TBC Bank Group Plc (LON:TBCG), today announced 4Q 2018 unaudited consolidated financial results and FY 2018 preliminary results
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.
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%.
