Earnings Release • Feb 21, 2019
Earnings Release
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TBC Bank Group PLC
21 February 2019
TBC BANK GROUP PLC ("TBC Bank")
4Q 2018 UNAUDITED CONSOLIDATED FINANCIAL RESULTS AND FY 2018 PRELIMINARY 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.
Fourth Quarter 2018 Unaudited Consolidated Financial Results and Full Year 2018 Preliminary Unaudited Consolidated Financial Results Conference Call
TBC Bank Group PLC ("TBC PLC") announces that its consolidated financial results for the fourth quarter 2018 and preliminary consolidated financial results for the full year 2018 will be published on Thursday, 21 February 2019 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, 21 February 2019 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: | 0420415 |
| UK Toll Free: | 0800 633 8453 |
| Standard International Access: | +44 (0) 20 8196 1998 |
| USA Toll Free: | 1 866 583 1035 |
| Russia Toll Free: | 8 10 8002 4832044 |
| Moscow: | +7 (8) 495 249 9840 |
Contacts
| Zoltan Szalai Director of International Media and Investor Relations E-mail: [email protected] Tel: +44 (0) 7908 242128 Web: www.tbcbankgroup.com Address: 68 Lombard St, London EC3V 9LJ, United Kingdom |
Anna Romelashvili Head of Investor Relations E-mail: [email protected] Tel: +(995 32) 227 27 27 Web: www.tbcbankgroup.com Address: 7 Marjanishvili St. Tbilisi, Georgia 0102 |
Investor Relations Department E-mail: [email protected] Tel: +(995 32) 227 27 27 Web: www.tbcbankgroup.com Address: 7 Marjanishvili St. Tbilisi, Georgia 0102 |
Table of Contents
4Q and FY 2018 Results Announcement
Development of Customer Focused Ecosystems
Letter from the Chief Executive Officer
Unaudited Consolidated Financial Results Overview for 4Q 2018
Preliminary Unaudited Consolidated Financial Results Overview FY 2018
TBC BANK Group PLC ("TBC Bank")
TBC Bank Announces Unaudited Preliminary 4Q and FY 2018 and Consolidated Financial Results:
Net Profit for 4Q 2018 up by 34.5% YoY to GEL 130.1 million
Underlying[1] Net Profit for FY 2018 up by 23.2% YoY to GEL 454.9 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
These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.
TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The results are adjusted for certain one-off items to enable better analysis of the Group's performance. The reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 26 section on page 51.
Financial Highlights
4Q 2018 P&L Highlights
§ Net profit amounted to GEL 130.1 million (4Q 2017: GEL 96.8 million; 3Q 2018: GEL 107.4 million)
§ Return on equity (ROE) amounted to 24.3% (4Q 2017: 21.0%; 3Q 2018: 21.2%)
§ Return on assets (ROA) amounted to 3.5 % (4Q 2017: 3.0%; 3Q 2018: 3.1%)
§ Total operating income amounted to GEL 312.3 million, up by 28.3% YoY and up by 12.3% QoQ
§ Cost to income was 39.7% (4Q 2017: 41.0%; 3Q 2018: 37.4%)
§ Cost of risk stood at 1.4% (4Q 2017: 1.4%; 3Q 2018: 1.9%)
§ FX adjusted cost of risk stood at 1.3% (4Q 2017: 1.2%; 3Q 2018: 1.5%)
§ Net interest margin (NIM) stood at 6.7% (4Q 2017: 6.4%; 3Q 2018: 6.9%)
§ Risk adjusted net interest margin (NIM) stood at 5.4% (4Q 2017: 5.2%; 3Q 2018: 5.4%)
FY 2018 P&L Highlights
§ Underlying1 net profit amounted to GEL 454.9 million (FY 2017: GEL 369.2 million)
§ Reported net profit amounted to GEL 437.4 million (FY 2017: GEL 359.9 million)
§ Underlying1 return on equity (ROE) without one-offs of 22.8% (FY 2017: 21.4%)
§ Reported return on equity (ROE) amounted to of 22.0% (FY 2017: 20.9%)
§ Underlying1 return on assets (ROA) was 3.3% (FY 2017: 3.2%)
§ Reported return on assets (ROA) was 3.2% (FY 2017: 3.1%)
§ Total operating income for the period was up by 26.3% YoY to GEL 1,087.5 million
§ Cost to income stood at 37.8% (FY 2017: 41.7%)
§ Cost of risk on loans stood at 1.6% (FY 2017: 1.2%)
§ FX adjusted cost of risk stood at 1.5% (FY 2017: 1.4%)
§ Net interest margin (NIM) stood at 6.9% (FY 2017: 6.5%)
§ Risk adjusted net interest margin (NIM) stood at 5.4% (FY 2017: 5.1%)
Balance Sheet Highlights as of 31 December 2018
§ Total assets amounted to GEL 15,526.3 million as of 31 December 2018, up by 19.7% YoY and up by 7.6% QoQ
§ Gross loans and advances to customers stood at GEL 10,372.6 million as of 31 December 2018, up by 21.3% YoY and up by 7.8% QoQ
§ Net loans to deposits + IFI funding stood at 89.9% and Net Stable Funding Ratio (NSFR) stood at 130.2%
§ NPLs were 3.1%, down by 0.2pp YoY and unchanged QoQ
§ NPLs coverage ratios stood at 102.7%, or 216.4% with collateral, on 31 December 2018 compared, to 104.7% or 209.4% with collateral, as of 31 December 2017 and 113.2%, or 209.0% with collateral on 30 September 2018
§ Total customer deposits amounted to GEL 9,352.1 million as of 31 December 2018, up by 19.6% YoY and up by 7.0% QoQ
§ As of 31 December 2018, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.8% and 17.9% respectively, while minimum requirements amounted to 11.8% and 16.7%
Market Shares[2]
§ Market share by total assets reached 38.2% as of 31 December 2018, up by 1.8pp YoY and up by 1.0pp QoQ
§ Market share by total loans was 38.8% as of 31 December 2018, up by 0.6pp YoY and up by 0.4pp QoQ
§ In terms of individual loans, TBC Bank had a market share of 40.0% as of 31 December 2018, down by 0.2pp YoY and up by 0.1pp QoQ. The market share for legal entity loans was 37.4%, up by 1.4pp YoY and up by 0.8pp QoQ
§ Market share of total deposits reached 41.2% as of 31 December 2018, up by 1.4pp YoY and up by 0.9pp QoQ
§ Market share of individual deposits stood at to 41.2%, down by 0.1pp YoY and up by 0.1pp on QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 41.2%, up by 3.3pp YoY and up by 1.8pp QoQ.
Recent Developments
Inspection Report - Update
Further to its announcement of 9 January 2019, TBC Bank Group PLC ("TBC PLC") notes today's release of a joint statement by TBC PLC, TBC Bank JSC ("TBC Bank") and the National Bank of Georgia (the "NBG") in respect of NBG's inspection of certain transactions involving TBC Bank that took place in 2007 and 2008, an English translation of which follows:
"Over the last few days, we have had detailed discussions around events concerning TBC Bank. Regarding this, we would like to announce the following:
Announcement from TBC Bank
Since TBC Bank takes into account the possible damage to the country's investment image and respects the role of the National Bank, as a qualified regulator, and despite the fact that the decisions of the National Bank was appealed in the court, JSC TBC Bank would like to announce that it will implement a restructuring of its Supervisory Board whereby the founding shareholders will not be represented at the supervisory Board of JSC TBC Bank. The founding shareholders will maintain their positions as the Chairman and Deputy Chairman of the Board of Directors of TBC Bank Group PLC (a London-based, 100% shareholder of JSC TBC Bank). TBC Bank withdraws all court cases against the National Bank of Georgia and will pay approximately GEL 1 million, which was previously requested by the NBG and disclosed by TBC PLC on 9 January 2019.
In addition, TBC Bank continues to cooperate with the NBG to further improve the quality of the Bank's corporate governance. In order to prevent any questions from any third party regarding corporate governance, TBC PLC will engage with a reputable international firm to conduct a review of the group's related party transactions, practices and procedures.
Announcement from the National Bank
NBG welcomes this decision. This will have a positive effect on the transparency of the Bank and will increase investor confidence, which will ultimately have a positive effect on the development of the Bank and the country's financial sector.
NBG stresses that TBC Bank is one of the leading financial institutions in the country and in the region and is led by a highly qualified executive management team and independent members of the Supervisory board. TBC Bank is a strong and stable credit institution and fully complies with economic normative requirements and limits set by the National Bank.
Additionally, the NBG would like note that, in this case, its supervisory focus was on the risks associated with matters concerning conflicts of interest and instances of the breaches of the regulation on conflicts of interest related to the 2007-2008 transactions.
Within the scope of its mandate, the NBG continues to monitor the implementation of the abovementioned decisions.
With this, from both sides this matter has been closed."
The content of this announcement and the release of the same has been approved by the NBG.
Furthermore, TBC Bank has taken an opinion from Dentons (for the summary of Dentons's memorandum please see Annex 30 on page 54).
New Regulations
Responsible Lending Initiative by NBG - starting from 1 January 2019
· The NBG introduced additional requirements for income verification, which aim to support sound lending to individuals.
· The regulation sets new limits on PTI and LTV for loans to individuals.
· The thresholds differ for domestic and foreign currency loans (for detailed information please see Annex 34).
Limits on FX Loans - starting from 24 January 2019
· In order to further support de-dollarization process in the country, the NBG increased minimum limit for FX denominated individual loans from GEL 100,000 to GEL 200,000
In light of the new regulations, we re-iterate our medium term loan book growth rate of 10-15% and anticipate NIM to drop by 0.3-0.5 pp, while we expect CoR to be in the range of 1.3%-1.6%
Awards
§ TBC Bank's first Georgian-speaking financial chat-bot, Ti-Bot, has been named the Best Alternative Payments Project at the Payments Awards ceremony.
§ The competition was organised by FStech and Retail Systems in recognition of cards and payments excellence and innovation.
§ Our Ti-Bot is an innovative and safe system of transferring money via chat extension, Ti-Transfer, which was developed in partnership with industry-leading player Pulsar Al.
Development of Customer Focused Ecosystems
In order to integrate better with our customers, we started to develop customer focused ecosystems, which are closely linked with our financial products and services and enable us to create synergies with our core banking offerings.
E-commerce
§ In August 2018, we purchased Swoop, Georgia's well-known online discount and sales company for USD 70,000.
§ We started developing an e-commerce market place in Georgia through building an innovative digital trading platform, Vendoo.
§ The platform will allow customers to purchase various products online, to get installment loans and to benefit from prompt delivery and a flexible refund policy.
§ Our estimated investment for the next two years will be around USD 2-3 million.
Real Estate
§ In January 2019, we acquired 90% shares of real estate platform Allproprerty.ge for USD 225,000.
§ Started developing digital real estate ecosystem, that will offer our customers a wide range of products and services, including finding the suitable real estate, comparison of different properties, getting financing, buying furniture and many more.
§ Our estimated investment is set at around USD 2 million during the next 2 years.
In 2019, we plan to implement more ecosystems.
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 another set of strong financial results for the full year 2018, to give a brief summary of our main achievements throughout the year and to provide an overview of the recent macroeconomic developments in Georgia.
Our underlying consolidated net profit[3] for the full year 2018 reached GEL 454.9 million (reported net profit amounted to GEL 437.4 million), up by 23.2% compared to 2017, while our underlying return on equity was 22.8% and our underlying return on assets stood at 3.3%. Our robust profitability was driven by strong income generation, improved cost efficiency and prudent risk management. In 2018, we maintained a solid net interest margin at 6.9%, up by 0.4 pp year-on-year, and we achieved a strong increase in net fee and commission income, up by 25.1% year-on-year. Over the same period, our cost to income ratio decreased by 3.9 pp and stood at 37.8%, while cost of risk stood at 1.6% or 1.5% without the currency effect.
In terms of balance sheet growth, our loan book expanded by 21.3% year-on-year, supported by growth across all business segments, which resulted in a market share of 38.8%, up by 0.6 pp year-on-year. Over the same period, deposits increased by 19.6% expanding our deposit market share to 41.2%, up by 1.4 pp year-on-year.
Our capital and liquidity ratios continued to remain solid. As of 31 December 2018, our tier 1 and total capital adequacy ratios (CAR) per Basel III guidelines were 12.8% and 17.9% respectively, compared to the corresponding minimum requirements of 11.8% and 16.7%. At the same time, our net loans to deposits + IFI funding ratio stood at 89.9% and the net stable funding ratio (NSFR) was 130.2%.
Our insurance subsidiary, TBC Insurance, continues to grow steadily and has established itself as one of the leading players on the market, holding the number two position in P&C and life insurance and the number one position in the retail segment. During 2018, TBC Insurance increased its P&C and life insurance market share[4] by 7.6 pp to 20.9%, while its market share in the retail segment went up by 6.3 pp and amounted to 35.0%.
Our digital strategy also continues to deliver superior results. In the fourth quarter of 2018, our offloading ratio reached 90.6%[5] up by 2.3 pp year-on-year, mainly driven by the increased number of transactions in mobile banking. Over the same period, our mobile banking penetration increased by 5.5 pp and amounted to 37.0%. Sales conducted through digital channels also demonstrated strong growth and amounted to 45.3%[6] of total sales in December 2018.
Regarding macro developments, the Georgian economy continued to perform strongly in 2018 following the sharp recovery of 2017. According to initial estimates, GDP growth amounted to 4.8%[7] in 2018, placing Georgia among the fastest-growing economies in the region. The core strengths of the economy - continuous reforms, diversified trade and investment inflows - as well as a prudent macroeconomic stance continued to pay off. Even with a number of unfavourable events in the region and considerably tighter fiscal policy domestically, the economy has stayed on the course of sustainable development. Banking sector loan growth continued to be solid in 2018, with the total loan portfolio expanding by 17.2% at a constant exchange rate. Lending was strong across both the business and retail segments, although a sharp slowdown in non-mortgage retail lending was notable following the introduction of a new regulation on retail lending in May 2018.
As our strategy evolves together with our customers' changing needs, we are constantly updating our strategic priorities to ensure that we create maximum value for our customers. In this regard, I would like to highlight several areas:
· Space: in May 2018, we launched the first fully-digital bank in Georgia, Space, which is a cutting edge mobile application for managing daily finances. This application challenges and redefines the traditional banking experience by offering a unique customer experience through simple procedures and products, intuitive design, price transparency and instant delivery. Space has proved to be very successful and has attracted up to 94,000 customers and 260,000 downloads since its launch.
· Ecosystems: in order to deepen our relationship with our customers, we started developing customer focused ecosystems, which are closely linked with our core financial products and services. In 2018, we launched two such projects as described below, and we plan to add other ecosystems during 2019.
o We began to develop an e-commerce market place through building an innovative digital trading platform, Vendoo, and by acquiring Swoop, a well-known online discount and sales company in Georgia.
o We also acquired a 90% stake in a real estate platform, Allproperty.ge, to develop a digital ecosystem for real estate in Georgia that will offer our customers a wide range of products and services that they typically need when buying a home and moving into it.
· Agile: we launched an enterprise wide agile transformation project, which aims to create a more flexible and effective organizational structure. We plan to roll it out across the entire banks in several waves during 2019.
We will elaborate more on our strategic priorities during our Capital Markets Day in June 2019.
I would also like to update you on the progress made during recent months in relation to our international initiatives:
· Azerbaijan: a shareholder agreement with Nikoil Bank was agreed in late December 2018 and signed in early January 2019. In parallel, based on strong mutual commitment, we have been actively engaged in developing the bank including the new strategy and streamlining the operations. The bank has launched several large scale initiatives which would lead to the fundamental improvements of business processes, business volume and brand perception throughout the next few quarters. In parallel, the governance and risk management systems have been improving continuously.
· Uzbekistan: Our international partners, EBRD and IFC have expressed their interest to participate in this project subject to completion of their internal procedures and approvals. We are also in the final stage of negotiations with the local partner. At the same time, we have started deploying the core banking system and renovating our pilot branch for a proof on concept, which is scheduled to open in March 2019.
Finally, since TBC Bank takes into account the possible damage to the country's investment image and respects the role of the National Bank, as a qualified regulator, and despite the fact that the decisions of the National Bank was appealed in the court, JSC TBC Bank would like to announce that it will implement a restructuring of its Supervisory Board whereby the founding shareholders will not be represented at the supervisory Board of JSC TBC Bank. The founding shareholders will maintain their positions as the Chairman and Deputy Chairman of the Board of Directors of TBC Bank Group PLC (a London-based, 100% shareholder of JSC TBC Bank). TBC Bank withdraws all court cases against the National Bank of Georgia and will pay approximately GEL 1 million, which was previously requested by the NBG and disclosed by TBC PLC on 9 January 2019.
In addition, TBC Bank continues to cooperate with the NBG to further improve the quality of the Bank's corporate governance. In order to prevent any questions from any third party regarding corporate governance, TBC PLC will engage with a reputable international firm to conduct a review of the group's related party transactions, practices and procedures.
With this, this matter with NBG has been closed.
Outlook
2018 turned out to be another successful year. We recorded strong financial and operating results and embarked on several new challenges, as described above.
Looking ahead, we are confident that we are well-positioned to capture new opportunities, to achieve sustainable growth and to deliver superior results to our shareholders. Therefore, we would like to reiterate our medium-term targets: ROE of above 20%, cost to income ratio below 35%, dividend pay-out ratio of 25-35% and loan book growth of around 10-15%.
Economic Overview[8]
Economic growth
The Georgian economy continued its solid performance and recorded a 4.8%[9] real GDP growth for the full year 2018. After a slower increase of 3.7% in 3Q, GDP growth rebounded to almost its trend rate and in the last quarter it reached a rate similar to the full year of 4.8%. Such a development is particularly remarkable given the unfavourable environment in the region and the considerably tighter fiscal policy domestically. This once more underlines the economy's core strengths - continuous reforms, diversified trade and investment inflows, as well as a prudent macroeconomic stance.
The growth was broad-based across different sectors of the economy. Data from 9M-show that the 4.8% growth was mostly driven by trade and repairs (+5.7% YoY), real estate (+12.7% YoY), transport and communications (+6.8% YoY), financial intermediation (+15.8% YoY) and hotels and restaurants (+7.3% YoY). The construction sector declined by 3.8% YoY over the same period, reflecting one-off factors related to several large-scale infrastructure projects as well as a slowdown in public spending.
On the demand side, in 9M 2018 final consumption expenditures nominal growth came in at 5.2% YoY while the expansion of investments (+20.0% YoY), including robust growth in inventories supported by business lending, was the growth's key driver. Net exports (-10.8% YoY) somewhat worsened despite the strong growth of exports of goods and services, primarily reflecting the strong aggregate demand in the first half of the year.
The increase in inflows of exports, tourism and remittances remained strong in 1H 2018 (+26.4% YoY in USD terms). Following the economic difficulties in Turkey, sanctions on Iran, and RUB weakness, the growth of inflows slowed in the second half of 2018 (+14.1% YoY), but it still remained solid. As for the full year, total inflows were 19.4% higher YoY. Growth of exports, tourism and remittances inflows was mostly driven by the EU, followed by Azerbaijan, Russia and other CIS economies. The Georgian economy continues to align closer to more stable markets like the EU's while reducing the overall concentration of inflows on any particular country. In that regard its worth mentioning that the EU became the prime source of remittance inflows to Georgia accounting for 35% of the total, while the traditional Russian market, which had always enjoyed the leading position, accounted for 29% of the total remittances inflows.
The Current Account balance continues to improve. Over the last four quarters ending 3Q 2018 the CA deficit to GDP ratio stood at 8.3%, compared to the 8.8% in 2017. The improvement is due to several factors, including continued positive trend in external inflows, normalisation of FDI-related imports as well as low fiscal spending. As a result of the progress and strong seasonal effect, in 3Q 2018 the CA turned even to surplus at 0.3% of GDP.
FDI inflows declined by 27.2% YoY in 9M 2018, mostly reflecting one-offs related to the finalisation of the BP's South Caucasus Pipeline Extension project[10]. From the sectors' perspective, the decline was most pronounced in transport and communications (-70.6% YoY) and construction sectors, both to be primarily explained by the finalization of BP's project mentioned above. FDI inflows also declined in the real estate (-47.8% YoY) and hotels and restaurants (-11.1% YoY) sectors. At the same time, FDI inflows went up in manufacturing (+61.2% YoY), mining (+38.1% YoY), financial (+31.1% YoY) and energy (+30.1% YoY). Despite the contraction in 9M 2018, FDI inflows remain the major source of financing for Georgia's CA deficit.
The fiscal policy remained contractionary throughout the year. Although the budget deficit amounted to an estimated 2.6% of the GDP in 2018, the spending was concentrated mostly at the end of the year and it primarily reflected the advance payments on infrastructure projects. The full impact of the spending on growth is to be apparent in the coming months, with the strongest effect likely in 2Q 2019. At the same time, tax refunds doubled from GEL 232.6 million in 2017 to GEL 466.8 million in 2018 creating more business friendly tax environment and supporting the growth. The increase resulted from the enhanced system of tax refunds at the beginning of the year,
Loan growth remained solid in 2018 with the total bank loan portfolio expanding by 17.2% YoY at a constant exchange rate. Lending was strong across the business as well as retail segments, albeit a sharp slowdown in non-mortgage retail lending was notable since the introduction of the regulation on retail unsecured lending in May 2018.
Inflation and exchange rate
Annual CPI inflation was around the targeted level of 3% in 2018 with 4.3% in January and gradually declining to 1.5% by the end of 2018. The NBG decreased the policy rate by 0.25 pp from 7.25% to 7.00% in July 2018. The central bank continued the normalisation of the monetary policy in 2019 as well, cutting the policy rate by another 0.25 pp to 6.75% in January.
On the back of higher inflows, lower oil prices and, likely, weaker domestic demand, the NBG continued to refill international reserves and purchased USD 65 million in December, equivalent to an estimated 4.0% of the GDP in the same month. Overall, in 2018 the NBG made 17 interventions and purchased USD 197.5 million - an estimated 1.2% of the GDP.
As for the exchange rates, as of the end of December 2018 GEL nominal exchange rate weakened against USD by 3.3% YoY and appreciated against EUR by 1.1% YoY. Over the same period, the GEL nominal effective exchange rate appreciated by 8.0% while the real effective exchange rate appreciation amounted to 4.6%. GEL real effective exchange rate remained below its long term trend as well as medium term average.
Going forward
Georgia continues to position itself as an attractive business environment with structural reforms and high GDP growth potential. In addition, 2018 was another demonstration of a resilience of the economy. According to IMF projections, the Georgian economy is expected to remain among the fastest growing economies in the region with the average GDP growth estimated at above 5.0% in medium term.
More information on the Georgian economy and financial sector can be found at www.tbcresearch.ge
Unaudited Consolidated Financial Results Overview for 4Q 2018
This statement provides a summary of the unaudited business and financial trends for 4Q 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.
TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS.
Please note, that there might be slight differences in previous periods' figures due to rounding.
| Income Statement Highlights | |||||
| in thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | Change YoY | Change QoQ |
| Net interest income | 214,803 | 199,612 | 165,395 | 29.9% | 7.6% |
| Net fee and commission income | 44,064 | 39,384 | 38,952 | 13.1% | 11.9% |
| Other operating non-interest income | 53,395 | 39,093 | 38,969 | 37.0% | 36.6% |
| Credit loss allowance | (44,036) | (47,650) | (36,436) | 20.9% | -7.6% |
| Operating income after credit loss allowance | 268,226 | 230,439 | 206,880 | 29.7% | 16.4% |
| Operating expenses | (123,904) | (104,103) | (99,641) | 24.4% | 19.0% |
| Profit before tax | 144,322 | 126,336 | 107,239 | 34.6% | 14.2% |
| Income tax expense | (14,235) | (18,952) | (10,487) | 35.7% | -24.9% |
| Profit for the period | 130,087 | 107,384 | 96,752 | 34.5% | 21.1% |
NMF - no meaningful figures
| Balance Sheet and Capital Highlights | |||||||
| Dec-18 | Sep-18 | Change QoQ | |||||
| in thousands of GEL | GEL | USD | GEL | USD | |||
| Total assets | 15,526,294 | 5,800,752 | 14,423,997 | 5,515,658 | 7.6% | ||
| Gross loans | 10,372,582 | 3,875,283 | 9,622,563 | 3,679,616 | 7.8% | ||
| Customer deposits | 9,352,142 | 3,494,038 | 8,740,449 | 3,342,300 | 7.0% | ||
| Total equity | 2,205,968 | 824,168 | 2,055,950 | 786,184 | 7.3% | ||
| Regulatory tier I capital (Basel III) | 1,678,716 | 627,182 | 1,580,547 | 604,393 | 6.2% | ||
| Regulatory total capital (Basel III) | 2,351,269 | 878,454 | 2,020,501 | 772,629 | 16.4% | ||
| Regulatory risk weighted assets (Basel III) | 13,154,872 | 4,914,769 | 12,305,756 | 4,705,654 | 6.9% | ||
| Key Ratios | 4Q'18 | 3Q'18 | 4Q'17 | Change YoY | Change QoQ |
| ROE | 24.3% | 21.2% | 21.0% | 3.3 pp | 3.1 pp |
| ROA | 3.5% | 3.1% | 3.0% | 0.5 pp | 0.4 pp |
| NIM | 6.7% | 6.9% | 6.4% | 0.3 pp | -0.2% |
| Cost to income | 39.7% | 37.4% | 41.0% | -1.3 pp | 2.3% |
| Cost of risk | 1.4% | 1.9% | 1.4% | 0.0 pp | -0.5 pp |
| FX adjusted Cost of Risk | 1.3% | 1.5% | 1.2% | 0.1 pp | -0.2 pp |
| NPL to gross loans | 3.1% | 3.1% | 3.3% | -0.2 pp | 0.0 pp |
| Regulatory tier 1 CAR (Basel III) | 12.8% | 12.8% | 13.4% | -0.6 pp | 0.0 pp |
| Regulatory total CAR (Basel III) | 17.9% | 16.4% | 17.5% | 0.4 pp | 1.5 pp |
| Leverage (times) | 7.0x | 7.0x | 6.9x | 0.1x | 0.0x |
Income Statement Discussion
Net Interest Income
| In thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | Change YoY | Change QoQ |
| Loans and advances to customers | 309,106 | 288,435 | 255,576 | 20.9% | 7.2% |
| Investment securities measured at fair value through other comprehensive income | 16,612 | 15,310 | - | NMF | 8.5% |
| Investment securities available for sale | - | - | 11,991 | NMF | NMF |
| Due from other banks | 6,261 | 5,537 | 5,374 | 16.5% | 13.1% |
| Bonds carried at amortised cost | 11,752 | 10,994 | 7,293 | 61.1% | 6.9% |
| Investment in leases | 11,812 | 10,415 | 7,787 | 51.7% | 13.4% |
| Interest income | 355,543 | 330,691 | 288,021 | 23.4% | 7.5% |
| Customer accounts | 70,288 | 68,727 | 66,144 | 6.3% | 2.3% |
| Due to credit institutions | 58,247 | 51,989 | 45,762 | 27.3% | 12.0% |
| Subordinated debt | 11,939 | 10,033 | 10,294 | 16.0% | 19.0% |
| Debt securities in issue | 266 | 330 | 426 | -37.6% | -19.4% |
| Interest expense | 140,740 | 131,079 | 122,626 | 14.8% | 7.4% |
| Net interest income | 214,803 | 199,612 | 165,395 | 29.9% | 7.6% |
| Net interest margin | 6.7% | 6.9% | 6.4% | 0.3 pp | -0.2 pp |
NMF - no meaningful figures
4Q 2018 to 4Q 2017 Comparison
Net interest income increased by GEL 49.4 million, or 29.9%, to GEL 214.8 million, compared to 4Q 2017, driven by a GEL 67.5 million, or 23.4%, higher interest income and a GEL 18.1 million, or 14.8%, higher interest expense.
Interest income grew by GEL 67.5 million, or 23.4%, YoY to GEL 355.5 million, mainly due to an increase in interest income from loans and advances to customers of GEL 53.5 million, or 20.9%. This is primarily related to an increase in gross loan portfolio of GEL 1,819.4 million, or 21.3%, YoY. This effect was slightly offset by a 0.1 pp drop in loan yields, which was mainly driven by a decrease in rates on FC-denominated loans by 0.4 pp to 8.7%, despite the increase in yields on GEL denominated loans by 0.3 pp to 17.4%. The gain in interest income was also driven by the growth in interest income from investment securities (comprising of investment securities measured at fair value through other comprehensive income, investment securities available for sale and bonds carried at amortized cost) by GEL 9.1 million, or 47.1%, which resulted from the significant increase in the respective portfolios. The yield on interest earning assets decreased by 0.1 pp to 11.1%, compared to 4Q 2017.
The GEL 18.1 million, or 14.8%, YoY growth in interest expense to GEL 140.7 million in 4Q 2018 was mainly due to GEL 12.5 million, or 27. 3%, increase in interest expense on amounts due to credit institutions and a GEL 4.1 million, or 6.3%, increase in interest expense on customer accounts. The rise in interest expense on amounts due to credit institutions was attributable to a GEL 410.8 million, or 15.7% increase in the respective portfolio and a 0.7pp increase in respective effective rates, up to 7.6%, mainly related to higher Libor rate. The higher interest expense on customer accounts was attributable to a GEL 1,535.3 million, or 19.6%, growth in the respective portfolio. This effect was partially offset by a 0.4 pp drop in the cost of deposits to 3.1%, which resulted from a 0.4 pp drop in the cost of FC-denominated deposits to 2.0% and a 0.7 pp decrease in the cost of LC denominated deposits to 5.3%. The cost of funding decreased by 0.2 p p and stood at 4.4%.
Consequently, NIM stood at 6.7% in 4Q 2018, compared to 6.4% in 4Q 2017, while the risk adjusted NIM stood at 5.4%, compared to 5.2% in 4Q 2017.
4Q 2018 to 3Q 2018 Comparison
On a QoQ basis, net interest income grew by 7.6% as a result of a 7.5% higher interest income and a 7.4% higher interest expense.
The increase in interest income by GEL 24.9 million, or 7.5%, QoQ mainly resulted from the growth in interest income on loans by GEL 20.7 million, or 7.2%. This in turn was due to an increase in loan portfolio by GEL 750.0 million, or 7.8%. The rise in the portfolio was slightly offset by a 0.2 pp decline in loan yields, which was mainly driven by a decrease in rates on GEL denominated loans by 0.5 pp to 17.4%. This in turn offset the increase in yields on FC-denominated loans by 0.2 pp to 8.7%. The increase in interest income was also magnified by a rise in interest income from investment securities by GEL 2.1 million, or 7.8%, due to growth in the respective portfolios. This effect was partially offset by a decrease of 0.2 pp on yields on investment securities to 7.6%. The yield on interest earning assets decreased by 0.3 pp to 11.1%, compared to 3Q 2018.
The increase in interest expense by GEL 9.7 million, or 7.4%, QoQ was primarily due to the GEL 6.3 million, or 12.0%, rise in the interest expense on amounts due to credit institutions. The main driver was a rise in the respective effective rate by 0.5 pp, to 7.6%, related to change in the currency composition in the portfolio of amounts due to credit institutions, LC-denominated portfolio share increased. Another contributor to the rise in interest expense was the GEL 1.9 million, or 19.0% higher interest expense on subordinated loans. This resulted from the GEL 238.1 million, or 57.7%, increase in the respective portfolio, related to the capital planning. The cost of funding remained stable at 4.4%.
Consequently, on a QoQ basis, NIM decreased by 0.2 pp and stood at 6.7%. Meanwhile risk adjusted NIM was stable on QoQ basis and stood at 5.4%.
| Fee and Commission Income | |||||
| In thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | ||
| Card operations | 30,830 | 28,227 | 21,618 | ||
| Settlement transactions | 19,319 | 17,709 | 16,410 | ||
| Guarantees issued | 6,084 | 4,652 | 4,754 | ||
| Issuance of letters of credit | 2,081 | 2,021 | 1,286 | ||
| Cash transactions | 4,209 | 3,950 | 5,378 | ||
| Foreign currency exchange transactions | 805 | 482 | 337 | ||
| Other | 3,721 | 2,512 | 5,889 | ||
| Fee and commission income | 67,049 | 59,553 | 55,672 | ||
| Card operations | 17,720 | 14,730 | 10,946 | ||
| Settlement transactions | 2,347 | 2,037 | 2,139 | ||
| Guarantees issued | 415 | 426 | 483 | ||
| Letters of credit | 382 | 433 | 368 | ||
| Cash transactions | 1,297 | 1,524 | 1,111 | ||
| Foreign currency exchange transactions | 2 | (4) | 2 | ||
| Other | 822 | 1,023 | 1,671 | ||
| Fee and commission expense | 22,985 | 20,169 | 16,720 | ||
| Card operations | 13,110 | 13,497 | 10,672 | ||
| Settlement transactions | 16,972 | 15,672 | 14,271 | ||
| Guarantees | 5,669 | 4,226 | 4,271 | ||
| Letters of credit | 1,699 | 1,588 | 918 | ||
| Cash transactions | 2,912 | 2,426 | 4,267 | ||
| Foreign currency exchange transactions | 803 | 486 | 335 | ||
| Other | 2,899 | 1,489 | 4,218 | ||
| Net fee and commission income | 44,064 | 39,384 | 38,952 |
NMF - no meaningful figures
4Q 2018 to 4Q 2017 Comparison
In 4Q 2018, net fee and commission income totalled GEL 44.1 million, up by GEL 5.1 million, or 13.1%, compared to 4Q 2017. This mainly resulted from an increase in net fee and commission income from settlement transactions of GEL 2.7 million, or 18.9% and an increase in net fee and commission income from card operations of GEL 2.4 million, or 22.8%.
The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 17.8% and 15.0% respectively. The increase in net fee and commission income from settlement transactions was mainly related to the increased volume and number of money transfer transactions and the growth in net fee and commission income from our affluent retail sub-segment, TBC Status.
4Q 2018 to 3Q 2018 Comparison
On a QoQ basis, net fee and commission income increased by GEL 4.7 million, or 11.9%, compared to 3Q 2018. This was primarily driven by an increase in net fee and commission income from guarantees of GEL 1.4 million, or 34.1%, a GEL 1.4 million increase in other net fee and commission income and a GEL 1.3 million, or 8.3% increase in net fee and commission income from settlement transactions.
The rise in net fee and commission income from guarantees was mainly related to the growth of respective portfolio of GEL 328.8 million, or 37.9%. The rise in other net fee and commission income was mainly due to increased brokerage activities of our subsidiary, TBC Capital, while the increase in net interest income from settlement transactions was driven by increased number and volume of money transfer transactions as mentioned above, consistent with the seasonal patterns.
| Other Operating Non-Interest Income and Gross Insurance Profit | |||||||||||||
| In thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | Change YoY | Change QoQ | ||||||||
| Net income from foreign currency operations | 33,029 | 31,040 | 25,714 | 28.4% | 6.4% | ||||||||
| Share of profit of associates | 212 | 294 | 249 | -14.9% | -27.9% | ||||||||
| Gains less losses/(losses less gains) from derivative financial instruments | (184) | (56) | 3 | NMF | NMF | ||||||||
| Gains less losses from disposal of investment securities measured at fair value through other comprehensive income | - | 2 | - | NMF | NMF | ||||||||
| Gains less losses from disposal of investment securities available for sale | - | - | 93 | NMF | NMF | ||||||||
| Revenues from sale of cash-in terminals | 225 | 237 | 255 | -11.8% | -5.1% | ||||||||
| Revenues from operational leasing | 1,731 | 1,671 | 1,411 | 22.7% | 3.6% | ||||||||
| Gain from sale of investment properties | 7,392 | 492 | 2,775 | NMF | NMF | ||||||||
| Gain from sale of inventories of repossessed collateral | 1,504 | 868 | 682 | NMF | 73.3% | ||||||||
| Revenues from non-credit related fines | 367 | 62 | 1,284 | -71.4% | NMF | ||||||||
| Gain on disposal of premises and equipment | 117 | 36 | 760 | -84.6% | NMF | ||||||||
| Other | 5,149 | 1,324 | 3,824 | 34.6% | NMF | ||||||||
| Other operating income | 16,485 | 4,690 | 10,991 | 50.0% | NMF | ||||||||
| Gross insurance profit[11] | 3,853 | 3,123 | 1,919 | NMF | 23.4% | ||||||||
| Other operating non-interest income and gross insurance profit | 53,395 | 39,093 | 38,969 | 37.0% | 36.6% | ||||||||
| NMF - no meaningful figures | |||||||||||||
4Q 2018 to 4Q 2017 Comparison
Total other operating non-interest income and gross insurance profit grew by GEL 14.4 million, or 37.0%, to GEL 53.4 million in 4Q 2018. This primarily resulted from the growth in net income from foreign currency operations by GEL 7.3 million, or 28.4%, the increase in gains from sale of investment property by GEL 4.6 million and the increase in gross insurance profit of GEL 1.9 million. Higher net income from foreign currency operations resulted from an increased number and volume of FX transactions.
Higher gross insurance profit mainly resulted from increased cross-selling of various insurance products and improved efficiency levels. More information about TBC insurance can be found in Annex 23 on pages 49-50.
4Q 2018 to 3Q 2018 Comparison
On a QoQ basis, total other operating non-interest income and gross insurance profit increased by GEL 14.3 million, or by 36.6%. This mainly resulted from the growth in gains from sale of investment property by GEL 6.9 million and the increase in other operating income, which grew by GEL 3.8 million, mainly related to the recognition of an option to buy equity shares of one of our large corporate client.
| Credit Loss Allowance | |||||
| In thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | Change YoY | Change QoQ |
| Credit loss allowance for loan to customers | (34,398) | (43,345) | (28,421) | 21.0% | -20.6% |
| Credit loss allowance for investments in finance lease | (779) | (493) | (79) | NMF | 58.0% |
| Credit loss allowance for performance guarantees and credit related commitments | (1,532) | (24) | (1,019) | 50.3% | NMF |
| Credit loss allowance for other financial assets | (7,305) | (3,759) | (6,917) | 5.6% | 94.3% |
| Credit loss allowance for financial assets measured at fair value through other comprehensive income | (22) | (29) | - | NMF | -24.1% |
| Total credit loss allowance | (44,036) | (47,650) | (36,436) | 20.9% | -7.6% |
| Operating income after credit loss allowance | 268,226 | 230,439 | 206,880 | 29.7% | 16.4% |
| Cost of risk | 1.4% | 1.9% | 1.4% | 0.0 pp | -0.5 pp |
| NMF - no meaningful figures |
4Q 2018 to 4Q 2017 Comparison
In 4Q 2018, total credit loss allowance grew by GEL 7.6 million to GEL 44.0 million compared to 4Q 2017.
This was primarily attributable to an increase in credit loss allowance for loans to customers by GEL 6.0 million, or 21.0% mainly driven by retail segment.
In 4Q 2018, the cost of risk stood at 1.4% (1.3% without the FX effect), compared to 1.4% (1.2% without the FX effect) in 4Q 2017.
4Q 2018 to 3Q 2018 Comparison
On a QoQ basis, total credit loss allowance declined by GEL 3.6 million to GEL 44.0 million.
This was mainly driven by a drop in credit loss allowance for loans to customers by GEL 8.9 million, or 20.6%. The decline was mainly attributable to improvement in corporate and MSME segments' performance. The drop was partially offset by a rise in credit loss allowance for other financial assets by GEL 3.5 million.
In 4Q 2018, the cost of risk stood at 1.4% (1.3% without the FX effect), compared to 1.9% (1.5% without the FX effect) in 3Q 2018.
| Operating Expenses | |||||
| In thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | Change YoY | Change QoQ |
| Staff costs | 63,213 | 54,294 | 54,105 | 16.8% | 16.4% |
| Provisions for liabilities and charges | - | 4,000 | - | NMF | -100.0% |
| Depreciation and amortization | 12,333 | 11,944 | 10,425 | 18.3% | 3.3% |
| Professional services | 5,385 | 4,107 | 4,672 | 15.3% | 31.1% |
| Advertising and marketing services | 10,738 | 7,193 | 8,141 | 31.9% | 49.3% |
| Rent | 6,666 | 6,016 | 5,908 | 12.8% | 10.8% |
| Utility services | 1,602 | 1,702 | 1,515 | 5.7% | -5.9% |
| Intangible asset enhancement | 3,672 | 2,628 | 3,346 | 9.7% | 39.7% |
| Taxes other than on income | 1,356 | 1,799 | 1,095 | 23.8% | -24.6% |
| Communications and supply | 1,422 | 1,558 | 1,195 | 19.0% | -8.7% |
| Stationary and other office expenses | 1,312 | 1,021 | 1,539 | -14.7% | 28.5% |
| Insurance | 2,558 | 1,063 | 756 | NMF | NMF |
| Security services | 522 | 517 | 488 | 7.0% | 1.0% |
| Premises and equipment maintenance | 1,767 | 2,167 | 1,574 | 12.3% | -18.5% |
| Business trip expenses | 706 | 578 | 645 | 9.5% | 22.1% |
| Transportation and vehicles maintenance | 549 | 703 | 453 | 21.2% | -21.9% |
| Charity | 332 | 181 | 282 | 17.7% | 83.4% |
| Personnel training and recruitment | 1,006 | 465 | 526 | 91.3% | NMF |
| Write-down of current assets to fair value less costs to sell | (19) | (436) | (165) | -88.5% | -95.6% |
| Loss on disposal of Inventory | 1 | 36 | 51 | -98.0% | -97.2% |
| Loss on disposal of investment properties | 36 | - | 57 | -36.8% | NMF |
| Loss on disposal of premises and equipment | 425 | 99 | 186 | NMF | NMF |
| Impairment of intangible assets | 1 | - | - | NMF | NMF |
| Acquisition costs | - | - | 560 | -100.0% | NMF |
| Other | 8,321 | 2,468 | 2,287 | NMF | NMF |
| Administrative and other operating expenses | 48,358 | 33,865 | 35,111 | 37.7% | 42.8% |
| Operating expenses | 123,904 | 104,103 | 99,641 | 24.4% | 19.0% |
| Profit before tax | 144,322 | 126,336 | 107,239 | 34.6% | 14.2% |
| Income tax expense | (14,235) | (18,952) | (10,487) | 35.7% | -24.9% |
| Profit for the period | 130,087 | 107,384 | 96,752 | 34.5% | 21.1% |
| Cost to income | 39.7% | 37.4% | 41.0% | -1.3 pp | 2.3 pp |
| ROE | 24.3% | 21.2% | 21.0% | 3.3 pp | 3.1 pp |
| ROA | 3.5% | 3.1% | 3.0% | 0.5 pp | 0.4 pp |
NMF - no meaningful figures
4Q 2018 to 4Q 2017 Comparison
In 4Q 2018, total operating expenses expanded by GEL 24.3 million, or 24.4% YoY to GEL 123.9 million, primarily due to an increase in staff costs of GEL 9.1 million, or 16.8% YoY and a rise in other administrative expenses, of GEL 13.2 million, or 37.7%. The growth in staff cost was mainly driven by a higher scale and performance, while increase in administrative and other operating expenses was spread across different categories and was mainly related to the increased scale of business and the costs of the mandatory deposit insurance, which was introduced at the end of 2017. Without these costs, total operating expenses and administrative and other operating expenses would have increased by 22.9% and 33.7%, respectively. In addition, in FY 2018 staff cost grew only by 8.5% on YoY basis.
As a result, cost to income ratio dropped to 39.7% in 4Q 2018, compared to 41.0% in 4Q 2017.
4Q 2018 to 3Q 2018 Comparison
On a QoQ basis, total operating expenses grew by GEL 19.8 million, or 19.0%. This was primarily attributable to a GEL 8.9 million, or 16.4% rise in staff cost and a GEL 14.5 million, or 42.8% increase in administrative and other operating expenses. The increase in operating expenses was related to seasonally high costs across various categories of expenses in 4Q.
As a result, the cost to income ratio expanded by 2.3 pp from 37.4%, compared to 3Q 2018.
Net Income
Net income for the fourth quarter increased by GEL 22.7 million, or 21.1%, QoQ and by GEL 33.3 million, or 34.5%, YoY and amounted to GEL 130.1 million.
As a result, ROE stood at 24.3%, up by 3.3 pp YoY and by 3.1 pp QoQ, while ROA stood at 3.5%, up by 0.5 pp YoY but by 0.4 pp QoQ.
| Balance Sheet Discussion | |||||
| In thousands of GEL | Dec-18 | Sep-18 | Change QoQ | ||
| Cash, due from banks and mandatory cash balances with NBG | 2,637,036 | 2,693,455 | -2.1% | ||
| Loans and advances to customers (Net) | 10,038,452 | 9,279,982 | 8.2% | ||
| Financial securities | 1,659,442 | 1,386,239 | 19.7% | ||
| Fixed and intangible assets & investment property | 561,020 | 549,938 | 2.0% | ||
| Other assets | 630,344 | 514,383 | 22.5% | ||
| Total assets | 15,526,294 | 14,423,997 | 7.6% | ||
| Due to credit institutions | 3,031,503 | 2,981,269 | 1.7% | ||
| Customer accounts | 9,352,142 | 8,740,449 | 7.0% | ||
| Debt securities in issue | 13,343 | 13,027 | 2.4% | ||
| Subordinated debt | 650,919 | 412,803 | 57.7% | ||
| Other liabilities | 272,419 | 220,499 | 23.5% | ||
| Total liabilities | 13,320,326 | 12,368,047 | 7.7% | ||
| Total equity | 2,205,968 | 2,055,950 | 7.3% | ||
Assets
On a QoQ basis, total assets rose by GEL 1,102.3 million, or 7.6%, mainly due to a GEL 758.5 million, or 8.2%, increase in net loans to customers. The increase also resulted from a GEL 273.2 million or 19.7% rise in financial securities and a GEL 116.0 million or 22.5% increase in other assets. The expansion was partially offset by a decline in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) by GEL 56.4 million, or 2.1%.
As of 31 December 2018, the gross loan portfolio reached GEL 10,372.6 million, up by 7.8% QoQ. At the same time, gross loans denominated in foreign currency accounted for 60.1% of total loans, compared to 59.2% as of 30 September 2018.
Asset Quality
Borrowers with FX income
| 31-Dec-18 | 30-Sep-18 | |||
| Segments | % of FX loans | of which borrowers with FX income** | % of FX loans | of which borrowers with FX income** |
| Retail | 56.1% | 28.5% | 53.7% | 28.1% |
| Non-mortgage | 19.9% | 24.1% | 18.9% | 26.1% |
| Mortgage | 82.7% | 29.3% | 81.9% | 28.5% |
| Corporate | 71.5% | 51.4%* | 73.3% | 52.5%* |
| MSME | 53.1% | 15.2% | 52.1% | 14.9% |
| Total loan portfolio | 60.1% | 34.0% | 59.2% | 34.4% |
(Based on internal estimates)
* Pure exports account for 7.0% and 7.3% of total corporate FX denominated loans as at 31 December 2018 and 30 September 2018, respectively
** FX income implies both direct and indirect income
| PAR 30 by Segments and Currencies | Dec-18 | Sep-18 | ||||
| GEL | FC | Total | GEL | FC | Total | |
| Corporate | 0.7% | 0.3% | 0.4% | 0.0% | 1.1% | 0.8% |
| Retail | 4.0% | 1.5% | 2.6% | 4.5% | 1.7% | 3.0% |
| MSME | 2.4% | 3.2% | 2.8% | 1.8% | 3.6% | 2.7% |
| Total | 2.8% | 1.4% | 2.0% | 2.9% | 1.9% | 2.3% |
| Loans overdue by more than 30 days to gross loans |
Total
Total PAR 30 improved by 0.3 pp QoQ, standing at 2.0%. The improvement was attributable to both retail and corporate segments.
Retail Segment
The retail segment's PAR 30 amounted to 2.6%, down by 0.4 pp QoQ. The decrease was driven by an improvement across all retail products.
Corporate
The corporate segment's PAR 30 amounted to 0.4%, down by 0.4 pp QoQ and it was driven by overall improvement of the corporate loan book, as well as high portfolio growth.
MSME
The MSME segment's PAR 30 remained broadly stable QoQ and stood at 2.8% as of 31 December 2018.
| NPLs | Dec-18 | Sep-18 | ||||
| Corporate | 1.6% | 3.1% | 2.7% | 1.2% | 3.2% | 2.6% |
| Retail | 3.7% | 2.3% | 2.9% | 3.7% | 2.4% | 3.0% |
| MSME | 2.6% | 5.5% | 4.2% | 2.3% | 5.7% | 4.1% |
| Total | 2.9% | 3.3% | 3.1% | 2.8% | 3.4% | 3.1% |
Total
Total NPLs were stable on QoQ basis and stood at 3.1%.
Retail Segment
The retail segment's NPLs remained broadly stable QoQ and stood at 2.9%.
Corporate
The corporate segment's NPLs remained broadly stable QoQ and stood at 2.7%.
MSME
The MSME segment's NPLs remained broadly stable on QoQ basis and stood at 4.2%.
| NPLs Coverage | Dec-18 | Sep-18 | ||
| Exc. Collateral | Incl. Collateral | Exc. Collateral | Incl. Collateral | |
| Corporate | 96.4% | 286.9% | 104.3% | 242.5% |
| Retail | 132.4% | 204.4% | 140.8% | 206.4% |
| MSME | 68.4% | 174.0% | 80.8% | 184.8% |
| Total | 102.7% | 216.4% | 113.2% | 209.0% |
Liabilities
As of 31 December 2018, TBC Bank's total liabilities amounted to GEL 13,320.3 million, up by GEL 952.3 million, or 7.7%, QoQ. This primarily resulted from a GEL 611.7 million, or 7.0%, increase in customer accounts and GEL 238.1 million or 57.7% increase in subordinated debt.
Liquidity
As of 31 December 2018 the Bank's liquidity ratio, as defined by the NBG, stood at 33.3%, compared to 31.9% as of 30 September 2018 and above the NBG limit of 30%. As of 31 December 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 113.9%, above the 100.0% limit. The LCR in GEL and FC stood at 102.5% and 121.1% respectively, above the respective limits of 75% and 100%.
Total Equity
As of 31 December 2018, TBC's total equity totalled GEL 2,206.0 million, up by GEL 150.0 million from GEL 2,056.0 million as of 30 September 2018. The QoQ change in equity was mainly due to an increase in net income of GEL 130.1 million.
Regulatory Capital
According to the new methodology introduced at the end of 2017, as of 31 December 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.8% and 17.9%, respectively, compared to the minimum required levels of 11.8% and 16.7%. In comparison, 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, higher than the minimum required levels of 10.3% and 15.8%.
In 31 December 2018, the Bank's Basel III Tier 1 Capital amounted to GEL 1,678.7 million, up by GEL 98.2 million, or 6.2%, compared to September 2018, due to an increase in net income. The Bank's Basel III Total Capital amounted to GEL 2,351.3 million, up by GEL 330.8 million, or 16.4%, QoQ. The increase in total capital was attributable to the increase in net income as mentioned above and the growth in subordinated loans. In 4Q, the bank attracted GEL 230.5 million subordinated loan, out of which GEL 160.6 million was converted from existing senior loans and the remaining GEL 69.9 million was additionally raised. Risk weighted assets stood at GEL 13,154.9 million as of 31 December 2018, up by GEL 849.1 million, or 6.9%, compared to September 2018, mainly related to the rise in 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 5.0 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 purposes.
Income Statement by Segments
| 4Q'18 | Retail | MSME | Corporate | Corp.Centre | Total |
| Interest income | 157,622 | 73,492 | 79,791 | 44,638 | 355,543 |
| Interest expense | (33,233) | (2,384) | (34,670) | (70,453) | (140,740) |
| Net transfer pricing | (16,414) | (23,317) | 8,786 | 30,945 | - |
| Net interest income | 107,975 | 47,791 | 53,907 | 5,130 | 214,803 |
| Fee and commission income | 47,785 | 6,340 | 12,503 | 421 | 67,049 |
| Fee and commission expense | (19,208) | (1,895) | (1,730) | (152) | (22,985) |
| Net fee and commission income | 28,577 | 4,445 | 10,773 | 269 | 44,064 |
| Gross insurance profit | - | - | - | 3,853 | 3,853 |
| Net income from foreign currency operations | 8,393 | 6,527 | 13,046 | 292 | 28,258 |
| Foreign exchange translation gains less losses/(losses less gains) | - | - | - | 4,771 | 4,771 |
| Net losses from derivative financial instruments | (179) | - | - | (5) | (184) |
| Other operating income | 2,291 | 243 | 12,748 | 1,203 | 16,485 |
| Share of profit of associates | - | - | - | 212 | 212 |
| Other operating non-interest income and insurance profit | 10,505 | 6,770 | 25,794 | 10,326 | 53,395 |
| Credit loss allowance for loan to customers | (34,108) | 461 | (751) | - | (34,398) |
| Credit loss allowance for performance guarantees and credit related commitments | (276) | 456 | (1,711) | (1) | (1,532) |
| Credit loss allowance for investments in finance lease | - | - | - | (779) | (779) |
| Credit loss allowance for other financial assets | (26) | - | (5,357) | (1,922) | (7,305) |
| Credit loss allowance for financial assets measured at fair value through other comprehensive income | - | - | 21 | (43) | (22) |
| Profit before G&A expenses and income taxes | 112,647 | 59,923 | 82,676 | 12,980 | 268,226 |
| Staff costs | (37,064) | (13,562) | (8,598) | (3,989) | (63,213) |
| Depreciation and amortization | (9,815) | (1,337) | (604) | (577) | (12,333) |
| Administrative and other operating expenses | (30,172) | (7,924) | (6,569) | (3,693) | (48,358) |
| Operating expenses | (77,051) | (22,823) | (15,771) | (8,259) | (123,904) |
| Profit before tax | 35,596 | 37,100 | 66,905 | 4,721 | 144,322 |
| Income tax expense | (4,644) | (5,534) | (10,033) | 5,976 | (14,235) |
| Profit for the year | 30,952 | 31,566 | 56,872 | 10,697 | 130,087 |
| Portfolios by Segments | ||
| In thousands of GEL | Dec-18 | Sep-18 |
| Loans and advances to customers | ||
| Non-mortgage | 1,989,516 | 1,994,240 |
| Mortgage | 2,709,183 | 2,452,157 |
| Retail | 4,698,699 | 4,446,397 |
| Corporate | 3,177,289 | 2,891,628 |
| MSME | 2,496,594 | 2,284,538 |
| Total loans and advances to customers (Gross) | 10,372,582 | 9,622,563 |
| Less: credit loss allowance for loans to customers | (334,130) | (342,581) |
| Total loans and advances to customers (Net) | 10,038,452 | 9,279,982 |
| Customer accounts | ||
| Retail | 5,103,971 | 4,850,586 |
| Corporate | 3,230,653 | 2,920,526 |
| MSME | 1,017,518 | 969,337 |
| Total Customer accounts | 9,352,142 | 8,740,449 |
Retail Banking
As of 31 December 2018, retail loans stood at GEL 4,698.7 million, up by GEL 252.3 million, or 5.7%, QoQ and they accounted for 40.0% market share of total individual loans. As of the same date foreign currency loans represented 56.1% of the total retail loan portfolio.
In the reporting period, retail deposits stood at GEL 5,104.0 million, up by GEL 253.4 million, or 5.2%, QoQ and accounted for 41.2% market share of total individual deposits. As of 31 December 2018 term deposits accounted for 52.5% of the total retail deposit portfolio, while foreign currency deposits represented 81.7% of the total.
In 4Q 2018, retail loan yields and deposit rates stood at 13.6% and 2.6%, respectively. The segment's cost of risk on loans was 2.9% . The retail segment contributed 23.8%, or GEL 31.0 million, to the total net income in 4Q 2018.
Corporate Banking
As of 31 December 2018, corporate loans amounted to GEL 3,177.3 million, up by GEL 285.7 million, or 9.9%, QoQ. Foreign currency loans accounted for 71.5% of the total corporate loan portfolio. The market share of total legal entities loans stood at 37.4%.
As of the same date, corporate deposits totalled GEL 3,230.7 million, up by GEL 310.1 million, or 10.6%, QoQ. Foreign currency corporate deposits represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 41.2%.
In 4Q 2018, corporate loan yields and deposit rates stood at 10.0% and 4.5%, respectively. In the same period, the cost of risk on loans was 0.1%. In terms of profitability, the corporate segment's net profit reached GEL 56.9 million, or 43.7%, of the total net income.
MSME Banking
As of 31 December 2018, MSME loans amounted to GEL 2,496.6, up by GEL 212.1 million, or 9.3%, QoQ. Foreign currency loans accounted for 53.1% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 1,017.5 million, up by GEL 48.2 million, or 5.0%, QoQ. Foreign currency MSME deposits represented 49.3% of the total MSME deposit portfolio.
In 4Q 2018, MSME loan yields and deposit rates stood at 12.2% and 1.0% respectively, while the cost of risk on loans was -0.1%. In terms of profitability, net profit for the MSME segment amounted to GEL 31.6 million, or 24.3%, of the total net income.
Consolidated Financial Statements of TBC Bank Group PLC
| Consolidated Balance Sheet | ||
| In thousands of GEL | Dec-18 | Sep-18 |
| Cash and cash equivalents | 1,166,911 | 1,114,672 |
| Due from other banks | 47,316 | 152,010 |
| Mandatory cash balances with National Bank of Georgia | 1,422,809 | 1,426,773 |
| Loans and advances to customers | 10,038,452 | 9,279,982 |
| Investment securities measured at fair value through other comprehensive income | 1,005,239 | 868,060 |
| Bonds carried at amortised cost | 654,203 | 518,179 |
| Investments in finance leases | 203,802 | 183,715 |
| Investment properties | 84,296 | 78,274 |
| Current income tax prepayment | 2,116 | 7,650 |
| Deferred income tax asset | 2,097 | 2,499 |
| Other financial assets | 167,518 | 103,520 |
| Other assets | 221,093 | 186,061 |
| Premises and equipment | 367,504 | 375,002 |
| Intangible assets | 109,220 | 96,662 |
| Goodwill | 31,286 | 28,718 |
| Investments in associates | 2,432 | 2,220 |
| TOTAL ASSETS | 15,526,294 | 14,423,997 |
| LIABILITIES | ||
| Due to Credit Institutions | 3,031,503 | 2,981,269 |
| Customer accounts | 9,352,142 | 8,740,449 |
| Other financial liabilities | 98,714 | 90,966 |
| Current income tax liability | 63 | 30 |
| Debt Securities in issue | 13,343 | 13,027 |
| Deferred income tax liability | 22,237 | 27,202 |
| Provisions for liabilities and charges | 47,068 | 16,329 |
| Other liabilities | 104,337 | 85,972 |
| Subordinated debt | 650,919 | 412,803 |
| TOTAL LIABILITIES | 13,320,326 | 12,368,047 |
| EQUITY | ||
| Share capital | 1,650 | 1,650 |
| Share premium | 796,854 | 796,854 |
| Retained earnings | 1,523,879 | 1,372,798 |
| Group reorganisation reserve | (162,166) | (162,166) |
| Share based payment reserve | (16,294) | (18,689) |
| Revaluation reserve for premises | 57,240 | 64,962 |
| Fair value reserve | 8,680 | 4,875 |
| Cumulative currency translation reserve | (6,937) | (7,277) |
| Net assets attributable to owners | 2,202,906 | 2,053,007 |
| Non-controlling interest | 3,062 | 2,943 |
| TOTAL EQUITY | 2,205,968 | 2,055,950 |
| TOTAL LIABILITIES AND EQUITY | 15,526,294 | 14,423,997 |
| Consolidated Statement of Profit or Loss and Other Comprehensive Income | |||||
| In thousands of GEL | 4Q'18 | 3Q'18 | 4Q'17 | ||
| Interest income | 355,543 | 330,691 | 288,021 | ||
| Interest expense | (140,740) | (131,079) | (122,626) | ||
| Net interest income | 214,803 | 199,612 | 165,395 | ||
| Fee and commission income | 67,049 | 59,553 | 55,672 | ||
| Fee and commission expense | (22,985) | (20,169) | (16,720) | ||
| Net fee and commission income | 44,064 | 39,384 | 38,952 | ||
| Net insurance premiums earned | 7,023 | 5,976 | 3,660 | ||
| Net insurance claims incurred and agents' commissions | (3,170) | (2,853) | (1,741) | ||
| Insurance profit | 3,853 | 3,123 | 1,919 | ||
| Net income from foreign currency operations | 28,258 | 24,638 | 25,622 | ||
| Net gain/(losses) from foreign exchange translation | 4,771 | 6,402 | 92 | ||
| Net gains/(losses) from derivative financial instruments | (184) | (56) | 3 | ||
| Gains less losses from disposal of investment securities measured at fair value through other comprehensive income | - | 2 | - | ||
| Gains less losses from disposal of investment securities available for sale | - | - | 93 | ||
| Other operating income | 16,485 | 4,690 | 10,991 | ||
| Share of profit of associates | 212 | 294 | 249 | ||
| Other operating non-interest income | 49,542 | 35,970 | 37,050 | ||
| Credit loss allowance for loan to customers | (34,398) | (43,345) | (28,421) | ||
| Credit loss allowance for investments in finance lease | (779) | (493) | (79) | ||
| Credit loss allowance for performance guarantees and credit related commitments | (1,532) | (24) | (1,019) | ||
| Credit loss allowance for other financial assets | (7,305) | (3,759) | (6,917) | ||
| Credit loss allowance for financial assets measured at fair value through other comprehensive income | (22) | (29) | - | ||
| Operating income after credit loss allowance for impairment | 268,226 | 230,439 | 206,880 | ||
| Staff costs | (63,213) | (54,294) | (54,105) | ||
| Depreciation and amortization | (12,333) | (11,944) | (10,425) | ||
| (Provision for)/ recovery of liabilities and charges | - | (4,000) | - | ||
| Administrative and other operating expenses | (48,358) | (33,865) | (35,111) | ||
| Operating expenses | (123,904) | (104,103) | (99,641) | ||
| Profit before tax | 144,322 | 126,336 | 107,239 | ||
| Income tax expense | (14,235) | (18,952) | (10,487) | ||
| Profit for the period | 130,087 | 107,384 | 96,752 | ||
| Other comprehensive income: | |||||
| Items that may be reclassified subsequently to profit or loss: | |||||
| Movement in fair value reserve | 3,757 | 2,365 | - | ||
| Revaluation of available-for-sale investments | - | - | 946 | ||
| Exchange differences on translation to presentation currency | 340 | 71 | (60) | ||
| Items that will not be reclassified to profit or loss: | |||||
| Revaluation of premises and equipment | 10,749 | - | - | ||
| Income tax recorded directly in other comprehensive income | 2,788 | - | - | ||
| Other comprehensive income for the period | 17,634 | 2,436 | 886 | ||
| Total comprehensive income for the period | 147,721 | 109,820 | 97,638 | ||
| Profit attributable to: | |||||
| - Shareholders of TBCG | 129,952 | 106,779 | 95,364 | ||
| - Non-controlling interest | 135 | 605 | 1,388 | ||
| Profit for the period | 130,087 | 107,384 | 96,752 | ||
| Total comprehensive income is attributable to: | |||||
| - Shareholders of TBCG | 147,628 | 109,183 | 96,177 | ||
| - Non-controlling interest | 93 | 637 | 1,461 | ||
| Total comprehensive income for the period | 147,721 | 109,820 | 97,638 | ||
Key Ratios
Average Balances
The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.
| Key Ratios | |||||
| Ratios (based on monthly averages, where applicable) | 4Q'18 | 3Q'18 | 4Q'17 | ||
| ROE1 | 24.3% | 21.2% | 21.0% | ||
| ROA2 | 3.5% | 3.1% | 3.0% | ||
| ROE before credit loss allowance3 | 32.5% | 30.7% | 29.0% | ||
| Cost to income4 | 39.7% | 37.4% | 41.0% | ||
| Cost of risk5 | 1.4% | 1.9% | 1.4% | ||
| FX adjusted cost of risk6 | 1.3% | 1.5% | 1.2% | ||
| NIM7 | 6.7% | 6.9% | 6.4% | ||
| Risk adjusted NIM8 | 5.4% | 5.4% | 5.2% | ||
| Loan yields9 | 12.2% | 12.4% | 12.3% | ||
| Risk adjusted loan yields10 | 10.9% | 10.9% | 11.1% | ||
| Deposit rates11 | 3.1% | 3.3% | 3.5% | ||
| Yields on interest earning assets12 | 11.1% | 11.4% | 11.2% | ||
| Cost of funding13 | 4.4% | 4.4% | 4.6% | ||
| Spread14 | 6.6% | 7.0% | 6.6% | ||
| PAR 90 to gross loans15 | 1.2% | 1.3% | 1.4% | ||
| NPLs to gross loans16 | 3.1% | 3.1% | 3.3% | ||
| NPLs coverage17 | 102.7% | 113.2% | 104.7% | ||
| NPLs coverage with collateral18 | 216.4% | 209.0% | 209.4% | ||
| Credit loss level to gross loans19 | 3.2% | 3.6% | 3.4% | ||
| Related party loans to gross loans20 | 0.1% | 0.1% | 0.1% | ||
| Top 10 borrowers to total portfolio21 | 10.1% | 10.3% | 8.2% | ||
| Top 20 borrowers to total portfolio22 | 14.2% | 14.1% | 12.4% | ||
| Net loans to deposits plus IFI Funding23 | 89.9% | 88.0% | 92.5% | ||
| Net stable funding ratio24 | 130.2% | 118.0% | 124.4% | ||
| Liquidity coverage ratio25 | 113.9% | 111.6% | 112.7% | ||
| Leverage26 | 7.0x | 7.0x | 6.9x | ||
| Regulatory tier 1 CAR (Basel III)27 | 12.8% | 12.8% | 13.4% | ||
| Regulatory total 1 CAR (Basel III)28 | 17.9% | 16.4% | 17.5% | ||
Ratio definitions
1. Return on average total equity (ROE) equals net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; annualised where applicable.
2. Return on average total assets (ROA) equals net income of the period divided by the monthly average total assets for the same period. Annualised where applicable.
3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by the monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.
4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).
5. 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 is calculated based on currency rates of the respective prior periods.
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 the 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 the 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 the total loan amount of the top 10 borrowers divided by the gross loan portfolio.
22. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.
23. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.
24. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined in Basel III.
25. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.
26. Leverage equals total assets to total equity.
27. Regulatory 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 2.6151 as of 30 September 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.5922 as of 31 December 2017. As of 31 December 2018 the USD/GEL exchange rate equalled 2.6766. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 4Q 2018 of 2.6752, 3Q 2018 of 2.5295, 4Q 2017 of 2.5933.
Preliminary Unaudited Consolidated Financial Results Overview FY 2018
The information contained in this announcement and its appendices relating to full year FY18 preliminary results, which were approved by the Board on 20 February 2019, do not constitute statutory accounts under section 434 of the UK Companies Act 2006. The financial statements of TBC Bank will be included in the Annual Report and Accounts due to be published in April 2019, and filed with the Registrar of Companies in due course.
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.
TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The results are adjusted for certain one-off items to enable better analysis of the Group's performance. The reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 26 section on page 51.
| Income Statement Highlights | |||
| in thousands of GEL | FY'18 | FY'17 | Change YoY |
| Net interest income | 778,022 | 604,015 | 28.8% |
| Net fee and commission income | 157,530 | 125,961 | 25.1% |
| Other operating non-interest income | 151,916 | 131,009 | 16.0% |
| Credit loss allowance | (166,239) | (106,907) | 55.5% |
| Operating income after credit loss allowance | 921,229 | 754,078 | 22.2% |
| Operating expenses | (411,029) | (359,400) | 14.4% |
| Profit before tax | 510,200 | 394,678 | 29.3% |
| Income tax expense | (72,765) | (34,750) | NMF |
| Profit for the period | 437,435 | 359,928 | 21.5% |
| Underlying profit for the period | 454,861 | 369,214 | 23.2% |
| Balance Sheet and Capital Highlights | |||||||||||
| Dec-18 | Dec-17 | Change YoY | |||||||||
| in thousands of GEL | GEL | USD | GEL | USD | |||||||
| Total assets | 15,526,294 | 5,800,752 | 12,965,910 | 5,001,894 | 19.7% | ||||||
| Gross loans | 10,372,582 | 3,875,283 | 8,553,217 | 3,299,598 | 21.3% | ||||||
| Customer deposits | 9,352,142 | 3,494,038 | 7,816,817 | 3,015,515 | 19.6% | ||||||
| Total equity | 2,205,968 | 824,168 | 1,890,454 | 729,286 | 16.7% | ||||||
| Regulatory tier I capital (Basel III) | 1,678,716 | 627,182 | 1,437,218 | 554,439 | 16.8% | ||||||
| Regulatory total capital (Basel III) | 2,351,269 | 878,454 | 1,885,287 | 727,292 | 24.7% | ||||||
| Regulatory risk weighted assets (Basel III) | 13,154,872 | 4,914,769 | 10,753,189 | 4,148,287 | 22.3% | ||||||
| Key Ratios | FY'18 | FY'17 | Change YoY |
| Underlying ROE | 22.8% | 21.4% | 1.4 pp |
| Reported ROE | 22.0% | 20.9% | 1.1 pp |
| Underlying ROA | 3.3% | 3.2% | 0.1 pp |
| Reported ROA | 3.2% | 3.1% | 0.1 pp |
| NIM | 6.9% | 6.5% | 0.4 pp |
| Cost to income | 37.8% | 41.7% | -3.9 pp |
| Cost of risk | 1.6% | 1.2% | 0.4 pp |
| FX adjusted cost of risk | 1.5% | 1.4% | 0.1 pp |
| NPL to gross loans | 3.1% | 3.3% | -0.2 pp |
| Regulatory tier 1 CAR (Basel III) | 12.8% | 13.4% | -0.6 pp |
| Regulatory total CAR (Basel III) | 17.9% | 17.5% | 0.4 pp |
| Leverage (times) | 7.0x | 6.9x | 0.1x |
Income Statement Discussion
| Net Interest Income | |||
| In thousands of GEL | FY'18 | FY'17 | |
| Loans and advances to customers | 1,123,972 | 919,796 | |
| Investment securities measured at fair value through other comprehensive income | 57,057 | - | |
| Investment securities available for sale | - | 43,735 | |
| Due from other banks | 23,744 | 14,807 | |
| Bonds carried at amortised cost | 40,625 | 32,328 | |
| Investment in leases | 38,837 | 23,273 | |
| Interest income | 1,284,235 | 1,033,939 | |
| Customer accounts | 266,741 | 233,884 | |
| Due to credit institutions | 196,498 | 157,122 | |
| Subordinated debt | 41,571 | 36,975 | |
| Debt securities in issue | 1,403 | 1,943 | |
| Interest expense | 506,213 | 429,924 | |
| Net interest income | 778,022 | 604,015 | |
| Net interest margin | 6.9% | 6.5% |
NMF - no meaningful figures
FY 2018 to FY 2017 Comparison
In FY 2018, net interest income grew by GEL 174.0 million, or 28.8%, YoY to GEL 778.0 million, resulting from a GEL 250.3 million, or 24.2%, higher interest income and a GEL 76.3 million or 17.7% higher interest expense.
Interest income grew by GEL 250.3 million, or 24.2%, YoY to GEL 1,284.2 million. This was mainly driven by an increase in interest income from loans and advances to customers of GEL 204.2 million, or 22.2%, which is primarily related to a rise in the gross loan portfolio by GEL 1,819.4 million, or 21.3%, YoY. This effect was further magnified by a 0.2 pp increase in loan yields to 12.3%, which was driven by a rise in rates on GEL denominated loans of 0.9 pp. This in turn was partially offset by the decrease in yields on FC denominated loans by 0.6 pp. Another contributor to the increase in interest income was the interest income from investment securities, which was up by GEL 21.6 million, or 28.4%. This resulted from an increase in respective portfolio by GEL 554.0 million, or by 50.1%. Yield on investment securities remained stable on YoY basis. Yields on interest earning assets expanded by 0.3 pp to 11.4%, compared to FY 2017.
The YoY growth in interest expense by GEL 76.3 million, or 17.7% to a GEL 506.2 million in FY 2018 was mainly due to 25.1% increase in interest expense on amounts due to credit institutions by GEL 39.4 million and a rise in interest expense on customer accounts by GEL 32.9 million, or 14.0%. The higher interest expense on amounts due to credit institutions was mainly due to an increase in the respective portfolio by GEL 410.8 million, or 15.7%, and a 0.7pp higher effective rate, which stood at 7.2%, mainly related to the rise in Libor rate. The higher interest expense on customer accounts was attributable to a GEL 1,535.3 million, or 19.6%, growth in the respective portfolio, partially offset by a 0.2 pp decline in the cost of deposit, down to 3.2%, which resulted from a 0.3 pp and a 0.4 pp decrease in cost of deposits of LC and FC denominated deposits, respectively. As a result, the cost of funding decreased by 0.1 pp on a YoY basis and stood at 4.4%.
Consequently, NIM was 6.9% in FY 2018, compared to 6.5% in FY 2017.
| Fee and Commission Income | |||
| In thousands of GEL | FY'18 | FY'17 | |
| Card operations | 106,067 | 82,525 | |
| Settlement transactions | 70,720 | 59,739 | |
| Guarantees issued | 19,815 | 15,121 | |
| Issuance of letters of credit | 6,463 | 5,735 | |
| Cash transactions | 17,147 | 17,424 | |
| Foreign currency exchange transactions | 2,183 | 1,339 | |
| Other | 13,306 | 12,061 | |
| Fee and commission income | 235,701 | 193,944 | |
| Card operations | 55,893 | 46,360 | |
| Settlement transactions | 8,669 | 7,421 | |
| Guarantees issued | 1,460 | 1,801 | |
| Letters of credit | 1,403 | 1,072 | |
| Cash transactions | 5,180 | 4,393 | |
| Foreign currency exchange transactions | 3 | 94 | |
| Other | 5,563 | 6,842 | |
| Fee and commission expense | 78,171 | 67,983 | |
| Card operations | 50,174 | 36,165 | |
| Settlement transactions | 62,051 | 52,318 | |
| Guarantees | 18,355 | 13,320 | |
| Letters of credit | 5,060 | 4,663 | |
| Cash transactions | 11,967 | 13,031 | |
| Foreign currency exchange transactions | 2,180 | 1,245 | |
| Other | 7,743 | 5,219 | |
| Net fee and commission income | 157,530 | 125,961 |
NMF - no meaningful figures
FY 2018 to FY 2017 Comparison
In FY 2018, net fee and commission income totalled GEL 157.5 million, up by GEL 31.6 million, or 25.1%, compared to FY 2017. This mainly resulted from an increase in net fee and commission income from card operations of GEL 14.0 million, or 38.7% and an increase in net fee and commission income from settlement transactions of GEL 9.7 million, or 18.6%.
The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 17.8% and 15.0% 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, the growth in net fee and commission income from our affluent retail sub-segment, TBC Status and the increased number and volume of money transfer transactions.
| Other Operating Non-Interest Income and Gross Insurance Profit | |||||
| In thousands of GEL | FY'18 | FY'17 | Change YoY | ||
| Net income from foreign currency operations | 106,874 | 91,473 | 16.8% | ||
| Share of profit of associates | 1,154 | 909 | 27.0% | ||
| Gains less losses/(losses less gains) from derivative financial instruments | 173 | (36) | NMF | ||
| Gains less losses from disposal of investment securities measured at fair value through other comprehensive income | 2 | - | NMF | ||
| Gains less losses from disposal of investment securities available for sale | - | 93 | NMF | ||
| Revenues from sale of cash-in terminals | 1,715 | 1,093 | 56.9% | ||
| Revenues from operational leasing | 6,544 | 6,544 | 0.0% | ||
| Gain from sale of investment properties | 9,781 | 4,353 | NMF | ||
| Gain from sale of inventories of repossessed collateral | 2,577 | 2,383 | 8.1% | ||
| Revenues from non-credit related fines | 683 | 1,408 | -51.5% | ||
| Gain on disposal of premises and equipment | 352 | 1,017 | -65.4% | ||
| Other | 9,786 | 14,999 | -34.8% | ||
| Other operating income | 31,438 | 31,797 | -1.1% | ||
| Gross insurance profit[12] | 12,275 | 6,773 | 81.2% | ||
| Other operating non-interest income and gross insurance profit | 151,916 | 131,009 | 16.0% | ||
| NMF - no meaningful figures | |||||
FY 2018 to FY 2017 Comparison
Total other operating non-interest income and gross insurance profit increased by GEL 20.9 million, or 16.0%, to GEL 151.9 million in FY 2018. This mainly resulted from the rise in net income from foreign currency operations by GEL 15.4 million, or 16.8%, mainly due to an increased number and volume of FX transactions. Another contributor was gross insurance profit up by GEL 5.5 million, or 81.2%.
The increase in gross insurance profit was mainly related to increased cross selling of various insurance products and improved efficiency levels. More information about TBC insurance can be found in Annex 23 on pages 49-50.
| Credit Loss Allowance | |||
| In thousands of GEL | FY'18 | FY'17 | Change in % |
| Credit loss allowance for loan to customers | (143,723) | (93,823) | 53.2% |
| Credit loss allowance for investments in finance lease | (1,765) | (492) | NMF |
| Credit loss allowance for performance guarantees and credit related commitments | (4,056) | (153) | NMF |
| Credit loss allowance for other financial assets | (16,609) | (12,439) | 33.5% |
| Credit loss allowance for financial assets measured at fair value through other comprehensive income | (86) | - | NMF |
| Total credit loss allowance | (166,239) | (106,907) | 55.5% |
| Operating income after credit loss allowance | 921,229 | 754,078 | 22.2% |
| Cost of risk | 1.6% | 1.2% | 0.4 pp |
| NMF - no meaningful figures | |||
FY 2018 to FY 2017 Comparison
In FY 2018, total credit loss allowance increased by GEL 59.3 million to GEL 166.2 million, compared to FY 2017. The main contributor to the growth was credit loss allowance for loans to customers up by GEL 49.9 million. The increase was mainly attributable to the corporate segment following a high recovery of credit loss in FY 2017.
| Operating Expenses | |||
| In thousands of GEL | FY'18 | FY'17 | Change in % |
| Staff costs | 220,354 | 203,100 | 8.5% |
| Provisions for liabilities and charges | 4,000 | (2,495) | NMF |
| Depreciation and amortization | 45,740 | 37,265 | 22.7% |
| Professional services | 13,951 | 14,332 | -2.7% |
| Advertising and marketing services | 29,575 | 18,430 | 60.5% |
| Rent | 24,389 | 23,132 | 5.4% |
| Utility services | 6,491 | 6,067 | 7.0% |
| Intangible asset enhancement | 11,366 | 10,304 | 10.3% |
| Taxes other than on income | 6,757 | 5,670 | 19.2% |
| Communications and supply | 5,173 | 4,063 | 27.3% |
| Stationary and other office expenses | 4,841 | 4,936 | -1.9% |
| Insurance | 4,589 | 2,461 | 86.5% |
| Security services | 2,040 | 1,965 | 3.8% |
| Premises and equipment maintenance | 6,098 | 5,413 | 12.7% |
| Business trip expenses | 2,273 | 2,021 | 12.5% |
| Transportation and vehicles maintenance | 2,043 | 1,637 | 24.8% |
| Charity | 1,074 | 1,045 | 2.8% |
| Personnel training and recruitment | 1,880 | 1,444 | 30.2% |
| Write-down of current assets to fair value less costs to sell | (1,026) | (538) | 90.7% |
| Loss on disposal of Inventory | 137 | 1,239 | -88.9% |
| Loss on disposal of investment properties | 96 | 442 | -78.3% |
| Loss on disposal of premises and equipment | 860 | 492 | 74.8% |
| Impairment of intangible assets | 1 | 1,916 | -99.9% |
| Acquisition costs | - | 2,447 | -100.0% |
| Other | 18,327 | 12,612 | 45.3% |
| Administrative and other operating expenses | 140,935 | 121,530 | 16.0% |
| Operating expenses | 411,029 | 359,400 | 14.4% |
| Profit before tax | 510,200 | 394,678 | 29.3% |
| Income tax expense | (72,765) | (34,750) | NMF |
| Profit for the period | 437,435 | 359,928 | 21.5% |
| Cost to income | 37.8% | 41.7% | -3.9 pp |
| ROE | 22.0% | 20.9% | 1.1 pp |
| ROA | 3.2% | 3.1% | 0.1 pp |
| NMF - no meaningful figures |
FY 2018 to FY 2017 Comparison
In FY 2018, total operating expenses expanded by GEL 51.6 million, or 14.4%, YoY. This mainly resulted from an increase in: staff costs by GEL 17.3 million, or 8.5%; depreciation and amortisation by GEL 8.5 million, or 22.7% and administrative expenses by GEL 19.4 million, or 16.0% (mainly related to the growth of advertising and marketing services). The growth across the board resulted from the overall expansion of the business scale, the higher performance and the costs of the mandatory deposit insurance, which was introduced at the end of 2017. Without these costs, total operating expenses and administrative and other operating expenses would have increased by 12.9% and 11.6% respectively.
As a result, cost to income ratio was 37.8% in FY 2018, 3.9 pp lower than the 41.7% in FY 2017.
Income Tax
In FY 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 FY 2018.
Net Income
Net income for FY increased by GEL 77.5 million, or 21.5%, YoY and stood at GEL 437.4 million, while underlying net income (without reversal of one-off deferred tax gain mentioned above) increased by GEL 85.6 million or 23.2% YoY and amounted to GEL 454.9 million.
As a result, underlying ROE stood at 22.8%, up by 1.4pp YoY, while underlying ROA stood at 3.3%, up by 0.1pp YoY. Reported ROE stood at 22.0%, up by 1.1pp YoY, and reported ROA remained broadly stable on YoY basis and stood at 3.2%.
| Balance Sheet Discussion | |||
| In thousands of GEL | Dec-18 | Dec-17 | Change YoY |
| Cash, due from banks and mandatory cash balances with NBG | 2,637,036 | 2,504,938 | 5.3% |
| Loans and advances to customers (Net) | 10,038,452 | 8,325,353 | 20.6% |
| Financial securities | 1,659,442 | 1,107,476 | 49.8% |
| Fixed and intangible assets & investment property | 561,020 | 529,637 | 5.9% |
| Other assets | 630,344 | 498,506 | 26.4% |
| Total assets | 15,526,294 | 12,965,910 | 19.7% |
| Due to credit institutions | 3,031,503 | 2,620,714 | 15.7% |
| Customer accounts | 9,352,142 | 7,816,817 | 19.6% |
| Debt securities in issue | 13,343 | 20,695 | -35.5% |
| Subordinated debt | 650,919 | 426,788 | 52.5% |
| Other liabilities | 272,419 | 190,442 | 43.0% |
| Total liabilities | 13,320,326 | 11,075,456 | 20.3% |
| Total equity | 2,205,968 | 1,890,454 | 16.7% |
Assets
As of 31 December 2018, the Group's total assets amounted to GEL 15,526.3 million, up by GEL 2,560.4 million, or 19.7%, YoY. The increase was mainly due to a rise in net loans to customers by GEL 1,713.1 million, or 20.6%, YoY. Other contributors to the increase were a GEL 552.0 million, or 49.8%, rise in financial securities and a GEL 132.1 million, or 5.3%, increase in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG), compared to 31 December 2017.
As of 31 December 2018, the gross loan portfolio reached GEL 10,372.6 million, up by 21.3% YoY, while the proportion of gross loans denominated in foreign currency increased by 0.4 pp on a YoY basis and accounted for 60.1% of total loans.
Asset Quality
| PAR 30 by Segments and Currencies | Dec-18 | Dec-17 | |||||||||
| GEL | FC | Total | GEL | FC | Total | ||||||
| Corporate | 0.7% | 0.3% | 0.4% | 0.0% | 2.0% | 1.5% | |||||
| Retail | 4.0% | 1.5% | 2.6% | 2.9% | 2.0% | 2.4% | |||||
| MSME | 2.4% | 3.2% | 2.8% | 1.5% | 3.1% | 2.5% | |||||
| Total | 2.8% | 1.4% | 2.0% | 2.1% | 2.2% | 2.2% | |||||
| Loans overdue by more than 30 days to gross loans | |||||||||||
Total
The total PAR 30 has improved by 0.2 pp YoY driven by improved corporate segment performance.
Retail Segment
The retail segment's PAR 30 increased by 0.2 pp, amounting to 2.6% on a YoY basis, mainly driven by credit cards, fast consumer loans and other higher yield products.
Corporate
The corporate segment's PAR 30 decreased by 1.1 pp YoY, mainly driven by the repayment of one large corporate client as well as an overall improvement of the corporate loan book.
MSME
The MSME segment's PAR 30 increased by 0.3 pp YoY, mainly attributable to SME.
| NPLs | Dec-18 | Dec-17 | ||||||||
| GEL | FC | Total | GEL | FC | Total | |||||
| Corporate | 1.6% | 3.1% | 2.7% | 0.0% | 4.2% | 3.2% | ||||
| Retail | 3.7% | 2.3% | 2.9% | 2.6% | 2.8% | 2.7% | ||||
| MSME | 2.6% | 5.5% | 4.2% | 2.2% | 6.0% | 4.6% | ||||
| Total | 2.9% | 3.3% | 3.1% | 2.1% | 4.1% | 3.3% | ||||
Total
Total NPLs stood at 3.1%, down by 0.2pp on YoY basis, mainly driven by the improved performance of the corporate and MSME loan books.
Retail Segment
The retail segment's NPLs increase by 0.2 pp to 2.9% on YoY basis, mainly driven by credit cards, fast consumer loans and other higher yield products.
Corporate
The corporate NPLs stood at 2.7%, down by 0.5 pp on YoY basis, due to the overall improved performance of the corporate loan book, as well as a high portfolio growth in 2018.
MSME
The MSME NPLs decreased by 0.4 pp on a YoY basis and stood at 4.2%. This was driven by the improved performance in NPLs in both the micro and SME portfolios.
| NPLs Coverage | Dec-18 | Dec-17 | ||||
| Exc. Collateral | Incl. Collateral | Exc. Collateral | Incl. Collateral | |||
| Corporate | 96.4% | 286.9% | 86.6% | 211.0% | ||
| Retail | 132.4% | 204.4% | 154.0% | 237.3% | ||
| MSME | 68.4% | 174.0% | 54.6% | 170.6% | ||
| Total | 102.7% | 216.4% | 104.7% | 209.4% | ||
Liabilities
As of 31 December 2018, TBC Bank's total liabilities amounted to GEL 13,320.3 million, up by GEL 2,244.9 million, or 20.3% YoY. This was primarily due to a GEL 410.8 million, or 15.7%, increase in amounts due to credit institutions and a hike in customer accounts of GEL 1,535.3 million, or 19.6%. Total liabilities also expanded, due to an increase in subordinated debt by GEL 224.1 million, or 52.5%.
Liquidity
As of 31 December 2018, the Bank's liquidity ratio, as defined by the NBG, stood at 33.3%, compared to 32.5% as of 31 December 2017 and above the NBG limit of 30%. As of 31 December 2018, the total liquidity coverage ratio (LCR), as defined by the NBG, was 113.9%, above the 100.0% limit, while the LCR in GEL and FC stood at 102.5% and 121.1% respectively, above the respective limits of 75% and 100%.
Total Equity
As of 31 December 2018, TBC's total equity amounted to GEL 2,206.0 million, up by GEL 315.5 million or by 16.7% from GEL 1,890.5 million as of 31 December 2017. This YoY change in equity was mainly due to net profit contribution of GEL 437.4 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 31 December 2018 the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.8% and 17.9%, respectively, compared to the minimum required levels of 11.8% and 16.7%.
In 31 December 2018, The Bank's Basel III Tier 1 Capital amounted to GEL 1,678.7 million, up by GEL 241.5 million or 16.8%, compared to December 2017, due to increase in net income. The Bank's Basel III Total Capital totalled GEL 2,351.3 million, up by GEL 466.0 million, or by 24.7%. The increase in total capital was attributable to the increase in net income and the growth in subordinated loans, as mentioned above. Risk weighted assets amounted to GEL 13,154.9 million as of 31 December 2018, up by GEL 2,401.7 million, or by 22.3%, compared to December 2017, mainly related to the rise in 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 5.0 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 purposes.
Summary of key changes:
· The limits for corporate customers have been increased from GEL 8.0 million to GEL 12.0 million for annual revenue and from USD 1.5 million to GEL 5.0 million for granted facilities. Additionally as allowed by policy, some customers were moved to corporate segment on discretionary basis considering practical aspects of client account servicing and administration. As a result, the increase amounted to GEL 66 million and GEL 78 million for corporate loan portfolio and corporate deposit portfolio, respectively.
· Certain sub-categories for the individual business customers that are granted non mortgage loans have been moved from retail to MSME segment. Subsequently, GEL 236 million was transferred from retail to MSME loan portfolio.
| Income Statement by Segments | |||||
| FY'18 | Retail | MSME | Corporate | Corp.Centre | Total |
| Interest income | 609,989 | 255,833 | 264,559 | 153,854 | 1,284,235 |
| Interest expense | (123,729) | (9,710) | (133,302) | (239,472) | (506,213) |
| Net transfer pricing | (78,453) | (83,475) | 35,531 | 126,397 | - |
| Net interest income | 407,807 | 162,648 | 166,788 | 40,779 | 778,022 |
| Fee and commission income | 170,082 | 22,498 | 40,667 | 2,454 | 235,701 |
| Fee and commission expense | (64,270) | (6,861) | (6,661) | (379) | (78,171) |
| Net fee and commission income | 105,812 | 15,637 | 34,006 | 2,075 | 157,530 |
| Gross insurance profit | - | - | - | 12,275 | 12,275 |
| Net income from foreign currency operations | 28,811 | 22,002 | 44,629 | (3,764) | 91,678 |
| Foreign exchange translation gains less losses/(losses less gains) | - | - | - | 15,196 | 15,196 |
| Net losses from derivative financial instruments | (223) | - | - | 396 | 173 |
| Gains less losses from disposal of investment securities measured at fair value through other comprehensive income | - | - | - | 2 | 2 |
| Other operating income | 8,658 | 748 | 19,691 | 2,341 | 31,438 |
| Share of profit of associates | - | - | - | 1,154 | 1,154 |
| Other operating non-interest income | 37,246 | 22,750 | 64,320 | 27,600 | 151,916 |
| Credit loss allowance for loan to customers | (118,043) | (15,854) | (9,826) | - | (143,723) |
| Credit loss allowance for performance guarantees and credit related commitments | (412) | (247) | (2,827) | (570) | (4,056) |
| Credit loss allowance for investments in finance lease | - | - | - | (1,765) | (1,765) |
| Credit loss allowance for other financial assets | (3,959) | (2) | (8,634) | (4,014) | (16,609) |
| Credit loss allowance for financial assets measured at fair value through other comprehensive income | - | - | (95) | 9 | (86) |
| Profit before G&A expenses and income taxes | 428,451 | 184,932 | 243,732 | 64,114 | 921,229 |
| Staff costs | (128,957) | (43,385) | (30,266) | (17,746) | (220,354) |
| Depreciation and amortization | (36,745) | (4,980) | (2,226) | (1,789) | (45,740) |
| Provision for liabilities and charges | - | - | - | (4,000) | (4,000) |
| Administrative and other operating expenses | (90,329) | (21,184) | (12,616) | (16,806) | (140,935) |
| Operating expenses | (256,031) | (69,549) | (45,108) | (40,341) | (411,029) |
| Profit before tax | 172,420 | 115,383 | 198,624 | 23,773 | 510,200 |
| Income tax expense | (22,898) | (17,250) | (29,907) | (2,710) | (72,765) |
| Profit for the year | 149,522 | 98,133 | 168,717 | 21,063 | 437,435 |
| Portfolios by Segments | |||
| In thousands of GEL | 31-Dec-2018 | 31-Dec-2017 | |
| Loans and advances to customers | |||
| Non-mortgage | 1,989,516 | 2,163,425 | |
| Mortgage | 2,709,183 | 2,069,728 | |
| Retail | 4,698,699 | 4,233,153 | |
| Corporate | 3,177,289 | 2,475,392 | |
| MSME | 2,496,594 | 1,844,672 | |
| Total loans and advances to customers (Gross) | 10,372,582 | 8,553,217 | |
| Less: credit loss allowance for loans to customers | (334,130) | (227,864) | |
| Total loans and advances to customers (Net) | 10,038,452 | 8,325,353 | |
| Customer Accounts | |||
| Retail | 5,103,971 | 4,378,265 | |
| Corporate | 3,230,653 | 2,410,862 | |
| MSME | 1,017,518 | 1,027,690 | |
| Total Customer Accounts | 9,352,142 | 7,816,817 | |
Retail Banking
As of 31 December 2018, retail loans stood at GEL 4,698.7 million, up by GEL 465.5 million, or 11.0%, YoY and accounted for 40.0% market share of total individual loans. Without the re-segmentation effect[13], the retail loan portfolio would have increased by 18.1% YoY. As of 31 December 2018, foreign currency loans represented 56.1% of the total retail loan portfolio.
In the reporting period, retail deposits stood at GEL 5,104.0 million, up by GEL 725.7 million, or 16.6%, YoY accounting for 41.2% market share of total individual deposits. As of 31 December 2018, term deposits accounted for 52.5% of the total retail deposit portfolio, while foreign currency deposits represented 81.7% of the total retail deposit portfolio.
In FY 2018, retail loan yields and deposit rates stood at 14.2% and 2.7%, respectively. The segment's cost of risk on loans was 2.7%. The segment contributed 34.2%, or GEL 149.5 million, to the total net income in FY 2018.
Corporate Banking
As of 31 December 2018, corporate loans amounted to GEL 3,177.3 million, up by GEL 701.9 million, or 28.4%, YoY. Without the re-segmentation effect13, the corporate loan portfolio would have increased by 24.6% YoY. Foreign currency loans accounted for 71.5% of the total corporate loan portfolio. The market share of total legal entities loans stood at 37.4%.
As of the same date, corporate deposits totalled GEL 3,230.7 million, up by GEL 819.8 million, or 34.0%, YoY. Without the re-segmentation effect[14], the corporate deposits would have increased by 29.0% YoY. Foreign currency corporate deposits represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 41.2%.
In FY 2018, corporate loan yields and deposit rates stood at 9.5% and 4.9%, respectively. In the same period, the cost of risk on loans was 0.4%. In terms of profitability, the corporate segment's net profit reached GEL 168.7 million, or 38.6% of the total net income.
MSME Banking
As of 31 December 2018, MSME loans amounted to GEL 2,496.6, up by GEL 651.9 million, or 35.3%, YoY. Without the re-segmentation effect13, the MSME loan portfolio would have increased by 23.4% YoY. Foreign currency loans accounted for 53.1% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 1,017.5 million, down by GEL 10.2 million, or 1.0%, YoY. Without the re-segmentation effect14, the MSME deposits would have increased by 8.9% YoY. Foreign currency MSME deposits represented 49.3% of the total MSME deposit portfolio.
In FY 2018, MSME loan yields and deposit rates stood at 12.1% and 1.0% respectively, while the cost of risk on loans was 0.7%. In terms of profitability, net profit for the MSME segment amounted to GEL 98.1 million, or 22.4%, of the total net income.
Consolidated Financial Statements of TBC Bank Group PLC
| Consolidated Balance Sheet | ||
| In thousands of GEL | Dec-18 | Dec-17 |
| Cash and cash equivalents | 1,166,911 | 1,431,477 |
| Due from other banks | 47,316 | 39,643 |
| Mandatory cash balances with National Bank of Georgia | 1,422,809 | 1,033,818 |
| Loans and advances to customers | 10,038,452 | 8,325,353 |
| Investment securities measured at fair value through other comprehensive income | 1,005,239 | - |
| Investments securities available for sale | - | 657,938 |
| Bonds carried at amortised cost | 654,203 | 449,538 |
| Investments in finance leases | 203,802 | 143,836 |
| Investment properties | 84,296 | 79,232 |
| Current income tax prepayment | 2,116 | 19,084 |
| Deferred income tax asset | 2,097 | 2,855 |
| Other financial assets | 167,518 | 146,144 |
| Other assets | 221,093 | 156,651 |
| Premises and equipment | 367,504 | 366,913 |
| Intangible assets | 109,220 | 83,492 |
| Goodwill | 31,286 | 28,658 |
| Investments in associates | 2,432 | 1,278 |
| TOTAL ASSETS | 15,526,294 | 12,965,910 |
| LIABILITIES | ||
| Due to Credit Institutions | 3,031,503 | 2,620,714 |
| Customer accounts | 9,352,142 | 7,816,817 |
| Other financial liabilities | 98,714 | 91,753 |
| Current income tax liability | 63 | 447 |
| Debt Securities in issue | 13,343 | 20,695 |
| Deferred income tax liability | 22,237 | 602 |
| Provisions for liabilities and charges | 47,068 | 13,200 |
| Other liabilities | 104,337 | 84,440 |
| Subordinated debt | 650,919 | 426,788 |
| TOTAL LIABILITIES | 13,320,326 | 11,075,456 |
| EQUITY | ||
| Share capital | 1,650 | 1,605 |
| Share premium | 796,854 | 714,651 |
| Retained earnings | 1,523,879 | 1,232,865 |
| Group reorganisation reserve | (162,166) | (162,166) |
| Share based payment reserve | (16,294) | 9,828 |
| Revaluation reserve for premises | 57,240 | 70,045 |
| Fair value reserve | 8,680 | - |
| Revaluation reserve for available-for-sale securities | - | 1,730 |
| Cumulative currency translation reserve | (6,937) | (7,359) |
| Net assets attributable to owners | 2,202,906 | 1,861,199 |
| Non-controlling interest | 3,062 | 29,255 |
| TOTAL EQUITY | 2,205,968 | 1,890,454 |
| TOTAL LIABILITIES AND EQUITY | 15,526,294 | 12,965,910 |
| Consolidated Statement of Profit or Loss and Other Comprehensive Income | ||||
| In thousands of GEL | FY'18 | FY'17 | ||
| Interest income | 1,284,235 | 1,033,939 | ||
| Interest expense | (506,213) | (429,924) | ||
| Net interest income | 778,022 | 604,015 | ||
| Fee and commission income | 235,701 | 193,944 | ||
| Fee and commission expense | (78,171) | (67,983) | ||
| Net fee and commission income | 157,530 | 125,961 | ||
| Net insurance premiums earned | 23,601 | 12,633 | ||
| Net insurance claims incurred and agents' commissions | (11,326) | (5,860) | ||
| Insurance profit | 12,275 | 6,773 | ||
| Net income from foreign currency operations | 91,678 | 87,099 | ||
| Net gain/(losses) from foreign exchange translation | 15,196 | 4,374 | ||
| Net gains/(losses) from derivative financial instruments | 173 | (36) | ||
| Gains less losses from disposal of investment securities measured at fair value through other comprehensive income | 2 | - | ||
| Gains less losses from disposal of investment securities available for sale | - | 93 | ||
| Other operating income | 31,438 | 31,797 | ||
| Share of profit of associates | 1,154 | 909 | ||
| Other operating non-interest income | 139,641 | 124,236 | ||
| Credit loss allowance for loan to customers | (143,723) | (93,823) | ||
| Credit loss allowance for investments in finance lease | (1,765) | (492) | ||
| Credit loss allowance for performance guarantees and credit related commitments | (4,056) | (153) | ||
| Credit loss allowance for other financial assets | (16,609) | (12,439) | ||
| Credit loss allowance for financial assets measured at fair value through other comprehensive income | (86) | - | ||
| Operating income after credit loss allowance | 921,229 | 754,078 | ||
| Staff costs | (220,354) | (203,100) | ||
| Depreciation and amortization | (45,740) | (37,265) | ||
| (Provision for)/ recovery of liabilities and charges | (4,000) | 2,495 | ||
| Administrative and other operating expenses | (140,935) | (121,530) | ||
| Operating expenses | (411,029) | (359,400) | ||
| Profit before tax | 510,200 | 394,678 | ||
| Income tax expense | (72,765) | (34,750) | ||
| Profit for the period | 437,435 | 359,928 | ||
| Other Comprehensive income: | ||||
| Items that may be reclassified subsequently to profit or loss: | ||||
| Movement in fair value reserve | 6,949 | - | ||
| Revaluation of available-for-sale investments | - | 5,489 | ||
| Exchange differences on translation to presentation currency | 425 | 181 | ||
| Items that will not be reclassified to profit or loss: | ||||
| Revaluation of premises and equipment | 10,749 | - | ||
| Income tax recorded directly in other comprehensive income | (2,363) | (422) | ||
| Other comprehensive income for the period | 15,760 | 5,248 | ||
| Total comprehensive income for the period | 453,195 | 365,176 | ||
| Profit attributable to: | ||||
| - Shareholders of TBCG | 435,078 | 354,410 | ||
| - Non-controlling interest | 2,357 | 5,518 | ||
| Profit for the period | 437,435 | 359,928 | ||
| Total comprehensive income is attributable to: | ||||
| - Shareholders of TBCG | 450,901 | 359,585 | ||
| - Non-controlling interest | 2,294 | 5,591 | ||
| Total comprehensive income for the period | 453,195 | 365,176 | ||
| Consolidated Statements of Cash Flows | ||||
| In thousands of GEL | 31-Dec-18 | 31-Dec-17 | ||
| Cash flows from/(used in) operating activities | ||||
| Interest received | 1,224,606 | 1,000,571 | ||
| Interest paid | (501,984) | (424,105) | ||
| Fees and commissions received | 235,508 | 195,285 | ||
| Fees and commissions paid | (78,140) | (68,036) | ||
| Insurance premium received | 54,682 | 23,518 | ||
| Insurance claims paid | (15,174) | (9,127) | ||
| Income received from trading in foreign currencies | 91,678 | 87,099 | ||
| Other operating income received | 11,407 | 8,992 | ||
| Staff costs paid | (202,897) | (187,520) | ||
| Administrative and other operating expenses paid | (136,670) | (112,270) | ||
| Income tax paid | (34,918) | (53,916) | ||
| Cash flows from operating activities before changes in operating assets and liabilities | 648,098 | 460,491 | ||
| Net change in operating assets | ||||
| Due from other banks and mandatory cash balances with the National Bank of Georgia | (343,772) | (98,586) | ||
| Loans and advances to customers | (1,718,446) | (1,330,105) | ||
| Investment in finance lease | (54,784) | (49,297) | ||
| Other financial assets | (35,570) | (38,064) | ||
| Other assets | (4,486) | 73,814 | ||
| Net change in operating liabilities | ||||
| Due to other banks | 69,755 | (228,486) | ||
| Customer accounts | 1,371,675 | 1,329,071 | ||
| Other financial liabilities | (12,136) | 18,263 | ||
| Other liabilities and provision for liabilities and charges | 3,618 | 3,487 | ||
| Net cash from operating activities | (76,048) | 140,588 | ||
| Cash flows from/(used in) investing activities | ||||
| Acquisition of investment securities measured at fair value through other comprehensive income | (717,729) | - | ||
| Acquisition of investment securities available for sale | - | (560,226) | ||
| Proceeds from redemption at maturity of investment securities measured at fair value through other comprehensive income | 385,352 | - | ||
| Proceeds from redemption at maturity of investment securities available for sale | - | 345,748 | ||
| Acquisition of bonds carried at amortised cost | (395,717) | (307,248) | ||
| Proceeds from redemption of bonds carried at amortised cost | 200,658 | 242,380 | ||
| Acquisition of premises, equipment and intangible assets | (89,263) | (114,383) | ||
| Disposal of premises, equipment and intangible assets | 813 | 1,932 | ||
| Proceeds from disposal of investment property | 42,515 | 19,082 | ||
| Acquisition of subsidiaries, net of cash acquired | 809 | (273) | ||
| Net cash used in investing activities | (572,562) | (372,988) | ||
| Cash flows from/(used in) financing activities | ||||
| Proceeds from other borrowed funds | 1,776,489 | 1,461,191 | ||
| Redemption of other borrowed funds | (1,515,562) | (800,333) | ||
| Proceeds from subordinated debt | 255,900 | 119,859 | ||
| Redemption of subordinated debt | (60,910) | (59,671) | ||
| Proceeds from debt securities in issue | (7,596) | - | ||
| Redemption of debt securities in issue | - | (2,123) | ||
| Dividends paid | (85,484) | (67,927) | ||
| Issue of ordinary shares | - | 29 | ||
| Net cash flows from financing activities | 362,837 | 651,025 | ||
| Effect of exchange rate changes on cash and cash equivalents | 21,207 | 67,672 | ||
| Net increase in cash and cash equivalents | (264,566) | 486,297 | ||
| Cash and cash equivalents at the beginning of the year | 1,431,477 | 945,180 | ||
| Cash and cash equivalents at the end of the year | 1,166,911 | 1,431,477 | ||
Key Ratios
Average Balances
The average balances in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.
| Key Ratios | ||
| Ratios (based on monthly averages, where applicable) | FY'18 | FY'17 |
| Underlying ROE1 | 22.8% | 21.4% |
| Reported ROE2 | 22.0% | 20.9% |
| Underlying ROA3 | 3.3% | 3.2% |
| Reported ROA4 | 3.2% | 3.1% |
| ROE before credit loss allowance5 | 30.4% | 27.2% |
| Cost to income6 | 37.8% | 41.7% |
| Cost of risk7 | 1.6% | 1.2% |
| FX adjusted cost of risk8 | 1.5% | 1.4% |
| NIM9 | 6.9% | 6.5% |
| Risk adjusted NIM10 | 5.4% | 5.1% |
| Loan yields11 | 12.3% | 12.1% |
| Risk adjusted loan yields12 | 10.8% | 10.7% |
| Deposit rates13 | 3.2% | 3.4% |
| Yields on interest earning assets14 | 11.4% | 11.1% |
| Cost of funding15 | 4.4% | 4.5% |
| Spread16 | 7.0% | 6.6% |
| PAR 90 to gross loans17 | 1.2% | 1.4% |
| NPLs to gross loans18 | 3.1% | 3.3% |
| NPLs coverage19 | 102.7% | 104.7% |
| NPLs coverage with collateral20 | 216.4% | 209.4% |
| Credit loss level to gross loans21 | 3.2% | 3.4% |
| Related party loans to gross loans22 | 0.1% | 0.1% |
| Top 10 borrowers to total portfolio23 | 10.1% | 8.2% |
| Top 20 borrowers to total portfolio24 | 14.2% | 12.4% |
| Net loans to deposits plus IFI Funding25 | 89.9% | 92.5% |
| Net stable funding ratio26 | 130.2% | 124.4% |
| Liquidity coverage ratio27 | 113.9% | 112.7% |
| Leverage28 | 7.0x | 6.9x |
| Regulatory tier 1 CAR (Basel III)29 | 12.8% | 13.4% |
| Regulatory total 1 CAR (Basel III)30 | 17.9% | 17.5% |
Ratio definitions
1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period adjusted for the respective one-off items; Annualised where applicable.
2. Return on average total equity (ROE) equals net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; annualised where applicable.
3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period; annualised where applicable.
4. 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.
5. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by the monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.
6. 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).
7. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; Annualised where applicable.
8. FX adjusted cost of risk is calculated based on currency rates of the respective prior periods.
9. 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.
10. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.
11. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; annualised where applicable.
12. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.
13. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised where applicable.
14. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised where applicable.
15. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where applicable.
16. 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).
17. 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.
18. 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.
19. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.
20. NPLs coverage with collateral ratio equals the 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.
21. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.
22. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
23. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.
24. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.
25. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.
26. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined in Basel III.
27. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.
28. Leverage equals total assets to total equity.
29. 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.
30. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
Exchange Rates
To calculate the YoY growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.5922 as of 31 December 2017. As of 31 December 2018, the USD/GEL exchange rate equalled 2.6766. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: FY 2018 of 2.5345, FY 2018 of 2.5117.
Additional Disclosures
Subsidiaries of TBC Bank Group PLC[15]
| Ownership / voting % as of 31 December 2018 |
Country | Year of incorporation | Industry | Total Assets (after elimination) |
||
| Subsidiary | Amount GEL'000 |
% in TBC Group | ||||
| JSC TBC Bank | 99.9% | Georgia | 1992 | Banking | 15,081,646 | 97.14% |
| United Financial Corporation JSC | 98.7% | Georgia | 1997 | Card processing | 9,569 | 0.06% |
| TBC Capital LLC | 100.0% | Georgia | 1999 | Brokerage | 7,522 | 0.05% |
| TBC Leasing JSC | 99.6% | Georgia | 2003 | Leasing | 269,717 | 1.74% |
| TBC Kredit LLC | 100.0% | Azerbaijan | 1999 | Non-banking credit institution | 34,592 | 0.22% |
| Banking System Service Company LLC | 100.0% | Georgia | 2009 | Information services | 634 | 0.00% |
| TBC Pay LLC | 100.0% | Georgia | 2009 | Processing | 29,228 | 0.19% |
| Index LLC | 100.0% | Georgia | 2011 | Real estate management | 436 | 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 | 178 | 0.00% |
| BG LLC* | 0.0% | Georgia | 2018 | Asset management | 8,902 | 0.06% |
| JSC TBC Insurance | 100.0% | Georgia | 2014 | Insurance | 80,468 | 0.52% |
| Swoop JSC | 100.0% | Georgia | 2010 | Retail Trade | 989 | 0.01% |
| GE Commerce LTD | 100.0% | Georgia | 2018 | Retail Trade | 397 | 0.00% |
| (*) In July 2018 the Group obtained de facto control over BG LLC |
1) Earnings per Share
| In GEL | FY 2018 | FY 2017 |
| Earnings per share for profit attributable to the owners of the Group: | ||
| - Basic earnings per share | 8.07 | 6.73 |
| - Diluted earnings per share | 8.00 | 6.63 |
Source: IFRS Consolidated
| In GEL | 4Q 2018 | 4Q 2017 |
| Earnings per share for profit attributable to the owners of the Group: | ||
| - Basic earnings per share | 2.40 | 1.80 |
| - Diluted earnings per share | 2.37 | 1.77 |
Source: IFRS Consolidated
2) Sensitivity Scenario
| Sensitivity Scenario | 31-Dec-18 | 10% Currency Devaluation Effect |
| NIM* | -0.17% | |
| Technical Cost of Risk | +0.11% | |
| Regulatory Total Capital | 2,351 | 2,396 |
| Regulatory Capital adequacy ratios tier 1 and total capital decrease by | 0.58% - 0.76% |
(*) Linear depreciation is assumed for NIM sensitivity analysis
Source: IFRS statements and Management Figures
3) The share of selected FC denominated P/L Items
| Selected P&L Items 4Q 2018 | FC % of Respective Totals |
| Interest Income | 40% |
| Interest Expense | 50% |
| Fee and Commission Income | 33% |
| Fee and Commission Expense | 64% |
| Administrative Expenses | 15% |
Source: IFRS statements and Management figures
4) Open Interest Rate Position as of 31 December 2018
| Open interest rate position in GEL | GEL 861 m | Open interest rate position in FC | GEL 2,474 m | |||
| GEL m | % share in totals | GEL m | % share in totals | |||
| Assets | 3,147 | 20% | Assets | 4,259 | 27% | |
| Securities with fixed yield(≤1y)* | 428 | 26% | Nostro** | 95 | 16% | |
| Securities with floating yield | 541 | 33% | NBG Reserves** | 1,423 | 92% | |
| Loans with floating yield | 2,038 | 20% | NBG Deposits | 0 | 0% | |
| Reserves in NBG | 127 | 8% | Libor Loans | 2,741 | 26% | |
| Interbank loans& Deposits & Repo | 13 | 2% | Interest Rate Swap | 0 | 0% | |
| Liabilities | 2,286 | 17% | ||||
| Current accounts*** | 466 | 5% | Liabilities | 1,785 | 13% | |
| Saving accounts*** | 615 | 7% | Senior Loans | 1,295 | 45% | |
| Refinancing Loan of NBG | 620 | 22% | Subordinated Loans | 490 | 75% | |
| Interbank Loans &Deposits & Repo | 70 | 44% | ||||
| IFI Borrowings | 515 | 18% | ||||
(*) 90% of the less than 1-year securities are maturing in 6 months.
(**) Income on NBG reserves and Nostros are calculated as benchmark minus margin whereby benchmarks are correlated with Libor. From June 2018, according to NBG regulation is it possible to apply negative interest rates on NBG reserves and correspondent accounts. However, negative rate is floored by 0% in case of USD and by (-0.6)% in case of EUR accounts.
(***) The Bank considers that current and saving deposits promptly react to interest rate changes on the market (within 1-month prior notification).
| 5) Yields and Rates | |||||
| Yields and Rates | 4Q'18 | 3Q'18 | 2Q'18 | 1Q'18 | 4Q'17 |
| Loan yields | 12.2% | 12.4% | 12.5% | 12.3% | 12.3% |
| Retail loan yields GEL | 20.7% | 20.8% | 21.3% | 20.5% | 19.7% |
| Retail loan yields FX | 7.8% | 7.9% | 8.0% | 8.4% | 8.8% |
| Retail Loan Yields | 13.6% | 14.1% | 14.7% | 14.6% | 14.2% |
| Corporate loan yields GEL | 10.9% | 11.0% | 11.4% | 11.2% | 12.2% |
| Corporate loan yields FX | 9.7% | 9.1% | 8.7% | 8.6% | 9.2% |
| Corporate Loan Yields | 10.0% | 9.6% | 9.4% | 9.2% | 10.0% |
| MSME loan yields GEL | 16.2% | 16.6% | 15.9% | 15.0% | 13.6% |
| MSME loan yields FX | 8.6% | 8.9% | 8.5% | 8.9% | 9.4% |
| MSME Loan Yields | 12.2% | 12.6% | 12.0% | 11.3% | 10.9% |
| Deposit rates | 3.1% | 3.3% | 3.3% | 3.3% | 3.5% |
| Retail deposit rates GEL | 4.6% | 4.4% | 4.3% | 4.4% | 4.4% |
| Retail deposit rates FX | 2.2% | 2.3% | 2.4% | 2.5% | 2.7% |
| Retail Deposit Yields | 2.6% | 2.7% | 2.7% | 2.8% | 2.9% |
| Corporate deposit rates GEL | 6.8% | 7.5% | 7.9% | 8.0% | 8.5% |
| Corporate deposit rates FX | 1.8% | 2.0% | 1.9% | 2.0% | 2.1% |
| Corporate Deposit Yields | 4.5% | 4.9% | 5.2% | 5.2% | 5.3% |
| MSME deposit rates GEL | 1.6% | 1.7% | 1.7% | 1.8% | 2.1% |
| MSME deposit rates FX | 0.3% | 0.4% | 0.4% | 0.5% | 0.8% |
| MSME Deposit Yields | 1.0% | 1.0% | 1.0% | 1.1% | 1.4% |
| Yields on Securities | 7.6% | 7.8% | 7.7% | 8.1% | 6.9% |
Source: IFRS Consolidated
| 6) Risk Adjusted Yields & Cost of Risk | |||||
| Risk-adjusted Yields | 4Q'18 | 3Q'18 | 2Q'18 | 1Q'18 | 4Q'17 |
| Loan yields | 10.9% | 10.9% | 10.8% | 10.6% | 11.1% |
| Retail Loan Yields | 10.6% | 11.6% | 12.1% | 11.6% | 12.2% |
| Corporate Loan Yields | 10.1% | 9.1% | 8.6% | 9.3% | 9.6% |
| MSME Loan Yields | 12.4% | 11.8% | 11.1% | 9.8% | 10.5% |
| 4Q'18 | 3Q'18 | 2Q'18 | 1Q'18 | 4Q'17 | |
| Cost of Risk | 1.4% | 1.9% | 1.8% | 1.3% | 1.4% |
| Retail | 2.9% | 2.7% | 2.6% | 2.7% | 2.0% |
| Corporate | 0.1% | 1.1% | 0.9% | -0.8% | 0.7% |
| MSME | -0.1% | 1.2% | 1.0% | 1.0% | 0.7% |
Source: IFRS Consolidated
7) Loan Quality per NBG
Sub-Standard, Doubtful and Loss (SDL) Loans Ratio per NBG
| Dec-18 | Sep-18 | Jun-18 | Mar-18 | Dec-17 | |
| SDL Loans as % of Gross Loans | 3.6% | 3.8% | 3.3% | 3.1% | 3.2% |
Source: NBG
8) Cross Sell Ratio[16] and Number Active Products
| Dec-18 | Sep-18 | Jun-18 | Mar-18 | Dec-17 | |
| Cross Sell Ratio | 3.81 | 3.85 | 3.89 | 3.88 | 3.94 |
| Number of Active Products (in million) | 4.62 | 4.58 | 4.64 | 4.58 | 4.50 |
Source: Management's 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
| 31 December 2018 | Volume of Deposits | Number of Deposits |
| MASS | 39% | 91.8% |
| STATUS | 30% | 7.7% |
| VIP | 23% | 0.4% |
| Wealth Management for non-resident clients | 8% | 0.1% |
Source: Management figures
10) Loan Concentration
| Dec-18 | Sep-18 | Jun-18 | Mar-18 | Dec-17 | |
| Top 20 Borrowers as % of total portfolio | 14.2% | 14.1% | 13.2% | 13.4% | 12.4% |
| Top 10 Borrowers as % of total portfolio | 10.1% | 10.3% | 9.2% | 9.4% | 8.2% |
| Related Party Loans as % of total portfolio | 0.1% | 0.1% | 0.1% | 0.1% | 0.1% |
Source: IFRS consolidated
11) Number of Transactions in Digital Channels (in thousands)
| 4Q 18 | 4Q 17 | 4Q 16 | 4Q 15 | |
| Internet banking number of transactions | 2,495 | 2,743 | 2,280 | 1,729 |
| Mobile banking number of transactions | 7,904 | 5,207 | 2,532 | 1,008 |
Source: Management figures
12) Penetration Ratios of Digital Channels
| Dec-18 | Dec-17 | Dec-16 | Dec-15 | |
| Internet or Mobile Banking Penetration Ratio* | 44% | 40% | 37% | 32% |
| Mobile Banking Penetration Ratio** | 37% | 31% | 24% | 15% |
Source: Management figures
* Internet or Mobile Banking penetration equals active clients of Interment or Mobile Banking divided by total active clients
** Mobile Banking penetration equals active clients of Mobile Banking divided by total active clients
13) Number of Active Clients (in thousands)
| Dec-18 | Dec-17 | Dec-16 | Dec -15 | |
| Internet or mobile banking | 529 | 461 | 313 | 229 |
| Mobile banking | 448 | 359 | 207 | 109 |
Source: Management figures
14) Distribution of Transactions in Digital Channels
| 4Q 18 | |
| Mobile Banking | 26% |
| Internet Banking | 11% |
| Branches | 10% |
| TBC Pay terminals | 19% |
| ATMs | 33% |
| Other | 1% |
91% of all transactions are conducted in digital channels
15) Distribution of Sales in Channels
| 4Q 18 | 4Q 17 | 4Q 16 | |
| IB, MB, ATM, Web | 45% | 23% | 26% |
| Branches & Call Center | 55% | 77% | 74% |
45% of sales are conducted in digital channels*
* For products being offered through remote channels: pre-approved loans, credit cards, limit increase and opening of accounts
16) Percentage of Selected Product Sales in Digital Channels
| 4Q 18 | 4Q 17 | 4Q 16 | |
| Deposits | 71% | 60% | 53% |
| Pre-approved loans | 54% | 17% | 13% |
| Debit cards | 24% | 17% | - |
17) POS Terminal Transactions
| Dec-18 | Sep-18 | Jun-18 | Mar-18 | Dec-17 | |
| POS number of transactions (in millions) | 27.4 | 24.1 | 22.3 | 17.9 | 16.4 |
| POS volume of transactions (in mln GEL) | 1,117 | 986 | 850 | 661 | 631 |
* Data includes e-commerce and excludes transactions at POS terminals in TBC Bank's branches
18) Funding repayment ladder
Subordinated and Senior Loans' Principal Amount Outflow by Year (USD million)
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | |
| Senior loans | 115 | 184 | 252 | 101 | 85 | 31 | 22 | 7 | 5 | - |
| Subordinated loans | 6 | 14 | 11 | 11 | 32 | 1 | 39 | 73 | 16 | 37 |
Source: Management figures, revolving non IFI loans from NBG are excluded
19) NPL Build Up (in GEL million)
| NPLs | NPLs as of Sep-18 | Real Growth | FX Effect | Write-Offs | Repossessed | NPLs as of Dec-18 |
| Retail | 134 | 54 | 1 | (49) | (2) | 138 |
| Corporate | 77 | 8 | 1 | - | (1) | 85 |
| MSME | 92 | 19 | 2 | (8) | (2) | 103 |
| Total | 303 | 81 | 4 | (57) | (5) | 326 |
| 20) Net Write-Offs, 4Q 2018 | |||
| In GEL million | Write-Offs | Recoveries | Net Write-Offs |
| Retail | (49) | 9 | (40) |
| Corporate | - | 1 | 1 |
| MSME | (8) | 5 | (3) |
| Total | (57) | 15 | (42) |
Source: IFRS Consolidated
| 21) Portfolio Breakdown by Collateral Types as of 31-Dec-18 | |
| Cash Cover | 2% |
| Gold | 3% |
| Inventory | 10% |
| Real Estate | 66% |
| Third Party Guarantees | 6% |
| Other | 2% |
| Unsecured | 11% |
Source: IFRS Consolidated
| 22) Loan to Value by Segments as of 31-Dec-18 | |||||
| Retail | Corporate | MSME | Total | ||
| 48% | 46% | 43% | 46% | ||
| Mortgage loan's LTV stood at 48% | |||||
23) TBC Insurance
TBC Insurance is a rapidly growing, wholly owned subsidiary of TBC Bank and it is the bank's main bancassurance partner. The company was acquired by the Group in October 2016 and it has since grown significantly, becoming the second largest player on the P&C and life insurance market and the largest player in the retail segment, holding 20.9% and 35.0% market shares[17] without border motor third party liability (MTPL) insurance, respectively in 2018 based on internal estimates.
TBC insurance serves both individual and legal entities and it provides a broad range of insurance products covering motor, travel, personal accident, credit life and property, business property, liability, cargo and agro insurance products. The company differentiates itself for its advanced digital channels, which include TBC bank's award winning Internet and mobile banking applications, a wide network of self-service terminals, a web channel, as well as a Georgian-speaking chat-bot B-Bot, which is available through Facebook messenger.
In 2018, TBC Insurance achieved strong growth results and improved its efficiency. The gross written premium grew by 91.8% and amounted to GEL 60.1 million driven by strong focus on cross-selling. Over the same period, the net combined ratio[18] decreased by 17.9 pp to 79.3%. As a result, the net profit for the year stood at GEL 7.3 million. At the same time TBC insurance maintains strong capital levels, with solvency ratio above regulatory minimum of 100%, standing at 164.4%.
| In thousands of GEL | FY'18 | FY'17 | 4Q'18 | 3Q'18 | 4Q'17 |
| Gross written premium | 60,079 | 31,318 | 17,075 | 15,833 | 12,153 |
| Net earned premium[19] | 35,657 | 16,851 | 10,554 | 9,841 | 5,881 |
| Net profit | 7,263 | 934 | 2,264 | 2,243 | 601 |
| FY'18 | FY'17 | 4Q'18 | 3Q'18 | 4Q'17 | |
| Net combined ratio | 79.3% | 97.2% | 80.7% | 78.8% | 93.0% |
| Market share | 20.9% | 13.3% | 25.5% | 20.7% | 20.6% |
24) Regulatory Capital
Total Capital and Tier 1 Capital Limits
| 31-Dec-2018 Actual | 31-Dec-2019 F | 31-Dec-2020 F | 31-Dec-2021 F | |||||
| Tier 1 | Total | Tier 1 | Total | Tier 1 | Total | Tier 1 | Total | |
| Minimum Requirement | 6.0% | 8.0% | 6.0% | 8.0% | 6.0% | 8.0% | 6.0% | 8.0% |
| Conservation Buffer | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% | 2.5% |
| Counter-Cyclical Buffer | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| Systemic Buffer | 1.0% | 1.0% | 1.5% | 1.5% | 2.0% | 2.0% | 2.5% | 2.5% |
| Pillar 1 buffers | 9.5% | 11.5% | 10.0% | 12.0% | 10.5% | 12.5% | 11.0% | 13.0% |
| Pillar 2 | 2.3% | 5.15% | 2.5-4.0% | 4.0%-5.5% | 2.5%-4.0% | 4.0%-5.5% | 2.5%-4.0% | 4.0%-5.5% |
| Total | 11.8% | 16.65% | 12.5-14.0% | 16.0-17.5% | 13.0-14.5% | 16.5-18.0% | 13.5-15.0% | 17.0-18.5% |
25) NBG Initiatives
The new regulation on responsible lending to individuals:
Starting from January 2019, the National Bank of Georgia has adopted the regulation on responsible lending to individuals, which replaces the former regulation introduced in May 2018. The regulation requires financial institutions to conduct solvency analysis of a borrower before issuing a loan and it also sets new limits on Payment to Income (PTI) and Loan to Value (LTV) for individual loans. The thresholds are different for domestic and foreign currency loans in order to protect a borrower and the financial system against the risks stemming from exchange rate fluctuations.
Maximum Payment to Income Ratios:
| Monthly income, net (in GEL) | For non-hedged borrower in case of maximum/contractual maturity |
For hedged borrowers in case of maximum/contractual maturity |
| <1,000 | 20% / 25% | 25% / 35% |
| >=1,000-2,000< | 35% / 45% | |
| >=2,000-4,000< | 25% / 30% | 45% / 55% |
| >=4,000 | 30% / 35% | 50% / 60% |
Maximum Loan to Value Ratios:
| Maximum loan to value ratio (LTV) for GEL loans | 85% |
| Maximum loan to value ratio (LTV) for foreign currency loans | 70% |
Maximum tenures:
| Mortgage | 15 years |
| Consumer mortgages collateralized by real estate | 10 years |
| Auto Loans | 6 years |
| Other consumer loans | 4 years |
26) Reconciliation of reported IFRS consolidated figures with underlying numbers
| in thousands of GEL | 2018 | 2017 |
| Reported net interest income | 778,022 | 604,015 |
| Reported net fee and commission income | 157,530 | 125,961 |
| Reported gross Insurance Profit | 12,275 | 6,773 |
| Reported Other operating income | 139,641 | 124,236 |
| Reported operating income | 1,087,468 | 860,985 |
| Reported total provision expenses | (166,239) | (106,907) |
| Reported operating income after provisions | 921,229 | 754,078 |
| Reported Operating expenses | (411,029) | (359,400) |
| One-off costs related to Bank Republic integration (consulting costs) | - | (10,925) |
| Underlying operating expenses | (411,029) | (348,475) |
| Reported profit before tax | 510,200 | 394,678 |
| Underlying profit before tax | 510,200 | 405,603 |
| Reported income tax | (72,765) | (34,750) |
| Reversal of the one-off deferred tax gain | (17,426) | - |
| Effect on tax of one-off items | - | 1,639 |
| Underlying income tax | (55,339) | (36,389) |
| Reported net profit | 437,435 | 359,928 |
| Underlying net profit | 454,861 | 369,214 |
| Reported non-controlling interest (NCI) | 2,357 | 5,518 |
| Effect on NCI of one-off items | - | 120 |
| Underlying NCI | 2,357 | 5,638 |
| Reported net profit less NCI | 435,078 | 354,410 |
| Underlying net profit less NCI | 452,504 | 363,576 |
| 2018 | 2017 | |
| Underlying ROE | 22.8% | 21.4% |
| Underlying ROA | 3.3% | 3.2% |
27) Space - fully digital bank
| Date | # of app. downloads | # of registered customers | loans in thousands GEL |
| 31-May-2018 | 69,510 | 38,598 | 157 |
| 30-Jun-2018 | 99,646 | 47,657 | 1,112 |
| 31-Jul-2018 | 128,205 | 55,699 | 2,196 |
| 31-Aug-2018 | 155,267 | 63,435 | 3,230 |
| 30-Sep-2018 | 186,044 | 72,447 | 5,814 |
| 31-Oct-2018 | 216,107 | 80,993 | 8,766 |
| 30-Nov-2018 | 241,480 | 87,576 | 11,837 |
| 31-Dec-2018 | 258,846 | 93,994 | 14,693 |
28) International strategy: expansion into Azerbaijan market[20]
Main highlights
• TBC Bank and Nikoil Bank agreed on shareholders agreement in late December 2018 and signed in early January 2019;
• Our shareholding in the joint entity will be 8.34%;
• We will have the right to exercise a call option during the next four years to obtain 50%+1 shareholding in the joint entity;
• The call option is based on a fixed price formula and in most scenarios it is between 1-1.15x of the merged entity's book value (it is closer to the book value when exercised in later years);
• Our additional estimated investment during the next four years will be consistent with our 8.34% shareholding and is estimated to be around USD 3-5 mln per year.
| Timeline | |
| Before December - | Capital injection by Nikoil's Shareholder: • USD 45 mln before September • USD 30 mln in December |
| Current Developments - | • Developing new branch concept and new products • Started rebranding • Improving governance and risk management • Obtain regulatory approval for the merger |
Strengthening Management Team
| Existing management team of the joint entity | |||
| CEO - | Nikoloz Shurghaia | ||
| First Deputy CEO, Head of MSME - | Farhad Hajinski | ||
| Deputy CEO, Head of Retail - | Fuad Tagiyev | ||
| New management team of the joint entity | |||
| COO - | Nukri Tetrashvili, former CEO at TBC Kredit | ||
| CDM - | 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 | |||
| In USD millions | 4Q results of Nikoil Bank* | Mid-term targets of joint entity | |
| Loan Portfolio | c. 221 | c. 1,400 | |
| Equity | c. 33 | c. 200 | |
| ROE | NMF | 20%+ | |
| *Based on management accounts |
• Core segments: Retail and MSME (not large SMEs and Corporates)
• Product offerings: A mix of Nikoil Bank and TBC Bank products adapted to the local needs and offered primarily through digital channels, including Space Bank
29) International strategy: digital greenfield bank in Uzbekistan[21]
This is still in the concept stage and subject to approval (including approval from the authorities), therefore it could change as we progress. The license is expected in 2019.
Why Uzbekistan?
• Large underpenetrated market:
• with more than 32 million population
• below 5% retail and MSME loan to GDP[22]
• Similar past during the USSR and good cultural links
• Right time given the implementation of reforms, many of which were designed by former Georgian government officials
• Both Uzbekistan and Georgia are included into China's One Belt One Road initiative
Strategic Positioning
• Build a next generation bank for retail and MSME
• Focus on digital channels and SPACE
• Operate asset light, smart branches
• Establishing the highest standards of corporate governance
• Simple and intuitive products and processes
• Transparent and straightforward commissions structure
• Best customer experience
• Automated decision making system
Main highlights
• Initial investments from TBC Bank around USD 20-30 million, resulting in 51% shareholding
• Medium to long-term financial targets after license is granted:
• Achieve sustainable ROE up to 25%
• Cost to income ratio below 35%
Our Uzbek and Azerbaijan subsidiaries together will contribute c. 30% to the Group's loan book.
Upcoming Events
· Opening pilot branch in March 2019 for a proof of concept
· Core banking implementation with local IT company
· Multichannel development including Space
· Our international partners, EBRD and IFC have expressed their interest to participate in this project subject to completion of their internal procedures and approvals
· We are also in the final stage of negotiations with the local partner
30) Summary of the Dentons's Memorandum
A global law firm Dentons conducted the thorough analysis of the potential breaches of the conflict of interest rules under the Regulations of the National Bank of Georgia and provisions of the Criminal Code of Georgia on the Legislation of the illegal income in relation to loan transactions that took place with Samgori M LLC and Samgori Trade LLC in 2008. Based on the facts, circumstance and available documents, Dentons concluded that:
• The loan transactions conducted with Samgori M LLC and Samgori Trade LLC should not qualify as related party transactions under the regulation of National Bank of Georgia effective at the time of the transaction took place
• Taking into consideration factual circumstances, the transactions do not amount to a money laundering under Criminal Code of Georgia.
31) Nikoil Bank Financials
Profit & Loss Statement
| In thousands of USD | FY'2018 | FY'2017 | 4Q'18 | 3Q'18 | 4Q'17 |
| Interest income | 14,541 | 16,989 | 4,280 | 3,706 | 4,209 |
| Interest expense | (9,123) | (11,581) | (2,068) | (2,150) | (2,656) |
| Net interest income | 5,418 | 5,408 | 2,212 | 1,556 | 1,553 |
| Fee and commission income | 2,952 | 2,468 | 958 | 738 | 764 |
| Fee and commission expense | (1,200) | (982) | (425) | (285) | (477) |
| Net Fee and Commission Income | 1,751 | 1,486 | 532 | 453 | 287 |
| Net income from foreign currency operations | 1,224 | 1,126 | 313 | 235 | 259 |
| Net gain/(losses) from foreign exchange translation | 440 | 652 | 119 | 133 | 91 |
| Gains less losses/(losses less gains) from derivative financial instruments | (93) | (2,456) | (28) | (30) | (14) |
| Other operating non-interest income | 1,572 | (678) | 404 | 338 | 336 |
| Credit loss allowance of loans | (71,532) | 4,669 | (23,670) | (20,447) | 11 |
| Credit loss allowance of other financial assets | (8,256) | (786) | (8,447) | (121) | (116) |
| Operating income after credit loss allowance | (71,047) | 10,100 | (28,968) | (18,221) | 2,072 |
| Staff costs | (6,619) | (5,171) | (2,276) | (1,425) | (1,409) |
| Depreciation and amortisation | (1,313) | (1,573) | (312) | (316) | (522) |
| Administrative and other operating expenses | (4,610) | (4,949) | (1,519) | (1,161) | (1,652) |
| Operating expenses | (12,542) | (11,693) | (4,107) | (2,902) | (3,583) |
| Profit before tax | (83,589) | (1,593) | (33,075) | (21,123) | (1,511) |
| Income tax expense | - | - | - | - | - |
| Profit for the period | (83,589) | (1,593) | (33,075) | (21,123) | (1,511) |
Balance Sheet
| In thousands of USD | 31-Dec-18 | 30-Sep-18 | 31-Dec-17 |
| Cash and cash equivalents | 29,591 | 35,099 | 44,818 |
| Due from other banks | 26,833 | 21,190 | 22,093 |
| Net Loans | 120,704 | 129,544 | 162,356 |
| Investment securities measured at fair value through other comprehensive income | 46,794 | 26,371 | - |
| Investment securities available for sale | - | - | 4,668 |
| Current income tax prepayment | 2 | 2 | 100 |
| Deferred income tax asset | 768 | 768 | 768 |
| Other financial assets | 545 | 396 | 1,431 |
| Other assets | 7,195 | 13,533 | 10,326 |
| Premises and equipment (Net) | 5,571 | 5,576 | 6,036 |
| Intangible assets (Net) | 1,924 | 1,991 | 2,095 |
| TOTAL ASSETS | 239,927 | 234,470 | 254,691 |
| Due to other banks | 20,152 | 23,152 | 23,709 |
| Customer Accounts | 137,244 | 127,591 | 135,654 |
| Other borrowed funds | 41,237 | 38,876 | 36,077 |
| Other financial liabilities | 3,054 | 4,125 | 2,715 |
| Subordinated debt | 5,000 | 5,000 | 15,001 |
| TOTAL LIABILITIES | 206,687 | 198,744 | 213,156 |
| Share capital | 204,705 | 174,118 | 129,411 |
| Additional paid-in-capital | 500 | 500 | 500 |
| Retained earnings | (171,965) | (138,891) | (88,376) |
| TOTAL EQUITY | 33,240 | 35,727 | 41,535 |
| TOTAL LIABILITIES AND EQUITY | 239,927 | 234,470 | 254,691 |
[1] Excluding one-off items. Detailed information and effects are given in Annex 26 on page 51.
[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]In 2018, one-off costs included the reversal of deferred tax gains due to change in legislation, while in 2017 one-off costs included operating expenses related to the integration of Bank Republic
[4]Market share without border MTPL, which was introduced starting from March 2018 and GWP was divided evenly between 17 insurance companies. The data is based on internal estimates
[5] The number of transactions conducted through remote channels divided by the total number of transactions.
[6] For products being offered through remote channels:pre-approved loans, credit cards, limit increase and opening of accounts
[7] Source: Geostat
[8] Latest available information.
[9] Initial estimates of Geostat.
[10] For details see https://www.bp.com/en_ge/bp-georgia/about-bp/bp-in-georgia/south-caucasus-pipeline--scp-.html
[11] Gross insurance profit can be reconciled to the standalone net insurance profit (as shown in Annex 23 on pages 49-50) as follows: gross insurance profit less credit loss allowance, administrative expenses and taxes, plus fee and commission income and net interest income
[12] Gross insurance profit can be reconciled to the standalone net insurance profit as follows (as shown in Annex 23 on pages 49-50): gross insurance profit less credit loss allowance, administrative expenses and taxes, plus fee and commission income net interest income
[13] In 1Q 2018, GEL 236 million was transferred from retail to MSME portfolio and GEL 66 million was transferred from MSME to corporate loans
[14] In 1Q 2018, GEL 78 mln was transferred from MSME to corporate deposits portfolio
[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] Or 19.3% and 31.0% respectively, with MTPL insurance. Starting from March 1, 2018 border MTPL was introduced and GWP was divided evenly between 17 insurance companies, therefore it has decreased our market share.
[18] Net insurance claims plus acquisition costs and administrative expenses divided net earned premium
[19] Net earned premium equals earned premium minus reinsurer's share of earned premium
[20] No investment has been made in relation to this project during 2018 and no material costs were incurred.
[21] No investment has been made in relation to this project during 2018 and around GEL 2.5 million were incurred as operating expenses
[22] Source: CBU and commercial bankss
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