TBC Bank Group Plc (LON:TBCG) is the largest banking group in Georgia, where 99.7% of its business is concentrated, and where it has 37.2% market share by total assets. TBC Bank offers retail, corporate, and MSME banking nationwide.
These unaudited financial results are presented for TBC Bank Group PLC (“TBC Bank” or “the Group”), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group’s restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards (“IFRS”), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange’s premium listing segment on 10 August 2016.
In 4Q 2016, TBC Bank acquired Bank Republic which has been consolidated into the Group’s results.
Financial Highlights
3Q 2018 P&L Highlights
§ Net profit amounted to GEL 107.4 million (3Q 2017: GEL 86.8 million; 2Q 2018: GEL 102.4 million)
§ Return on equity (ROE) amounted to 21.2% (3Q 2017: 19.8%; 2Q 2018: 21.3%)
§ Return on assets (ROA) amounted to 3.1 % (3Q 2017: 2.9%; 2Q 2018: 3.2%)
§ Total operating income amounted to GEL 278.1 million, up by 34.3% YoY and up by 7.6% QoQ
§ Cost to income was 37.4% (3Q 2017: 40.5%; 2Q 2018: 35.6%)
§ Cost of risk stood at 1.9% (3Q 2017: 1.3%; 2Q 2018: 1.8%)
§ FX adjusted cost of risk stood at 1.5% (3Q 2017 1.2%; 2Q 2018: 1.7%)
§ Net interest margin (NIM) stood at 6.9% (3Q 2017: 6.2%; 2Q 2018: 7.1%)
§ Risk adjusted net interest margin (NIM) stood at 5.4% (3Q 2017: 5.0%; 2Q 2018: 5.5%)
9M 2018 P&L Highlights
§ Net profit amounted to GEL 307.3 million (9M 2017: GEL 263.2 million)
§ Return on equity (ROE) amounted to of 21.2% (9M 2017: 20.9%)
§ Return on assets (ROA) was 3.1% (9M 2017: 3.2%)
§ Total operating income for the period was up by 25.5% YoY to GEL 775.2 million
§ Cost to income stood at 37.0% (9M 2017: 42.1%)
§ Cost of risk on loans stood at 1.7% (9M 2017: 1.2%)
§ Net interest margin (NIM) stood at 7.0% (9M 2017: 6.5%)
§ Risk adjusted net interest margin (NIM) stood at 5.3% (9M 2017: 5.1%)
Balance Sheet Highlights as of 30 September 2018
§ Total assets amounted to GEL 14,424.0 million as of 30 September 2018, up by 18.8% YoY and up by 6.2% QoQ
§ Gross loans and advances to customers stood at GEL 9,622.6 million as of 30 September 2018, up by 23.9% YoY and up by 8.2% QoQ
§ Net loans to deposits + IFI funding stood at 88.0% and Net Stable Funding Ratio (NSFR) stood at 118.0%
§ NPLs were 3.1%, down by 0.4pp YoY and unchanged QoQ
§ NPLs coverage ratios stood at 113.2%, or 209.0% with collateral, on 30 September 2018 compared, to 80.5% or 206.8% with collateral, as of 30 September 2017[1] and 116.1%, or 216.1% with collateral on 30 June 2018
§ Total customer deposits amounted to GEL 8,740 million as of 30 September 2018, up by 23.2% YoY and up by 10.2% QoQ
§ As of 30 September 2018, the Bank’s Basel III Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.8% and 16.4% respectively, while minimum requirements amounted to 10.3% and 15.8%
Market Shares[2]
§ Market share in total assets reached 37.2% as of 30 September 2018, up by 0.7pp YoY and up by 0.1pp QoQ
§ Market share in total loans was 38.4% as of 30 September 2018, up by 0.2pp YoY and up by 0.1pp QoQ
§ In terms of individual loans, TBC Bank had a market share of 39.9% as of 30 September 2018, down by 0.6pp YoY and up by 0.1pp QoQ. The market share for legal entity loans was 36.6%, up by 1.0pp YoY and up by 0.1pp QoQ
§ Market share of total deposits reached 40.3% as of 30 September 2018, up by 1.7pp YoY and up by 0.8pp QoQ
§ Market share of individual deposits attained to 41.1%, up by 0.2pp YoY and down by 0.1pp QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 39.4%, up by 3.5pp YoY and up by 1.9pp QoQ.
Recent Developments
Recent and Upcoming Regulations
· On 1 September 2018, a 50% effective interest cap on loans was introduced, although we do not expect it to have any material impact on TBC Bank’s performance;
· Other regulatory initiatives are also expected to come into force by the end of 2018, including the following: 1) an increase in the limit, below which loans cannot be issued to individuals in foreign currency, from GEL 100,000 to GEL 200,000, 2) an introduction of new caps on PTI and LTV ratios and 3) a regulation on loans to customers without verified income.
· While final details are not known yet, these regulations are expected to support further de-dollarization and it might decrease the retail loan growth rate in the short to medium term. Therefore, we are revising our medium term annual loan growth rate guidance to 10-15%. However, our other targets remain unchanged with return on equity above 20%, cost to income ratio below 35% and a dividend pay-out ratio of 25-35%.
Georgia ranks 6th in 2019 “Doing Business” report
· Georgia continues its remarkable progress on the World Bank’s Doing Business rankings. According to the 2019 Ease of Doing Business report, Georgia ranks 6th among 190 countries surveyed globally; up from the 9th in the previous year. Georgia stands just after Korea and before Norway and it outscores all CEE countries.
TBC Bank Group PLC announces Board changes
· TBC Bank has appointed two female board members, Maria Luisa Cicognani and Tsira Kemularia, as Independent Non-Executive Directors. They will also serve as Supervisory Board members of TBC PLC’s main subsidiary – JSC TBC Bank. Following the appointment of Ms Cicognani and Ms Kemularia, Stefano Marsaglia and Stephan Wilcke have stepped down from the TBC PLC Board and the Supervisory Board of JSC TBC Bank.
TBC Bank and FMO Sign a GEL 103 Million Loan Agreement
· TBC Bank has signed a loan agreement in the amount of GEL 103 million with FMO, the Netherlands Development Finance Company. The five-year loan facility will be used primarily to finance young entrepreneurs running micro, small and medium size enterprises in Georgia, as well as young retail customers requiring mortgage loans. The local currency funding will be obtained by FMO through a public bond placement on the Georgian Stock Exchange.
TBC Bank and EIB Sign EUR 30 Million Loan Agreement
· TBC Bank has signed a loan agreement in the amount of EUR 30 million with the European Investment Bank (EIB). The five-year loan facility will primarily be used to finance small and medium size enterprises in Georgia.
TBC Bank wins the Best Private Bank in Georgia 2018 award from PWM and The Banker Magazines
· TBC Bank has been named the Best Private Bank in Georgia 2018 by Professional Wealth Management (PWM) and The Banker magazines. This prestigious award is acknowledgement of TBC Bank’s continuous efforts to deliver exceptional private banking services in Georgia. Participants were evaluated against a set of growth and performance measures, as well as on their particular private banking services.
TBC Bank wins Two Global Digital Awards from Global Finance Magazine
§ TBC Bank has been named the world’s Best in Social Media Marketing and Services 2018 and the world’s Best Integrated Consumer Banking Site 2018 by Global Finance Magazine. In the list of winners TBC Bank stands among some of the world’s leading banks.
TBC Bank wins the Best Foreign Exchange Provider 2019 in Georgia from Global Finance Magazine
§ TBC Bank has been named the Best Foreign Exchange Provider 2019 in Georgia by Global Finance Magazine. The winners were chosen based on extensive criteria including transaction volume, market share, scope of global coverage, customer service, competitive pricing and innovative technologies.
Additional Information Disclosure
Additional historical information for certain P&L, balance sheet and capital items, and on asset quality is disclosed on our Investor Relations website on http://tbcbankgroup.com/ under the Financial Highlights section.
Letter from the Chief Executive Officer
I am delighted to present our strong financial results for the third quarter in 2018 and a brief overview of the recent economic developments, as well as give you an update on our international plans.
In the third quarter, we recorded a consolidated net profit of GEL 107.4 million, up by 23.8% year-on-year. Our return on equity amounted to 21.2%, up by 1.4 percentage points year-on-year, while our return on assets was 3.1%, up by 0.2 percentage points year-on-year.
We continued to deliver on our promises and achieved a net interest margin at 6.9% during the quarter, within the range of our short-term guidance. Over the same period, our net fee and commission income grew by 23.9% year-on-year, consistent with our annual growth guidance and mainly driven by the increasing number of card and settlement transactions. Our cost to income ratio decreased by 3.1 percentage points year-on-year to 37.4%.
During the quarter, our loan book grew by 23.9% year-on-year, bringing our market share to 38.4%, up by 0.2 percentage points year-on-year. Our asset quality remained sound, with FX adjusted cost of risk at 1.5% and non-performing loans at 3.1%. Over the same period, our customer accounts grew by 23.2% year-on-year, increasing our market share to 40.3%, up by 1.7 percentage points year-on-year.
Our capital and liquidity ratios continued to remain solid. As of 30 September 2018, our tier 1 and total capital adequacy ratios (CAR) per Basel III guidelines stood at 12.8% and 16.4% respectively, compared to the corresponding minimum requirement of 10.3% and 15.8%. At the same time, our net loans to deposits + IFI funding ratio stood at 88.0% and the net stable funding ratio (NSFR) was 118.0%.
I am particularly pleased with the achievements of our digital strategy as the number of transactions and sales volume through digital channels continue to grow. As a result, in the third quarter of 2018 our offloading ratio was 90%[3], while 47%[4] of all sales were completed via digital channels in September 2018. In addition, our recently launched, fully-digital bank, Space, continued to rapidly attract new customers and had approximately 186,000 users as of 30 September 2018.
The growth of the Georgian economy remains solid despite increased uncertainties in the region, contractionary fiscal policy and one-offs related to some large infrastructure projects. In the third quarter, real GDP[5] grew by 4.0%, while growth in September reached 5.6%. Investment demand has been the major contributor to growth, supported by healthy business lending as well as the strong pace of reforms aimed at improving the business environment in the country. Georgia ranked 6th out of 190 countries in the recently released “Doing Business 2019 report”, up from 9th position in the previous year. While the growth of total external inflows slowed during the quarter, mostly due the situation in Turkey and Iran, it still remained in double digits thanks to the geographically diversified sources of inflows. During the quarter exports of goods increased by 21.1% year-on-year, mainly supported by exports to CIS countries. Over the same period, remittances grew by 12.0% year-on-year and tourism inflows expanded by 11.7% year-on-year, mainly driven by EU countries. Despite the temporary negative spill-overs from some neighbouring countries, the Georgian economy is expected to continue its solid growth, with the IMF projecting an average of 5.0% annual GDP growth over the next five years.
Finally, I would like to welcome our two new board members: Maria Luisa Cicognani and Tsira Kemularia, who joined our Board as independent Non-Executive Directors. Ms. Cicognani and Ms. Kemularia have extensive international experience at some of the world’s leading institutions and will bring valuable perspectives and expertise to our Board.
Following the increase in diversity of our Board and our continued efforts to improve corporate governance, including implementation of the new executive compensation system, we expect substantial improvement in our governance scores, and we are very pleased to see ISS upgrading our score to 4 as of 1 November 2018.
Outlook
On 1 September 2018, a 50% effective interest rate cap on loans was introduced, although we do not expect it to have any material impact on TBC Bank’s performance. Other regulatory initiatives are also expected to come into force by the end of 2018, including the following:
· An increase in the limit below which loans cannot be issued to individuals in a foreign currency, from GEL 100,000 to GEL 200,000;
· The introduction of new caps on PTI and LTV ratios; and
· Regulation of loans to customers without verified income.
While the final details are not known yet, these regulations are expected to support further de-dollarisation and they may also decrease the retail loan growth rate in the short-to-medium term. Therefore, we are revising our medium term annual loan growth rate guidance to 10-15%. However, our other targets remain unchanged: a return on equity above 20%, a cost to income ratio below 35% and a dividend pay-out ratio of 25-35%.
Regarding our insurance business, I am very pleased with its results. Starting from this year, we have become the second largest player on the P&C insurance market and the largest player in the retail segment, holding 18.3% and 30.0% market shares[6] respectively, based on internal estimates. In the third quarter, the number of customers grew steadily and totaled around 300,000, up by 113% year-on-year.
While Georgia will remain our main focus, the vast expertise we have built in the last three decades, including our advanced digital banking technology, should provide us with a strong competitive advantage to carefully enter selected new markets and start growing our banking business beyond Georgia.
