REG - TBC Bank Group PLC - 3rd Quarter Results
RNS Number : 4488HTBC Bank Group PLC15 November 2018
TBC BANK GROUP PLC ("TBC Bank")
3Q AND 9M 2018 UNAUDITED CONSOLIDATED FINANCIAL RESULTS
Forward-Looking Statements
This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or the "Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others, the achievement of anticipated levels of profitability, growth, cost and recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Georgian economic, political and legal environment, financial risk management and the impact of general business and global economic conditions.
None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects are based are accurate or exhaustive or, in the case of the assumptions, entirely covered in the document. These forward-looking statements speak only as of the date they are made, and subject to compliance with applicable law and regulation the Bank expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in the document to reflect actual results, changes in assumptions or changes in factors affecting those statements.
Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management's accounts and financial statements. The areas in which the management's accounts might differ from the International Financial Reporting Standards and/or U.S. generally accepted accounting principles could be significant; you should consult your own professional advisors and/or conduct your own due diligence for a complete and detailed understanding of such differences and any implications they might have on the relevant financial information contained in this presentation. Some numerical figures included in this report have been subjected to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.
Third Quarter and Nine Months of 2018 Unaudited Financial Results Conference Call
TBC Bank Group PLC ("TBC PLC") will release its unaudited consolidated financial results for the third quarter and nine-month of 2018 on Thursday, 15 November 2018 at 7.00 am GMT (11.00 am GET).
On that day, Vakhtang Butskhrikidze, CEO, and Giorgi Shagidze, CFO, will host a conference call to discuss the results.
Date & time: Thursday, 15 November 2018 at 14.00 (GMT) / 15.00 (CET) / 9.00 (EST)
Please dial-in approximately five minutes before the start of the call quoting the password TBC:
Password:
TBC
UK Toll Free:
0808 109 0700
Standard International Access:
+44 (0) 20 3003 2666
USA Toll Free:
1 866 966 5335
New York New York:
+1 212 999 6659
Russia Toll Free:
8 10 8002 4902044
Moscow:
+7 (8) 495 249 9843
Replay Numbers
Replay Passcode:
5808754
UK Toll Free:
0800 633 8453
Standard International Access:
+44 (0) 20 8196 1998
USA Toll Free:
1 866 583 1035
Russia Toll Free:
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Moscow:
+7 (8) 495 249 9840
Contacts
Zoltan Szalai
Director of International Media and Investor Relations
E-mail: ZSzalai@Tbcbank.com.ge
Tel: +44 (0) 7908 242128
Web: www.tbcbankgroup.com
Address: 68 Lombard St, London EC3V 9LJ, United Kingdom
Anna Romelashvili
Head of Investor Relations
E-mail: IR@tbcbank.com.ge
Tel: +(995 32) 227 27 27
Web: www.tbcbankgroup.com
Address: 7 Marjanishvili St. Tbilisi, Georgia 0102
Investor Relations Department
E-mail: IR@tbcbank.com.ge
Tel: +(995 32) 227 27 27
Web: www.tbcbankgroup.com
Address: 7 Marjanishvili St. Tbilisi, Georgia 0102
Table of Contents
3Q and 9M 2018 Results Announcement
TBC Bank - Background
Financial Highlights
Recent Developments
Letter from the Chief Executive Officer
Economic Overview
Unaudited Consolidated Financial Results Overview for 3Q 2018
Unaudited Consolidated Financial Results Overview for 9M 2018
Additional Disclosures
TBC BANK Group PLC ("TBC Bank")
TBC Bank Announces Unaudited 3Q and 9M 2018 and Consolidated Financial Results:
Net Profit for 3Q 2018 up by 23.8% YoY to GEL 107.4 million
Net Profit for 9M 2018 up by 16.8% YoY to GEL 307.3 million
European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.
TBC Bank - Background
TBC Bank is the largest banking group in Georgia, where 99.7% of its business is concentrated, and where it has 37.2% market share by total assets. TBC Bank offers retail, corporate, and MSME banking nationwide.
These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.
In 4Q 2016, TBC Bank acquired Bank Republic which has been consolidated into the Group's results.
Financial Highlights
3Q 2018 P&L Highlights
§ Net profit amounted to GEL 107.4 million (3Q 2017: GEL 86.8 million; 2Q 2018: GEL 102.4 million)
§ Return on equity (ROE) amounted to 21.2% (3Q 2017: 19.8%; 2Q 2018: 21.3%)
§ Return on assets (ROA) amounted to 3.1 % (3Q 2017: 2.9%; 2Q 2018: 3.2%)
§ Total operating income amounted to GEL 278.1 million, up by 34.3% YoY and up by 7.6% QoQ
§ Cost to income was 37.4% (3Q 2017: 40.5%; 2Q 2018: 35.6%)
§ Cost of risk stood at 1.9% (3Q 2017: 1.3%; 2Q 2018: 1.8%)
§ FX adjusted cost of risk stood at 1.5% (3Q 2017 1.2%; 2Q 2018: 1.7%)
§ Net interest margin (NIM) stood at 6.9% (3Q 2017: 6.2%; 2Q 2018: 7.1%)
§ Risk adjusted net interest margin (NIM) stood at 5.4% (3Q 2017: 5.0%; 2Q 2018: 5.5%)
9M 2018 P&L Highlights
§ Net profit amounted to GEL 307.3 million (9M 2017: GEL 263.2 million)
§ Return on equity (ROE) amounted to of 21.2% (9M 2017: 20.9%)
§ Return on assets (ROA) was 3.1% (9M 2017: 3.2%)
§ Total operating income for the period was up by 25.5% YoY to GEL 775.2 million
§ Cost to income stood at 37.0% (9M 2017: 42.1%)
§ Cost of risk on loans stood at 1.7% (9M 2017: 1.2%)
§ Net interest margin (NIM) stood at 7.0% (9M 2017: 6.5%)
§ Risk adjusted net interest margin (NIM) stood at 5.3% (9M 2017: 5.1%)
Balance Sheet Highlights as of 30 September 2018
§ Total assets amounted to GEL 14,424.0 million as of 30 September 2018, up by 18.8% YoY and up by 6.2% QoQ
§ Gross loans and advances to customers stood at GEL 9,622.6 million as of 30 September 2018, up by 23.9% YoY and up by 8.2% QoQ
§ Net loans to deposits + IFI funding stood at 88.0% and Net Stable Funding Ratio (NSFR) stood at 118.0%
§ NPLs were 3.1%, down by 0.4pp YoY and unchanged QoQ
§ NPLs coverage ratios stood at 113.2%, or 209.0% with collateral, on 30 September 2018 compared, to 80.5% or 206.8% with collateral, as of 30 September 2017[1] and 116.1%, or 216.1% with collateral on 30 June 2018
§ Total customer deposits amounted to GEL 8,740 million as of 30 September 2018, up by 23.2% YoY and up by 10.2% QoQ
§ As of 30 September 2018, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.8% and 16.4% respectively, while minimum requirements amounted to 10.3% and 15.8%
Market Shares[2]
§ Market share in total assets reached 37.2% as of 30 September 2018, up by 0.7pp YoY and up by 0.1pp QoQ
§ Market share in total loans was 38.4% as of 30 September 2018, up by 0.2pp YoY and up by 0.1pp QoQ
§ In terms of individual loans, TBC Bank had a market share of 39.9% as of 30 September 2018, down by 0.6pp YoY and up by 0.1pp QoQ. The market share for legal entity loans was 36.6%, up by 1.0pp YoY and up by 0.1pp QoQ
§ Market share of total deposits reached 40.3% as of 30 September 2018, up by 1.7pp YoY and up by 0.8pp QoQ
§ Market share of individual deposits attained to 41.1%, up by 0.2pp YoY and down by 0.1pp QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 39.4%, up by 3.5pp YoY and up by 1.9pp QoQ.
Recent Developments
Recent and Upcoming Regulations
· On 1 September 2018, a 50% effective interest cap on loans was introduced, although we do not expect it to have any material impact on TBC Bank's performance;
· Other regulatory initiatives are also expected to come into force by the end of 2018, including the following: 1) an increase in the limit, below which loans cannot be issued to individuals in foreign currency, from GEL 100,000 to GEL 200,000, 2) an introduction of new caps on PTI and LTV ratios and 3) a regulation on loans to customers without verified income.
· While final details are not known yet, these regulations are expected to support further de-dollarization and it might decrease the retail loan growth rate in the short to medium term. Therefore, we are revising our medium term annual loan growth rate guidance to 10-15%. However, our other targets remain unchanged with return on equity above 20%, cost to income ratio below 35% and a dividend pay-out ratio of 25-35%.
Georgia ranks 6th in 2019 "Doing Business" report
· Georgia continues its remarkable progress on the World Bank's Doing Business rankings. According to the 2019 Ease of Doing Business report, Georgia ranks 6th among 190 countries surveyed globally; up from the 9th in the previous year. Georgia stands just after Korea and before Norway and it outscores all CEE countries.
TBC Bank Group PLC announces Board changes
· TBC Bank has appointed two female board members, Maria Luisa Cicognani and Tsira Kemularia, as Independent Non-Executive Directors. They will also serve as Supervisory Board members of TBC PLC's main subsidiary - JSC TBC Bank. Following the appointment of Ms Cicognani and Ms Kemularia, Stefano Marsaglia and Stephan Wilcke have stepped down from the TBC PLC Board and the Supervisory Board of JSC TBC Bank.
TBC Bank and FMO Sign a GEL 103 Million Loan Agreement
· TBC Bank has signed a loan agreement in the amount of GEL 103 million with FMO, the Netherlands Development Finance Company. The five-year loan facility will be used primarily to finance young entrepreneurs running micro, small and medium size enterprises in Georgia, as well as young retail customers requiring mortgage loans. The local currency funding will be obtained by FMO through a public bond placement on the Georgian Stock Exchange.
TBC Bank and EIB Sign EUR 30 Million Loan Agreement
· TBC Bank has signed a loan agreement in the amount of EUR 30 million with the European Investment Bank (EIB). The five-year loan facility will primarily be used to finance small and medium size enterprises in Georgia.
TBC Bank wins the Best Private Bank in Georgia 2018 award from PWM and The Banker Magazines
· TBC Bank has been named the Best Private Bank in Georgia 2018 by Professional Wealth Management (PWM) and The Banker magazines. This prestigious award is acknowledgement of TBC Bank's continuous efforts to deliver exceptional private banking services in Georgia. Participants were evaluated against a set of growth and performance measures, as well as on their particular private banking services.
TBC Bank wins Two Global Digital Awards from Global Finance Magazine
§ TBC Bank has been named the world's Best in Social Media Marketing and Services 2018 and the world's Best Integrated Consumer Banking Site 2018 by Global Finance Magazine. In the list of winners TBC Bank stands among some of the world's leading banks.
TBC Bank wins the Best Foreign Exchange Provider 2019 in Georgia from Global Finance Magazine
§ TBC Bank has been named the Best Foreign Exchange Provider 2019 in Georgia by Global Finance Magazine. The winners were chosen based on extensive criteria including transaction volume, market share, scope of global coverage, customer service, competitive pricing and innovative technologies.
Additional Information Disclosure
Additional historical information for certain P&L, balance sheet and capital items, and on asset quality is disclosed on our Investor Relations website on http://tbcbankgroup.com/ under the Financial Highlights section.
Letter from the Chief Executive Officer
I am delighted to present our strong financial results for the third quarter in 2018 and a brief overview of the recent economic developments, as well as give you an update on our international plans.
In the third quarter, we recorded a consolidated net profit of GEL 107.4 million, up by 23.8% year-on-year. Our return on equity amounted to 21.2%, up by 1.4 percentage points year-on-year, while our return on assets was 3.1%, up by 0.2 percentage points year-on-year.
We continued to deliver on our promises and achieved a net interest margin at 6.9% during the quarter, within the range of our short-term guidance. Over the same period, our net fee and commission income grew by 23.9% year-on-year, consistent with our annual growth guidance and mainly driven by the increasing number of card and settlement transactions. Our cost to income ratio decreased by 3.1 percentage points year-on-year to 37.4%.
During the quarter, our loan book grew by 23.9% year-on-year, bringing our market share to 38.4%, up by 0.2 percentage points year-on-year. Our asset quality remained sound, with FX adjusted cost of risk at 1.5% and non-performing loans at 3.1%. Over the same period, our customer accounts grew by 23.2% year-on-year, increasing our market share to 40.3%, up by 1.7 percentage points year-on-year.
Our capital and liquidity ratios continued to remain solid. As of 30 September 2018, our tier 1 and total capital adequacy ratios (CAR) per Basel III guidelines stood at 12.8% and 16.4% respectively, compared to the corresponding minimum requirement of 10.3% and 15.8%. At the same time, our net loans to deposits + IFI funding ratio stood at 88.0% and the net stable funding ratio (NSFR) was 118.0%.
I am particularly pleased with the achievements of our digital strategy as the number of transactions and sales volume through digital channels continue to grow. As a result, in the third quarter of 2018 our offloading ratio was 90%[3], while 47%[4] of all sales were completed via digital channels in September 2018. In addition, our recently launched, fully-digital bank, Space, continued to rapidly attract new customers and had approximately 186,000 users as of 30 September 2018.
The growth of the Georgian economy remains solid despite increased uncertainties in the region, contractionary fiscal policy and one-offs related to some large infrastructure projects. In the third quarter, real GDP[5] grew by 4.0%, while growth in September reached 5.6%. Investment demand has been the major contributor to growth, supported by healthy business lending as well as the strong pace of reforms aimed at improving the business environment in the country. Georgia ranked 6th out of 190 countries in the recently released "Doing Business 2019 report", up from 9th position in the previous year. While the growth of total external inflows slowed during the quarter, mostly due the situation in Turkey and Iran, it still remained in double digits thanks to the geographically diversified sources of inflows. During the quarter exports of goods increased by 21.1% year-on-year, mainly supported by exports to CIS countries. Over the same period, remittances grew by 12.0% year-on-year and tourism inflows expanded by 11.7% year-on-year, mainly driven by EU countries. Despite the temporary negative spill-overs from some neighbouring countries, the Georgian economy is expected to continue its solid growth, with the IMF projecting an average of 5.0% annual GDP growth over the next five years.
Finally, I would like to welcome our two new board members: Maria Luisa Cicognani and Tsira Kemularia, who joined our Board as independent Non-Executive Directors. Ms. Cicognani and Ms. Kemularia have extensive international experience at some of the world's leading institutions and will bring valuable perspectives and expertise to our Board.
Following the increase in diversity of our Board and our continued efforts to improve corporate governance, including implementation of the new executive compensation system, we expect substantial improvement in our governance scores, and we are very pleased to see ISS upgrading our score to 4 as of 1 November 2018.
Outlook
On 1 September 2018, a 50% effective interest rate cap on loans was introduced, although we do not expect it to have any material impact on TBC Bank's performance. Other regulatory initiatives are also expected to come into force by the end of 2018, including the following:
· An increase in the limit below which loans cannot be issued to individuals in a foreign currency, from GEL 100,000 to GEL 200,000;
· The introduction of new caps on PTI and LTV ratios; and
· Regulation of loans to customers without verified income.
While the final details are not known yet, these regulations are expected to support further de-dollarisation and they may also decrease the retail loan growth rate in the short-to-medium term. Therefore, we are revising our medium term annual loan growth rate guidance to 10-15%. However, our other targets remain unchanged: a return on equity above 20%, a cost to income ratio below 35% and a dividend pay-out ratio of 25-35%.
Regarding our insurance business, I am very pleased with its results. Starting from this year, we have become the second largest player on the P&C insurance market and the largest player in the retail segment, holding 18.3% and 30.0% market shares[6] respectively, based on internal estimates. In the third quarter, the number of customers grew steadily and totaled around 300,000, up by 113% year-on-year.
While Georgia will remain our main focus, the vast expertise we have built in the last three decades, including our advanced digital banking technology, should provide us with a strong competitive advantage to carefully enter selected new markets and start growing our banking business beyond Georgia.
In this context, I would like to provide you with an update on the progress made in our international strategy:
Azerbaijan
Following the completion of due diligence of Nikoil Bank, our Board of Directors is expected to approve the transaction on 16th November, after which we will sign the definitive agreements. The next step is obtaining the regulatory approval, which could take up to a few months. After the merger is completed, TBC Bank will hold up to 10% of the merged entity and will have an option to acquire the number of shares needed to achieve 50%+1 share of the merged entity within 3 years, based on a fixed price formula.
In parallel, we have started to develop and implement the new strategy of the merged entity. The bank will be serving retail and MSME customers and will have a strong focus on digital offerings including our fully-digital bank, Space. The main shareholder of Nikoil has already recapitalised the bank by investing USD 45 million by September 2018. A further capital increase has also been agreed upon, whereby TBC Bank will be investing, consistent with its 10% shareholding, between three and five million US dollars each year subject to reaching appropriate KPIs by the merged entity. Within three years, we expect the bank to have USD 1,400 million in its loan book, USD 200 million in total equity and a return on equity of above 20%.
I am very pleased that we are establishing an outstanding team for the merged entity. In addition to the CEO, Nikoloz Shurgaia, who has extensive international banking experience and education, the following new members have joined the team:
• Chief Operating Officer - Nukri Tetrashvili, former CEO of TBC Kredit
• Chief Digital Officer -Senior Digital Manager with a solid track record at large Georgian bank
• Chief Risk Officer - David Tediashvili, former Head of Retail Credit Risk Department at TBC Bank
• Chief Financial Officer - Emil Dushdurov, former Associate Director, Deal Advisory at KPMG Azerbaijan
Uzbekistan
I would like to present our progress in our quest to expand our digital banking offerings not only in the Caucasus region, but also in Central Asia, namely in Uzbekistan. This is still at the concept phase and subject to approvals, including from the local authorities. Therefore, the project could change as we progress.
Uzbekistan is a very attractive market with a large and growing population of 32 million and with retail and MSME loans to GDP ratio[7] of below 5% as of the end 2017. Georgia and Uzbekistan have good cultural links, share a similar past dating back to the Soviet Union times and are both part of China's One Belt One Road initiative.
We believe that now is the right time to enter this market as the country has embarked on a path of reforms, many of which have been designed based on advice given by former Georgian government officials, and is creating a business friendly environment.
We aspire to build a greenfield, next generation bank for retail and MSME customers with a primary focus on digital channels including our fully-digital bank, Space. We also plan to operate hi-tech, asset-light branches with digital offerings.
We would like to establish the bank in partnership with international financial institutions and a local partner. Our plans foresee a minimum 51% shareholding and an initial investment of USD 20-30 million. We have already secured preliminary interest from certain international financial institutions and we are in the process of finding a local partner.
Our medium to long-term financial aspirations for the Uzbek subsidiary is to contribute above 20% to TBC Bank Group PLC's assets and income and to achieve sustainable ROE up to 25%.
On the one hand, our planned expansion in Azerbaijan and Uzbekistan should allow us to reach out to a population of around 40 million compared to just 4 million in Georgia, offering us tremendous new growth opportunities given the competitive advantages of our products and services. On the other hand, we plan to follow an asset-light, limited capital investment approach with a strong focus on digital channels and to invest in stages to make sure that we are comfortable with the results and the operating environment before committing additional investment.
We will aim to transfer our international aspirations into specific financial targets within the period of one year.
Economic Overview[8]
Economic growth
Economic growth remained at solid 5.5% in 2Q 2018. In nominal terms, the GDP increased by 10.6% YoY over the same period. Amid increased uncertainties in the countries across the region, a contractionary fiscal policy and one-offs related to large infrastructure projects, growth slowed to 4.0% in 3Q 2018, with latest September growth at 5.6%, in line with initial estimates of the national statistics' office Geostat. Reflecting the increased uncertainties in the external sector IMF revised GDP growth projections to 5.0% for 2018, down from 5.5% projected previously.
Structural reforms continue to support the domestic as well as foreign investment growth. According to the World Bank's "Doing Business 2019" report, Georgia further strengthened its position and ranked 6th among the 190 countries surveyed - up by 3 steps from the 9th position in previous year. With this position, Georgia stands among the countries such as Hong Kong, Korea, Norway, while outperforming all of the CEE countries. Continued tax reform contributes significantly to the strengthening of Georgia's position in "Doing Business 2019" rankings. Total tax and contribution rate as a percentage of corporate taxes currently stand at 9.9%, among the lowest globally, down from 16.4% in 2018[9].
The investment demand has fuelled growth in 2Q 2018. Investment increased by 26.4% YoY in nominal terms and amounted to 34% of GDP over the last four quarters ending 2Q 2018, the highest level since 2006. The increase was driven by solid growth in capital investments (+21.2% YoY) as well as investments in inventory (+81.8% YoY). Consumption rose by 6.9% YoY in nominal terms as of 2Q 2018.
In 2Q 2018 trade and repairs (+10.5% YoY), manufacturing (+7.6% YoY), real estate (+13.8% YoY), and financial intermediation (+22.0% YoY) were the fastest growing sectors, contributing the most to real GDP growth, while agriculture (-3.3% YoY) and construction (-7.1% YoY) sectors contracted. The drop in the construction sector was primarily due to the one-off factors related to fiscal underspending on several large scale infrastructure projects as well as finalization of the South Caucasus pipeline expansion project.
Consolidated budget posted the surplus of an estimated 0.7% of GDP both in 3Q 2018 and in the first nine months of 2018. These figures imply sizeable contractionary impact of fiscal policy as budget deficit stood at 3.3% in 3Q 2017 and 2.0% in first nine months of 2017. In 3Q 2018 tax revenues increased by 8.7% YoY, over the same period total spending declined modestly by 0.5% YoY.
The contractionary impact of the fiscal spending was balanced by the economy's accelerated bank lending. As of September 2018 the total bank loan portfolio increased by 19.1%[10] YoY. Loans to SME and corporate segment increased by a solid 20.3% and 19.8% YoY respectively. Retail loan growth also remained strong at 18.1%, primarily driven by the increase of mortgage loans. The NBG's regulation related to the non-mortgage lending introduced back in May 2018 have resulted in slowdown of this segment.
The growth of total external inflows from exports, tourism and remittances slowed in 3Q 2018 amid increased uncertainties in some of Georgia's economic partners. Despite the negative impact mostly from Turkey and Iran, the growth of inflows remains in double digits thanks to their geographically diversified sources.
Exports of goods increased by a solid 21.1%[11] YoY in 3Q 2018. The growth was driven by growing exports to CIS countries (+41.9% YoY). Over the same period exports to EU decreased modestly by 1.7% YoY, while the exports to other countries increased by 9.5% YoY. The sharp drop of the Turkish lira and sanctions on Iranian oil exports negatively affected the growth of exports to these countries and dropped by 15% YoY and 28.8% YoY respectively. The share of Turkey and Iran in Georgia's total exports fell to 6.8% in 3Q 2018, thus the negative spillovers from these countries should be limited going forward.
After a 23.2% increase in the first half of 2018, the growth in imports retreated to 11.8% YoY in 3Q 2018, reflecting the expected slower economic growth in 3Q as well as restrictions on non-mortgage loans having negative impact on the imports of durable consumer goods. The trade deficit widened by only 6.4% in 3Q 2018 compared to the 20.5% growth 1H 2018. Declining growth rate of the trade deficit was evident since March 2018 with even improvement in September.
In 3Q 2018 tourism inflows grew by 11.7% YoY. The increase of visitors from the EU was steepest at 39.0% YoY. Visitors from the CIS countries increased by 9.6% YoY while the visitors from other countries went up by 4.0% YoY. The latter was negatively affected primarily by declining visitors from Iran (-26.3% YoY).
Remittances grew by 12.0% YoY in 3Q 2018 with EU countries remaining the major driver of growth. Private money transfers slowed from the CIS (+3.6% YoY) and other countries (7.5% YoY). In the same period sizeable decline in remittances from Turkey in 3Q 2018 (-13.8%) was the main drag on growth. Inflows also declined from Russia (-1.6% YoY) albeit more moderately.
The current account (CA) deficit was traditionally fully financed by FDIs and remained broadly unchanged from previous year, standing at 9.2% of GDP as of last four quarters ending 2Q 2018.
Important to mention that in the 3rd quarter 2018 NBG bought 62.5 mln USD, indicating that FX inflows are sufficient for higher growth and without negative impact of fiscal spending on domestic demand exchange rate would not have been necessarily depreciated.
In September, the USD/GEL exchange rate depreciated by 0.9% YTD and by 5.6% YoY. In the same period, the EUR/GEL exchange rate appreciated by 2.4% YTD and weakened by 3.6% YoY. Real effective exchange rate of GEL could be undervalued following the appreciation of Turkish lira and some USD/GEL weakness in Sept-October 2018. As of October 31 GEL real effective exchange rate was around same levels as in Jan-Feb 2018, close to its peak depreciation by the end of November 2017.
Inflation and monetary policy
CPI inflation stood at 2.7% in September, slightly below the NBG's 3% target. The core inflation remained around 1pp below the headline inflation, the difference being mostly driven by rising oil prices. The NBG started to gradually ease the monetary policy by cutting its refinancing rate by 0.25pp to 7% in July 2018. NBG left the policy rate unchanged at 7% during their September and October meetings. NBG expects to decrease interest rates going forward, however depending on external as well as domestic developments.
Going forward
Despite the temporary negative spillovers from the neighboring countries, the Georgian economy is expected to continue its solid performance. According to the IMF projections, growth is expected to average at 5% over the next five years. Solid growth projections are backed by the continuous reforms to further strengthen the economy as an attractive business destination. Furthermore, tax-free access to almost all major markets in the region enables Georgia to continue to diversify its export markets and increase the economy's resilience against headwinds.
More information on the Georgian economy and financial sector can be found at www.tbcresearch.ge
Unaudited Consolidated Financial Results Overview for 3Q 2018
This statement provides a summary of the unaudited business and financial trends for 3Q 2018 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.
Starting from 1 January 2018, TBC Bank adopted IFRS 9 and IFRS 15. Therefore, the comparative information for 2017 is not comparable to the information presented for 2018.
Please note, that there might be slight differences in previous periods' figures due to rounding.
Income Statement Highlights
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
Net Interest Income
199,612
188,204
146,546
36.2%
6.1%
Net Fee and Commission Income
39,384
39,162
31,790
23.9%
0.6%
Other Operating Non-Interest Income
39,093
31,052
28,758
35.9%
25.9%
Credit Loss Allowance
(47,650)
(35,091)
(27,097)
75.8%
35.8%
230,439
223,327
179,997
28.0%
3.2%
Operating Expenses
(104,103)
(92,090)
(83,910)
24.1%
13.0%
126,336
131,237
96,087
31.5%
-3.7%
Income Tax Expense
(18,952)
(28,799)
(9,327)
NMF
-34.2%
107,384
102,438
86,760
23.8%
4.8%
NMF - no meaningful figures
Balance Sheet and Capital Highlights
Sep-18
Jun-18
Change QoQ
GEL
USD
GEL
USD
Total Assets
14,423,997
5,515,658
13,583,510
5,540,671
6.2%
Gross Loans
9,622,563
3,679,616
8,895,947
3,628,629
8.2%
Customer Deposits
8,740,449
3,342,300
7,932,585
3,235,677
10.2%
Total Equity
2,055,951
786,184
1,943,684
792,823
5.8%
Regulatory Tier I Capital (Basel III)*
1,580,547
604,393
1,498,857
611,379
5.5%
Regulatory Total Capital (Basel III)*
2,020,501
772,629
1,908,398
778,430
5.9%
Regulatory Risk Weighted Assets (Basel III)*
12,305,756
4,705,654
11,200,354
4,568,590
9.9%
*As per new NBG regulation which came into force in December 2017
Key Ratios
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
ROE
21.2%
21.3%
19.8%
1.4%
-0.1%
ROA
3.1%
3.2%
2.9%
0.2%
-0.1%
Cost to Income
37.4%
35.6%
40.5%
-3.1%
1.8%
Cost of Risk
1.9%
1.8%
1.3%
0.6%
0.1%
1.5%
1.7%
1.2%
0.3%
-0.2%
NPL to Gross Loans
3.1%
3.1%
3.5%
-0.4%
0.0%
Regulatory Tier 1 CAR (Basel III)*
12.8%
13.4%
10.8%
2.0%
-0.6%
Regulatory Total CAR (Basel III)*
16.4%
17.0%
14.5%
1.9%
-0.6%
Leverage (Times)
7.0x
7.0x
6.8x
0.2x
0.0x
*The 2018 figures are given as per new NBG regulation, which came into force in December 2017, while the 3Q 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines.
Income Statement Discussion
Net interest Income
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
Loans and Advances to Customers
288,435
270,378
225,467
27.9%
6.7%
Investment Securities Measured at Fair Value through Other Comprehensive Income
15,310
11,968
12,657
21.0%
27.9%
Due from Other Banks
5,537
7,027
4,524
22.4%
-21.2%
Bonds Carried at Amortised Cost
10,994
9,842
9,785
12.4%
11.7%
Investment in Leases
10,415
8,937
5,819
79.0%
16.5%
330,691
308,152
258,252
28.0%
7.3%
Customer Accounts
68,727
64,804
59,329
15.8%
6.1%
Due to Credit Institutions
51,989
44,785
42,407
22.6%
16.1%
Subordinated Debt
10,033
9,959
9,494
5.7%
0.7%
Debt Securities in Issue
330
400
476
-30.7%
-17.5%
131,079
119,948
111,706
17.3%
9.3%
199,612
188,204
146,546
36.2%
6.1%
6.9%
7.1%
6.2%
0.7%
-0.2%
NMF - no meaningful figures
3Q 2018 to 3Q 2017 Comparison
Net interest income increased by GEL 53.1 million, or 36.2%, to GEL 199.6 million, compared to 3Q 2017, driven by a GEL 72.4 million, or 28.0%, higher interest income and a GEL 19.4 million, or 17.3%, higher interest expense.
Interest income grew by GEL 72.4 million, or 28.0%, YoY to GEL 330.7 million, mainly due to an increase in interest income from loans and advances to customers of GEL 63.0 million or 27.9%, which is primarily related to an increase in gross loan portfolio of GEL 1,854.9 million, or 23.9%, YoY. This effect was further magnified by a 0.5pp rise in loan yields, which was mainly driven by an increase in rates on GEL denominated loans by 1.4pp to 17.9% which offset the decrease in yields on FC denominated loans by 0.3pp to 8.5%. The growth in interest income also resulted from a higher interest income from investment in leases (through our subsidiary), due to an increase in the size of the respective portfolio, as well as increase in yields. Yields on interest earning assets expanded by 0.5pp to 11.4%, compared to 3Q 2017.
The GEL 19.4 million, or 17.3%, YoY growth in interest expense to GEL 131.1 million in 3Q 2018 was mainly due to GEL 9.4 million, or 15.8%, increase in interest expense on customer accounts and GEL 9.6 million, or 22.6%, increase in interest expense on amounts due to credit institutions. The increase in interest expense on customer accounts was attributable to a GEL 1,643.9 million, or 23.2%, growth in the respective portfolio. This effect was slightly offset by a 0.1pp drop in the cost of deposits to 3.3%, which resulted from a 0.4pp decrease in the cost of FC denominated deposits to 2.1% and a 0.1pp decrease in the cost of LC denominated deposits to 5.6%. The increase in interest expense on amounts due to credit institutions was attributable to a GEL 305.3 million, or 11.4% increase in the respective portfolio and a 0.5pp increase in effective rates on the amounts due to credit institutions, up to 7.1%, mainly related to higher libor rate. The cost of funding decreased by 0.1p p and stood at 4.4%.
Consequently, NIM stood at 6.9% in 3Q 2018, compared to 6.2% in 3Q 2017, while the risk adjusted NIM stood at 5.4%, compared to 5.0% in 3Q 2017.
3Q 2018 to 2Q 2018 Comparison
On a QoQ basis, net interest income grew by 6.1% as a result of a 7.3% higher interest income and a 9.3% higher interest expense.
The GEL 22.5 million, or 7.3%, QoQ increase in interest income mainly resulted from the growth in interest income on loans by GEL 18.1 million, or 6.7%. This in turn was due to an increase in loan portfolio by GEL 726.6 million, or 8.2%. The increase in interest income was also magnified by a rise in interest income from investment securities by GEL 3.3 million, or 27.9%, due to both growth in the respective portfolio and an increase in the respective yield by 0.1pp to 7.2%. The increase was slightly offset by the drop in interest income from due from credit institutions by GEL 1.5 million, or 21.2%, mainly driven by the decrease in respective yield by 1.1pp to 2.0%. The yield on interest earning assets decreased by 0.3pp to 11.4%, compared to 2Q 2018.
The GEL 11.1 million, or 9.3%, QoQ increase in interest expense was primarily due to the GEL 7.2 million, or 16.1%, increase in interest expense on amounts due to credit institutions. The main driver was a rise in the respective effective rate by 0.2pp to 7.1%, related to rise in libor rate. Another contributor to the rise in interest expense was the GEL 3.9 million, or 6.1% higher interest expense on customer accounts. This, resulted from the GEL 807.9 million, or 10.2%, increase in the respective portfolio, while the cost of deposits remained flat and stood at 3.3%. The cost of funding remained stable at 4.4%.
Consequently, on a QoQ basis, NIM decreased by 0.2pp and stood at 6.9%. Meanwhile risk adjusted NIM decreased by 0.1pp compared to the previous quarter and stood at 5.4%.
Fee and Commission Income
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
Card Operations
28,227
25,274
20,662
36.6%
11.7%
Settlement Transactions
17,709
17,454
15,170
16.7%
1.5%
Guarantees Issued
4,652
4,859
4,295
8.3%
-4.3%
Issuance of Letters of Credit
2,021
1,289
990
NMF
56.8%
Cash Transactions
3,950
4,543
4,576
-13.7%
-13.1%
Foreign Currency Exchange Transactions
482
406
420
14.8%
18.7%
Other
2,512
4,440
2,439
3.0%
-43.4%
59,553
58,265
48,552
22.7%
2.2%
Card Operations
14,730
12,975
11,409
29.1%
13.5%
Settlement Transactions
2,037
2,143
1,897
7.4%
-4.9%
Guarantees Issued
426
313
758
-43.8%
36.1%
Letters of Credit
433
327
239
81.2%
32.4%
Cash Transactions
1,524
1,242
1,177
29.5%
22.7%
Foreign Currency Exchange Transactions
(4)
3
3
NMF
NMF
Other
1,023
2,100
1,279
-20.0%
-51.3%
20,169
19,103
16,762
20.3%
5.6%
Card Operations
13,497
12,299
9,253
45.9%
9.7%
Settlement Transactions
15,672
15,311
13,273
18.1%
2.4%
Guarantees
4,226
4,546
3,537
19.5%
-7.0%
Letters of Credit
1,588
962
751
NMF
65.1%
Cash Transactions
2,426
3,301
3,399
-28.6%
-26.5%
Foreign Currency Exchange Transactions
486
403
417
16.5%
20.6%
Other
1,489
2,340
1,160
28.4%
-36.4%
39,384
39,162
31,790
23.9%
0.6%
3Q 2018 to 3Q 2017 Comparison
In 3Q 2018, net fee and commission income totalled GEL 39.4 million, up by GEL 7.6 million, or 23.9%, compared to 3Q 2017. This mainly resulted from an increase in net fee and commission income from card operations of GEL 4.2 million, or 45.9% and an increase in net fee and commission income from settlement transactions of GEL 2.4 million, or 18.1%.
The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 17.4% and 13.9% respectively. The increase in net fee and commission income from settlement transactions was mainly related to our subsidiary, TBC Pay, driven by increased number of transactions and the growth in net fee and commission income from our affluent retail sub-segment, TBC Status.
3Q 2018 to 2Q 2018 Comparison
On a QoQ basis, net fee and commission income increased by GEL 0.2 million, or 0.6%, compared to 2Q 2018. This was primarily driven by an increase in net fee and commission income from card transactions of GEL 1.2 million, or 9.7%. The rise was partially offset by the decline in other net fee and commission income by GEL 0.9 million, mainly due to the arrangement fee received in 2Q 2018 related to one corporate client in the amount of GEL 1.3 million. The decrease in cash transactions of GEL 0.9 million was due to reclassification of fees received from remittances to settlement transactions in 3Q 2018.
Other Operating Non-Interest Income and Gross Insurance Profit
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
Net Income from Foreign Currency Operations
31,040
23,251
20,330
52.7%
33.5%
Share of Profit of Associates
294
340
84
NMF
-13.5%
Gains Less Losses/(Losses Less Gains) from Derivative Financial Instruments
(56)
396
(1)
NMF
NMF
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
2
-
-
NMF
NMF
Revenues from Cash-In Terminal Services
237
226
241
-1.7%
4.9%
Revenues from Operational Leasing
1,671
1,567
1,623
3.0%
6.6%
Gain from Sale of Investment Properties
492
855
404
21.8%
-42.5%
Gain from Sale of Inventories of Repossessed Collateral
868
100
756
14.8%
NMF
Revenues from Non-Credit Related Fines
62
111
29
NMF
-44.1%
Gain on Disposal of Premises and Equipment
36
154
66
-45.5%
-76.6%
Other
1,324
799
3,453
-61.7%
65.7%
4,690
3,812
6,572
-28.6%
23.0%
3,123
3,253
1,773
76.1%
-4.0%
39,093
31,052
28,758
35.9%
25.9%
NMF - no meaningful figures
3Q 2018 to 3Q 2017 Comparison
Total other operating non-interest income and gross insurance profit grew by GEL 10.3 million, or 35.9%, to GEL 39.1 million in 3Q 2018. This primarily resulted from the growth in net income from foreign currency operations by GEL 10.7 million, or 52.7% and the increase in gross insurance profit of GEL 1.4 million, or 76.1%. Higher net income from foreign currency operations resulted from an increased number and volume of FX transactions, as well as larger margins, driven by higher exchange rate volatility. The increase was partially offset by the drop in other operating income by GEL 1.9 million, or by 28.6%, due to higher one-off incomes in 3Q 2017.
Higher gross insurance profit resulted from a sharp increase in the number of customers by around 60,000, which in turn led to a high increase in gross written premium by 84.4% YoY to GEL 15,833 thousand on a stand-alone basis. More information about TBC insurance can be found in annex 23 on page 47.
3Q 2018 to 2Q 2018 Comparison
On a QoQ basis, total other operating non-interest income and gross insurance profit increased by GEL 8.0 million, or by 25.9%. This mainly resulted from the growth in net income from foreign currency operations by GEL 7.8 million, or by 33.5%, related to a higher turnover of FX operations and higher foreign exchange margins, that were mainly caused by increased quarter-on-quarter volatility of exchange rate. Another contributor was other operating income, which grew by GEL 0.9 million or 23.0%. This was partially offset by the decline in losses less gains from derivative financial instruments by GEL 0.5 million.
Credit Loss Allowance
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
Credit Loss Allowance for Loan to Customers
(43,345)
(37,982)
(25,036)
73.1%
14.1%
Credit Loss Allowance for Investments in Finance Lease
(493)
(252)
(285)
73.0%
95.6%
Credit Loss Allowance for Performance Guarantees and Credit Related Commitments
(24)
1,375
(680)
-96.5%
NMF
Credit Loss Allowance for Other Financial Assets
(3,706)
1,950
(1,096)
NMF
NMF
Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income
(29)
(12)
-
NMF
NMF
Credit Loss Allowance for Financial Assets Measured at Amortised Cost
(53)
(170)
-
NMF
-68.8%
(47,650)
(35,091)
(27,097)
75.8%
35.8%
230,439
223,327
179,997
28.0%
3.2%
1.9%
1.8%
1.3%
0.6%
0.1%
NMF - no meaningful figures
3Q 2018 to 3Q 2017 Comparison
In 3Q 2018, total credit loss allowance grew by GEL 20.6 million to GEL 47.7 million compared to 3Q 2017.
This was primarily attributable to an increase in credit loss allowance for loans to customers of GEL 18.3 million, mainly driven by local currency depreciation and recoveries of credit loss allowance in corporate segment in 3Q 2017. Another contributor to the increase was credit loss allowance on other financial assets by GEL 2.6 million.
In 3Q 2018, the cost of risk stood at 1.9% (1.5% without the FX effect), compared to 1.3% (1.2% without the FX effect) in 3Q 2017.
3Q 2018 to 2Q 2018 Comparison
On a QoQ basis, total credit loss allowance grew by GEL 12.6 million to GEL 47.7 million.
This was mainly driven by an increase in credit loss allowance for loans to customers by GEL 5.3 million and an increase in credit loss allowance for other financial assets by GEL 5.7 million. The increase was fully attributable to local currency depreciation.
In 3Q 2018, the cost of risk stood at 1.9% (1.5% without the FX effect), compared to 1.8% (1.7% without the FX effect) in 2Q 2018.
Operating Expenses
3Q'18
2Q'18
3Q'17
Change YoY
Change QoQ
54,294
50,732
46,620
16.5%
7.0%
4,000
-
-
NMF
NMF
11,944
10,992
9,317
28.2%
8.7%
Professional services
4,107
1,498
3,834
7.1%
NMF
Advertising and marketing services
7,193
7,117
3,492
NMF
1.1%
Rent
6,016
5,843
5,635
6.8%
3.0%
Utility services
1,702
1,453
1,533
11.0%
17.1%
Intangible asset enhancement
2,628
2,572
2,177
20.7%
2.2%
Taxes other than on income
1,799
1,946
1,763
2.0%
-7.6%
Communications and supply
1,558
1,160
1,067
46.0%
34.3%
Stationary and other office expenses
1,021
1,324
1,157
-11.8%
-22.9%
Insurance
1,063
483
(271)
NMF
NMF
Security services
517
506
477
8.4%
2.2%
Premises and equipment maintenance
2,167
1,128
1,142
89.8%
92.1%
Business trip expenses
578
669
468
23.5%
-13.6%
Transportation and vehicles maintenance
703
413
386
82.1%
70.2%
Charity
181
281
346
-47.7%
-35.6%
Personnel training and recruitment
465
233
191
NMF
99.6%
Write-down of current assets to fair value less costs to sell
(436)
(567)
(189)
NMF
-23.1%
Loss on disposal of inventory
36
80
2
NMF
-55.0%
Loss on disposal of investment properties
-
30
-
NMF
-100.0%
Loss on disposal of premises and equipment
99
58
135
-26.7%
70.7%
Impairment of intangible assets
-
-
66
-100.0%
NMF
Acquisition costs
-
-
1,063
-100.0%
NMF
Gross change in IBNR[13]
-
-
(391)
-100.0%
NMF
Other
2,468
4,139
3,890
-36.6%
-40.4%
33,865
30,366
27,973
21.1%
11.5%
104,103
92,090
83,910
24.1%
13.0%
126,336
131,237
96,087
31.5%
-3.7%
Income Tax Expense
(18,952)
(28,799)
(9,327)
NMF
-34.2%
107,384
102,438
86,760
23.8%
4.8%
37.4%
35.6%
40.5%
-3.1%
1.8%
21.2%
21.3%
19.8%
1.4%
-0.1%
3.1%
3.2%
2.9%
0.2%
-0.1%
3Q 2018 to 3Q 2017 Comparison
In 3Q 2018, total operating expenses expanded by GEL 20.2 million, or by 24.1% YoY to GEL 104.1 million, primarily due to an increase in staff costs of GEL 7.7 million, or 16.5% YoY driven by increased scale of business and higher performance bonuses. Another contributor to the increase was administrative expenses, which grew by GEL 5.9 million, or 21.1%, mainly related to uneven spending of advertising and marketing services during the year.
As a result, cost to income ratio decreased to 37.4% in 3Q 2018, compared to 40.5% in 3Q 2017.
3Q 2018 to 2Q 2018 Comparison
On a QoQ basis, total operating expenses grew by GEL 12.0 million, or 13.0%. This was primarily attributable to a GEL 3.6 million, or 7.0% rise in staff cost, related to increased scale of business and higher performance bonuses and a GEL 3.5 million, or 11.5% increase in administrative expenses, mainly related to professional services that are not equally spent during the year. The increase in provision to liabilities and charges by GEL 4.0 million, also contributed to the growth of total operating expense.
As a result, the cost to income ratio expanded by 1.8pp from 35.6%, compared to 2Q 2018.
Net Income
Net income for the third quarter increased by GEL 5.0 million, or 4.8%, QoQ and by GEL 20.6 million, or 23.8%, YoY and amounted to GEL 107.4 million.
As a result, ROE stood at 21.2%, up by 1.4pp YoY and down by 0.1pp QoQ, while ROA stood at 3.1%, up by 0.2pp YoY but down by 0.1 pp QoQ.
Balance Sheet Discussion
Sep-18
Jun-18
Change QoQ
Cash, Due from Banks and Mandatory Cash Balances with NBG
2,693,455
2,681,809
0.4%
Loans and Advances to Customers (Net)
9,279,982
8,574,580
8.2%
Financial Securities
1,386,239
1,295,570
7.0%
Fixed and Intangible Assets & Investment Property
549,938
540,455
1.8%
Other Assets
514,383
491,096
4.7%
14,423,997
13,583,510
6.2%
Due to Credit Institutions
2,981,269
3,097,602
-3.8%
Customer Accounts
8,740,449
7,932,585
10.2%
Debt Securities in Issue
13,027
19,641
-33.7%
Subordinated Debt
412,803
397,576
3.8%
Other Liabilities
220,499
192,422
14.6%
12,368,047
11,639,826
6.3%
2,055,950
1,943,684
5.8%
Assets
On a QoQ basis, total assets increased by GEL 840.5 million, or 6.2%, mainly due to a GEL 705.4 million, or 8.2%, increase in net loans to customers. The QoQ increase in total assets also resulted from a GEL 11.7 million or 0.4% rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 90.7 million or 7.0% increase in financial securities.
As of 30 September 2018, the gross loan portfolio reached GEL 9,622.6 million, up by 8.2% QoQ. At the same time, gross loans denominated in foreign currency accounted for 59.2% of total loans, compared to 58.5% as of 30 June 2018.
Asset Quality
Borrowers with FX income
30-Sep-18
30-June-18
Segments
% of FX loans
of which borrowers with FX income**
% of FX loans
of which borrowers with FX income**
Retail
53.7%
28.1%
50.6%
26.9%
Consumer
18.9%
26.1%
18.2%
25.6%
Mortgage
81.9%
28.5%
80.4%
27.2%
Corporate
73.3%
52.5%*
76.7%
53.5%
MSME
52.1%
14.9%
51.8%
14.3%
Total Loan Portfolio
59.2%
34.4%
58.5%
34.4%
(Based on internal estimates)
* Pure exports account for 7.3% of total Corporate FX denominated loans
** FX income implies both direct and indirect income
PAR 30 by Segments and Currencies
Sep-18
Jun-18
GEL
FC
Total
GEL
FC
Total
Corporate
0.0%
1.1%
0.8%
0.0%
0.4%
0.3%
Retail
4.5%
1.7%
3.0%
3.7%
1.8%
2.7%
MSME
1.8%
3.6%
2.7%
1.6%
3.7%
2.7%
2.9%
1.9%
2.3%
2.5%
1.7%
2.0%
Total
Total PAR 30 increased by 0.3pp QoQ and stood at 2.3%. The increase was attributable to retail and corporate loan book.
Retail Segment
The retail segment's PAR 30 amounted to 3.0%, up by 0.3pp QoQ. The increase was mainly attributable to credit cards, fast consumer and other higher yield products.
Corporate
The corporate segment's PAR 30 amounted to 0.8%, up by 0.5pp QoQ. Increase in corporate segment was mainly attributable to unusually low overdue amounts in 2Q 2018.
MSME
The MSME segment's PAR 30 remained stable QoQ and stood at 2.7% as of 30 September 2018.
NPLs
Sep-18
Jun-18
GEL
FC
Total
GEL
FC
Total
1.2%
3.2%
2.6%
1.5%
3.2%
2.8%
3.7%
2.4%
3.0%
2.8%
2.9%
2.9%
2.3%
5.7%
4.1%
2.2%
5.7%
4.0%
2.8%
3.4%
3.1%
2.4%
3.6%
3.1%
Total
Total NPLs was stable on QoQ basis and stood at 3.1%.
Retail Segment
The retail segment's NPLs remained broadly stable QoQ and stood at 3.0%.
Corporate
The corporate segment's NPLs stood at 2.6%, down by 0.2pp on a QoQ due to significant increase in corporate loan book.
MSME
The MSME segment's NPLs remained broadly stable on QoQ basis and stood at 4.1%.
NPLs Coverage
Sep-18
Jun-18
Exc. Collateral
Incl. Collateral
Exc. Collateral
Incl. Collateral
104.3%
242.5%
99.2%
232.1%
140.8%
206.4%
153.9%
226.8%
80.8%
184.8%
76.9%
187.6%
113.2%
209.0%
116.1%
216.1%
Liabilities
As of 30 September 2018, TBC Bank's total liabilities amounted to GEL 12,368.0 million, up by GEL 728.2 million, or 6.3%, QoQ. The rise was primarily due to a GEL 807.9 million, or 10.2%, increase in customer accounts and was partially offset by the decline in amounts due to credit institutions by GEL 116.3 million, or 3.8%.
Liquidity
As of 30 September 2018 the Bank's liquidity ratio, as defined by the NBG, stood at 31.9%, compared to 33.3% as of 30 June 2018. As of 30 September 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 111.6%, above the 100.0% limit, while the LCR in GEL and FC stood at 86.5% and 128.1% respectively, above the respective limits of 75% and 100%.
Total Equity
As of 30 September 2018, TBC's total equity totalled GEL 2,056.0 million, up by GEL 112.3 million from GEL 1,943.7 million as of 30 June 2018. The QoQ change in equity was mainly due to increase in net income GEL 102.4 million.
Regulatory Capital
According to the new methodology introduced at the end of 2017, as of 30 September 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.8% and 16.4%, respectively, compared to the minimum required levels of 10.3% and 15.8%. In comparison, as of 30 June 2018, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 13.4% and 17.0%, respectively, compared to the minimum required levels of 10.2% and 15.6%.
In 30 September 2018, the Bank's Basel III Tier 1 Capital amounted to GEL 1,580.5 million, up by GEL 81.6 million, or 5.5%, compared to June 2018, due to increase in net income. The Bank's Basel III Total Capital amounted to GEL 2,020.5 million, up by GEL 112.1 million, or 5.9%, QoQ. Risk weighted assets stood at GEL 12,305.8 million as of 30 September 2018, compared to GEL 11,200.4 million as of 30 June 2018, mainly related to the increased loan book.
Results by Segments and Subsidiaries
The segment definitions are as follows (updated in 2018):
· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been granted facilities of more than GEL 5 million. Some other business customers may also be assigned to the corporate segment or transferred to MSME on a discretionary basis;
· MSME (Micro, Small and Medium) - business customers who are not included in either the corporate or the retail segments; or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank - Space;
· Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;
· Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;
Business customers are all legal entities or individuals who have been granted a loan for business purpose.
Income Statement by Segments
Retail
MSME
Corporate
Corp.Centre
Total
Interest Income
153,360
69,807
66,930
40,594
330,691
Interest Expense
(31,545)
(2,409)
(34,773)
(62,352)
(131,079)
(19,335)
(22,160)
10,577
30,918
-
102,480
45,238
42,734
9,160
199,612
Fee and Commission Income
43,967
5,537
9,765
284
59,553
Fee and Commission Expense
(16,655)
(1,757)
(1,671)
(86)
(20,169)
27,312
3,780
8,094
198
39,384
Gross Insurance Profit
-
-
-
3,123
3,123
Net income from foreign currency operations
8,539
5,445
11,767
(1,113)
24,638
Foreign Exchange Translation Gains Less Losses/(Losses Less Gains)
-
-
-
6,402
6,402
Net Losses from Derivative Financial Instruments
(44)
-
-
(12)
(56)
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
-
-
-
2
2
Other Operating Income
1,688
140
2,367
495
4,690
Share of profit of associates
-
-
-
294
294
10,183
5,585
14,134
9,191
39,093
Credit Loss Allowance for Loan to Customers
(29,063)
(6,543)
(7,739)
-
(43,345)
Credit Loss Allowance for Performance Guarantees and Credit Related Commitments
(41)
(663)
763
(83)
(24)
Credit Loss Allowance for Investments in Finance Lease
-
-
-
(493)
(493)
Credit Loss Allowance for Other Financial Assets
(90)
-
(2,580)
(1,036)
(3,706)
Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income
-
-
(85)
56
(29)
Credit Loss Allowance for Financial Assets Measured at Amortised Cost
-
-
-
(53)
(53)
110,781
47,397
55,321
16,940
230,439
Staff Costs
(29,098)
(10,293)
(8,298)
(6,605)
(54,294)
Depreciation and Amortization
(9,557)
(1,301)
(584)
(502)
(11,944)
Provision for liabilities and charges
-
-
-
(4,000)
(4,000)
Administrative and Other Operating Expenses
(20,726)
(4,989)
(2,451)
(5,699)
(33,865)
(59,381)
(16,583)
(11,333)
(16,806)
(104,103)
51,400
30,814
43,988
134
126,336
Income Tax Expense
(6,794)
(4,408)
(6,570)
(1,180)
(18,952)
44,606
26,406
37,418
(1,046)
107,384
Portfolios by Segments
Sep-18
Jun-18
Consumer
1,958,883
1,975,426
Mortgage
2,452,157
2,185,630
Pawn
35,357
35,393
Retail
4,446,397
4,196,449
Corporate
2,891,628
2,581,612
MSME
2,284,538
2,117,886
9,622,563
8,895,947
Less: Credit loss allowance for Loans to Customers
(342,581)
(321,367)
9,279,982
8,574,580
Retail
4,850,586
4,467,638
Corporate
2,920,526
2,559,449
MSME
969,337
905,498
8,740,449
7,932,585
Retail Banking
As of 30 September 2018, retail loans stood at GEL 4,446.4 million, up by GEL 249.9 million, or 6.0%, QoQ and they accounted for 39.9% market share of total individual loans. As of the same date foreign currency loans represented 53.7% of the total retail loan portfolio.
In the reporting period, retail deposits stood at GEL 4,850.6 million, up by GEL 382.9 million, or 8.6%, QoQ and accounted for 41.1% market share of total individual deposits. As of 30 September 2018 term deposits accounted for 53.4% of the total retail deposit portfolio, while foreign currency deposits represented 83.0% of the total.
In 3Q 2018, retail loan yields and deposit rates stood at 14.1% and 2.7%, respectively. The segment's cost of risk on loans was 2.7% .The retail segment contributed 41.5%, or GEL 44.6 million, to the total net income in 3Q 2018.
Corporate Banking
As of 30 September 2018, corporate loans amounted to GEL 2,891.6 million, up by GEL 310.0 million, or 12.0%, QoQ. Foreign currency loans accounted for 73.3% of the total corporate loan portfolio. The market share of total legal entities loans stood at 36.6%.
As of the same date, corporate deposits totalled GEL 2,920.5 million, up by GEL 361.1 million, or 14.1%, QoQ. Foreign currency corporate deposits represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 39.4%.
In 3Q 2018, corporate loan yields and deposit rates stood at 9.6% and 4.9%, respectively. In the same period, the cost of risk on loans was 1.1%. In terms of profitability, the corporate segment's net profit reached GEL 37.4 million, or 34.8%, of the total net income.
MSME Banking
As of 30 September 2018, MSME loans amounted to GEL 2,284.5, up by GEL 166.7 million, or 7.9%, QoQ. Foreign currency loans accounted for 52.1% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 969.3 million, up by GEL 63.8 million, or 7.0%, QoQ. Foreign currency MSME deposits represented 47.5% of the total MSME deposit portfolio.
In 3Q 2018, MSME loan yields and deposit rates stood at 12.6% and 1.0% respectively, while the cost of risk on loans was 1.2%. In terms of profitability, net profit for the MSME segment amounted to GEL 26.4 million, or 24.6%, of the total net income.
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
Sep-18
Jun-18
Cash and cash equivalents
1,114,672
1,605,163
Due from other banks
152,010
42,469
Mandatory cash balances with National Bank of Georgia
1,426,773
1,034,177
Loans and advances to customers
9,279,982
8,574,580
Investment securities measured at fair value through other comprehensive income
868,060
817,876
Bonds carried at amortised cost
518,179
477,694
Investments in associates
2,220
1,925
Investments in finance leases
183,715
172,027
Investment properties
78,274
78,094
Current income tax prepayment
7,650
7,369
Deferred income tax asset
2,499
2,331
Other financial assets
103,520
107,741
Other assets
186,061
171,046
Premises and equipment
375,002
374,414
Intangible assets
96,662
87,947
Goodwill
28,718
28,657
14,423,997
13,583,510
Due to Credit Institutions
2,981,269
3,097,602
Customer accounts
8,740,449
7,932,585
Other financial liabilities
90,966
88,320
Current income tax liability
30
26
Debt Securities in issue
13,027
19,641
Deferred income tax liability
27,202
22,980
Provisions for liabilities and charges
16,329
11,732
Other liabilities
85,972
69,364
Subordinated debt
412,803
397,576
12,368,047
11,639,826
Share capital
1,650
1,650
Share premium
796,854
796,808
Retained earnings
1,372,798
1,261,578
Group reorganisation reserve
(162,166)
(162,166)
Share based payment reserve
(18,689)
(21,085)
Revaluation reserve for premises
64,962
64,962
Revaluation reserve for available-for-sale securities
4,875
2,541
Cumulative currency translation reserve
(7,277)
(7,345)
2,053,007
1,936,943
2,943
6,741
2,055,950
1,943,684
14,423,997
13,583,510
Consolidated Statement of Profit or Loss and Other Comprehensive Income
3Q'18
2Q'18
3Q'17
Interest income
330,691
308,152
258,252
Interest expense
(131,079)
(119,948)
(111,706)
199,612
188,204
146,546
Fee and commission income
59,553
58,265
48,552
Fee and commission expense
(20,169)
(19,103)
(16,762)
39,384
39,162
31,790
Net insurance premiums earned
5,976
6,168
2,590
Net claims incurred and agents' commissions
(2,853)
(2,915)
(817)
3,123
3,253
1,773
Net income from foreign currency operations
24,638
21,701
18,085
Net gain/(losses) from foreign exchange translation
6,402
1,550
2,245
Net gains/(losses) from derivative financial instruments
(56)
396
(1)
Gains less Losses from disposal of Investment Securities measured at fair value through other comprehensive income
2
-
-
Other operating income
4,690
3,812
6,572
Share of profit of associates
294
340
84
35,970
27,799
26,985
Credit loss allowance for loan to customers
(43,345)
(37,982)
(25,036)
Credit loss allowance for investments in finance lease
(493)
(252)
(285)
Credit loss allowance for performance guarantees and credit related commitments
(24)
1,375
(680)
Credit loss allowance for other financial assets
(3,706)
1,950
(1,096)
Credit loss allowance for financial assets measured at fair value through other comprehensive income
(29)
(12)
-
Credit loss allowance for financial assets measured at amortised cost
(53)
(170)
-
230,439
223,327
179,997
Staff costs
(54,294)
(50,732)
(46,620)
Depreciation and amortization
(11,944)
(10,992)
(9,317)
(Provision for)/ recovery of liabilities and charges
(4,000)
-
-
Administrative and other operating expenses
(33,865)
(30,366)
(27,973)
(104,103)
(92,090)
(83,910)
126,336
131,237
96,087
Income tax expense
(18,952)
(28,799)
(9,327)
107,384
102,438
86,760
Revaluation of available for-sale-investments
2,365
(1,547)
1,929
Exchange differences on translation to presentation currency
71
81
399
Income tax recorded directly in other comprehensive income
-
(5,151)
-
2,436
(6,617)
2,328
109,820
95,821
89,088
- Shareholders of TBCG
106,779
102,589
85,523
- Non-controlling interest
605
(151)
1,237
107,384
102,438
86,760
- Shareholders of TBCG
109,183
96,060
87,883
637
(239)
1,205
109,820
95,821
89,088
Key Ratios
Average Balances
The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts prepared from TBC's accounting records. These were used by the Management for monitoring and control purposes.
Key Ratios
3Q'18
2Q'18
3Q'17
ROE1
21.2%
21.3%
19.8%
ROA2
3.1%
3.2%
2.9%
ROE before credit loss allowance3
30.7%
28.6%
26.1%
Cost to Income4
37.4%
35.6%
40.5%
Cost of Risk5
1.9%
1.8%
1.3%
FX adjusted Cost of Risk6
1.5%
1.7%
1.2%
NIM7
6.9%
7.1%
6.2%
Risk Adjusted NIM8
5.4%
5.5%
5.0%
Loan Yields9
12.4%
12.5%
11.9%
Risk Adjusted Loan Yields10
10.9%
10.8%
10.7%
Deposit rates11
3.3%
3.3%
3.4%
Yields on interest Earning Assets12
11.4%
11.7%
10.9%
Cost of Funding13
4.4%
4.4%
4.5%
Spread14
7.0%
7.3%
6.4%
PAR 90 to Gross Loans15
1.3%
1.1%
1.6%
NPLs to Gross Loans16
3.1%
3.1%
3.5%
NPLs coverage17
113.2%
116.1%
80.5%*
NPLs coverage with collateral18
209.0%
216.1%
206.8%*
Credit Loss Level to Gross Loans19
3.6%
3.6%
2.8%*
Related Party Loans to Gross Loans20
0.1%
0.1%
0.1%
Top 10 Borrowers to Total Portfolio21
10.3%
9.2%
8.3%
Top 20 Borrowers to Total Portfolio22
14.1%
13.2%
12.5%
Net Loans to Deposits plus IFI Funding23
88.0%
89.5%
91.5%
Net Stable Funding Ratio24
118.0%
127.8%
134.5%
Liquidity Coverage Ratio25
111.6%
119.2%
115.0%
Leverage26
7.0x
7.0x
6.8x
Regulatory Tier 1 CAR (Basel III)27
12.8%
13.4%
10.8%**
Regulatory Total 1 CAR (Basel III)28
16.4%
17.0%
14.5%**
* Figures per IAS39
** 3Q 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines
Ratio definitions
1. Return on average total equity (ROE) equals net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; Annualised where applicable.
2. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period. Annualised where applicable.
3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.
4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).
5. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.
6. FX adjusted cost of risk equal cost of risk at constant currency.
7. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; Annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG which currently has negative interest, and includes other earning items from due from banks.
8. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.
9. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.
10. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.
11. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; Annualised where applicable.
12. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; Annualised where applicable.
13. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; Annualised where applicable.
14. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).
15. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.
16. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.
17. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.
18. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.
19. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.
20. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
21. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.
22. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.
23. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.
24. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III.
25. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined by the NBG.
26. Leverage equals total assets to total equity.
27. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
28. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
Exchange Rates
To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4516 as of 30 June 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4767 as of 30 September 2017. As of 30 September 2018 the USD/GEL exchange rate equalled 2.6151. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 3Q 2018 of 2.5295, 2Q 2018 of 2.4460, 3Q 2017 of 2.4232.
Unaudited Consolidated Financial Results Overview for 9M 2018
This statement provides a summary of the unaudited business and financial trends for 9M 2018 for TBC Bank Group plc and its subsidiaries. Quarterly financial information and trends are unaudited.
Starting from 1 January 2018, TBC Bank adopted IFRS 9 and IFRS 15. Therefore, the comparative information for 2017 is not comparable to the information presented for 2018.
Please note, that there might be slight differences in previous periods' figures due to rounding.
Income Statement Highlights
9M'18
9M'17
Change YoY
Net Interest Income
563,219
438,620
28.4%
Net Fee and Commission Income
113,466
87,007
30.4%
Other Operating Non-Interest Income
98,521
92,041
7.0%
Credit Loss Allowance
(122,203)
(70,472)
73.4%
653,003
547,196
19.3%
Operating Expenses
(287,125)
(259,760)
10.5%
365,878
287,436
27.3%
Income Tax Expense
(58,530)
(24,263)
141.2%
307,348
263,173
16.8%
Balance Sheet and Capital Highlights
Sep-18
Sep-17
Change YoY
GEL
USD
GEL
USD
Total Assets
14,423,997
5,515,658
12,136,922
4,900,441
18.8%
Gross Loans
9,622,563
3,679,616
7,767,634
3,136,284
23.9%
Customer Deposits
8,740,449
3,342,300
7,096,523
2,865,314
23.2%
Total Equity
2,055,950
786,184
1,790,307
722,860
14.8%
Regulatory Tier I Capital (Basel III)*
1,580,547
604,393
1,354,679
546,969
16.7%
Regulatory Total Capital (Basel III)*
2,020,501
772,629
1,821,822
735,584
10.9%
Regulatory Risk Weighted Assets (Basel III)*
12,305,756
4,705,654
12,560,644
5,071,524
-2.0%
*September 2018 figures are given per new NBG regulation, which came into force in December 2017, while September 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines
Key Ratios
9M'18
9M'17
Change YoY
ROE
21.2%
20.9%
0.3%
ROA
3.1%
3.2%
-0.1%
Cost to Income
37.0%
42.1%
-5.1%
Cost of Risk
1.7%
1.2%
0.5%
1.7%
1.4%
0.3%
NPL to Gross Loans
3.1%
3.5%
-0.4%
Regulatory Tier 1 CAR (Basel III)*
12.8%
10.8%
2.0%
Regulatory Total CAR (Basel III)*
16.4%
14.5%
1.9%
Leverage (Times)
7.0x
6.8x
0.2x
*September 2018 figures are given per new NBG regulation, which came into force in December 2017, while September 2017 figures are given based on previous regulation in accordance with Basel II/III guidelines
Income Statement Discussion
Net Interest Income
9M'18
9M'17
Change YoY
Loans and Advances to Customers
814,866
664,220
22.7%
Investment Securities Measured at Fair Value through Other Comprehensive Income
40,445
31,744
27.4%
Due from Other Banks
17,482
9,433
85.3%
Bonds Carried at Amortised Cost
28,873
25,035
15.3%
Investment in Leases
27,026
15,486
74.5%
928,692
745,918
24.5%
Customer Accounts
196,453
167,740
17.1%
Due to Credit Institutions
138,251
111,360
24.1%
Subordinated Debt
29,632
26,681
11.1%
Debt Securities in Issue
1,137
1,517
-25.0%
365,473
307,298
18.9%
563,219
438,620
28.4%
7.0%
6.5%
0.5%
9M 2018 to 9M 2017 Comparison
In 9M 2018, net interest income grew by GEL 124.6 million, or 28.4%, YoY to GEL 563.2 million, resulting from a GEL 182.8 million, or 24.5%, higher interest income and a GEL 58.2 million or 18.9% higher interest expense.
Interest income grew by GEL 182.8 million, or 24.5%, YoY to GEL 928.7 million. This was mainly driven by an increase in interest income from loans and advances to customers of GEL 150.7 million, or 22.7%, which is primarily related to a rise in the gross loan portfolio by GEL 1,854.9 million, or 23.9%, YoY. This effect was further magnified by a 0.4pp increase in loan yields to 12.4%, which was driven by a rise in rates on GEL denominated loans of 1.2pp that was partially offset by the decrease in yields on FC denominated loans by 0.6pp. Another contributor to the increase in interest income was investment in leases, which was up by GEL 11.5 million, or 74.5%. This resulted from a significant increase in the size of such receivables by GEL 72.5 million, or 65.2%, and magnified by an increase in the respective yield of 1.1pp, up to 22.3%. Yields on interest earning assets expanded by 0.4pp to 11.5%, compared to 9M 2017.
The YoY growth in interest expense by GEL 58.2 million or 18.9% to a GEL 365.5 million in 9M 2018 was mainly due to 17.1% increase in interest expense on customer accounts by GEL 28.7 million and a rise in interest expense on amounts due to credit institutions by GEL 26.9 million or 24.1%. The higherinterest expense on customer accounts was attributable to a GEL 1,643.9 million, or 23.2%, growth in the respective portfolio, partially offset by a 0.1pp decline in the cost of deposit down to 3.3%, which resulted from by a 0.4pp decrease in cost of deposits of FC denominated deposits. Another contributor to the increase in interest expense was the portfolio of amounts due to credit institutions, up by GEL 305.4 million, or 11.4%, and a 0.6pp higher effective rate on the respective portfolio, which stood at 7.0%, mainly related to the rise in libor rate. As a result, the cost of funding remained stable on a YoY basis at 4.4%.
Consequently, NIM was 7.0% in 9M 2018, compared to 6.5% in 9M 2017.
Fee and Commission Income
9M'18
9M'17
Change in %
Card Operations
75,237
60,907
23.5%
Settlement Transactions
51,402
43,328
18.6%
Guarantees Issued
13,731
10,367
32.4%
Issuance of Letters of Credit
4,382
4,449
-1.5%
Cash Transactions
12,938
12,046
7.4%
Foreign Currency Exchange Transactions
1,378
1,003
37.4%
Other
9,584
6,171
55.3%
168,652
138,271
22.0%
Card Operations
38,173
35,414
7.8%
Settlement Transactions
6,322
5,282
19.7%
Guarantees Issued
1,045
1,319
-20.8%
Letters of Credit
1,020
705
44.7%
Cash Transactions
3,883
3,282
18.3%
Foreign Currency Exchange Transactions
1
92
-98.9%
Other
4,742
5,170
-8.3%
55,186
51,264
7.7%
Card Operations
37,064
25,493
45.4%
Settlement Transactions
45,080
38,046
18.5%
Guarantees
12,686
9,048
40.2%
Letters of Credit
3,362
3,744
-10.2%
Cash Transactions
9,055
8,764
3.3%
Foreign Currency Exchange Transactions
1,377
911
51.2%
Other
4,842
1,001
NMF
113,466
87,007
30.4%
NMF - no meaningful figures
9M 2018 to 9M 2017 Comparison
In 9M 2018, net fee and commission income totalled GEL 113.5 million, up by GEL 26.5 million, or 30.4%, compared to 9M 2017. This mainly resulted from an increase in net fee and commission income from card operations of GEL 11.6 million, or 45.4% and an increase in net fee and commission income from settlement transactions of GEL 7.0 million, or 18.5%.
The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 17.4% and 13.9% respectively. The increase in net fee and commission income from settlement transactions was mainly related to our subsidiary, TBC Pay, driven by a higher number of transactions and the growth in net fee and commission income from our affluent retail sub-segment, TBC Status.
Other Operating Non-Interest Income and Gross Insurance Profit
9M'18
9M'17
Change in %
Net Income from Foreign Currency Operations
73,845
65,759
12.3%
Share of Profit of Associates
942
661
42.5%
Gains Less Losses/(Losses Less Gains) from Derivative Financial Instruments
357
(39)
NMF
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
2
-
NMF
Revenues from Cash-In Terminal Services
1,490
838
77.8%
Revenues from Operational Leasing
4,813
5,134
-6.3%
Gain from Sale of Investment Properties
2,389
1,578
51.4%
Gain from Sale of Inventories of Repossessed Collateral
1,073
1,701
-36.9%
Revenues from Non-Credit Related Fines
316
125
NMF
Gain on Disposal of Premises and Equipment
235
257
-8.6%
Other
4,637
11,173
-58.5%
14,953
20,806
-28.1%
8,422
4,854
73.5%
98,521
92,041
7.0%
NMF - no meaningful figures
9M 2018 to 9M 2017 Comparison
Total other operating non-interest income and gross insurance profit increased by GEL 6.5 million, or 7.0%, to GEL 98.5 million in 9M 2018. This mainly resulted from the rise in net income from foreign currency operations by GEL 8.1 million, or 12.3%, mainly due to increased clients' FX transactions, broadly consistent with the business scale growth. Another contributor was gross insurance profit up by GEL 3.6 million, or 73.5%. The increase was partially offset by the drop in other operating income by GEL 5.9 million or 28.1%, related to the higher one-off incomes in 9M 2017.
The increase in gross insurance profit was related to the hike in the number of customers by around 60,000, which in turn led to a high increase in gross written premium by 124.4% YoY on a stand-alone basis. More information about TBC insurance can be found in annex 23 on page 47.
Credit Loss Allowance
9M'18
9M'17
Change in %
Credit Loss Allowance for Loan to Customers
(109,325)
(65,403)
67.2%
Credit Loss Allowance for Investments in Finance Lease
(986)
(414)
NMF
Credit Loss Allowance for Performance Guarantees and Credit Related Commitments
(2,524)
866
NMF
Credit Loss Allowance for Other Financial Assets
(9,175)
(5,521)
66.2%
Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income
(64)
-
NMF
Credit Loss Allowance for Financial Assets Measured at Amortised Cost
(129)
-
NMF
(122,203)
(70,472)
73.4%
653,003
547,196
19.3%
1.7%
1.2%
0.5%
NMF - no meaningful figures
9M 2018 to 9M 2017 Comparison
In 9M 2018, total credit loss allowance increased by GEL 51.7 million to GEL 122.2 million, compared to 9M 2017. The main contributor to the growth was credit loss allowance for loans to customers up by GEL 43.9 million. The increase was attributable to the corporate segment following a high recovery of credit loss in 9M 2017.
Operating Expenses
9M'18
9M'17
Change in %
157,141
148,995
5.5%
4,000
(2,495)
NMF
33,407
26,840
24.5%
Professional services
8,566
9,659
-11.3%
Advertising and marketing services
18,837
10,289
83.1%
Rent
17,723
17,224
2.9%
Utility services
4,889
4,552
7.4%
Intangible asset enhancement
7,694
6,958
10.6%
Taxes other than on income
5,401
4,576
18.0%
Communications and supply
3,751
2,868
30.8%
Stationary and other office expenses
3,528
3,397
3.9%
Insurance
2,031
1,705
19.1%
Security services
1,518
1,476
2.8%
Premises and equipment maintenance
4,331
3,839
12.8%
Business trip expenses
1,567
1,376
13.9%
Transportation and vehicles maintenance
1,494
1,184
26.2%
Charity
742
763
-2.8%
Personnel training and recruitment
874
918
-4.8%
Write-down of current assets to fair value less costs to sell
(1,006)
(373)
NMF
Loss on disposal of inventory
136
1,188
-88.6%
Loss on disposal of investment properties
60
385
-84.4%
Loss on disposal of premises and equipment
435
306
42.2%
Impairment of intangible assets
-
1,916
-100.0%
Acquisition costs
-
1,887
-100.0%
Other
10,006
10,327
-3.1%
92,577
86,420
7.1%
287,125
259,760
10.5%
365,878
287,436
27.3%
Income Tax Expense
(58,530)
(24,263)
141.2%
307,348
263,173
16.8%
37.0%
42.1%
-5.1%
21.2%
20.9%
0.3%
3.1%
3.2%
-0.1%
NMF - no meaningful figures
9M 2018 to 9M 2017 Comparison
In 9M 2018, total operating expenses expanded by GEL 27.4 million, or 10.5%, YoY. This mainly resulted from an increase in staff costs of GEL 8.1 million, or 5.5%, an increase in depreciation and amortisation of GEL 6.6 million, or 24.5% and an increase in administrative expenses by GEL 6.2 million, or 7.1%, mainly related to the growth of advertising and marketing services. The growth across the board was related to the overall growth of the business scale and higher performance.
As a result, cost to income ratio was 37.0% in 9M 2018, 5.1pp lower than the 42.1% in 9M 2017.
Income Tax
In 9M 2018, TBC Bank reversed the one-off deferred tax gain, which was recognised in 2016 due to the recent amendment to the Georgian Tax Code in relation to corporate income tax. The amendment, which came into force on 12 June 2018, postponed the tax relief for re-invested profit from 1 January 2019 to 1 January 2023 for financial institutions. This reversal has resulted in a GEL 17.4 million expense on the profit and loss statement and a GEL 5.1 million reduction in equity in 9M 2018.
Net Income
Net income for 9M increased by GEL 44.1 million, or 16.8%, YoY and stood at GEL 307.3 million.
As a result, ROE stood at 21.2%, up by 0.3pp YoY, and ROA stood at 3.1%, down by 0.1pp YoY.
Balance Sheet Discussion
Sep-18
Sep-17
Change YoY
Cash, Due from Banks and Mandatory Cash Balances with NBG
2,693,455
2,507,912
7.4%
Loans and Advances to Customers (Net)
9,279,982
7,549,061
22.9%
Financial Securities
1,386,239
1,113,373
24.5%
Fixed and Intangible Assets & Investment Property
549,938
480,045
14.6%
Other Assets
514,383
486,531
5.7%
14,423,997
12,136,922
18.8%
Due to Credit Institutions
2,981,269
2,675,930
11.4%
Customer Accounts
8,740,449
7,096,523
23.2%
Debt Securities in Issue
13,027
19,818
-34.3%
Subordinated Debt
412,803
411,193
0.4%
Other Liabilities
220,499
143,151
54.0%
12,368,047
10,346,615
19.5%
2,055,950
1,790,307
14.8%
Assets
As of 30 September 2018, the Group's total assets amounted to GEL 14,424.0 million, up by GEL 2,287.1 million, or 18.8%, YoY. The increase was mainly due to a rise in net loans to customers of GEL 1,730.9 million, or by 22.9%, YoY. It also resulted from a GEL 185.5 million, or 7.4%, rise in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 272.9 million, or 24.5%, increase in financial securities, compared to 30 September 2017.
As of 30 September 2018, the gross loan portfolio reached GEL 9,622.6 million, up by 23.9% YoY while proportion of gross loans denominated in foreign currency remained unchanged on a YoY basis and accounted for 59.2% of total loans.
Asset Quality
PAR 30 by Segments and Currencies
Sep-18
Sep-17
GEL
FC
Total
GEL
FC
Total
Corporate
0.0%
1.1%
0.8%
0.3%
2.8%
2.1%
Retail
4.5%
1.7%
3.0%
3.2%
2.2%
2.7%
MSME
1.8%
3.6%
2.7%
1.7%
4.1%
3.2%
2.9%
1.9%
2.3%
2.3%
2.9%
2.7%
Total
The total PAR 30 has declined by 0.4pp YoY. The YoY decrease is related to the improvements across the corporate and MSME segments by 1.3pp and 0.5pp respectively.
Retail Segment
The retail segment's PAR 30 increased by 0.3pp and amounted to 3.0% on a YoY basis, mainly driven by credit cards and other higher yield products, aligned with the respective yield increases.
Corporate
The corporate segment's PAR 30 decreased by 1.3pp YoY. The decrease was driven by improved performance of the corporate loan book.
MSME
The MSME segment's PAR 30 decreased by 0.5pp YoY. YoY decrease was driven by the improved performance of both micro and SME portfolios.
NPLs
Sep-18
Sep-17
GEL
FC
Total
GEL
FC
Total
Corporate
1.2%
3.2%
2.6%
0.3%
4.7%
3.4%
Retail
3.7%
2.4%
3.0%
2.8%
3.1%
2.9%
MSME
2.3%
5.7%
4.1%
2.7%
6.0%
4.8%
2.8%
3.4%
3.1%
2.3%
4.3%
3.5%
Total
Total NPLs stood at 3.1%, down by 0.4pp on YoY basis, mainly driven by the improved performance of the corporate and MSME loan books.
Retail Segment
The retail segment's NPLs remained broadly stable and stood at 3.0%.
Corporate
The corporate NPLs stood at 2.6%, down by 0.8pp on YoY basis, due to overall improved performance of the corporate loan book.
MSME
The MSME NPLs declined by 0.7pp on a YoY basis, and stood at 4.1%, driven by improved performance in NPLs in both the micro and SME portfolios.
NPLs Coverage
Sep-18
Sep-17
Exc. Collateral
Incl. Collateral
Exc. Collateral
Incl. Collateral
Corporate
104.3%
242.5%
52.5%
256.8%
Retail
140.8%
206.4%
120.6%
201.6%
MSME
80.8%
184.8%
49.7%
172.5%
113.2%
209.0%
80.5%
206.8%
NPLs Coverage
YoY total credit loss allowance coverage grew from 80.5% to 113.2%. The key driver of the increase was the transition to the IFRS 9 methodology.
Liabilities
As of 30 September 2018, TBC Bank's total liabilities amounted to GEL 12,368.0 million, up by GEL 2,021.4 million, or 19.5% YoY. This was primarily due to a GEL 305.4 million, or 11.4%, increase in amounts due to credit institutions and a hike in customer accounts of GEL 1,643.9 million, or 23.2%. Total liabilities also expanded, due to an increase in deferred income tax liability of GEL 26.4 million, which was mainly related to the reversal of the deferred tax gain, as mentioned above.
Liquidity
As of 30 September 2018, the Bank's liquidity ratio, as defined by the NBG, stood at 31.9%, compared to 35.3% as of 30 September 2017. As of 30 September 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 111.6%, above the 100.0% limit, while the LCR in GEL and FC stood at 86.5% and 128.1% respectively, above the respective limits of 75% and 100%.
Total Equity
As of 30 September 2018, TBC's total equity amounted to GEL 2,056.0 million, up by GEL 265.6 million or by 14.8% from GEL 1,790.3 million as of 30 September 2017. This YoY change in equity was mainly due to net profit contribution of GEL 404.1 million during the last 12 months, which was mostly offset by dividend distribution of GEL 88.9 million in May 2018 and by IFRS 9 transition effect in the amount of GEL 63.7 million as of 1 January 2018.
Regulatory Capital
According to the newly introduced methodology, as of 30 September 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.8% and 16.4%, respectively, compared to the minimum required levels of 10.3% and 15.8%.
In 30 September 2018, The Bank's Basel III Tier 1 Capital amounted to GEL 1,580.5 million. The Bank's Basel III Total Capital totalled GEL 2,020.5 million. Risk weighted assets amounted to GEL 12,305.8 million as of 30 September 2018.
Results by Segments and Subsidiaries
The segment definitions are as follows (updated in 2018):
· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been granted facilities of more than GEL 5 million. Some other business customers may also be assigned to the corporate segment or transferred to MSME on a discretionary basis;
· MSME (Micro, Small and Medium) - business customers who are not included in either the corporate or the retail segments; or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank-Space;
· Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;
· Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;
Business customers are all legal entities or individuals who have been granted a loan for business purpose.
Income Statement by Segments
Retail
MSME
Corporate
Corp.Centre
Total
Interest Income
452,367
182,341
184,768
109,216
928,692
Interest Expense
(90,496)
(7,326)
(98,632)
(169,019)
(365,473)
(62,039)
(60,158)
26,745
95,452
-
299,832
114,857
112,881
35,649
563,219
Fee and Commission Income
122,297
16,158
28,164
2,033
168,652
Fee and Commission Expense
(45,062)
(4,966)
(4,931)
(227)
(55,186)
77,235
11,192
23,233
1,806
113,466
Gross Insurance Profit
-
-
-
8,422
8,422
Net income from foreign currency operations
20,418
15,475
31,583
(4,056)
63,420
Foreign Exchange Translation Gains Less Losses/(Losses Less Gains)
-
-
-
10,425
10,425
Net Losses from Derivative Financial Instruments
(44)
-
-
401
357
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
-
-
-
2
2
Other Operating Income
6,367
505
6,943
1,138
14,953
Share of profit of associates
-
-
-
942
942
26,741
15,980
38,526
17,274
98,521
Credit Loss Allowance for Loan to Customers
(83,935)
(16,315)
(9,075)
-
(109,325)
Credit Loss Allowance for Performance Guarantees and Credit Related Commitments
(136)
(703)
(1,116)
(569)
(2,524)
Credit Loss Allowance for Investments in Finance Lease
-
-
-
(986)
(986)
Credit Loss Allowance for Other Financial Assets
(3,933)
(2)
(3,277)
(1,963)
(9,175)
Credit Loss Allowance for Financial Assets Measured at Fair Value through Other Comprehensive Income
-
-
(116)
52
(64)
Credit Loss Allowance for Financial Assets Measured at Amortised Cost
-
-
-
(129)
(129)
315,804
125,009
161,056
51,134
653,003
Staff Costs
(91,893)
(29,823)
(21,668)
(13,757)
(157,141)
Depreciation and Amortization
(26,930)
(3,643)
(1,622)
(1,212)
(33,407)
Provision for liabilities and charges
-
-
-
(4,000)
(4,000)
Administrative and Other Operating Expenses
(60,157)
(13,260)
(6,047)
(13,113)
(92,577)
(178,980)
(46,726)
(29,337)
(32,082)
(287,125)
136,824
78,283
131,719
19,052
365,878
Income Tax Expense
(18,254)
(11,716)
(19,874)
(8,686)
(58,530)
118,570
66,567
111,845
10,366
307,348
Portfolios by Segments
30-Sep-2018
30-Sep-2017
Consumer
1,958,883
1,972,012
Mortgage
2,452,157
1,900,186
Pawn
35,357
34,862
Retail
4,446,397
3,907,060
Corporate
2,891,628
2,128,478
MSME
2,284,538
1,732,096
9,622,563
7,767,634
Less: Credit loss allowance for Loans to Customers
(342,581)
(218,573)
9,279,982
7,549,061
Retail
4,850,586
4,015,754
Corporate
2,920,526
2,130,763
MSME
969,337
950,006
8,740,449
7,096,523
Retail Banking
As of 30 September 2018, retail loans stood at GEL 4,446.4 million, up by GEL 539.3 million, or 13.8%, YoY and accounted for 39.9% market share of total individual loans. As of 30 June 2018, foreign currency loans represented 53.7% of the total retail loan portfolio.
In the reporting period, retail deposits stood at GEL 4,850.6 million, up by GEL 834.8 million, or 20.8%, YoY accounting for 41.1% market share of total individual deposits. As of 30 September 2018, term deposits accounted for 53.4% of the total retail deposit portfolio, while foreign currency deposits represented 83.0% of the total retail deposit portfolio.
In 9M 2018, retail loan yields and deposit rates stood at 14.4% and 2.7%, respectively. The segment's cost of risk on loans was 2.7%.The retail segment contributed 38.6%, or GEL 118.6 million, to the total net income in 9M 2018.
Corporate Banking
As of 30 September 2018, corporate loans amounted to GEL 2,891.6 million, up by GEL 763.1 million, or 35.9%, YoY. Foreign currency loans accounted for 73.3% of the total corporate loan portfolio. The market share of total legal entities loans stood at 36.6%.
As of the same date, corporate deposits totalled GEL 2,920.5 million, up by GEL 789.7 million, or 37.1%, YoY. Foreign currency corporate deposits represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 39.4%.
In 9M 2018, corporate loan yields and deposit rates stood at 9.4% and 5.1%, respectively. In the same period, the cost of risk on loans was 0.5%. In terms of profitability, the corporate segment's net profit reached GEL 111.8 million, or 36.4% of the total net income.
MSME Banking
As of 30 September 2018, MSME loans amounted to GEL 2,284.5, up by GEL 552.4 million, or 31.9%, YoY. Foreign currency loans accounted for 52.1% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 969.3 million, up by GEL 19.3 million, or 2.0%, YoY. Foreign currency MSME deposits represented 47.5% of the total MSME deposit portfolio.
In 9M 2018, MSME loan yields and deposit rates stood at 12.1% and 1.0% respectively, while the cost of risk on loans was 1.1%. In terms of profitability, net profit for the MSME segment amounted to GEL 66.6 million, or 21.7%, of the total net income.
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
Sep-18
Sep-17
Cash and cash equivalents
1,114,672
1,445,521
Due from other banks
152,010
41,696
Mandatory cash balances with National Bank of Georgia
1,426,773
1,020,695
Loans and advances to customers
9,279,982
7,549,061
Investment securities Measured at Fair Value through Other Comprehensive Income
868,060
685,210
Bonds carried at amortised cost
518,179
428,163
Investments in associates
2,220
1,309
Investments in finance leases
183,715
111,223
Investment properties
78,274
88,750
Current income tax prepayment
7,650
18,380
Deferred income tax asset
2,499
3,592
Other financial assets
103,520
113,942
Other assets
186,061
209,428
Premises and equipment
375,002
321,431
Intangible assets
96,662
69,864
Goodwill
28,718
28,657
14,423,997
12,136,922
Due to Credit Institutions
2,981,269
2,675,930
Customer accounts
8,740,449
7,096,523
Other financial liabilities
90,966
59,616
Current income tax liability
30
362
Debt Securities in issue
13,027
19,818
Deferred income tax liability
27,202
851
Provisions for liabilities and charges
16,329
11,072
Other liabilities
85,972
71,250
Subordinated debt
412,803
411,193
12,368,047
10,346,615
Share capital
1,650
1,605
Share premium
796,854
714,651
Retained earnings
1,372,798
1,137,497
Group reorganisation reserve
(162,166)
(162,166)
Share based payment reserve
(18,689)
7,291
Revaluation reserve for premises
64,962
70,045
Revaluation reserve for available-for-sale securities
4,875
863
Cumulative currency translation reserve
(7,277)
(7,301)
2,053,007
1,762,485
Non-controlling interest
2,943
27,822
2,055,950
1,790,307
14,423,997
12,136,922
Consolidated Statement of Profit or Loss and Other Comprehensive Income
9M'18
9M'17
Interest income
928,692
745,918
Interest expense
(365,473)
(307,298)
563,219
438,620
Fee and commission income
168,652
138,271
Fee and commission expense
(55,186)
(51,264)
113,466
87,007
Net insurance premiums earned
16,578
8,972
Net insurance claims incurred and agents' commissions
(8,156)
(4,118)
8,422
4,854
Net income from foreign currency operations
63,420
61,477
Net gain/(losses) from foreign exchange translation
10,425
4,282
Net gains/(losses) from derivative financial instruments
357
(39)
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income
2
-
Other operating income
14,953
20,806
Share of profit of associates
942
661
90,099
87,187
Credit loss allowance for loan to customers
(109,325)
(65,403)
Credit loss allowance for investments in finance lease
(986)
(414)
Credit loss allowance for performance guarantees and credit related commitments
(2,524)
866
Credit loss allowance for other financial assets
(9,175)
(5,521)
Credit loss allowance for financial assets measured at fair value through other comprehensive income
(64)
-
Credit loss allowance for financial assets measured at amortised cost
(129)
-
653,003
547,196
Staff costs
(157,141)
(148,995)
Depreciation and amortization
(33,407)
(26,840)
(Provision for)/ recovery of liabilities and charges
(4,000)
2,495
Administrative and other operating expenses
(92,577)
(86,420)
(287,125)
(259,760)
365,878
287,436
Income tax expense
(58,530)
(24,263)
307,348
263,173
Revaluation of available for-sale-investments
3,192
4,544
Exchange differences on translation to presentation currency
85
241
Income tax recorded directly in other comprehensive income
(5,151)
(422)
(1,874)
4,363
305,474
267,536
- Shareholders of TBCG
305,126
259,043
- Non-controlling interest
2,222
4,130
307,348
263,173
- Shareholders of TBCG
303,273
263,406
2,201
4,130
305,474
267,536
Consolidated Statements of Cash Flows
30-Sep-18
30-Sep-17
Interest received
898,534
726,012
Interest paid
(357,224)
(304,258)
Fees and commissions received
180,489
139,408
Fees and commissions paid
(55,190)
(51,358)
Insurance premium received
18,045
13,908
Insurance claims paid
(7,803)
(5,946)
Income received from trading in foreign currencies
63,420
61,478
Other operating income received
4,379
9,638
Staff costs paid
(153,876)
(143,370)
Administrative and other operating expenses paid
(97,685)
(78,995)
Income tax paid
(24,758)
(42,785)
468,331
323,732
Due from other banks and mandatory cash balances with the National Bank of Georgia
(479,208)
(73,036)
Loans and advances to customers
(1,064,695)
(777,837)
Investment in finance lease
(37,065)
(20,647)
Other financial assets
38,446
(11,776)
Other assets
(9,900)
1,119
Due to other banks
116,376
(219,247)
Customer accounts
887,193
914,052
Other financial liabilities
(9,738)
(4,403)
Other liabilities and provision for liabilities and charges
6,484
1,241
(83,776)
133,198
/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive income
(479,092)
(514,803)
Proceeds from redemption at maturity of investment securities measured at fair value through other comprehensive income
272,477
269,640
Acquisition of bonds carried at amortised cost
(235,480)
(247,035)
Proceeds from redemption of bonds carried at amortised cost
167,258
198,380
Acquisition of premises, equipment and intangible assets
(55,321)
(47,410)
Disposal of premises, equipment and intangible assets
1,140
1,436
Proceeds from disposal of investment property
8,448
7,831
Acquisition of subsidiaries, net of cash acquired
-
(350)
(320,570)
(332,311)
/(used in) financing activities
Proceeds from other borrowed funds
1,456,759
1,464,205
Redemption of other borrowed funds
(1,250,372)
(771,829)
Proceeds from subordinated debt
-
60,188
Redemption of subordinated debt
(32,166)
-
Proceeds from debt securities in issue
(7,446)
-
Redemption of debt securities in issue
-
(2,075)
Dividends paid
(85,483)
(67,927)
Issue of ordinary shares
-
29
81,292
682,591
6,249
16,863
(316,805)
500,341
1,431,477
945,180
1,114,672
1,445,521
Key Ratios
Average Balances
The average balances in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts prepared from TBC's accounting records. These were used by the Management for monitoring and control purposes.
Key Ratios
9M'18
9M'17
ROE1
21.2%
20.9%
ROA2
3.1%
3.2%
ROE before credit loss allowance3
29.6%
26.6%
Cost to Income4
37.0%
42.1%
Cost of Risk5
1.7%
1.2%
FX adjusted Cost of Risk6
1.7%
1.4%
NIM7
7.0%
6.5%
Risk Adjusted NIM8
5.3%
5.1%
Loan Yields9
12.4%
12.0%
Risk Adjusted Loan Yields10
10.7%
10.6%
Deposit rates11
3.3%
3.4%
Yields on interest Earning Assets12
11.5%
11.1%
Cost of Funding13
4.4%
4.4%
Spread14
7.1%
6.6%
PAR 90 to Gross Loans15
1.3%
1.6%
NPLs to Gross Loans16
3.1%
3.5%
NPLs coverage17
113.2%
80.5%*
NPLs coverage with collateral18
209.0%
206.8%*
Credit Loss Level to Gross Loans19
3.6%
2.8%*
Related Party Loans to Gross Loans20
0.1%
0.1%
Top 10 Borrowers to Total Portfolio21
10.3%
8.3%
Top 20 Borrowers to Total Portfolio22
14.1%
12.5%
Net Loans to Deposits plus IFI Funding23
88.0%
91.5%
Net Stable Funding Ratio24
118.0%
134.5%
Liquidity Coverage Ratio25
111.6%
115.0%
Leverage26
7.0x
6.8x
Regulatory Tier 1 CAR (Basel III)27
12.8%
10.8%**
Regulatory Total 1 CAR (Basel III)28
16.4%
14.5%**
* Figures per IAS39
**9M 2017 figures are based on previous regulation in accordance with Basel II/III guidelines
Ratio definitions
1. Return on average total equity (ROE) equals net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; Annualised where applicable.
2. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period. Annualised where applicable.
3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.
4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).
5. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.
6. FX adjusted cost of risk equal cost of risk at constant currency.
7. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; Annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG which currently has negative interest, and includes other earning items from due from banks.
8. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.
9. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.
10. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.
11. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; Annualised where applicable.
12. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; Annualised where applicable.
13. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; Annualised where applicable.
14. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).
15. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.
16. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.
17. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.
18. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.
19. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.
20. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
21. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.
22. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.
23. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.
24. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III.
25. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined by the NBG.
26. Leverage equals total assets to total equity.
27. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
28. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
Exchange Rates
To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4516 as of 30 June 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4767 as of 30 September 2017. As of 30 September 2018 the USD/GEL exchange rate equalled 2.6151. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 3Q 2018 of 2.5295, 2Q 2018 of 2.4460, 3Q 2017 of 2.4232.
Additional Disclosures
Subsidiaries of TBC Bank Group PLC[15]
Ownership / voting
% as of 30 September 2018Country
Year of incorporation
Industry
Total Assets
(after elimination)Subsidiary
Amount
GEL'000
% in TBC Group
JSC TBC Bank
99.9%
Georgia
1992
Banking
14,029,388
97.26%
United Financial Corporation JSC
98.7%
Georgia
1997
Card processing
9,511
0.07%
TBC Capital LLC
100.0%
Georgia
1999
Brokerage
9,505
0.07%
TBC Leasing JSC
99.6%
Georgia
2003
Leasing
245,348
1.70%
TBC Kredit LLC
100.0%
Azerbaijan
1999
Non-banking credit institution
37,996
0.26%
Banking System Service Company LLC
100.0%
Georgia
2009
Information services
762
0.01%
TBC Pay LLC
100.0%
Georgia
2009
Processing
33,924
0.24%
Index LLC
100.0%
Georgia
2011
Real estate management
344
0.00%
Real Estate Management Fund JSC
100.0%
Georgia
2010
Real estate management
21
0.00%
TBC Invest LLC
100.0%
Israel
2011
PR and marketing
239
0.00%
BG LLC*
0.0%
Georgia
2018
Asset management
5,626
0.04%
JSC TBC Insurance
100.0%
Georgia
2014
Insurance
48,242
0.33%
Swoop JSC
98.13%
Georgia
2010
Retail Trade
813
0.01%
GE Commerce LTD
100.0%
Georgia
2018
Retail Trade
223
0.00%
(*) In July 2018 the Group obtained de facto control over BG LLC
1) Earnings per Share
In GEL
9m 2018
9m 2017
Earnings per share for profit attributable to the owners of the Group:
- Basic earnings per share
5.67
4.92
- Diluted earnings per share
5.62
4.85
Source: IFRS Consolidated
In GEL
3Q 2018
3Q 2017
Earnings per share for profit attributable to the owners of the Group:
- Basic earnings per share
1.97
1.62
- Diluted earnings per share
1.95
1.59
Source: IFRS Consolidated
2) Sensitivity Scenario
Sensitivity Scenario
30-Sep-18
10% Currency Devaluation Effect
NIM*
-0.17%
Technical Cost of Risk
+0.15%
Regulatory Total Capital per new NBG regulation
2,021
2,043
Regulatory Capital adequacy ratios tier 1 and total capital per new NBG regulation decrease by
0.68% - 0.79%
(*) Linear depreciation is assumed for NIM sensitivity analysis
Source: IFRS statements and Management Figures
3) FC Details for Selected P/L Items
Selected P&L Items 3Q 2018
FC % of Respective Totals
Interest Income
38%
Interest Expense
50%
Fee and Commission Income
32%
Fee and Commission Expense
65%
Administrative Expenses
15%
Source: IFRS statements and Management figures
4) Open Interest Rate Position as of 30 September 2018
Open interest rate position in GEL
GEL - 132 m
Open interest rate position in FC
GEL 1,963 m
GEL m
% share in totals
GEL m
% share in totals
Assets
2,407
17%
Assets
3,740
26%
Securities with fixed yield(≤1y)*
455
33%
Nostro**
63
11%
Securities with floating yield
49
4%
NBG Reserves**
1,427
90%
Loans with Floating yield
1,780
19%
NBG Deposits
47
3%
Reserves in NBG
120
8%
Libor Loans
2,192
23%
Interbank loans& Deposits & Repo
3
0%
Interest Rate Swap
11
Liabilities
2,275
18%
Current accounts***
464
5%
Liabilities
1,777
14%
Saving accounts***
535
6%
Senior Loans
1,456
52%
Refinancing Loan of NBG
632
23%
Subordinated Loans
321
78%
Interbank Loans &Deposits & Repo
77
38%
IFI Borrowings
567
20%
(*) 62% of the less than 1-year securities are maturing in 6 months.
(**) Income on NBG reserves and Nostros are calculated as benchmark minus margin whereby benchmarks are correlated with Libor. From March, 2016 according to NBG regulation is it possible to apply negative interest rates on NBG reserves and correspondent accounts, therefore these two items close the gap in case of both upward and downward movement of Libor rate.
(***) The Bank considers that current and saving deposits promptly react to interest rate changes on the market (within 1-month prior notification).
Source: IFRS Group Data
5) Yields and Rates
Yields and Rates
3Q'18
2Q'18
1Q'18
4Q'17
3Q'17
Loan yields
12.4%
12.5%
12.3%
12.3%
11.9%
Retail loan yields GEL
20.8%
21.3%
20.5%
19.7%
19.2%
Retail loan yields FX
7.9%
8.0%
8.4%
8.8%
8.5%
Retail Loan Yields
14.1%
14.7%
14.6%
14.2%
13.8%
Corporate loan yields GEL
11.0%
11.4%
11.2%
12.2%
11.0%
Corporate loan yields FX
9.1%
8.7%
8.6%
9.2%
8.6%
Corporate Loan Yields
9.6%
9.4%
9.2%
10.0%
9.2%
MSME loan yields GEL
16.6%
15.9%
15.0%
13.6%
13.1%
MSME loan yields FX
8.9%
8.5%
8.9%
9.4%
9.4%
MSME Loan Yields
12.6%
12.0%
11.3%
10.9%
10.7%
Deposit rates
3.3%
3.3%
3.3%
3.5%
3.4%
Retail deposit rates GEL
4.4%
4.3%
4.4%
4.4%
4.0%
Retail deposit rates FX
2.3%
2.4%
2.5%
2.7%
2.8%
Retail Deposit Yields
2.7%
2.7%
2.8%
2.9%
3.0%
Corporate deposit rates GEL
7.5%
7.9%
8.0%
8.5%
8.3%
Corporate deposit rates FX
2.0%
1.9%
2.0%
2.1%
2.2%
Corporate Deposit Yields
4.9%
5.2%
5.2%
5.3%
5.2%
MSME deposit rates GEL
1.7%
1.7%
1.8%
2.1%
2.2%
MSME deposit rates FX
0.4%
0.4%
0.5%
0.8%
0.7%
MSME Deposit Yields
1.0%
1.0%
1.1%
1.4%
1.4%
Yields on Securities
7.8%
7.7%
8.1%
6.9%
8.4%
Source: IFRS Consolidated
6) Risk Adjusted Yields & Cost of Risk
Risk-adjusted Yields
3Q'18
2Q'18
1Q'18
4Q'17
3Q'17
Loan yields
10.9%
10.8%
10.6%
11.1%
10.7%
Retail Loan Yields
11.6%
12.1%
11.6%
12.2%
10.8%
Corporate Loan Yields
9.0%
8.5%
9.3%
9.6%
11.1%
MSME Loan Yields
11.8%
11.1%
9.8%
10.4%
9.9%
3Q'18
2Q'18
1Q'18
4Q'17
3Q'17
Cost of Risk
1.9%
1.8%
1.3%
1.4%
1.3%
Retail
2.7%
2.6%
2.7%
2.0%
3.2%
Corporate
1.1%
0.9%
-0.8%
0.7%
-1.7%
MSME
1.2%
1.0%
1.0%
0.7%
0.9%
Source: IFRS Consolidated
7) Loan Quality per NBG
Sub-Standard, Doubtful and Loss (SDL) Loans Ratio per NBG
Sep-18
Jun-18
Mar-18
Dec-17
Sep-17
SDL Loans as % of Gross Loans
3.8%
3.3%
3.1%
3.2%
3.4%
Source: NBG
8) Cross Sell Ratio[16] and Number Active Products
Sep-18
Jun-18
Mar-18
Dec-17
Sep-17
Cross Sell Ratio
3.85
3.89
3.88
3.94
3.79
Number of Active Products (in millions)
4.58
4.64
4.58
4.50
4.06
Source: Management figures
9) Diversified Deposit Base
Status: monthly income >=GEL 3,000 or loans/deposits >=GEL 30,000
VIP: deposit >=USD 100,000 as well as on discretionary basis; WM: >=USD 100,000 as well as on discretionary basis
Wealth Management includes UHNW and HNW non-resident clients
30 September 2018
Volume of Deposits
Number of Deposits
MASS
39%
92.4%
STATUS
30%
7.1%
VIP
23%
0.4%
Wealth Management for non-resident clients
8%
0.1%
Source: Management figures
10) Loan Concentration
Sep-18
Jun-18
Mar-18
Dec-17
Sep-17
Top 20 Borrowers as % of total portfolio
14.1%
13.2%
13.4%
12.4%
12.5%
Top 10 Borrowers as % of total portfolio
10.3%
9.2%
9.4%
8.2%
8.3%
Related Party Loans as % of total portfolio
0.1%
0.1%
0.1%
0.1%
0.1%
Source: IFRS consolidated
11) Number of Transactions in Digital Channels (in thousands)
3Q 18
3Q 17
3Q 16
3Q 15
Internet banking number of transactions
2,308
2,175
1,828
1,511
Mobile banking number of transactions
6,833
3,953
1,814
780
Source: Management figures
12) Penetration Ratios of Digital Channels
Sep-18
Sep-17
Sep-16
Sep-15
IB&MB Penetration Ratio
40%
35%
34%
26%
Mobile Banking Penetration Ratio
34%
27%
20%
12%
Source: Management figures
13) Number of Active Clients (in thousands)
Sep-18
Sep-17
Sep-16
Sep-15
Internet or mobile banking
478
375
269
182
Mobile banking
406
289
162
84
Source: Management figures
14) Distribution of Transactions in Digital Channels
3Q 18
Mobile Banking
23%
Internet Banking
11%
Branches
10%
TBC Pay terminals
22%
ATMs
33%
Other
1%
90% of all transactions are conducted in digital channels
15) Distribution of Sales in Channels
3Q 18
3Q 17
3Q 16
IB, MB, ATM, Web
47%
25%
24%
Branches & Call Center
53%
75%
76%
53% of sales are conducted in digital channels*
* Only products that are sold in digital channels are counted
16) Digital Sales of Products
3Q 18
3Q 17
3Q 16
Deposits
64%
55%
52%
Pre-approved loans
68%
18%
12%
Debit cards
17%
7%
-
17) POS Terminal Transactions
Sep-18
Jun-18
Mar-18
Dec-17
Sep-17
POS number of transactions (in millions)
24.1
22.3
17.9
16.4
13.2
POS volume of transactions (in mln GEL)
986
850
661
631
543
* Data includes e-commerce and excludes transactions at POS terminals in TBC Bank's branches
18) Net outflow of borrowed funds
Subordinated and Senior Loans' Principal Amount Outflow by Year (USD million)
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
35
136
201
263
121
94
40
46
65
5
Out of USD 35 million cash outflow in 2018, USD 24 million has already been repaid by November 13
Source: Management figures, revolving non IFI loans from NBG are excluded
19) NPL Build Up (in GEL millions)
NPLs
NPLs as of Jun-18
Real Growth
FX Effect
Write-Offs
Repossessed
NPLs as of Sep-18
Retail
120
49
4
(37)
(2)
134
Corporate
72
-
5
-
-
77
MSME
85
9
4
(5)
(1)
92
Total
277
58
12
(41)
(3)
303
20) Net Write-Offs, 3Q 2018
Write-Offs
Recoveries
Net Write-Offs
Retail
(31)
5
(26)
Corporate
-
1
1
MSME
(4)
6
2
Total
(35)
12
(23)
Source: IFRS Consolidated
21) Portfolio Breakdown by Collateral Types as of 30-Sep-18
Cash Cover
2%
Gold
3%
Inventory
9%
Real Estate
65%
Third Party Guarantees
6%
Other
2%
Unsecured
13%
Source: IFRS Consolidated
22) Loan to Value by Segments as of 30-Sep-18
Retail
Corporate
MSME
Total
47%
46%
44%
46%
Mortgage loan's LTV stood at 47%
23) TBC Insurance
TBC Insurance is a wholly owned subsidiary of the Company and the Bank's main bancassurance partner. The Group acquired it in October 2016 and it has been growing rapidly since then. TBC Insurance's product offering comprises motor, travel, personal accident, credit life and property, business property, liability, and cargo insurance products which are sold through a broad range of channels, including insurance agents, auto dealerships, web platforms, as well as TBC Bank's market-leading multichannel network.
In line with the Group's digitalisation strategy, TBC Insurance actively uses digital channels to market and sell its products. In 2017, TBC Insurance launched on the local market the first insurance chat bot, B Bot, which sells different types of insurance products. B Bot is fun to use and is quickly gaining popularity among clients, especially the younger generation. Another popular sales channel is the wide network of TBC Bank's self-service terminals, where customers can buy travel, casualty and collision (CASCO), and motor third-party liability (MTPL) insurance in a very short time. In addition, travel insurance can be purchased through TBC Bank's internet and mobile banking services; more products are planned to be added to this channel in 2018, including payment protection insurance (PPI), CASCO and MTPL.
The insurance business delivered outstanding financial results. Starting from 2018, TBC Insurance is the number two player on P&C insurance market and the largest player in the retail segment, with market shares[17] of 18.1% and 30% respectively as of Q3 2018, based on internal estimates. In Q3 2018, number of customers increased by 25% YoY and remained broadly stable QoQ due to increased focused on cross-selling. In third quarter, TBC insurance posted GEL 15,833 thousand in gross written premium, up by 84.4% YoY and net earned premium reached GEL 9,841 thousand, up by 112.9% in respective period. In addition, net combined ratio decreased to 79% in 3Q 2018 from 92% of the same period in 2017. As a result, net profit amounted to GEL 2,243 thousand in 3Q 2018 compared to GEL 885 thousand in 3Q 2017.
In thousands of GEL
3Q'18
2Q'18
1Q'18
4Q'17
3Q'17
Gross written premium
15,833
14,677
12,494
12,153
8,584
Net earned premium[18]
9,841
8,804
6,458
5,881
4,622
Net profit
2,243
1,497
1,260
601
885
3Q'18
2Q'18
1Q'18
4Q'17
3Q'17
Net combined ratio
79%
81%
76%
93%
92%
Sep-2018
Jun-2018
Mar-2018
Dec-2017
Sep-2017
Market share
18.1%
17.9%
19.0%
13.3%
10.9%
Number of clients
299,238
296,341
295,607
276,848
239,472
24) Regulatory Capital
Total Capital and Tier 1 Capital Limits
Q3 2018 Actual
2018 F
2019 F
2020 F
2021 F
Tier 1
Total
Tier 1
Total
Tier 1
Total
Tier 1
Total
Tier 1
Total
Minimum Requirement
6.0%
8.0%
6.0%
8.0%
6.0%
8.0%
6.0%
8.0%
6.0%
8.0%
Conservation Buffer
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
2.5%
Counter-Cyclical Buffer
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Systemic Buffer
0.0%
0.0%
1.0%
1.0%
1.5%
1.5%
2.0%
2.0%
2.5%
2.5%
Pillar 1 buffers
8.5%
10.5%
9.5%
11.5%
10.0%
12.0%
10.5%
12.5%
11.0%
13.0%
In addition, the Pillar 2 buffers in tier 1 will be in the range of 1.5%-2.5% in 2018 and gradually increase to the range of 2.5%-4.0% by 2021. The Pillar 2 buffers in total capital will be in the range of 3.0%-5.0% from 2018 to 2021
25) Space - fully digital bank
Date
# of app. downloads
# of registered customers
30-May-2018
69,510
38,598
30-Jun-2018
99,646
47,657
30-Jul-2018
128,205
55,699
30-Aug-2018
155,267
63,435
30-Sep-2018
186,044
72,447
26) International strategy: expansion into Azerbaijan market
Timeline
Before September
USD 45 mln was injected in capital by Nikoil shareholder
September
Team formation
October
Strategy developed, shared and approved
November
Completion of due diligence
Next Steps
Obtain regulatory approval for the merger, which might take up to 3 months
Strengthening Management Team
Existing management team of the joint entity
CEO
Nikoloz Shurghaia
First Deputy CEO, Head of MSME
Hajinski Farhad Ismailbey
Deputy CEO, Head of Retail
Tagiyev Fuad Rauf
New management team of the joint entity
COO
Nukri Tetrashvili, former CEO at TBC Kredit
CDO
Senior Digital Manager with a solid track record at large Georgian bank
CRO
David Tediashvili, former Head of Retail Credit Risk Department at TBC Bank
CFO
Emil Dushdurov, former Associate Director, Deal Advisory at KPMG Azerbaijan
Three year vision
3Q results of Nikoil Bank*
Mid-term targets of joint entity
Loan Portfolio
c. 240
c. 1,400
Equity
c. 36
c. 200
ROE
NMF
20%+
*Based on management accounts
• Core segments: Retail and MSME (not large SMEs and Corporates)
• Product offerings: A hybrid of Nikoil Bank and TBC Bank products adapted to the local needs and offered primarily through digital channels, including Space Bank
• Until call option is exercised, TBC Bank's shareholding in joint entity will be up to 10%
• Our additional estimated investment during next three years will be consistent with our 10% shareholding and is estimated to be around USD 3-5 mln for each year
• Call option can be exercised within the three year period after the merger based on the fixed price formula to reach 50%+1 shareholding
• TBC Bank will contribute to the development and execution of the merged entity's strategy and intends to use its Georgian banking sector expertise to support Nikoil Bank's local growth in its targeted retail and MSME customer markets
27) International strategy: digital greenfield bank in Uzbekistan
This is a concept and initial aspirations at this stage and is subject to approvals (including approvals from the authorities), therefore it could change as we progress
Why Uzbekistan?
• Large underpenetrated market:
• with more than 32 million population
• below 5% retail and MSME loan to GDP[19]
• Similar past during USSR and good cultural links
• Right time given implementation of reforms, many of which were designed by former Georgian government officials
• Welcoming environment
• Both Uzbekistan and Georgia are included into China's One Belt One Road initiative
Timeline
October 2018 -
Official meetings held and our interest confirmed to the Central Bank
1-3 months -
Confirmation period from the government and central bank
1-3 months -
Pre-licensing process takes 1-3 months from submission of pre-license application
1-6 months -
Final license process takes 1-6 months from obtaining pre-license
Our strategy
• Build a next generation bank for retail and MSME
• Focus on alternative channels including Space, a fully-digital bank
• Operate asset light, high-tech branches
Main highlights
• Initial investments from TBC Bank around USD 20-30 mln, resulting in 51% shareholding
• Other investors will include IFIs (EBRD and IFC have expressed interest) and local shareholder
• All further investments will be subject to achievement of certain KPIs
• Medium to long-term financial targets after license is granted:
• Contribute 20% + TBC Bank Group PLC's assets and/or income
• Achieve sustainable ROE up to 25%
28) Nikoil Bank Financials
Profit & Loss Statement
In thousands of USD
3Q'18
2Q'18
3Q'17
Interest income
3,706
3,410
4,041
Interest expense
(2,150)
(2,491)
(2,799)
Net interest income
1,556
919
1,242
Fee and commission income
738
694
641
Fee and commission expense
(285)
(270)
(166)
Net Fee and Commission Income
453
424
475
Net income from foreign currency operations
234
483
172
Net gain/(losses) from foreign exchange translation
104
64
86
Other operating non-interest income
338
547
258
Credit loss allowance of loans
(20,447)
(27,537)
1,014
Credit loss allowance of other financial assets
(121)
367
(609)
Operating income after credit loss allowance
(18,221)
(25,280)
2,380
Staff costs
(1,425)
(1,373)
(1,236)
Depreciation and amortisation
(316)
(342)
(488)
Administrative and other operating expenses
(1,161)
(934)
(1,080)
Operating expenses
(2,902)
(2,649)
(2,804)
Profit before tax
(21,123)
(27,929)
(424)
Income tax expense
-
-
-
Profit for the period
(21,123)
(27,929)
(424)
Balance Sheet
In thousands of USD
30-Sep-18
30-Jun-18
30-Sep-17
Cash and cash equivalents
35,099
41,206
46,431
Due from other banks
21,190
26,676
7,372
Net Loans
129,544
147,444
156,722
Investment securities measured at fair value through other comprehensive income
26,371
21,208
8,481
Current income tax prepayment
2
23
311
Deferred income tax asset
768
768
768
Other financial assets
13,533
12,386
9,419
Other assets
396
398
1,495
Premises and equipment (Net)
5,576
5,571
6,356
Intangible assets (Net)
1,991
2,066
2,151
TOTAL ASSETS
234,470
257,746
239,506
Due to other banks
23,152
21,944
23,711
Customer Accounts
127,591
152,704
135,593
Other borrowed funds
38,876
37,173
34,494
Other financial liabilities
4,125
4,075
3,865
Subordinated debt
5,000
15,000
19,679
TOTAL LIABILITIES
198,744
230,896
217,342
Share capital
174,118
144,118
108,529
Additional paid-in-capital
500
500
500
Retained earnings
(138,891)
(117,768)
(86,865)
TOTAL EQUITY
35,727
26,850
22,164
TOTAL LIABILITIES AND EQUITY
234,470
257,746
239,506
[1] 30 September 2017 ratios are calculated per IAS 39
[2] Market share figures are based on data from the National Bank of Georgia (NBG). The NBG includes interbank loans for calculating market share in loans
[3] The number of transactions conducted in remote channels divided by total number of transactions.
[4] For products being offered though remote channels.
[5] As per initial estimates of Geostat.
[6] Source: Insurance State Supervision Service of Georgia.
[7] Source: CBU and commercial banks
[8] Latest available information
[9] Doing Business 2019 report
[10] Excluding exchange rate effect
[11] Growth in USD terms
[12] Gross insurance profit can be reconciled to the standalone net insurance profit (as shown in annex 23 on page 47) as follows: gross insurance profit less credit loss allowance, administrative expenses and taxes, plus fee and commission income and net interest income
[13] Incurred but not reported
[14] Gross insurance profit can be reconciled to the standalone net insurance profit as follows (as shown in annex 23 on page 47): gross insurance profit less credit loss allowance, administrative expenses and taxes, plus fee and commission income net interest income
[15] TBC Bank Group PLC became the parent company of JSC TBC Bank on 10 August 2016.
[16] Cross-sell ratio is defined as the number of active products divided by the number of active customers.
[17] Source: Insurance State Supervision Service of Georgia
[18] Net earned premium equals earned premium minus reinsurer's share of earned premium
[19] Source: CBU and commercial banks
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