2.9267, 4Q 2019 of 2.9458, 1Q 2019 of 2.6680.
Additional Disclosures
1) Subsidiaries of TBC Bank Group PLC[17]
Ownership / voting
% as of 31 March 2020Country
Year of incorporation
Industry
Total Assets
(after elimination)Subsidiary
Amount
GEL'000
% in TBC Group
JSC TBC Bank
99.9%
Georgia
1992
Banking
19,488,303
97.29%
United Financial Corporation JSC
98.7%
Georgia
1997
Card processing
11,449
0.06%
TBC Capital LLC
100.0%
Georgia
1999
Brokerage
11,088
0.06%
TBC Leasing JSC
100.0%
Georgia
2003
Leasing
339,331
1.69%
TBC Kredit LLC
100.0%
Azerbaijan
1999
Non-banking credit institution
27,358
0.14%
TBC Pay LLC
100.0%
Georgia
2009
Processing
32,382
0.16%
Index LLC
100.0%
Georgia
2011
Real estate management
947
0.00%
TBC Invest LLC
100.0%
Israel
2011
PR and marketing
292
0.00%
JSC TBC Insurance
100.0%
Georgia
2014
Insurance
54,025
0.27%
Redmed LLC
100.0%
Georgia
2019
E-commerce
495
0.00%
TBC International LLC
100.0%
Georgia
2019
Asset management
446
0.00%
Swoop JSC
100.0%
Georgia
2010
Retail Trade
420
0.00%
LLC Online Tickets
55.0%
Georgia
2015
Software Services
1,808
0.01%
TKT UZ
75.00%
Uzbekistan
2019
Retail Trade
273
0.00%
My.ge LLC
65.0%
Georgia
2008
E-commerce, Housing and Auto
6,682
0.03%
LLC Vendoo (Geo)
100.0%
Georgia
2019
Retail Leasing
3,483
0.02%
LLC Mypost
100.0%
Georgia
2019
Postal Service
195
0.00%
LLC Billing Solutions
51.00%
Georgia
2019
Software Services
338
0.00%
All property.ge LLC
90.0%
Georgia
2013
Real estate management
2,247
0.01%
LLC F Solutions
100.00%
Georgia
2019
Software Services
4
0.00%
Inspired LLC
51.0%
Uzbekistan
2011
Processing
5,904
0.03%
LLC Vendoo (UZ Leasing)
100.00%
Uzbekistan
2019
Consumer financing
8,961
0.04%
2) Our Ecosystems
Our mission: Make life easier
Financial services with a strong focus on digital:
o Book value as of 31 March 2020 - GEL 2.4 billion
o Total assets as of 31 March 2020 - GEL 20.1 billion
o Number of customers as of 31 March 2020 - 2.7 million
Ecosystems:
o Revenue[18] - GEL 23.6 million for 1Q 2020, up by 56% YoY
o Net profit[19] - GEL 9.0 million for 1Q 2020, up by 26% YoY
o Number of visitors[20] in March 2020 -5.9 million
o TBC Bank drives 24% of the ecosystems' revenue
Our customer-centric ecosystems
We are increasing our touchpoints with customers by creating secure customer centric digital ecosystems, that help our customers to satisfy their needs in the most convenient and seamless way possible
Our ambitions are to:
o Establish new standards of customer experience
o Facilitate digital sales and engagement
o Create new revenue streams
o Collect more valuable customer data
Payments ecosystem[21]
1Q 20
1Q 19
Change
Number of payments (million)
91.5
69.0
32.6%
Payments ecosystem
66.4
46.4
43.1%
Other payments business
25.1
22.6
11.1%
Volume of payments (GEL billion)
41.2
37.4
10.2%
Payments ecosystem
3.5
2.4
45.8%
Other payments business
37.7
35.0
7.7%
o We are Number 1 in E-com & POS transactions volume, with a market share of above 60%[22]
o We are among the world's best with over 86%[23]of payments being contactless
o We have a great innovation record with a lot of "first in the region" payment innovations such as stickers, P2P, contactless cash withdrawal, Voice payments, Apple Pay, ATM QR withdrawal and TBC Bracelets
Our aspirations
o Annual growth rate for payments commission income of 20%
o Increase annual net revenue from GEL 109 mln (with 42% contribution from ecosystems) in 2018 to GEL 218 mln by 2022
3) Reconciliation of reported IFRS consolidated figures with the numbers without COVID-19 impact [24]
Item (in thousands of GEL )
1Q 2020
Description
Reason for exclusion from the Group's current reported performance
Losses from modifications related to COVID-19
(30,643)
Modifications are related to losses incurred on loans and advances to customers and investments in leases due to COVID-19 events and are not expected to recur again in normal course of the business.
These costs are significant and nonrecurring in nature, and therefore are not indicative of the Group's current performance.
COVID -19 Credit loss allowance effect
(215,701)
Due to the COVID-19 pandemic TBC Bank Group PLC created an additional, front-loaded GEL 215.7 million credit loss allowances.
These costs are significant and nonrecurring in nature, and therefore are not indicative of the Group's current performance.
in thousands of GEL
1Q 2020
Net interest income
207,959
Net fee and commission income
43,552
Net insurance premium earned after claims and acquisition costs
4,800
Other operating income
33,945
Operating income
290,256
Credit loss allowance for loan to customers
(30,158)
COVID-19 related credit loss allowance for loans
(210,867)
Credit loss allowance for other transactions
(1,878)
COVID-19 related credit loss allowance for other transactions
(4,834)
Reported credit loss allowance
(247,737)
Credit loss allowance without COVID-19 impact
(32,036)
Reported operating income after credit loss allowance
42,519
Operating income after credit loss allowance without COVID-19 impact
258,220
Losses from modifications related to COVID-19 events
(30,643)
Operating expenses
(105,830)
Reported profit/(loss) before tax
(93,954)
Profit/(loss) before tax without COVID-19 impact
152,390
Reported income Tax
36,948
COVID-19 related tax effect
(36,951)
Income tax without COVID-19 impact
(3)
Reported net profit/(loss) for the period
(57,006)
Net profit/(loss) for the period without COVID-19 impact
152,387
Reported non-controlling interest (NCI)
(469)
Non-controlling interest (NCI) without COVID-19 impact
(679)
Reported net profit/(loss) less NCI
(57,475)
Net profit/(loss) less NCI without COVID-19 impact
151,708
in thousands of GEL
1Q 2020
Average reported equity attributable to the PLC's equity holders
2,663,479
Adjustment for non-recurring items on monthly average basis
55,623
Average equity without COVID-19 impact attributable to the PLC's equity holders
2,719,102
Average total assets
18,692,926
1Q 2020
Return on equity (ROE) without Covid-19 impact*
22.4%
Return on assets (ROA) without Covid-19 impact*
3.3%
COVID-19 related cost of risk (not annualized)
1.7%
Cost of risk without COVID-19 impact*
0.9%
* Ratios without COVID-19 related credit loss allowances and losses from modifications
4) Net gains from currency swaps
In 2019, the Group entered into swap agreements denominated in foreign currencies in order to decrease its cost of funding. As the contracts reached significant volume, the Group revisited the presentation of effects in the statement of profit or loss. Reclassifications from other non-interest operating income to net interest income have been recorded for the first three quarters in 2019.
In thousands of GEL
1Q'20
4Q'19
1Q'19
Net gains from currency swaps
8,557
9,054
4,179
5) TBC Insurance
TBC Insurance is a rapidly growing, wholly owned subsidiary of TBC Bank and is the Bank's main bancassurance partner. The company was acquired by the Group in October 2016 and has since grown significantly, becoming the second largest player on the P&C and life insurance market and the largest player in the retail segment, holding 22.1% and 42.5% market shares,[25] without border motor third party liability (MTPL) insurance, respectively in 1Q 2020, based on internal estimates.
TBC Insurance serves both individual and legal entities and provides a broad range of insurance products covering motor, travel, personal accident, credit life and property, business property, liability, cargo, agro, and health insurance products. The company differentiates itself through its advanced digital channels, which include TBC Bank's award-winning internet and mobile banking applications, a wide network of self-service terminals, a web channel, and B-Bot, a Georgian-speaking chat-bot that is available through Facebook messenger.
In 2Q 2019, TBC Insurance entered the health insurance market with a focus on the premium segment. Our strategy is to focus on affluent individuals and capture the affluent market by leveraging our strong brand name, leading digital capabilities and cross-selling opportunities with payroll customers. Our medium-term target is to reach 25% market share in the premium health insurance business. In 1Q 2020, TBC Insurance health business line already attracted 9,000 active clients, up by 75.0% QoQ.
In the light of the COVID-19 pandemic, TBC Insurance has created a new life insurance product for individuals to ensure against COVID-19 related health implications.
The total gross written premium grew by 15.6% YoY and amounted to GEL 20.2 million. Over the same period, the net combined ratio[26] increased by 8.8 pp and stood at 91.5%, driven by the health insurance business line; without the health insurance business, the net combined ratio would have been 86.3%. As a result, net profit for 1Q 2020 decreased by 3.8% YoY and reached GEL 1,9 million, or GEL 2,5 million without health insurance. The QoQ decrease in net profit was related to seasonality.
Information excluding health insurance
1Q'20
4Q'19
1Q'19
In thousands of GEL
Gross written premium
18,294
19,496
17,471
Net earned premium[27]
16,002
15,603
10,677
Net profit
2,517
2,973
2,042
Net combined ratio
86.3%
81.9%
82.8%
Information including health insurance
1Q'20
4Q'19
1Q'19
In thousands of GEL
Gross written premium
20,195
21,808
17,471
Net earned premium
17,317
16,367
10,677
Net profit
1,928
2,499
2,004
Net combined ratio
91.5%
86.5%
82.8%
1Q 2019 figures are provided without subsidiaries of TBC Insurance: Swoop JSC, GE Commerce LTD, All Property LTD and 4Q 2019 and 1Q 2020 figures are given without Redmed LTD.
All figures in the above table are presented before consolidation eliminations.
6) Main terms of shareholders' agreement with Yelo Bank
o TBC Bank and Yelo Bank (former Nikoil Bank) signed a shareholders agreement in January 2019 to merge our Azeri subsidiary, TBC Kredit (with total equity of USD 4.7 mln as of 31 March 2020) with Yelo Bank (with total equity of USD 37 mln as of 31 March 2020);
o The transaction is subject to regulatory approval, which is pending;
o Our share in the joint entity will be 8.34% with a call option to increase it to 50%+1 share within four years, based on a fixed price formula;
o There is no capital commitment from TBC side;
o We are refreshing our approach in light of the COVID-19 pandemic and our expansion into Uzbekistan.
7) Loan book breakdown by stages according IFRS 9
Total (in million GEL)
Stage
Gross
% of total
Allowance
LLP rate
1
11,488
82.40%
133
1.2%
2
2,016
14.50%
252
12.5%
3
426
3.10%
157
36.8%
Total
13,930
100.00%
542
3.9%
Corporate (in million GEL)
Stage
Gross
% of total
Allowance
LLP rate
1
4,811
92.3%
51
1.1%
2
239
4.6%
3
1.0%
3
160
3.1%
53
32.6%
Total
5,210
100.0%
107
2.0%
MSME (in million GEL)
Stage
Gross
% of total
Allowance
LLP rate
1
2,577
79.6%
32
1.2%
2
540
16.7%
50
9.3%
3
118
3.7%
35
30.0%
Total
3,235
100.0%
117
3.6%
Consumer (in million GEL)
Stage
Gross
% of total
Allowance
LLP rate
1
1,433
72.1%
47
3.2%
2
482
24.3%
167
34.7%
3
72
3.6%
43
59.8%
Total
1,987
100.0%
257
12.9%
Mortgage (in million GEL)
Stage
Gross
% of total
Allowance
LLP rate
1
2,667
76.2%
3
0.1%
2
755
21.6%
32
4.3%
3
76
2.2%
26
34.2%
Total
3,498
100.0%
61
1.7%
[1] COVID-19 related credit loss allowances and losses from modifications.
[2] Ratios without COVID-19 impact are calculated excluding COVID-19 related credit loss allowances and losses from modifications.
[3] For the ratio calculation all relevant group recurring costs are allocated to the Bank.
[4] Risk adjusted NIM for 1Q 2020 equals NIM adjusted with cost of risk without COVID-19 impact.
[5] International Financial Institutions.
[6] Market share figures are based on data from the National Bank of Georgia (NBG). The NBG includes interbank loans for calculating market share in loans.
[7] Internet or Mobile Banking penetration equals the number of active clients of Internet or Mobile Banking divided by the total number of active clients. Data includes Space figures.
[8] Mobile Banking penetration equals the number of active clients of Mobile Banking divided by the number of total active clients. Data includes Space figures.
[9] Other operating non-interest income includes net insurance premium earned after claims and acquisition costs.
[10] For the ratio calculation all relevant group recurring costs are allocated to the bank.
[11] 12-month growth rate
[12] Annualized
[13] Cost to income ratio calculated as ratio of operating expenses to operating income (excl. loan impairment expense)
[14] The Board has decided not to recommend dividends at the upcoming AGM to support capital positions
[15] Net insurance premium earned after claims and acquisition costs can be reconciled to the standalone net insurance profit (as shown in Annex 5 on page 33) as follows: net insurance premium earned after claims and acquisition costs less credit loss allowance, administrative expenses and taxes, plus fee and commission income and net interest income.
[16] COVID-19 impact is related to the credit loss allowances and losses from modifications
[17] TBC Bank Group PLC became the parent company of JSC TBC Bank on 10 August 2016.
[18] Total ecosystems' revenue and net profit also includes net fee and commission income from POS terminals and e-commerce, while net profit also includes related operating costs
[19] Total ecosystems' revenue and net profit also includes net fee and commission income from POS terminals and e-commerce, while net profit also includes related operating costs
[20] Total number of visitors across all systems, some individuals may be visitors of multiple systems. For Payme, the number of registered customers is used
[21] Includes both retail & business payments.
[22] Source: NBG
[23] The data from Business Insider Intelligence was used for comparison purposes
[24] COVID-19 related credit loss allowances and losses from modifications
[25] Market shares are based on internal estimates and are given without border MTPL, which was introduced starting from March 2018 and GWP was divided evenly between 17 insurance companies. Total non-health market share in 1Q 2020 including Border MTPL stood at 20.8% and 34.8% respectively
[26] Net insurance claims plus acquisition costs and administrative expenses divided by net earned premium.
[27] Net earned premium equals earned premium minus reinsurer's share of earned premium.
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