REG - TBC Bank Group PLC - 2Q and 1H 2023 Financial Results Report
10/08/2023 07:00
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RNS Number : 8426I TBC Bank Group PLC 10 August 2023
TBC BANK GROUP PLC ("TBC Bank")
2Q AND 1H 2023 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 the necessary regulatory approvals and licenses; the impact of
developments in the Georgian and Uzbek economies; the impact of COVID-19; the
political and legal environment; financial risk management; and the impact of
general business and global economic conditions.
None of the future projections, expectations, estimates or prospects in this
document should be taken as forecasts or promises, nor should they be taken as
implying any indication, assurance or guarantee that the assumptions on which
such future projections, expectations, estimates or prospects are based are
accurate or exhaustive or, in the case of the assumptions, entirely covered in
the document. These forward-looking statements speak only as of the date they
are made, and, subject to compliance with applicable law and regulations, 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
accounts and financial statements. The areas in which the management accounts
might differ from the International Financial Reporting Standards and/or
generally accepted U.S. accounting principles could be significant; you should
consult your own professional advisors and/or conduct your own due diligence
for a complete and detailed understanding of such differences and any
implications they might have on the relevant financial information contained
in this presentation. Some numerical figures included in this report have been
subjected to rounding adjustments. Accordingly, the numerical figures shown as
totals in certain tables might not be an arithmetic aggregation of the figures
that preceded them.
2Q and 1H 2023 Consolidated Financial Results Conference Call Details
TBC Bank Group PLC ("TBC PLC") published its unaudited consolidated financial
results for the second quarter and first half of 2023 on Thursday, 10 August
2023 at 7.00 am BST. The management team will host a conference call on the
day at 2.00 pm BST to discuss the results.
Please click the link below to join the webinar:
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The call will be held in two parts: the first part will comprise
presentations, while participants will have the opportunity to ask questions
during the second part. All participants will be muted throughout the webinar.
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Call Instructions:
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raise their hand.
Contacts
Andrew Keeley Anna Romelashvili Investor Relations Department
Director of Investor Relations and International Media
Head of Investor Relations
E-mail: AKeeley@tbcbank.com.ge
Tel: +44 (0) 7791 569834
E-mail: IR@tbcbank.com.ge
E-mail: IR@tbcbank.com.ge
Web: www.tbcbankgroup.com (https://www.tbcbankgroup.com/)
Tel: +(995 32) 227 27 27
Tel: +(995 32) 227 27 27
Web: www.tbcbankgroup.com (https://www.tbcbankgroup.com/)
Web: www.tbcbankgroup.com (https://www.tbcbankgroup.com/)
Table of Contents
2Q and 1H 2023 Unaudited Consolidated Financial Results Announcement
Interim Management Report
Financial Highlights (#_Toc142071023) (#_Toc142071023)
Operational Highlights (#_Toc142071024) (#_Toc142071024)
Letter from the Chief Executive Officer (#_Toc142071025) (#_Toc142071025)
Economic Overview (#_Toc142071026) (#_Toc142071026)
Unaudited Consolidated Financial Results Overview for 2Q 2023 (#_Toc142071027)
(#_Toc142071027)
Unaudited Consolidated Financial Results Overview for 1H 2023 (#_Toc142071028)
(#_Toc142071028)
Additional Disclosures (#_Toc142071029) (#_Toc142071029)
1) (#_Toc142071030) (#_Toc142071030) (#_Toc142071030) TBC
Bank - Background (#_Toc142071030) (#_Toc142071030)
2) (#_Toc142071031) (#_Toc142071031) (#_Toc142071031)
Consolidated Financial Statements and Key Ratios 2Q 2023 (#_Toc142071031)
(#_Toc142071031)
3) (#_Toc142071032) (#_Toc142071032) (#_Toc142071032)
Consolidated Financial Statements and Key Ratios 1H 2023 (#_Toc142071032)
(#_Toc142071032)
4) (#_Toc142071033) (#_Toc142071033) (#_Toc142071033)
Financial Disclosures by Business Lines (#_Toc142071033) (#_Toc142071033)
5) (#_Toc142071034) (#_Toc142071034) (#_Toc142071034) Market
shares in Georgia (#_Toc142071034) (#_Toc142071034)
6) (#_Toc142071035) (#_Toc142071035) (#_Toc142071035) Loan
Book Breakdown by Stages According IFRS 9 (#_Toc142071035) (#_Toc142071035)
7) (#_Toc142071036) (#_Toc142071036) (#_Toc142071036)
Glossary (#_Toc142071036) (#_Toc142071036)
8) (#_Toc142071037) (#_Toc142071037) (#_Toc142071037) Ratio
Definitions and Exchange Rates (#_Toc142071037) (#_Toc142071037)
Material Existing and Emerging Risks (#_Toc142071038) (#_Toc142071038)
Statement of Directors' Responsibilities (#_Toc142071039) (#_Toc142071039)
Condensed Consolidated Interim Financial Statements (Unaudited)
Independent Review Report
..…………………………………………………………………....……….…………..
46
Condensed Consolidated Interim Statement of Financial
Position……………………………………….….………. 48
Condensed Consolidated Interim Statement of Profit or Loss and Other
Comprehensive Income…….…...……….. 49
Condensed Consolidated Interim Statement of Changes in
Equity……………………....…………………..……… 51
Condensed Consolidated Interim Statement of Cash
Flows…………………………………………..……….…….. 52
Notes to the Condensed Consolidated Interim Financial
Statements……………………………………………..…. 53
2Q and 1H 2023 Unaudited Consolidated Financial Results
2Q 2023 net profit reached GEL 293 million, up by 25% YoY, with ROE at 28.1%.
1H 2023 net profit stood at GEL 548 million, up by 20% YoY, with ROE at 26.7%.
European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC
to disclose that this announcement contains Inside Information, as defined in
that Regulation.
The information in this announcement, which was approved by the Board of
Directors on 9 August 2023, does not comprise statutory accounts within the
meaning of Section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2022, which contained an unmodified audit report under
Section 495 of the Companies Act 2006 and which did not make any statements
under Section 498 of the Companies Act 2006, have been delivered to the
Registrar of Companies in accordance with Section 441 of the Companies Act
2006.
The interim management report is on pages 5 to 43 and the Condensed
Consolidated Interim Financial Statements (Unaudited) are on pages 44 to 96.
Financial Highlights
Inome statement
in thousands of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ 1H'23 1H'22 Change YoY
Net interest income 399,338 366,791 303,572 31.5% 8.9% 766,129 592,191 29.4%
Net fee and commission income 105,636 92,438 75,572 39.8% 14.3% 198,074 141,462 40.0%
Other operating non-interest income 81,792 73,010 84,965 -3.7% 12.0% 154,802 143,248 8.1%
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Operating profit 586,766 532,239 464,109 26.4% 10.2% 1,119,005 876,901 27.6%
Total credit loss allowance (33,934) (53,168) (37,854) -10.4% -36.2% (87,102) (51,590) 68.8%
Operating expenses (203,560) (182,780) (163,635) 24.4% 11.4% (386,340) (314,585) 22.8%
Profit before tax 349,272 296,291 262,620 33.0% 17.9% 645,563 510,726 26.4%
Income tax expense (56,186) (41,331) (28,056) NMF 35.9% (97,517) (52,181) 86.9%
Profit for the period 293,086 254,960 234,564 24.9% 15.0% 548,046 458,545 19.5%
Balance sheet
in thousands of GEL Jun-23 Mar-23 Jun-22 Change YoY Change QoQ
Total Assets 28,878,826 27,138,985 25,983,476 11.1% 6.4%
Gross Loans 19,360,689 18,321,341 17,534,515 10.4% 5.7%
Customer Deposits 18,992,492 17,297,630 15,772,905 20.4% 9.8%
Total Equity 4,331,529 4,238,958 3,756,763 15.3% 2.2%
CET 1 Capital (Basel III) per IFRS 3,920,004 3,667,479 n/a n/a 6.9%
Tier 1 Capital (Basel III) per IFRS 4,443,544 4,179,559 n/a n/a 6.3%
Total Capital (Basel III) per IFRS 4,947,830 4,601,884 n/a n/a 7.5%
Risk Weighted Assets (Basel III) per IFRS 21,452,808 20,767,052 n/a n/a 3.3%
Number of shares (in thousands) 55,140 54,991 55,156 0.0% 0.3%
Key Ratios 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ 1H'23 1H'22 Change YoY
ROE 28.1% 25.2% 25.7% 2.4 pp 2.9 pp 26.7% 25.9% 0.8 pp
ROE - Georgia 27.8% 23.7% 25.1% 2.7 pp 4.1 pp 25.7% 25.4% 0.3 pp
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FS
ROA 4.2% 3.6% 3.7% 0.5 pp 0.6 pp 3.9% 3.7% 0.2 pp
ROA - Georgia FS 4.5% 3.8% 3.9% 0.6 pp 0.7 pp 4.1% 4.0% 0.1 pp
NIM 6.8% 6.4% 5.8% 1.0 pp 0.4 pp 6.6% 5.7% 0.9 pp
Cost to income 34.7% 34.3% 35.3% -0.6 pp 0.4 pp 34.5% 35.9% -1.4 pp
Cost to income - Georgia FS 30.2% 30.4% 30.3% -0.1 pp -0.2 pp 30.3% 30.5% -0.2 pp
Cost of risk 0.6% 1.1% 0.9% -0.3 pp -0.5 pp 0.9% 0.6% 0.3 pp
NPL to gross loans 2.1% 2.2% 2.3% -0.2 pp -0.1 pp 2.1% 2.3% -0.2 pp
NPL provision coverage ratio 89.3% 92.9% 99.8% -10.5 pp -3.6 pp 89.3% 99.8% -10.5 pp
Total NPL coverage ratio 153.7% 154.8% 167.5% -13.8 pp -1.1 pp 153.7% 167.5% -13.8 pp
CET 1 CAR (Basel III) per IFRS 18.3% 17.7% n/a n/a 0.6 pp 18.3% n/a n/a
Tier 1 CAR (Basel III) per IFRS 20.7% 20.1% n/a n/a 0.6 pp 20.7% n/a n/a
Total CAR (Basel III) per IFRS 23.1% 22.2% n/a n/a 0.9 pp 23.1% n/a n/a
Leverage (Times) 6.7x 6.4x 6.9x -0.2x 0.3x 6.7x 6.9x -0.2x
EPS (GEL) 5.33 4.57 4.26 25.1% 16.6% 9.90 8.37 18.3%
Diluted EPS (GEL) 5.25 4.50 4.14 26.8% 16.7% 9.76 8.13 20.0%
BVPS (GEL) 78.21 75.91 67.61 15.7% 3.0% 78.21 67.61 15.7%
Georgia FS refers to Georgian financial services.
For the ratio definitions please refer to appendix 8.
Operational Highlights
Customer base
In millions Jun'23 Mar'23 Jun'22 Change YoY Change QoQ
Total number of registered users 16.1 14.8 11.4 41% 9%
Georgia 3.2 3.1 2.9 10% 3%
Uzbekistan 12.9 11.7 8.5 52% 10%
Total MAU 5.1 5.1 3.7 38% 0%
Georgia 1.6 1.5 1.4 14% 7%
Uzbekistan 3.5 3.6 2.3 52% -3%
Digital customers
In thousands Jun'23 Mar'23 Jun'22 Change YoY Change QoQ
Digital DAU Georgia 381 368 311 23% 4%
Digital MAU Georgia 849 829 704 21% 2%
Digital DAU/MAU Georgia 45% 44% 44% 1 pp 1 pp
Digital DAU Group 1,434 1,401 1,032 39% 2%
Digital MAU Group 4,295 4,432 2,959 45% -3%
Digital DAU/MAU Group 33% 32% 35% -2 pp 1 pp
Uzbekistan - key highlights
In thousands of GEL Jun'23 Mar'23 Jun'22 Change YoY Change QoQ
Gross loans 526,843 407,993 181,345 NMF 29.1%
Customer accounts 457,340 374,429 235,780 94.0% 22.1%
2Q'23 1Q'23 Change QoQ 1H'23
Net profit (GEL, thousands) 12,505 12,707 -1.6% 25,212
ROE 22.1% 28.1% -6.0 pp 25.1%
Georgian and Uzbek payments businesses
In millions of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ 1H'23 1H'22 Change YoY
Net revenue - Georgia 71.0 61.1 50.7 40.0% 16.2% 132.1 94.0 40.5%
Net revenue - Uzbekistan 16.8 16.5 12.0 40.0% 1.8% 33.3 21.5 54.9%
TNET - digital lifestyle platform in Georgia
In millions 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ 1H'23 1H'22 Change YoY
Gross merchandise value (GMV, GEL) 52.8 30.4 28.1 87.9% 73.7% 83.2 42.9 93.9%
Number of transactions 4.2 3.4 3.0 40.0% 23.5% 7.6 5.9 28.8%
Letter from the Chief Executive Officer(( 1 (#_ftn1) ))
I am delighted to report that 2Q 2023 has seen further progress on the strong
start to the year that we achieved in 1Q 2023, giving us a very strong first
half of the year. Our net profit amounted to GEL 293 million, up by 25%
year-on-year, while our return on equity stood at 28.1%. For 1H 2023, our net
profit stood at GEL 548 million, up by 20% year-on-year, with return on equity
reaching 26.7%. I am proud to see that our fintech businesses in Uzbekistan
are not only growing rapidly, but are also profitable, already accounting for
almost 5% of the Group's profit in 1H 2023.
In light of our consistently strong business performance, I am pleased to
report that the Board has declared an interim dividend of GEL 2.55 per share,
payable in October 2022.
Updated mid-term targets
While we are pleased with the progress we are making on a number of fronts, we
believe it is important to keep pushing ourselves to achieve more as we both
grow our customer base and help our customers transact more, both in Georgia
and Uzbekistan. As such, we have revisited and updated our mid-term guidance,
providing a set of targets for 2023-25 for both the Group as a whole and our
Uzbekistan operations. More details are provided later in my letter, but these
include a target of above GEL1.5 billion net profit for the group in 2025,
with ROE of above 23%, and at least GEL 200 million net profit and 80% loan
growth in Uzbekistan.
We remain committed to combining profitable growth with returning capital to
shareholders as appropriate, while continuing to invest in growth. Therefore,
we are maintaining our dividend payout range at 25 to 35%.
This is an ambitious set of targets, but one that I personally feel confident
that my excellent team at TBC can meet and, hopefully, beat.
I would also like to draw your attention to our improved disclosure in our
financial statements and supplementary data, as we now provide full profit and
loss and balance sheet split by our Georgian financial services, Uzbekistan
and other businesses. We hope this will help enable investors and analysts to
better model the key pillars of our business.
Economic growth remains robust, Georgian rate cuts have begun
Having expanded by 7.7% in 1Q 2023, the Georgian economy has continued to show
robust growth, with an annual growth rate of 7.4% in 2Q 2023. This growth
appears to be broad-based, notably with a material contribution from IT
service exports. At the same time, annual headline inflation decreased to 0.3%
in July, while the NBG remained hawkish throughout 2023 and delivered only a
0.5 pp cut from 11% in May and 0.25 pp in August.
Uzbekistan's economic performance also remains strong, with 5.7% GDP growth in
the 2Q 2023 and 5.6% in the first half of 2023.
Strong financial and operating performance continued in 2Q 2023
In 2Q 2023, our operating income amounted to GEL 587 million, up by 26%
year-on-year, driven by both interest and non-interest income. The growth in
net interest income was led by an increase in net interest margin, up by 1.0
pp year-on-year to 6.8% in 2Q 2023, as well as loan book expansion of 10%.
Over the same period, net fee and commission income increased by 40%
year-on-year, mainly led by our payments business, while a slight decrease in
other operating income was related to the normalization of FX gains.
Importantly, our positive operating jaws translated into a lower cost to
income ratio of 34.7%, down by 0.6 pp year-on-year.
In terms of balance sheet growth, our gross loan book increased by 10% year-on
-year, or by 16% in constant currency terms, with Uzbekistan accounting for
19% of the growth. Over the same period, customer deposits increased by 20%,
or by 28% in constant currency terms, with a 7% contribution from Uzbekistan.
Our liquidity and capital positions remain strong. As of 30 June 2023, our
CET1, Tier 1 and Total Capital ratios 2 (#_ftn2) stood at 18.3%, 20.7% and
23.1%, respectively, and remained comfortably above the minimum regulatory
requirements by 3.9 pp, 3.9 pp and 3.2 pp, correspondingly. At the same time,
we continued to operate with a high liquidity buffer, with our net stable
funding (NSFR)(2) and liquidity coverage (LCR)(2) ratios standing at 130% and
125%, respectively.
Our key operational metrics also demonstrated good results. Our customer base
continued to grow across the group, with retail monthly active users (MAU)
reaching 5.1 million by the end of June 2023, out of which our Uzbek customers
accounted for around 70%, compared to 3.7 million a year ago. At the same
time, the number of digital MAU reached 4.3 million at the Group level, up by
45% year-on-year, driven by our fully digital Uzbek operations. This resulted
in a group DAU/MAU ratio of 33% as of June 2023, while the DAU/MAU ratio for
the Georgian business stood at 45%.
Dynamic growth in our Uzbek business
In 2Q 2023, our Uzbek fintech businesses (TBC UZ and Payme) continued to
generate positive returns with their combined net profit amounting to GEL 12.5
million for 2Q 2023, while return on equity stood at 22.1%. The net profit for
1H 2023 stood at GEL 25.2 million and return on equity was 25.1%. This was
driven by net interest income, led by a strong expansion of TBC UZ's retail
loan book, and net fee and commission income, related to the growth in
payments transaction volumes of Payme.
At the end of 2Q 2023, TBC UZ retail loans amounted to GEL 527 million, up by
29% quarter-on-quarter, which translated into an unsecured consumer / micro
loan market share 3 (#_ftn3) of 12.1%. At the same time, retail deposits
reached GEL 457 million, up by 22% quarter-on-quarter, accounting for 2.6% of
the retail deposit market share(3). Meanwhile, in 2Q 2023, Payme's payments
volumes rose by more than 40% year-on-year, reaching GEL 2.4 billion.
I would also like to highlight that the acquisition of the remaining 49%
minority share in our Uzbek payments subsidiary, Payme, in May 2023 was an
important milestone for our expansion strategy in Uzbekistan. This will allow
us to capture the strong synergy potential between our payments business and
our digital bank, TBC UZ, by leveraging our large user base and diverse
product range.
Our digital ecosystem, TNET, demonstrated outstanding results
Our digital ecosystem, TNET, achieved strong growth in 2Q 2023 with gross
merchandise value (GMV) reaching GEL 53 million up by 88% year-on-year and 74%
quarter-on-quarter. This was driven by several business initiatives, mainly in
lifestyle and e-commerce.
Looking ahead - updated mid-term guidance
Our strong financial results, supported by the rapid growth of our fintechs in
Uzbekistan, leaves me confident that we can continue to achieve superior
results for our stakeholders. Therefore, I would like to present our updated
mid-term targets for 2023-2025.
· For the Group:
o Digital monthly active users of more than 7 mln
o Net profit CAGR of more than 15% to above GEL 1.5 bln
o ROE of above 23%
o Dividend pay-out ratio of 25%-35%
o TNET GMV of above GEL 500 mln.
· For Uzbekistan
o Digital monthly active users of more than 5 mln
o Net profit of above GEL 200 mln
o Loan book CAGR of at least 80%.
Both myself and the whole TBC team remain firmly committed to delivering the
best possible services for our customers and meeting our ambitious business
targets for the group over the next 2-3 years.
Economic Overview
Georgia
Economic growth
Even though Georgia's economic expansion moderated somewhat after reaching
10.1% in 2022, the growth in the first half of 2023 was still very strong,
with real GDP increasing by 7.7% in 1Q YoY and by 7.4% in 2Q, with an average
of 7.6% in the first two quarters, according to Geostat's estimates.
External sector
The sustained negative impact of lower international commodity prices on both
exports and imports noticeably affected external sector activity in 2Q 2023.
Specifically, exports and imports growth moderated to 14.8% and 11.8% YoY,
respectively. However, when assessing the half year dynamics, external trade
remained elevated with a 19.3% YoY increase in exports and a 20.4% increase in
imports in the first six months. Importantly, these commodity price dynamics
particularly affected domestic commodity exports, while re-exports continued
to perform strongly. At the same time, the share of IT services in Georgian
exports increased notably, with migrants arriving over the past year being a
major driver. On the imports side, investment goods constituted a considerable
share of imports, indicating positive investment sentiment. The terms of trade
remained broadly stable, supporting economic growth and the GEL.
Given last year's high base effect, which was caused by the high level of
immigration in 2022, the annual growth of tourism inflows adjusted for the
migration impact by the NBG normalized to 34.8% in 2Q 2023, while the figure
for the half year was 57.9%. At the same time, while the share of conventional
tourism in total inflows has increased lately, TBC Capital estimates that the
YoY growth of tourism inflows in January-June 2023, including the expenses of
migrants counted as residents by the NBG, was 81.8%. Remittances also
maintained a positive momentum after adjustment for Russia, expanding by
42.7% 4 (#_ftn4) YoY in 2Q and by 22.0% in the first six months of 2023. FDIs
slowed down in 1Q 2023 and decreased by 13.7% YoY, although the inflow remains
strong considering the record-high level of investments last year.
Fiscal stimulus
The fiscal stimulus, although still sizable, negatively affected growth in
2021 as the deficit amounted to around 6.3% of GDP, after an expansionary 9.3%
of GDP in 2020. In 2022, the deficit was even lower, at 2.5%. According to the
Ministry of Finance, fiscal consolidation is expected to take place in the
coming years with deficit-to-GDP ratios of 2.8% and 2.3% in 2023 and 2024,
respectively.
Credit growth
As of June 2023, bank credit increased by 13.5% YoY, against 13.8% growth at
the end of 1Q 2023, at constant exchange rates 5 (#_ftn5) . Amid further
moderation in inflation, real credit growth strengthened from 8.3% YoY in
March 2023 to 12.9% at the end of June 2023.
Inflation, monetary policy, and the exchange rate
Due to continued robust inflows, the US$/GEL exchange rate continued to
perform strongly in 2Q 2023, although this trend was affected by shifts in the
US$/GEL exchange rate expectations, likely driven by low inflation and the
possibility of rate cuts, triggering deposit conversions from GEL to other
currencies and a minor depreciation from 2.56 in March to 2.64 at the end of
July.
As a result of a stronger GEL and disinflationary pass-through from
international markets, CPI inflation continued to decline from 5.3% in March
to 0.3% in July 2023. While the import component caused headline inflation to
cool down significantly, service inflation remained relatively rigid. The NBG
remained hawkish throughout 2023 and delivered only a 0.5 pp cut from 11% in
May and 0.25 pp in August. The NBG also accumulated a substantial amount of
reserves with a net purchase of US$ 1,058 million on the FX market in
January-June 2023, taking total gross international reserves to US$ 5.1
billion.
Uzbekistan
Uzbekistan also demonstrated solid economic activity with 5.7% 6 (#_ftn6)
growth in the second quarter and 5.6% in the first half of 2023. External
trade was strong as exports of goods increased by 18.6% and imports by 18.9%
YoY in the same period(6). Retail loan portfolio grew by 54.7% YoY at the end
of May, with mortgage loans expanding by 26.7% and non-mortgage loans by
83.9% 7 (#_ftn7) . As in Georgia, inflation and the central bank policy rate
also declined in Uzbekistan, from 12.3% and 15.0% in December 2022 to 9.0% and
14.0% in June 2023, respectively(7). The US$/UZS continued its slight
depreciation trend, standing at 11600.2 at the end of July 2023(7). While
depreciating against the US$, in terms of REER the UZS gained value against
Uzbekistan's main trade partners' currencies.
Going forward
After two, successive years of double-digit growth in Georgia, recent trends
indicate that economic activity should moderate somewhat but remain strong in
2023, with the IMF and the NBG projecting growth of 6% and 5%, respectively,
while TBC Capital's baseline stands at 7.2%. As for Uzbekistan, the consensus
projection appears to be around 5.1%.
More information on the Georgian economy and financial sector can be found at
www.tbccapital.ge (http://www.tbccapital.ge/) .
Unaudited Consolidated Financial Results Overview for 2Q 2023
This statement provides a summary of the unaudited business and financial
trends for 2Q 2023 for TBC Bank Group plc and its subsidiaries. The quarterly
financial information and trends are unaudited.
TBC Bank Group PLC's financial results have been prepared in accordance with
the UK-adopted International Accounting Standard (IAS) 34 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the Financial Conduct Authority (FCA).
Total assets and total liabilities for 31-Mar-2023 were restated due to
replacement of IFRS4 with IFRS17. For more details, please refer to Note 2.
Please note that there might be slight differences in previous periods'
figures due to rounding.
Net Interest Income
In 2Q 2023, net interest income amounted to GEL 399.3 million, up by 31.5% and
8.9% on a YoY and QoQ basis, respectively.
The YoY rise in interest income of GEL 159.1 million, or 28.8%, was mostly
attributable to an increase in interest income from loans related to a rise in
the respective yield by 1.6 pp, as well as an increase in the loan portfolio
of GEL 1,826.2 million, or 10.4%.
The QoQ increase in interest income of GEL 39.7 million, or 5.9%, was mainly
related to an increase in interest income from loans related to a 0.4 pp rise
in the respective loan yield, as well as an increase in the loan portfolio of
GEL 1,039.3 million, or 5.7%.
Interest expense increased by GEL 63.3 million, or 25.4%, on a YoY basis,
mainly related to an increase in the deposit portfolio of GEL 3,219.6 million,
or 20.4%, and a 1.2 pp growth in deposit costs.
On a QoQ basis, interest expense increased by GEL 7.1 million, or 2.3%,
primarily driven by the increased portfolio in 2Q 2023 by GEL 1,694.9 million
or 9.8%, while deposit cost remained stable.
In 2Q 2023, our NIM stood at 6.8%, up by 1.0 pp and 0.4 pp on YoY and QoQ
basis, respectively.
In thousands of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Interest income 711,820 672,150 552,719 28.8% 5.9%
Interest expense* (312,482) (305,359) (249,147) 25.4% 2.3%
Net interest income 399,338 366,791 303,572 31.5% 8.9%
NIM 6.8% 6.4% 5.8% 1.0 pp 0.4 pp
* Interest expense includes net interest gains from currency swaps
Non-Interest Income
In 2Q 2023, total non-interest income increased by 16.8% and 13.3% on a YoY
and QoQ basis, respectively, amounting to GEL 187.4 million.
Net fee and commission income increased by 39.8% and 14.3% on a YoY and QoQ
basis, respectively. The increase was mainly related to increased payments
transactions. In 2Q 2023, our Uzbek business contributed around 18% to the
Group's net fee & commission income.
In 2Q 2023, net gains from FX operations decreased by 8.1% on a YoY basis,
which was mainly related to a high base of 2Q 2022, while on a QoQ basis they
remained broadly stable.
In thousands of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Non-interest income
Net fee and commission income 105,636 92,438 75,572 39.8% 14.3%
Net gains from currency derivatives, foreign currency operations and 61,127 60,601 66,520 -8.1% 0.9%
translation
Insurance profit 6,184 6,218 6,698 -7.7% -0.5%
Other operating income 14,481 6,191 11,747 23.3% NMF
Total other non-interest income 187,428 165,448 160,537 16.8% 13.3%
Credit Loss Allowance
Credit loss allowance for loans in 2Q 2023 amounted to GEL 29.4 million. In 2Q
2023, cost of risk stood at 0.6%.
In thousands of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Credit loss allowance for loans to customers (29,384) (50,040) (39,025) -24.7% -41.3%
Credit loss allowance for other transactions (4,550) (3,128) 1,171 NMF 45.5%
Total credit loss allowance (33,934) (53,168) (37,854) -10.4% -36.2%
Operating profit after expected credit losses and non-financial asset 552,832 479,071 426,255 29.7% 15.4%
impairment losses
Cost of risk 0.6% 1.1% 0.9% -0.3 pp -0.5 pp
Operating Expenses
In 2Q 2023, our operating expenses expanded by 24.4% and 11.4% on a YoY and
QoQ basis, respectively.
Both the YoY and QoQ increases were mainly driven by an overall expansion of
business in 2Q 2023. Importantly, our investments in the business are driving
higher revenues, and our cost to income ratio declined to 34.7%, while our
Georgian financial services' cost to income stood at 30.2%.
In thousands of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Operating expenses
Staff costs (108,724) (103,426) (90,332) 20.4% 5.1%
(Allowance)/recovery of provision for liabilities and charges (50) (71) 4 NMF -29.6%
Depreciation and amortisation (29,587) (28,361) (24,321) 21.7% 4.3%
Administrative and other operating expenses (65,199) (50,922) (48,986) 33.1% 28.0%
Total operating expenses (203,560) (182,780) (163,635) 24.4% 11.4%
Cost to income 34.7% 34.3% 35.3% -0.6 pp 0.4 pp
Georgian financial services' cost to income 30.2% 30.4% 30.3% -0.1 pp -0.2 pp
Net Profit
Our net profit increased by 24.9% and 15.0% on a YoY and QoQ basis,
respectively, and amounted to GEL 293.1 million, driven by robust income
generation across the board, as well as strong asset quality.
The growth in effective tax rate YoY is related to the changes in tax
legislation effective from 1 January 2023, according to which, the corporate
income tax rate for banks increased from 15% to 20% and the potential shift to
Estonian Tax Model was abolished.
As a result, in 2Q 2023 our ROE stood at 28.1%, while our ROA reached 4.2%.
In thousands of GEL 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Profit before tax 349,272 296,291 262,620 33.0% 17.9%
Income tax expense (56,186) (41,331) (28,056) NMF 35.9%
Profit for the period 293,086 254,960 234,564 24.9% 15.0%
Effective tax rate 16% 14% 11% 5 pp 2 pp
ROE 28.1% 25.2% 25.7% 2.4 pp 2.9 pp
Georgian financial services' ROE 27.8% 23.7% 25.1% 2.7 pp 4.1 pp
ROA 4.2% 3.6% 3.7% 0.5 pp 0.6 pp
Georgian financial services' ROA 4.5% 3.7% 3.9% 0.6 pp 0.8 pp
Funding and Liquidity
As of 30 June 2023, the total liquidity coverage ratio (LCR), as defined by
the NBG, was 124.5%, above the 100% limit, while the LCR in GEL and FC stood
at 130.4% and 119.2%, accordingly, above the respective limits of 75% and
100%.
Over the same period, the net stable funding ratio (NSFR), as defined by the
NBG, stood at 129.8%, compared to the regulatory limit of 100%.
Jun'23 Mar'23 Change QoQ
Minimum net stable funding ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Net stable funding ratio as defined by the NBG* 129.8% 131.3% -1.5 pp
Net loans to deposits + IFI funding 90.6% 92.9% -2.3 pp
Leverage (Times) 6.7x 6.4x 0.3x
Minimum total liquidity coverage ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Minimum LCR in GEL, as defined by the NBG 75.0% 75.0% 0.0 pp
Minimum LCR in FC, as defined by the NBG 100.0% 100.0% 0.0 pp
Total liquidity coverage ratio, as defined by the NBG* 124.5% 135.7% -11.2 pp
LCR in GEL, as defined by the NBG* 130.4% 164.2% -33.8 pp
LCR in FC, as defined by the NBG* 119.2% 116.5% 2.7 pp
* Ratios are calculated per IFRS
Regulatory Capital for Georgian Bank
As of 30 June 2023, our CET1, Tier 1 and Total Capital ratios stood at 18.3%,
20.7% and 23.1%, respectively, and remained above the minimum regulatory
requirements by 3.9 pp, 3.9 pp and 3.2 pp, accordingly, per IFRS.
The QoQ increases in all CET1, Tier 1 and Total capital adequacy ratios were
mainly driven by strong net profit generation, which was partially offset by
loan book growth.
In thousands of GEL Jun'23 Mar'23 Change QoQ
CET 1 Capital 3,920,004 3,667,479 6.9%
Tier 1 Capital 4,443,544 4,179,559 6.3%
Total Capital 4,947,830 4,601,884 7.5%
Total Risk-weighted Exposures 21,452,808 20,767,052 3.3%
Minimum CET 1 ratio 14.4% 14.3% 0.1 pp
CET 1 Capital adequacy ratio 18.3% 17.7% 0.6 pp
Minimum Tier 1 ratio 16.8% 16.7% 0.1 pp
Tier 1 Capital adequacy ratio 20.7% 20.1% 0.6 pp
Minimum total capital adequacy ratio 19.9% 19.7% 0.2 pp
Total Capital adequacy ratio 23.1% 22.2% 0.9 pp
Ratios and numbers are calculated per IFRS
Loan Portfolio
As of 30 June 2023, the gross loan portfolio reached GEL 19,360.7 million, up
by 5.7% QoQ, or by 4.4% on a constant currency basis.
By the end of June 2023, our Georgian financial services portfolio increased
by 5.1% on a QoQ basis and reached GEL 18,816.1 million, with 3.9% growth on a
constant currency basis. Over the same period, our Uzbek portfolio increased
by 29.1% and stood at GEL 526.8 million, which translated into growth of 27.4%
on a constant currency basis.
In thousands of GEL Jun'23 Mar'23 Change QoQ
Gross loans and advances to customers
Georgian financial services (Georgia FS) 18,816,052 17,896,929 5.1%
Retail Georgia 6,945,911 6,739,925 3.1%
GEL 4,549,932 4,421,734 2.9%
FC 2,395,979 2,318,191 3.4%
CIB Georgia 6,920,263 6,493,610 6.6%
GEL 2,321,704 2,371,886 -2.1%
FC 4,598,559 4,121,724 11.6%
MSME Georgia 4,949,878 4,663,394 6.1%
GEL 2,675,925 2,577,034 3.8%
FC 2,273,953 2,086,360 9.0%
Uzbekistan 526,843 407,993 29.1%
UZS 526,843 407,993 29.1%
Total gross loans and advances to customers* 19,360,689 18,321,341 5.7%
* Total gross loans and advances to customers include Azerbaijan loan
portfolio
2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Loan yields 12.8% 12.4% 11.2% 1.6 pp 0.4 pp
GEL 15.4% 14.9% 15.7% -0.3 pp 0.5 pp
FC 8.4% 8.2% 6.6% 1.8 pp 0.2 pp
UZS 43.0% 43.6% 42.4% 0.6 pp -0.6 pp
Georgia FS 12.0% 11.7% 10.9% 1.1 pp 0.3 pp
GEL 15.4% 14.9% 15.7% -0.3 pp 0.5 pp
FC 8.4% 8.2% 6.6% 1.8 pp 0.2 pp
Uzbekistan 43.0% 43.6% 42.4% 0.6 pp -0.6 pp
UZS 43.0% 43.6% 42.4% 0.6 pp -0.6 pp
Total loan yields* 12.8% 12.4% 11.2% 1.6 pp 0.4 pp
* Total loans yields include Azerbaijan
Loan Portfolio Quality
Total PAR 90 and NPL to gross loans slightly improved on the Group level,
mainly driven by retail Georgia sub-segment.
PAR 90 Jun'23 Mar'23 Change QoQ
Georgia FS 1.1% 1.2% -0.1 pp
Retail Georgia 0.9% 1.1% -0.2 pp
CIB Georgia 0.6% 0.8% -0.2 pp
MSME Georgia 2.3% 2.2% 0.1 pp
Uzbekistan 2.2% 2.0% 0.2 pp
Total PAR 90* 1.2% 1.3% -0.1 pp
* Total PAR 90 includes Azerbaijan
In thousands of GEL Jun'23 Mar'23 Change QoQ
Non-performing Loans (NPL)
Georgia FS 387,626 386,474 0.3%
Retail Georgia 127,833 138,234 -7.5%
CIB Georgia 98,374 88,830 10.7%
MSME Georgia 161,419 159,410 1.3%
Uzbekistan 11,646 8,176 42.4%
Total non-performing loans* 400,989 396,433 1.1%
* Total non-performing loans include Azerbaijan NPLs
NPL to gross loans Jun'23 Mar'23 Change QoQ
Georgia FS 2.1% 2.2% -0.1 pp
Retail Georgia 1.8% 2.1% -0.3 pp
CIB Georgia 1.4% 1.4% 0.0 pp
MSME Georgia 3.3% 3.4% -0.1 pp
Uzbekistan 2.2% 2.0% 0.2 pp
Total NPL to gross loans* 2.1% 2.2% -0.1 pp
* Total NPL to gross loans include Azerbaijan NPLs
NPL Coverage Jun'23 Mar'23
Provision Coverage Total Coverage** Provision Coverage Total Coverage**
Georgia FS 85.3% 150.9% 89.7% 152.1%
Retail Georgia 141.8% 192.4% 143.3% 188.1%
CIB Georgia 49.4% 110.5% 51.5% 114.6%
MSME Georgia 62.6% 142.7% 64.6% 140.9%
Uzbekistan 180.0% 180.0% 189.7% 189.7%
Total NPL coverage* 89.3% 153.7% 92.9% 154.8%
* Total NPL coverage include Azerbaijan loans coverage
** Total NPL coverage ratio includes provision and collateral coverage
Cost of Risk
In terms of cost of risk (CoR), the strong performance in 2Q 2023 was mainly
driven by improved actual and estimated macroeconomic parameters in Georgia,
which was also reflected in the strong performance of the loan book.
Our Uzbekistan business contributed 0.1 pp to the total CoR. In Uzbekistan,
CoR was broadly stable on a YoY basis, while the QoQ increase was driven by
the higher portfolio growth compared to 1Q 2023.
Cost of risk (CoR) 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Georgia FS 0.5% 1.0% 0.9% -0.4 pp -0.5 pp
Retail Georgia 0.5% 1.4% 2.4% -1.9 pp -0.9 pp
CIB Georgia 0.2% -0.1% -0.1% 0.3 pp 0.3 pp
MSME Georgia 0.9% 2.1% 0.1% 0.8 pp -1.2 pp
Uzbekistan 6.6% 5.6% 6.3% 0.3 pp 1.0 pp
Total cost of risk* 0.6% 1.1% 0.9% -0.3 pp -0.5 pp
* Total cost of risk includes Azerbaijan CoR
Deposit Portfolio
The total deposit portfolio amounted to GEL 18,992.5 million, up by 9.8% QoQ
or by 8.5% on a constant currency basis.
As of 30 June 2023, the Georgian financial services portfolio increased by
9.9% on a QoQ basis and reached GEL 18,639.9 million, with 8.6% growth on a
constant currency basis. Over the same period, our Uzbek portfolio increased
by 22.1% and stood at GEL 457.3 million, translated into growth of 20.5% on a
constant currency basis.
In thousands of GEL Jun'23 Mar'23 Change QoQ
Customer accounts
Georgia FS 18,639,911 16,958,444 9.9%
Retail Georgia 6,985,211 6,455,890 8.2%
GEL 2,242,193 1,941,188 15.5%
FC 4,743,018 4,514,702 5.1%
CIB Georgia 9,048,955 8,302,775 9.0%
GEL 5,169,170 4,641,378 11.4%
FC 3,879,785 3,661,397 6.0%
MSME Georgia 1,638,612 1,590,496 3.0%
GEL 889,834 829,378 7.3%
FC 748,778 761,118 -1.6%
MOF 967,133 609,283 58.7%
GEL 967,133 609,283 58.7%
Uzbekistan 457,340 374,429 22.1%
FC 1,322 1,196 10.5%
UZS 456,018 373,233 22.2%
Total customer accounts* 18,992,492 17,297,630 9.8%
* Total customer accounts are adjusted for eliminations
Deposit rates 2Q'23 1Q'23 2Q'22 Change YoY Change QoQ
Deposit rates 4.9% 4.9% 3.7% 1.2 pp 0.0 pp
GEL 8.3% 8.8% 7.7% 0.6 pp -0.5 pp
FC 0.8% 0.7% 0.9% -0.1 pp 0.1 pp
UZS 25.0% 25.4% 23.0% 2.0 pp -0.4 pp
Georgian financial services 4.5% 4.5% 3.5% 1.0 pp 0.0 pp
GEL 8.4% 8.8% 7.8% 0.6 pp -0.4 pp
FC 0.8% 0.7% 0.9% -0.1 pp 0.1 pp
Uzbek business 24.9% 25.3% 23.0% 1.9 pp -0.4 pp
FC 4.7% 4.9% n/a n/a -0.2 pp
UZS 25.0% 25.4% 23.0% 2.0 pp -0.4 pp
Total deposit rates* 4.9% 4.9% 3.7% 1.2 pp 0.0 pp
* Total deposits rates include MOF deposits
Unaudited Consolidated Financial Results Overview for 1H 2023
This statement provides a summary of the unaudited business and financial
trends for 1H 2023 for TBC Bank Group plc and its subsidiaries. The
semi-annual financial information and trends are unaudited.
TBC Bank Group PLC's financial results have been prepared in accordance with
the UK-adopted International Accounting Standard (IAS) 34 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of
the Financial Conduct Authority (FCA).
Total equity and total liabilities were restated for 30-Jun-2022 due to a
change in the accounting of option contracts. As a result, ROE and leverage
ratios were restated for 1H 2022. In addition, total assets and total
liabilities for 30-Jun-2022 were restated due to replacement of IFRS4 with
IFRS17. For more details, please refer to Note 2.
Please also note that there might be slight differences in previous periods'
figures due to rounding.
Net Interest Income
In 1H 2023, net interest income amounted to GEL 766.1 million, up by 29.4% on
a YoY basis.
The YoY rise in interest income by GEL 303.5 million, or 28.1%, was mostly
attributable to an increase in interest income from loans related to a GEL
1,826.2 million, or 10.4%, increase in the respective portfolio, as well as a
1.6 pp rise in the respective yield.
YoY interest expense increased by GEL 129.6 million, or 26.5%, mainly related
to an increase in the deposit portfolio of GEL 3,219.6 million, or 20.4%, and
a 1.2 pp growth in deposit cost.
In 1H 2023, our NIM stood at 6.6%, up by 0.9 pp on a YoY basis.
In thousands of GEL 1H'23 1H'22 Change YoY
Interest income 1,383,970 1,080,462 28.1%
Interest expense* (617,841) (488,271) 26.5%
Net interest income 766,129 592,191 29.4%
NIM 6.6% 5.7% 0.9 pp
* Interest expense includes net interest gains from currency swaps
Non-Interest Income
Total non-interest income amounted to GEL 352.9 million in 1H 2023, increasing
by 23.9% on a YoY basis.
Net fee and commission income increased by 40.0% on a YoY basis, related to
increased payments transactions both in Georgia and Uzbekistan. Our Uzbek
business contributed 18% of the Group's net fee and commission income.
In thousands of GEL 1H'23 1H'22 Change YoY
Other non-interest income
Net fee and commission income 198,074 141,462 40.0%
Net gains from currency derivatives, foreign currency operations and 121,728 114,377 6.4%
translation
Insurance profit 12,402 10,965 13.1%
Other operating income 20,672 17,906 15.4%
Total other non-interest income 352,876 284,710 23.9%
Credit Loss Allowance
Credit loss allowance for loans in 1H 2023 amounted to GEL 79.4 million, which
translated into a 0.9% cost of risk.
In thousands of GEL 1H'23 1H'22 Change YoY
Credit loss (allowance)/recovery for loans to customers (79,424) (50,522) 57.2%
Credit loss allowance for other transactions (7,678) (1,068) NMF
Total credit loss (allowance)/recovery (87,102) (51,590) 68.8%
Operating income after expected credit and non-financial asset impairment 1,031,903 825,311 25.0%
losses
Cost of risk 0.9% 0.6% 0.3 pp
Operating Expenses
In 1H 2023, our operating expenses expanded by 22.8% on a YoY basis.
In the first half of 2023, the annual increase in operating expenses was
mainly driven by overall business expansion, both locally and internationally.
Our investments into the business are continuing to drive strong income
generation, and our cost to income ratio amounted to 34.5%, down by 1.4 pp,
while our Georgian financial services' cost to income stood at 30.3%, down by
0.2 pp.
In thousands of GEL 1H'23 1H'22 Change YoY
Operating expenses
Staff costs (212,150) (176,491) 20.2%
Allowance of provision for liabilities and charges (121) (60) NMF
Depreciation and amortisation (57,948) (47,332) 22.4%
Administrative and other operating expenses (116,121) (90,702) 28.0%
Total operating expenses (386,340) (314,585) 22.8%
Cost to income 34.5% 35.9% -1.4 pp
Georgian financial services' cost to income 30.3% 30.5% -0.2 pp
Net Profit
In 1H 2023, we delivered robust profitability and generated GEL 548.0 million
in net profit, up by 19.5% YoY, driven by robust income generation across the
board, as well as strong asset quality.
The growth in effective tax rate YoY is related to the changes in tax
legislation effective from 1 January 2023, according to which, the corporate
income tax rate for banks increased from 15% to 20% and the potential shift to
Estonian Tax Model was abolished.
As a result, our ROE and ROA for 1H 2023 reached 26.7% and 3.9%, accordingly.
In thousands of GEL 1H'23 1H'22 Change YoY
Profit before tax 645,563 510,726 26.4%
Income tax expense (97,517) (52,181) 86.9%
Profit for the period 548,046 458,545 19.5%
Effective tax rate 15% 10% 5 pp
ROE 26.7% 25.9% 0.8 pp
Georgian financial services' ROE 25.7% 25.4% 0.3 pp
ROA 3.9% 3.7% 0.2 pp
Georgian financial services' ROA 4.1% 4.0% 0.1 pp
Loan Portfolio
As of 30 June 2023, the gross loan portfolio reached GEL 19,360.7 million, up
by 10.4% YoY or 16.4% on a constant currency basis.
By the end of June 2023, the Georgian financial services' portfolio increased
by 8.5% on a YoY basis and reached GEL 18,816.1 million, with 14.0% growth on
a constant currency basis. Over the same period, our Uzbek portfolio increased
almost three times and reached GEL 526.8 million.
In thousands of GEL Jun'23 Jun'22 Change YoY
Gross loans and advances to customers
Georgian financial services (Georgia FS) 18,816,052 17,334,394 8.5%
Retail Georgia 6,945,911 6,472,248 7.3%
GEL 4,549,932 3,994,645 13.9%
FC 2,395,979 2,477,603 -3.3%
CIB Georgia 6,920,263 6,462,635 7.1%
GEL 2,321,704 2,083,255 11.4%
FC 4,598,559 4,379,380 5.0%
MSME Georgia 4,949,878 4,399,511 12.5%
GEL 2,675,925 2,357,652 13.5%
FC 2,273,953 2,041,859 11.4%
Uzbekistan 526,843 181,345 NMF
UZS 526,843 181,345 NMF
Total gross loans and advances to customers* 19,360,689 17,534,515 10.4%
* Total gross loans and advances to customers include Azerbaijan loan
portfolio
1H'23 1H'22 Change YoY
Loan yields 12.6% 11.0% 1.6 pp
GEL 15.2% 15.6% -0.4 pp
FC 8.3% 6.5% 1.8 pp
UZS 43.1% 41.8% 1.3 pp
Georgia FS 11.9% 10.8% 1.1 pp
GEL 15.2% 15.6% -0.4 pp
FC 8.3% 6.5% 1.8 pp
Uzbekistan 43.1% 41.8% 1.3 pp
UZS 43.1% 41.8% 1.3 pp
Total loan yields* 12.6% 11.0% 1.6 pp
* Total loans yields include Azerbaijan
Loan Portfolio Quality
In 1H 2023, PAR 90 for our Georgia FS decreased by 0.3 pp YoY and stood at
1.1%. This improvement was observed across all sub-segments. Over the same
period, NPL to gross loans stood at 2.1%, down by 0.2 pp. This decrease was
mainly driven by the retail and MSME sub-segments.
Over the same period, both PAR 90 and NPL for the Uzbek business remained
broadly stable and stood at 2.2%.
Par 90 Jun'23 Jun'22 Change YoY
Georgia FS 1.1% 1.4% -0.3 pp
Retail Georgia 0.9% 1.2% -0.3 pp
CIB Georgia 0.6% 0.7% -0.1 pp
MSME Georgia 2.3% 2.6% -0.3 pp
Uzbekistan 2.2% 2.1% 0.1 pp
Total PAR 90* 1.2% 1.4% -0.2 pp
* Total PAR 90 includes Azerbaijan
In thousands of GEL Jun'23 Jun'22 Change YoY
Non-performing Loans (NPL)
Georgia FS 387,626 400,520 -3.2%
Retail Georgia 127,833 147,847 -13.5%
CIB Georgia 98,374 84,314 16.7%
MSME Georgia 161,419 168,359 -4.1%
Uzbekistan 11,646 3,849 NMF
Total non-performing loans* 400,989 407,855 -1.7%
* Total non-performing loans include Azerbaijan NPLs
NPL to gross loans Jun'23 Jun'22 Change YoY
Georgia FS 2.1% 2.3% -0.2 pp
Retail Georgia 1.8% 2.3% -0.5 pp
CIB Georgia 1.4% 1.3% 0.1 pp
MSME Georgia 3.3% 3.8% -0.5 pp
Uzbekistan 2.2% 2.1% 0.1 pp
Total NPL to gross loans* 2.1% 2.3% -0.2 pp
* Total NPL to gross loans include Azerbaijan NPLs
NPL Coverage Jun'23 Jun'22
Provision Coverage Total Coverage** Provision Coverage Total Coverage**
Georgia FS 85.3% 150.9% 97.6% 164.4%
Retail Georgia 141.8% 192.4% 167.6% 218.4%
CIB Georgia 49.4% 110.5% 55.4% 118.7%
MSME Georgia 62.6% 142.7% 57.5% 139.9%
Uzbekistan 180.0% 180.0% 142.5% 142.5%
Total NPL coverage* 89.3% 153.7% 99.8% 167.5%
* Total NPL coverage include Azerbaijan loans coverage
** Total NPL coverage ratio includes provision and collateral coverage
Cost of Risk
In 1H 2023, our cost of risk amounted to 0.9%.
In the first half of 2023, cost of risk (CoR) for our Georgia FS amounted to
0.8%, up by 0.2 pp on a YoY basis. The increase was mainly caused by the
unusually low CoR for the MSME sub-segment in 1H 2022.
Over the same period, cost of risk of our Uzbek business amounted to 6.1%, up
by 0.7 pp on a YoY basis. The increase was mainly driven by the enhancement of
the provisioning approach with more internal data accumulated since the launch
of the Uzbek bank.
Cost of risk (CoR) 1H'23 1H'22 Change YoY
Georgia FS 0.8% 0.6% 0.2 pp
Retail Georgia 1.0% 1.5% -0.5 pp
CIB Georgia 0.0% -0.1% 0.1 pp
MSME Georgia 1.5% 0.3% 1.2 pp
Uzbekistan 6.1% 5.4% 0.7 pp
Total cost of risk* 0.9% 0.6% 0.3 pp
* Total cost of risk includes Azerbaijan CoR
Deposit Portfolio
The total deposit portfolio amounted to GEL 18,992.5 million, increasing by
20.4% YoY or 27.5% on a constant currency basis.
As of 30 June 2023, the Georgian financial services' portfolio increased by
19.4% on a YoY basis and reached GEL 18,639.9 million, with 26.0% growth on a
constant currency basis. Over the same period, our Uzbek portfolio almost
doubled and stood at GEL 457.3 million.
In thousands of GEL Jun'23 Jun'22 Change YoY
Customer accounts
Georgia FS 18,639,911 15,612,455 19.4%
Retail Georgia 6,985,211 5,671,380 23.2%
GEL 2,242,193 1,571,547 42.7%
FC 4,743,018 4,099,833 15.7%
CIB Georgia 9,048,955 7,659,931 18.1%
GEL 5,169,170 3,176,650 62.7%
FC 3,879,785 4,483,281 -13.5%
MSME Georgia 1,638,612 1,566,524 4.6%
GEL 889,834 723,118 23.1%
FC 748,778 843,406 -11.2%
MOF 967,133 714,620 35.3%
GEL 967,133 714,620 35.3%
Uzbekistan 457,340 235,780 94.0%
FC 1,322 - NMF
UZS 456,018 235,780 93.4%
Total customer accounts* 18,992,492 15,772,905 20.4%
* Total customer accounts are adjusted for eliminations
Deposit rates 1H'23 1H'22 Change YoY
Deposit rates 4.9% 3.7% 1.2 pp
GEL 8.5% 7.6% 0.9 pp
FC 0.7% 1.0% -0.3 pp
UZS 25.1% 22.3% 2.8 pp
Georgian financial services 4.5% 3.5% 1.0 pp
GEL 8.6% 7.6% 1.0 pp
FC 0.8% 1.0% -0.2 pp
Uzbek business 25.0% 22.3% 2.7 pp
FC 4.8% n/a n/a
UZS 25.1% 22.3% 2.8 pp
Total deposit rates* 4.9% 3.7% 1.2 pp
* Total deposit rates include MOF deposits
Additional Disclosures
1) TBC Bank - Background
TBC Bank Group PLC ("TBC PLC") is a public limited company registered in
England and Wales. TBC PLC is the parent company of JSC TBC Bank ("TBC Bank")
and a group of companies that principally operate in Georgia in the financial
sector. TBC PLC also offers non-financial services via TNET, the largest
digital ecosystem in Georgia. Since 2019, TBC PLC has expanded its operations
into Uzbekistan by operating fast growing retail digital financial services in
the country. TBC PLC is listed on the London Stock Exchange under the symbol
TBCG and is a constituent of the FTSE 250 Index. It is also a member of the
FTSE4Good Index Series and the MSCI United Kingdom Small Cap Index.
TBC Bank, together with its subsidiaries, is a leading universal banking group
in Georgia, with a total market share of 38.8% of customer loans and 40.1% of
customer deposits as of 30 June 2023, according to data published by the
National Bank of Georgia.
2) Consolidated Financial Statements and Key Ratios 2Q 2023
Consolidated Balance Sheet
In thousands of GEL Jun'23 Mar'23
ASSETS
Cash and cash equivalents 2,940,359 2,188,553
Due from other banks 52,550 38,738
Mandatory cash balances with National Bank of Georgia and the Central Bank of 1,706,981 1,817,145
Uzbekistan
Loans and advances to customers 19,002,657 17,953,053
Investment securities measured at fair value through other comprehensive 2,942,679 3,047,598
income
Bonds carried at amortised cost 87,213 30,967
Finance lease receivables 338,203 316,247
Investment properties 20,741 21,080
Current income tax prepayment 3,005 856
Deferred income tax asset 12,573 13,867
Other financial assets 266,969 258,135
Other assets 441,756 426,343
Premises and equipment 463,407 448,041
Right of use assets 117,634 112,977
Intangible assets 418,468 401,326
Goodwill 59,964 59,964
Investments in associates 3,667 4,095
TOTAL ASSETS 28,878,826 27,138,985
LIABILITIES
Due to credit institutions 2,448,662 2,596,880
Customer accounts 18,992,492 17,297,630
Lease liabilities 87,324 79,989
Other financial liabilities 387,595 345,017
Current income tax liability 27,559 6,659
Debt Securities in issue 1,392,872 1,324,815
Deferred income tax liability 112,095 114,300
Provision for liabilities and charges 20,767 19,228
Other liabilities 91,839 67,026
Redemption liability 347,044 464,805
Subordinated debt 639,048 583,678
TOTAL LIABILITIES 24,547,297 22,900,027
EQUITY
Share capital 1,682 1,676
Shares held by trust (75,470) (37,239)
Share premium 272,930 261,719
Retained earnings 3,984,493 3,993,387
Merger reserve 402,862 402,862
Share based payment reserve 5,181 (2,815)
Fair value reserve for investment securities measured at fair value through 16,461 13,503
other comprehensive income
Cumulative currency translation reserve (36,804) (41,024)
Other reserve (347,044) (464,805)
Equity attributable to owners of the parent 4,224,291 4,127,264
Non-controlling interest 107,238 111,694
TOTAL EQUITY 4,331,529 4,238,958
TOTAL LIABILITIES AND EQUITY 28,878,826 27,138,985
Consolidated Income Statement and Other Comprehensive Income
In thousands of GEL 2Q'23 1Q'23 2Q'22
Interest income 711,820 672,150 552,719
Interest expense (312,482) (305,359) (249,147)
Net interest income 399,338 366,791 303,572
Fee and commission income 161,729 151,801 127,490
Fee and commission expense (56,093) (59,363) (51,918)
Net fee and commission income 105,636 92,438 75,572
Insurance contract revenue 31,552 29,524 27,201
Reinsurance service result (1,517) (2,870) (614)
Insurance service claims and expenses incurred (23,851) (20,436) (19,889)
Insurance profit 6,184 6,218 6,698
Net gains from currency derivatives, foreign currency operations and 61,127 60,601 66,520
translation
Net gains from disposal of investment securities measured at fair value 2,307 2,012 108
through other comprehensive income
Other operating income 11,906 3,905 11,461
Share of profit of associates 268 274 178
Other operating non-interest income 75,608 66,792 78,267
Credit loss allowance for loans to customers (29,384) (50,040) (39,025)
Credit loss (allowance)/recovery for finance lease receivable (1,059) (1,073) 883
Credit loss (allowance)/recovery for performance guarantees and credit related (1,273) 337 (1,659)
commitments
Credit loss (allowance)/recovery for other financial assets (2,136) (1,954) 992
Credit loss recovery/(allowance) for financial assets measured at fair value 134 (296) 1,183
through other comprehensive income
Net impairment of non-financial assets (216) (142) (228)
Operating income after expected credit and non-financial asset impairment 552,832 479,071 426,255
losses
Losses from modifications of financial instruments - - -
Staff costs (108,724) (103,426) (90,332)
Depreciation and amortisation (29,587) (28,361) (24,321)
(Allowance)/recovery of provision for liabilities and charges (50) (71) 4
Administrative and other operating expenses (65,199) (50,922) (48,986)
Operating expenses (203,560) (182,780) (163,635)
Profit before tax 349,272 296,291 262,620
Income tax expense (56,186) (41,331) (28,056)
Profit for the period 293,086 254,960 234,564
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve 2,958 8,036 (1,597)
Exchange differences on translation to presentation currency 4,220 (5,166) (8,703)
Other comprehensive income for the period 7,178 2,870 (10,300)
Total comprehensive income for the period 300,264 257,830 224,264
Profit attributable to:
- Shareholders of TBCG 288,791 248,668 233,799
- Non-controlling interest 4,295 6,292 765
Profit for the period 293,086 254,960 234,564
Total comprehensive income is attributable to:
- Shareholders of TBCG 295,969 251,538 223,499
- Non-controlling interest 4,295 6,292 765
Total comprehensive income for the period 300,264 257,830 224,264
* Interest expense includes net interest gains from currency swaps
Key Ratios 2Q'23
Total equity and total liabilities were restated for 30-Jun-2022 due to a
change in the accounting of option contracts. As a result, ROE and leverage
ratios were restated for 2Q 2022.
Average Balances
The average balances included in this document are calculated as the average
of the relevant monthly balances as of the end of each month. 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.
Ratios (based on monthly averages, where applicable) 2Q'23 1Q'23 2Q'22
Profitability ratios:
ROE(1) 28.1% 25.2% 25.7%
ROA(2) 4.2% 3.6% 3.7%
Cost to income(3) 34.7% 34.3% 35.3%
NIM(4) 6.8% 6.4% 5.8%
Loan yields(5) 12.8% 12.4% 11.2%
Deposit rates(6) 4.9% 4.9% 3.7%
Cost of funding(7) 5.6% 5.4% 4.8%
Asset quality & portfolio concentration:
Cost of risk(9) 0.6% 1.1% 0.9%
PAR 90 to Gross Loans(9) 1.2% 1.3% 1.4%
NPLs to Gross Loans(10) 2.1% 2.2% 2.3%
NPL provision coverage(11) 89.3% 92.9% 99.8%
Total NPL coverage(12) 153.7% 154.8% 167.5%
Credit loss level to Gross Loans(13) 1.8% 2.0% 2.3%
Related Party Loans to Gross Loans(14) 0.1% 0.1% 0.1%
Top 10 Borrowers to Total Portfolio(15) 5.8% 6.0% 6.6%
Top 20 Borrowers to Total Portfolio(16) 8.7% 9.0% 8.8%
Capital & liquidity positions:
Net Loans to Deposits plus IFI Funding(17) 90.6% 92.9% 97.7%
Net Stable Funding Ratio** (18) 129.8% 131.3% n/a
Liquidity Coverage Ratio** (19) 124.5% 135.7% n/a
Leverage(20) 6.7x 6.4x 6.9x
CET 1 CAR* (Basel III)(21) 18.3% 17.7% n/a
Tier 1 CAR* (Basel III)(22) 20.7% 20.1% n/a
Total 1 CAR* (Basel III)(23) 23.1% 22.2% n/a
* Ratios are calculated per IFRS
For the ratio definitions and exchange rates, please refer to appendix 8.
3) Consolidated Financial Statements and Key Ratios 1H 2023
Consolidated Balance Sheet
In thousands of GEL Jun'23 Jun'22
ASSETS
Cash and cash equivalents 2,940,359 2,739,226
Due from other banks 52,550 42,552
Mandatory cash balances with National Bank of Georgia and the Central Bank of 1,706,981 2,108,455
Uzbekistan
Loans and advances to customers 19,002,657 17,131,009
Investment securities measured at fair value through other comprehensive 2,942,679 1,915,987
income
Bonds carried at amortised cost 87,213 27,962
Finance lease receivables 338,203 253,057
Investment properties 20,741 20,506
Current income tax prepayment 3,005 1,565
Deferred income tax asset 12,573 13,876
Other financial assets 266,969 365,207
Other assets 441,756 448,588
Premises and equipment 463,407 429,726
Right of use assets 117,634 77,039
Intangible assets 418,468 345,291
Goodwill 59,964 59,964
Investments in associates 3,667 3,466
TOTAL ASSETS 28,878,826 25,983,476
LIABILITIES
Due to credit institutions 2,448,662 3,575,808
Customer accounts 18,992,492 15,772,905
Lease liabilities 87,324 70,491
Other financial liabilities 387,595 300,152
Current income tax liability 27,559 13,870
Debt Securities in issue 1,392,872 1,514,106
Deferred income tax liability 112,095 4,349
Provision for liabilities and charges 20,767 16,650
Other liabilities 91,839 69,571
Redemption liability 347,044 254,492
Subordinated debt 639,048 634,319
TOTAL LIABILITIES 24,547,297 22,226,713
EQUITY
Share capital 1,682 1,682
Shares held by trust (75,470) (7,900)
Share premium 272,930 283,430
Retained earnings 3,984,493 3,345,183
Merger reserve 402,862 402,862
Share based payment reserve 5,181 (12,488)
Fair value reserve for investment securities measured at fair value through 16,461 (25,609)
other comprehensive income
Cumulative currency translation reserve (36,804) (18,023)
Other reserve (347,044) (254,492)
Equity attributable to owners of the parent 4,224,291 3,714,645
Non-controlling interest 107,238 42,118
TOTAL EQUITY 4,331,529 3,756,763
TOTAL LIABILITIES AND EQUITY 28,878,826 25,983,476
Consolidated Income Statement and Other Comprehensive Income
In thousands of GEL 1H'23 1H'22
Interest income 1,383,970 1,080,462
Interest expense* (617,841) (488,271)
Net interest income 766,129 592,191
Fee and commission income 313,530 240,383
Fee and commission expense (115,456) (98,921)
Net fee and commission income 198,074 141,462
Insurance contract revenue 61,076 51,369
Reinsurance service result (4,387) (3,260)
Insurance service claims and expenses incurred (44,287) (37,144)
Insurance profit 12,402 10,965
Net gains from currency derivatives, foreign currency operations and 121,728 114,377
translation
Net gains from disposal of investment securities measured at fair value 4,319 2,225
through other comprehensive income
Other operating income 15,811 15,558
Share of profit of associates 542 123
Other operating non-interest income 142,400 132,283
Credit loss allowance for loans to customers (79,424) (50,522)
Credit loss allowance for finance lease receivable (2,132) (562)
Credit loss allowance for performance guarantees and credit related (936) (1,070)
commitments
Credit loss allowance for other financial assets (4,090) (698)
Credit loss (allowance)/recovery for financial assets measured at fair value (162) 1,268
through other comprehensive income
Net impairment of non-financial assets (358) (6)
Operating income after expected credit and non-financial asset impairment 1,031,903 825,311
losses
Staff costs (212,150) (176,491)
Depreciation and amortisation (57,948) (47,332)
Allowance of provision for liabilities and charges (121) (60)
Administrative and other operating expenses (116,121) (90,702)
Operating expenses (386,340) (314,585)
Profit before tax 645,563 510,726
Income tax expense (97,517) (52,181)
Profit for the period 548,046 458,545
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve 10,994 (14,747)
Exchange differences on translation to presentation currency (946) (8,573)
Other comprehensive income for the period 10,048 (23,320)
Total comprehensive income for the period 558,094 435,225
Profit attributable to:
- Shareholders of TBCG 537,459 458,465
- Non-controlling interest 10,587 80
Profit for the period 548,046 458,545
Total comprehensive income is attributable to:
- Shareholders of TBCG 547,507 435,145
- Non-controlling interest 10,587 80
Total comprehensive income for the period 558,094 435,225
* Interest expense includes net interest gains from currency swaps
Key Ratios 1H'23
Total equity and total liabilities were restated for 30-Jun-2022 due to a
change in the accounting of option contracts. As a result, ROE and leverage
ratios were restated for 1H 2022.
Average Balances
The average balances included in this document are calculated as the average
of the relevant monthly balances as of the end of each month. 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.
Ratios (based on monthly averages, where applicable) 1H'23 1H'22
Profitability ratios:
ROE(1) 26.7% 25.9%
ROA(2) 3.9% 3.7%
Cost to income(3) 34.5% 35.9%
NIM(4) 6.6% 5.7%
Loan yields(5) 12.6% 11.0%
Deposit rates(6) 4.9% 3.7%
Cost of funding(7) 5.5% 4.8%
Asset quality & portfolio concentration:
Cost of risk(9) 0.9% 0.6%
PAR 90 to Gross Loans(9) 1.2% 1.4%
NPLs to Gross Loans(10) 2.1% 2.3%
NPL provision coverage(11) 89.3% 99.8%
Total NPL coverage(12) 153.7% 167.5%
Credit loss level to Gross Loans(13) 1.8% 2.3%
Related Party Loans to Gross Loans(14) 0.1% 0.1%
Top 10 Borrowers to Total Portfolio(15) 5.8% 6.6%
Top 20 Borrowers to Total Portfolio(16) 8.7% 8.8%
Capital & liquidity positions:
Net Loans to Deposits plus IFI Funding(17) 90.6% 97.7%
Net Stable Funding Ratio** (18) 129.8% n/a
Liquidity Coverage Ratio** (19) 124.5% n/a
Leverage(20) 6.7x 6.9x
CET 1 CAR* (Basel III)(21) 18.3% n/a
Tier 1 CAR* (Basel III)(22) 20.7% n/a
Total 1 CAR* (Basel III)(23) 23.1% n/a
* Ratios are calculated per IFRS
For the ratio definitions and exchange rates, please refer to appendix 8.
4) Financial Disclosures by Business Lines
The definitions of business lines are defined in Note 17.
Consolidated Balance Sheet Mar'23
In thousands of GEL Georgia FS Uzbekistan* Payme TBC UZ Other** Group
ASSETS
Cash and cash equivalents 2,035,505 149,564 19,318 139,530 3,484 2,188,553
Due from other banks 38,708 - - - 30 38,738
Mandatory cash balances with National Bank of Georgia and Central Bank of 1,814,320 2,825 - 2,825 - 1,817,145
Uzbekistan
Loans and advances to customers 17,550,137 392,483 - 392,483 10,433 17,953,053
Investment securities measured at fair value through other comprehensive 3,047,597 - - - 1 3,047,598
income
Bonds carried at amortised cost 8,317 22,650 - 22,650 - 30,967
Finance lease receivables 285,724 24,075 - 24,075 6,448 316,247
Investment properties 21,080 - - - - 21,080
Current income tax prepayment 40 - - - 816 856
Deferred income tax asset 122 13,423 - 13,423 322 13,867
Other financial assets 274,727 2,676 5,348 - (19,268) 258,135
Other assets 413,708 12,652 1,947 10,705 (17) 426,343
Premises and equipment 431,318 12,491 2,219 10,272 4,232 448,041
Right of use assets 103,208 7,850 1,789 6,061 1,919 112,977
Intangible assets 321,687 22,201 1,052 21,149 57,438 401,326
Goodwill 28,197 1,912 - 1,912 29,855 59,964
Investments in associates 18,711 - - - (14,616) 4,095
TOTAL ASSETS 26,393,106 664,802 31,673 645,085 81,077 27,138,985
LIABILITIES
Due to credit institutions 2,530,753 19,877 - 19,877 46,250 2,596,880
Customer accounts 16,958,443 374,429 - 383,713 (35,242) 17,297,630
Lease liabilities 69,988 8,520 1,784 6,736 1,481 79,989
Other financial liabilities 726,484 19,065 18,467 598 (400,532) 345,017
Current income tax liability 6,626 - - - 33 6,659
Debt Securities in issue 1,159,541 - - - 165,274 1,324,815
Deferred income tax liability 114,280 - - - 20 114,300
Provisions for liabilities and charges 19,228 - - - - 19,228
Other liabilities 51,335 17,695 1,145 19,222 (2,004) 67,026
Redemption liability - - - - 464,805 464,805
Subordinated debt 583,678 - - - - 583,678
TOTAL LIABILITIES 22,220,356 439,586 21,396 430,146 240,085 22,900,027
EQUITY
Share capital 28,498 277,189 495 276,694 (304,011) 1,676
Shares held by trust - - - - (37,239) (37,239)
Share premium 521,190 27,860 - 27,860 (287,331) 261,719
Retained earnings 3,667,049 (51,549) 14,059 (65,608) 377,887 3,993,387
Merger reserve - 67 67 - 402,795 402,862
Share based payment reserve (57,660) - - - 54,845 (2,815)
Fair value reserve for investment securities measured at fair value through 13,498 211 211 - (206) 13,503
other comprehensive income
Cumulative currency translation reserve - (28,562) (4,555) (24,007) (12,462) (41,024)
Other reserve - - - - (464,805) (464,805)
Net assets attributable to owners 4,172,575 225,216 10,277 214,939 (270,527) 4,127,264
Non-controlling interest 175 - - - 111,519 111,694
TOTAL EQUITY 4,172,750 225,216 10,277 214,939 (159,008) 4,238,958
TOTAL LIABILITIES AND EQUITY 26,393,106 664,802 31,673 645,085 81,077 27,138,985
* Includes intergroup eliminations
** Includes Azerbaijan, TNET, other subsidiaries and intra-group eliminations
Consolidated Balance Sheet Jun'23
In thousands of GEL Georgia FS Uzbekistan* Payme TBC UZ Other** Group
ASSETS
Cash and cash equivalents 2,866,361 68,577 3,976 64,828 5,421 2,940,359
Due from other banks 52,523 - - - 27 52,550
Mandatory cash balances with National Bank of Georgia and Central Bank of 1,703,444 3,537 - 3,537 - 1,706,981
Uzbekistan
Loans and advances to customers 18,485,251 505,878 - 505,878 11,528 19,002,657
Investment securities measured at fair value through other comprehensive 2,942,679 - - - - 2,942,679
income
Bonds carried at amortised cost 9,382 77,831 - 77,831 - 87,213
Finance lease receivables 305,761 25,366 - 25,366 7,076 338,203
Investment properties 20,741 - - - - 20,741
Current income tax prepayment 2,508 - - - 497 3,005
Deferred income tax asset 122 11,993 - 11,993 458 12,573
Other financial assets 282,803 1,850 5,482 - (17,684) 266,969
Other assets 424,040 16,715 2,056 14,659 1,001 441,756
Premises and equipment 446,146 12,803 2,450 10,353 4,458 463,407
Right of use assets 108,579 7,210 1,614 5,596 1,845 117,634
Intangible assets 329,917 22,916 2,182 20,734 65,635 418,468
Goodwill 28,197 1,912 - 1,912 29,855 59,964
Investments in associates 18,284 - - - (14,617) 3,667
TOTAL ASSETS 28,026,738 756,588 17,760 742,687 95,500 28,878,826
LIABILITIES
Due to credit institutions 2,417,293 29,083 - 29,083 2,286 2,448,662
Customer accounts 18,639,911 457,340 - 457,567 (104,759) 18,992,492
Lease liabilities 77,869 8,018 1,677 6,341 1,437 87,324
Other financial liabilities 369,419 2,389 1,790 599 15,787 387,595
Current income tax liability 27,523 - - - 36 27,559
Debt Securities in issue 1,223,719 - - - 169,153 1,392,872
Deferred income tax liability 112,071 - - - 24 112,095
Provisions for liabilities and charges 20,767 - - - - 20,767
Other liabilities 58,215 28,652 3,300 28,984 4,972 91,839
Redemption liability - - - - 347,044 347,044
Subordinated debt 639,048 - - - - 639,048
TOTAL LIABILITIES 23,585,835 525,482 6,767 522,574 435,980 24,547,297
EQUITY -
Share capital 28,498 277,189 495 276,694 (304,005) 1,682
Shares held by trust - - - - (75,470) (75,470)
Share premium 521,190 27,860 - 27,860 (276,120) 272,930
Retained earnings 3,965,894 (48,584) 14,820 (63,404) 67,183 3,984,493
Merger reserve - 67 67 - 402,795 402,862
Share based payment reserve (91,320) - - - 96,501 5,181
Fair value reserve for investment securities measured at fair value through 16,456 211 211 - (206) 16,461
other comprehensive income
Cumulative currency translation reserve - (25,637) (4,600) (21,037) (11,167) (36,804)
Other reserve - - - - (347,044) (347,044)
Net assets attributable to owners 4,440,718 231,106 10,993 220,113 (447,533) 4,224,291
Non-controlling interest 185 - - - 107,053 107,238
TOTAL EQUITY 4,440,903 231,106 10,993 220,113 (340,480) 4,331,529
TOTAL LIABILITIES AND EQUITY 28,026,738 756,588 17,760 742,687 95,500 28,878,826
* Includes intergroup eliminations
** Includes Azerbaijan, TNET, other subsidiaries and intra-group eliminations
Consolidated Income Statement and Other Comprehensive Income 1Q'23
In thousands of GEL Georgia FS Uzbekistan** Payme TBC UZ Other Group
***
Interest income 624,316 46,266 - 46,266 1,568 672,150
Interest expense* (280,005) (23,138) (90) (23,048) (2,216) (305,359)
Net interest income 344,311 23,128 (90) 23,218 (648) 366,791
Fee and commission income 129,740 20,863 18,261 5,309 1,198 151,801
Fee and commission expense (55,319) (4,005) (1,649) (5,063) (39) (59,363)
Net fee and commission income 74,421 16,858 16,612 246 1,159 92,438
Insurance profit 6,398 - - - (180) 6,218
Net gains from currency derivatives, foreign currency operations and 62,914 68 2 66 (2,381) 60,601
translation
Net gains from disposal of investment securities measured at fair value 2,012 - - - - 2,012
through other comprehensive income
Other operating income 2,877 28 1 27 1,000 3,905
Share of profit of associates 274 - - - - 274
Other operating non-interest income 74,475 96 3 93 (1,561) 73,010
Credit loss allowance for loans to customers (45,198) (5,241) - (5,241) 399 (50,040)
Credit loss allowance for finance lease receivable (786) (335) - (335) 48 (1,073)
Credit loss recovery for performance guarantees and credit related commitments 337 - - - - 337
Credit loss allowance for other financial assets (1,680) (274) (179) (95) - (1,954)
Credit loss allowance for financial assets measured at fair value through (296) - - - - (296)
other comprehensive income
Net recovery of non-financial assets 312 - - - (454) (142)
Operating income after expected credit and non-financial asset impairment 445,896 34,232 16,346 17,886 (1,057) 479,071
losses
Staff costs (86,607) (8,990) (2,217) (6,773) (7,829) (103,426)
Depreciation and amortisation (24,587) (2,110) (248) (1,862) (1,664) (28,361)
Allowance of provision for liabilities and charges (71) - - - - (71)
Administrative and other operating expenses (38,803) (10,114) (2,279) (7,835) (2,005) (50,922)
Operating expenses (150,068) (21,214) (4,744) (16,470) (11,498) (182,780)
Profit before tax 295,828 13,018 11,602 1,416 (12,555) 296,291
Income tax expense (41,016) (311) - (311) (4) (41,331)
Profit for the period 254,812 12,707 11,602 1,105 (12,559) 254,960
Profit attributable to:
- Shareholders of TBCG 254,801 12,707 11,602 1,105 (18,840) 248,668
- Non-controlling interest 11 - - - 6,281 6,292
Profit for the period 254,812 12,707 11,602 1,105 (12,559) 254,960
* Interest expense includes net interest gains from currency swaps
** Includes intergroup eliminations
*** Includes Azerbaijan, TNET, other subsidiaries and intra-group eliminations
Consolidated Income Statement and Other Comprehensive Income 2Q'23
In thousands of GEL Georgia FS Uzbekistan** Payme TBC UZ Other Group
***
Interest income 653,209 56,989 - 56,989 1,622 711,820
Interest expense* (285,241) (27,228) (83) (27,145) (13) (312,482)
Net interest income 367,968 29,761 (83) 29,844 1,609 399,338
Fee and commission income 136,481 24,978 18,451 17,204 270 161,729
Fee and commission expense (49,501) (6,467) (1,553) (15,591) (125) (56,093)
Net fee and commission income 86,980 18,511 16,898 1,613 145 105,636
Insurance profit 6,362 - - - (178) 6,184
Net gains from currency derivatives, foreign currency operations and 70,405 15 1 14 (9,293) 61,127
translation
Net gains from disposal of investment securities measured at fair value 2,307 - - - - 2,307
through other comprehensive income
Other operating income 9,037 4 - 4 2,865 11,906
Share of profit of associates 268 - - - - 268
Other operating non-interest income 88,379 19 1 18 (6,606) 81,792
Credit loss allowance for loans to customers (22,054) (7,641) - (7,641) 311 (29,384)
Credit loss allowance for finance lease receivable (473) (586) - (586) - (1,059)
Credit loss allowance for performance guarantees and credit related (1,273) - - - - (1,273)
commitments
Credit loss allowance for other financial assets (2,030) (106) (84) (22) - (2,136)
Credit loss recovery for financial assets measured at fair value through other 134 - - - - 134
comprehensive income
Net impairment of non-financial assets (121) - - - (95) (216)
Operating income after expected credit and non-financial asset impairment 517,510 39,958 16,732 23,226 (4,636) 552,832
losses
Staff costs (90,862) (9,310) (2,767) (6,543) (8,552) (108,724)
Depreciation and amortisation (25,706) (2,120) (237) (1,883) (1,761) (29,587)
Allowance of provision for liabilities and charges (50) - - - - (50)
Administrative and other operating expenses (47,488) (14,711) (3,427) (11,284) (3,000) (65,199)
Operating expenses (164,106) (26,141) (6,431) (19,710) (13,313) (203,560)
Profit before tax 353,404 13,817 10,301 3,516 (17,949) 349,272
Income tax (expense)/credit (54,942) (1,312) - (1,312) 68 (56,186)
Profit for the period 298,462 12,505 10,301 2,204 (17,881) 293,086
Profit attributable to:
- Shareholders of TBCG 298,452 12,505 10,301 2,204 (22,166) 288,791
- Non-controlling interest 10 - - - 4,285 4,295
Profit for the period 298,462 12,505 10,301 2,204 (17,881) 293,086
* Interest expense includes net interest gains from currency swaps
** Includes intergroup eliminations
*** Includes Azerbaijan, TNET, other subsidiaries and intra-group eliminations
Consolidated Key Ratios by Business Lines
1Q'23 Georgia FS Uzbekistan Group
Profitability ratios:
ROE(1) 23.7% 28.1% 25.2%
ROA(2) 3.7% 8.9% 3.6%
Cost to income(3) 30.4% 52.9% 34.3%
NIM(4) 6.1% 19.7% 6.4%
Loan yields(5) 11.7% 43.6% 12.4%
Deposit rates(6) 4.5% 25.3% 4.9%
Cost of funding(7) 5.1% 24.9% 5.4%
Asset quality & portfolio concentration:
Cost of risk(8) 1.0% 5.6% 1.1%
PAR 90 to Gross Loans(9) 1.2% 2.0% 1.3%
NPLs to Gross Loans(10) 2.2% 2.0% 2.2%
NPL provision coverage(11) 89.7% 189.7% 92.9%
Total NPL coverage(12) 152.1% 189.7% 154.8%
2Q'23 Georgia FS Uzbekistan Group
Profitability ratios:
ROE(1) 27.8% 22.1% 28.1%
ROA(2) 4.5% 7.1% 4.2%
Cost to income(3) 30.2% 54.1% 34.7%
NIM(4) 6.5% 20.1% 6.8%
Loan yields(5) 12.0% 43.0% 12.8%
Deposit rates(6) 4.5% 24.9% 4.9%
Cost of funding(7) 5.2% 24.5% 5.6%
Asset quality & portfolio concentration:
Cost of risk(8) 0.5% 6.6% 0.6%
PAR 90 to Gross Loans(9) 1.1% 2.2% 1.2%
NPLs to Gross Loans(10) 2.1% 2.2% 2.1%
NPL provision coverage(11) 85.3% 180.0% 89.3%
Total NPL coverage(12) 150.9% 180.0% 153.7%
1H'23 Georgia FS Uzbekistan Group
Profitability ratios:
ROE(1) 25.7% 25.1% 26.70%
ROA(2) 4.1% 8.0% 3.9%
Cost to income(3) 30.3% 53.6% 34.5%
NIM(4) 6.3% 20.1% 6.6%
Loan yields(5) 11.9% 43.1% 12.6%
Deposit rates(6) 4.5% 25.0% 4.9%
Cost of funding(7) 5.2% 24.6% 5.5%
Asset quality & portfolio concentration:
Cost of risk(8) 0.8% 6.1% 0.9%
PAR 90 to Gross Loans(9) 1.1% 2.2% 1.2%
NPLs to Gross Loans(10) 2.1% 2.2% 2.1%
NPL provision coverage(11) 85.3% 180.0% 89.3%
Total NPL coverage(12) 150.9% 180.0% 153.7%
For the ratio definitions and exchange rates, please refer to appendix 8.
5) Market shares 8 (#_ftn8) in Georgia
Market shares Jun'23 Mar'23 Jun'22 Change YoY Change QoQ
Total loans 38.8% 39.1% 39.1% -0.3 pp -0.3 pp
Individual loans 38.3% 38.4% 38.5% -0.2 pp -0.1 pp
Legal entities loans 39.5% 39.8% 39.7% -0.2 pp -0.3 pp
Total deposits 40.1% 39.3% 40.7% -0.6 pp 0.8 pp
Individual deposits 37.9% 37.7% 39.2% -1.3 pp 0.2 pp
Legal entities deposits 42.4% 41.1% 42.4% 0.0 pp 1.3 pp
6) Loan Book Breakdown by Stages According IFRS 9
In millions of GEL Jun'23 Mar'23 Jun'22
Total loans*
Stage Gross loans Loan loss provisions Gross loans Loan loss provisions Gross loans Loan loss provisions
1 17,687 99 16,470 101 15,480 109
2 1,279 100 1,461 104 1,610 114
3 395 159 390 163 445 181
Total 19,361 358 18,321 368 17,535 404
Georgia FS Retail Jun'23 Mar'23 Jun'22
Stage Gross loans Loan loss provisions Gross loans Loan loss provisions Gross loans Loan loss provisions
1 6,249 48 5,953 52 5,647 60
2 584 64 664 69 661 90
3 113 71 123 77 163 93
Total 6,946 183 6,740 198 6,471 243
Georgia FS CIB Jun'23 Mar'23 Jun'22
Stage Gross loans Loan loss provisions Gross loans Loan loss provisions Gross loans Loan loss provisions
1 6,474 18 5,980 18 5,777 21
2 346 0 424 1 602 1
3 100 30 90 27 84 25
Total 6,920 48 6,494 46 6,463 47
Georgia FS MSME Jun'23 Mar'23 Jun'22
Stage Gross loans Loan loss provisions Gross loans Loan loss provisions Gross loans Loan loss provisions
1 4,463 24 4,145 24 3,874 25
2 320 28 352 29 337 21
3 167 48 166 50 189 56
Total 4,950 100 4,663 103 4,400 102
Uzbekistan Jun'23 Mar'23 Jun'22
Stage Gross loans Loan loss provisions Gross loans Loan loss provisions Gross loans Loan loss provisions
1 492 8 384 7 171 3
2 22 4 15 3 6 0
3 13 9 9 6 4 2
Total 527 21 408 16 181 5
* Total loans include Azerbaijan loan portfolio
7) Glossary
Terminology Definition
BVPS Book value per share.
Digital daily active users (Digital DAU) The number of retail digital users, who logged into our digital channels at
least once per day.
Digital monthly active users (Digital MAU) The number of retail digital users, who logged into our digital channels at
least once a month.
EPS Earnings per share.
Gross merchandise value (GMV) GMV equals the total value of sales over the given period, including auctions
through housing and auto platforms, as well as listing fees.
IFI Internatiodnal Financial Institutions.
Jaw ratio Difference between growth rate of operating income and expenses.
NBG National Bank of Georgia.
Net combined ratio Net insurance claims plus acquisition costs and administrative expenses
divided by net earned premium.
8) Ratio Definitions and Exchange Rates
Ratio definitions
1. Return on average total equity (ROE) equals net profit 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 profit of the period
divided by monthly average total assets for the same period; annualised where
applicable.
3. 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).
4. 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 CIB shares), net investment in
finance lease, net loans, and amounts due from credit institutions.
5. Loan yields equal interest income on loans and advances to customers
divided by monthly average gross loans and advances to customers; annualised
where applicable.
6. Deposit rates equal interest expense on customer accounts divided by
monthly average total customer deposits; annualised where applicable.
7. Cost of funding equals sum of the total interest expense and net interest
gains on currency swaps (entered for funding management purposes), divided by
monthly average interest-bearing liabilities; annualised where applicable.
8. Cost of risk equals credit loss allowance for loans to customers divided by
monthly average gross loans and advances to customers; annualised where
applicable.
9. 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.
10. 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.
11. NPL provision coverage equals total credit loss allowance for loans to
customers divided by the NPL loans.
12. Total NPL coverage equals total credit loss allowance plus the minimum of
collateral amount of the respective NPL loan (after applying haircuts in the
range of 0%-50% for cash, gold, real estate and PPE) and its gross loan
exposure divided by the gross exposure of total NPL loans.
13. Credit loss level to gross loans equals credit loss allowance for loans to
customers divided by the gross loan portfolio for the same period.
14. Related party loans to total loans equals related party loans divided by
the gross loan portfolio.
15. Top 10 borrowers to total portfolio equals the total loan amount of the
top 10 borrowers divided by the gross loan portfolio.
16. Top 20 borrowers to total portfolio equals the total loan amount of the
top 20 borrowers divided by the gross loan portfolio.
17. Net loans to deposits plus IFI funding ratio equals net loans divided by
total deposits plus borrowings received from international financial
institutions.
18. 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. Calculations are made for TBC Bank standalone,
based on IFRS.
19. Liquidity coverage ratio equals high-quality liquid assets divided by the
total net cash outflow amount as defined by the NBG. Calculations are made for
TBC Bank standalone, based on IFRS.
20. Leverage equals total assets to total equity.
21. CET 1 CAR equals CET 1 capital divided by total risk weighted assets, both
calculated in accordance with requirements of the NBG Basel III standards.
Calculations are made for TBC Bank standalone, based on IFRS.
22. Tier 1 CAR equals tier I capital divided by total risk weighted assets,
both calculated in accordance with the requirements of the NBG Basel III
standards. Calculations are made for TBC Bank standalone, based on IFRS.
23. Total CAR equals total capital divided by total risk weighted assets, both
calculated in accordance with the requirements of the NBG Basel III standards.
Calculations are made for TBC Bank standalone, based on IFRS.
Exchange Rates
To calculate the QoQ growth of the Balance Sheet items without the currency
exchange rate effect, we used the US$/GEL exchange rate of 2.5604 as of 31
March 2023. To calculate the YoY growth without the currency exchange rate
effect, we used the US$/GEL exchange rate of 2.9289 as of 30 June 2022. As of
30 June 2023, the US$/GEL exchange rate equalled 2.6177. For P&L items
growth calculations without the currency effect, we used the average US$/GEL
exchange rate for the following periods: 2Q 2023 of 2.5586, 1Q 2023 of 2.6372,
2Q 2022 of 2.9967, 1H 2023 of 2.5975, 1H 2022 of 3.0548.
Material Existing and Emerging Risks
Risk Management is a critical pillar of the Group's strategy. It is essential
to identify emerging risks and uncertainties that could adversely impact the
Group's performance, financial condition, and prospects. This section analyses
the material principal and emerging risks and uncertainties that the Group
faces. However, we cannot exclude the possibility of the Group's performance
being affected by risks and uncertainties other than those listed below. Since
there remains some uncertainty regarding the war in Ukraine, its potential
impact is summarised as a separate risk in the emerging risks section.
In this section, the main focus is on the key subsidiary of the Group - JSC
TBC Bank (the Bank), the bank based in Georgia - unless there is a reference
to the Group itself.
PRINCIPAL RISKS AND UNCERTAINTIES
1. Credit risk is an integral part of the Group's business activities.
Risk description
Credit risk is the greatest material risk faced by the Group, given that the
Group is principally engaged in traditional lending activities. The Group's
customers include legal entities as well as individual borrowers. Due to the
high level of dollarisation in Georgia's financial sector, currency-induced
credit risk is a component of credit risk, which relates to risks arising from
foreign currency-denominated loans to unhedged borrowers in the Group's
portfolio. Credit risk also includes concentration risk, which is the risk
related to credit portfolio quality deterioration as a result of large
exposures to single borrowers or groups of connected borrowers, or loan
concentration in certain economic industries. Losses may be further aggravated
by unfavourable macroeconomic conditions. These risks are described in more
detail as separate principal risks. In addition, credit risk also includes
counterparty credit risk, as the Group engages in various financial
transactions with both banking and non-banking financial institutions.
Risk mitigation
A comprehensive credit risk assessment framework is in place with a clear
division of duties among the parties involved in the credit analysis and
approval process. The credit assessment process differs by segment and product
type to reflect the diverse nature of these asset classes. The rules for
manual and automated underwriting are developed and validated by units within
the risk function, which are independent of the origination and business
development units.
The Group uses a robust monitoring system to react promptly to macro and micro
developments, identify weaknesses in the credit portfolio, and outline
solutions to make informed risk management decisions. Monitoring processes are
tailored to the specifics of individual segments, encompassing individual
credit exposures, overall portfolio performance, and external trends that may
impact the portfolio's risk profile. Additionally, the Group uses a
comprehensive portfolio supervision system to identify weakened credit
exposures and take prompt, early remedial actions when necessary.
The Group's credit portfolio is highly diversified across customer types,
product types and industry segments, which minimises credit risk at the Group
level. As of 30 June 2023, the retail segment represented 38.7% of the total
portfolio, which was comprised of 58.8% mortgage and 41.2% non-mortgage
exposures. No single business sector represented more than 8% of the total
portfolio as of 30 June 2023.
Collateral represents the most significant credit risk mitigation tool for the
Group, making effective collateral management one of the key risk management
components. The Group has a largely collateralised portfolio in all its
segments, with real estate representing a major share of collateral. As of 30
June 2023, 76.5% of the Group's portfolio was secured by cash, real estate or
gold.
To manage counterparty risk, the Bank internally defines limits on an
individual basis for each counterparty, by limiting the expected loss from
both treasury and trade finance exposures. As of 30 June 2023, the Bank's
interbank exposure was concentrated among high "A" - grade credit rating'
banks, assigned by external agencies, such as Fitch, Moody's and Standard and
Poor's. Additionally, the Bank actively performs stress testing and scenario
analysis in order to check the resilience of borrowers under various stress
conditions.
2. The Bank faces currency-induced credit risk due to the high share of
loans denominated in foreign currencies in the Bank's portfolio.
Risk description
While the Group's banking business in Uzbekistan is focused on lending in the
local currency, the banking business in Georgia has a significant portfolio in
foreign currencies. A potential material GEL depreciation is one of the most
significant risks that could negatively impact portfolio quality. As of 30
June 2023, 50.7% of the Group's total gross loans and advances to customers
(before provision for loan impairment) was denominated in foreign currencies.
The income of many customers is directly linked to foreign currencies via
remittances, tourism or exports. Nevertheless, customers may not be protected
against significant fluctuations in the GEL exchange rate against the currency
of the loan. The GEL remains in free float and is exposed to a range of
internal and external factors that, in some circumstances, could lead to its
depreciation. In the first half of 2023, the average US$/GEL currency exchange
rate strengthened by 3.2% year-on-year.
Risk mitigation
Particular attention is paid to currency-induced credit risk, due to the high
share of loans denominated in foreign currencies in the Bank's portfolio. The
vulnerability to exchange rate depreciation is monitored in order to promptly
implement an action plan, as and when needed. The ability to withstand a
certain amount of exchange rate depreciation is incorporated into the credit
underwriting standards, which also include significant currency depreciation
buffers for unhedged borrowers. In addition, the Bank holds significant
capital against currency-induced credit risk. Given the experience and
knowledge built through recent currency volatility, the Bank is in a good
position to promptly mitigate exchange rate depreciation risks. In January
2019, Georgian government authorities continued their efforts to reduce the
economy's dependence on foreign currency financing by increasing the cap to
GEL 200,000, under which loans must be disbursed in the local currency. In
addition, under the NBG's responsible lending regulations, unhedged retail
borrowers are required to have highly conservative Payment-to-Income (PTI) and
Loan-to-Value (LTV) thresholds. The Bank has set a strategy to decrease the
share of foreign currency loans in its total portfolio. Annual targets have
been defined in the medium-term strategy, gradually decreasing the share of
foreign currency. The Assets and Liabilities Committee (ALCO) is closely
monitoring the achievement of these targets.
3. The Bank is exposed to concentration risk.
Risk description
The Bank has large individual exposures to single-name borrowers whose
potential default would entail increased credit losses and higher impairment
charges. The Bank's portfolio is well diversified across sectors, resulting in
only a moderate vulnerability to sector concentration risks. However, should
exposure to common risk drivers increase, the risks are expected to amplify
accordingly. At a consolidated level, the Group's maximum exposure to the
single largest industry (real estate) stood at 8% of the loan portfolio as of
30 June 2023. At the same time, exposure to the 20 largest borrowers stood at
8.7% of the loan portfolio.
Risk mitigation
The Bank constantly monitors the concentrations of its exposure to single
counterparties, as well as sectors and common risk drivers, and introduces
limits for risk mitigation. As part of its risk appetite framework, the Bank
limits both single-name and sector concentrations. Stringent monitoring tools
are in place to ensure compliance with the established limits.
Moreover, the Bank has dedicated restructuring teams to manage borrowers who
face financial difficulties. In addition, the concentration buffer under
Pillar 2 helps to ensure that the Bank remains adequately capitalised to
mitigate concentration risks.
4. The Group's performance may be compromised by adverse developments in
the economic environment.
Risk description
A potential slowdown in economic growth in Georgia will likely have an adverse
impact on the repayment capacity of borrowers, restraining their future
investment and expansion plans. Negative macroeconomic developments could
compromise the Group's performance in various ways, such as exchange rate
depreciation, a spike in interest rates, rising unemployment, a decrease in
household disposable income, falling property prices, worsening loan
collateralisation, or falling debt service capabilities of companies as a
result of decreasing sales. Potential political and economic instability in
Georgia's neighboring countries and main trading/economic partners could
negatively affect its economic outlook through worsening current and financial
accounts in the balance of payments (e.g. decreased exports, tourism inflows,
remittances and foreign direct investments).
After two years of consecutive double-digit growth, Georgian economy again
expanded by a very strong 7.6% in the first two quarters of 2023. The
migration effect caused by Russian invasion of Ukraine appears to be enduring,
while conventional tourism is recovering. Despite price-driven reductions in
commodity exports and imports, foreign trade and FDIs also remained resilient.
Disinflationary movement in consumer price dynamics, mainly driven by the
imported component, led the annual CPI growth to decelerate, standing at 0.3%
in July 2023. Strong inflows enabled the GEL to continue appreciating,
however, this trend was affected by the shifts in the USD/GEL exchange rate
expectations likely driven by the low inflation and possible rate cuts,
triggering deposit conversions from GEL to FX and causing rate volatility in
May and June. The NBG remained hawkish throughout 2023 and delivered only a
0.5 pp cut from 11% in May and 0.25 pp in August. Also, the central bank
accumulated a substantial amount of reserves with net purchase of 1,058 USD
mln in January-June 2023.
Uzbekistan, the second country of Group operations, also demonstrated solid
economic activity with 5.7% growth in the second quarter and 5.6% in the 1H
of 2023. As in Georgia, inflation and central bank policy rate have also
declined in Uzbekistan, from 12.3% and 15% in December to 9% and 14% in June,
respectively. The USD/UZS maintained its slight depreciation trend standing at
11600.2 at the end of July 2023. While depreciating against the USD, in terms
of REER against Uzbekistan's main trade partners' currencies, the UZS has
gained a value.
Risk mitigation
To decrease its vulnerability to economic cycles, the Group identifies
cyclical industries and proactively manages its underwriting approach and
clients within its risk appetite framework. The Group has in place a
macroeconomic monitoring process that relies on close, recurrent observation
of the economic developments in Georgia and neighbouring countries to identify
early warning signals indicating imminent economic risks. This system allows
the Group to promptly assess significant economic and political events and
analyse their implications for the Group's performance. These implications are
duly translated into specific action plans with regards to reviewing
underwriting standards, risk appetite metrics or limits, including the limits
for each of the most vulnerable industries. Additionally, the stress testing
and scenario analysis conducted during the credit review and
portfolio-monitoring processes enables the Group to evaluate the impact of
macroeconomic shocks on its business in advance. Resilience towards a changing
macroeconomic environment is incorporated into the Group's credit underwriting
standards. As such, borrowers are expected to withstand certain adverse
economic developments through prudent financials, debt-servicing capabilities
and conservative collateral coverage.
Taking into account the regional crisis, the Group adjusted its risk
management framework, leveraging its pre-existing stress testing practices.
This included more thorough and frequent monitoring of the portfolio as well
as stress testing, to ensure close control of changes in capital, liquidity,
and portfolio quality in times of increased uncertainty.
For more details on the developments in the economies of the Group's
operations in 1H 2023, please refer to the Economic Overview section on pages
9-10.
5. The Bank faces the risk of not meeting the minimum regulatory
requirements, which may compromise growth and strategic targets. Additionally,
adverse changes in FX rates may impact capital adequacy ratios.
Risk description
The NBG sets a capital adequacy framework, with capital requirements
consisting of a Pillar 1 minimum requirement, a Pillar 2 requirement, and
combined (systemic, countercyclical and conservation) buffers. The buffers
were introduced gradually, with the phase-in of concentration risk and Net
GRAPE buffers completed in March 2023.
The Bank's capitalization as of 30 June 2023 stood at:
• 18.3% for CET 1, with an updated regulatory minimum requirement of
14.4%;
• 20.7% for Tier 1, with an updated regulatory minimum requirement
of 16.8%; and
• 23.1% for Total capital, with an updated regulatory minimum
requirement of 19.9%.
These ratios were above the respective regulatory minimums.
In January 2023, the NBG made amendments to the systemic risk buffer
calculation methodology. According to the new methodology, the current
systemic risk buffer for TBC Bank amounts to 2.5%, while the buffer can be
increased by 0.5% if the Bank's non-banking deposits market share in the
previous three months exceeds 40%. The Bank must comply with the increased
requirement for a 12-month period unless the average market share during the
previous 12-month falls below 40%.
In March 2023, the Financial Stability Committee of the NBG decided to set the
neutral (base) rate of the countercyclical buffer at 1%. A 12-month deadline
was set for banks to meet this requirement, effective from March 2024.
GEL volatility remains a significant risk to the Bank's capital adequacy. A
10% GEL depreciation would translate into drops of 0.8 pp, 0.7 pp and 0.6 pp
in the Bank's CET 1, Tier 1 and Total regulatory capital adequacy ratios,
respectively.
Risk mitigation
The Bank undertakes stress testing and sensitivity analysis to quantify extra
capital consumption under different scenarios. Such analyses indicate that the
Bank holds sufficient capital to meet the current minimum regulatory
requirements. These analyses are used to set appropriate risk appetite buffers
internally, on top of the regulatory requirements. Capital forecasts, as well
as the results of stress testing and what-if scenarios, are actively monitored
with the involvement of the Bank's Executive Management and the Risk Committee
of the Supervisory Board to help ensure prudent management and timely action,
when needed.
6. The Group is exposed to regulatory and enforcement action risk.
Risk description
The Group's activities are highly regulated and thus face regulatory risk. In
Georgia, the NBG sets lending limits and other economic ratios (including, but
not limited to, lending, liquidity, and investment ratios) along with the
mandatory capital adequacy ratio. In addition to comply with the minimum
reserves and financial ratios, the Bank is required to submit periodic
reports. It is also subject to the Georgian tax code and other relevant laws.
Following the Company's listing on the London Stock Exchange's premium
segment, the Group became subject to increased regulations from the UK
Financial Conduct Authority. In addition to its banking operations, the Group
also offers other regulated financial services products, including leasing,
insurance and brokerage services. As a result of its expansion into
Uzbekistan, the Group's regulatory compliance requirements have increased.
Uzbekistan has a highly regulated banking environment.
The Group is also subject to financial covenants in its debt agreements. For
more information, see the Group's Audited Financial Statements.
Risk mitigation
The Group has established systems and processes to ensure full regulatory
compliance, which are embedded in all levels of the Group's operations. The
Group's "three lines of defence" model defines the roles and responsibilities
for risk management. Each bank, in Georgia and Uzbekistan, has a dedicated
compliance department, which acts as the second line of defence, reports
directly to the respective Chief Executive Officer, and has a primary role in
the management of regulatory compliance risk. The Group's Audit Committee is
responsible for ensuring regulatory compliance at the Board level. The Group
has the following processes and tools in place to identify, assess, monitor
and report the risks in order to remain within the risk appetite limits:
· A regulatory change management process, according to which the Group
conducts horizon scanning of upcoming regulatory requirements, analyzes
changes to regulations and monitors the internal process compliance with the
new requirements;
· Compliance checks/RCSA, which enable the Group to proactively
identify, assess and manage regulatory incompliances;
· A new product risk approval process, which ensures that the new
product/process is in compliance with regulatory requirements;
· Monitoring of KRI, as defined by the Group's risk appetite framework;
· Properly designed escalation procedures; and
· Regular trainings and awareness raising for staff.
7. The Group is exposed to financial sanctions risk.
Risk description
Various countries, groups of countries and organizations have for many years
maintained various restrictions on activity with targeted countries,
individuals or industries. The risks associated with those sanctions have
increased, particularly in recent years.
Historically, Georgia has enjoyed close business relations with Russia and
Ukraine. The aggression launched by the Russian Federation against Ukraine on
the 24th of February 2022 resulted in a vigorous international response, which
included the imposition of the tough economic sanctions by the US, the EU, the
UK and other countries. As a consequence, Russian and Belarusian members of
legislative and government agencies, oligarchs, businessmen, state-owned
companies, financial institutions and other legal entities have been directly
sanctioned, while numerous economic restrictions and trade prohibitions have
been enforced on specific sectors of activity and categories of goods and
services in Russia, Belarus, Crimea and other occupied territories. Leading
countries are tightening and expanding the sanctions program by extending some
restrictions and adding new entities and individuals to their list.
Moreover, as a consequence of the conflict, many Russian citizens have
relocated to Georgia. Considering the level of interaction between the Bank,
Russia and Russian citizens, and the amplitude of the sanctions' prohibitions
and restrictions, the risk of being involved in attempts to circumvent
sanctions has substantially increased.
In addition to the sanctions risk related to Russia, a significant increase in
international shipping costs has exposed Georgia to the risk of financing of
transshipment via Iran for its import and export activities with Asian
countries, which is prohibited by the US government.
Breaches of the US, EU and UK sanctions regime would expose the Group to fines
and regulatory actions by the local regulator, the National Bank of Georgia,
and by US, EU or UK authorities and enforcement agencies. In addition to the
regulatory risk, the Group also faces a reputational risk, mainly with its
correspondent banks and other financial third party relationships.
Risk mitigation
In line with the Group's risk appetite and the instructions of the National
Bank of Georgia, the Group implemented processes and procedures designed to
ensure compliance with local, UN, US, EU and UK sanctions regimes. The Group
seeks to avoid any transactions of any nature with direct or indirect
sanctioned parties, goods or services, and to not facilitate in any manner the
circumvention of UN, US, EU and UK sanctions programmes.
To this effect, the Group has recently strengthened its sanctions programme
via a number of actions with the support of external advisors: the performance
of an enterprise-wide sanctions risk assessment, the issuance of a new
Sanctions Policy and Procedure, and the reinforcement of client on-boarding
and relationship management, while it continues to strengthen its close
transactions monitoring and additional due diligence in case of Russian
related transactions or potential transshipment via Iran, to review and
fine-tune its screening tools and conduct enhanced sanctions training.
8. Liquidity risk is inherent in the Group's operations.
Risk description
While the Group currently has sufficient financial resources available to meet
its obligations as they fall due, liquidity risk is inherent in banking
operations and can be heightened by numerous factors. These include an
overreliance on, or an inability to access, a particular source of funding, as
well as changes in credit ratings or market-wide phenomena. Access to credit
for companies in emerging markets is significantly influenced by the level of
investor confidence and, as such, any factors affecting investor confidence
(e.g. a downgrade in credit ratings, central bank or state interventions, or
debt restructurings in a relevant industry) could influence the price or
availability of funding for companies operating in any of these markets. The
Bank is in compliance with the minimum liquidity requirements set by the NBG,
which include the Liquidity Coverage Ratio (LCR) and the Net Stable Funding
Ratio (NSFR). As of 30 June 2023, the net loan to deposits plus international
financial institution funding ratio stood at 90.6%, the liquidity coverage
ratio at 124.5%, and the net stable funding ratio at 129.8%. These figures are
all well above the NBG's minimum requirements or guidance for such ratios.
After the aggression launched by the Russian Federation against Ukraine,
starting from March 2023 non-residents' deposits showed an uptrend, mainly due
to Russian citizens relocating to Georgia. To avoid a potential negative
impact on the liquidity position of the Georgian banking sector, in May 2023,
NBG amended the LCR calculation guidelines, introducing a more conservative
approach to the current and saving deposits placed by the migrants from the
Russian Federation, effective from 1 September 2023.
Risk mitigation
To mitigate this risk, the Bank holds a solid liquidity position and performs
outflow scenario analyses for both normal and stress circumstances to make
sure that it has adequate liquid assets and cash inflows. The Group maintains
a diversified funding structure to manage the respective liquidity risks.
There is adequate liquidity to withstand significant withdrawals of customer
deposits, but the unexpected and rapid withdrawal of a substantial number of
deposits could have a material adverse impact on the Group's business,
financial condition, and results of operations and/or prospects.
Stress testing is a major tool for managing liquidity risk. Stress testing is
performed within the ILAAP and Recovery Plan frameworks. The former assesses
the adequacy of the liquidity position and relevant buffers and whether they
can sustain plausible severe shocks, while the latter provides a set of
possible actions that could be taken in the unlikely event of regulatory
requirement breaches to support a fast recovery in the liquidity position. The
liquidity risk position and compliance with internal limits are closely
monitored by the Assets and Liabilities Management Committee (ALCO) of the
Bank.
9. Any decline in the Group's net interest income or net interest margin
(NIM) could lead to a reduction in profitability and the accumulation of
organic capital.
Risk description
Net interest income accounts for most of the Group's total income.
Consequently, fluctuations in its NIM affect the results of its operations.
New regulations and the high level of competition could drive interest rates
down, compromising the Group's profitability. At the same time, the cost of
funding is largely exogenous to the Group and is derived from both local and
international markets.
In 1H 2023, the strong 0.9 pp YoY growth in NIM to 6.6% was mainly driven by
loan yields growth and balance sheet management. As of 30 June 2023, GEL 5,038
million in assets (18%) and GEL 3,774 million in liabilities (16%) were
floating in GEL, compared to GEL 3,347 million in assets (12%) and GEL 945
million in liabilities (4%) that were floating in relation to the
LIBOR/SOFR/Euribor rates. The Bank was in compliance with the Economic Value
of Equity (EVE) sensitivity limit set by the NBG of 15% of Tier 1 capital,
with the ratio standing at 6.7% as of 30 June 2023.
Risk mitigation
The Bank continues to focus on fee and commission income growth to safeguard
itself from possible margin compressions on lending and deposit products in
the future. To meet its asset-liability objectives and manage the interest
rate risk, the Bank uses a high-quality investment securities portfolio,
long-term funding and derivative contracts. For more details, please refer to
the interest rate risk in note 22.
10. The Group faces a growing and evolving threat of cyber-attacks.
Risk description
No material cyber-security breaches have happened at the Bank in recent years.
Nonetheless, the Group's rising dependency on IT systems increases its
exposure to potential cyber-attacks. Given their increasing sophistication,
potential cyber-attacks may lead to significant security breaches. Such risks
change rapidly and require continued focus and investment.
Risk mitigation
In order to mitigate the risks associated with cyber-attacks and ensure
clients' security, the Group continuously updates and enhances its in-depth
security strategy. It strives to evolve its mitigation mechanisms, covering
multiple preventive and detective controls ranging from the data and end-point
computers to edge firewalls.
A Security Operations Centre has been built, which monitors every possible
anomaly identified across the organisation's network in order to detect
potential incidents and respond to them effectively. At least once a year, a
full information security and cyber security threat analysis is performed,
taking into consideration the relevant regional and sector specific
perspectives. Moreover, at least once a year a detailed examination of
information security matters is presented to the Technology and Data Committee
of the Board. At least once every two years, as part of this analysis, an
external consultant is contracted to assess the efficiency of our capabilities
against industry best practices and real-world cyber-attack scenarios. This
analysis gives the Group a broad overview and detailed insight, which help to
further enhance its information and cyber security systems. In addition,
cyber-attack readiness exercises are performed on a regular basis. These
exercises evaluate the actual position of the Group in this area and provide a
benchmark against international best practices.
Employees play a crucial role in information security. As a result, annual
mandatory training sessions are conducted for all employees, comprised of
remote learning courses on security issues, fraud and phishing simulations,
and informative emails to further assist our employees with information
security matters. New employees are also given training as part of the
onboarding process. These measures ensure that employees are fully aware of
their responsibilities and are prepared for various security threats.
The Information Security Steering Committee governs information and cyber
security to ensure that relevant risks are at an acceptable level and that
management processes are continuously improved. Moreover, disaster recovery
plans are in place to ensure business continuity in case of need.
In 2021, the Bank received an ISO 27001 certification for its information
security management system, which demonstrates that the Bank is following
robust information security practices effectively, in order to protect its
information and information systems from different types of threats. In 2022,
an ISO 27001 surveillance audit was completed, and the Bank retained the
certification.
In 2022, a Red Team exercise was carried out, the results of which were used
to ensure that the Bank's in-depth security capabilities remain highly
effective. In the same year, two more audits were conducted to assess the Bank
against the Cyber Security Management Framework and the SWIFT Customer
Security Controls Framework (CSCF). No critical findings and major
non-compliances were identified during these exercises. The Cyber Security
Management Framework is defined by National Bank of Georgia, based on the
National Institute of Standards and Technology (NIST) Cyber Security
Management Framework.
The Group has not experienced any material information security breaches in
the last three years.
11. The Group is exposed to the operational risk inherent in the Group's
business, and, unless proactively managed, could materially impact the Group's
profitability and reputation.
Risk description
One of the main risks that the Group faces is operational risk, which is the
risk of loss resulting from internal and external fraud events, inadequate
processes or products, business disruptions and systems failures, human error
or damages to assets.
The increased complexity and diversification of operations, coupled with the
digitalisation of the banking sector, mean that fraud risks are evolving.
External fraud events may arise from the actions of third parties against the
Group, most frequently involving events related to banking cards, loans and
client phishing. Internal fraud events arise from actions committed by the
Group's employees, although such events happen less frequently. During the
reporting period, the Group faced several instances of fraud, none of which
had a material impact on the Group's profit and loss statement. The rapid
growth in digital crime has exacerbated the threat of fraud, with fraudsters
adopting new techniques and approaches to obtain funds illegally. Therefore,
unless properly monitored and managed, the potential impact could become
substantial.
The Group is exposed to other operational risks such as: breakdowns in
processes, controls or procedures; and system failures or cyber-attacks from
an external party with the intention of making the Group's services or
supporting infrastructure unavailable to its intended users, which in turn may
jeopardise sensitive information and the financial transactions of the Group,
its clients, or counterparties. Moreover, the Group is subject to risks that
cause disruption to systems performing critical functions or business
disruption arising from events wholly or partially beyond its control, such as
natural disasters, transport or utility failures, etc., which may result in
losses or reductions in service to customers and/or economic losses to the
Group.
The operational risks discussed above are also applicable where the Group
relies on outsourcing services from third parties. Considering the dynamic
environment and sophistication of both banking services and possible
fraudsters, the importance of constantly improving processes, controls,
procedures and systems is heightened to ensure risk prevention and reduce the
risk of loss to the Group.
Risk mitigation
The Group actively monitors, detects and prevents risks arising from
operational risk events and has permanent monitoring processes in place to
detect unusual activities or process weaknesses in a timely manner. The risk
and control self-assessment exercise (RCSA) focuses on identifying residual
risks in key processes, subject to the respective corrective actions. Through
our continuous efforts to monitor and mitigate operational risks, coupled with
the high level of sophistication of our internal processes, the Group ensures
the timely identification and control of operational risk-related
activities.Various policies, processes and procedures are in place to control
and mitigate operational risks, including, but not limited to:
• the Bank's Risk Assessment Policy, which enables thorough risk
evaluation prior to the adoption of new products, services, or procedures;
• the Bank's Outsourcing Risk Management Policy, which enables the Bank to
control outsourcing (vendor) risk arising from adverse events and risk
concentrations due to failures in vendor selection, insufficient controls and
oversight over a vendor and/or services provided by a vendor, and other
impacts on the vendor;
• the Risk and Control Self-Assessment (RCSA) Policy, which enables the
Group to continuously evaluate existing and potential risks, establish risk
mitigation strategies and systematically monitor the progress of risk
mitigation plans. The completion of these plans is also part of the respective
managers' key performance indicators
Moreover to further mitigate operational risks driven by fraudulent
activities, the bank has introduced sophiticated ditigal fraud prevention
system, which analyses client behaviour to further minimise external fraud
threats.
12. The Group remains exposed to some reputational risk.
Risk Description
There are reputational risks to which the Group may be exposed, such as risks
related to international sanctions imposed on Russia in response to the war in
Ukraine, the potential exit of some correspondent banks from the country,
isolated cases of anti-banking narratives in the media, particularly in the
run-up to the election cycle, cases of phishing and other cybercrimes, as well
as risks associated with the process of digitalisation. However, none of these
risks is unique to the Group as they apply to the entire banking sector.
Risk Mitigation
To mitigate the possibility of reputational risks, the Group works
continuously to maintain strong brand recognition among its stakeholders. The
Group follows all relevant external and internal policies and procedures to
minimise the impact of direct and indirect reputational risks. The Group
monitors its brand value through public opinion studies and surveys and by
receiving feedback from stakeholders on an ongoing basis. Dedicated internal
and external marketing and communications teams actively monitor mainstream
media and social media coverage on a daily basis. These teams monitor risks,
develop scenarios and create respective contingency plans. The Group tries to
identify early warning signs of potential reputational or brand damage in
order to mitigate it and elevate it to the attention of the Board before it
escalates. A special Task Force is in place at the top management level,
comprised of strategic communications, marketing and legal teams, to manage
reputational risks when they occur. Communications and cyber security teams
conduct extensive awareness-raising campaigns on cyber security and financial
literacy, involving the media, the Banking Association of Georgia and Edufin
(TBC's inhouse financial education platform), aimed at mitigating and
preventing cyber threats and phishing cases.
13. The Group faces the risk that its strategic initiatives do not translate
into long-term sustainable value for its stakeholders.
Risk Description
The Group may face the risk of developing a business strategy that does not
safeguard long-term value creation in an environment of changing customer
needs, competition and regulatory restrictions. In addition, increased
uncertainty stemming from the major economic and social disruptions caused by
the war in Ukraine, may hamper the Group's ability to effectively develop and
execute its strategic initiatives in a timely manner and thereby compromise
its capacity for long-term value creation.
Risk Mitigation
The principal reason for building a portfolio of strategic initiatives is to
diversify the Group's revenue and value pockets and to optimise the
evolution of the enterprise value over the strategy time horizon. The Group
conducts annual strategic review sessions involving the Board, executive
management and middle management in order to ensure that it remains on the
right track and assesses business performance from different perspectives,
concentrating its analysis on key trends and market practices, both in
regional and global markets. In addition, the Bank continuously works with the
world's leading consultants in order to enhance its strategy. Furthermore, the
Group conducts quarterly analyses and monitors the metrics used to measure
strategy execution, and in case of any significant deviations, it takes
corrective or mitigation actions.
14. The Group is exposed to risks related to its ability to attract and
retain highly qualified employees.
Risk Description
The Group faces the risk of losing key personnel or failing to attract,
develop and retain skilled or qualified employees based on its objectives. The
transformation into a digital company leads to increased demand for IT
professionals across the Group.
Risk Mitigation
The aim of the Group is to adapt to the rapidly changing business environment,
increase leadership capabilities, achieve a high level of engagement among
employees, and equip them with the necessary skills. To this end, the Group
actively monitors the labor market both in Georgia and abroad, proactively
recruiting the best candidates and expanding the networks of key personnel.
The Group treats all employees equally and fairly, supporting and coaching
them to succeed. Ensuring equal opportunity in all areas of human resource
management such as selection, promotion, training and development, is critical
to retaining employee engagement and satisfaction across our workforce.
We have a succession planning framework developed for senior positions in
order to ensure a smooth transition and to offer promotion opportunities to
employees. In addition, we launched a Talent Management framework, ensuring
the constant identification of the talent and monitoring their development
within the Group.
In order to support professional education and work-based learning in the
field of technology, TBC Bank established TBC IT Academy in 2019, which
continues to strengthen the IT ecosystem in the country. TBC IT academy is
fully funded by TBC Bank and teaches key skills such as Front-end and Back-end
development, Android and iOS mobile development, a DevOps, Java, Test
Automation and OutSystems.
Candidates selected for courses have the opportunity to become highly paid
professionals in the field of information technology by working on bootcamps,
practical lectures, mentorship sessions and real projects under the guidance
of leading specialists of TBC Bank. Courses are updated through consultations
with top management, which allows us to integrate the latest trends in the
field into the teaching process.
The IT academy also enables the Bank to ensure the development of
technological skills of existing employees, allowing them to transition into
tech-based professions and digitize and automate their day-to-day work. Since
2020, more than 1000 employees have been trained in the academy in a wide
range of topics including Tech Upskilling, SQL Basic, SQL Advance, Power BI,
Manual Testing, and BA.
In the post-pandemic world, we allow all back-office employees to work
remotely or from the office. This initiative not only resulted in improved
employee satisfaction levels, but also increased efficiency across the Group.
EMERGING RISKS
Emerging risks have significant unknown components and may affect the
performance of the Group over a long-term horizon. We believe the following
risks have the potential to increase in significance over time and could have
a similar impact on the Group as the principal risks.
1. The Group's performance may be compromised by adverse developments in
the region, in particular the war in Ukraine, the possible spread of the
geopolitical crisis and/or the potential outflow of migrants from Georgia.
Risk description
While inflows to the Georgian economy are quite diversified, the country is
still vulnerable to geopolitical and economic developments in its region. In
particular, the Russian invasion of Ukraine, the consequent sanctions imposed
on Russia and the resulting elevated uncertainties have an adverse impact on
the Georgian economy.
At the same time, while the migration effect continues to make an important
contribution to economic growth in 2023, any sizeable outflow could lead to a
deterioration in the business environment. The reverse would probably be the
case in any rapid conflict resolution scenario, which would create positive
economic spill overs as well, such as the likely stronger rebound of growth in
Russia and Ukraine.
Moreover, the Russian invasion of Ukraine and related uncertainties going
forward pose a risk to the business environment in Uzbekistan, including but
not limited to the geopolitical tensions in Central Asia.
Risk mitigation
The Group actively employs stress testing and other risk measurement and
monitoring tools to ensure that early triggers are identified and translated
into specific action plans to minimize the negative impact on the Bank's
capital adequacy, liquidity, and portfolio quality in times of increased
uncertainty.
2. The Group is exposed to the risks inherent in international
operations.
Risk description
Our subsidiary, TBC Bank Uzbekistan, launched its operations in 2020. We have
already invested US$ 64 million in the charter capital of the Bank while our
partners, EBRD and IFC, have invested a total of US$ 44 million. Our payments
business in Uzbekistan, Payme, is one of the industry leaders in the country,
providing payment services to retail and business clients. In May 2023, the
Group the acquired the minority share in Payme and currently owns 100%. Our
plans foresee a minimum 51% shareholding in our international businesses. Our
Uzbek operations are expected to contribute up to GEL 200 million to the
Group's net profit over the medium to long term.
Both TBC Bank Uzbekistan and Payme operate through digital channels; a
disruption of the digital platforms deployed may have a material negative
impact on their operations. The risk management framework deployed at TBC Bank
Uzbekistan enables the Group to manage potential disruptions swiftly.
The risk posed by the operating environment in Uzbekistan may change the
Group's risk profile. This investment exposes the Group to Uzbekistan's
macroeconomic, political and regulatory environments, including but not
limited to exposure to risks arising from credit, market, operational and
capital adequacy risks as well as risks related to political stability.
The Uzbek economy is well diversified with no major reliance on a particular
industry. It has one of the lowest public debts as a percentage of GDP in the
region and high international reserves, implying macroeconomic stability as
well as room for future high growth. The Government of Uzbekistan plans to
reform the economy and open the country up to foreign investment. While the
operational environment in Uzbekistan can be assessed as attractive, there are
important risks that could materially affect the Group's performance in the
country. Among others, this includes the possible spread of the geopolitical
crisis to Central Asia.
Risk mitigation
The Group's strategy is to follow an asset-light, limited capital investment
approach with a strong focus on digital channels and to invest in stages, to
make sure that we are comfortable with the results and the operating
environment before committing additional investment. The digital platform
supporting TBC Bank Uzbekistan has strong governance and risk management
practices in place, which enable the Bank to identify and resolve problems in
a timely manner. The Group partners with international financial institutions,
which have taken a shareholding in the Uzbek bank in order to ensure the
funding of our business plan and provide sufficient flexibility across our
operations in Uzbekistan.
Payme has strengthened its risk management structure by establishing
operational risk, information security and compliance risk management
functions. Furthermore, the Company has developed a comprehensive risk
management plan and is currently working on implementation of the TBC Group
Risk management framework and practices.
Overall, from the Group's perspective, international expansion will result in
the diversification of business lines and revenue streams, balancing the
overall risk profile of the Group.
3. The Group is exposed to the risks arising from climate change.
Risk description
The risks associated with climate change have both a physical impact, arising
from more frequent and severe weather changes, and a transitional impact that
may entail extensive policy, legal and technological changes to reduce the
ecological footprint of households and businesses. For the Group, both risks
could materialise through impaired asset values and the deteriorating
creditworthiness of our customers, which could result in a reduction of the
Group's profitability. The Group may also become exposed to reputational risks
because of its lending to, or other business operations with, customers deemed
to be contributing to climate change.
Risk mitigation
The Group's objective is to act responsibly and manage the environmental and
social risks associated with its operations in order to minimise negative
impacts on the environment. This approach enables us to reduce our ecological
footprint by using resources efficiently and promoting environmentally
friendly measures in order to mitigate climate change.
The Group has in place an Environmental Policy, which governs its
Environmental Management System ("EMS") and ensures that the Group's
operations adhere to the applicable environmental, health, safety and labor
regulations and practices. We take all reasonable steps to support our
customers in fulfilling their environmental and social responsibilities. The
management of environmental and social risks is embedded in the Group's
lending process through the application of the EMS. The Group has developed
risk management procedures to identify, assess, manage and monitor
environmental and social risks. These procedures are fully integrated in the
Group's credit risk management process. Our Environmental Policy is fully
compliant with Georgian environmental legislation and follows international
best practices (the full policy is available at www.tbcbankgroup.com).
In order to increase our understanding of climate-related risks to the Bank's
loan portfolio, in 2021 the Bank performed a high-level sectoral risk
assessment, since different sectors might be vulnerable to different
climate-related risks over different time horizons. The risk assessment
focused on economic sectors such as energy, oil and gas, metals and mining,
tourism, agriculture, food industry, healthcare, construction and real estate.
In 2022, we advanced our TCFD framework further, especially in strategic
planning and risk management.
The Bank aims to increase its understanding of climate-related risks and their
longer-term impacts over the coming years, which will enable it to further
develop its approach to mitigation. Furthermore, the Group's portfolio has
strong collateral coverage, with around 74% of the loan book collateralised
with cash, real estate or gold. Since the collateral evaluation procedure
includes monitoring, any need to change collateral values arises from our
regular collateral monitoring process.
In June 2023, the Group released its full-scale sustainability report for the
year 2022 in reference to Global Reporting Initiative (GRI) standards. The
Global Reporting Initiative (GRI) helps the private sector to understand and
realise its role and influence on sustainable development issues such as
climate change, human rights and governance. The report is designed for all
interested parties and groups in Georgia and abroad and aims to give them
clear, fact-based information about the social, economic and environmental
impact of our activities in 2022. It presents our endeavours to create value
for our employees, clients, suppliers, partners and society as a whole. The
Sustainability Report 2022 is available at www.tbcbankgroup.com
(http://www.tbcbankgroup.com) .
Statement of Directors' Responsibilities
The Directors are required to prepare the condensed consolidated financial
statements on a going concern basis unless it is not appropriate. They are
satisfied that the Group has the resources to continue in business for the
foreseeable future and that the financial statements continue to be prepared
on a going concern basis.
The Directors confirm that to the best of their knowledge:
· the financial statements have been prepared in accordance with IAS
34 'Interim Financial Reporting' as adopted by the UK, and the Disclosure
Guidance and Transparency Rules ('DTR') sourcebook of the UK's Financial
Conduct Authority;
· this Interim Report 2023 gives a true, fair, balanced and
understandable view of the assets, liabilities, financial position and profit
or loss of the Company; and
· this Interim Report 2023 includes a fair review of the information
required by:
o DTR 4.2.7R, being an indication of: important events that have occurred
during the first six months of the financial year ending 31 December 2023 and
their impact on the condensed set of financial statements; and a description
of the principal risks and uncertainties for the remaining six months of the
financial year; and
o DTR 4.2.8R, being: related party transactions that have taken place in the
first six months of the financial year ending 31 December 2023, which have
materially affected the financial position or performance of TBC Bank during
that period; and any changes in the related parties transactions described in
the Annual Report and Accounts 2022 that could materially affect the financial
position or performance of TBC Bank during the first six months of the
financial year ending 31 December 2023.
Signed on behalf of the Board by:
Vakhtang Butskhrikidze
CEO
9 August 2023
TBC Bank Group PLC Board of Directors:
Chairman
Arne Berggren
Executive Directors Non-executive Directors
Vakhtang Butskhrikidze (CEO) Eran Klein
Tsira Kemularia
Janet Heckman
Per Anders Fasth
Thymios Kyriakopoulos
Nino Suknidze
Rajeev Sawhney
TBC BANK GROUP PLC
Condensed Consolidated Interim Financial
Statements (Unaudited)
30 June 2023
Contents
Independent Review
Report.................................................................................................................................46
Unaudited Condensed Consolidated Interim Financial Statements
Condensed Consolidated Interim Statement of Financial
Position......................................................................48
Condensed Consolidated Interim Statement of Profit or Loss and Other
Comprehensive Income.....................49
Condensed Consolidated Interim Statement of Changes in
Equity.................................................................... 51
Condensed Consolidated Interim Statement of Cash
Flows...............................................................................
52
Notes to the Condensed Consolidated Interim Financial Statements
1 (#_Toc142427582) (#_Toc142427582) (#_Toc142427582) Introduction
(#_Toc142427582) (#_Toc142427582)
2 (#_Toc142427583) (#_Toc142427583) (#_Toc142427583) Significant Accounting
Policies (#_Toc142427583) (#_Toc142427583)
3 (#_Toc142427584) (#_Toc142427584) (#_Toc142427584) Critical Accounting
Estimates and Judgements in Applying Accounting Policies (#_Toc142427584)
(#_Toc142427584)
4 (#_Toc142427585) (#_Toc142427585) (#_Toc142427585) Cash and Cash
Equivalents (#_Toc142427585) (#_Toc142427585)
5 (#_Toc142427586) (#_Toc142427586) (#_Toc142427586) Due from Other Banks
(#_Toc142427586) (#_Toc142427586)
6 (#_Toc142427587) (#_Toc142427587) (#_Toc142427587) Mandatory Cash
Balances with the National Bank of Georgia and the Central Bank of Uzbekistan
(#_Toc142427587) (#_Toc142427587)
7 (#_Toc142427588) (#_Toc142427588) (#_Toc142427588) Loans and Advances to
Customers (#_Toc142427588) (#_Toc142427588)
8 (#_Toc142427589) (#_Toc142427589) (#_Toc142427589) Premises, Equipment
and Intangible Assets (#_Toc142427589) (#_Toc142427589)
9 (#_Toc142427590) (#_Toc142427590) (#_Toc142427590) Due to Credit
Institutions (#_Toc142427590) (#_Toc142427590)
10 Customer Accounts (#_Toc142427591) (#_Toc142427591)
11 Provisions for Performance Guarantees, Credit Related Commitment
Liabilities and Charges (#_Toc142427592) (#_Toc142427592)
12 Debt Securities in Issue (#_Toc142427593) (#_Toc142427593)
13 Subordinated Debt (#_Toc142427594) (#_Toc142427594)
14 Equity (#_Toc142427595) (#_Toc142427595)
15 Share Based Payments (#_Toc142427596) (#_Toc142427596)
16 Earnings per Share (#_Toc142427597) (#_Toc142427597)
17 Segment Analysis (#_Toc142427598) (#_Toc142427598)
18 Interest Income and Expense (#_Toc142427599) (#_Toc142427599)
19 Fee and Commission Income and Expense (#_Toc142427600) (#_Toc142427600)
20 Net Gains from Currency Derivatives, Foreign Currency Operations and
Translation (#_Toc142427601) (#_Toc142427601)
21 Income Taxes (#_Toc142427602) (#_Toc142427602)
22 Financial and Other Risk Management (#_Toc142427603) (#_Toc142427603)
23 Contingencies and Commitments (#_Toc142427604) (#_Toc142427604)
24 Fair Value Disclosures (#_Toc142427605) (#_Toc142427605)
25 Related Party Transactions (#_Toc142427606) (#_Toc142427606)
Independent review report to TBC Bank Group plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed TBC Bank Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the 2Q and 1H 2023
Financial Results of TBC Bank Group plc for the 6 month period ended
30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed Consolidated Interim Statement of Financial Position as
at 30 June 2023;
· the Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income for the period then ended;
· the Condensed Consolidated Interim Statement of Cash Flows for the
period then ended;
· the Condensed Consolidated Interim Statement of Changes in Equity for
the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the 2Q and 1H 2023 Financial
Results of TBC Bank Group plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the 2Q and 1H 2023 Financial
Results and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The 2Q and 1H 2023 Financial Results, including the interim financial
statements, is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the 2Q and 1H 2023 Financial
Results in accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In preparing
the 2Q and 1H 2023 Financial Results, including the interim financial
statements, the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease operations, or have
no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the 2Q and 1H 2023 Financial Results based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
9 August 2023
in thousands of GEL Note 30 June 2023 31 December 2022
(Unaudited) (Restated, unaudited)
ASSETS
Cash and cash equivalents 4 2,940,359 3,860,813
Due from other banks 5 52,550 41,854
Mandatory cash balances with National Bank of Georgia and the Central Bank of 6 1,706,981 2,049,985
Uzbekistan
Loans and advances to customers 7 19,002,657 17,832,606
Investment securities measured at fair value through other comprehensive 2,942,679 2,885,088
income
Bonds carried at amortised cost 87,213 37,392
Repurchase receivables - 267,495
Finance lease receivables 338,203 312,334
Investment properties 20,741 22,154
Current income tax prepayment 3,005 430
Deferred income tax asset 12,573 16,705
Other financial assets 266,969 235,963*
Other assets 441,756 422,928*
Premises and equipment 8 463,407 442,886
Right of use assets 117,634 112,625
Intangible assets 8 418,468 383,198
Goodwill 59,964 59,964
Investments in associates 3,667 3,721
TOTAL ASSETS 28,878,826 28,988,141*
LIABILITIES
Due to credit institutions 9 2,448,662 3,940,660
Customer accounts 10 18,992,492 18,036,533
Other financial liabilities 387,595 294,546*
Current income tax liability 27,559 1,647
Deferred income tax liability 112,095 112,877
Debt securities in issue 12 1,392,872 1,361,573
Provision for liabilities and charges 11 20,767 19,908*
Other liabilities 91,839 101,736*
Lease liabilities 87,324 84,770
Subordinated debt 13 639,048 590,148
Redemption liability 14 347,044 477,329
TOTAL LIABILITIES 24,547,297 25,021,727*
EQUITY
Share Capital 14 1,682 1,681
Shares held by trust 14 (75,470) (7,900)
Treasury shares - (25,541)
Share premium 272,930 269,938
Retained earnings 3,984,493 3,745,191*
Merger reserve 402,862 402,862
Share based payment reserve 15 5,181 1,090
Fair value reserve for investment securities measured at fair value through 16,461 5,467
other comprehensive income
Cumulative currency translation reserve (36,804) (35,858)
Other reserve 14 (347,044) (477,329)
Equity attributable to owners of the parent 4,224,291 3,879,601*
Non-controlling interest 107,238 86,813
TOTAL EQUITY 4,331,529 3,966,414*
TOTAL LIABILITIES AND EQUITY 28,878,826 28,988,141*
*Starting from January 2023 the Group has adopted IFRS 17 and according to the
standard requirements retrospectively applied presentation of respective
balances for 2022 as described in note 2.
The condensed consolidated interim financial statements on pages 48 to 96 were
approved by the Board of Directors on 9 August 2023 signed on its behalf by:
___________________________
Vakhtang
Butskhrikidze
Chief Executive Officer
Six months ended
Note 30 June 2023 (Unaudited) 30 June 2022
(Restated, unaudited)
In thousands of GEL
Interest income 18 1,383,970 1,080,462
Interest income calculated using effective interest rate method 18 1,343,535 1,049,545
Other interest income 18 40,435 30,917
Interest expense 18 (656,865) (489,988)
Net interest gains on currency swaps 18 39,024 1,717
Net interest income 766,129 592,191
Fee and commission income 19 313,530 240,383
Fee and commission expense 19 (115,456) (98,921)
Net fee and commission income 198,074 141,462
Insurance contract revenue 61,076 51,369*
Reinsurance service result (4,387) (3,260)*
Insurance service claims and expenses incurred (44,287) (37,144)*
Insurance profit 12,402 10,965
Net gains from currency derivatives, foreign currency operations and 20 121,728 114,377
translation
Net gains from disposal of investment securities measured at fair value 4,319 2,225
through other comprehensive income
Other operating income 15,811 15,558
Share of profit of associates 542 123
Other operating non-interest income 142,400 132,283
Credit loss allowance for loans to customers 7 (79,424) (50,522)
Credit loss allowance for finance lease receivables (2,132) (562)
Credit loss allowance for performance guarantees 11 (1,424) (1,352)
Credit loss reversal for credit related commitments 11 488 282
Credit loss allowance for other financial assets (4,090) (698)
Credit loss (allowance)/reversal for financial assets measured at fair value (162) 1,268
through other comprehensive income
Net impairment of non-financial assets (358) (6)
Operating income after expected credit and non-financial asset impairment 1,031,903 825,311
losses
Staff costs (212,150) (176,491)
Depreciation and amortization 8 (57,948) (47,332)
Allowance of provision for liabilities and charges (121) (60)
Administrative and other operating expenses (116,121) (90,702)
Operating expenses (386,340) (314,585)
Profit before tax 645,563 510,726
Income tax expense (97,517) (52,181)
Profit for the period 548,046 458,545
Other comprehensive income for the period:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve for investment securities measured at fair 10,994 (14,747)
value through other comprehensive income
Exchange differences on translation to presentation currency (946) (8,573)
Other comprehensive income/(expense) for the period 10,048 (23,320)
Total comprehensive income for the PERIOD 558,094 435,225
*Starting from January 2023 the Group has adopted IFRS 17 and according to the
standard requirements retrospectively applied presentation of respective
balances for 2022 as described in note 2.
Six months ended
30 June 2023 30 June 2022
In thousands of GEL Note (Unaudited) (Unaudited)
Profit is attributable to:
- Shareholders of TBCG 537,459 458,465
- Non-controlling interest 10,587 80
Profit for the period 548,046 458,545
Total comprehensive income is attributable to:
- Shareholders of TBCG 547,507 435,145
- Non-controlling interest 10,587 80
Total comprehensive income for the period 558,094 435,225
Earnings per share for profit attributable to the owners of the Group:
- Basic earnings per share 16 9.90 8.37
- Diluted earnings per share 16 9.76 8.13
in thousands of GEL Note Share Capital Shares held by trust Share premium Treasury shares Merger reserve Share based payments reserve Other Reserves* Fair value reserve for investment securities at FVTOCI Cumulative currency translation reserve Retained earnings Total equity excluding non-controlling interest Non-controlling interest Total Equity
Balance as of 31 December 2021 (as originally presented) 1,682 (25,489) 283,430 - 402,862 (5,135) (238,455) (10,862) (9,450) 3,007,132 3,405,715 48,059 3,453,774
Impact of adopting IFRS 17** 2 - - - - - - - - - 182 182 - 182
Balance as of 31 December 2021 (restated) 1,682 (25,489) 283,430 - 402,862 (5,135) (238,455) (10,862) (9,450) 3,007,314 3,405,897 48,059 3,453,956
Profit for the six months ended 30 June 2022 (unaudited) - - - - - - - - - 458,465 458,465 80 458,545
Other comprehensive expense for six months ended 30 June 2022 (unaudited) - - - - - - - (14,747) (8,573) - (23,320) - (23,320)
Total comprehensive (expense)/income for six months ended 30 June 2022 - - - - - - - (14,747) (8,573) 458,465 435,145 80 435,225
(unaudited)
Share based payment expense 15 - - - - - 13,857 - - - - 13,857 - 13,857
Delivery of SBP shares to employees - 17,589 - - - (21,210) - - - - (3,621) - (3,621)
Dividends declared 14 - - - - - - - - - (118,653) (118,653) (6,393) (125,046)
Sale of interest to NCI - - - - - - - - - 432 432 (432) -
Purchase of additional interest from NCI - - - - - - - - - (1,150) (1,150) (676) (1,826)
Remeasurement of redemption liability - - - - - - (16,037) - - - (16,037) - (16,037)
Other movements - - - - - - - - - (1,225) (1,225) 1,480 255
Balance as of 30 June 2022 (restated, unaudited) 1,682 (7,900) 283,430 - 402,862 (12,488) (254,492) (25,609) (18,023) 3,345,183 3,714,645 42,118 3,756,763
Balance as of 31 December 2022 (as originally presented) 1,681 (7,900) 269,938 (25,541) 402,862 1,090 (477,329) 5,467 (35,858) 3,744,727 3,879,137 86,813 3,965,950
Impact of adopting IFRS 17** 2 - - - - - - - - - 464 464 - 464
Balance as of 1 January 2023 (restated) 1,681 (7,900) 269,938 (25,541) 402,862 1,090 (477,329) 5,467 (35,858) 3,745,191 3,879,601 86,813 3,966,414
Profit for the six months ended 30 June 2023 (unaudited) - - - - - - - - - 537,459 537,459 10,587 548,046
Other comprehensive income/(expense) for the six months ended 30 June 2023 - - - - - - - 10,994 (946) - 10,048 - 10,048
(unaudited):
Disposal of investment securities measured - - - - - - - (4,089) - - (4,089) - (4,089)
at fair value through other comprehensive income
Other effects during the period - - - - - - - 15,083 (946) - 14,137 - 14,137
Total comprehensive income for the six months ended 30 June 2023 (unaudited) - - - - - - - 10,994 (946) 537,459 547,507 10,587 558,094
Share issue for scrip dividend 5 - 11,211 - - - - - - - 11,216 - 11,216
Share based payment expense 15 - - - - - 15,140 - - - - 15,140 - 15,140
Delivery of SBP shares to employees - 7,334 - - - (11,049) - - - - (3,715) - (3,715)
Shares cancelled (4) - (8,219) 8,223 - - - - - - - - -
Share buy-back 14 - (50,102) - (7,484) - - - - - - (57,586) - (57,586)
Shares transferred to shares held by trust - (24,802) - 24,802 - - - - - - - - -
Dividends declared - - - - - - - - - (159,976) (159,976) (15,657) (175,633)
Capital injection from NCI shareholders - - - - - - - - - - - 28,996 28,996
Purchase of additional interest from NCI - - - - - - 141,234 - - (137,750) 3,484 (3,484) -
Remeasurement of redemption liability - - - - - - (10,949) - - - (10,949) - (10,949)
Other movements - - - - - - - - - (431) (431) (17) (448)
Balance as of 30 June 2023 (unaudited) 1,682 (75,470) 272,930 - 402,862 5,181 (347,044) 16,461 (36,804) 3,984,493 4,224,291 107,238 4,331,529
*Certain amounts do not correspond to the 2022 condensed consolidated interim
statements as they reflect the certain restatements as described in note 2.
**Starting from January 2023 the Group has adopted IFRS 17 and according to
the standard requirements retrospectively applied presentation of respective
balances for 2022 as described in note 2.
Six months ended
Note 30 June 2023 (Unaudited) 30 June 2022 (Restated, unaudited)
In thousands of GEL
Cash flows from operating activities
Interest received 1,317,323 1,066,917
Interest received on currency swaps 18 39,024 1,717
Interest paid (639,389) (457,690)
Fees and commissions received 326,436 238,253
Fees and commissions paid (152,638) (100,019)
Insurance contract revenue received 69,641 58,476
Insurance service claims and expenses paid (31,014) (25,406)
Cash received from trading in foreign currencies 87,999 181,032*
Other operating income received 26,934 15,176
Staff costs paid (226,318) (203,676)
Administrative and other operating expenses paid (122,773) (109,560)
Income tax paid (77,804) (141,955)
Cash flows from operating activities before changes in operating assets and 617,421 523,265*
liabilities
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of 280,201 69,536
Georgia and the Central Bank of Uzbekistan
Loans and advances to customers (1,458,877) (1,379,575)
Finance lease receivables (24,530) 21,659
Other financial assets (45,569) 18,613*
Other assets 43,486 (3,306)
Net change in operating liabilities
Due to other banks (406,557) 216,265
Customer accounts 1,256,933 1,353,808*
Other financial liabilities 68,167 (5,920)*
Other liabilities and provision for liabilities and charges 18,999 1,902
Net cash flows from operating activities 349,674 816,247
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other (497,536) (823,569)
comprehensive income
Proceeds from redemption at maturity/disposal of investment securities 700,760 829,150
measured at fair value through other comprehensive income
Acquisition of bonds carried at amortised cost (125,091) (133,443)
Proceeds from redemption of bonds carried at amortised cost 72,513 152,162
Acquisition of premises, equipment and intangible assets 8 (80,730) (80,250)
Proceeds from disposal of premises, equipment and intangible assets 8 456 6,991
Proceeds from disposal of investment properties 1,963 4,241
Dividend received 696 -
Net cash from/(used in) investing activities 73,031 (44,718)**
Cash flows (used in)/from financing activities
Proceeds from other borrowed funds 213,120 1,691,343
Redemption of other borrowed funds (1,275,176) (1,232,431)
Repayment of principal of lease liabilities (9,227) (7,872)
Proceeds from subordinated debt 69,154 46,259
Redemption of subordinated debt (2,618) -
Proceeds from debt securities in issue 134,420 47,209
Redemption of debt securities in issue (64,200) (161,978)
Purchase of additional interest from minority shareholders (146,571) (1,826)**
Cash injection from NCI shareholders 28,996 -
Cash paid for share buy-back (58,991) -
Dividends paid (165,782) (5,867)
Net cash flows (used in)/from financing activities (1,276,875) 374,837**
Effect of exchange rate changes on cash and cash equivalents (66,284) (129,277)
Net (decrease)/ increase in cash and cash equivalents (920,454) 1,017,089
Cash and cash equivalents at the beginning of the period 4 3,860,813 1,722,137
Cash and cash equivalents at the end of the period 4 2,940,359 2,739,226
*These amounts do not correspond to the 2022 condensed consolidated interim
statements as they reflect the certain restatements as described in note 2.
**Management has changed the classification of Purchase of additional interest
from minority shareholders for 2022 as required by IFRS standards and moved it
from investing to financing activities.
1 Introduction
Principal activity. TBC Bank Group PLC is a public limited by shares
company, incorporated in the United Kingdom. TBC Bank Group PLC held 99.88% of
the share capital of JSC TBC Bank (hereafter the "Bank") as at 30 June 2023
(31 December 2022: 99.88%), thus representing the Bank's ultimate parent
company. The Bank is a parent of a group of companies incorporated in Georgia,
Azerbaijan and Uzbekistan and its primary business activities include
providing banking, leasing, insurance, brokerage and card processing services
to corporate and individual customers. TBC Bank Group PLC and its subsidiaries
is referred as "TBCG" or "Group". The Group's list of subsidiaries is provided
below.
The shares of TBCG ("TBCG Shares") were admitted to the Premium Listing
segment of the Official List of the UK Listing Authority and admitted to
trading on the London Stock Exchange PLC's main market for listed securities
effective on 10 August 2016 (the "Admission"). TBC Bank Group PLC's registered
legal address is 100 Bishopsgate, C/O Law Debenture, London, England, EC2N
4AG. Registered number of TBC Bank Group PLC is 10029943. The Bank is
the Group's main operating unit and it accounts for most of the Group's
activities.
JSC TBC Bank was incorporated on 17 December 1992 and is domiciled in Georgia.
The Bank is a joint stock company limited by shares and was arranged in
accordance with Georgian regulations. The Bank's registered address and place
of business is 7 Marjanishvili Street, 0102 Tbilisi, Georgia.
The Bank's principal business activity is universal banking operations that
include corporate, small and medium enterprises, retail and micro operations
within Georgia. The Bank has been operating since 20 January 1993 under a
general banking license issued by the National Bank of Georgia ("NBG"). In
2018, the Bank launched a fully digital bank, Space. In 2020, TBC Bank Group
PLC established TBC Bank Uzbekistan JSC, which is operating through the Space
digital banking platform.
The Bank had 125 branches 9 (#_ftn9) within Georgia as at 30 June 2023. (As
at 30 June 2022: 131 branches).
The Group had 10,679 employees mainly within Georgia as at 30 June 2023. (As
at 30 June 2022: 10,065 employees).
As at 30 June 2023 and 31 December 2022, the following shareholders directly
owned more than 3% of the total outstanding shares of the Group. Other
shareholders individually owned less than 3% of the outstanding shares. As at
30 June 2023 and 31 December 2022, the Group had no ultimate controlling
party.
Shareholders 30 June 2023 ownership interest 31 December 2022 ownership interest
Dunross & Co. 6.53% 6.58%
Allan Gray Investment Management 5.35% 5.66%
BlackRock 4.31% 3.99%
Vanguard Group 4.27% 3.91%
JPMorgan Asset Management 3.83% 3.86%
Fidelity International 3.03% 3.88%
European Bank for Reconstruction and Development 3.00% 3.54%
Founders* 15.90% 16.04%
Other** 53.78% 52.54%
Total 100.00% 100.00%
* Includes effective ownership of Mamuka Khazaradze and Badri Japaridze.
** Other includes individual as well as corporate shareholders.
1 Introduction (Continued)
The condensed consolidated interim financial statements ("financial
statements") include the following principal subsidiaries:
Proportion of voting rights and ordinary share capital
Subsidiary Name 30 June 2023 31 December 2022 Principal place of business or incorporation Year of incorpo-ration Industry
JSC TBC Bank 99.88% 99.88% Tbilisi, Georgia 1992 Banking
United Financial Corporation JSC 99.53% 99.53% Tbilisi, Georgia 2001 Card processing
TBC Capital LLC 100.00% 100.00% Tbilisi, Georgia 1999 Brokerage
TBC Leasing JSC 100.00% 100.00% Tbilisi, Georgia 2003 Leasing
TBC Kredit LLC 100.00% 100.00% Baku, Azerbaijan 1999 Non-banking credit institution
TBC Pay LLC 100.00% 100.00% Tbilisi, Georgia 2008 Processing
TBC Invest-Georgia LLC 100.00% 100.00% Ramat Gan, Israel 2011 Financial services
Index LLC 100.00% 100.00% Tbilisi, Georgia 2009 Real estate management
TBC Asset Management LLC 100.00% 100.00% Tbilisi, Georgia 2021 Asset management
Globally Diversified Bond Fund JSC 100.00% N/A Tbilisi, Georgia 2023 Asset management
TBC Insurance JSC 100.00% 100.00% Tbilisi, Georgia 2014 Insurance
Redmed LLC 100.00% 100.00% Tbilisi, Georgia 2019 Healthcare e-commerce
T Net LLC 100.00% 100.00% Tbilisi, Georgia 2019 Asset management
Online Tickets LLC 10 (#_ftn10) N/A 100.00% Tbilisi, Georgia 2015 Retail Trade
TKT UZ 100.00% 100.00% Tashkent, Uzbekistan 2019 Retail Trade
Artarea.ge LLC 100.00% 100.00% Tbilisi, Georgia 2012 PR and marketing
SABA LLC 85.00% 85.00% Tbilisi, Georgia 2012 Education
TBC Art Gallery LLC 100.00% 100.00% Tbilisi, Georgia 2012 PR and marketing
Inspired LLC 11 (#_ftn11) 100.00% 51.00% Tashkent, Uzbekistan 2011 Processing
Marjanishvili 7 LLC 100.00% 100.00% Tbilisi, Georgia 2020 Banking experience improving service
TBC Bank Uzbekistan JSC 60.24% 60.24% Tashkent, Uzbekistan 2020 Banking
TBC Fin service LLC 100.00% 100.00% Tashkent, Uzbekistan 2019 Retail leasing
TBC Group Support LLC 100.00% 100.00% Tbilisi, Georgia 2020 Group risk and knowledge centre
Space JSC 100.00% 100.00% Tbilisi, Georgia 2021 Software services
Space International JSC 100.00% 100.00% Tbilisi, Georgia 2021 Software services
The Group has investments in the following associates:
Associate name 30 June 2023 31 December 2022 Principal place of business or incorporation Year of incorporation Principal activities
CreditInfo Georgia JSC 21.05% 21.05% Tbilisi, Georgia 2005 Financial intermediation
Tbilisi Stock Exchange JSC 28.83% 28.83% Tbilisi, Georgia 2015 Finance, Service
Georgian Central Securities Depository JSC 26.90% 26.90% Tbilisi, Georgia 1999 Finance, Service
Georgian Stock Exchange JSC 12 (#_ftn12) 17.31% 17.31% Tbilisi, Georgia 1999 Finance, Service
Kavkasreestri JSC(12) 10.01% 10.01% Tbilisi, Georgia 1998 Finance, Service
The country of incorporation is also the principal area of operation of each
of the above subsidiaries and associates.
1 Introduction (Continued)
The Group's corporate structure consists of related undertakings, comprising
subsidiaries and associates, not consolidated or equity accounted for due to
immateriality. A full list of these undertakings, the country of incorporation
and the ownership of each share class is set out below.
Proportion of voting rights and ordinary share capital
Company name 30 June 31 December 2022 Principal place of business or incorporation Year of incorpo-ration Industry
2023
TBC Invest International LLC 13 (#_ftn13) 99.88% 99.88% Tbilisi, Georgia 2016 Investment Vehicle
University Development Fund(13) 33.29% 33.29% Tbilisi, Georgia 2007 Education
Natural Products of Georgia LLC(13) 24.97% 24.97% Tbilisi, Georgia 2001 Trade, Service
TBC Trade LLC(13) 99.88% 99.88% Tbilisi, Georgia 2008 Trade, Service
Diversified Credit Portfolio JSC 99.88% 99.88% Tbilisi, Georgia 2021 Asset Management
Freeshop.ge LLC(13) 100.00% 100.00% Tbilisi, Georgia 2010 Retail Trade
The.ge LLC(13) 100.00% 100.00% Tbilisi, Georgia 2012 Retail Trade
Mypost LLC(13) 100.00% 100.00% Tbilisi, Georgia 2019 Postal Service
Billing Solutions LLC(13) 51.00% 51.00% Tbilisi, Georgia 2019 Software Services
Vendoo LLC (Geo)(13) 100.00% 100.00% Tbilisi, Georgia 2018 Retail Leasing
F Solutions LLC(13) 100.00% 100.00% Tbilisi, Georgia 2016 Software Services
Operating environment of the Group
Georgia, where Group's most activities are located, displays certain
characteristics of an emerging market. The legal, tax and regulatory
frameworks continue to develop and are subject to frequent changes and varying
interpretations (Note 22). Despite initial expectations of negative impact of
Russia-Ukrainian war on the Georgian economy, the growth came in at 10.1% in
2022 driven not only by the migration inflow and increased remittances, but
also on the back of increased net export of goods and FDIs. The strong
momentum continues as the first half GDP growth came in at 7.6%, which
exceeded previous expectations. Important to note that the main driver was net
exports, with an increased share of IT sector. Consequently, the outlook for
the Georgian economy has improved with 7.0%, 4.8% and 5.3% in 2023, 2024 and
2025, respectively.
However, the baseline strongly depends on the global developments. While the
Georgian economy is so far resilient against recently elevated global slowdown
risks and adverse economic impacts of Russia's invasion of Ukraine, there is a
probability of more severe spill-over effects. The materialization of these
risks could severely restrict economic activity in Georgia, negatively impact
business environment and clients of the Group.
For the purpose of measurement of expected credit losses ("ECL") the Group
uses supportable forward-looking information, including forecasts of
macroeconomic variables. As with any economic forecast, however, the
projections and likelihoods of their occurrence are subject to a high degree
of inherent uncertainty and therefore the actual outcomes may be significantly
different from those projected.
Climate Impact
Although global market conditions have affected market confidence and consumer
spending patterns, the Group remains well placed to continue displaying strong
financial results. The Group has reviewed its exposure to climate-related
risks, but has not identified any risks that could significantly impact the
financial performance or position of the Group as at 30 June 2023. See more
details outlined in risk management disclosures in note 22.
2 Significant Accounting Policies
Basis of preparation. These condensed consolidated interim financial
statements for six months ended 30 June 2023 for the Group has been prepared
in accordance with the Disclosure Guidance and Transparency Rules sourcebook
of the Financial Conduct Authority (FCA), and in accordance with UK-adopted
International Accounting Standard (IAS) 34 'Interim Financial Reporting'.
These condensed consolidated interim financial statements do not include all
the notes, normally included in annual consolidated financial statements.
Accordingly, this report is to be read in conjunction with the annual
consolidated financial statements for the year ended 31 December 2022, which
were prepared in accordance with UK-adopted International Accounting Standards
and with the requirements of the Companies Act 2006 and, for the group, in
accordance with, international financial reporting standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union.
2 Significant Accounting Policies (Continued)
These condensed consolidated interim financial statements have been reviewed,
not audited. The auditor's review conclusion is included in this report.
These condensed consolidated interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2022 were approved by
the board of directors on 13 April 2023 and delivered to the Registrar of
Companies. The report of the auditors on those accounts was unqualified, did
not contain an emphasis of the matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
Going Concern. The Board has fully reviewed the available information
pertaining to the material existing and emerging risks, strategy, financial
health, profitability of operations, liquidity, and solvency of the Group, and
determined that the Group's business remains a going concern. The Directors
have not identified any material uncertainties that could threaten the going
concern assumption and have a reasonable expectation that the Group has
adequate resources to remain operational and solvent for the foreseeable
future (which is, for this purpose, a period of 12 months from the date of
approval of these financial statements).
In reaching this assessment, the Directors have specifically considered the
implications of political instability in the region and the war in Ukraine on
the Group's performance and projected funding and capital position and also
taken into account the impact of further stress scenarios. Accordingly, the
accompanying financial statements are prepared in line with the going concern
basis of accounting.
Presentation currency. These condensed consolidated interim financial
statements are presented in thousands of Georgian Lari ("GEL thousands"),
except per-share amounts and unless otherwise indicated.
Restatement to recognise the redemption liability for put option with
non-controlling interest. In 2019 and 2021 the TBC Bank Group PLC has entered
into option agreements with minority shareholders of Inspired LLC and TBC Bank
Uzbekistan JSC, respectively. According to the option agreements above, the
parties are granted call and put options to acquire or sell the
non-controlling interest shares, within pre-defined periods at an agreed
price.
The terms of call and put options are symmetrical to each other.
As far as the businesses in Uzbekistan continue growing, the Group has
reassessed the accounting treatment for put options granted to minority
shareholders under the option agreements. After the careful consideration, the
Group has identified that according to IAS 32 requirements, the present value
of the put option exercise price should have been recognised as a redemption
liability, which may arise in future for potential acquisition of NCI shares,
since the decision to do so is wholly at the discretion of the minority
shareholders. The standard requirement holds, even if the put option is out of
the money and NCI shareholders are not expected to exercise the option in
future.
As a result of the above, in the annual consolidated financial statements for
the year ended 31 December 2022 the Group has restated previous year balances
by recognising redemption liability for put options at initial recognition and
accordingly comparative figures for 30 June 2022 in condensed consolidated
interim financial statements have been restated. Considering that the
ownership interest has been retained by minority shareholders, the
non-controlling interest has not been derecognised in the statement of
financial position and the offsetting effect of redemption liability has been
recognised in the other reserves. The redemption liability has been
subsequently remeasured for the end of each reporting period, the effects of
which have been reflected by adjusting redemption liability and other reserve
balances, respectively.
in thousands of GEL 30 June 2022 Restatement 30 June 2022
(As originally presented) (As restated)
Redemption liability - 254,492 254,492
Other reserves - (254,492) (254,492)
Changes in presentation of the consolidated statement of cash flows of TBC
Bank Group PLC within operating activity
To correct the presentation of cash flow items related to foreign exchange
differences within the operating activities of consolidated statements of cash
flows of TBC Bank Group PLC, the management corrected certain financial
statement line items in 2022 annual report and accordingly comparative figures
for 30 June 2022 in condensed consolidated interim financial statements. For
details refer to the table below and for further information refer to note 20:
in thousands of GEL 30 June 2022 Restatement 30 June 2022
(As originally presented) (As restated)
Cash received from trading in foreign currencies 122,269 58,763 181,032
Other financial assets (3,765) 22,378 18,613
Customer accounts 1,413,867 (60,059) 1,353,808
Other financial liabilities 15,162 (21,082) (5,920)
2 Significant Accounting Policies (Continued)
Consolidated financial statements. Subsidiaries are those investees, including
structured entities, that the Group controls because it (i) has power to
direct relevant activities of the investees that significantly affect their
returns, (ii) has exposure, or rights, to variable returns from its
involvement with the investees, and (iii) has the ability to use its power
over the investees to affect the amount of investor's returns. The existence
and effect of substantive rights, including substantive potential voting
rights, are considered when assessing whether the Group has power over another
entity. For a right to be substantive, the holder must have practical ability
to exercise that right when decisions about the direction of the relevant
activities of the investee need to be made. The Group may have power over an
investee even when it holds less than the majority of voting power in it. In
such a case, the Group assesses the size of its voting rights relative to the
size and dispersion of holdings of the other vote holders to determine if it
has de-facto power over the investee. Protective rights of other investors,
such as those that relate to fundamental changes of investee's activities or
apply only in exceptional circumstances, do not prevent the Group from
controlling an investee. Subsidiaries are consolidated from the date on which
control is transferred to the Group, and are deconsolidated from the date on
which control ceases.
Accounting policies and relevant changes within. The same accounting policies
and methods of computation were followed in the preparation of this condensed
consolidated interim financial statements as compared with the annual
consolidated financial statements of the Group for the year ended 31 December
2022.
Interim period tax measurement. Interim period income tax expense is accrued
using the effective tax rate that would be applicable to expected total annual
earnings, that is, the estimated weighted average annual effective income tax
rate applied to the pre-tax income of the interim period.
Adoption of New or Revised Standards and Interpretations. The Group adopts
every required standard enhancement that becomes effective during the period.
During six months period ended 2023, apart from IFRS 17 which is stated below
the Group did not have effects or it was immaterial to disclose from adopting
the new pronouncements effective from 1 January 2023:
Deferred tax related to assets and liabilities arising from a single
transaction - Amendments to IAS 12 (issued on 7 May 2021 and effective for
annual periods beginning on or after 1 January 2023).
Classification of liabilities as current or non-current, deferral of effective
date - Amendments to IAS 1 (issued on 15 July 2020 and effective for annual
periods beginning on or after 1 January 2023).
Amendments to IAS 8: Definition of Accounting Estimates (issued on 12 February
2021 and effective for annual periods beginning on or after 1 January 2023).
The amendment to IAS 8 clarified how companies should distinguish changes in
accounting policies from changes in accounting estimates.
Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting
policies (issued on 12 February 2021 and effective for annual periods
beginning on or after 1 January 2023). IAS 1 was amended to require companies
to disclose their material accounting policy information rather than their
significant accounting policies.
IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual
periods beginning on or after 1 January 2022, the effective date subsequently
modified to 1 January 2023 by the Amendments to IFRS 17 as discussed below).
In May 2017, the IASB issued IFRS 17, Insurance Contracts. IFRS 17 replaces
IFRS 4 and sets out principles for the recognition, measurement, presentation
and disclosure of insurance contracts that are in the scope of IFRS 17. In
June 2020, the IASB issued Amendments to IFRS 17, introducing various changes
to assist entities implementing the Standard, and moving an effective date to
1 January 2023.
Scope. IFRS 17 applies to the following contracts: (a) insurance contracts
issued by the Group, (b) reinsurance contracts held by the Group and (c)
investment contracts with discretionary participation features issued by the
Group. IFRS 17 generally applies to the whole set of rights and obligations
created by an insurance contract. Cash flows generated by such rights and
obligations should normally be incorporated in the measurement of assets and
liabilities associated with an insurance contract. However, an insurance
contract can also contain components which are excluded from the scope of IFRS
17 and should be accounted for under different standards, subject to specific
criteria: (a) embedded derivatives, (b) investment components, and (c)
promises to transfer to a policyholder distinct goods or services other than
insurance contract services.
Level of aggregation. IFRS 17 requires to identify portfolios of insurance
contracts. A portfolio of insurance contracts is defined as insurance
contracts that are subject to similar risks and managed together. Portfolios
should be further disaggregated into profitability-based groups of insurance
contracts that are, on initial recognition: (a) onerous, if any, (b)
profitable, with no significant possibility of subsequently becoming onerous,
if any, and (c) remaining contracts, if any. IFRS 17 prohibits to include
contracts issued more than one year apart in the same group, a requirement
commonly referred to as annual cohort requirement.
Contract boundary. The contract boundary concept is used to determine which
cash flows should be considered in the measurement of an insurance contract.
Cash flows that are not within the boundary of an insurance contract relate to
future insurance contracts. The Group generally determines the contract
boundary with a reference to its ability to reprice the insurance contract as
a whole.
2 Significant Accounting Policies (Continued)
Expected future cash flows. Included in the measurement of each group of
contracts within the scope of IFRS 17 are all the future cash flows within the
boundary of each group of contracts. The estimates of these future cash flows
are based on probability-weighted expected future cash flows. The Group
estimates which cash flows are expected and the probability that they will
occur as at the measurement date. In making these expectations, the Group uses
information about past events, current conditions, and forecasts of future
conditions.
Where estimates of expenses-related cash flows are determined at the portfolio
level or higher, they are allocated to groups of contracts on a systematic
basis, such as activity-based costing method. The Group has determined that
this method results in a systematic and rational allocation. Similar methods
are consistently applied to allocate expenses of a similar nature. Expenses of
an administrative policy maintenance nature are allocated to groups of
contracts based on the gross earned premium of groups.
Discount rates. The estimates of future cash flows should be adjusted to
reflect the time value of money and the financial risks related to future cash
flows, such as currency and liquidity risk associated with those cash flows,
to the extent that the financial risks have not been included in the estimates
of cash flows. The discount rates should: (a) reflect the time value of money,
the characteristics of the cash flows and the liquidity characteristics of the
insurance contracts, (b) be consistent with observable current market prices
for financial instruments with cash flows whose characteristics are consistent
with those of the insurance contracts, in terms of, for example, timing,
currency and liquidity, and (c) exclude the effect of factors that influence
such observable market prices but do not affect the future cash flows of the
insurance contracts. As the Group issues insurance contracts with 1 year or
less contract boundary, discounting is ignored.
Risk adjustment for non-financial risk. The risk adjustment for non-financial
risk is included in the expected cash flows to represent compensation required
for bearing the non-financial risk arising from uncertainty in future cash
flows. Under IFRS 17 requirements, the risk adjustment for non-financial risk
includes: (a) the degree of diversification benefit that the entity includes
when determining the compensation that it requires for bearing that risk, and
(b) both favourable and unfavourable outcomes in a way that reflects the
entity's degree of risk aversion.
Contractual service margin. The contractual service margin (CSM) is a
component of the carrying amount of the asset or liability for a group of
insurance contracts representing the unearned profit that the entity will
recognize as it provides insurance contract services under the insurance
contracts in the group. Pattern of CSM recognition would be thus determined
based on the coverage units, reflecting the pattern under which the insurance
contract service benefit is transferred to the policyholder of the insurance
contracts.
Insurance contract services are the services that the Group provides to a
policyholder of an insurance contract and comprise of coverage for an
insurance event. Considering the short-term nature of the Group's insurance
contracts and the insurance coverage that is evenly distributed over time, the
Group uses contract period as a coverage unit for each portfolio.
Measurement approaches. IFRS 17 allows to apply following measurement
approaches to insurance contracts issued and reinsurance contracts held: (a)
general model, (b) premium allocation approach and (c) variable fee
approach.
General model. This approach is applied to all insurance contracts, unless
they have direct participation features or the contract is eligible for, and
the entity elects to apply, the premium allocation approach.
Premium allocation approach. This approach is an optional simplification of
the measurement of the liability for remaining coverage, for insurance
contracts with short-term coverage. A group of insurance contracts is eligible
for the premium allocation approach if, at inception: (a) each contract in the
group has a coverage period (that is, the period in which the entity provides
insurance contract services) of one year or less; or (b) the measurement of
the liability for remaining coverage for the group using the premium
allocation approach is reasonably expected to produce a measurement which is
not materially different from using the general model or the variable fee
approach.
The Group uses Premium allocation approach (PAA) for its total portfolio. The
difference between PAA and IFRS 4 accounting policy consists of calculation of
risk adjustment under IFRS 17 and change in exchange rate effect on liability
for remaining coverage.
Variable fee approach. This approach is applied to insurance contracts with
direct participation features. Such contracts are substantially
investment-related service contracts under which an entity promises an
investment return based on underlying items. This approach cannot be used for
the measurement of reinsurance contracts issued or held. The Group does not
use Variable fee approach for any of its contracts.
Insurance finance income and expenses. Insurance finance income or expenses
reflect the changes in the carrying amount of the group of insurance contracts
that relate to financial risks. They comprise the effect of the time value of
money (that is, the accretion of interest on all of the fulfilment cash flows,
the risk adjustment for non-financial risk and the contractual service margin)
as well as the effect of financial risk and changes in financial risks. IFRS
17 allows, as an accounting policy, to disaggregate insurance finance income
or expenses for the period between profit or loss and other comprehensive
income. The Group's policy is to account total insurance finance income and
expenses in the statement of profit or loss.
Reinsurance contracts held. IFRS 17 allows options in presenting income or
expenses from reinsurance contracts held, other than insurance finance income
or expenses. The Group elected to present a single net amount in net expenses
from reinsurance contracts held.
2 Significant Accounting Policies (Continued)
IFRS 17 Transition. Adoption of IFRS 17 affected financial reporting processes
and procedures of the Group, as applications of the core principles outlined
above has required additional information to be gathered and processed.
After the transition to IFRS 17 the Group has used following measurement
approaches for its insurance subsidiary, depending on the type of contract:
Product classification Measurement model
Motor Insurance Insurance contracts Premium allocation approach
Border MTPL Insurance contracts Premium allocation approach
Property Insurance Insurance contracts Premium allocation approach
Agro (Crop) Insurance Insurance contracts Premium allocation approach
TBC Bank Borrowers' Credit Life Insurance Insurance contracts Premium allocation approach
Health-related Insurance Insurance contracts Premium allocation approach
Liability and Other Insurance Insurance contracts Premium allocation approach
The Group has applied the full retrospective approach for all of its
portfolios of insurance contracts.
For each group of contracts, cash flows related to the future service are
shown as Liability for Remaining Coverage (LRC) or Asset for Remaining
Coverage (ARC), depending on the sign of the net cash flow. Insurance
receivables, Deferred acquisition costs, Unearned premium reserve and
Commission payables are combined to form LRC / ARC. Similarly, Reinsurance
Share in UPR, Commission receivable from reinsurance, Reinsurance Payables and
Reinsurance commission reserve together form ARC / LRC depending on the sign
of the net cash flows.
Liability for Incurred Claims (LIC) represents Company's obligation to
investigate and pay valid claims for insured events that have already
occurred, including events that have occurred but for which claims have not
yet been reported. Reported But Not Settled (RBNS) and Incurred But Not
Reported (IBNR) claims reserves are combined to form LIC. Asset for Incurred
Claims (AIC) shows reinsurance share in LIC and is calculated in a similar
manner.
Aforementioned elements are presented in a following way below:
· Insurance contract assets,
· Reinsurance contract assets,
· Insurance contract liabilities,
· Reinsurance contract liabilities
2 Significant Accounting Policies (Continued)
Effects on Condensed Consolidated Interim Statement of Financial Position,
after the transition to IFRS 17 are presented below:
in thousands of GEL 31 December 2022 (as originally presented) Effect of Adopting of IFRS 17 recorded directly through equity** 31 December 2022 (as restated following IFRS 17 Adoption)
Other assets* 429,121 (6,193) 422,928
Reinsurer's assets 10,351 (10,351) -
Deferred acquisition cost 1,997 (1,997) -
Insurance contract assets - 48 48
Reinsurance contract assets - 6,107 6,107
Other financial assets* 273,805 (37,842) 235,963
Insurance and reinsurance receivables 45,069 (37,842) 7,227
Provisions for liabilities and charges* 34,988 (15,080) 19,908
Provision related to insurance activities 15,080 (15,080) -
Other financial liabilities* 275,781 18,765 294,546
Other financial liabilities 9,368 (2,425) 6,943
Insurance contracts liabilities under IFRS 4 12,846 (12,846) -
Reinsurance contract liabilities - 6,945 6,945
Insurance contracts liabilities under IFRS 17 - 27,091 27,091
Other liabilities* 149,920 (48,184) 101,736
Other liabilities 48,184 (48,184) -
*Totals do not reconcile to the below breakdown considering these amounts
represent only insurance related balances.
**Total effect of adoption of IFRS 17 amounted GEL 464 thousand and is
recorded directly through equity in retained earnings.
in thousands of GEL 31 December 2021 (as originally presented) Effect of Adopting of IFRS 17 recorded directly through equity** 31 December 2021 (as restated following IFRS 17 Adoption)
Other assets* 397,079 (3,970) 393,109
Reinsurer's assets 8,834 (8,834) -
Deferred acquisition cost 1,474 (1,474) -
Reinsurance contract assets - 6,338 6,338
Other financial assets* 453,115 (29,115) 424,000
Insurance and reinsurance receivables 32,474 (29,115) 3,359
Provisions for liabilities and charges* 25,358 (9,512) 15,846
Provision related to insurance activities 9,512 (9,512) -
Other financial liabilities* 139,811 13,568 153,379
Other financial liabilities 6,635 (2,202) 4,433
Insurance contracts liabilities under IFRS 4 7,825 (7,825) -
Reinsurance contract liabilities - 3,599 3,599
Insurance contracts liabilities under IFRS 17 - 19,996 19,996
Other liabilities* 130,972 (37,323) 93,649
Other Liabilities 37,323 (37,323) -
* Totals do not reconcile to the below breakdown considering these amounts
represent only insurance related balances.
** Total effect of adoption of IFRS 17 amounted GEL 182 thousand and is
recorded directly through equity in retained earnings.
2 Significant Accounting Policies (Continued)
Effects on Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income, after the transition to IFRS 17 are presented
below:
in thousands of GEL 30 June 2022 (as originally presented) IFRS 17 adoption effect 30 June 2022 (as restated)
Insurance premium earned 51,369 (51,369) -
Reinsurers share in insurance premium earned (8,100) 8,100 -
Insurance claims (37,144) 37,144 -
Reinsures share in insurance claims 4,840 (4,840) -
Insurance contract revenue - 51,369 51,369
Reinsurance service result - (3,260) (3,260)
Insurance service claims and expenses incurred - (37,144) (37,144)
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies
The Bank makes estimates and assumptions that affect the reported amounts of
assets and liabilities. Estimates and judgements are continually evaluated and
are based on the management's experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. The management also makes certain judgements, apart from those
involving estimations, in the process of applying the accounting policies.
Judgements and estimates that have the most significant effect on the amounts
recognised in the condensed consolidated interim financial statements and
estimates that can cause a significant adjustment to the carrying amount of
assets and liabilities are the following:
Judgements and estimates related to ECL measurement. Measurement of ECLs is a
significant estimate that involves determination of methodology, development
of models and preparation of data inputs. Expert management judgement is also
an essential part of calculating expected credit losses.
Management considers the significant management judgements and estimates in
calculating ECL as follows:
Judgements used to define criteria used in definition of default. The Bank
defines default using both quantitative and qualitative criteria. Borrower is
classified as defaulted if:
· any amount of contractual repayments is past due more than 90 days;
or
· factors indicating the borrower's unlikeliness-to-pay.
In addition, default exit criteria is defined using judgement as well as
whether default should be applied on a borrower or exposure level.
Judgements used to define criteria for assessing if there has been a
significant increase in credit risk (SICR) which is defined using both
quantitative and qualitative criteria.
Qualitative factors usually include judgements around delinquency period of
more than 30 days on contractual repayments; exposure is restructured, but is
not defaulted; borrower is classified as "watch".
On a quantitative basis the Bank assess change in probability of default
parameter for each particular exposure since initial recognition and compares
it to the predefined threshold. When absolute change in probability of default
exceeds the applicable threshold, SICR is deemed to have occurred and exposure
is transferred to Stage 2. Quantitative indicator of SICR is applied to retail
and micro segments, where the Bank has sufficient number of observations.
The table below represents the sensitivity analysis of (i) 20% decrease of
SICR thresholds (quantitative criteria applied for retail and micro exposures
described above. (ii) 10% increase in total number of stage 2 borrowers:
In thousands of GEL 30 June 2023 31 December 2022
20% decrease in SICR thresholds Increase credit loss allowance on loans and advances by GEL 1,686. Change of Increase credit loss allowance on loans and advances by GEL 2,106. Change of
the Bank's cost of credit risk ratio by 2 basis points the Bank's cost of credit risk ratio by 1 basis points.
10% increase in Number of Stage 2 Contracts Increase credit loss allowance on loans and advances by GEL 1,325. Increase credit loss allowance on loans and advances by GEL 1,639.
Change of the Bank's cost of credit risk ratio by 1 basis points Change of the Bank's cost of credit risk ratio by 1 basis points.
Judgements used for calculation of credit risk parameters namely exposure at
default (EAD), probability of default (PD) and loss given default (LGD). The
judgements include and are not limited by:
(i) definition of the segmentation for risk parameters
estimation purposes,
(ii) decision whether simplified or more complex models can be
used,
(iii) time since default date after which no material recoveries
are expected,
(iv) collateral haircuts from market value as well as the
average workout period for collateral discounting.
3 Critical Accounting Estimates and Judgements in Applying Accounting
Policies (Continued)
The table below describes sensitivity on 10% increase of PD and LGD estimates:
In thousands of GEL 30 June 2023 31 December 2022
10% increase (decrease) in PD estimates Increase (decrease) credit loss allowance on loans and advances by GEL 18,294 Increase (decrease) credit loss allowance on loans and advances by GEL 19,891
(GEL 17,324). Change of the Bank's cost of credit risk ratio by 21 (19) basis (GEL 18,843). Change of the Bank's cost of credit risk ratio by 12 (11) basis
points points
10% increase (decrease) in LGD estimates Increase (decrease) credit loss allowance on loans and advances by GEL 27,388 Increase (decrease) credit loss allowance on loans and advances by GEL 31,635
(GEL 29,326). (GEL 31,770).
Change of the Bank's cost of credit risk ratio by 31 (33) basis points Change of the Bank's cost of credit risk ratio by 19 (19) basis points
Estimates used for forward-looking macroeconomic scenarios and judgements made
for their probability weightings.
For forward-looking information purposes, the Bank defines three macro
scenarios. The scenarios are defined as baseline (most likely), upside (better
than most likely) and downside (worse than most likely) scenarios of the state
of the Georgian economy.
Estimates applied in differentiating between these three scenarios represent
GDP, USD/GEL rate, RE price, employment levels, monetary policy rate and other
macro variables. Under usual conditions, the scenario weights applied are 50%,
25% and 25% for the base case, upside and downside scenarios respectively. As
at 30 June 2023 the weights remained the same as at 31 December 2022 - 50%,
25% and 25% for the base, upside and downside scenarios respectively. Based on
the changes of the macro environment the Bank modifies the weightings based on
expert judgement.
The table below describes the unweighted ECL for each economic scenario as at
30 June 2023:
In thousands of GEL Baseline Upside Downside Weighted
Corporate 48,044 48,044 50,301 48,608
MSME 104,068 102,655 106,152 104,208
Consumer 175,814 174,893 177,017 175,522
Mortgage 29,655 29,478 29,988 29,694
Total 357,581 355,070 363,458 358,032
The table below describes the unweighted ECL for each economic scenario as at
31 December 2022:
In thousands of GEL Baseline Upside Downside Weighted
Corporate 45,775 45,456 48,827 46,458
MSME 95,991 94,270 98,169 96,112
Consumer 195,873 194,897 196,927 195,883
Mortgage 33,856 33,520 34,422 33,912
Total 371,495 368,143 378,345 372,365
The following table describes the key macroeconomic variables under each
scenario for future 3-year period as at 30 June 2023:
Baseline Upside Downside
Growth rates YoY, % 2023 2024 2025 2023 2024 2025 2023 2024 2025
GDP 7.0% 4.8% 5.3% 8.0% 6.9% 8.1% 5.9% 2.5% 2.3%
USD/GEL rate end of period (EOP) 2.6 2.7 2.6 2.30 2.4 2.2 2.8 3.0 2.9
RE Price (in USD) 20.9% -6.6% -0.2% 23.2% -0.7% 5.9% 17.5% -16.3% -10.1%
Employment 2.6% 0.4% 0.6% 2.9% 0.9% 1.3% 2.2% -0.1% 0.0%
Monetary policy rate (EOP, Level) 9.5% 8.0% 7.8% 9.0% 7.2% 6.8% 10.4% 9.4% 9.5%
The following table describes the key macroeconomic variables under each
scenario for future 3-year period as at 31 December 2022:
Baseline Upside Downside
Growth rates YoY, % 2023 2024 2025 2023 2024 2025 2023 2024 2025
GDP 3.5% 5.4% 5.2% 5.2% 7.9% 8.4% 1.7% 2.7% 1.9%
USD/GEL rate (EOP) 2.80 2.65 2.60 2.47 2.31 2.24 3.06 2.92 2.90
RE Price (in USD) 19.8% -2.0% -1.3% 24.2% 4.1% 4.8% 11.6% -13.1% -12.5%
Employment (EOP) 1.9% -0.8% -0.2% 2.5% -0.1% 0.6% 1.5% -1.3% -0.9%
Monetary policy rate (EOP, Level) 9.0% 7.8% 7.8% 8.4% 7.0% 6.8% 10.1% 9.3% 9.6%
3 Critical Accounting Estimates and Judgements in Applying Accounting
Policies (Continued)
The Bank assessed the impact of changes in GDP growth, unemployment and
monetary policy rate variables on ECL as a most critical estimates applied in
ECL assessment.
The sensitivity analysis was performed separately for each of the variable to
show their significant in ECL assessment, but changes in those variables may
not happen in isolation as various economic factors tend to be correlated
across the scenarios. The variables were adjusted in all three macroeconomic
scenarios and the staging has been maintained unchanged. From the assessment
of forward looking scenarios, management is comfortable with the scenarios
capturing the non-linearity of the losses.
The table below shows the impact of +/-20% change in GDP growth, unemployment
and monetary policy variables across all scenarios on the Bank's ECL as at 30
June 2023:
Change in GDP growth Change in unemployment Change in Monetary Policy
in thousands of GEL 20% increase 20% decrease 20% increase 20% decrease 20% increase 20% decrease
Impact on ECL (1,054) 1,215 1,057 (964) 696 (604)
The table below shows the impact of +/-20% change in GDP growth, unemployment
and monetary policy variables across all scenarios on the Bank's ECL as at 31
December 2022:
Change in GDP growth Change in unemployment Change in Monetary Policy
in thousands of GEL 20% increase 20% decrease 20% increase 20% decrease 20% increase 20% decrease
Impact on ECL (987) 1,038 1,341 (1,231) 710 (616)
Individual assessment: Individual assessment is mainly used for stage 2 and
stage 3 individually significant borrowers.
For selecting individually significant exposures, the management uses the
following estimated thresholds above which exposures 14 (#_ftn14) are
selected for individual review: for stage 2 - to GEL 10 million and for stage
3 - GEL 4 million. Additionally, the Bank may arbitrarily designate selected
exposures to individual measurement of ECL based on the Bank's credit risk
management or underwriting
departments' decision. The individual assessment takes into account latest
available information in order to define ECL under baseline, upside and
downside scenarios.
Post Model Adjustments PMAs are a specific set of management adjustments to
address known model limitations, either in model methodology or model inputs.
PMAs are made based on analysis of model inputs and parameters to determine
the required modifications in order to improve model accuracy.
Post model overlays. Post model overlays (PMOs) reflect management judgement
that mainly rely on expert judgement and are applied directly to expected
credit losses at an aggregated level.
Once implemented, post model overlays and adjustments are re-assessed at each
reporting date to determine the validity of the adjustments. The
appropriateness of PMAs and PMOs is subject to rigorous review and challenge.
The post model overlays and adjustments review and the approval process go
through same phases as the ECL process governance.
As at 31 December 2022 Bank introduced a PMA for clients affected by the
Russian invasion in Ukraine. Specifically, the default definition was modified
for restructured, war-affected exposures amounting to GEL 5,170 thousand as at
30 June 2023 (GEL 8,174 thousand as at December 2022). Restructured exposures
are transferred to stage 2 instead of stage 3, however, for that particular
exposures a lower number of days past due ('DPD') will be used for default
recognition: namely, instead of applying a standard 90 DPD, default will be
recognised earlier at 30 DPD after the end of grace period. The effect of
this PMA on staging shares amounts to 0.03 PP (0.05 pp as at December 2022).
while the effect on ECL amounted to GEL 600 thousand as at 30 June 2023 (GEL
2,340 thousand as at 31 December 2022) in case those exposures were in stage
3.
4 Cash and Cash Equivalents
In thousands of GEL 30 June 2023 31 December 2022
Cash on hand 1,021,023 1,243,238
Cash balances with the National Bank of Georgia and Central bank of Uzbekistan 409,083 334,823
(other than mandatory reserve deposits)
Correspondent accounts and overnight placements with other banks 947,119 1,446,565
Placements with and receivables from other banks with original maturities of 563,380 466,596
less than three months
Reverse sale and repurchase agreements with other banks with original - 370,022
maturities of less than three months
Total gross amount of cash and cash equivalents 2,940,605 3,861,244
Less: credit loss allowance by stages (246) (431)
Stage 1 (246) (431)
Total cash and cash equivalents 2,940,359 3,860,813
As 30 June 2023, 95% of the correspondent accounts and overnight placements
with other banks was placed with OECD (The Organization for Economic
Co-operation and Development) banking institutions (31 December 2022: 95%).
As 30 June 2023, GEL 364,807 thousand was placed on interbank term deposits
with two OECD banks and none with non-OECD (As at 31 December 2022, GEL
303,206 thousand was placed on interbank term deposits with one OECD bank and
none with non-OECD bank). Interest rate analysis of cash and cash equivalents
is disclosed in Note 22.
5 Due from Other Banks
Amounts due from other banks include placements with original maturities of
more than three months, that are not collateralised and represent neither past
due nor impaired amounts at the 30 June 2023 and 31 December 2022.
As at 30 June 2023 the Group had 1 placement, with original maturities of more
than three months and with aggregated amounts above GEL 5,000 thousand
amounting GEL 13,111 thousand (2022: none). The total aggregated amount of
placements with other banks with original maturities of more than three months
was GEL 52,245 thousand (2022: GEL 41,161 thousand) or 99.4% of the total
amount due from other banks (2022: 98.4%).
As at 30 June 2023 GEL 681 thousand (2022: GEL 693 thousand) were kept on
deposits as restricted cash under an arrangement with a credit card company or
credit card related services with other banks.
For the estimated fair values of due from other bank balances please refer to
Note 24.
For the purpose of ECL measurement due from other banks balances are included
in Stage 1. The ECL for these balances at 30 June 2023 is GEL 376 thousand
(2022: GEL 19 thousand).
6 Mandatory Cash Balances with the National Bank of Georgia and the Central Bank of Uzbekistan
Mandatory cash balances with the National Bank of Georgia ("NBG") represent
amounts deposited with the NBG. Resident financial institutions are required
to maintain an interest-earning obligatory reserve with the NBG, the amount of
which depends on the level of funds attracted by the financial institutions.
The Bank earned up to 10.86%, 0% and 0% annual interest in GEL, USD and EUR
respectively on mandatory reserve with NBG during six months period ended 30
June 2023 (2022: 10.88%, 2.17% and (0.7%) in GEL, USD and EUR respectively).
Mandatory cash balances with the Central Bank of Uzbekistan ("CBU") represents
of 20% amount placed and frozen on special account with Central Bank of
Uzbekistan ("CBU") 80% of amount maintained on corresponding account with CBU.
Resident financial institutions are required to keep non-interest-earning
obligatory balances with the CBU, the amount of which depends on the level of
funds attracted by the financial institutions and through clients' accounts.
The amount placed in CBU are denominated in UZS.
In January 2023, Fitch Ratings has affirmed Georgia's Long-Term Foreign and
Local Currency Issuer Default Rating (IDRs) at 'BB', the outlook was revised
to Positive from Stable. The Country Ceiling Rating is affirmed at 'BBB- ',
while short-term foreign and local-currency IDRs are kept at 'B'.
7 Loans and Advances to Customers
In thousands of GEL 30 June 2023 31 December 2022
Corporate loans 6,920,263 6,282,469
Loans to micro, small and medium enterprises 4,955,391 4,809,415
Consumer loans 3,083,138 2,859,915
Mortgage loans 4,401,897 4,253,172
Total gross loans and advances to customers at amortised cost (AC) 19,360,689 18,204,971
Less: credit loss allowance (358,032) (372,365)
Stage 1 (99,311) (107,354)
Stage 2 (99,803) (99,161)
Stage 3 (158,918) (165,850)
Total loans and advances to customers at amortised cost (AC) 19,002,657 17,832,606
As at 30 June 2023, no loans and advances to customers have been pledged to
local banks or other financial institutions as collateral with respect to
other borrowed funds (31 December 2022: GEL 958,530 thousand).
Total credit loss allowance includes PMAs amounted to GEL 600 thousand and GEL
2,340 thousand for 30 June 2023 and YE 2022 respectively.
The following tables disclose the changes in the credit loss allowance and
gross carrying amount for loans and advances to customers carried at amortised
cost between the beginning and the end of the reporting periods. Major
movements in the table are described below:
· Transfers occur between Stage 1, 2 and 3, due to significant
increases (or decreases) of credit risk or exposures becoming defaulted in the
period, and the consequent "step up" (or "step down") between 12-month and
Lifetime ECL. It should be noted, that:
o For loans, which existed at the beginning of the period, opening exposures
are disclosed as transfer amounts, while subsequent changes are disclosed in
other respective lines;
o For newly issued loans, exposures upon issuance are disclosed as transfer
amounts;
· New originated or purchased gives us information regarding gross
loans issued and corresponding credit loss allowance created during the period
(however, exposures which were issued and repaid during the period and issued
to refinance existing loans are excluded);
· Derecognised during the period refers to the balance of loans and
credit loss allowance at the beginning of the period, which were repaid during
the period. Exposures which were issued and repaid during the period, written
off or refinanced by other loans, are excluded;
· Net repayments refers to the net changes in gross carrying amounts,
which is loan disbursements less repayments, excluding loans that were fully
repaid;
· Write-offs refer to write off of loans during the period;
· Foreign exchange movements refers to the translation of assets
denominated in foreign currencies and effect to translation in presentational
currency for foreign subsidiary;
· Net re-measurement due to stage transfers and risk parameters
changes refers to the movements in ECL as a result of transfer of exposure
between stages or changes in risk parameters and forward looking expectations;
· Modification refers to changes in terms that do not result in
derecognition;
· Re-segmentation refers to the transfer of loans from one reporting
segment to another. For presentation purposes, amounts are rounded to the
nearest thousands of GEL, which in certain cases is disclosed as nil.
7 Loans and Advances to Customers (Continued)
Total loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2023 16,395,090 1,412,781 397,100 18,204,971 107,354 99,161 165,850 372,365
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (1,172,894) 1,198,217 (25,323) - (41,531) 51,537 (10,006) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (29,506) (229,468) 258,974 - (1,914) (48,400) 50,314 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 900,958 (900,359) (599) - 63,233 (63,088) (145) -
New originated or purchased 5,746,738 - - 5,746,738 80,140 - - 80,140
Derecognised or fully repaid during the period (2,754,401) (106,327) (65,339) (2,926,067) (39,689) (5,368) (10,756) (55,813)
Net repayments (1,257,680) (85,569) (46,092) (1,389,341) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - (67,333) 66,269 82,985 81,921
repayments16
Movements without impact on credit loss allowance charge for the period:
Write-offs - - (117,683) (117,683) - - (117,683) (117,683)
Changes in accrued interest 27,164 6,963 (2,070) 32,057 - - - -
Modification 966 108 76 1,150 - - - -
Foreign exchange movements (169,540) (17,159) (4,437) (191,136) (949) (308) (1,641) (2,898)
At 30 June 2023 17,686,895 1,279,187 394,607 19,360,689 99,311 99,803 158,918 358,032
Total loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2022 14,602,402 1,935,370 509,619 17,047,391 104,058 120,832 185,356 410,246
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (1,282,597) 1,360,185 (77,588) - (42,556) 71,545 (28,989) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (17,791) (183,725) 201,516 - (5,618) (48,929) 54,547 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 1,195,748 (1,183,785) (11,963) - 76,059 (75,608) (451) -
New originated or purchased 4,748,310 - - 4,748,310 97,102 - - 97,102
Derecognised or fully repaid during the period (2,114,706) (103,815) (45,497) (2,264,018) (24,694) (7,603) (14,791) (47,088)
Net repayments (1,001,427) (106,619) (35,604) (1,143,650) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - (94,255) 54,772 67,009 27,526
repayments 15 (#_ftn15)
Movements without impact on credit loss allowance charge for the period:
Write-offs - - (80,121) (80,121) - - (80,121) (80,121)
Changes in accrued interest (22,631) 3,780 3,903 (14,948) - - - -
Modification 2,413 485 398 3,296 - - - -
Foreign exchange movements (629,412) (112,300) (20,033) (761,745) (1,143) (1,039) (1,977) (4,159)
At 30 June 2022 15,480,309 1,609,576 444,630 17,534,515 108,953 113,970 180,583 403,506
7 Loans and Advances to Customers (Continued)
Corporate loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2023 5,741,400 458,334 82,735 6,282,469 18,930 1,214 26,314 46,458
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (34,151) 34,151 - - (119) 119 - -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (15,983) (29,808) 45,791 - (899) (1,168) 2,067 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 48,324 (48,324) - - 228 (228) - -
New originated or purchased 2,537,235 - - 2,537,235 19,224 - - 19,224
Derecognised or fully repaid during the period (1,635,693) (47,874) (22,118) (1,705,685) (22,509) (121) (1,184) (23,814)
Net repayments (288,995) (14,908) (5,273) (309,176) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - 3,091 688 3,281 7,060
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation 182,572 - (468) 182,104 544 - (236) 308
Write-offs - - (1) (1) - - (1) (1)
Changes in accrued interest 9,377 4,427 (264) 13,540 - - - -
Modification 419 (17) 20 422 - - - -
Foreign Exchange movements (70,517) (9,581) (547) (80,645) (324) (24) (279) (627)
At 30 June 2023 6,473,988 346,400 99,875 6,920,263 18,166 480 29,962 48,608
Corporate loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2022 5,743,444 712,548 91,749 6,547,741 24,404 1,310 25,017 50,731
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (125,146) 126,638 (1,492) - (596) 1,225 (629) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (180) (15,283) 15,463 - (21) (126) 147 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 113,965 (102,115) (11,850) - 1,351 (976) (375) -
New originated or purchased 1,605,744 - - 1,605,744 31,927 - - 31,927
Derecognised or fully repaid during the period (1,178,698) (32,914) (4,724) (1,216,336) (10,036) (170) (548) (10,754)
Net repayments (113,347) (32,155) (1,651) (147,153) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - (26,086) (185) 2,949 (23,322)
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation 63,965 12,049 - 76,014 171 10 - 181
Write-offs - - (1,127) (1,127) - - (1,127) (1,127)
Changes in accrued interest (36,469) (52) 733 (35,788) - - - -
Modification 1,000 81 39 1,120 - - - -
Foreign Exchange movements (297,468) (67,020) (3,092) (367,580) (596) (48) (247) (891)
At 30 June 2022 5,776,810 601,777 84,048 6,462,635 20,518 1,040 25,187 46,745
7 Loans and Advances to Customers (Continued)
Loans to micro, small and medium enterprises Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2023 4,327,742 317,830 163,843 4,809,415 24,938 23,961 47,213 96,112
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (392,846) 400,430 (7,584) - (9,575) 11,562 (1,987) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (802) (96,199) 97,001 - (155) (13,398) 13,553 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 250,624 (250,624) - - 16,359 (16,359) - -
New originated or purchased 1,190,006 - - 1,190,006 20,784 - - 20,784
Derecognised or fully repaid during the period (340,199) (19,918) (18,702) (378,819) (2,626) (1,223) (3,856) (7,705)
Net repayments (376,187) (28,615) (29,105) (433,907) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - (24,376) 24,783 26,729 27,136
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation (176,568) (153) - (176,721) (514) (25) - (539)
Write-offs - - (30,779) (30,779) - - (30,779) (30,779)
Changes in accrued interest 18,804 1,288 (4,305) 15,787 - - - -
Modifications 91 88 (18) 161 - - - -
Foreign exchange movements (35,423) (1,813) (2,516) (39,752) (186) (35) (580) (801)
At 30 June 2023 4,465,242 322,314 167,835 4,955,391 24,649 29,266 50,293 104,208
Loans to micro, small and medium enterprises Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2022 3,519,842 413,339 208,124 4,141,305 20,487 32,234 60,380 113,101
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (318,444) 343,438 (24,994) - (6,483) 15,053 (8,570) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (985) (69,996) 70,981 - (313) (12,804) 13,117 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 276,127 (276,127) - - 19,518 (19,518) - -
New originated or purchased 1,260,886 - - 1,260,886 15,280 - - 15,280
Derecognised or fully repaid during the period (365,611) (24,171) (15,963) (405,745) (4,129) (2,024) (3,945) (10,098)
Net repayments (304,876) (25,701) (16,854) (347,431) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - (22,077) 8,656 18,630 5,209
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation (59,468) (11,287) 27 (70,728) (134) 60 - (74)
Write-offs - - (21,375) (21,375) - - (21,375) (21,375)
Changes in accrued interest 15,971 2,509 1,002 19,482 - - - -
Modifications 324 140 198 662 - - - -
Foreign exchange movements (146,702) (14,248) (10,795) (171,745) (293) (276) (828) (1,397)
At 30 June 2022 3,877,064 337,896 190,351 4,405,311 21,856 21,381 57,409 100,646
Consumer loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2023 2,521,782 240,812 97,321 2,859,915 61,186 64,286 70,411 195,883
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (337,432) 343,239 (5,807) - (30,694) 33,760 (3,066) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (10,884) (85,444) 96,328 - (634) (32,913) 33,547 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 207,994 (207,435) (559) - 41,134 (40,996) (138) -
New originated or purchased 1,379,416 - - 1,379,416 39,562 - - 39,562
Derecognised or fully repaid during the period (601,282) (16,689) (17,885) (635,856) (14,437) (3,393) (3,167) (20,997)
Net repayments (385,651) (24,705) (6,007) (416,363) - - - -
Net re-measurement due to stage transfers, changes in risk - - - - (41,182) 41,241 47,138 47,197
parameters and
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation 649 436 (27) 1,058 (13) 20 (5) 2
Write-offs - - (85,156) (85,156) - - (85,156) (85,156)
Changes in accrued interest 588 1,671 2,767 5,026 - - - -
Modification 262 (23) 19 258 - - - -
Foreign exchange movements (23,552) (954) (654) (25,160) (411) (152) (406) (969)
At 30 June 2023 2,751,890 250,908 80,340 3,083,138 54,511 61,853 59,158 175,522
7 Loans and Advances to Customers (Continued)
Consumer loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2022 1,920,145 239,240 86,519 2,245,904 56,365 65,208 61,355 182,928
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (343,847) 354,918 (11,071) - (33,740) 40,719 (6,979) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (10,820) (78,136) 88,956 - (4,488) (34,428) 38,916 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 208,669 (208,556) (113) - 42,800 (42,724) (76) -
New originated or purchased 1,265,105 - - 1,265,105 49,248 - - 49,248
Derecognised or fully repaid during the period (415,618) (20,118) (10,516) (446,252) (10,399) (4,287) (5,420) (20,106)
Net repayments (386,266) (25,030) (6,817) (418,113) - - - -
Net re-measurement due to stage transfers, changes in risk parameters and - - - - (35,335) 55,247 35,894 55,806
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation 1,353 (139) (27) 1,187 (52) (12) - (64)
Write-offs - - (55,021) (55,021) - - (55,021) (55,021)
Changes in accrued interest 1,274 2,392 2,911 6,577 - - - -
Modification 647 156 66 869 - - - -
Foreign exchange movements (22,303) (1,849) (779) (24,931) (113) (109) (92) (314)
At 30 June 2022 2,218,339 262,878 94,108 2,575,325 64,286 79,614 68,577 212,477
Mortgage loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2023 3,804,166 395,805 53,201 4,253,172 2,300 9,700 21,912 33,912
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (408,465) 420,397 (11,932) - (1,143) 6,096 (4,953) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (1,837) (18,017) 19,854 - (226) (921) 1,147 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 394,016 (393,976) (40) - 5,512 (5,505) (7) -
New originated or purchased 640,081 - - 640,081 570 - - 570
Derecognised or fully repaid during the period (177,227) (21,846) (6,634) (205,707) (117) (631) (2,549) (3,297)
Net repayments (206,847) (17,341) (5,707) (229,895) - - - -
Net re-measurement due to stage transfers, changes in risk - - - - (4,866) (443) 5,837 528
parameters and
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation (6,653) (283) 495 (6,441) (17) 5 241 229
Write-offs - - (1,747) (1,747) - - (1,747) (1,747)
Changes in accrued interest (1,605) (423) (268) (2,296) - - - -
Modification 194 60 55 309 - - - -
Foreign exchange movements (40,048) (4,811) (720) (45,579) (28) (97) (376) (501)
At 30 June 2023 3,995,775 359,565 46,557 4,401,897 1,985 8,204 19,505 29,694
Mortgage loans Gross carrying amount Credit loss allowance
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
In thousands of GEL (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted) (12-months ECL) (lifetime ECL for SICR) (lifetime ECL for defaulted)
At 1 January 2022 3,418,971 570,243 123,227 4,112,441 2,802 22,080 38,604 63,486
Movements with impact on credit loss allowance charge for the period:
Transfers:
- to lifetime (from Stage 1 and Stage 3 to Stage 2) (495,160) 535,191 (40,031) - (1,737) 14,548 (12,811) -
- to defaulted (from Stage 1 and Stage 2 to Stage 3) (5,806) (20,310) 26,116 - (796) (1,571) 2,367 -
- to 12-months ECL (from Stage 2 and Stage 3 to Stage 1) 596,987 (596,987) - - 12,390 (12,390) - -
New originated or purchased 616,575 - - 616,575 647 - - 647
Derecognised or fully repaid during the period (154,779) (26,612) (14,294) (195,685) (130) (1,122) (4,878) (6,130)
Net repayments (196,938) (23,733) (10,282) (230,953) - - - -
Net re-measurement due to stage transfers, changes in risk - - - - (10,757) (8,946) 9,536 (10,167)
parameters and
repayments
Movements without impact on credit loss allowance charge for the period:
Re-segmentation (5,850) (623) - (6,473) 15 (58) - (43)
Write-offs - - (2,598) (2,598) - - (2,598) (2,598)
Changes in accrued interest (3,407) (1,069) (743) (5,219) - - - -
Modification 442 108 95 645 - - - -
Foreign exchange movements (162,939) (29,183) (5,367) (197,489) (141) (606) (810) (1,557)
At 30 June 2022 3,608,096 407,025 76,123 4,091,244 2,293 11,935 29,410 43,638
7 Loans and Advances to Customers (Continued)
The contractual amounts outstanding on loans to customers that have been
written off during the period partially or fully, but are still subject to
enforcement activity was principal amount GEL 16,070 thousand (31 December
2022: GEL 22,535 thousand), accrued interest GEL 1,741 thousand (31 December
2022: GEL 4,160 thousand) and accrued off balance sheet penalty GEL 1,808
thousand (31 December 2022: GEL 2,814 thousand).
7 Loans and Advances to Customers (Continued)
The table below presents the economic sector risk concentrations within the
customer loan portfolio:
30 June 2023 31 December 2022
In thousands of GEL Amount % Amount %
Individual 7,826,447 40% 7,199,092 40%
Real Estate 1,582,473 8% 1,564,352 9%
Construction 1,261,093 6% 1,073,761 6%
Hospitality, Restaurants & Leisure 1,164,669 6% 1,147,098 6%
Trade 1,133,322 6% 1,054,958 6%
Food Industry 953,053 5% 1,060,058 6%
Agriculture 896,788 5% 822,779 5%
Energy & Utilities 894,700 5% 947,441 5%
Healthcare 514,024 3% 451,304 2%
Services 415,782 2% 388,517 2%
Automotive 321,471 2% 297,558 2%
Transportation 248,758 1% 240,535 1%
Pawn Shops 204,978 1% 196,489 1%
Metals and Mining 177,267 1% 179,365 1%
Financial Services 153,156 1% 262,675 1%
Communication 39,531 0% 30,758 0%
Other 1,573,177 8% 1,288,231 7%
Total gross loans and advances to customers 19,360,689 100% 18,204,971 100%
As of 30 June 2023, the Group had 181 borrowers (31 December 2022: 177
borrowers) with the aggregated gross loan amounts above GEL 10,000 thousand.
The total aggregated amount of these loans was GEL 4,877,871 thousand (31
December 2022: GEL 4,510,504 thousand) or 25.2% of the gross loan portfolio
(31 December 2022: 24.8%).
The amount and type of collateral required depends on an assessment of the
credit risk of the counterparty. There are three key types of collateral:
· Real estate;
· Movable property including fixed assets, inventory and precious
metals;
· Financial assets including deposits, shares, and third party
guarantees.
The gross carrying amount of loans by stages that have been modified since
initial recognition at a time when the loss allowance was measured at an
amount equal to lifetime expected credit losses and for which the loss
allowance has changed during the reporting period to an amount equal to
12-month expected credit losses loans are the following:
in thousands of GEL 30 June 2023 31 December 2022
Stage 1 808,287 354,308
Stage 2 93,524 184,044
Stage 3 1,420 49,975
Total 903,231 588,327
At the central level a specific unit manages collateral to ensure that they
serve as an adequate mitigation for credit risk management purposes. In line
with the Group's internal policies, collateral provided to loans are evaluated
by the internal appraisal group (external reviewers are used in case of loans
to related parties or specific cases when complex objects are appraised). The
internal appraisal group is part of the collateral management unit and, in
order to ensure adequate and objective appraisal procedures, it is independent
from the loan granting process. Real estate collateral of significant value is
re-evaluated annually by internal appraisers. Statistical methods are used to
monitor the value of real estate collateral that are of non-significant value
and other types of collateral such as movable assets and precious metals.
In some instances, where the discounted recovery from the liquidation of
collateral (adjusted for the liquidity haircut and discounted for the period
of expected selling time) is larger than the estimated exposure at default, no
credit loss allowance is recognised. Collateral values include the contractual
price of third-party guarantees, which, due to their nature, are capped at the
loan's carrying value.
Refer to Note 24 for the estimated fair value of each class of loans and
advances to customers. Interest rate analysis of loans and advances to
customers is disclosed in Note 22. Information on related party balances is
disclosed in Note 25.
8 Premises, Equipment and Intangible Assets
In thousands of GEL Land, Premises and leasehold improvements Office and Other Construction in Total premises and Intangible Assets Total
equipment*
progress
equipment
At Cost
1-Jan-22 205,892 294,568 110,489 610,949 450,482 1,061,431
Additions 6,848 32,986 15,503 55,337 57,515 112,852
Transfers within premises and equipment 4,390 - (4,390) - - -
Transfer to financial leases and repossessed assets - (323) - (323) - (323)
Disposals (424) (6,609) (1,475) (8,508) (7,531) (16,039)
Impairment reversal/(charge) 618 (5) 490 1,103 - 1,103
Effect of translation to presentation currency (25) (223) (38) (286) (789) (1,075)
30-Jun-22 217,299 320,394 120,579 658,272 499,677 1,157,949
1-Jan-23 198,896 337,661 129,775 666,332 559,547 1,225,879
Additions 4,717 26,390 18,088 49,195 64,950 114,145
Disposals (151) (3,234) (436) (3,821) (240) (4,061)
Impairment charge - (13) (247) (260) - (260)
Effect of translation to presentation currency (23) (1,023) (31) (1,077) (1,212) (2,289)
30-Jun-23 203,439 359,781 147,149 710,369 623,045 1,333,414
Accumulated depreciation / amortisation
1-Jan-22 (46,144) (172,299) - (218,443) (130,519) (348,962)
Depreciation / amortisation charge (3,011) (11,133) - (14,144) (23,886) (38,030)
Elimination of accumulated depreciation / amortisation on disposals 127 3,805 - 3,932 - 3,932
Effect of translation to presentation currency 29 80 - 109 19 128
30-Jun-22 (48,999) (179,547) - (228,546) (154,386) (382,932)
1-Jan-23 (40,063) (183,383) - (223,446) (176,349) (399,795)
Depreciation / amortisation charge (1,501) (12,508) - (14,009) (30,097) (44,106)
Elimination of accumulated depreciation / amortisation on disposals 42 1,769 - 1,811 26 1,837
Reversal of elimination of accumulated depreciation (3,299) (8,083) - (11,382) 1,845 (9,537)
Effect of translation to presentation currency 1 63 - 64 (2) 62
30-Jun-23 (44,820) (202,142) - (246,962) (204,577) (451,539)
Carrying amount
30-Jun-22 168,300 140,847 120,579 429,726 345,291 775,017
30-Jun-23 158,619 157,639 147,149 463,407 418,468 881,875
*Office and other equipment include furniture and fixtures, computer and
office equipment, motor vehicles as well as other equipment.
Depreciation and amortisation charge presented on the face of the statement of
profit or loss and other comprehensive income include depreciation and
amortisation charge of premises and equipment, investment properties and
intangible assets.
Construction in progress consists of construction and refurbishment of branch
premises and the Bank's new headquarter, that will be transferred to premises
upon completion.
9 Due to Credit Institutions
In thousands of GEL 30 June 2023 31 December 2022
Due to other banks
Correspondent accounts and overnight placements 163,513 334,081
Deposits from banks 64,245 41,957
Sale and repurchase agreements with other banks - 262,415
Total due to other banks 227,758 638,453
Other borrowed funds
Borrowings from foreign banks and international financial institutions 2,192,536 2,192,451
Borrowings from other local banks and financial institutions 28,368 79,222
Borrowings from National Bank of Georgia - 1,030,534
Total other borrowed funds 2,220,904 3,302,207
Total amounts due to credit institutions 2,448,662 3,940,660
10 Customer Accounts
In thousands of GEL 30 June 2023 31 December 2022
State and public organisations
Current/settlement accounts 1,030,895 1,053,255
Term deposits 1,008,446 553,743
Other legal entities
Current/settlement accounts 6,082,927 5,752,571
Term deposits 1,081,631 1,236,063
Individuals
Current/settlement accounts 5,566,405 5,375,570
Term deposits 4,222,188 4,065,331
Total customer accounts 18,992,492 18,036,533
State and public organisations include government owned businesses.
Economic sector concentrations within customer accounts are as follows:
30 June 2023 31 December 2022
In thousands of GEL Amount % Amount %
Individuals 9,783,257 51% 9,432,022 52%
Financial services 1,633,101 9% 1,164,373 6%
Trade 1,542,820 8% 1,568,181 9%
Government sector 1,340,466 7% 623,953 3%
Services 803,204 4% 828,692 5%
Construction 601,858 3% 773,603 4%
Energy & utilities 547,786 3% 1,073,229 6%
Real estate 526,164 3% 545,959 3%
Transportation 500,192 3% 452,229 3%
Healthcare 140,701 1% 169,611 1%
Hospitality & leisure 218,113 1% 223,906 1%
Agriculture 110,444 1% 77,068 1%
Metals and mining 28,891 0% 26,514 0%
Other 1,215,495 6% 1,077,193 6%
Total customer accounts 18,992,492 100% 18,036,533 100%
As at 30 June 2023 the Group had 145 customers (31 December 2022: 154
customers) with balances above GEL 10,000 thousand. Their aggregate balance
was GEL 7,117,243 thousand (31 December 2022: GEL 6,275,976 thousand) or
37.5% of total customer accounts (31 December 2022: 34.8%).
As at 30 June 2023 included in customer accounts are deposits of GEL 111,696
thousand and GEL 125,194 thousand (31 December 2022: GEL 72,591 thousand and
GEL 188,699 thousand) held as collateral for irrevocable commitments under
letters of credit and guarantees issued, respectively. The latter is discussed
in Note 23. As at 30 June 2023, deposits held as collateral for loans to
customers amounted to GEL 691,347 thousand (31 December 2022: GEL 478,295
thousand). Refer to Note 24 for the disclosure of the fair value of customer
accounts. Information on related party balances is disclosed in Note 25.
11 Provisions for Performance Guarantees, Credit Related Commitment Liabilities and Charges
Movements in provisions for performance guarantees, credit related commitment
and liabilities and charges are as follows:
In thousands of GEL Perfor-mance guarantees Credit related commitments Provision for other liabilities and charges Provision related to insurance activities Total
Carrying amount as of 31 December 2022 7,206 3,177 10,152 14,453 34,988
Impact of adopting IFRS 17* - - (627) (14,453) (15,080)
Carrying amount as of 1 January 2023 7,206 3,177 9,525 - 19,908
Charges less releases recorded in profit or loss 1,424 (488) 121 - 1,057
Effect of translation to presentation currency (71) (41) (86) - (198)
Carrying amount at 30 June 2023 8,559 2,648 9,560 - 20,767
In thousands of GEL Perfor-mance guarantees Credit related commitments Provision for other liabilities and charges Provision related to insurance activities Total
Carrying amount as of 1 January 2022 4,620 3,624 7,952 9,162 25,358
Charges less releases recorded in profit or loss 1,352 (282) 60 4,918 6,048
Effect of translation to presentation currency (139) (127) - (140) (406)
Carrying amount at 30 June 2022 5,833 3,215 8,012 13,940 31,000
*For details of IFRS 17 adoption please refer to note 2.
Credit related commitments and performance guarantees: Impairment allowance
estimation methods differ for (i) letter of credits and guarantees and (ii)
undrawn credit lines. For letter of credits and guarantees allowance
estimation purposes the Group applies the staged approach and classifies them
in stage 1, stage 2 or stage 3. Significant stage 2 and stage 3 guarantees are
assessed individually. Non-significant stage 3 as well as all stage 1 and
stage 2 guarantees and letter of credits are assessed collectively using
exposure, marginal probability of conversion, loss given default and discount
factor. Amount of the expected allowance differs based on the classification
of the facility in the respective stage.
For impairment allowance assessment purposes, for undrawn exposures the Group
distinguishes between revocable and irrevocable loan commitments. For
revocable commitments, the Group does not create an impairment allowance. As
for the irrevocable undisbursed exposures the Group estimates utilization
parameter (which represents expected limit utilization percentage conditional
on the default event) in order to convert off-balance part of the exposure to
on-balance.
Performance guarantees are contracts that provide compensation if another
party fails to perform a contractual, commercial or legal obligation. Where
the performance guarantee provides the Group with contractual indemnification
rights to recover any payments made to the guarantee holder from the applicant
and such rights are covered by collateral, they are treated as a loan
commitment provided to the applicant, if the bank concludes that there is no
event with commercial substance that could cause the bank to incur an overall
loss on the guarantee arrangement. Such performance guarantees are initially
recognised at their fair value, which is normally evidenced by the amount of
fees received. This amount is amortised on a straight line basis over the life
of the contract. At the end of each reporting period, the performance
guarantee contracts are measured at the higher of (i) the unamortised balance
of the amount at initial recognition and (ii) the amount of the loss allowance
determined based on the expected credit loss model.
12 Debt Securities in Issue
As of 30 June 2023, debt securities in issue comprised of:
in thousands of GEL Currency Carrying amount as of 30 June 2023 Maturity Date Coupon rate Effective interest rate
Bonds issued on Irish Stock Exchange USD 595,952 6/19/2024 5.80% 6.50%
Bonds issued on Irish Stock Exchange USD 332,490 10/3/2024 10.80% 11.40%
Bonds issued on Irish Stock Exchange USD 198,556 2/4/2027 8.90% 9.90%
Private placement USD 81,847 8/18/2024 5.00% 5.50%
Bonds issued on Georgian Stock Exchange JSC GEL 68,737 3/20/2026 TIBR 3M+2.75% 15.31%
Private placement USD 40,027 5/11/2024 6.00% 6.60%
Private placement USD 39,342 3/20/2026 7.00% 7.60%
Private placement USD 17,722 4/29/2030 8.00% 8.50%
Bonds issued on Georgian Stock Exchange JSC GEL 10,262 6/27/2026 TIBR 3M+2.75% 15.31%
Baku Stock Exchange CJSC AZN 4,780 9/23/2023 12.00% 12.40%
Baku Stock Exchange CJSC AZN 1,547 6/6/2024 12.00% 12.40%
Baku Stock Exchange CJSC AZN 1,610 7/15/2024 12.00% 12.40%
Total debt securities in issue 1,392,872
12 Debt Securities in Issue (continued)
As of 31 December 2022, debt securities in issue comprised of:
in thousands of GEL Currency Carrying amount as of 31 December 2022 Maturity Date Coupon rate Effective interest rate
Bonds issued on Irish Stock Exchange USD 614,748 6/19/2024 5.80% 6.40%
Bonds issued on Irish Stock Exchange USD 342,698 10/3/2024 10.80% 11.40%
Bonds issued on Irish Stock Exchange USD 204,477 2/4/2027 8.90% 9.90%
Private placement USD 84,766 8/18/2024 5.00% 5.40%
Private placement USD 40,838 5/11/2024 6.00% 6.10%
Bonds issued on Georgian Stock Exchange JSC GEL 38,550 3/20/2023 TIBR 3M+3.25% 12.50%
Private placement USD 27,349 3/19/2023 6.50% 7.10%
Baku Stock Exchange CJSC AZN 4,904 9/23/2023 12.00% 12.40%
Baku Stock Exchange CJSC AZN 1,652 6/6/2024 12.00% 12.40%
Baku Stock Exchange CJSC AZN 1,591 7/15/2024 12.00% 12.40%
Total debt securities in issue 1,361,573
On 20 March 2023 the TBC Bank Group PLC completed the transaction of USD 15
million 3-year 7% senior unsecured bonds issue (the "Notes"). The private
placement is direct, unsecured and unsubordinated obligations of the Group,
issued in Georgia.
On 20 March 2023, TBC Leasing JSC placed senior secured bonds of amount GEL
100 million on the Georgian Stock Exchange JSC out of which as of 30 June 2023
GEL 88.71 million was sold to investors. The coupon rate of securities is
variable, 2.75% added to the 3-month Tbilisi Interbank Interest rate. Fitch
rates the bonds 'BB-'.
On 27 April 2023, the Bank has issued USD 30 million 7-year, 8% Subordinated
notes, through the private placement, out of which as of 30 June 2023 USD 6.7
million was sold to investors.
On 28 June 2023, TBC Leasing JSC issued Green Bonds of amount GEL 15 million
on the Georgian Stock Exchange JSC. The coupon rate of securities is variable,
2.75% added to the 3-month Tbilisi Interbank Interest rate. Fitch rates the
bonds 'BB-'.
On 14 July 2022 the TBC Kredit LLC issued interest-baring paperless unsecured
bond in the amount of AZN 1 million, with 2 year maturity at 12%.
On 7 June 2022 the TBC Kredit completed the transaction of AZN 1 million
2-year 12% named, interest-baring, paperless, unsecured bonds issue (the
"Notes").
On 12 May 2022 the TBC Bank Group PLC completed the transaction of USD 15
million 2-year 6% senior unsecured bonds issue (the "Notes"). The private
placement is direct, unsecured and unsubordinated obligations of the Group,
issued in Georgia.
On 6 April 2022 the Bank completed the partial redemption of 2019 issued
senior bond in the amount of USD 55 million and incurred transaction fee of
USD 0.2 million. Consideration paid amounted to USD 52 million. The difference
between amount paid and amortised cost of the bond adjusted with transaction
fee was accounted as a gain on extinguishment of debt in the amount of USD 2
million recognized within other operating income.
On 28 October 2021, the Bank completed the transaction of USD 75 million
8.894% yield Additional Tier 1 Capital Perpetual Subordinated Notes issue
("AT1 Notes") and successfully returned to the international capital markets.
The AT1 Notes are listed on the regulated market of Euronext Dublin and are
rated B- by Fitch.
On 23 September 2021 the TBC Kredit completed the transaction of AZN 3 million
2-year 12% named, interest-baring, paperless, unsecured bonds issue (the
"Notes").
On 18 August 2021 the TBC Bank Group PLC completed the transaction of USD 31
million 3-year 5% senior unsecured bonds issue (the "Notes"). The private
placement is direct, unsecured and unsubordinated obligations of the Group,
issued in Georgia.
On 3 July 2019 the Bank completed the transaction of a debut inaugural USD 125
million 10.75% yield Additional Tier 1 Capital Perpetual Subordinated Notes
issue ("AT1 Notes"). The AT1 Notes are listed on the regulated market of
Euronext Dublin and are rated B- by Fitch. The AT1 Notes have been
simultaneously listed on JSC Georgian Stock Exchange, making it the first
dual-listed international offering of additional Tier 1 Capital Notes from
Georgia.
On 19 June 2019 the Bank completed the transaction of a debut USD 300 million
5-year 5.75% (6% yield) senior unsecured bonds issue. The Notes are listed on
the regulated market of Euronext Dublin and are rated Ba2 by Moody's and BB-
by Fitch. The Notes have been simultaneously listed on JSC Georgian Stock
Exchange, making it the first dual-listed international offering of senior
unsecured Notes from Georgia.
13 Subordinated Debt
As of 30 June 2023, subordinated debt issued by the following counterparties
comprised of:
In thousands of GEL Grant Date Maturity Date Currency Agreement Interest Rate Outstanding amount in original currency Outstanding amount in GEL
Asian Developement Bank 10/18/2016 12/31/2026 USD 9.99% 51,071 133,688
Private lenders 6/8/2017-3/31/2023 11/18/2024-6/30/2031 USD 8.00-8.50% 38,804 101,577
Global Climate Partnership Fund 11/20/2018 11/20/2028 USD 12.02% 25,091 65,681
European Fund for Southeast Europe 12/21/2018 12/21/2028 USD 8.84% 20,074 52,547
Green for Growth Fund 12/18/2015 12/16/2030 USD 10.95% 15,417 40,356
BlueOrchard Microfinance Fund 6/9/2023 6/9/2033 USD 11.48% 19,931 52,173
BlueOrchard Microfinance Fund 12/14/2018 12/15/2025 USD 9.28% 14,993 39,246
BlueOrchard Microfinance Fund 12/14/2018 12/14/2028 USD 9.28% 14,971 39,191
European Fund for Southeast Europe 12/18/2015 12/16/2030 USD 10.95% 7,708 20,177
European Fund for Southeast Europe 3/15/2016 3/17/2031 USD 10.95% 7,706 20,172
ResponsAbility SICAV (Lux) Micro and SME Finance Leaders 4/7/2022 4/7/2032 USD 10.79% 6,085 15,930
ResponsAbility SICAV (Lux) Micro and SME Finance Fund 11/30/2018 11/30/2028 USD 11.68% 5,957 15,594
ResponsAbility SICAV (Lux) Micro and SME Finance Fund 4/7/2022 4/7/2032 USD 10.79% 5,173 13,540
ResponsAbility SICAV (Lux) - Financial Inclusion Fund 4/7/2022 4/7/2032 USD 10.79% 3,956 10,354
ResponsAbility SICAV (Lux) - Financial Inclusion Fund 11/30/2018 11/30/2028 USD 11.68% 3,129 8,192
ResponsAbility SICAV (Lux) - Microfinance Leaders 11/30/2018 11/30/2028 USD 11.68% 1,009 2,642
Triple Jump Innovation Fund 3/14/2023 4/15/2028 USD 9.00% 3,051 7,988
Total subordinated debt 639,048
As of 31 December 2022, subordinated debt issued by the following
counterparties comprised of:
In thousands of GEL Grant Date Maturity Date Currency Agreement Interest Rate Outstanding amount in original currency Outstanding amount in GEL
Asian Developement Bank 10/18/2016 12/31/2026 USD 12.19% 51,001 137,804
Private lenders 6/8/2017-12/6/2022 1/25/2023-3/31/2028 USD 8-9.5% 36,271 98,008
Global Climate Partnership Fund 11/20/2018 11/20/2028 USD 9.16% 25,097 67,813
European Fund for Southeast Europe 12/21/2018 12/21/2028 USD 8.84% 20,079 54,252
Green for Growth Fund 12/18/2015 12/16/2030 USD 9.74% 15,359 41,501
BlueOrchard Microfinance Fund 12/14/2018 12/15/2025 USD 9.28% 14,986 40,492
BlueOrchard Microfinance Fund 12/14/2018 12/14/2028 USD 9.28% 14,968 40,443
European Fund for Southeast Europe 12/18/2015 12/16/2030 USD 9.74% 7,679 20,749
European Fund for Southeast Europe 3/15/2016 3/17/2031 USD 9.74% 7,678 20,745
ResponsAbility SICAV (Lux) Micro and SME Finance Leaders 4/7/2022 4/7/2032 USD 9.94% 6,080 16,428
ResponsAbility SICAV (Lux) Micro and SME Finance Fund 11/30/2018 11/30/2028 USD 11.31% 5,955 16,091
ResponsAbility SICAV (Lux) Micro and SME Finance Fund 4/7/2022 4/7/2032 USD 9.94% 5,168 13,964
ResponsAbility SICAV (Lux) - Financial Inclusion Fund 4/7/2022 4/7/2032 USD 9.94% 3,952 10,679
ResponsAbility SICAV (Lux) - Financial Inclusion Fund 11/30/2018 11/30/2028 USD 11.31% 3,128 8,453
ResponsAbility SICAV (Lux) - Microfinance Leaders 11/30/2018 11/30/2028 USD 11.31% 1,009 2,726
Total subordinated debt 590,148
The debt ranks after all other creditors in case of liquidation, except AT1
Notes.
Refer to Note 24 for the disclosure of the fair value of subordinated debt
14 Equity
Share capital
In thousands of GEL except for number of shares Number of Share capital
ordinary shares
As of 1 January 2022 55,155,896 1,682
Scrip dividend issued 536,515 18
Shares cancelled (589,645) (19)
As of 31 December 2022 55,102,766 1,681
Scrip dividend issued 148,797 5
Shares cancelled (111,347) (4)
As of 30 June 2023 55,140,216 1,682
As of 30 June 2023 the total authorised number of ordinary shares was
55,140,216 shares (31 December 2022: 55,102,766 shares). Each share has a
nominal value of one British Penny. All issued ordinary shares are fully paid
and entitled to dividends.
Dividends
On 18 April 2023, TBC Bank Group PLC's Board of directors declared a final
dividend of GEL 2.95 per share payable by cash or shares (under TBC Bank Group
PLC's scrip dividend program) at the option of the Shareholders. The record
date was on 12 May 2023 and dividend was paid on 14 June 2023. As a result,
the company has issued additional 148,797 shares to meet requests of those
shareholders who opted to share dividend.
On 12 August 2022, TBC Bank Group PLC's Board of directors declared an interim
dividend of GEL 2.5 per share payable by cash or shares (under TBC Bank Group
PLC's scrip dividend program) at the option of the Shareholders. The record
date was on 16 September 2022 and dividend was paid on 14 October 2022. As a
result, the company has issued additional 212,991 shares to meet requests of
those shareholders who opted to share dividend.
On 16 June 2022, TBC Bank Group PLC's shareholders passed a resolution to
declare a final dividend of GEL 2.16 per share payable by cash or shares
(under TBC Bank Group PLC's scrip dividend program) at the option of the
Shareholders. The record date was on 17 June 2022 and dividend was paid on 15
July 2022. As a result, the company has issued additional 323,524 shares to
meet requests of those shareholders who opted to share dividend.
Shares held by trust
Part of the shares are held by employee benefit trust (EBT) for the purpose of
future employee share based payments plan. The number of shares held by trust
as at 30 June 2023 comprised 1,125,706 shares (31 December 2022: 226,126
shares). The EBT has waived its rights to receive dividends on such shares.
Other reserve
in thousands of GEL 30 June 2023 31 December 2022
Other reserves at the beginning of the year 477,329 238,455
Derecognition of redemption liability during the period (141,234) -
Remeasurement of redemption liability during the period* 10,949 238,874
Other reserves at the end of the period 347,044 477,329
*Remeasurement contains the effects of changes of exchange rate, unwinding
accrual and expected results.
Option agreement with TBC Bank Uzbekistan JSC minority shareholders
In September 2021, the Group entered into the agreement with existing minority
interest shareholders of TBC Bank Uzbekistan JSC allowing the parties to
exercise call and put options for acquisition of minority shares. As part of
the option agreement, the selling shareholders have a put option to sell their
remaining minority stake in the TBC Bank Uzbekistan JSC beginning on the sixth
anniversary of the date of the Investor Subscription Agreement continuing for
so long thereafter as either option-holder holds any option-holder shares or
has any obligation to subscribe for any option-holder shares under its
Investor Subscription Agreement. During 2022 the Group has challenged the
proper accounting treatment for put options granted to minority shareholders
applied in previous periods, which has been revised and as a result caused the
restatement of previous year balances (for more details please refer to Note
2). According to revisited accounting treatment, at initial recognition, the
Group has recognised the present value of exercise price to purchase the
remaining minority shares as redemption liability, having the offsetting side
to other reserves in equity. The liability has been subsequently remeasured as
required by IFRS by adjusting liability and other reserve balances.
The non-controlling interest arising from the consolidated financial
statements has not been de-recognised in line with IFRS requirements as
ownership interest has been retained by minority shareholders.
The redemption liability is carried at amortised cost and interest is unwound
as well as subsequent remeasurement effects on each reporting date are
recorded through other reserves in equity, as allowed by IFRS for transactions
where the non-controlling participants remain exposed to the risks and rewards
associated with the subsidiary's shares.
14 Equity (continued)
Option agreement with Inspired LLC minority shareholders
In April 2019, the Group entered into the agreement with existing minority
interest shareholders of Inspired LLC allowing the parties to exercise call
and put options for acquisition of minority shares. As part of the option
agreement, the selling shareholders have a put option to sell their remaining
minority stake in the Inspired LLC beginning from 48 months to 72 months
(inclusive) from the closing date prescribed in the agreement. During 2022 the
Group has challenged the proper accounting treatment for put options granted
to minority shareholders applied in previous periods, which has been revised
and as a result caused the restatement of previous year balances (for more
details please refer to Note 2). According to revisited accounting treatment,
at initial recognition, the Group has recognised the present value of exercise
price to purchase the remaining minority shares as redemption liability,
having the offsetting side to other reserves in equity. The liability has been
subsequently remeasured as required by IFRS by adjusting liability and other
reserve balances. Such requirement arises given the put option agreement had
been signed with holders of the non-controlling interest (NCI) of subsidiary
entity.
The non-controlling interest arising from the consolidated financial
statements has not been de-recognised in line with IFRS requirements as
ownership interest has been retained by minority shareholders.
The redemption liability is carried at amortised cost and interest is unwound
as well as subsequent remeasurement effects on each reporting date are
recorded through other reserves in equity, as allowed by IFRS.
In May 2023 TBC Bank Group PLC finalized the acquisition process of the
remaining 49% interest of Inspired LLC. The acquisition price paid to minority
shareholders amounted to GEL 141,234 thousand. Accordingly, respective
redemption liability has been derecognized as it is fully settled at the
acquisition date.
15 Share Based Payments
2022-2024 remuneration scheme:
The current compensation system was approved by shareholders at the TBC Bank
Group PLC's Annual General Meeting in June 2021 and came into effect on 1
January 2022. It covers the period 2022-2024 inclusive.
Share salary 2022-2024
The base salary of the executive management board members of the Bank,
including TBC Bank Group PLC CEO (the "Top Management") is determined based on
market practice and provides with a competitive fixed income to efficiently
retain and reward TBC's leadership.
For the CEO (both in his capacity as JSC TBC Bank's and TBC Bank Group PLC's
CEO) the base salary comprises cash salary payable in GEL on a monthly basis
and share salary. Salary shares are delivered during the first quarter of
the second year (i.e. the year after the performance year). The number of
shares is calculated based on the average share price of the last 10 days
preceding the Remuneration Committee decision date. Shares do not have
deferral period, are not subject to malus and claw back or any other
restrictions and are vested immediately upon delivery.
The Deputy CEO's base salary comprises only cash and is payable in GEL on a
monthly basis.
Variable Remuneration
Variable remuneration of the Top Management consists of the annual bonus
delivered in shares (the "Annual Bonus") and the share awards under Long Term
Incentive Plan (the "LTIP Award"). 60% of variable remuneration is LTIP Award
and the remaining 40% constitutes the Annual Bonus.
Variable remuneration (Annual Bonus and LTIP Awards) are subject to meeting
eligibility "gate KPIs", which, based on the Remuneration Committee's
recommendation, can be amended every year by the Board, and will only be paid
if the "gate KPIs" are met.
(a) Annual Bonus under Deferred Share plan 2022-2024
Annual Bonus is delivered in TBC PLC shares. The Top Management receives
annual bonus entirely in TBC PLC shares and it does not comprise any cash
component. The Annual Bonus KPIs are set at the beginning of each year in
relation to that year by the Remuneration Committee.
The maximum opportunity of the Annual Bonus for each member of the Top
Management is fixed at 135% of fixed salary. For achieving target
performance, no more than 50% of the maximum Annual Bonus opportunity is
payable. For threshold performance, no Annual Bonus is paid. The number of
Shares to be allocated is calculated based on the average share price of the
last 10 days preceding the Remuneration Committee's decision date. Annual
Bonus share awards are governed by the Deferred Share Plan of TBC PLC as
amended from time to time (the "Deferred Share Plan").
15 Share Based Payments (Continued)
The Top Management's Annual Bonus awards are subject to a holding period (but
not continued employment) over 2 years period with 50% being released after
one year and remaining 50% being released at the end of second year. The
Annual Bonus is subject to malus and claw back provisions as described in the
Deferred Share Plan. During the holding period, participants are entitled to
vote at the shareholder meetings and receive dividends.
(b) Long Term Incentive Plan (LTIP) 2022-2024
Long term incentive plan is used to provide a strong motivational tool to
achieve long term performance conditions and to provide rewards to the extent
those performance conditions are achieved. Performance conditions are chosen
to align the Group's and the Bank's executive directors' interests with
strategic objectives of the Group over multi-year periods and encourage a
long-term view.
The level of LTIP Award grant is determined pro rata from the LTIP maximum
opportunity based on the assessment of the base i.e., prior year's Annual
Bonus corporate KPIs performance. LTIP Awards granted will then be subject to
3-year LTIP forward-looking performance conditions and will vest at the end of
5-year period following the grant. LTIP Award forward-looking KPIs are set at
the beginning of each year in relation to that year's cycle by the
Remuneration Committee.
The maximum opportunity of the LTIP Award in any given year is 161% of salary.
100% of the award will crystalize for achieving the maximum performance set
for each measure. At threshold level of performance, for each measure, 25% of
the award will crystalize. The Remuneration Committee has the discretion, any
time after an award has been granted, to reduce (including to zero) an award
if the Remuneration Committee considers that either the underlying financial
performance of the Bank or the performance of the individual is such that the
level of vesting cannot be justified. The Participants are not entitled to any
dividend or voting rights until the LTIP Award vests.
2019-2021 remuneration system:
The compensation system was approved by shareholders at the AGM on 21 May 2018
and came into effect on 1 January 2019 and it covers the period 2019-2021
inclusive.
Deferred share salary 2019-2021
Part of the top management salary was paid with shares with the objective of
closely promoting the long-term success of the Group and aligning senior
executive directors' and shareholders' interests. Shares were usually
delivered during the first quarter of the second year (i.e. the year after the
performance year). 50% of the shares had 1 year deferral period and the
remaining 50% were deferred for 2 years from the delivery date. The shares
were registered in the trustees name as nominee for the participants and the
participants were entitled to receive dividends. Starting from 2021, deferred
share salary is no longer subject to the deferral and will be vested
immediately upon delivery.
Deferred Bonus plan 2019-2021
The annual bonus for the top management was determined as to the extent that
the annual KPIs have been met. Shares were usually delivered during the first
quarter of the second year (i.e. the year after the performance year) and the
exact date was determined by the Board. 50% of the shares had 1 year deferral
period and the remaining 50% was deferred for 2 years from the delivery date.
The shares were registered in the trustees name as nominee for the
participants and the participants were entitled to receive dividends.
Annual KPIs were set by the Remuneration Committee at the beginning of each
year in relation to that year and approved by the Board. To the extent that
the KPIs were achieved, the Remuneration Committee may recommend to the Board
whether an award may be made and the amount of such award. The Group did not
pay guaranteed bonuses to executive directors. The nature of the KPIs with
their specific weightings and targets is disclosed in the published annual
report. Awards are subject to the Group's malus and clawback policies until
the end of the relevant holding period. If at any time after making the award
there is a material misstatement in the financial results for the year in
respect of which the award was formally granted, the Remuneration Committee
can recommend to the Board that some or all of the award for that year or any
subsequent financial year that is unvested (or unpaid) to lapse (or not be
paid).
The number of shares was calculated based on the average share price of the
last 10 days preceding the committee decision date.
Long Term Incentive Plan (LTIP) 2019-2021
Long term incentive plan is used to provide a strong motivational tool to
achieve long term performance conditions and to provide rewards to the extent
those performance conditions are achieved. Performance conditions are chosen
to align the Group's and the Bank's executive directors' interests with
strategic objectives of the Group over multi-year periods and encourage a
long-term view. In order for the shares to be delivered, the executive
directors need to meet rolling performance conditions over the 3 year
performance period.
15 Share Based Payments (Continued)
Tabular information on the schemes is given below:
30 June 2023 31 December 2022
Number of unvested shares at the beginning of the period 2,044,604 2,125,246
Number of shares granted
Number of shares granted - Deferred salary* - 36,659
Number of shares granted - Deferred bonus* - 286,301
Number of shares granted - LTIP* - 424,114
Number of shares granted - Middle management, subsidiaries' management and 259,769 -
other eligible employees**
Number of shares granted 259,769 747,074
Change in estimates for 2023-2024 awards (237,233) -
Change in estimates of number of shares expected to be awarded (237,233) -
Change in number of shares awarded for 2022 based on actual share price, (60,610) (35,879)
exchange rate and KPI accomplishment
Number of shares vested
2018 year award - 80% vesting - (456,815)
2019 year award - MM 33% vesting (48,838) (47,401)
2019 year award - TM 50% vesting - (137,779)
2020 year award - MM 33% vesting (14,846) (14,846)
2020 year award - TM 50% vesting (45,902) (45,902)
2021 year award - TM 100% vesting - (89,094)
2021 year award - MM 33% vesting (34,438) -
2021 year award - TM 50% vesting (64,307) -
2022 year award - TM 100% vesting (10,802) -
Number of shares vested (219,133) (791,837)
Number of unvested shares at the end of the period 1,787,397 2,044,604
*2022 amounts represent 2022-2024 remuneration schemes for top management
granted in 2022.
**2023 amounts represent 2023-2024 remuneration schemes for middle management
granted in 2023.
Expense recognised as staff cost during the period was GEL 16,072 thousand (30
June 2022: GEL 13,857 thousand).
Tax part of the existing bonus system is accounted under equity settled basis.
Staff costs related to equity settled part of the share based payment schemes
are recognised in the income statement on a straight line basis over the
vesting period of each relevant tranche and corresponding entry is credited to
share based payment reserve in equity.
In 2019 the Group established employee benefit trust (EBT) set up by the
Executive Equity Compensation Trustee - Sanne Fiduciary Services Limited (the
"Trustee") which acts as the trustee of the Group's share based payments plan.
It purchases TBC Bank Group PLC's shares from the open market and holds them
before they are awarded to participants and vesting date is due. The number of
shares to be purchased and held are instructed by the TBC Bank Group PLC's.
The shares are presented as treasury shares under Shares held by trust
category in the Statement of Financial Position until they are awarded to
participants. As at 30 June 2023 the share number held by Trustee was
1,125,706 (31 December 2022: 226,126), which represents 2% of total
outstanding shares (31 December 2022: 0.4%).
16 Earnings per Share
Basic earnings per share are calculated by dividing the profit or loss
attributable to the owners of the Group by the weighted average number of
ordinary shares in issue during the period.
In thousands of GEL except for number of shares 30 June 2023 30 June 2022
Profit for the period attributable to the owners of the Group 537,459 458,465
Weighted average number of ordinary shares in issue 54,264,880 54,772,304
Basic earnings per ordinary share attributable to the owners of the Group 9.90 8.37
(expressed in GEL per share)
Diluted earnings per share are calculated by dividing the profit or loss
attributable to owners of the Group by the weighted average number of ordinary
shares adjusted for the effects of all dilutive potential ordinary shares
during the year. Ordinary shares with dilutive potential represent those
shares, that were granted to the participants of the share based payments
scheme and are not yet distributed .
In thousands of GEL except for number of shares 30 June 2023 30 June 2022
Profit for the period attributable to the owners of the Group 537,459 458,465
Weighted average number of ordinary shares in issue adjusted for the effects 55,093,204 56,423,254
of all dilutive potential ordinary shares during the period
Diluted earnings per ordinary share attributable to the owners of the Group 9.76 8.13
(expressed in GEL per share)
17 Segment Analysis
The Management Board (the "Board") is the chief operating decision maker
(CODM) and it reviews the Group's internal reporting in order to assess the
performance and to allocate resources.
Following changes to the Group's strategic focus, the management has
reconsidered the existing segmentation of the Group by disclosing two major
segments, while other relatively immaterial business directions are all
combined into another segment, which is in line with how CODM analyses the
Group results and make group level decisions. The segments are aggregated
considering the similarity of business nature, geography and other economic
characteristics:
According to the updated segment definition starting from 1 January 2023, the
operating segments are defined as follows:
Georgian financial services include JSC TBC Bank with its Georgian
subsidiaries and JSC TBC Insurance, with its subsidiaries. The Georgia
financial service segment consist of three major business sub-segments, while
treasury, leasing and insurance businesses are combined into corporate and
other sub-segment:
· Corporate - a legal entity/group of affiliated entities with an
annual revenue exceeding GEL 20.0 million or which has been granted facilities
of more than GEL 7.5 million. Some other business customers may also be
assigned to the CIB sub-segment or transferred to the MSME sub-segment on a
discretionary basis. In addition, CIB includes Wealth Management (WM) private
banking services to high-net-worth individuals with a threshold of US$ 250,000
on assets under management (AUM), as well as on a discretionary basis;
· Retail - non-business individual customers;
· Micro, small and medium enterprises - business customers who are
not included in the CIB segment;
· Corporate center and other - comprises the treasury operations, TBC
Leasing and TBC Insurance.
· Uzbekistan operations - TBC Bank Uzbekistan with respective
subsidiaries and Payme (Inspired LLC);
· Other operations and eliminations - includes non-material or
non-financial subsidiaries of the group and intra-group eliminations.
The reportable segments are the same as the operating segments.
No revenue from transactions with a single external customer or counterparty
amounted to 10% or more of the Group's total revenue in 2023 and 2022.
Allocation of indirect expenses is performed based on drivers identified for
each type of cost where possible. If there is no identifiable driver for any
type of expense/overhead cost, those expenses are allocated between segments
based on the same logic as applied for the expenses with similar nature (e.g.
other operating expenses would follow the pattern of closest category of
operating expenses).
The intersegment transfer pricing methodology is an internally developed tool
founded on matched maturity logics. It is used to effectively manage liquidity
and mitigate interest rate risks within the Group. The process entails the
corporate centre borrowing monetary amounts (deposits) from different business
segments. Compensation for each deposit is based on its specific currency,
duration, type, liquidity and capital requirements, ensuring equitable
treatment for each segment. In turn, business segments borrow funds from the
corporate centre to finance loans and other assets. The pricing for each
borrowing transaction is determined based on factors such as the currency,
loan type (fixed, floating, mixed interest rates), loan duration, and capital
requirement.
17 Segment Analysis (Continued)
A summary of the Group's reportable segments as 30 June 2023 and 2022 is
provided below:
Segment disclosure below is prepared with the effect of 2023 re-segmentations
as described above:
Corporate Retail Micro, small and medium enterprises Corporate centre and other Georgian financial services Uzbekistan operations Other operations and eliminations Total
in thousands of GEL
30 June 2023
Interest income 361,534 430,853 275,633 209,505 1,277,525 103,255 3,190 1,383,970
Interest expense (260,180) (82,276) (5,933) (255,881) (604,270) (50,366) (2,229) (656,865)
Net interest gains on currency swaps 2,130 224 14 36,656 39,024 - - 39,024
Inter-segment interest income/(expense) 152,459 (102,235) (114,778) 64,554 - - - -
Net interest income 255,943 246,566 154,936 54,834 712,279 52,889 961 766,129
Fee and commission income 47,333 177,876 41,012 - 266,221 45,841 1,468 313,530
Fee and commission expense (8,354) (70,348) (23,575) (2,543) (104,820) (10,472) (164) (115,456)
Net fee and commission income 38,979 107,528 17,437 (2,543) 161,401 35,369 1,304 198,074
Insurance profit/(loss) - - - 12,760 12,760 - (358) 12,402
Net gains/(losses) from derivatives, foreign currency operations and 52,044 41,197 24,176 15,902 133,319 83 (11,674) 121,728
translation
Net gains from disposal of investment securities measured at fair value - - - 4,319 4,319 - - 4,319
through other comprehensive income
Other operating income 7,033 3,373 1,117 391 11,914 32 3,865 15,811
Share of profit of associate - - - 542 542 - - 542
Other operating non-interest income/(expense) and insurance profit/(loss) 59,077 44,570 25,293 33,914 162,854 115 (8,167) 154,802
Credit loss (allowance)/reversal for loans to customers (733) (32,276) (34,243) - (67,252) (12,882) 710 (79,424)
Credit loss (allowance)/reversal for finance lease receivables - - - (1,259) (1,259) (921) 48 (2,132)
Credit loss (allowance)/reversal for performance guarantees (1,459) (2) 37 - (1,424) - - (1,424)
Credit loss reversal for credit related commitments 171 149 168 - 488 - - 488
Credit loss allowance for other financial assets (2,033) (79) - (1,598) (3,710) (380) - (4,090)
Credit loss allowance for financial assets measured at fair value through (110) - - (52) (162) - - (162)
other comprehensive income
Net recovery/(impairment) of non-financial assets 25 41 125 - 191 - (549) (358)
Operating income/(expense) after expected credit and non-financial asset 349,860 366,497 163,753 83,296 963,406 74,190 (5,693) 1,031,903
impairment losses
Staff costs (30,215) (91,157) (39,309) (16,788) (177,469) (18,300) (16,381) (212,150)
Depreciation and amortization (5,991) (32,284) (9,505) (2,513) (50,293) (4,230) (3,425) (57,948)
Provision for liabilities and charges - - - (121) (121) - - (121)
Administrative and other operating expenses (8,350) (53,778) (14,427) (9,736) (86,291) (24,825) (5,005) (116,121)
Operating expenses (44,556) (177,219) (63,241) (29,158) (314,174) (47,355) (24,811) (386,340)
Profit/(loss) before tax 305,304 189,278 100,512 54,138 649,232 26,835 (30,504) 645,563
Income tax (expense)/release (44,320) (27,115) (14,985) (9,538) (95,958) (1,623) 64 (97,517)
Profit/(loss) for the period 260,984 162,163 85,527 44,600 553,274 25,212 (30,440) 548,046
30 June 2023
Total gross loans and advances to customers reported 6,920,263 6,945,911 4,949,878 - 18,816,052 526,843 17,794 19,360,689
Total customer accounts reported 9,048,955 6,985,211 1,638,612 967,133 18,639,911 457,340 (104,759) 18,992,492
Total credit related commitments and performance guarantees 2,793,182 163,669 395,911 - 3,352,762 - - 3,352,762
17 Segment Analysis (Continued)
For comparison purposes segment disclosure below is prepared with the effect
of 2023 re-segmentations as described above:
Corporate Retail Micro, small and medium enterprises Corporate centre and other Georgian financial services Uzbekistan operations Other operations and eliminations Total
in thousands of GEL
30 June 2022
Interest income 312,653 388,836 218,574 120,011 1,040,074 37,163 3,225 1,080,462
Interest expense (166,332) (55,906) (4,770) (235,434) (462,442) (24,274) (3,272) (489,988)
Net interest gains on currency swaps - - - 1,717 1,717 - - 1,717
Inter-segment interest income/(expense) 49,321 (121,894) (101,944) 174,517 - - - -
Net interest income/(expense) 195,642 211,036 111,860 60,811 579,349 12,889 (47) 592,191
Fee and commission income 41,870 159,233 13,691 6 214,800 26,348 (765) 240,383
Fee and commission expense (4,186) (81,777) (5,787) (86) (91,836) (7,013) (72) (98,921)
Net fee and commission income/(expense) 37,684 77,456 7,904 (80) 122,964 19,335 (837) 141,462
Insurance profit/(loss) - - - 11,044 11,044 - (79) 10,965
Net gains/(losses) from derivatives, foreign currency operations and 60,491 33,444 22,673 4,922 121,530 (358) (6,795) 114,377
translation
Net gains from disposal of investment securities measured at fair value 910 - - 1,315 2,225 - - 2,225
through other comprehensive income
Other operating income 944 2,289 382 7,303 10,918 5 4,635 15,558
Share of (loss)/profit of associate (126) - - 249 123 - - 123
Other operating non-interest income/(expense) and insurance profit/(loss) 62,219 35,733 23,055 24,833 145,840 (353) (2,239) 143,248
Credit loss reversal/(allowance) for loans to customers 4,178 (47,848) (6,443) - (50,113) (3,738) 3,329 (50,522)
Credit loss (allowance)/reversal for finance lease receivables - - - (753) (753) (352) 543 (562)
Credit loss (allowance)/reversal for performance guarantees (1,362) (3) 13 - (1,352) - - (1,352)
Credit loss reversal for credit related commitments 67 149 66 - 282 - - 282
Credit loss reversal/(allowance) for other financial assets 1,062 (32) - (1,728) (698) - - (698)
Credit loss (allowance)/reversal for financial assets measured at fair value (140) - - 1,408 1,268 - - 1,268
through other comprehensive income
Net recovery/(impairment) of non-financial assets 331 (23) (217) (85) 6 - (12) (6)
Operating income after expected credit and non-financial asset impairment 299,681 276,468 136,238 84,406 796,793 27,781 737 825,311
losses
Staff costs (25,838) (79,853) (30,625) (9,784) (146,100) (18,530) (11,861) (176,491)
Depreciation and amortization (3,125) (29,207) (6,779) (2,350) (41,461) (3,538) (2,333) (47,332)
Provision for liabilities and charges - - - (60) (60) - - (60)
Administrative and other operating expenses (8,305) (44,119) (10,743) (7,738) (70,905) (15,304) (4,493) (90,702)
Operating expenses (37,268) (153,179) (48,147) (19,932) (258,526) (37,372) (18,687) (314,585)
Profit/(loss) before tax 262,413 123,289 88,091 64,474 538,267 (9,591) (17,950) 510,726
Income tax (expense)/release (26,258) (13,651) (9,112) (7,362) (56,383) 4,342 (140) (52,181)
Profit for the period 236,155 109,638 78,979 57,112 481,884 (5,249) (18,090) 458,545
30 June 2022
Total gross loans and advances to customers reported 6,688,195 6,472,248 4,173,951 - 17,334,394 181,345 18,776 17,534,515
Total customer accounts reported 7,708,834 5,671,379 1,517,621 714,620 15,612,454 235,780 (75,329) 15,772,905
Total credit related commitments and performance guarantees 2,517,672 168,123 345,985 - 3,031,780 - - 3,031,780
17 Segment Analysis (Continued)
Segment disclosure below is prepared without the effect of 2023
re-segmentations as described above:
Corporate Retail Micro, small and medium enterprises Corporate centre and other operations Total
in thousands of GEL
30 June 2022
Interest income 304,834 419,335 226,646 129,647 1,080,462
Interest expense (164,737) (79,072) (5,331) (240,848) (489,988)
Net interest gains on currency swaps - - - 1,717 1,717
Inter-segment interest income/(expense) 51,754 (121,894) (104,377) 174,517 -
Net interest income 191,851 218,369 116,938 65,033 592,191
Fee and commission income 39,489 159,233 15,305 26,356 240,383
Fee and commission expense (4,187) (81,714) (5,780) (7,240) (98,921)
Net fee and commission income 35,302 77,519 9,525 19,116 141,462
Insurance profit - - - 10,965 10,965
Net gains/(losses) from derivatives, foreign currency operations and 59,481 33,468 23,683 (2,255) 114,377
translation
Net gains from disposal of investment securities measured at fair value 910 - - 1,315 2,225
through other comprehensive income
Other operating income 944 2,265 382 11,967 15,558
Share of (loss)/profit of associate (126) - - 249 123
Other operating non-interest income and insurance profit 61,209 35,733 24,065 22,241 143,248
Credit loss reversal/(allowance) for loans to customers 3,080 (49,932) (3,670) - (50,522)
Credit loss allowance for finance lease receivables - - - (562) (562)
Credit loss (allowance)/reversal for performance guarantees (1,362) (3) 13 - (1,352)
Credit loss reversal for credit related commitments 67 149 66 - 282
Credit loss reversal/(allowance) for other financial assets 1,062 (32) - (1,728) (698)
Credit loss (allowance)/reversal for financial assets measured at fair value (140) - - 1,408 1,268
through other comprehensive income
Net recovery/(impairment) of non-financial assets 331 (23) (217) (97) (6)
Operating income after expected credit and non-financial asset impairment 291,400 281,780 146,720 105,411 825,311
losses
Staff costs (27,117) (80,643) (31,076) (37,655) (176,491)
Depreciation and amortization (3,216) (29,289) (6,823) (8,004) (47,332)
Provision for liabilities and charges - - - (60) (60)
Administrative and other operating expenses (9,790) (44,772) (11,394) (24,746) (90,702)
Operating expenses (40,123) (154,704) (49,293) (70,465) (314,585)
Profit before tax 251,277 127,076 97,427 34,946 510,726
Income tax expense (25,434) (13,651) (9,944) (3,152) (52,181)
Profit for the period 225,843 113,425 87,483 31,794 458,545
30 June 2022
Total gross loans and advances to customers reported 6,462,635 6,666,569 4,405,311 - 17,534,515
Total customer accounts reported 7,589,188 5,906,886 1,562,211 714,620 15,772,905
Total credit related commitments and performance guarantees 2,485,086 168,123 378,571 - 3,031,780
17 Segment Analysis (Continued)
Segment disclosure below is prepared with the effect of 2023 re-segmentations
as described above:
in thousands of GEL Corporate Retail Micro, small and medium enterprises Corporate centre and other Georgian financial services Uzbekistan operations Other operations and eliminations Total
30 June 2023
- Fee and commission income 47,333 177,876 41,012 - 266,221 45,841 1,468 313,530
- Other operating income 7,033 3,373 1,117 391 11,914 32 3,865 15,811
Total 54,366 181,249 42,129 391 278,135 45,873 5,333 329,341
Timing of revenue recognition:
- At point in time 54,279 180,802 42,107 391 277,579 45,873 5,333 328,785
- Over a period of time 87 447 22 - 556 - - 556
For comparison purposes segment disclosure below is prepared with the effect
of 2023 re-segmentations as described above:
in thousands of GEL Corporate Retail Micro, small and medium enterprises Corporate centre and other Georgian financial services Uzbekistan operations Other operations and eliminations Total
30 June 2022
- Fee and commission income 41,870 159,233 13,691 6 214,800 26,348 (765) 240,383
- Other operating income 944 2,289 382 7,303 10,918 5 4,635 15,558
Total 42,814 161,522 14,073 7,309 225,718 26,353 3,870 255,941
Timing of revenue recognition:
- At point in time 42,814 161,039 14,073 7,309 225,235 26,353 3,870 255,458
- Over a period of time - 483 - - 483 - - 483
Segment disclosure below is prepared without the effect of 2023
re-segmentations as described above:
in thousands of GEL Corporate Retail Micro, small and medium enterprises Corporate centre and other operations Total
30 June 2022
- Fee and commission income 39,489 159,233 15,305 26,356 240,383
- Other operating income 944 2,265 382 11,967 15,558
Total 40,433 161,498 15,687 38,323 255,941
Timing of revenue recognition:
- At point in time 40,433 161,015 15,687 38,323 255,458
- Over a period of time - 483 - - 483
18 Interest Income and Expense
in thousands of GEL 30 June 2023 30 June 2022
Interest income calculated using effective interest method
Loans and advances to customers 1,148,170 939,473
Investment securities measured at fair value through other comprehensive 142,676 87,612
income
Due from other banks 47,797 16,279
Bonds carried at amortised cost 3,400 3,512
Other financial asset 1,492 2,669
Other interest income
Finance lease receivables 40,435 30,917
Total interest income 1,383,970 1,080,462
Interest expense
Customer accounts (428,316) (279,815)
Due to credit institutions (143,143) (116,760)
Subordinated debt (29,233) (25,803)
Debt securities in issue (54,269) (65,726)
Other interest expense
Lease liabilities (1,904) (1,884)
Total interest expense (656,865) (489,988)
Net gains on currency swaps 39,024 1,717
Net interest income 766,129 592,191
During the six months ended 30 June 2023 the interest accrued on defaulted
loans amounted to GEL 16,373 thousand (30 June 2022: 17,099 GEL thousand).
During six months ended 30 June 2023 capitalized borrowing costs in the amount
of GEL 994 thousand (six months ended 30 June 2022: GEL 897 thousand), was
attributable to the development of the Bank's headquarters. The capitalisation
rate used to determine the amount of borrowing costs eligible for
capitalisation is weighted average of interest bearing liabilities by
currencies: 9.3% in GEL, 1.9% in USD and 0.7 % in EUR. (2022: 8.6% in GEL,
2.5% in USD and 0.5% in EUR).
19 Fee and Commission Income and Expense
Fee and commission income and expense for 30 June 2023 and 2022 are as
follows:
in thousands of GEL 30 June 2023 30 June 2022
Fee and commission income in respect of financial instruments not at fair
value through profit or loss:
Card operations 142,649 111,175
Settlement transactions 93,521 82,936
Guarantees issued 20,943 19,851
Cash transactions 25,543 5,419
Issuance of letters of credit 4,379 3,165
Foreign exchange operations 2,494 2,526
Other 24,001 15,311
Total fee and commission income 313,530 240,383
Fee and commission expense in respect of financial instruments not at fair
value through profit or loss:
Card operations 83,024 70,863
Settlement transactions 11,196 10,337
Cash transactions 8,282 3,879
Guarantees received 907 1,470
Letters of credit 1,361 524
Foreign exchange operations 7 148
Other 10,679 11,700
Total fee and commission expense 115,456 98,921
Net fee and commission income 198,074 141,462
20 Net Gains from Currency Derivatives, Foreign Currency Operations and Translation
in thousands of GEL 30 June 2023 30 June 2022
Net gains from trading in foreign currencies 90,261 182,329
Net gains/(losses) from foreign exchange translation 31,765 (68,059)
Net (losses)/gains from derivative financial instruments other than (298) 107
derivatives on foreign currency
Total net gains from currency derivatives, foreign currency operations and 121,728 114,377
translation
Management has corrected the presentation of translation gains/losses from
derivatives on foreign currency. Gains of GEL 60,060 thousand was presented as
"Net gains/(losses) from foreign exchange translation" in 2022 interim
condensed consolidated financial statement accounts and was reclassified to
"Net gains from trading in foreign currencies", comparatives and condensed
consolidated interim statement of cash flows has been restated accordingly.
in thousands of GEL 30 June 2022 Reclassification 30 June 2022
(As originally presented) (as restated)
Net gains from trading in foreign currencies 122,269 60,060 182,329
Net gains/(losses) from foreign exchange translation (7,999) (60,060) (68,059)
21 Income Taxes
In 2022 the Government of Georgia has approved the changes to the current
corporate tax model in Georgia for financial institutions applicable from
2023. According to the announced changes, the financial sector will no longer
switch to the Estonian tax model, which was expected to exempt banks from
paying corporate taxes on retained earnings and only required a payment of 15%
corporate tax rate on distributed earnings. In addition, with the effect from
2023, the existing corporate tax rate for banks will be increased from 15% to
20% (applied for only taxable income portion, while non-taxable incomes are
excluded). At the same time dividends will no longer be taxed with 5% dividend
tax.
As at 30 June 2023, the weighted average income tax rate is 20% (six months
ended 30 June 2022: 15%).
22 Financial and Other Risk Management
Climate risk
The Group's largest operations are located in Georgia hence the climate risk
overview is done by the management from Georgian perspective. The Georgia's
2030 Climate Change Strategy and Climate Action Plan lays out different policy
measures on which TBC Bank based its identification of the potential impact of
the policy measures on different economic sectors. As a summary of the
potential impact of the various transition risks and physical risks
identified, the transitional risks in Georgia are low, considering, that trade
and services dominate the Georgian economy, the policy measures outlined in
the Georgia's 2030 Climate Change Strategy will have overall low impact on the
economic sectors, especially in short and medium term. The Georgia's 2030
Climate Change Strategy takes into consideration that Georgia is a
transitional and growing economy, and therefore the government strategy is not
to impede the growth of the GDP with policy measures and rather to support a
smooth transition where necessary. It is worth noting, that the economic
sectors most affected by transitional risks world-wide such as mining crude
petroleum, natural gas and metal ores, manufacturing coke and refined
petroleum products are present to the extremely limited extend in Georgia,
resulting in a low overall impact of transitional measures on economic growth,
if any. In order to increase the understanding of climate-related risks on
its loan portfolio, the Bank performed a high-level sectoral risk assessment,
as different sectors might be vulnerable to different climate-related risks
over different time horizons; furthermore, the Bank performed climate stress
testing of the credit portfolio. The maturity structure of the loan portfolio
shows that the largest part of assets is distributed in the time horizons that
are much shorter than the impacts of climate change, especially of physical
risks, can be materialized in Georgia. Therefore, the bank has not made any
adjustment to the level of provisions purely related to climate risk. On the
other hand, the understanding of climate related risks, which have longer-term
impacts need to be increased in coming years, therefore, when the bank has a
more definitive analysis, it will further develop the approach, how to
consider climate risks in provisioning. No post model adjustments (PMAs) or
Post model overlays (PMOs) have been posted for 2023 in this regard.
Market risk
The Bank follows the Basel Committee's definition of market risk as the risk
of losses in on- and off-balance sheet positions arising from movements in
market prices. This risk is principally made up of (a) risks pertaining to
interest rate instruments and equities in the trading book and (b) foreign
exchange rate risk (or currency risk) and commodities risk throughout the
Bank. The Bank's strategy is not to be involved in trading book activity or
investments in commodities. Accordingly, the Bank's exposure to market risk is
primarily limited to foreign exchange rate risk in the structural book.
Currency risk
Foreign exchange rate risk arises from the potential change in foreign
currency exchange rates, which can affect the value of a financial instrument.
This risk stems from the open currency positions created due to mismatches in
foreign currency assets and liabilities. The NBG requires the Bank to monitor
both balance sheet and total aggregate (including off-balance sheet) open
currency positions and to maintain the later one within 20% of the Bank's
regulatory capital. The Asset-Liability Management Committee ("ALCO") has set
limits on the level of exposure by currency as well as on aggregate exposure
positions which are more conservative than those set by
22 Financial and Other Risk Management (Continued)
the NBG. The Bank's compliance with such limits is monitored daily by the
heads of the Treasury and Financial Risk Management Divisions.
Currency risk management framework is governed through the Market Risk
Management Policy. The table below summarises the Group's exposure to
foreign currency exchange rate risk at the balance sheet date. While managing
open currency position the Group considers part of the provisions to be
denominated in the USD, Euro and other currencies. Gross amount of currency
swap deposits is included in Derivatives. Therefore, total financial assets
and liabilities below are not traceable with either balance sheet or liquidity
risk management tables, where net amount of gross currency swaps is presented.
As of 30 June 2023 Monetary financial assets Monetary financial liabilities Derivatives* Net position
in thousands of GEL
Georgian Lari 13,369,478 (10,827,498) 661,793 3,203,773
US Dollar 8,587,407 (10,496,748) 1,898,903 (10,438)
Euro 4,454,782 (1,932,377) (2,528,924) (6,519)
Other 925,944 (712,137) (27,032) 186,775
Total 27,337,611 (23,968,760) 4,740 3,373,591
*Starting from 2022 management presents the undiscounted gross amount of
currency derivatives in currency risk management table above as it reflects
Bank's actual risk management policy principles. The derivative amounts in the
table above do not reconcile to note 24 as that one includes fair values of
derivative financial instruments.
As of 31 December 2022 Monetary financial assets Monetary financial liabilities Derivatives Net position
in thousands of GEL
Georgian Lari 13,473,913 (10,881,999) 528,501 3,120,415
US Dollar 9,133,236 (10,959,719) 1,826,759 276
Euro 4,210,470 (1,933,880) (2,323,860) (47,270)
Other 705,911 (552,540) (31,929) 121,442
Total 27,523,530* (24,328,138)* (529) 3,194,863*
*Starting from January 2023 the Group has adopted IFRS 17 and according to the
standard requirements retrospectively applied presentation of respective
balances for 2022 as described in note 2.
US Dollar strengthening by 20% (weakening 20%) would decrease Group's profit
or loss and equity in H1 2023 by GEL 2,088 thousand (increase by GEL 2,088
thousand). Euro strengthening by 20% (weakening 20%) would decrease Group's
profit or loss and equity in 2023 by GEL 1,304 thousand (increase by GEL 1,304
thousand).
US Dollar strengthening by 20% (weakening 20%) would increase Group's profit
or loss and equity in 2022 by GEL 55 thousand (decrease by GEL 55 thousand).
Euro strengthening by 20% (weakening 20%) would decrease Group's profit or
loss and equity in 2022 by GEL 9,454 thousand (increase by GEL 9,454
thousand).
Interest rate risk
Interest rate risk arises from potential changes in the market interest rates
that can adversely affect the fair value or future cash flows of the financial
instrument. This risk can arise from maturity mismatches of assets and
liabilities, as well as from the re-pricing characteristics of such assets and
liabilities.
The biggest share of the Bank's deposits and the part of the loans are at
fixed interest rates, while a portion of the Bank's borrowings is at a
floating interest rate. In case of need, the Bank also applies for interest
rate risk hedging instruments in order to mitigate interest rate risk.
Furthermore, many of the Bank's loans to customers contain a clause allowing
it to adjust the interest rate on the loan in case of adverse interest rate
movements, thereby limiting the Bank's exposure to interest rate risk. The
management also believes that the Bank's interest rate margins provide a
reasonable buffer to mitigate the effect of possible adverse interest rate
movements.
The Group employs an advanced framework for the management of interest rate
risk by establishing appropriate Risk Appetite limits, monitoring compliance
with them and preparing forecasts. From September 2020 the NBG introduced
regulation on interest rate risk and set the limit for Economic Value of
Equity (EVE) sensitivity at 15% of NBG Tier 1 Capital. The main principles and
assumptions of NBG IRR methodology are in line with Basel standards and EBA
guidelines developed for IRR management purposes.
According to NBG guidelines the net interest income sensitivity under parallel
shifts of interest rate scenarios are maintained for monitoring purposes,
while EVE sensitivity is calculated under 6 predefined stress scenarios of
interest rate changes and the limit is applied to the worst case scenario
result. Interest rate risk is managed by the financial risk management
division and is monitored by the ALCO, which decides on actions that are
necessary for effective interest rate risk management and follows up on their
implementation. The major aspects of interest rate risk management development
and the respective reporting are periodically provided to the Management
Board, the Supervisory Board and the Risk Committee.
22 Financial and Other Risk Management (Continued)
Following main assumptions under NBG IRR Regulation and EBA 2018 guidelines,
at 30 June, 2023, if interest rates had been 200 basis points higher, with all
other variables held constant, net interest income would have been GEL 58
million higher, mainly as a result of higher interest income on variable
interest assets (30 June 2022: GEL 92 million). If interest rates at 30 June,
2023 had been 200 basis points lower with all other variables held constant,
net interest income for the year would have been GEL 65 million lower, mainly
as a result of lower interest income on variable interest assets (30 June
2022: GEL 49 million).
At 30 June, 2023, if interest rates had been 200 basis points lower, with all
other variables held constant, other comprehensive income would have been GEL
30.1 million higher (30 June 2022: GEL 52.7 million), as a result of an
increase in the fair value of fixed rate financial assets measured at fair
value through other comprehensive income and repurchase receivables. If
interest rates at 30 June, 2023 had been 200 basis points higher with all
other variables held constant, Other comprehensive income would have been GEL
30.1 million lower (30 June 2022: GEL 43.1 million), as a result of decrease
in the fair value of fixed rate financial assets measured at fair value
through other comprehensive income.
The Bank calculates the impact of changes in interest rates using both Net
Interest Income and Economic Value sensitivity. Net Interest Income
sensitivity measures the impact of a change of interest rates along the
various maturities on the yield curve on the net interest revenue for the
nearest year. Economic Value measures the impact of a change of interest rates
along the various maturities on the yield curve on the present value of the
Group's assets, liabilities and off-balance sheet instruments. When performing
Net Interest Income and Economic Value sensitivity analysis, the Bank uses
parallel shifts in interest rates as well as number of different scenarios.
TBC Bank closely monitors the adverse effect of possible parallel yield curve
shift scenarios on net interest income over a one-year period to ensure
compliance with the predefined risk appetite of the Bank.
In order to manage interest rate risk the Bank establishes appropriate limits.
The Bank monitors compliance with the limits and prepares forecasts. ALCO
decides on actions that are necessary for effective interest rate risk
management and follows up on the implementation. Periodic reporting is done to
Management Board and the Board's Risk, Committee.
Liquidity risk
The liquidity risk is the risk that TBC Bank either does not have sufficient
financial resources available to meet all of its obligations and commitments
as they fall due, or can access those resources only at a high cost. The risk
is managed by the Financial Risk Management and Treasury Departments and is
monitored by the ALCO.
The principal objectives of the TBC Bank's liquidity risk management policy
are to: (i) ensure the availability of funds in order to meet claims arising
from total liabilities and off-balance sheet commitments, both actual and
contingent, at an economic price; (ii) recognise any structural mismatch
existing within TBC Bank's statement of financial position and set monitoring
ratios to manage funding in line with well-balanced growth; and (iii) monitor
liquidity and funding on an on-going basis to ensure that approved business
targets are met without compromising the risk profile of the Bank.
The liquidity risk is categorised into two risk types: the funding liquidity
risk and the market liquidity risk.
Funding liquidity risk
The funding liquidity risk is the risk that TBC will not be able to
efficiently meet both expected and unexpected current and future cash flow and
collateral needs without affecting either its daily operations or its
financial condition. To manage funding liquidity risk TBC Bank uses the
Liquidity Coverage ratio and the Net Stable Funding ratio set, forth under
Basel III, and defined further by the NBG. In addition the Bank performs
stress tests and "what-if" scenario analysis. With Liquidity Coverage Ratio
("NBG LCR"), in addition to Basel III guidelines conservative approaches are
applied to the deposits' withdrawal rates depending on the clients group's
concentration. For NBG LCR the limits are set by currency (GEL, FC, Total).
TBC monitors compliance with NBG LCR limits on a daily basis. On a monthly
basis the Bank also monitors compliance with the set limit for NBG NSFR.
The Liquidity Coverage Ratio is used to help manage short-term liquidity
risks. The Bank's liquidity risk management framework is designed to
comprehensively project cash flows arising from assets, liabilities and
off-balance sheet items over certain time buckets and ensure that NBG LCR
limits, are met on a daily basis.
The Net Stable Funding ratio is used for long-term liquidity risk management
to promote resilience over a longer time horizon by creating additional
incentives for TBC Bank to rely on more stable sources of funding on a
continuous basis. The Bank also monitors deposit concentration for large
deposits and set limits for non-Georgian residents deposits share in total
deposit portfolio.
The management believes, that a strong and diversified funding structure is
one of TBC Bank's differentiators. The Bank relies on relatively stable
deposits from Georgia as the main source of funding. In order to maintain and
further enhance the liability structure TBC Bank sets the targets for deposits
and IFI funding within the Bank's risk appetite.
The Bank's liquidity position was strong as of 30 June 2023, both LCR and NSFR
ratios well above the NBG minimum requirements of 100%.
23 Contingencies and Commitments
Legal and regulatory matters
When determining the level of provision to be set up with regards to such
matters, or the amount (not subject to provisioning) to be disclosed in the
financial statements, the management seeks both internal and external
professional advice. The management believes that the provision recorded in
these condensed consolidated interim financial statements is adequate and the
amount (not subject to provisioning) need not be disclosed as it will not have
a material adverse effect on the financial condition or the results of future
operations of the Group.
Tax legislation
Georgian, Azerbaijanian and Uzbekistan tax and customs legislation is subject
to varying interpretations, and changes, which can occur frequently. The
management's interpretation of the legislation as applied to the Group's
transactions and activity may be challenged by the relevant authorities. In
Uzbekistan and Azerbaijan, the tax review periods for the five preceding
calendar years remain open to review by authorities. In Georgia, the period of
limitation for tax review is three years. To respond to the risks, the Group
has engaged external tax specialists to carry out periodic reviews of the
Group's taxation policies and tax filings. The Group's management believes
that its interpretation of the relevant legislation is appropriate, and the
Group's tax and customs positions will be substantially sustained. During the
first half of 2023, there were no new decisions from the Georgian tax
authorities or judicial rulings that impacted our tax disputes. As such, our
tax reserve level remained consistent at 7 million GEL, the same as it was at
the end of 2022.
Compliance with covenants
The Group is subject to certain covenants primarily related to its borrowings.
Non-compliance with such covenants may result in negative consequences for the
Group including growth in the cost of borrowings and declaration of default.
The Group was in compliance with all covenants as of 30 June 2023 and 31
December 2022.
Management of capital
The Bank manages capital requirements under regulatory rules. The Bank
complied with all its externally imposed capital requirements throughout the
reporting period.
Credit related commitments and financial guarantees
The primary purpose of these instruments is to ensure that funds are available
to a customer as required. Financial guarantees and standby letters of credit,
which represent the irrevocable assurances that the Group will make payments
in the event that a customer cannot meet its obligations to third parties,
carry the same credit risk as loans. Documentary and commercial letters of
credit, that are written undertakings by the Group on behalf of a customer
authorising a third party to draw drafts on the Group up to a stipulated
amount under specific terms and conditions, are collateralised by the
underlying shipments of goods to which they relate or cash deposits and
therefore carry less risk than a direct borrowing.
Commitments to extend credit represent unused portions of authorisations to
prolong credit in the form of loans, guarantees or letters of credit. With
respect to credit risk on commitments to extend credit, the Group is
potentially exposed to a loss in an amount equal to the total unused
commitments. However, the likely amount of loss is lower than the total unused
commitments since most commitments to extend credit are contingent upon
customers maintaining specific credit standards. The Group monitors the term
to maturity of credit related commitments because longer-term commitments
generally have a greater degree of credit risk than shorter-term ones.
23 Contingencies and Commitments (Continued)
As of 30 June 2023 outstanding credit related commitments are as follows:
in thousands of GEL Stage 1 Stage 2 Stage 3
Undrawn credit lines 1,146,891 29,798 5,096
Letters of credit issued 192,627 - -
Financial guarantees issued 435,552 1,012 2,104
Total credit related commitments (before provision) 1,775,070 30,810 7,200
Undrawn credit lines (1,248) (294) -
Letters of credit issued (330) - -
Financial guarantees issued (776) - -
Credit loss allowance for credit related commitments (2,354) (294) -
Total credit related commitments 1,772,716 30,516 7,200
As of 31 December 2022 Outstanding credit related commitments are as follows:
in thousands of GEL Stage 1 Stage 2 Stage 3
Undrawn credit lines 1,008,262 40,296 2,667
Letters of credit issued 232,066 - -
Financial guarantees issued 399,820 1,044 50
Total credit related commitments (before provision) 1,640,148 41,340 2,717
Undrawn credit lines (1,531) (364) (47)
Letters of credit issued (436) - -
Financial guarantees issued (799) - -
Credit loss allowance for credit related commitments (2,766) (364) (47)
Total credit related commitments 1,637,382 40,976 2,670
Performance guarantees. Performance guarantees are contracts that provide
compensation in case of another party fails to perform a contractual
obligation. Such contracts do not transfer credit risk. The risk under the
performance guarantee contracts is the possibility that the insured event
occurs (i.e.: the failure to perform the contractual obligation by another
party). The key risks the Group faces are significant fluctuations in the
frequency and severity of payments incurred on such contracts, relative to
expectations.
Outstanding amount of performance guarantees and respective provision by
stages as of 30 June 2023 is stage 1 - GEL 1,512,302 thousand and GEL 2,686
thousand (31 December 2022: GEL 1,494,985 thousand and GEL 2,997 thousand),
stage 2 - GEL 1,051 thousand and GEL 4 thousand (21 December 2022: GEL
12,704 thousand and GEL 4 thousand),stage 3 - GEL 26,329 thousand and GEL
5,869 thousand (31 December 2022: GEL 15,831 thousand and GEL 4,204
thousand).
Fair value of credit related commitments and financial guarantees provisions
was GEL 2,646 thousand as at 30 June 2023 (31 December 2022: GEL 3,177
thousand).
Total credit related commitments and performance guarantees are denominated in
currencies as follows:
In thousands of GEL 30 June 2023 31 December 2022
Georgian Lari 1,596,932 1,457,283
US Dollars 1,123,843 1,195,206
Euro 552,422 484,040
Other 79,565 71,196
Total 3,352,762 3,207,725
Capital expenditure commitments. As at 30 June 2023, the Group had contractual
capital expenditure commitments amounting to GEL 109,231 thousand (31 December
2022: GEL 134,674 thousand). Out of total amount contractual commitments
related to the head office construction amounted GEL 76,046 thousand (31
December 2022: GEL 105,623 thousand).
24 Fair Value Disclosures
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting standards
require or permit in the statement of financial position at the end of each
reporting period. The level in the fair value hierarchy into which the
recurring fair value measurements are categorised as follows:
30 June 2023
in thousands of GEL Level 1 Level 2 Level 3 Total Fair Value Carrying value
Assets carried at fair value
Financial assets
Investment securities measured at fair value through other comprehensive
income
- Corporate Bonds 55,772 1,256,076 - 1,311,848 1,311,848
- Foreign government treasury bills 34,596 - - 34,596 34,596
- Ministry of Finance of Georgia Treasury Bills 24,013 1,571,070 - 1,595,083 1,595,083
- Corporate shares - - 1,152 1,152 1,152
Investment securities measured at fair value through profit and loss
- Foreign exchange forwards and gross settled currency swaps, included in - 81,457 - 81,457 81,457
other financial assets or due from banks
-Investment held at fair value through profit or loss - - 7,782 7,782 7,782
Total assets recurring fair value measurements 114,381 2,908,603 8,934 3,031,918 3,031,918
Liabilities carried at fair value
Financial liabilities
Foreign exchange forwards and gross settled currency swaps, included in other - 93,575 - 93,575 93,575
financial liabilities
Total liabilities recurring fair value measurements - 93,575 - 93,575 93,575
31 December 2022
in thousands of GEL Level 1 Level 2 Level 3 Total Fair Value Carrying value
Assets carried at fair value
Financial assets
Investment securities measured at fair value through other comprehensive
income
- Corporate Bonds 36,763 1,251,816 - 1,288,579 1,288,579
- Foreign government treasury bills 35,617 - - 35,617 35,617
- Ministry of Finance of Georgia Treasury Bills 4,430 1,555,437 - 1,559,867 1,559,867
- Repurchase receivables 267,495 - - 267,495 267,495
- Corporate shares - - 1,025 1,025 1,025
Investment securities measured at fair value through profit and loss
- Foreign exchange forwards and gross settled currency swaps, included in - 57,887 - 57,887 57,887
other financial assets or due from banks
-Investment held at fair value through profit or loss - - 9,704 9,704 9,704
Total assets recurring fair value measurements 344,305 2,865,140 10,729 3,220,174 3,220,174
Liabilities carried at fair value
Financial liabilities
Foreign exchange forwards and gross settled currency swaps, included in other - 72,188 - 72,188 72,188
financial liabilities
Total liabilities recurring fair value measurements - 72,188 - 72,188 72,188
24 Fair Value Disclosures (Continued)
There were no transfers between levels during the six months ended 30 June
2023 (2022: none).
The description of the valuation technique and the description of inputs used
in the fair value measurement for level 2 measurements:
in thousands of GEL 30 June 2023 31 December 2022 Valuation technique Inputs used
ASSETS CARRIED AT FAIR VALUE
- Ministry of Finance of Georgia Treasury Bills, foreign government treasury 2,827,146 2,807,253 Discounted cash flows ("DCF") Government bonds yield curve
bills, corporate bonds
- Foreign exchange forwards and gross settled currency swaps, included in due 81,457 57,887 Forward pricing using present value calculations Official exchange rate, risk-free rate
from banks
Total assets recurring fair value measurements at level 2 2,908,603 2,865,140
LIABILITIES CARRIED AT FAIR VALUE
- Foreign exchange forwards included in other financial liabilities 93,575 72,188 Forward pricing using present value calculations Official exchange rate, risk-free rate
Total liabilities recurring fair value measurements at level 2 93,575 72,188
The description of the valuation technique and the description of inputs used
in the fair value measurement for level 3 measurements:
in thousands of GEL 30 June 2023 31 December 2022 Valuation technique Inputs used
Assets carried at fair value
- Investment held at fair value through profit or loss 7,782 9,704 Discounted cash flows ("DCF") Weighted average borrowing interest rate
- Corporate shares 1,152 1,025 Discounted cash flows ("DCF") Government bonds yield curve
Total assets recurring fair value measurements at level 3 8,934 10,729
There were no changes in the valuation technique for the level 2 and level 3
recurring fair value measurements during the six month period ended 30 June
2023 (2021: none).
Sensitivity of the input to fair value - increase/(decrease) in projected cash
flows by 10% would result in increase/(decrease) in fair value by GEL 684
thousand/(GEL 684 thousand).
(b) Assets and liabilities not measured at fair value but for which fair
value is disclosed
Fair values analysed by level in the fair value hierarchy and carrying value
of assets not measured at fair value are as follows:
30 June 2023
in thousands of GEL Level 1 Level 2 Level 3 Total Fair Value Carrying Value
FINANCIAL ASSETS
Cash and cash equivalents 1,021,023 1,919,336 - 2,940,359 2,940,359
Due from other banks - 52,550 - 52,550 52,550
Mandatory cash balances with NBG and CBU - 1,706,981 - 1,706,981 1,706,981
Loans and advances to customers:
- Corporate loans - - 7,009,164 7,009,164 6,871,655
- Consumer loans - - 3,163,706 3,163,706 2,907,616
- Mortgage loans - - 4,767,342 4,767,342 4,372,203
- Loans to micro, small and medium enterprises - - 4,915,202 4,915,202 4,851,183
Bonds carried at amortised cost - 87,213 - 87,213 87,213
Finance lease receivables - - 324,686 324,686 338,203
Other financial assets - - 177,730 177,730 177,730
NON-FINANCIAL ASSETS
Investment properties, at cost - - 29,955 29,955 20,741
TOTAL ASSETS 1,021,023 3,766,080 20,387,785 25,174,888 24,326,434
FINANCIAL LIABILITIES
Customer accounts - 12,680,227 6,293,651 18,973,878 18,992,492
Debt securities in issue 1,371,638 - - 1,371,638 1,392,872
Due to credit institutions - - 2,444,620 2,444,620 2,448,662
Other financial liabilities - - 381,344 381,344 381,344
Subordinated debt - - 628,008 628,008 639,048
TOTAL LIABILITIES 1,371,638 12,680,227 9,747,623 23,799,488 23,854,418
24 Fair Value Disclosures (Continued)
31 December 2022
in thousands of GEL Level 1 Level 2 Level 3 Total Fair Value Carrying Value
Financial assets
Cash and cash equivalents 1,243,238 2,617,575 - 3,860,813 3,860,813
Due from other banks - 41,854 - 41,854 41,854
Mandatory cash balances with NBG and CBU - 2,049,985 - 2,049,985 2,049,985
Loans and advances to customers:
- Corporate loans - - 6,336,111 6,336,111 6,236,011
- Consumer loans - - 2,997,498 2,997,498 2,664,032
- Mortgage loans - - 4,863,317 4,863,317 4,219,260
- Loans to micro, small and medium enterprises - - 4,708,953 4,708,953 4,713,303
Bonds carried at amortised cost - 37,392 - 37,392 37,392
Finance lease receivables 312,300 312,300 312,334
Other financial assets - - 168,372* 168,372* 168,372*
Non-financial assets
Investment properties, at cost - - 25,683 25,683 22,154
Total assets 1,243,238 4,746,806 19,412,234* 25,402,278* 24,325,510*
Financial liabilities
Customer accounts - 12,181,397 5,841,319 18,022,716 18,036,533
Debt securities in issue 1,340,444 - - 1,340,444 1,361,573
Due to credit institutions - - 3,936,243 3,936,243 3,940,660
Other financial liabilities - - 307,128* 307,128* 307,128*
Subordinated debt - - 587,218 587,218 590,148
Total liabilities 1,340,444 12,181,397 10,671,908* 24,193,749* 24,236,042*
*Starting from January 2023 the Group has adopted IFRS 17 and according to the
standard requirements retrospectively applied presentation of respective
balances for 2022 as described in note 2.
The fair values of financial assets and liabilities in the level 2 and level 3
of fair value hierarchy were estimated using the discounted cash flows
valuation technique. The fair value of unquoted fixed interest rate
instruments was calculated based on estimated future cash flows expected to be
received discounted at current interest rates for new instruments with similar
credit risk and remaining maturity. The fair value of investment properties
was estimated using market comparatives.
Amounts due to credit institutions were discounted at the Group's own
incremental borrowing rate. Liabilities due on demand were discounted from the
first date that the Group could be required to pay the amount.
There were no changes in the valuation technique for the level 2 and level 3
measurements of assets and liabilities not measured at fair values in the six
months ended 30 June 2023 (2022: none).
25 Related Party Transactions
Pursuant to IAS 24 "Related Party Disclosures", parties are generally
considered to be related if the parties are under common control or one party
has the ability to control the other or it can exercise significant influence
over the other party in taking financial or operational decisions. In
considering each possible related party relationship, attention is directed to
the substance of the relationship, not merely the legal form:
· Parties with material ownership stake (more than 5% beneficial
ownership stake for 2023 and 2022) in the TBCG or with representatives in the
Board of Directors are considered as Significant Shareholders.
· The key management personnel include members of TBCG's Board of
Directors and the Management Board of the Bank.
· Related parties not included in significant shareholders and key
management personnel are presented in other related parties.
Transactions between TBC Bank Group PLC and its subsidiaries also meet the
definition of related party transactions. Where these are eliminated on
consolidation, they are not disclosed in the Group Financial Statements.
25 Related Party Transactions (Continued)
The outstanding balances with related parties were as follows:
in thousands of GEL Contractual interest rate Significant shareholders Key management personnel Other related parties
Associates
30 June 2023
Gross amount of loans and advances to customers 3.9%-36.0% - 5,766 1,866 -
Credit loss allowance for loans and advances to customers - - 1 2 -
Customer accounts 0%-12.4% 2,564 12,346 32,468 2,149
31 December 2022
Gross amount of loans and advances to customers 4.4%-36.0% - 6,097 1,135 -
Credit loss allowance for loans and advances to customers - - 3 - -
Customer accounts 0%-12.5% 1,248 25,557 51,039 4,341
The Group's income and expense items with related parties except from key
management compensation were as follows:
in thousands of GEL Significant shareholders Key management personnel Other related parties
Associates
30 June 2023
Interest income - loans and advances to customers - 121 46 -
Interest expense 14 174 322 82
Fee and commission income 3 9 71 1
Administrative and other operating expenses (excluding staff costs) - 668 - -
30 June 2022
Interest income - loans and advances to customers - 100 49 -
Interest expense 6 195 267 56
Interest expense with EBRD 22,488 - - -
Fee and commission income 3 10 73 1
Administrative and other operating expenses (excluding staff costs) - 297 - -
The aggregate loan amounts advanced to, and repaid, by related parties during
the period end 30 June 2023 were as follows:
In thousands of GEL Significant shareholders Key management personnel Other related parties
Amounts advanced to related parties during the period 1 823 1,794
Amounts repaid by related parties during the period (1) (1,117) (1,117)
Aggregate amounts of loans advanced to and repaid by related parties during
the six months ended 30 June 2022 were as follows:
In thousands of GEL Significant shareholders Key management personnel Other related parties
Amounts advanced to related parties during the period 43 1,173 631
Amounts repaid by related parties during the period (59) (1,387) (647)
The compensation of the TBCG Board of Directors and the Bank's Management
Board is presented below:
Expense over the six months ended
In thousands of GEL 30 June 2023 30 June 2022
Salaries and related benefits 6,341 7,216
Equity-settled share-based compensation 8,230 10,109
Total 14,571 17,325
Included in salaries and bonuses for six months ended 30 June 2023 GEL 1,141
thousand relates to compensation for directors of TBCG paid by TBC Bank Group
PLC (six months ended 30 June 2022: GEL 1,275 thousand).
A full list of related undertakings and the country of incorporation is set
out below.
Company Name Country of incorporation
JSC TBC Bank 7 Marjanishvili Street, 0102, Tbilisi, Georgia
United Financial Corporation JSC 154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia
TBC Capital LLC 11 Chavchavadze Avenue, 0179, Tbilisi, Georgia
TBC Leasing JSC 76 Chavchavadze Avenue, 0162, Tbilisi, Georgia
TBC Kredit LLC 71-77, 28 May Street, AZ1010, Baku, Azerbaijan
TBC Pay LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Invest-Georgia LLC 7 Jabonitsky street, 52520, Tel Aviv, Israel
Index LLC 8 Tetelashvili, 0102,, Tbilisi, Georgia
TBC Insurance JSC 24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
TBC Invest International LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
University Development Fund 1 Chavchavadze Avenue, 0128, Tbilisi, Georgia
CreditInfo Georgia JSC 2 Tarkhnishvili street, 0179, Tbilisi, Georgia
Online Tickets LLC 3 Irakli Abashidze street, 0179, Tbilisi, Georgia
VENDOO LLC (Geo) 44 Petre Kavtaradze Street, 0128, Tbilisi, Georgia
Natural Products of Georgia LLC 1 Chavchavadze Avenue, 0128, Tbilisi, Georgia
Mobi Plus JSC 45 Vajha Pshavela Street, 0177, Tbilisi, Georgia
Mineral Oil Distribution Corporation JSC 11 Tskalsadeni Street, 0153, Tbilisi, Georgia
Georgian Card JSC 106 Beliashvili Street, 0159, Tbilisi Georgia
Georgian Central Securities Depositor JSC 74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
Givi Zaldastanishvili American Academy In Georgia JSC 37 Chavchavadze Avenue, 0162, Tbilisi Georgia
United Clearing Centre 5 Sulkhan Saba Street, 0105, Tbilisi, Georgia
Banking and Finance Academy of Georgia 123, Agmashenebeli Avenue, 0112, Tbilisi, Georgia
Tbilisi's City JSC 15 Rustaveli Avenue, 0108, Tbilisi Georgia
TBC Trade LLC 11A Chavchavadze Ave, 0179, Tbilisi, Georgia
Redmed LLC 25 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
T Net LLC 7 Marjanishvili st. Didube-chugureti District, Tbilisi,Georgia
(file:///C%3A/Users/salpirtskhalava/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/GU4BI804/Book2.xlsx#RANGE!B34)
TKT UZ 12, Shota Rustaveli, Yakkasaray district, Tashkent, Uzbekistan
Mypost LLC 129a Sh. Nutsubidze St. Vake,Tbilisi, Georgia
Billing Solutions LLC 14 Khelovanta St. Isani, Tbilisi, Georgia
F Solutions LLC 36, Kakheti Hwy, Isani-Samgori District, Tbilisi, Georgia
Inspired LLC 1, Chust, Mirzo Ulugbek district, Tashkent, Uzbekistan
TBC Fin service LLC 10B, Fidokor, Yakkasaray, Tashkent, Uzbekistan
Marjanishvili 7 LLC 7 Marjanishvili st. Didube-chugureti District, Tbilisi,Georgia
TBC Bank Uzbekistan JSC 118/1, Amir Temur Avenue, Yunusobod district, Tashkent, Uzbekistan
TBC Group Support LLC 7 Marjanishvili st. Didube-chugureti District, Tbilisi,Georgia
Tbilisi Stock Exchange JSC floor 2th block 8, 71 Vazha Pshavela Ave, Tbilisi, Georgia
Georgian Stock Exchange JSC 74a chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia
Kavkasreestri JSC 74a chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia
Freeshop.ge LLC 74 chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia
The.ge LLC 20 amaglebis st. old Tbilisi, Georgia
SABA LLC 5, Gabashvili street, vake-saburtalo Tbilisi, Georgia
Artarea.ge LLC 25 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
TBC Art Gallery LLC 6, Tsimakuridze str, Tbilisi, Georgia
TBC Asset Management LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
Swift 1 Adele Avenue, B-1310, La Hulpe, Belgium
Space International JSC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
Space JSC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
Diversified Credit Portfolio JSC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
Globally Diversified Bond Fund JSC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
1 (#_ftnref1) Note: For better presentation purposes, certain financial
numbers are rounded the nearest whole number.
2 (#_ftnref2) Reported per IFRS.
3 (#_ftnref3) Based on data published by the Central Bank of Uzbekistan.
4 (#_ftnref4) Remittances from Russia are adjusted for double counting with
tourism inflows and other similar effects, based on TBC Capital estimates.
5 (#_ftnref5) Based on data published by NBG and FX-adjusted by TBC, based
on Dec-2022 end of period exchange rate.
6 (#_ftnref6) Based on data published by Uzstat.
7 (#_ftnref7) Based on data published by Central Bank of Uzbekistan.
8 (#_ftnref8) Based on data published by the National Bank of Georgia.
9 (#_ftnref9) Excluding pawnshops units.
10 (#_ftnref10) Online Tickets LLC was merged with T Net LLC during 2023.
11 (#_ftnref11) In May 2023 TBC Bank Group PLC finalized acquisition of
remaining 49% interest in Inspired LLC.
12 (#_ftnref12) The Group has a significant influence on Georgian Stock
Exchange JSC and Kavkasreestri JSC with representatives in management board.
13 (#_ftnref13) Dormant.
14 (#_ftnref14) Total exposure of the bank toward the borrower or group of
interconnected borrowers.
15 (#_ftnref15) Movements with impact on credit loss allowance charge for
the period differs from statement of profit or loss with amount of recoveries
GEL 26,824 thousand as at 30 June 2023 (30 June 2022: GEL 27,018 thousands).
The amount of recoveries include recoveries from sale of written off portfolio
in the amount of GEL 14,601 thousand sold in 2023.
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