Half-year Report

 

TBC BANK GROUP PLC ("TBC Bank")

2Q AND 1H 2021 UNAUDITED CONSOLIDATED FINANCIAL RESULTS
 

Forward-Looking Statements

 

This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or "the Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others: the achievement of anticipated levels of profitability; growth, cost and recent acquisitions; the impact of competitive pricing; the ability to obtain the necessary regulatory approvals and licenses; the impact of developments in the Georgian economy; the impact of COVID-19; the political and legal environment; financial risk management; and the impact of general business and global economic conditions.

 

None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises, nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects are based are accurate or exhaustive or, in the case of the assumptions, entirely covered in the document. These forward-looking statements speak only as of the date they are made, and, subject to compliance with applicable law and regulations, the Bank expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in the document to reflect actual results, changes in assumptions or changes in factors affecting those statements.

 

Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management accounts and financial statements. The areas in which the management accounts might differ from the International Financial Reporting Standards and/or 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, the numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.

 

Second Quarter and First Half of 2021 Unaudited Consolidated Financial Results Conference Call

 

TBC Bank Group PLC ("TBC PLC") will release its second quarter and first half of 2021 unaudited consolidated financial results on Wednesday, 18 August 2021 at 7.00 am BST (10.00 am GET), while the results call will be held at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT).

 

Please click the link below to join the webinar:

 

https://tbc.zoom.us/j/93113731736?pwd=MWhLNHlPSVVNRlZVUUxkLzZiVFdNZz09

 

 

Webinar ID: 931 1373 1736

Passcode: 124283

 

Or, use the following dial-ins:

·      Georgia: +995 3224 73988  or +995 7067 77954  or 800 100 293 (Toll Free)

·      The United Kingdom: 0 800 260 5801 (Toll Free) or 0 800 358 2817 (Toll Free) or 0 800 031 5717 (Toll Free)

·      US: 833 548 0276 (Toll Free) or 833 548 0282 (Toll Free) or 877 853 5257 (Toll Free) or 888 475 4499 (Toll Free)

·      Russia: 8800 100 6938 (Toll Free) or 8800 301 7427 (Toll Free)

    

 

Webinar ID 931 1373 1736#, please dial the ID number slowly.

 

Other international numbers available at: https://tbc.zoom.us/u/aeIeUaqK4W

 

 

The call will be held in two parts. The first part will be comprised of presentations and during the second part of the call, you will have the opportunity to ask questions. All participants will be muted throughout the webinar.

 

Webinar Instructions:

For those participants who will be joining through the webinar, in order to ask questions, please use the "hand icon" that you will see at the bottom of the screen. The host will unmute those participants who have raised hands one after another. After the question is asked, the participant will be muted again. 

 

Call Instructions:

For those participants who will be using the dial in number to join the webinar, please dial *9 to raise your hand.

 

 

 

 

 

 

 

 

 

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

 

2Q and 1H 2021 Results Announcement

 

Key Results Highlights...................................................................................................................................5

Letter from the Chief Executive Officer..............................................................................................................................7

Economic Overview.................................................................................................................................................................. 9

Unaudited Consolidated Financial Results Overview for 2Q 2021............................................................................ 11

Unaudited Consolidated Financial Results Overview for 1H 2021.............................................................................24

Additional Disclosures.............................................................................................................................................................. 36

1) TBC Bank - Background..................................................................................................................................................... 36

2) Subsidiaries of TBC Bank Group PLC............................................................................................................................36

3) TBC Insurance........................................................................................................................................................................ 37

4) First digital bank in Uzbekistan..........................................................................................................................................38

5) Reclassification of certain balance sheet profit and loss items and changes in methodology.........................38

6) Loan book breakdown by stages according IFRS 9......................................................................................................39

7) Reconciliation of Return on Equity (ROE) with ROE before expected credit loss allowances......................40

Material Existing and Emerging Risks...................................................................................................................................41

Statement of Directors' Responsibilities............................................................................................................................... 52

Unaudited Condensed Consolidated Interim Financial Statements...............................................................................54

 

 

 

 

TBC Bank's Unaudited 2Q and 1H 2021 Consolidated Financial Results

 

Record high profitability on the back of strong revenue generation and improved performance on asset quality side 

 

European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.

The information in this announcement, which was approved by the Board of Directors on 17 August 2021, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020, which contained an unmodified audit report under Section 495 of the Companies Act 2006 and which did not make any statements under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

Key Results Highlights

 

2Q 2021 P&L Highlights 

• Profit for the period amounted to GEL 250.4 million (2Q 2020: GEL 126.2 million)
• Operating income[1] amounted to GEL 380.3 million (2Q 2020: GEL 250.0 million)
• Operating expenses amounted to GEL 134.7 million (2Q 2020: GEL 95.1 million)
• Return on average equity (ROE) stood at 31.0% (2Q 2020: 19.5%)
• Return on average assets (ROA) stood at 4.4% (2Q 2020: 2.6%)
• Cost to income of TBC Bank Group PLC stood at 35.4% (2Q 2020: 38.0%)
• Standalone cost to income ratio of the Bank[2] was 28.6% (2Q 2020: 32.3%)
• Cost of risk stood at -1.3% (2Q 2020: 0.0%)
• Net interest margin (NIM) stood at 5.0% (2Q 2020: 4.3%)
• Basic earnings per share stood at GEL 4.55 (2Q 2020: 2.30)
• Diluted earnings per share stood at GEL 4.49 (2Q 2020: 2.29)

 

1H 2021 P&L Highlights 

• Profit for the period amounted to GEL 403.4 million (1H 2020: GEL 69.2 million)
• Operating income¹ amounted to GEL 691.4 million (1H 2020: GEL 540.3 million)
• Operating expenses amounted to GEL 256.9 million (1H 2020: GEL 201.5 million)
• Return on average equity (ROE) stood at 25.9% (1H 2020: 5.2%)
• Return on average assets (ROA) stood at 3.6% (1H 2020: 0.7%)
• Cost to income of TBC Bank Group PLC stood at 37.2% (1H 2020: 37.3%)
• Standalone cost to income ratio of the Bank² was 30.6% (1H 2020: 32.0%)
• Cost of risk stood at -0.4% (1H 2020: 2.1%)
• Net interest margin (NIM) stood at 4.8% (1H 2020: 4.7%)
• Basic earnings per share stood at GEL 7.33 (2Q 2020: 1.24)
• Diluted earnings per share stood at GEL 7.24 (2Q 2020: 1.23)

Balance Sheet Highlights as of 30 June 2021

• Gross loans and advances to customers stood at GEL 15,274.9 million, up by 12.0% YoY or at 8.5% on a constant currency basis
• Total customer deposits amounted to GEL 12,870.4 million, up by 23.5% YoY or 20.1% on constant currency basis
• NPLs were 3.4%, up by 0.5 pp YoY
• NPL provision coverage and total coverage ratios stood at 91.3%, or 169.6%, respectively on 30 June 2021 compared to 134.7% or 208.0%, as of 30 June 2020
• Net loans to deposits + IFI funding stood at 102.8%, down by 2.5 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR), stood at 130.6% up by 3.1 pp YoY
• The Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per the NBG's methodology stood at 13.0%, 15.5%, and 19.6%, respectively, compared to minimum regulatory requirements including restored buffers of 11.2%, 13.5%, and 17.8%, respectively.

 

Market Shares as of 30 June 2021^[3]

• Market share by total assets reached 38.2%, up by 0.3 pp YoY (#1 position)
• Market share by total loans was 38.1%, down by 1.4 pp YoY  (#1 position)
• Market share of total deposits reached 37.8%, up by 0.7 pp YoY (#2 position)

 

Digital Highlights for 2Q 2021

• Active retail digital users[4] increased by 15.8% YoY and amounted to 688,000
• Average daily active retail digital users (DAU)[5] in June increased by 27.0 % YoY and stood at 249,000
• Average daily active retail digital users (DAU) divided by monthly active retail digital users (MAU)[6] stood at 41.8% in June 2021 (June 2020: 38.6%)
• 97% of all transactions were conducted through digital channels[7] (2Q 2020: 96%)
• The penetration ratio for internet and mobile banking[8] stood at 53% for 2Q 2021 (2Q 2020: 47%)

 

TBC UZ Highlights

• The number of registered users increased more than four times since March 2021 and stood at around 403,000 by the end of July.
• During the second quarter 2021, we enriched our existing unsecured consumer-lending proposition with new types of loans and added new savings options for deposits. 
• Our call center and online support services received the highest customer satisfaction score among 27 Uzbek banks, according to an independent survey conducted by Bank.uz.
• Our loan portfolio amounted to GEL 31.8 million in July 2021, compared to GEL 1.0 million in March 2021.
• Our deposit portfolio amounted to GEL 49.6 million in July 2021, compared to GEL 2.8 million in March 2021.

 

For more financial information about our Uzbek subsidiary, please refer to Annex 4.

 

 

 

Letter from the Chief Executive Officer  

I am delighted to present a strong set of financial results for the second quarter and first half of 2021 on the back of an impressive recovery in the macroeconomic environment.  Our outstanding performance resulted in solid capital generation, which allowed the Board to declare an interim dividend of GEL 1.5 per share payable in second half of September 2021. We also continue to deliver on our strategic objectives and I am particularly pleased with the results of our Uzbek business, which has been growing faster than our expectations.

Strong economic rebound

The Georgian economy has rebounded at a speed that exceeded even the most optimistic expectations. Importantly, this growth has been broad-based, supported by strong external inflows and increased domestic demand. According to the preliminary estimates of Geostat[9], the economy posted 29.8% year-on-year real growth in the second quarter. While the low base a year ago played a role, in the second quarter the economy surpassed even its 2019 level by 12.6%. Together with an exceptional performance in exports, the continued strong flow of remittances and a gradual recovery in tourism, record-low interest rates on US$ deposits stimulated consumer spending and real estate investments. Bank credit displayed a solid rebound in the second quarter with 12.6% year-on-year growth in FX adjusted terms, which is also strongly supportive to the outlook.  While COVID-19 and election related uncertainties pose downside risks to the outlook, real GDP growth for the year is likely to be above 10.0%, even under conservative assumptions.

Strong financial performance

In the second quarter of 2021, our consolidated net profit amounted to GEL 250.4 million, almost doubling year-on-year, while our return on equity and return on assets stood at 31.0% and 4.4%, respectively.

Our profitability was driven by strong income generation both in the interest and non-interest income categories.  Net interest margin returned to its pre-pandemic level and amounted to 5.0%, while net fee and commission income increased by 59.4% year-on-year, primarily due to the revival of business activities, the fast growth at our Uzbek subsidiary, Payme, as well as various business initiatives undertaken in our domestic payments business. The growth in other operating income was partially related to the gain received from sale of one of our investment properties.

Our strong operating income was further supported by recoveries of credit loss allowances due to the improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower. As a result, our cost of risk decreased to -1.3% in the second quarter 2021. Over the same period, our cost to income ratio dropped to 35.4%, down by 2.6pp year-on-year. This was driven by strong income generation, which offset the growth in operating expenses. At the same time, the stand-alone cost to income ratio for the Bank stood at 28.6%^[10].

Our strong financial performance in the second quarter of 2021, coupled with resilient results in the first quarter of 2021, resulted in consolidated net profit of GEL 403.4 million in the first half 2021. Over the same period, return on equity stood at 25.9% and return on assets stood at 3.6%.

Our loan book increased by 8.5% year-on-year in constant currency terms, which translated into a 38.1% market share. Over the same period, our deposits increased by 20.1% in constant currency terms. As a result, our market share in total deposits amounted to 37.8% as of 30 June 2021.

As of 30 June 2021, our CET1, Tier 1 and Total Capital ratios stood at 13.0%, 15.5% and 19.6%, respectively, comfortably above the respective minimum regulatory requirements including the restored buffers of 11.2%, 13.5% and 17.8%.  We continue to maintain a robust liquidity position, with net stable funding (NSFR) and liquidity coverage ratios (LCR) standing at 130.6% and 127.1%, respectively, as of 30 June 2021.

Progress towards our strategic objectives

During the quarter, we concentrated our efforts on increasing the utilization of digital channels, enhancing our payments business, as well as expanding our Uzbek operations in line with our strategic priorities. Furthermore, we continue to make further progress in relation to our environmental, social and governance matters ("ESG"). 

 

o  The number of retail digital transactions during the second quarter of 2021 increased by 53.1% year-on-year and by 19.1% quarter-on-quarter. Over the same period, the number of digital sales also remained strong. The consumer loan sales offloading ratio^[11] amounted to 37%, while the deposit sales offloading ratio^[12] stood high at 72%.

o  The volume of payment transactions went up by 26% quarter-on-quarter, while the number of transactions increased by 22% in the second quarter of 2021.  As the leading payments provider in the country, we are constantly working on enhancing payments solutions for our customers. In June, we launched a new platform, Payments Space (available on www.tbcpayments.ge), for our merchants, which allows them to easily control their daily transactions, receive analytical reports and manage their payments products.

o  Our Uzbek business demonstrated remarkable results over the recent period. The number of registered and active users of our digital banking app TBC UZ continued its rapid growth and reached 403,000 and 135,000, respectively, as of 31 July 2021. We have also started expanding outside Tashkent and already operate 34 client acquisition points in 11 regional cities. Our loan book and deposit portfolio continued their steady growth and reached GEL 31.8 million and GEL 49.6 million, respectively, as of 31 July 2021, while the total number of transactions more than tripled in July compared to March.

o  Our Uzbek payments subsidiary, Payme, also continued its rapid growth, driven by P2P transfers and utility payments, which together accounted for around 94% of total volume of transactions conducted in the second quarter 2021. Over the same period, the number of its registered users reached 3.5 million, up by 52.2% year-on-year. In terms of financial metrics, Payme's revenue during the quarter increased by 86.8% year-on-year to GEL 6.6 million, while net profit grew by 81.9% year-on-year to GEL 4.1 million.

o  TBC Bank has received accreditation by the Green Climate Fund (GCF), making it the first commercial bank in the Caucasus region to receive this accreditation. It will enable TBC Bank to have direct access to GCF funding to finance various green projects. In addition, we have published our full-scale Sustainability Report for the second year in a row, which is available at www.tbcbankgroup.com.  Finally, I am proud to say that our investment banking subsidiary, TBC Capital, participated as joint lead manager in the very successful placement of US$ 500 million Green Eurobonds by Georgian Railway on the London Stock Exchange, a very important transaction for our country. It is only the second Green Eurobond issued from Georgia, and last year, TBC Capital was co-manager of the first such issuance, by "Georgia Global Utilities".

Outlook

Our strong financial results and continued progress towards our strategic objectives during the first half of 2021 together with revived business activities and positive macroeconomic outlook fill me with optimism about the rest of 2021.

To conclude, I would like to re-iterate our medium term guidance: ROE of above 20%, a cost to income ratio below 35%, a dividend pay-out ratio of 25-35% and annual loan growth of 10-15%.

  

Economic Overview

 

Economic growth

After a 4.5% drop in the first quarter of 2021, Georgia's economy showed unexpected strength in April with real GDP reaching a 44.8% year-on-year expansion, followed by similarly solid year-on-year growth of 25.8% and 18.7%  in May and June 2021, respectively. The year-on-year growth in the second quarter was 29.8%. Taking into account the easing restrictions, the upturn in the external sector and the global recovery, it can be firmly stated that the economy has embarked on a rebound path. Real GDP in 2021 had already substantially surpassed 2019 levels, being around a 5.3% higher in the first half of the year and 12.6% higher - in the second quarter.

 

External sectors

Similar to GDP, the external sector experienced a strong rebound in 2Q 2021 with exports growing by 47.1% year-on-year and 10.9% compared with 2Q 2019. Notably, domestic exports lead the recovery with the share of re-exports in the total exports decreasing significantly, from 41.4% in 2Q 2019 to 27.5% in 2Q 2021. Despite the ongoing recovery in the tourism related imports and re-exports, imports of goods also went up by 44.8% YoY in 2Q 2021and by 1.3% when compared with the same period in 2019. Importantly, the rebound in the trade in goods was broad based, reflecting the increased overall external as well as the domestic demand. 

Remittance inflows were also very strong with a 53.5% increase YoY in the second quarter and a 36.8% increase compared to the same period in 2019. Although part of the rebound compared with 2019 can be attributed to the border closures and more cash remittances being transferred through the digital channels, overall growth is still substantial given that the share of cash inflows is only likely to be around 10.0% -15.0%, according to the NBG's estimates.

Tourism inflows in 2Q 2021 increased by 753.3% year-on-year in US$ terms, while dropping by 72.0% compared to the same period in 2019. This was a significant improvement after a 90.7% drop in the first quarter compared to 2019. The latest monthly dynamics are also promising: 64.0% decline in June 2021compared with June 2019, while early indicators based on the spending by non-residents through TBC Bank's channels suggest an even more sizable rebound in July^[13]. Overall, even taking into account increased risks due to a higher number of infection cases, TBC Capital's latest projection of tourism inflows to recover by around 40.0% in 2021 compared to 2019 still looks reasonable[14]. 

 

Fiscal stimulus 

The fiscal deficit is also expected to remain large in 2021 at an estimated 6.9% of GDP following a deficit of 9.3% of GDP in 2020. However, according to the Ministry of Finance, fiscal consolidation is expected in the coming years with deficit-to-GDP ratios of 4.4%, 3.0% and 2.7% in 2022, 2023 and 2024, respectively. Importantly, the major source of deficit financing in 2020-2021 was an external one, largely compensating for the pandemic related drop in net inflows.   

 

Credit growth

By the end of 2Q 2021, bank credit growth has increased to 12.6% year-on-year, compared to a 7.8% year-on-year growth by the end of 1Q 2021. In terms of segments, MSME lending growth has increased by 5.5pp from 1Q 2021 to 2Q 2021 and amounted to 18.1% year-on year. Corporate lending also increased from 3.5% at the end of 1Q 2021 to 8.3% year-on-year, respectively. Growth in the retail sector, increased by 4.3pp to 12.6% year-on-year on the back of stronger mortgage and non-mortgage loans growth.

 

Inflation, monetary policy and the exchange rate

After the depreciation against the US$ in the first quarter of 2021, the GEL has regained some of its value since May, mainly on the back of higher exports, remittances, tourism inflows and a tighter monetary policy stance with a refinancing rate of 10.0%. Due to stronger inflows, the NBG has eased its FX market operations, selling US$ 83.7 million in April and only US$ 9.3 million in June. On the other hand, year-on-year inflation reached 11.9% in July, mainly due to the earlier depreciation of GEL and higher commodity and utility prices. Inflation is expected to moderate somewhat throughout the year before reaching the target of 3.0% in 2022.

 

Going forward

With a stronger than expected rebound in the second quarter, TBC Capital's forecast for real GDP growth in 2021 has been revised upwards to 10.5% followed by a solid 6.5% growth in 2022. Meanwhile, in June the World Bank revised their 2021 growth projections for Georgia from 4.0% to 6.0%, while the IMF increased their forecast in July from 3.5% to 7.7%

More information on the Georgian economy and financial sector can be found at www.tbccapital.ge.

 

 

Unaudited Consolidated Financial Results Overview for 2Q 2021

This statement provides a summary of the unaudited business and financial trends for 2Q 2021 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

TBC Bank Group PLC's financial results has been prepared in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

Please note that there might be slight differences in previous periods' figures due to rounding.

Financial Highlights

 

Income Statement Highlights
in thousands of GEL	2Q'21		1Q'21		2Q'20		Change YoY		Change QoQ
Net interest income	242,767		225,131		184,365		31.7%		7.8%
Net fee and commission income	63,008		45,293		39,517		59.4%		39.1%
Other operating non-interest income[15]	74,512		40,665		26,161		NMF		83.2%
Credit loss allowance	45,291		(17,244)		(12,586)		NMF		NMF
Operating profit after expected credit losses	425,578		293,845		237,457		79.2%		44.8%
Losses from modifications of financial instrument	(104)		(1,487)		(3,527)		-97.1%		-93.0%
Operating expenses	(134,688)		(122,240)		(95,059)		41.7%		10.2%
Profit before tax	290,786		170,118		138,871		NMF		70.9%
Income tax expense	(40,394)		(17,131)		(12,665)		NMF		NMF
Profit for the period	250,392		152,987		126,206		98.4%		63.7%

 

Balance Sheet and Capital Highlights
in thousands of GEL	Jun-21		Mar-21		Jun-20			Change YoY	Change QoQ
Total Assets	22,091,541		23,617,046		19,813,429			11.5%	-6.5%
Gross Loans	15,274,926		15,332,209		13,635,392			12.0%	-0.4%
Customer Deposits	12,870,418		14,239,837		10,420,330			23.5%	-9.6%
Total Equity	3,336,825		3,125,735		2,653,405			25.8%	6.8%
Regulatory Common Equity Tier I Capital (Basel III)	2,382,595		2,059,599		1,631,006			46.1%	15.7%
Regulatory Tier I Capital (Basel III)	2,837,805		2,550,144		2,068,052			37.2%	11.3%
Regulatory Total Capital (Basel III)	3,573,282		3,327,134		2,787,136			28.2%	7.4%
Regulatory Risk Weighted Assets (Basel III)	18,275,845		18,921,231		16,249,475			12.5%	-3.4%

 

 

Key Ratios	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
ROE	31.0%	20.3%	19.5%	11.5 pp	10.7 pp
ROA	4.4%	2.7%	2.6%	1.8 pp	1.7 pp
NIM	5.0%	4.7%	4.3%	0.7 pp	0.3 pp
Cost to income	35.4%	39.3%	38.0%	-2.6 pp	-3.9 pp
Standalone cost to income of the Bank[16]	28.6%	33.1%	32.3%	-3.7 pp	-4.5 pp
Cost of risk	-1.3%	0.5%	0.0%	-1.3pp	-1.8 pp
NPL to gross loans	3.4%	4.8%	2.9%	0.5 pp	-1.4 pp
NPL provision coverage ratio	91.3%	81.0%	134.7%	-43.4pp	10.3 pp
Total NPL coverage ratio	169.6%	154.4%	208.0%	-38.4 pp	15.2 pp
CET 1 CAR (Basel III)	13.0%	10.9%	10.0%	3.0 pp	2.1 pp
Regulatory Tier 1 CAR (Basel III)	15.5%	13.5%	12.7%	2.8 pp	2.0 pp
Regulatory Total CAR (Basel III)	19.6%	17.6%	17.2%	2.4 pp	2.0 pp
Leverage (Times)	6.6x	7.6x	7.5x	-0.9 pp	1.0 pp

 

 

Net Interest Income

In 2Q 2021, net interest income amounted to GEL 242.8 million, up by 31.7% YoY and 7.8% on a QoQ basis.

The YoY rise in interest income by GEL 65.5 million, or 16.7%, was mainly driven by an increase in interest income from loans related to a growth in the gross loan portfolio of GEL 1,639.5 million, or 12.0%, together with an increase in the respective yield by 0.5pp.

In 2Q 2021, interest expense increased by GEL 10.7 million, or 5.0%, mainly driven by an increase in interest expense from deposits, which was related to a growth in the respective portfolio of GEL 2,450.1 million, or 23.5% YoY. Over the same period, the cost of deposits stood at 3.4% and remained broadly flat YoY. The growth was partially offset by a decrease in interest expense from other borrowed funds, on the back of a decline in the respective portfolio by GEL 821.5 million, or 19.8%. Overall, the change in liability structure towards deposits had a positive effect on our cost of funding, which dropped by 0.4pp on a YoY basis. 

The increase in interest income on a QoQ basis of GEL 18.0 million, or 4.1%, was mainly driven by an increase in interest income from loans to customers on the back of 0.4pp growth in loan yields. This increase was mainly attributable to GEL loan yields, on the back of an increase in the refinance rate. Over the same period, the loan portfolio remained broadly stable.

The increase in interest expense of GEL 2.5 million, or 1.1% on a QoQ basis, was mainly driven by an increase in other borrowed funds on the back of a rise in the respective yield by 1.4pp. The increase in GEL yields was due to growth in the refinance rate, while the increase in FC yields was related to prepayment fees on certain borrowed funds. The respective portfolio decreased by GEL 109.1 million, or 3.2%.  This increase was partially offset by a decrease in interest expense from customer accounts, which was attributable to decrease in a Ministry of Finance deposits and the release of a single short-term CIB depositor. As a result, the respective portfolio decreased by GEL 1,369.4 million, or 9.6% on a QoQ basis.

In 2Q 2021, our NIM stood at 5.0%, up by 0.7pp YoY and 0.3pp on a QoQ basis.

In thousands of GEL	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Interest income	458,572	440,613	393,114	16.7%	4.1%
Interest expense	(223,456)	(220,980)	(212,714)	5.0%	1.1%
Net gains from currency swaps	7,651	5,498	3,965	93.0%	39.2%
Net interest income	242,767	225,131	184,365	31.7%	7.8%
NIM	5.0%	4.7%	4.3%	0.7 pp	0.3 pp

 

Net fee and commission income

In 2Q 2021, net fee and commission income totaled GEL 63.0 million, up by 59.4% YoY and 39.1% QoQ.

The strong YoY and QoQ increases were attributable to the revival of business activities in 2Q 2021, which was further supported by various initiatives undertaken on our domestic payments business, which resulted in upgrading the existing cards with higher class cards and the contribution of our fast-growing Uzbek payments subsidiary, Payme.

In thousands of GEL	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Net fee and commission income
Card operations	22,627	10,323	10,962	NMF	NMF
Settlement transactions	28,435	24,567	18,169	56.5%	15.7%
Guarantees issued and letters of credit	9,561	9,402	9,498	0.7%	1.7%
Other	2,385	1,001	888	NMF	NMF
Total net fee and commission income	63,008	45,293	39,517	59.4%	39.1%

 

 

Other Non-Interest Income

Total other non-interest income increased significantly and amounted GEL 74.5 million in 2Q 2021.

Both the YoY and QoQ increases in other non-interest income were related to an increase in other operating income and net income from foreign currency operations. The former increase was driven by the gain from the disposal of one of our investment properties, in the amount of GEL 26.3 million, while the latter increase was due to an increase in the scale of FX transactions.

In thousands of GEL	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Other non-interest income
Net income from foreign currency operations	31,372	28,507	19,137	63.9%	10.1%
Net insurance premium earned after claims and acquisition costs[17]	5,470	4,403	5,481	-0.2%	24.2%
Other operating income	37,670	7,755	1,543	NMF	NMF
Total other non-interest income	74,512	40,665	26,161	NMF	83.2%

 

 

Credit Loss Allowance

Credit loss allowance for loans in 2Q 2021 amounted to GEL 45.3 million. The recoveries of credit loss allowances were mainly attributable to improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower.

In thousands of GEL	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Credit loss allowance for loan to customers	50,112	(17,549)	(8,191)	NMF	NMF
Credit loss allowance for other transactions	(4,821)	305	(4,395)	9.7%	NMF
Total credit loss allowance	45,291	(17,244)	(12,586)	NMF	NMF
Operating profit after expected credit losses	425,578	293,845	237,457	79.2%	44.8%
Cost of risk	-1.3%	0.5%	0.0%	-1.3 pp	-1.8 pp

 

 

Operating Expenses

In 2Q 2021, our operating expenses expanded by 41.7% YoY and 10.2% on a QoQ basis.

The QoQ Increase in staff costs was related to the expansion of our Uzbek operations as well as one-off staff costs incurred in 2Q 2021. While the YoY increase was further amplified by restoration of management bonuses and increase in staff variable compensation driven by increased operating income.

The QoQ growth in administrative and other expenses was entirely attributable to expansion of the Uzbek operations, excluding Uzbekistan operation these costs would have remained flat QoQ. As for the YoY growth in administrative and other expenses, it was attributable to the low base in 2Q 2020 due to cost optimizations related to COVID-19 (including GEL 4.2 million from rent reduction per IFRS 16).

The growth in operating expenses was offset by our strong operating income, which resulted in exceptionally low cost to income ratio of 35.4% in 2Q 2021.

In thousands of GEL	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Operating expenses
Staff costs	(77,757)	(70,314)	(57,204)	35.9%	10.6%
Provisions for liabilities and charges	(54)	45	(59)	-8.5%	NMF
Depreciation and amortization	(19,337)	(17,364)	(16,427)	17.7%	11.4%
Administrative & other operating expenses	(37,540)	(34,607)	(21,369)	75.7%	8.5%
Total operating expenses	(134,688)	(122,240)	(95,059)	41.7%	10.2%
Cost to income	35.4%	39.3%	38.0%	-2.6 pp	-3.9 pp
Standalone cost to income*	28.6%	33.1%	32.3%	-3.7 pp	-4.5 pp

* For the ratio calculation all relevant group recurring costs are allocated to the bank

 

Net Income

In 2Q, we generated GEL 250.4 million in net profit, up by 98.4% YoY and 63.7% QoQ. Our record high profitability was driven by strong operating performance across all revenue categories, as well as recoveries in credit loss allowances across all segments.

As a result, our ROE and ROA for the second quarter reached 31.0% and 4.4%, accordingly, while ROE before credit loss allowances stood at 26.0%.

In thousands of GEL	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Losses from modifications of financial instruments	(104)	(1,487)	(3,527)	-97.1%	-93.0%
Profit before tax	290,786	170,118	138,871	NMF	70.9%
Income tax expense	(40,394)	(17,131)	(12,665)	NMF	NMF
Profit for the period	250,392	152,987	126,206	98.4%	63.7%
ROE	31.0%	20.3%	19.5%	11.5 pp	10.7 pp
ROE before expected credit loss allowances	26.0%	22.4%	21.3%	4.7 pp	3.6 pp
ROA	4.4%	2.7%	2.6%	1.8 pp	1.7 pp

 

 

Funding and Liquidity

As of 30 June 2021, total liquidity coverage ratio, as defined by the NBG, was 127.1%, above the 100% limit. The decrease on a QoQ basis in the foreign currency liquidity coverage ratio was attributable to the release of a short-term placement from a single CIB client, while the decline in the GEL liquidity coverage ratio was mainly related to a repayment of a wholesale funding, as well as an increase in the loan book.

As of 30 June 2021, NSFR stood at 130.6%, compared to the regulatory limit of 100%.

	30-Jun-21	31-Mar-21	Change QoQ
Minimum net stable funding ratio, as defined by the NBG	100.0%	100.0%	0.0 pp
Net stable funding ratio as defined by the NBG	130.6%	131.4%	-0.8 pp
Net loans to deposits + IFI funding	102.8%	92.2%	10.6 pp
Leverage (Times)	6.6x	7.6x	-1.0x
Minimum total liquidity coverage ratio, as defined by the NBG	100.0%	100.0%	0.0 pp
Minimum LCR in GEL, as defined by the NBG	75%*	n/a	NMF
Minimum LCR in FC, as defined by the NBG	100.0%	100.0%	0.0 pp
Total liquidity coverage ratio, as defined by the NBG	127.1%	136.7%	-9.6 pp
LCR in GEL, as defined by the NBG	122.9%	140.8%	-17.9 pp
LCR in FC, as defined by the NBG	129.2%	135.5%	-6.3 pp

* In May 2021, NBG restored the NBG GEL LCR limit, which was temporarily removed for one year

 

Regulatory Capital

As of 30 June 2021, our capital adequacy ratios were comfortably above the minimum regulatory requirements including the restored buffers.

By 31 July 2021, we have restored all temporarily released capital buffers. This has lifted any restrictions on capital distribution.

Our strong capital generation was driven by our exceptional operating income as well as strong performance on the asset quality side. The growth was further supported currency local currency appreciation QoQ.

In thousands of GEL	30-Jun-21	31-Mar-21	Change QoQ
CET 1 Capital	2,382,595	2,059,599	15.7%
Tier 1 Capital	2,837,805	2,550,144	11.3%
Total Capital	3,573,282	3,327,134	7.4%
Total Risk-weighted Exposures	18,275,845	18,921,231	-3.4%

 

Minimum CET 1 ratio	11.2%*			7.8%	3.4 pp
CET 1 Capital adequacy ratio	13.0%			10.9%	2.1 pp
Minimum Tier 1 ratio	13.5%*			9.7%	3.8 pp
Tier 1 Capital adequacy ratio	15.5%			13.5%	2.0 pp
Minimum total capital adequacy ratio	17.8%*			13.7%	4.1 pp
Total Capital adequacy ratio	19.6%			17.6%	2.0 pp

* Minimum requirements with restored buffers  

Loan Portfolio

As of 30 June 2021, the gross loan portfolio reached GEL 15,274.9 million, down by 0.4% QoQ, or up by 3.7% on a constant currency basis.

The proportion of gross loans denominated in foreign currency decreased by 2.9pp QoQ and accounted for 56.3% of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency decreased by 1.1pp QoQ and stood at 58.0%.

As of 30 June 2021, our market share in total loans stood at 38.1%, down by 0.4pp QoQ. Our loan market share in legal entities was 38.0%, remaining the same QoQ, and our loan market share in individuals stood at 38.3%, down by 0.7pp QoQ.

In thousands of GEL	30-Jun-21	31-Mar-21	Change QoQ
Loans and advances to customers
Retail	5,688,519	5,761,488	-1.3%
Retail loans GEL	3,100,158	2,980,635	4.0%
Retail loans FC	2,588,361	2,780,853	-6.9%
CIB	5,851,634	5,939,056	-1.5%
CIB loans GEL	1,746,149	1,629,821	7.1%
CIB loans FC	4,105,485	4,309,235	-4.7%
MSME	3,734,773	3,631,665	2.8%
MSME loans GEL	1,828,264	1,647,846	10.9%
MSME loans FC	1,906,509	1,983,819	-3.9%
Total loans and advances to customers	15,274,926	15,332,209	-0.4%

 

	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Loan yields	10.2%	9.8%	9.7%	0.5 pp	0.4 pp
Loan yields GEL	15.1%	14.6%	15.0%	0.1 pp	0.5 pp
Loan yields FC	6.7%	6.6%	6.5%	0.2 pp	0.1 pp
Retail Loan Yields	11.4%	11.1%	10.7%	0.7 pp	0.3 pp
Retail loan yields GEL	15.8%	15.7%	15.8%	0.0 pp	0.1 pp
Retail loan yields FC	6.4%	6.2%	6.1%	0.3 pp	0.2 pp
CIB Loan Yields	9.0%	8.7%	8.5%	0.5 pp	0.3 pp
CIB loan yields GEL	13.8%	12.8%	13.3%	0.5 pp	1.0 pp
CIB loan yields FC	7.1%	7.1%	6.9%	0.2 pp	0.0 pp
MSME Loan Yields	10.3%	9.8%	10.2%	0.1 pp	0.5 pp
MSME loan yields GEL	15.1%	14.5%	15.2%	-0.1 pp	0.6 pp
MSME loan yields FC	6.1%	5.9%	6.1%	0.0 pp	0.2 pp

 

 

Loan Portfolio Quality

In 2Q, NPL improved by 1.4pp across all segments, driven by resumed repayments from restructured retail and MSME customers, as well as by the repayment of a single large CIB borrower.

The total Par 30 ratio improved by 0.3pp and amounted to 2.2%. The decrease was mainly driven by the CIB segment due to two large borrowers (including the one mentioned above). The Retail and MSME ratios stayed stable compared to previous quarter.

Our NPLs had a 91% provision coverage as of 30 June 2021 and an additional 79% collateral coverage. Only 13% of NPLs were unsecured loans with strong provision coverage of 294%.

Par 30	30-Jun-21	31-Mar-21	Change QoQ
Retail	3.0%	3.0%	0.0%
CIB	0.3%	1.2%	-0.9%
MSME	3.9%	3.8%	0.1%
Total Loans	2.2%	2.5%	-0.3%

 

 

Non-performing Loans	30-Jun-21	31-Mar-21	Change QoQ
Retail	4.0%	6.0%	-2.0%
CIB	1.6%	2.2%	-0.6%
MSME	5.4%	7.0%	-1.6%
Total Loans	3.4%	4.8%	-1.4%

 

NPL Coverage[18]	30-Jun-21		31-Mar-21
	Provision Coverage	Total Coverage	Provision Coverage	Total Coverage
Retail	117.9%	189.6%	93.8%	161.0%
CIB	82.9%	157.0%	81.9%	150.5%
MSME	64.8%	152.7%	63.1%	147.5%
Total	91.3%	169.6%	81.0%	154.4%

 

 

NPL Coverage (30 June 2021)[19]
	Collateral coverage	Provision  coverage				Total coverage		Share in NPL portfolio
Secured[20]	90%	62%				152%		87%
Unsecured	-	294%				294%		13%
Total	79%	91%				170%		100%

 

 

Cost of risk 

The recoveries of credit loss allowances translated into -1.3% cost of risk for 2Q 2021.  As mentioned above, the recoveries were driven by improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower.

 

Cost of risk	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Retail	-0.1%	0.8%	-0.7%	0.6%	-0.9%
CIB	-2.0%	-0.2%	0.3%	-2.3%	-1.8%
MSME	-2.0%	1.0%	1.0%	-3.0%	-3.0%
Total	-1.3%	0.5%	0.0%	-1.3%	-1.8%

 

Deposit Portfolio

The total deposits portfolio decreased by 9.6% QoQ, or 5.0% on a constant currency basis and amounted to GEL 12,870.4 million.

The decrease on a QoQ basis was attributable to a decline of a Ministry of Finance deposits, as well as release of short-term placement from a single CIB client. Without Minstry of Finance deposits, our deposits portfolio would have been broadly stable on constant currency basis. The proportion of deposits denominated in a foreign currency decreased by 2.5pp QoQ and accounted for 65.7% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency decreased by 0.8pp QoQ and stood at 67.4%.

As of 30 June 2021, our market share in deposits amounted to 37.8%, down by 2.0pp QoQ, while our market share in deposits to legal entities stood at 35.7%, down by 4.1pp QoQ. Our market share in deposits to individuals stood at 39.6%, down by 0.2pp QoQ.

In thousands of GEL	30-Jun-21	31-Mar-21	Change QoQ
Customer Accounts
Retail	5,287,787	5,369,851	-1.5%
Retail deposits  GEL	1,269,466	1,266,543	0.2%
Retail deposits FC	4,018,321	4,103,308	-2.1%
CIB	5,939,188	6,728,126	-11.7%
CIB deposits  GEL	2,218,972	1,803,883	23.0%
CIB deposits FC	3,720,216	4,924,243	-24.5%
MSME	1,397,516	1,299,482	7.5%
MSME deposits  GEL	675,932	619,717	9.1%
MSME deposits FC	721,584	679,765	6.2%
Total Customer Accounts*	12,870,418	14,239,837	-9.6%

* Total deposit portfolio includes Ministry of Finacne deposits in the amount of, GEL 843 mln and GEL 245 mln as of 31 March 2021 and 30 June 2021, respectively  

 

 

	2Q'21	1Q'21	2Q'20	Change YoY	Change QoQ
Deposit rates	3.4%	3.5%	3.4%	0.0 pp	-0.1 pp
Deposit rates GEL	6.6%	6.6%	6.4%	0.2 pp	0.0 pp
Deposit rates FC	1.7%	1.9%	1.9%	-0.2%	-0.2 pp
Retail Deposit Yields	2.2%	2.5%	2.7%	-0.5 pp	-0.3 pp
Retail deposit rates GEL	4.7%	5.0%	5.7%	-1.0 pp	-0.3 pp
Retail deposit rates FC	1.5%	1.7%	1.7%	-0.2 pp	-0.2 pp
CIB Deposit Yields	4.0%	3.9%	4.5%	-0.5 pp	0.1 pp
CIB deposit rates GEL	8.3%	7.9%	8.5%	-0.2 pp	0.4 pp
CIB deposit rates FC	2.1%	2.2%	2.5%	-0.4 pp	-0.1 pp
MSME Deposit Yields	0.9%	0.8%	0.9%	0.0 pp	0.1 pp
MSME deposit rates GEL	1.5%	1.5%	1.7%	-0.2 pp	0.0 pp
MSME deposit rates FC	0.3%	0.2%	0.4%	-0.1 pp	0.1 pp

 

 

Segment definition and PL

Business Segments

The segment definitions are as follows:

·      Corporate and Investment Banking (CIB) - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which has been granted facilities of more than GEL 5.0 million. Some other business customers may also be assigned to the CIB segment or transferred to the MSME segment on a discretionary basis. In addition, CIB includes Wealth Management private banking services to high-net-worth individuals  with the threshold of US$ 250,000 on assets under management (AUM), as well as on discretionary basis;

·      Retail - non-business individual customers;

·      MSME - business customers who are not included in the CIB segment; or individual customers of the fully digital bank, Space.

·      Corporate centre and other operations - comprises the Treasury, other support and back office functions, and 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

2Q'21	Retail	MSME	CIB	Corp.Centre	Total
Interest income	163,057	95,892	139,272	60,351	458,572
Interest expense	(30,689)	(3,058)	(61,772)	(127,937)	(223,456)
Net gains from currency swaps	-	-	-	7,651	7,651
Net transfer pricing	(36,770)	(36,678)	12,728	60,720	-
Net interest income	95,598	56,156	90,228	785	242,767
Fee and commission income	58,575	13,434	25,149	7,887	105,045
Fee and commission expense	(11,920)	(8,180)	(19,509)	(2,428)	(42,037)
Net fee and commission income	46,655	5,254	5,640	5,459	63,008
Net insurance premium earned after claims and acquisition costs	-	-	-	5,470	5,470
Net gains from derivatives, foreign currency operations and translation	8,600	6,999	14,254	1,835	31,688
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income	-	-	515	4,138	4,653
Other operating income	2,181	668	1,117	28,525	32,491
Share of profit of associates	-	-	-	210	210
Other operating non-interest income and insurance profit	10,781	7,667	15,886	40,178	74,512
Credit loss allowance for loans to customers	1,661	18,365	30,086	-	50,112
Credit loss allowance for performance guarantees and credit related commitments	70	(158)	1,372	-	1,284
Credit loss allowance for investments in finance lease	-	-	-	(1,204)	(1,204)
Credit loss allowance for other financial assets	(3,309)	-	(1,143)	(1,237)	(5,689)
Credit loss allowance for financial assets measured at fair value through other comprehensive income	-	-	840	408	1,248
Other non-financial assets impairment	95	23	7	(585)	(460)
Profit/(loss) before G&A expenses and income taxes	151,551	87,307	142,916	43,804	425,578
Losses from modifications of financial instruments	(112)	(63)	71	-	(104)
Staff costs	(34,266)	(14,170)	(11,676)	(17,645)	(77,757)
Depreciation and amortization	(12,355)	(3,085)	(1,303)	(2,594)	(19,337)
Provision for liabilities and charges	-	-	-	(54)	(54)
Administrative and other operating expenses	(17,865)	(7,256)	(3,470)	(8,949)	(37,540)
Operating expenses	(64,486)	(24,511)	(16,449)	(29,242)	(134,688)
Profit before tax	86,953	62,733	126,538	14,562	290,786
Income tax expense	(10,368)	(8,784)	(16,307)	(4,935)	(40,394)
Profit	76,585	53,949	110,231	9,627	250,392

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance sheet

In thousands of GEL	Jun-21	Mar-21
Cash and cash equivalents	1,414,414	2,425,584
Due from other banks	59,314	54,189
Mandatory cash balances with National Bank of Georgia	2,117,157	2,364,760
Loans and advances to customers	14,796,968	14,742,344
Investment securities measured at fair value through other comprehensive income	2,022,385	2,284,697
Bonds carried at amortized cost*	10,069	17,748
Investments in finance leases	245,261	272,090
Investment properties	33,407	65,605
Current income tax prepayment	14,966	62,022
Deferred income tax asset	6,747	1,453
Other financial assets[21]	287,761	292,410
Other assets	311,218	265,299
Premises and equipment	371,909	377,273
Right of use assets	51,160	54,535
Intangible assets	284,555	272,597
Goodwill	59,964	59,964
Investments in associates	4,286	4,476
TOTAL ASSETS	22,091,541	23,617,046
LIABILITIES
Due to credit institutions	3,482,830	3,612,067
Customer accounts	12,870,418	14,239,837
Lease liabilities	53,755	60,934
Other financial liabilities21	124,308	153,606
Current income tax liability	653	697
Debt Securities in issue	1,445,614	1,583,929
Deferred income tax liability	18,457	21,865
Provisions for liabilities and charges	21,435	22,526
Other liabilities	101,265	87,888
Subordinated debt	635,981	707,962
TOTAL LIABILITIES	18,754,716	20,491,311
EQUITY
Share capital	1,682	1,682
Shares held by trust	(25,489)	(25,494)
Share premium	848,459	848,459
Retained earnings	2,680,951	2,432,872
Group re-organisation reserve	(162,167)	(162,167)
Share based payment reserve	(15,348)	(19,288)
Fair value reserve	170	36,929
Cumulative currency translation reserve	(5,199)	759
Net assets attributable to owners	3,323,059	3,113,752
Non-controlling interest	13,766	11,983
TOTAL EQUITY	3,336,825	3,125,735
TOTAL LIABILITIES AND EQUITY	22,091,541	23,617,046

* In 2020, the Group changed its business model in relation to certain portfolio of bonds carried at amortized cost (Ministry of Finance Treasury Bills). The respective reclassifications have been applied prospectively from 1 January 2021, as required by IFRS. As a result of reclassification, Bonds carried at amortized cost in the amount of GEL 1,059,946 thousand has been transferred to Investment securities measured at fair value through other comprehensive income with the fair value of GEL 1,086,008 thousand. The difference has been recognized in other comprehensive income as required by IFRS

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

In thousands of GEL	2Q'21	1Q'21	2Q'20
Interest income	458,572	440,613	393,114
Interest expense	(223,456)	(220,980)	(212,714)
Net gains from currency swaps	7,651	5,498	3,965
Net interest income	242,767	225,131	184,365
Fee and commission income	105,045	81,108	65,038
Fee and commission expense	(42,037)	(35,815)	(25,521)
Net fee and commission income	63,008	45,293	39,517
Net insurance premiums earned	16,146	14,143	13,385
Net insurance claims incurred and agents' commissions	(10,676)	(9,740)	(7,904)
Net insurance premium earned after claims and acquisition costs	5,470	4,403	5,481
Net gains from derivatives, foreign currency operations and translation	31,688	28,496	19,124
Gains less losses from disposal of investment securities measured at fair value through other comprehensive income	4,653	2,388	(1,480)
Other operating income	32,491	4,992	3,083
Share of profit of associates	210	386	(47)
Other operating non-interest income	69,042	36,262	20,680
Credit loss allowance for loans to customers	50,112	(17,549)	(8,191)
Credit loss allowance for investments in finance lease	(1,204)	(1,311)	(3,408)
Credit loss allowance for performance guarantees and credit related commitments	1,284	646	1,227
Credit loss allowance for other financial assets	(5,689)	363	(988)
Credit loss allowance for financial assets measured at fair value through other comprehensive income	1,248	594	46
Other non-financial assets impairment	(460)	13	(1,272)
Operating profit after expected credit losses	425,578	293,845	237,457
Losses from modifications of financial instruments	(104)	(1,487)	(3,527)
Staff costs	(77,757)	(70,314)	(57,204)
Depreciation and amortization	(19,337)	(17,364)	(16,427)
(Provision for)/ recovery of liabilities and charges	(54)	45	(59)
Administrative and other operating expenses	(37,540)	(34,607)	(21,369)
Operating expenses	(134,688)	(122,240)	(95,059)
Profit before tax	290,786	170,118	138,871
Income tax expense	(40,394)	(17,131)	(12,665)
Profit	250,392	152,987	126,206
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve	(36,758)	25,772	(38)
Exchange differences on translation to presentation currency	(5,976)	2,903	(2,002)
Other comprehensive income for the period	(42,734)	28,675	(2,040)
Total comprehensive income for the period	207,658	181,662	124,166
Profit attributable to:
- Shareholders of TBCG	247,945	151,224	125,100
- Non-controlling interest	2,447	1,763	1,106
Profit	250,392	152,987	126,206
Total comprehensive income is attributable to:
- Shareholders of TBCG	205,195	179,923	123,060
- Non-controlling interest	2,463	1,739	1,106
Total comprehensive income for the period	207,658	181,662	124,166

 

Consolidated Statement of Cash Flows

In thousands of GEL	30-Jun-2021	31-Mar-2021
Cash flows from (used in) operating activities
Interest received	906,444	442,636
Interest received on currency swaps	13,149	5,498
Interest paid	(452,751)	(183,320)
Fees and commissions received	170,658	74,044
Fees and commissions paid	(78,793)	(36,510)
Insurance and reinsurance received	43,358	20,559
Insurance claims paid	(16,239)	(7,270)
Income received from trading in foreign currencies	32,659	(33,046)
Other operating income received	28,880	14,282
Staff costs paid	(134,594)	(65,416)
Administrative and other operating expenses paid	(79,430)	(37,873)
Income tax paid	(4,446)	(1,199)
Cash flows from operating activities before changes in operating assets and liabilities	428,895	192,385
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia	23,326	100,916
Loans and advances to customers	(711,980)	(23,866)
Net investments in lease	24,158	6,083
Other financial assets	(38,835)	(89,537)
Other assets	14,151	18,454
Net change in operating liabilities
Due to credit institutions	11,940	21,347
Customer accounts	667,190	1,360,791
Other financial liabilities	(137,291)	(104,089)
Other liabilities and provision for liabilities and charges	16,659	6,595
Net cash flows (used in)/from operating activities	298,213	1,489,079
Cash flows from (used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive income	(196,871)	(28,972)
Proceeds from disposal of investment securities measured at fair value through other comprehensive income	-	275,679
Proceeds from redemption at maturity of investment securities measured at fair value through other comprehensive income	757,583	92,438
Proceeds from redemption of bonds carried at amortised cost	19,633	-
Acquisition of premises, equipment and intangible assets	(91,993)	(49,264)
Proceeds from disposal of premises, equipment and intangible assets	6,334	351
Proceeds from disposal of investment property	20,210	3,430
Net cash used in investing activities	514,896	293,662
Cash flows from (used in) financing activities
Proceeds from other borrowed funds	1,757,879	1,190,364
Redemption of other borrowed funds	(2,736,476)	(2,160,119)
Repayment of principal of lease liabilities	(5,591)	(3,950)
Redemption of subordinated debt	(12,562)
Dividends paid	(1,741)	(1,354)
Net cash flows from financing activities	(998,491)	(975,059)
Effect of exchange rate changes on cash and cash equivalents	(35,609)	(17,502)
Net (decrease)/ increase in cash and cash equivalents	(220,991)	790,180
Cash and cash equivalents at the beginning of the year	1,635,405	1,635,404
Cash and cash equivalents at the end of the year	1,414,414	2,425,584

 

 

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, which were 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)	2Q'21	1Q'21	2Q'20
Profitability ratios:
ROE1	31.0%	20.3%	19.5%
ROA2	4.4%	2.7%	2.6%
ROE before expected credit loss allowances3	26.0%	22.4%	21.3%
Cost to income4	35.4%	39.3%	38.0%
NIM5	5.0%	4.7%	4.3%
Loan yields6	10.2%	9.8%	9.7%
Deposit rates7	3.4%	3.5%	3.4%
Yields on interest earning assets8	9.5%	9.2%	9.1%
Cost of funding9	4.6%	4.5%	5.0%
Spread10	4.9%	4.7%	4.1%
Asset quality & portfolio concentration:
Cost of risk11	-1.3%	0.5%	0.0%
PAR 90 to Gross Loans12	1.2%	1.6%	1.0%
NPLs to Gross Loans13	3.4%	4.8%	2.9%
NPL provision coverage14	91.3%	81.0%	134.7%
Total NPL coverage15	169.6%	154.4%	208.0%
Credit loss level to Gross Loans16	3.1%	3.8%	3.9%
Related Party Loans to Gross Loans17	0.1%	0.0%	0.1%
Top 10 Borrowers to Total Portfolio18	7.8%	8.2%	8.2%
Top 20 Borrowers to Total Portfolio19	11.9%	12.4%	12.3%
Capital & liquidity positions:
Net Loans to Deposits plus IFI* Funding20	102.8%	92.2%	105.3%
Net Stable Funding Ratio21	130.6%	131.4%	127.5%
Liquidity Coverage Ratio22	127.1%	136.7%	124.8%
Leverage23	6.6x	7.6x	7.5x
CET 1 CAR (Basel III)24	13.0%	10.9%	10.0%
Regulatory Tier 1 CAR (Basel III)25	15.5%	13.5%	12.7%
Regulatory Total 1 CAR (Basel III)26	19.6%	17.6%	17.2%

* International Financial Institutions

 

 

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 monthly average total assets for the same period; annualised where applicable.

3. Return on average total equity (ROE) before expected credit loss allowances equals net income attributable to owners excluding all credit loss allowance with respective tax effects, but after net modification losses 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. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where applicable. Interest-earning assets include investment securities (excluding CIB shares), net investment in finance lease, net loans, and amounts due from credit institutions.

6. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

7. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised where applicable.

8. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised where applicable.

9. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where applicable.

10. 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).

11. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

12. 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.

13. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with a well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.

14. NPL provision coverage equals total credit loss allowance for loans to customers divided by the NPL loans.

15. Total NPL coverage equals total credit loss allowance plus the minimum of collateral amount of the respective NPL loan (after applying haircuts in the range of 0%-50% for cash, gold, real estate and PPE) and its gross loan exposure divided by the gross exposure of total NPL loans.

16. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.

17. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

18. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.

19. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.

20. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

21. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined by NBG in line with Basel III guidelines.

22. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.

23. Leverage equals total assets to total equity.

24. Regulatory CET 1 CAR equals CET 1 capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. Calculations are made for TBC Bank stand-alone, based on local standards.

25. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

26. 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. 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 US$/GEL exchange rate of 3.4118 as of 31 March 2021. As of 30 June 2021 the US$/GEL exchange rate equaled 3.1603. For P&L items growth calculations without currency effect, we used the average US$/GEL exchange rate for the following periods: 2Q 2021 of 3.3271, 1Q 2021 of 3.3142, 2Q 2020 of 3.1379.

 

 

Unaudited Consolidated Financial Results Overview for 1H 2021

This statement provides a summary of the unaudited business and financial trends for 1H 2021 for TBC Bank Group plc and its subsidiaries. The half year financial information and trends are unaudited.

TBC Bank Group PLC's financial results has been prepared in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

 

Financial Highlights

  

Income Statement Highlights
in thousands of GEL		1H'21	1H'20	Change YoY
Net interest income		467,898	392,324	19.3%
Net fee and commission income		108,301	83,069	30.4%
Other operating non-interest income[22]		115,177	64,905	77.5%
Credit loss allowance		28,047	(259,676)	NMF
Operating profit after expected credit losses		719,423	280,622	NMF
Losses from modifications of financial instrument		(1,591)	(34,170)	NMF
Operating expenses		(256,928)	(201,535)	27.5%
Profit before tax		460,904	44,917	NMF
Income tax expense		(57,525)	24,283	NMF
Profit for the period		403,379	69,200	NMF

 

Balance Sheet and Capital Highlights
in thousands of GEL	Jun-21	Jun-20		Change YoY
Total Assets	22,091,541	19,813,429		11.5%
Gross Loans	15,274,926	13,635,392		12.0%
Customer Deposits	12,870,418	10,420,330		23.5%
Total Equity	3,336,825	2,653,405		25.8%
Regulatory Common Equity Tier I Capital (Basel III)	2,382,595	1,631,006		46.1%
Regulatory Tier I Capital (Basel III)	2,837,805	2,068,052		37.2%
Regulatory Total Capital (Basel III)	3,573,282	2,787,136		28.2%
Regulatory Risk Weighted Assets (Basel III)	18,275,845	16,249,475		12.5%

 

 

Key Ratios	1H'21	1H'20	Change YoY
ROE	25.9%	5.2%	20.7 pp
ROA	3.6%	0.7%	2.9 pp
NIM	4.8%	4.7%	0.1 pp
Cost to income	37.2%	37.3%	-0.1 pp
Standalone cost to income of the Bank[23]	30.6%	32.0%	-1.4 pp
Cost of risk	-0.4%	2.1%	-2.5 pp
NPL to gross loans	3.4%	2.9%	0.5 pp
NPL provision coverage ratio	91.3%	134.7%	-43.4 pp
Total NPL coverage ratio	169.6%	208.0%	-38.4 pp
CET 1 CAR (Basel III)	13.0%	10.0%	3.0 pp
Regulatory Tier 1 CAR (Basel III)	15.5%	12.7%	2.8 pp
Regulatory Total CAR (Basel III)	19.6%	17.2%	2.4 pp
Leverage (Times)	6.6x	7.5x	-0.9x

 

  

Net Interest Income

In 1H 2021, net interest income amounted to GEL 467.9 million, up by 19.3% YoY, whereby interest income increased by 14.1% and interest expense increased by 8.9%.

The YoY increase in interest income was primarily related to an increase in interest income from loans, which was driven by an increase in the gross loan portfolio by GEL 1,639.5 million, or 12.0%. Over the same period, loan yield remained broadly stable. 

Our interest expense increased by 8.9%, which was primarily related to an increase in interest expense from deposits due to an increase in the respective portfolio of GEL 2,450.1 million. Over the same period, the cost of deposits remained broadly stable YoY, as the increase in GEL cost of deposits was more than offset by a decrease in FC cost of deposits.

In 1H 2021, our NIM stood at 4.8%, up by 0.1pp YoY.

In thousands of GEL	1H'21	1H'20	Change YoY
Interest income	899,185	787,893	14.1%
Interest expense	(444,436)	(408,091)	8.9%
Net gains from currency swaps	13,149	12,522	5.0%
Net interest income	467,898	392,324	19.3%
NIM	4.8%	4.7%	0.1 pp

 

Net fee and commission income

In 1H 2021, net fee and commission income totalled GEL 108.3 million, up by 30.4% YoY. The increase was spread across all major sub-categories due to the revival of business activities, further supported by various initiatives undertaken on the payments side, as well as the contribution from our fast-growing Uzbek payments subsidiary, Payme.

In thousands of GEL	1H'21	1H'20	Change YoY
Net fee and commission income
Card operations	32,951	23,502	40.2%
Settlement transactions	53,002	38,012	39.4%
Guarantees issued and letters of credit	18,963	17,919	5.8%
Other	3,385	3,636	-6.9%
Total net fee and commission income	108,301	83,069	30.4%

 

 

Other Non-Interest Income

Total other non-interest income increased by 77.5% YoY and amounted to GEL 115.2 million in 1H 2021.  The YoY increase was driven by growth in net income from foreign currency operations and growth in other operating income. The former increase was driven by an increase in the scale of FX transactions, while the later increase was driven by a gain from the disposal of one of our investment properties, in the amount of GEL 26.3 million.

In thousands of GEL	1H'21	1H'20	Change YoY
Other non-interest income
Net income from foreign currency operations	59,880	47,779	25.3%
Net insurance premium earned after claims and acquisition costs[24]	9,873	10,281	-4.0%
Other operating income	45,424	6,845	NMF
Total other non-interest income	115,177	64,905	77.5%

 

 Credit Loss Allowance

Total credit loss allowance in 1H 2021 amounted to GEL 28.0 million. This significant decrease was driven by recoveries in 2Q across all segments, as explained above, and by a high base in 1H 2020 due to creation of COVID-19 related provisions.

In thousands of GEL	1H'21	1H'20	Change YoY
Credit loss allowance for loans	32,563	(249,216)	NMF
Credit loss allowance for other transactions	(4,516)	(10,460)	-56.8%
Total credit loss allowance	28,047	(259,676)	NMF
Operating income after credit loss allowance	719,423	280,622	NMF
Cost of risk	-0.4%	2.1%	-2.5 pp

NMF - no meaningful figures

 

Operating Expenses

In 1H 2021, our total operating expenses expanded by 27.5% YoY.

 

YoY growth in staff costs was mainly attributable to the low base of share-based payments in 1H 2020, as a result of reversal of management's bonuses, increase in staff bonuses related to revival of business activities in 1H 2021, as well as the expansion of our Uzbekistan operations. The increase in administrative expenses were mainly impacted by cost optimizations in 1H 2020 related to COVID-19 (including GEL 4.2 mln from renegotiated rent expenses per IFRS 16).  

 

The cost to income ratio stood at 37.2%, down by 0.1 pp YoY, while our standalone cost to income was 30.6%, down by 1.4pp over the same period.

In thousands of GEL	1H'21	1H'20	Change YoY
Operating expenses
Staff costs	(148,071)	(114,006)	29.9%
Provisions for liabilities and charges	(9)	77	NMF
Depreciation and amortization	(36,701)	(32,215)	13.9%
Administrative & other operating expenses	(72,147)	(55,391)	30.3%
Total operating expenses	(256,928)	(201,535)	27.5%
Cost to income	37.2%	37.3%	-0.1 pp
Standalone Cost to income*	30.6%	32.0%	-1.4 pp

* For the ratio calculation all relevant group recurring costs are allocated to the bank

NMF - no meaningful figures

 

Net Income

In 1H 2021, our solid profitability was related to strong performance in operating profit across all categories, as well as recoveries in credit loss allowances across all segments.

As a result, our ROE stood at 25.9%, ROE before expected credit loss allowances stood at 24.3% and ROA stood at 3.6%.

In thousands of GEL	1H'21	1H'20	Change YoY
Losses from modifications of financial instruments	(1,591)	(34,170)	-95.3%
Profit before tax	460,904	44,917	NMF
Income tax expense	(57,525)	24,283	NMF
Profit for the period	403,379	69,200	NMF
ROE	25.9%	5.2%	20.7 pp
ROE before expected credit loss allowances	24.3%	23.3%	1.0 pp
ROA	3.6%	0.7%	2.9 pp

 

Funding and Liquidity

As of 30 June 2021, the total liquidity coverage ratio, as defined by the NBG, was 127.1%, above the 100% limit, while the LCR in GEL and FC stood at 122.9% and 129.2% respectively, above the respective limits of 75% and 100%.

As of 30 June 2021, NSFR stood at 130.6%, compared to the regulatory limit of 100%.

	30-Jun-21	30-Jun-20	Change YoY
Minimum net stable funding ratio, as defined by the NBG	100%	100%	0.0 pp
Net stable funding ratio as defined by the NBG	130.6%	127.5%	3.1 pp
Net loans to deposits + IFI funding	102.8%	105.3%	-2.5 pp
Leverage (Times)	6.6x	7.5x	-0.9x
Minimum total liquidity coverage ratio, as defined by the NBG	100.0%	100.0%	0.0 pp
Minimum LCR in GEL, as defined by the NBG	75%*	n/a	NMF
Minimum LCR in FC, as defined by the NBG	100.0%	100.0%	0.0 pp
Total liquidity coverage ratio, as defined by the NBG	127.1%	124.8%	2.3 pp
LCR in GEL, as defined by the NBG	122.9%	141.0%	-18.1 pp
LCR in FC, as defined by the NBG	129.2%	117.3%	11.9 pp

* In May 2021, NBG restored the NBG GEL LCR limit, which was temporarily removed for one year

 

Regulatory Capital

On a YoY basis, the bank's CET1, Tier 1 and Total capital adequacy ratios increased by 3.0pp, 2.8pp and 2.4pp, respectively. The increase was mainly driven by strong net income generation, which was partially offset by local currency depreciation and an increase in loan book.

In thousands of GEL	30-Jun-21	30-Jun-20	Change YoY
CET 1 Capital	2,382,595	1,631,006	46.1%
Tier 1 Capital	2,837,805	2,068,052	37.2%
Total Capital	3,573,282	2,787,136	28.2%
Total Risk-weighted Exposures	18,275,845	16,249,475	12.5%
Minimum CET 1 ratio	11.2%*	6.9%	4.3 pp
CET 1 Capital adequacy ratio	13.0%	10.0%	3.0 pp
Minimum Tier 1 ratio	13.5%*	8.7%	4.8 pp
Tier 1 Capital adequacy ratio	15.5%	12.7%	2.8 pp
Minimum total capital adequacy ratio	17.8%*	13.3%	4.5 pp
Total Capital adequacy ratio	19.6%	17.2%	2.4 pp

* Minimum requirement with restored buffers

Loan Portfolio

As of 30 June 2021, the gross loan portfolio reached GEL 15,274.9 million, up by 12.0% YoY or up by 8.5% on a constant currency basis. The YoY increase was spread across all segments. The proportion of gross loans denominated in foreign currency decreased by 4.4pp YoY and accounted for 56.3 % of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency was down by 5.9pp YoY and stood at 54.9%.

As of 30 June 2021, our market share in total loans stood at 38.1%, down by 1.4pp YoY, while our loan market share in legal entities was 38.0%, down by 1.3pp over the same period, and our loan market share in individuals stood at 38.3%, down by 1.6pp QoQ.

In thousands of GEL	30-Jun-21	30-Jun-20	Change YoY
Loans and advances to customers
Retail	5,688,519	5,229,005*	8.8%
Retail loans GEL	3,100,158	2,536,206	22.2%
Retail loans FC	2,588,361	2,692,799	-3.9%
CIB	5,851,634	5,200,281	12.5%
CIB loans GEL	1,746,149	1,344,965	29.8%
CIB loans FC	4,105,485	3,855,316	6.5%
MSME	3,734,773	3,206,106	16.5%
MSME loans GEL	1,828,264	1,470,959	24.3%
MSME loans FC	1,906,509	1,735,147	9.9%
Total loans and advances to customers	15,274,926	13,635,392	12.0%

* In 1Q 2021, we reclassified all relevant BS and PL items of the Wealth Management business from Retail Banking to CIB. As of 30 June 2020, GEL 129.7 million loans were reclassified. For more information, please refer to Annex 5.

	1H'21	1H'20	Change YoY
Loan yields	10.0%	10.1%	-0.1 pp
Loan yields GEL	14.8%	15.2%	-0.4 pp
Loan yields FC	6.6%	6.7%	-0.1 pp
Retail Loan Yields	11.2%	11.1%	0.1 pp
Retail loan yields GEL	15.7%	16.3%	-0.6 pp
Retail loan yields FC	6.3%	6.4%	-0.1 pp
CIB Loan Yields	8.8%	8.8%	0.0 pp
CIB loan yields GEL	13.3%	13.3%	0.0 pp
CIB loan yields FC	7.1%	7.1%	0.0 pp
MSME Loan Yields	10.1%	10.5%	-0.4 pp
MSME loan yields GEL	14.8%	15.4%	-0.6 pp
MSME loan yields FC	6.0%	6.3%	-0.3 pp

 

Loan Portfolio Quality

On a YoY basis, total par 30 and NPL ratio increased by 0.9pp and 0.5pp, respectively, mainly driven by the Retail and MSME segments. The increase was primarily attributable to the low base in 2Q 2020, which was related to the payment holidays offered to our customers. This effect was slightly offset by a 0.3pp drop in the CIB segment, which was driven by a repayment from a single large CIB borrower.

Par 30	30-Jun-21	30-Jun-20	Change YoY
Retail	3.0%	1.3%	1.7 pp
CIB	0.3%	0.6%	-0.3 pp
MSME	3.9%	2.3%	1.6 pp
Total Loans	2.2%	1.3%	0.9 pp

 

 

Non-performing Loans	30-Jun-21	30-Jun-20	Change YoY
Retail	4.0%	3.0%	1.0 pp
CIB	1.6%	2.0%	-0.4 pp
MSME	5.4%	4.2%	1.2 pp
Total Loans	3.4%	2.9%	0.5 pp

 

NPL Coverage		30-Jun-21			30-Jun-20
	Provision Coverage		Total Coverage	Provision Coverage		Total Coverage
Retail	117.9%		189.6%	188.5%		253.8%
CIB	82.9%		157.0%	107.7%		177.7%
MSME	64.8%		152.7%	91.9%		177.0%
Total	91.3%		169.6%	134.7%		208.0%

 

 

Cost of risk

The total cost of risk for 1H 2021 stood at -0.4%, down by 2.4pp YoY.  The recoveries in credit loss allowances were related to the improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower as explained above.

Cost of Risk		1H'21	1H'20		Change YoY
Retail		0.4%	3.3%		-2.9 pp
CIB		-1.1%	0.7%		-1.8 pp
MSME		-0.5%	2.3%		-2.8 pp
Total		-0.4%	2.1%		-2.5 pp

 

Deposit Portfolio

The total deposits portfolio increased by 23.5% YoY and amounted to GEL 12,870.4 million, while on a constant currency basis the total deposit portfolio increased by 20.1pp over the same period. The proportion of deposits denominated in foreign currency was up by 0.1pp YoY and accounted for 65.7% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency dropped by 0.9pp YoY and stood at 64.8%.

As of 30 June 2021, our market share in deposits amounted to 37.8%, up by 0.7 pp YoY, and our market share in deposits to legal entities stood at 35.7%, down by 0.2 pp over the same period. Our market share in deposits to individuals stood at 39.6%, up by 1.6pp QoQ.

In thousands of GEL	30-Jun-21	30-Jun-20	Change YoY
Customer Accounts
Retail	5,287,787	4,227,236*	25.1%
Retail deposits GEL	1,269,466	1,094,920	15.9%
Retail deposits FC	4,018,321	3,132,316	28.3%
CIB	5,939,188	4,874,761*	21.8%
CIB deposits GEL	2,218,972	1,791,102	23.9%
CIB deposits FC	3,720,216	3,083,659	20.6%
MSME	1,397,516	1,178,321	18.6%
MSME deposits GEL	675,932	555,530	21.7%
MSME deposits FC	721,584	622,791	15.9%
Total Customer Accounts**	12,870,418	10,420,330	23.5%

* In 1Q 2021, we reclassified all relevant BS and PL items of the Wealth Management business from Retail Banking to CIB. As of 30 June 2020, GEL 1,792.1 million deposits were reclassified. For more information, please refer to Annex 5.

** Total deposit portfolio includes Ministry of Finance deposits in the amount of GEL 140 million and GEL 246 million as of 30 June 2020 and 30 June 2021, respectively  

 

	1H'21	1H'20	Change YoY
Deposit rates	3.4%	3.5%	-0.1 pp
Deposit rates GEL	6.6%	6.4%	0.2 pp
Deposit rates FC	1.8%	1.9%	-0.1 pp
Retail Deposit Yields	2.4%	2.6%	-0.2 pp
Retail deposit rates GEL	4.9%	5.4%	-0.5 pp
Retail deposit rates FC	1.6%	1.7%	-0.1 pp
CIB Deposit Yields	4.5%	4.0%	0.5 pp
CIB deposit rates GEL	8.0%	8.3%	-0.3 pp
CIB deposit rates FC	2.2%	2.5%	-0.3 pp
MSME Deposit Yields	0.8%	0.9%	-0.1 pp
MSME deposit rates GEL	1.5%	1.6%	-0.1 pp
MSME deposit rates FC	0.3%	0.3%	0.0 pp

 

 

Segment definition and PL

Business Segments

The segment definitions are as follows:

·      Corporate and Investment Banking (CIB) - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which has been granted facilities of more than GEL 5.0 million. Some other business customers may also be assigned to the CIB segment or transferred to the MSME segment on a discretionary basis. In addition, CIB includes Wealth Management private banking services to high-net-worth individuals  with the threshold of US$ 250,000 on assets under management (AUM), as well as on discretionary basis;

·      Retail - non-business individual customers;

·      MSME - business customers who are not included in the CIB segment; or individual customers of the fully digital bank, Space.

·      Corporate centre and other operations - comprises the Treasury, other support and back office functions, and 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

1H'21	Retail	MSME	CIB	Corp.Centre	Total
Interest income	321,483	181,002	271,402	125,298	899,185
Interest expense	(63,061)	(5,931)	(121,201)	(254,243)	(444,436)
Net gains from currency swaps				13,149	13,149
Net transfer pricing	(72,867)	(68,593)	24,865	116,595	-
Net interest income	185,555	106,478	175,066	799	467,898
Fee and commission income	101,851	23,323	46,861	14,118	186,153
Fee and commission expense	(24,364)	(14,698)	(34,754)	(4,036)	(77,852)
Net fee and commission income	77,487	8,625	12,107	10,082	108,301
Net insurance premium earned after claims and acquisition costs	-	-	-	9,873	9,873
Net gains from derivatives, foreign currency operations and translation	14,201	11,730	22,576	11,677	60,184
Gains less Losses from Disposal of Investment Securities Measured at Fair Value through Other Comprehensive Income	-	-	515	6,526	7,041
Other operating income	3,511	726	1,642	31,604	37,483
Share of profit of associates	-	-	-	596	596
Other operating non-interest income and insurance profit	17,712	12,456	24,733	60,276	115,177
Credit loss allowance for loans to customers	(10,344)	9,687	33,220	-	32,563
Credit loss allowance for performance guarantees and credit related commitments	405	(74)	1,599	-	1,930
Credit loss allowance for investments in finance lease	-	-	-	(2,515)	(2,515)
Credit loss allowance for other financial assets	(3,309)	-	(625)	(1,392)	(5,326)
Credit loss allowance for financial assets measured at fair value through other comprehensive income	-	-	738	1,104	1,842
Other non-financial assets impairment	108	23	7	(585)	(447)
Profit/(loss) before G&A expenses and income taxes	267,614	137,195	246,845	67,769	719,423
Losses from modifications of financial instruments	(642)	(93)	(856)	-	(1,591)
Staff costs	(66,060)	(27,774)	(22,140)	(32,097)	(148,071)
Depreciation and amortization	(23,609)	(5,859)	(2,454)	(4,779)	(36,701)
Provision for liabilities and charges	-	-	-	(9)	(9)
Administrative and other operating expenses	(34,525)	(13,639)	(7,618)	(16,365)	(72,147)
Operating expenses	(124,194)	(47,272)	(32,212)	(53,250)	(256,928)
Profit before tax	142,778	89,830	213,777	14,519	460,904
Income tax expense	(15,329)	(11,402)	(24,846)	(5,948)	(57,525)
Profit	127,449	78,428	188,931	8,571	403,379

 

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance sheet

In thousands of GEL	Jun-21	Jun-20
Cash and cash equivalents	1,414,414	981,803
Due from other banks	59,314	30,879
Mandatory cash balances with National Bank of Georgia	2,117,157	1,794,010
Loans and advances to customers	14,796,968	13,105,988
Investment securities measured at fair value through other comprehensive income	2,022,385	1,082,520
Bonds carried at amortized cost*	10,069	1,335,415
Investments in finance leases	245,261	270,172
Investment properties	33,407	70,716
Current income tax prepayment	14,966	36,703
Deferred income tax asset	6,747	7,470
Other financial assets[25]	287,761	174,378
Other assets	311,218	258,349
Premises and equipment	371,909	345,265
Right of use assets	51,160	62,664
Intangible assets	284,555	194,689
Goodwill	59,964	60,296
Investments in associates	4,286	2,112
TOTAL ASSETS	22,091,541	19,813,429
LIABILITIES
Due to credit institutions	3,482,830	4,403,406
Customer accounts	12,870,418	10,420,330
Lease liabilities	53,755	65,937
Other financial liabilities21	124,308	138,749
Current income tax liability	653	692
Debt Securities in issue	1,445,614	1,396,141
Deferred income tax liability	18,457	5
Provisions for liabilities and charges	21,435	25,558
Other liabilities	101,265	80,557
Subordinated debt	635,981	628,649
TOTAL LIABILITIES	18,754,716	17,160,024
EQUITY
Share capital	1,682	1,682
Shares held by trust	(25,489)	(34,450)
Share premium	848,459	848,459
Retained earnings	2,680,951	2,029,545
Group re-organisation reserve	(162,167)	(162,167)
Share based payment reserve	(15,348)	(31,808)
Fair value reserve	170	(1,492)
Cumulative currency translation reserve	(5,199)	(5,685)
Net assets attributable to owners	3,323,059	2,644,084
Non-controlling interest	13,766	9,321
TOTAL EQUITY	3,336,825	2,653,405
TOTAL LIABILITIES AND EQUITY	22,091,541	19,813,429

* In 2020, the Group changed its business model in relation to certain portfolio of bonds carried at amortized cost (Ministry of Finance Treasury Bills). The respective reclassifications have been applied prospectively from 1 January 2021, as required by IFRS. As a result of reclassification, Bonds carried at amortized cost in the amount of GEL 1,059,946 thousand has been transferred to Investment securities measured at fair value through other comprehensive income with the fair value of GEL 1,086,008 thousand. The difference has been recognized in other comprehensive income as required by IFRS

 

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

In thousands of GEL	1H'21	1H'20
Interest income	899,185	787,893
Interest expense	(444,436)	(408,091)
Net gains from currency swaps	13,149	12,522
Net interest income	467,898	392,324
Fee and commission income	186,153	138,752
Fee and commission expense	(77,852)	(55,683)
Net fee and commission income	108,301	83,069
Net insurance premiums earned	30,289	26,618
Net insurance claims incurred and agents' commissions	(20,416)	(16,337)
Net insurance premium earned after claims and acquisition costs	9,873	10,281
Net gains from derivatives, foreign currency operations and translation	60,184	47,759
Gains less losses from disposal of investment securities measured at fair value through other comprehensive income	7,041	(1,202)
Other operating income	37,483	7,977
Share of profit of associates	596	90
Other operating non-interest income	105,304	54,624
Credit loss allowance for loans to customers	32,563	(249,216)
Credit loss allowance for investments in finance lease	(2,515)	(4,278)
Credit loss allowance for performance guarantees and credit related commitments	1,930	(797)
Credit loss allowance for other financial assets	(5,326)	(4,222)
Credit loss allowance for financial assets measured at fair value through other comprehensive income	1,842	(538)
Other non-financial assets impairment	(447)	(625)
Operating profit after expected credit losses	719,423	280,622
Losses from modifications of financial instruments	(1,591)	(34,170)
Staff costs	(148,071)	(114,006)
Depreciation and amortization	(36,701)	(32,215)
(Provision for)/ recovery of liabilities and charges	(9)	77
Administrative and other operating expenses	(72,147)	(55,391)
Operating expenses	(256,928)	(201,535)
Profit before tax	460,904	44,917
Income tax expense	(57,525)	24,283
Profit	403,379	69,200
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve	(10,985)	4,984
Exchange differences on translation to presentation currency	(3,072)	1,165
Other comprehensive income for the period	(14,057)	6,149
Total comprehensive income for the period	389,322	75,349
Profit attributable to:
- Shareholders of TBCG	399,168	67,625
- Non-controlling interest	4,211	1,575
Profit	403,379	69,200
Total comprehensive income is attributable to:
- Shareholders of TBCG	385,120	73,793
- Non-controlling interest	4,202	1,556
Total comprehensive income for the period	389,322	75,349

 

 

Consolidated Statements of Cash Flows 

In thousands of GEL	30-Jun-21	30-Jun-20
Cash flows from/(used in) operating activities
Interest received	906,444	579,414
Interest received on currency swaps	13,149	12,522
Interest paid	(452,751)	(404,923)
Fees and commissions received	170,658	131,347
Fees and commissions paid	(78,793)	(56,054)
Insurance and reinsurance received	43,358	43,373
Insurance claims paid	(16,239)	(13,458)
Income received from trading in foreign currencies	32,659	49,406
Other operating income received	28,880	2,860
Staff costs paid	(134,594)	(120,706)
Administrative and other operating expenses paid	(79,430)	(61,860)
Income tax paid	(4,446)	(11,983)
Cash flows from operating activities before changes in operating assets and liabilities	428,895	149,938
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia	23,326	(183,202)
Loans and advances to customers	(711,980)	(357,130)
Net investments in lease	24,158	11,008
Other financial assets	(38,835)	(8,483)
Other assets	14,151	10,847
Net change in operating liabilities
Due to credit institutions	11,940	85,357
Customer accounts	667,190	(88,078)
Other financial liabilities	(137,291)	11,915
Other liabilities and provision for liabilities and charges	16,659	3,838
Net cash flows from operating activities	298,213	(363,990)
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive income	(196,871)	(251,486)
Proceeds from redemption at maturity of investment securities measured at fair value through other comprehensive income	757,583	180,702
Acquisition of bonds carried at amortised cost	-	(495,945)
Proceeds from redemption of bonds carried at amortised cost	19,633	171,137
Acquisition of premises, equipment and intangible assets	(91,993)	(74,550)
Proceeds from disposal of premises, equipment and intangible assets	6,334	24,172
Proceeds from disposal of investment property	20,210	3,128
Acquisition of subsidiaries and associates	-	936
Net cash used in investing activities	514,896	(441,906)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds	1,757,879	1,615,016
Redemption of other borrowed funds	(2,736,476)	(966,746)
Acquisition of treasury shares	-	(25,493)
Repayment of principal of lease liabilities	(5,591)	(5,420)
Redemption of subordinated debt	(12,562)	-
Proceeds from debt securities in issue	-	171,531
Redemption of debt securities in issue	-	(12,569)
Dividends paid	(1,741)	-
Net cash flows from financing activities	(998,491)	776,319
Effect of exchange rate changes on cash and cash equivalents	(35,609)	7,797
	1,635,405	1,003,583
Net increase in cash and cash equivalents	(220,991)	(21,780)
Cash and cash equivalents at the beginning of the period	1,635,405	1,003,583
Cash and cash equivalents at the end of the period	1,414,414	981,803

 

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, which were 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)	1H'21	1H'20
Profitability ratios:
ROE1	25.9%	5.2%
ROA2	3.6%	0.7%
ROE before expected credit loss allowances3	24.3%	23.3%
Cost to income4	37.2%	37.3%
NIM5	4.8%	4.7%
Loan yields6	10.0%	10.1%
Deposit rates7	3.4%	3.5%
Yields on interest earning assets8	9.4%	9.4%
Cost of funding9	4.6%	5.0%
Spread10	4.8%	4.4%
Asset quality & portfolio concentration:
Cost of risk11	-0.4%	2.1%
PAR 90 to Gross Loans12	1.2%	1.0%
NPLs to Gross Loans13	3.4%	2.9%
NPL provision coverage14	91.3%	134.7%
Total NPL coverage15	169.6%	208.0%
Credit loss level to Gross Loans16	3.1%	3.9%
Related Party Loans to Gross Loans17	0.1%	0.1%
Top 10 Borrowers to Total Portfolio18	7.8%	8.2%
Top 20 Borrowers to Total Portfolio19	11.9%	12.3%
Capital & liquidity positions:
Net Loans to Deposits plus IFI* Funding20	102.8%	105.3%
Net Stable Funding Ratio21	130.6%	127.5%
Liquidity Coverage Ratio22	127.1%	124.8%
Leverage23	6.6x	7.5x
CET 1 CAR (Basel III)24	13.0%	10.0%
Regulatory Tier 1 CAR (Basel III)25	15.5%	12.7%
Regulatory Total 1 CAR (Basel III)26	19.6%	17.2%

* International Financial Institutions

 

 

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 monthly average total assets for the same period; annualised where applicable.

3. Return on average total equity (ROE) before expected credit loss allowances equals net income attributable to owners excluding all credit loss allowance with respective tax effects, but after net modification losses 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. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where applicable. Interest-earning assets include investment securities (excluding CIB shares), net investment in finance lease, net loans, and amounts due from credit institutions.

6. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

7. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised where applicable.

8. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised where applicable.

9. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where applicable.

10. 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).

11. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

12. 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.

13. NPLs to gross loans equals loans with 90 days past due on principal or interest payments, and loans with a well-defined weakness, regardless of the existence of any past-due amount or of the number of days past due divided by the gross loan portfolio for the same period.

14. NPL provision coverage equals total credit loss allowance for loans to customers divided by the NPL loans.

15. Total NPL coverage equals total credit loss allowance plus the minimum of collateral amount of the respective NPL loan (after applying haircuts in the range of 0%-50% for cash, gold, real estate and PPE) and its gross loan exposure divided by the gross exposure of total NPL loans.

16. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.

17. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

18. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.

19. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.

20. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

21. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined by NBG in line with Basel III guidelines.

22. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.

23. Leverage equals total assets to total equity.

24. Regulatory CET 1 CAR equals CET 1 capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. Calculations are made for TBC Bank stand-alone, based on local standards.

25. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

26. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

 

 

Exchange Rates

To calculate the YoY growth without the currency exchange rate effect, we used the US$/GEL exchange rate of 3.0552 as of 30 June 2020. As of 30 June 2021 the US$/GEL exchange rate equaled 3.1603. For P&L items growth calculations without currency effect, we used the average US$/GEL exchange rate for the following periods: 1H 2021 of 3.3207, 1H 2020 of 3.0323.

.

 

Additional Disclosures

1)   TBC Bank - Background

 

TBC Bank is the largest banking group in Georgia, where 99.4% of its business is concentrated, with a 38.2% market share by total assets. It offers retail, CIB, 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 United Kingdom. TBC PLC is listed on the London Stock Exchange under the symbol TBCG and is a constituent of the FTSE Small Cap Index. It is also a member of the FTSE4Good Index Series and the MSCI United Kingdom Small Cap Index.

TBC Bank Group PLC's financial results has been prepared in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

2)   Subsidiaries of TBC Bank Group PLC[26] 

 

 

	Ownership / voting % as of 30 June 2021	Country	Year of incorporation	Industry	Total Assets  (after elimination)
Subsidiary					Amount GEL'000	% in TBC Group
JSC TBC Bank	99.9%	Georgia	1992	Banking	21,434,038	97.02%
United Financial    Corporation JSC	99.5%	Georgia	1997	Card processing	17,774	0.08%
TBC Capital LLC	100.0%	Georgia	1999	Brokerage	4,498	0.02%
TBC Leasing JSC	100.0%	Georgia	2003	Leasing	359,836	1.63%
TBC Kredit LLC	100.0%	Azerbaijan	1999	Non-banking credit institution	16,767	0.08%
TBC Pay LLC	100.0%	Georgia	2009	Processing	40,565	0.18%
Index LLC	100.0%	Georgia	2011	Real estate management	1,500	0.01%
TBC Invest LLC	100.0%	Israel	2011	PR and marketing	328	0.00%
JSC TBC Insurance	100.0%	Georgia	2014	Insurance	84,769	0.39%
Redmed LLC	100.0%	Georgia	2019	E-commerce	1,262	0.00%
TBC Ecosystem Companies	100.0%	Georgia	2019	Asset Management	17	0.00%
Swoop JSC	100.0%	Georgia	2010	Retail Trade	544	0.00%
LLC Online Tickets	55.0%	Georgia	2015	Software Services	1,667	0.01%
TKT UZ	75.00%	Uzbekistan	2019	Retail Trade	119	0.00%
My.ge LLC	65.0%	Georgia	2008	E-commerce, Housing and Auto	8,752	0.04%
LLC Vendoo (Geo)	100.0%	Georgia	2019	Retail Leasing	3,228	0.01%
LLC Mypost	100.0%	Georgia	2019	Postal Service	108	0.00%
LLC Billing Solutions	51.00%	Georgia	2019	Software Services	426	0.00%
All property.ge LLC	90.0%	Georgia	2013	Real estate management	2,579	0.01%
LLC F Solutions	100.0%	Georgia	2019	Software Services	9	0.00%
TBC Connect LLC	100.0%	Georgia	2020	Software Services	2	0.00%
TBC Concept	100.0%	Georgia	2020	Food Industry	305	0.00%
Artarea.ge LLC	100.0%	Georgia	2021	PR and marketing	51	0.00%
Saba	85.0%	Georgia	2012	Education	47	0.00%
Art Gallery	100.0%	Georgia	2012	PR and marketing	0	0.00%
Space International JSC	100.0%	Georgia	2021	Software Services	128	0.00%
TBC Group Support LLC	100.0%	Georgia	2020	Risk Management	0	0.00%
Inspired LLC	51.0%	Uzbekistan	2011	Processing	13,265	0.06%
TBC Bank UZ JSCB	100.0%	Uzbekistan	2020	Banking	64,351	0.29%
LLC Vendoo (UZ Leasing)	100.00%	Uzbekistan	2019	Consumer financing	1,429	0.01%

 

3)   TBC Insurance

TBC Insurance, a wholly owned subsidiary of TBC Bank, is one of the leading players on the Georgian non-health insurance market. The company was acquired by the Group in October 2016 and has since grown significantly, becoming the second largest player on the property and casualty insurance and life insurance (non-health) market and the largest player in the retail segment, holding 16.7% and 32.2% market shares^[27] without border motor third party liability (MTPL) insurance, respectively, in 2Q 2021.

TBC Insurance serves both individual and legal entities and provides a broad range of insurance products covering motor, travel, personal accident, credit life and property, business property, liability, cargo, agro, and health insurance products. The company differentiates itself through 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, and B-Bot, a Georgian-speaking chat-bot that is available through Facebook messenger.

In 2019, we entered the health insurance market, with a strategy to target the premium segment by providing superior customer experience coupled with the most innovative approach to products and services. From 2021, we are planning to expand our value proposition to the mid-premium segment, having accumulated sufficient market knowledge and claims statistics.

In 2Q 2021, net profit including the health insurance business amounted to GEL 2,846 thousands, which was broadly flat YoY, attributable to a high base in 2Q 2020, which resulted from the decrease in claims due to the COVID-19 lockdown, as well as effective cost control.

The QoQ increase in net profit including health insurance business was driven by the revival of business activities and the seasonal low in 1Q 2021.

 

Information excluding health insurance	2Q'21	1Q'21	2Q'20	1H'21	1H'20
In thousands of GEL
Gross written premium	22,831	21,263	18,849	44,094	37,143
Net earned premium[28]	18,595	16,653	15,535	35,248	31,538
Net profit	3,512	2,895	3,033	6,406	5,092
Net combined ratio	81.6%	83.5%	79.4%	82.5%	82.9%

 

 

 

Information including health insurance	2Q'21	1Q'21	2Q'20	1H'21	1H'20
In thousands of GEL
Gross written premium	26,414	25,515	21,540	51,929	41,735
Net earned premium	21,539	19,131	17,329	40,671	34,647
Net profit	2,846	2,193	2,894	5,039	4,365
Net combined ratio	88.0%	90.1%	82.6%	89.0%	87.0%

Note: IFRS standalone data

 

 

4)   First digital bank in Uzbekistan

In October 2020 we successfully launched TBC UZ, a digital commercial bank in Uzbekistan, which demonstrated a rapid growth:

 

 

in thousands of GEL	Jul-2021	Jun-2021	May-2021	Apr-2021	Mar-2021
# of total registered users	403	302	230	157	98
Loan portfolio (GEL)	31,797	25,239	14,997	6,144	953
Deposit portfolio (GEL)	49,585	15,543	11,567	6,543	2,839
# of total cards issued (cumulative figures)	78	66	54	42	31
# of other cards attached (cumulative figures)	187	126	81	49	29
Total monthly number of transactions	626	563	407	323	203

 

 

5)   Reclassification of certain balance sheet profit and loss items and changes in methodology

In 1Q 2021, we reclassified certain BS and PL items for all quarters of 2020 and 1Q 2021, as outlined below.

 

Wealth Management business reclassification

Following structural changes in the Management Board, starting from January 2021, Deputy CEO George Tkhelidze, head of Corporate and Investment Banking, assumed responsibility for the Wealth Management business. As a result, we reclassified all relevant BS and PL items of the Wealth Management business from Retail Banking to Corporate and Investment Banking.

 

The amounts of the Wealth Management loan and deposit portfolios are given in a table below:

 

	Loan book (million GEL)	Deposit portfolio (million GEL)
June 2021	142.8	2,193.7
March 2021	139.0	2,415.9
June 2020	129.7	1,792.1

 

 

Reclassification of other non-financial assets impairment

In 2021, the Group reclassified impairment/recovery of non-financial assets from "Administrative and other operating expenses" to "Impairment of other non-financial assets". A significant part of any impairment/recoveries recorded is related to repossessed assets and investment properties. The management believes that those type of assets are not actively used in daily operations, but are primarily targeted for sale in the future. Considering the nature of those expenses/recovery, such a presentation is more appropriate and would increase the understandability and clarity of the Group's financial statements. The presentation of comparative figures has been adjusted to conform to the presentation of the current period amounts:

 

	As originally presented at 30 June 2020	Reclassification	As reclassified at 30 June 2020
Impairment of other non-financial assets	-	(625)	(625)
Administrative and other operating expenses	(56,016)	625	(55,391)

 

 

Changes in methodology - NPL collaterals coverage

In 1Q 2021, in order to further increase the focus on the collateral coverage, the Bank reviewed its methodology and applied a more conservative approach, namely under the updated methodology, the collateral amount is capped at the respective loan amount. The NPL coverages for all four quarters of 2020 have been recalculated per updated methodology.

 

The table below outlines the NPL coverage ratios as of 30 June 2020, calculated per previous and the updated methodology.

 

	Collateral coverage		Total NPL coverage (provisions plus collateral)
	Per previous methodology	Per updated methodology	Per previous methodology	Per updated methodology
Retail	79%	65%	267%	254%
CIB	160%	70%	268%	178%
MSME	115%	85%	207%	177%
Total	112%	73%	247%	208%

 

6)   Loan book breakdown by stages according IFRS 9

 

Total (in million GEL)

	30-Jun-21		31-Mar-21		30-Jun-20
Stage	Gross	LLP rate*	Gross	LLP rate*	Gross	LLP rate*
1	12,709	0.9%	12,101	1.1%	11,332	1.6%
2	1,803	5.6%	2,296	5.4%	1,899	10.3%
3	763	34.4%	935	36.1%	404	38.9%
Total	15,275	3.1%	15,332	3.8%	13,635	3.9%

 

 

CIB (in million GEL)

	30-Jun-21		31-Mar-21		30-Jun-20
Stage	Gross	LLP rate*	Gross	LLP rate*	Gross	LLP rate*
1	4,899	0.9%	4,760	1.1%	4,556	1.1%
2	826	1.0%	991	0.9%	479	1.3%
3	127	18.8%	188	24.5%	165	32.9%
Total	5,852	1.3%	5,939	1.8%	5,200	2.1%

 

 

MSME (in million GEL)

	30-Jun-21		31-Mar-21		30-Jun-20
Stage	Gross	LLP rate*	Gross	LLP rate*	Gross	LLP rate*
1	3,026	0.7%	2,764	0.9%	2,652	1.5%
2	459	6.3%	583	7.0%	443	10.0%
3	250	31.9%	285	32.5%	111	34.7%
Total	3,735	3.5%	3,632	4.4%	3,206	3.8%

 

 

Retail (in million GEL)

	30-Jun-21		31-Mar-21		30-Jun-20
Stage	Gross	LLP rate*	Gross	LLP rate*	Gross	LLP rate*
1	4,784	1.0%	4,577	1.0%	4,124	2.1%
2	519	12.3%	722	10.4%	976	14.9%
3	386	41.1%	462	43.1%	129	50.1%
Total	5,689	4.7%	5,761	5.6%	5,229	5.7%

* LLP rate is defined as credit loss allowances divided by gross loans

 

 

 

7)   Reconciliation of Return on Equity (ROE) with ROE before expected credit loss allowances

 

	Income Statement Highlights
#	in thousands of GEL	2Q'21	1Q'21		2Q'20		1H'21		1H'20
1.	Net interest income	242,767	225,131		184,365		467,898		392,324
2.	Net fee and commission income	63,008	45,293		39,517		108,301		83,069
3.	Other operating non-interest income	74,512	40,665		26,161		115,177		64,905
4.	Credit loss allowance	45,291	(17,244)		(12,586)		28,047		(259,676)
5.	Operating profit after expected credit losses	425,578	293,845		237,457		719,423		280,622
6.	Losses from modifications of financial instrument	(104)	(1,487)		(3,527)		(1,591)		(34,170)
7.	Operating expenses	(134,688)	(122,240)		(95,059)		(256,928)		(201,535)
8.	Profit before tax	290,786	170,118		138,871		460,904		44,917
9.	Income tax expense	(40,394)	(17,131)		(12,665)		(57,525)		24,283
10.	Profit for the period	250,392	152,987		126,206		403,379		69,200
12.	Profit for the period less Non-controlling interest	247,946	151,224		125,100		399,170		67,625
13.	Income tax expense of credit loss allowance	4,685	(1,593)		(1,215)		2,901		(25,071)
14.	Profit before Credit loss allowances less Non-controlling interest and respective tax effect (12 - 4 + 13)	207,340	166,875		136,471		374,024		302,230

 

 

#	in thousands of GEL	2Q'21	1Q'21	2Q'20	1H'21	1H'20
15.	Average equity attributable to the PLC's equity holders	3,203,351	3,017,527	2,576,397	3,109,965	2,607,011
16.	Return on equity (ROE) (12÷15)*	31.0%	20.3%	19.5%	25.9%	5.2%
17.	Return on equity (ROE) before expected credit loss allowances (14÷15)*	26.0%	22.4%	21.3%	24.3%	23.3%
	*annualised where applicable

 

Material Existing and Emerging Risks

The emergence of the COVID-19 pandemic has enhanced the critical importance of risk management to the Group's strategy. During the COVID-19 era, it is even more essential to identify any emerging risks and uncertainties that could adversely impact the Group's performance, financial condition and prospects. This section analyses the material principal and emerging risks and uncertainties the Group faces. However, we cannot exclude the possibility of the Group's performance being affected by risks and uncertainties other than those listed below.

 

Principal Risks and Uncertainties

 

1. Credit risk is an integral part of the Group's business activities

As a provider of banking services, the Group is exposed to the risk of loss due to the failure of a customer or counterparty to meet their obligations to settle outstanding amounts in accordance with agreed terms.

Risk description

Credit risk is the greatest material risk faced by the Group, given the Group is engaged principally in traditional lending activities. The Group's customers include legal entities as well as individual borrowers.

Due to the high level of dollarization of Georgia's financial sector, currency-induced credit risk is a component of credit risk, which relates to risks arising from foreign currency-denominated loans to unhedged borrowers in the Group's portfolio. Credit risk also includes concentration risk, which is the risk related to credit portfolio quality deterioration as a result of large exposures to single borrowers or groups of connected borrowers, or loan concentration in certain economic industries. Losses may be further aggravated by unfavorable macroeconomic conditions. These risks are described in more detail as a separate principal risk.

 

COVID-19 has increased uncertainty and caused significant economic disruptions in many sectors, particularly in the hospitality & leisure, real estate management and development sectors. Such economic disruptions run the risk of deteriorating the financial standing of borrowers and increase the credit risk for the Group.

 

Risk mitigation

A comprehensive credit risk assessment framework is in place with a clear segregation of duties among the parties involved in the credit analysis and approval process. The credit assessment process is distinct across segments, and is further differentiated across various product types to reflect the differing natures of these asset classes. Corporate, SME and larger retail and micro loans are assessed on an individual basis, whereas the decision-making process for smaller retail and micro loans is largely automated. The rules for manual and automated underwriting are developed by units within the risk function, which are independent from the origination and business development units. In the case of corporate and medium-sized business borrowers, the loan review process is conducted within specific sectoral teams, which accumulate deep knowledge of the corresponding sectoral developments.

 

The Group uses a robust monitoring system to react promptly to macro and micro developments, identify weaknesses in the credit portfolio and outline solutions to make informed risk management decisions.

 

Monitoring processes are tailored to the specifics of individual segments, as well as encompassing individual credit exposures, overall portfolio performance and external trends that may impact on the portfolio's risk profile. Additionally, the Group uses a comprehensive portfolio supervision system to identify weakened credit exposures and take prompt, early remedial actions, when necessary.

 

The Group's credit portfolio is structurally highly diversified across customer types, product types and industry segments, which minimizes credit risk at the Group level. As of 30 June 2021, the retail segment represented 37.2% of the total portfolio, which was split between mortgage and non-mortgage exposures of 66.7% and 33.3%, respectively. No single business sector represented more than 9.6% of the total portfolio as of 30^th June 2021.

 

Collateral represents the most significant credit risk mitigation tool for the Group, making effective collateral management one of the key risk management components. Collateral on loans extended by the Group may include, but is not limited to, real estate, cash deposits, vehicles, equipment, inventory, precious metals, securities and third party guarantees.

 

The Group has a largely collateralized portfolio in all its segments, with real estate representing a major share of collateral. As of 30 June 2021, 75.4% of the Group's portfolio was secured by cash, real estate or gold. A sound collateral management framework ensures that collateral serves as an adequate mitigating factor for credit risk management purposes.

 

As a result of the COVID-19 pandemic, the Group has identified highly vulnerable clients and outlined a strategy for payment holidays, refinancing, or restructuring across all segments. Since the start of the COVID-19 pandemic, the Bank granted payment holidays on principal and interest payments to individual and MSME customers as well as to corporate borrowers that have been adversely affected by the government lockdowns. In line with our strategy, some clients were only given payment holidays on interest, while other clients were given payment holidays on both interest and principal amounts. The government expanded upon a special support programme for the affected sectors: for example, restaurants and small and medium sized hotels received subsidies in the amount of 70-80% of interest payments.

 

In the first half of 2021, the grace periods ended for those loans that had been restructured in late 2020. On the back of strong economic recovery and easing of Covid-19-related restrictions,the vast majority of these borrowers managed to successfully continue repayment, which resulted in a decrease in non-performing loans and improvements in the portfolio quality in general.

 

Additionally, the Bank actively performs stress testing and scenario analysis in order to check the resilience of borrowers under various stress conditions. The stress tests entail assumptions about the depreciation of the local currency, GDP growth, sectoral growth, unemployment, inflation, changes in real estate and commodity prices, changes in interest rates and loan and deposit portfolio developments. The Bank carries out intensive financial monitoring to identify the borrower's weakened financial and business prospects in order to offer them a restructuring plan that is tailored to their individual needs.

 

The Bank revised credit underwriting standards across all segments in light of the COVID-19 pandemic and tightened them, where applicable. The revision and tightening of the standards, among other measures, included: changes in the delegation on decision-making and approval, particularly for borrowers from vulnerable sectors, applied haircuts to the revenues of individual borrowers from affected sectors, and the integration of macroeconomic sectoral expectations into the assessment process for business borrowers.

 

 

2. The Group faces currency-induced credit risk due to the high share of loans denominated in foreign currencies in the Group's portfolio

A potential material GEL depreciation is one of the most significant risks that could negatively impact portfolio quality, due to the large presence of foreign currencies on the Group's balance sheet. Unhedged borrowers could suffer from an increased debt burden when their liabilities denominated in foreign currencies are amplified.

 

Risk description

A significant share of the Group's loans (and a large share of the total banking sector loans in Georgia) is denominated in currencies other than GEL, mainly in US$ and EUR. As of 30 June 2021, 56.3% of the Group's total gross loans and advances to customers (before provision for loan impairment) were denominated in foreign currencies.

 

The income of many customers is directly linked to foreign currencies via remittances, tourism or exports. Nevertheless, customers may not be protected against significant fluctuations in the GEL exchange rate against the currency of the loan. The US$/GEL rate remained volatile throughout the first half of 2021 and the average currency exchange rate of GEL weakened by 9.5% year-on-year. The GEL remains in free float and is exposed to many internal and external factors that in some circumstances could result in its depreciation.

 

Risk mitigation

Particular attention is paid to currency-induced credit risk, due to the high share of loans denominated in foreign currencies in the portfolio. Vulnerability to exchange rate depreciation is monitored in order to promptly implement an action plan, as and when needed. The ability to withstand certain exchange rate depreciation is incorporated into the credit underwriting standards, which also include significant currency devaluation buffers for unhedged borrowers. In addition, the Group holds significant capital against currency-induced credit risk.

 

Given the experience and knowledge built throughout the recent currency volatility, the Group is in a good position to promptly mitigate exchange rate depreciation risks. In January 2019, the government authorities continued their efforts to reduce the economy's dependence on foreign currency financing by increasing the cap to GEL 200,000, under which loans must be disbursed in local currency. In addition, the NBG, under its responsible lending initiative, which came into force on 1 January 2019, introduced significantly more conservative PTI and LTV thresholds for unhedged retail borrowers, further limiting their exposure to currency induced credit risk. The NBG eased the above-mentioned regulation from April 2020 for hedged borrowers. For unhedged borrowers, however, PTI and LTV thresholds will remain significantly more conservative.

 

3. The Group's performance may be compromised by adverse developments in the economic environment, particularly due to the COVID-19 pandemic

An abrupt slowdown in the economic recovery, or even contraction, owing to pandemic-related disruptions and further lockdowns due to the slow vaccination process and newly emerged virus variants, will likely have an additional adverse impact on the repayment capacity of borrowers, restraining their future investment and expansion plans. In addition, the Fed's new hike cycle started earlier than expected amid fast recovery in the US economy, which could trigger the GEL depreciation and slower growth of the Georgian economy. These occurrences would be reflected in the Group's portfolio quality and profitability, and would also impede portfolio growth rates. Negative macroeconomic developments could compromise the Group's performance through various parameters, such as exchange rate depreciation, a spike in interest rates, rising unemployment, a decrease in household disposable income, falling property prices, worsening loan collateralization, or falling debt service capabilities of companies as a result of decreasing sales. Potential political and economic instability in neighboring countries and main trading/economic partners could negatively impact Georgia's economic outlook through a worsening current account (e.g. decreased exports, tourism inflows, remittances and foreign direct investments).

 

Risk description

As a result of the COVID-19 pandemic, Georgia endured an economic downturn in 2020, with real GDP down by 6.2%. The 2021 first quarter real GDP growth came in at a negative 4.5%, yet affected by the pandemic-related restrictions and still relatively high base effect a year before; thereafter, amid easing COVID-related restrictions and global recovery, the economy has embarked on a rebound path, increasing by 44.8% YoY (+20.8 compared to 2019), 25.8% YoY (+8.8 compared to 2019) and 18.7% YoY (+9.6% compared to 2019) in April, May and June, respectively. Going forward, according to TBC Capital projections the economy is estimated to recover by 10.5% and 6.5% in 2021 and 2022 respectively. According to the World Bank's latest projections[29], the Georgian economy is projected to grow at 6.0% in 2021 and by 5.0% in 2022.

 

Since the beginning of 2021, the GEL gained some value against the US dollar, rising from 3.28 US$/GEL to 3.14 US$/GEL, as of 15 July. In June 2021, consumer prices went up considerably by 9.9%, which can be primarily explained by increased commodity prices, a weak GEL and increased gas tariffs in Tbilisi. Since the beginning of 2021, the NBG increased its policy rate from 8.0% to 9.5%. Considering the moderating inflation outlook, the recovery in tourism inflows and lower pressures on the exchange rate, it is likely that there will be gradual rate cuts this year.

 

In addition to use of the interest rate policy tool, the NBG continued to supply FX to the market in 2021, selling in total US$ 248 million as of June 2021 (US$ 873.2 million in 2020). These interventions were primarily financed through external government borrowing. The fiscal deficit also significantly supported the overall growth as well as assisting those businesses and households that were impacted negatively by the pandemic. According to the budget plan, the fiscal deficit is expected to be sizeable again in 2021, with a deficit to GDP ratio of 6.9% (compared to 9.3% of GDP in 2020). Bank credit growth strengthened to 12.6% year-on-year in FX adjusted terms by the end of June 2021, compared to 9.1% year-on-year growth by the end of 2020.

 

Risk mitigation

To decrease its vulnerability to economic cycles, the Group identifies cyclical industries and proactively manages its underwriting approach and clients within its risk appetite framework. The Group has in place a macroeconomic monitoring process that relies on close, recurrent observation of economic developments in Georgia, as well as in neighboring countries, to identify early warning signals indicating imminent economic risks. This system allows the Group to promptly assess significant economic and political occurrences and analyze their implications for the Group's performance. The identified implications are duly translated into specific action plans with regards to reviewing the underwriting standards, risk appetite metrics or limits, including the limits for each of the most vulnerable industries. Additionally, the stress-testing and scenario analysis applied during the credit review and portfolio monitoring processes enable the Group to have an advance evaluation of the impact of macroeconomic shocks on its business. Resilience towards a changing macroeconomic environment is incorporated into the Group's credit underwriting standards. As such, borrowers are expected to withstand certain adverse economic developments through prudent financials, debt-servicing capabilities and conservative collateral coverage.

 

Taking into account the impact of the COVID-19 crisis on Georgia's economy, the Group has adjusted its risk management framework, leveraging its already existing stress testing practices. This included more thorough and frequent monitoring of the portfolio as well as stress testing, to ensure close control of the changes in capital, liquidity, and portfolio quality during times of increased uncertainty.       

 

4. The Group faces the capital risk of not meeting the minimum regulatory requirements under the increasing capital requirement framework, which may compromise growth and strategic targets. Additionally, adverse changes in FX rates may impact the capital adequacy ratios

 

Risk description

In December 2017, the NBG introduced a new capital adequacy framework. Under the updated regulation, capital requirements consist of a Pillar 1 minimum requirement, combined buffers (systemic, countercyclical and conservation buffers) and Pillar 2 buffers.

 

The regulation includes a phase-in schedule and gradually introduces the buffers over the course of a four-year period. However, in response to the COVID-19 pandemic, the NBG has implemented certain countercyclical measures in relation to capital adequacy requirements, which are as follows:

o  Postponing the phasing-in of concentration risk and the net General Risk Assessment Programme (GRAPE) buffer capital requirements on CET1 and Tier 1 capital that was supposed to be introduced in March 2020;

o  Allowing banks to use the conservation buffer and 2/3 of the Currency Induced Credit Risk (CICR) buffer;

o  Allowing banks to release all the remaining Pillar 2 buffers (remaining 1/3 CICR, concentration risk and Net Grape buffers) in case of necessity.

Since the above-mentioned countercyclical measures were put in place, the NBG outlined a new schedule for the gradual introduction of capital requirements under Basel III. According to the new schedule, concentration risk and the net GRAPE buffers phase-in resumed from March 2021 and will be fully introduced by March 2023. The systemic buffer will increase by 0.5pp to 2.5% at the end of 2021.

 

In June 2021, the NBG also announced its decision on the restoration of CICR and Conservation buffers. Based on this decision, the restoration of buffers will begin from January 2022 and will last for two years. Banks will be required to fully restore the CICR buffer by the end of 2022 and Conservation buffer by the end of 2023. However, the Bank should fully restore and comply with the buffers in case it wants to pay out dividends.

 

Since the introduction of these measures, the Bank has been utilizing both the conservation and 2/3rds of the CICR buffer, and was restricted from making any capital distributions. However, amid strong capital generation, as of June 2021, TBC Bank is in full compliance with the fully restored minimum requirements and has confirmed to the NBG that it will fully restore the temporarily released capital buffers by 31 July 2021. This lifts any regulatory restriction on making capital distributions.

 

The Bank's capitalization as of 30^th June 2021 is given in the table below:

	Minimum Requirements	Fully Restored Minimum Requirements	TBC Capital Adequacy Ratios	Surplus  over Min Requirements	Surplus  over Fully Restored Minimum  Requirements
CET1 Capital	7.8%	11.2%	13.0%	5.2%	1.8%
Tier 1 Capital	9.8%	13.5%	15.5%	5.7%	2.0%
Total Capital	13.7%	17.8%	19.6%	5.9%	1.8%

 

Apart from the challenges brought by the Covid-19 pandemic, GEL volatility has been and remains one of the most significant risks impacting the Bank's capital adequacy. A 10% GEL depreciation would translate into a 0.87pp, 0.77pp and 0.64 pp drop in the Bank's CET 1, Tier 1 and Total regulatory capital adequacy ratios, respectively.

 

Risk mitigation

The Group undertakes stress-testing and sensitivity analysis to quantify extra capital consumption under different scenarios. Such analyses indicate that the Group holds sufficient capital to meet the current minimum regulatory requirements. Capital forecasts, as well as the results of the stress-testing and what-if scenarios, are actively monitored with the involvement of the Bank's Management Board and Risk Committee to ensure prudent management and timely actions when needed.

 

 

 

 

 

5. The Group is exposed to regulatory and enforcement action risk

The Bank's activities are highly regulated and thus face regulatory risk. The NBG can increase prudential requirements across the whole sector as well as for specific institutions within it. Therefore, the Group's profitability and performance may be compromised by an increased regulatory burden.

 

Risk description

The NBG sets lending limits and other economic ratios (including, inter alia, lending, liquidity and investment ratios) in addition to mandatory capital adequacy ratios.

 

Under Georgian banking regulations, the Bank is required, among other things, to comply with minimum reserve requirements and mandatory financial ratios, and to regularly file periodic reports. The Bank is also regulated by the tax code and other relevant laws in Georgia. Following the Company's listing on the London Stock Exchange's premium segment, the Group became subject to increased regulations from the UK Financial Conduct Authority. In addition to its banking operations, the Group also offers other regulated financial services products, including leasing, insurance and brokerage services.

 

The Bank's subsidiary was granted a banking license in Uzbekistan and launched operations in 2020. As a result, the regulatory compliance requirements have increased for the Group.

 

The Group takes all necessary steps to comply with the relevant legislation and regulations. The Group is also subject to financial covenants in its debt agreements.

 

Risk mitigation

The Group has established systems and processes to ensure full regulatory compliance, which are embedded in all levels of the Group's operations. A dedicated compliance department reports directly to the Chief Executive Officer and has the primary role in the management of regulatory compliance risk. The Group's Risk Committee is responsible for regulatory compliance at the Board level. In terms of banking regulations and Georgia's taxation system, the Group is closely engaged with the regulator to ensure that new procedures and requirements are discussed in detail before their implementation. Although the decisions made by regulators are beyond the Group's control, significant regulatory changes are usually preceded by a consultation period that allows all lending institutions to provide feedback and adjust their business practices.

 

6. The Group is exposed to concentration risk

Banks operating in developing markets are typically exposed to both single-name and sector concentration risks. The Group has large individual exposures to single-name borrowers whose potential default would entail increased credit losses and higher impairment charges. The Group's portfolio is well diversified across sectors, resulting in only moderate vulnerability to sector concentration risks. However, should exposure to common risk drivers increase, the risks are expected to amplify correspondingly.

 

Risk description

The Group's loan portfolio is diversified, with maximum exposure to the single largest industry (Hospitality, Restaurants & Leisure) standing at 9.2% of the loan portfolio, which demonstrates adequate credit portfolio diversification. At the end of half year 2021, exposure to the 20 largest borrowers stands at 11.9% of the loan portfolio, which is in line with the Group's target of alleviating concentration risk.

 

Risk mitigation

The Group constantly monitors the concentrations of its exposure to single counterparties, as well as sectors and common risk drivers, and it introduces limits for risk mitigation. As part of its risk appetite framework, the Group limits both single-name and sector concentrations. Any considerable change in the economic or political environment, in Georgia as well as in neighbouring countries, will trigger the Group's review of the risk appetite criteria to mitigate the emerging risk of concentration. Stringent monitoring tools are in place to ensure compliance with the established limits. Due to the increased uncertainty caused by the COVID-19 pandemic, close monitoring was carried out consistently, based on macro expectations, to estimate the performance of the top 20 corporate borrowers.

 

In addition, the Bank has dedicated restructuring teams to manage borrowers with financial difficulties. When it is deemed necessary, clients are transferred to such teams for more efficient handling and, ultimately, to limit any resulting credit risk losses. The NBG's new capital framework introduced a concentration buffer under Pillar 2 that helps to ensure that the Group remains adequately capitalized to mitigate concentration risks.

 

7. Liquidity risk is inherent in the Group's operations

While the Group currently has sufficient financial resources available to meet its obligations as they fall due, liquidity risk is inherent in banking operations and can be heightened by numerous factors. These include an overreliance on, or an inability to access, a particular source of funding, as well as changes in credit ratings or market-wide phenomena, such as the global financial crisis that took place in 2007. Access to credit for companies in emerging markets is significantly influenced by the level of investor confidence and, as such, any factors affecting investor confidence (e.g. a downgrade in credit ratings, central bank or state interventions, or debt restructurings in a relevant industry) could influence the price or availability of funding for companies operating in any of these markets.

 

Risk description

The Group was in compliance with the minimum liquidity requirements set by the NBG, which include the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). As of 30 June 2021, the net loan to deposits plus international financial institution funding ratio stood at 102.8%, the liquidity coverage ratio at 127.1%, and the net stable funding ratio at 130.6%. These figures are all comfortably above the NBG's minimum requirements or guidance for such ratios.

 

	30-Jun-21	31-Dec-20	31-Dec-19
Minimum net stable funding ratio, as defined by the NBG	100%	100%	100%
Net stable funding ratio as defined by the NBG	130.6%	126.0%	126.7%
Net loans to deposits + IFI funding	102.8%	101.2%	104.8%
Minimum total liquidity coverage ratio, as defined by the NBG	100.0%	100.0%	100.0%
Minimum LCR in GEL, as defined by the NBG	75%	n/a	75.0%
Minimum LCR in FC, as defined by the NBG	100.0%	100.0%	100.0%
Total liquidity coverage ratio, as defined by the NBG	127.1%	134.2%	110.1%
LCR in GEL, as defined by the NBG	122.9%	132.2%	83.7%
LCR in FC, as defined by the NBG	129.2%	134.9%	128.4%

 

In May 2021, NBG restored the NBG GEL LCR limit (>=75%), which was removed for one year as one of the countercyclical measures implemented in relation to liquidity requirements as a result of COVID-19.

 

Risk mitigation

To mitigate this risk, the Group holds a solid liquidity position and performs an outflow scenario analysis for both normal and stress circumstances to make sure that it has adequate liquid assets and cash inflows. The Group maintains a diversified funding structure to manage the respective liquidity risks. There is adequate liquidity to withstand significant withdrawals of customer deposits, but the unexpected and rapid withdrawal of a substantial amount of deposits could have a material adverse impact on the Group's business, financial condition, and results of operations and/or prospects.

As part of its liquidity risk management framework, the Group has a liquidity contingency plan in place outlining the risk indicators for different stress scenarios and respective action plans. The liquidity risk position and compliance with internal limits are closely monitored by the Assets and Liabilities Management Committee (ALCO). Due to its high liquidity position in foreign currency, the Bank made prepayments of some IFI resources in the amount of US$ 143m in late 2020 and throughout the first half of 2021.

 

8. Any decline in the Group's net interest income or net interest margin (NIM) could lead to a reduction in profitability

Net interest income accounts for the majority of the Group's total income. Consequently, fluctuations in its NIM affect the results of operations. The new regulations as well as high competition could drive the Group's interest rates down, compromising the Group's profitability. At the same time, the cost of funding is largely exogenous to the Group and is derived from both local and international markets.

 

Risk description

The majority of the Group's total income derives from net interest income. Consequently, the NIM's fluctuations affect the Group's results. In first half of 2021, the NIM increased by 0.1pp year-on-year to 4.8%, mainly driven by a decrease in the cost of funding for both local and foreign currencies, as well as change in liability structure towards deposits.

 

The Bank manages its exposure to interest rate risk, following the NBG IRR regulation introduced from September 2020. As of 30 June 2021, GEL 3,959[30] million in assets (19%) and GEL 2,095³ million in liabilities (11%) were floating in GEL currency, whereas GEL 7,673³ million of assets (36%) and GEL 1,077³ million of liabilities (6%) were floating, related to the LIBOR/Euribor/FED/ECB rates.

 

The Bank was in compliance with the EVE (Economic Value of Equity) sensitivity limit set by the NBG at 15% of Tier 1 Capital, with the ratio standing at 3.3% by 30 June 2021.

 

Risk mitigation

In 2021, NIM had an improving trend, after the decrease since the start of the Covid-19 pandemic; this positive trend is expected to continue throughout 2021. The strong performance in net fee and commission income and other operating income, as well as efficient cost discipline, helps safeguard against margin declines and profitability concerns for the Group going forward.

 

To mitigate the asset-liability maturity mismatch, in cases where loans are extended on fixed rather than floating terms, the interest rate risk is translated into price premiums, safeguarding against changes in interest rates.

 

 

9. The threat posed by cyber-attacks has increased in recent years and it continues to grow. The risk of potential cyber-attacks, which have become more sophisticated, may lead to significant security breaches. Such risks change rapidly and require continued focus and investment

 

Risk description

No major cyber-attack attempts have targeted Georgian commercial banks in recent years. Nonetheless, the Group's rising dependency on IT systems increases its exposure to potential cyber-attacks.

 

Risk mitigation

In order to mitigate the risks associated with cyber-attacks and ensure the security of clients, the Group continuously updates and enhances its in-depth security strategy, which covers multiple preventive and detective controls ranging from the data and end-point computers to edge firewalls.

 

A Security Operations Center has been built, which monitors every possible anomaly that is identified across the organization's network in order to detect potential incidents and respond to them effectively.

 

At least once a year, a full information security and cyber security threat analysis is performed, taking into consideration the relevant regional and sector specific perspectives. At least once every two years, as part of this analysis, an external consultant is contracted to assess the efficiency of our capabilities against industry best practices and real world cyber-attack scenarios. This analysis gives the Group a broad review as well as detailed insight, which helps to further enhance the information and cyber security systems. In addition, cyber-attack readiness exercises are performed on a regular basis. These exercises evaluate the actual position of the Group in this area and provide a benchmark against international best practices.

 

Our employees play a crucial role in information security. As a result, regular mandatory training sessions are conducted for all employees, which are comprised of remote learning courses on security issues, fraud and phishing simulations as well as informative emails to further assist our employees with information security matters. New employees are also given training as part of the onboarding process. These measures ensure that employees are fully aware of their responsibilities and are prepared for various security threats.

 

The Information Security Steering Committee governs information and cyber security to ensure that relevant risks are at an acceptable level and that continuous improvement of the management processes are achieved.

Disaster recovery plans are in place to ensure business continuity in case of contingency.

As a result of the COVID-19 pandemic, the Group activated secure remote working policies, which ensure that homeworking environments are protected against relevant cyber-threats and that the security team provides effective oversight of teleworking channels. Although there has been a noticeable increase in phishing attempts against employees, there have been no major incidents. The Security Operation Center and Threat Hunting teams have successfully adopted effective remote collaboration and communication tools and practices.

 

10. External and internal fraud risks are part of the operational risk inherent in the Group's business. Considering the increased complexity and diversification of operations, together with the digitalisation of the banking sector, fraud risks are evolving. Unless proactively managed, fraud events may materially impact the Group's profitability and reputation

 

Risk description

External fraud events may arise from the actions of third parties against the Group, most frequently involving events related to banking cards, loans and client phishing. Internal frauds arise from actions committed by the Group's employees, and such events happen less frequently. None of these cases had a material impact on the Group's profit and loss statement. As a result of the COVID-19 pandemic, the threat of fraud and the rapid growth in digital crime have been exacerbated and fraudsters are adopting new techniques and approaches to exploit various possibilities to illegally obtain funds. Therefore, unless properly monitored and managed, the potential impact can become substantial.

 

Risk mitigation

The Group actively monitors, detects and prevents the risks arising from fraud events and permanent monitoring processes are in place to detect unusual activities in a timely manner. The risk and control self-assessment exercise focuses on identifying residual risks in key processes, subject to the respective corrective actions. Given our continuous efforts to monitor and mitigate fraud risks, together with the high sophistication of our internal processes, the Group ensures the timely identification and control of fraud-related activities.

 

11. The Group remains exposed to some reputational risk

 

Risk Description

There are reputational risks to which the Group may be exposed, such as risks related to the COVID-19 pandemic, and increased cases of cybercrimes (cyberattack, phishing). The upcoming elections in October 2021 make all banks a target for popular resentment as some politicians use anti-bank narratives during their pre-election campaigns.

However, none of the aforementioned risks are unique to the Group; instead, they are issues faced by the entire banking sector.

 

Risk Mitigation

To mitigate the possibility of reputational risks, the Bank has all of the necessary safeguards in place, including preventive measures, contingency plans and crisis response scenarios. The Bank works continuously to maintain strong brand recognition among its stakeholders, actively monitoring its brand value and media coverage by receiving feedback from stakeholders on an ongoing basis. The Bank closely monitors and reports on any negative publicity about TBC.  The Group tries to identify early warning signs of potential reputational or brand damage in order to both mitigate and elevate it to the attention of the Board before escalation. Dedicated internal and external marketing and communications teams are in place that monitor risks, develop response scenarios and respective action plans.

 

12. The Group faces the risk that its strategic initiatives do not translate into long-term sustainable value for its stakeholders

The Group's business strategy may not adapt to the environment of ever changing customer needs.

 

Risk Description

The Group may face the risk of developing a business strategy that does not safeguard long-term value creation in an environment of changing customer needs, competitive environment and regulatory restrictions. In addition, the Group may be exposed to the risk that it will not be able to effectively deliver on its strategic priorities and thereby compromise its capacity for long-term value creation. With the emergence of COVID-19, the Group has strengthened further its focus on the main strategic pillars: customer centricity, digital capabilities, data analytics, agility and international expansion. As such, given that the strategic review has been a regular exercise in the past, these strategic themes have not shifted significantly.

 

However, increased uncertainty together with the major economic and social disruptions caused by the COVID-19 pandemic may hamper the Group's ability to effectively develop and execute its strategic initiatives in a timely manner.

Risk Mitigation

The Group conducts annual strategic review sessions involving the Bank's top and middle management in order to ensure that it remains on the right track and assess business performance across different perspectives, concentrating analysis on key trends and market practices, both in the regional and global markets. In addition, the Bank continuously works with the world's leading consultants in order to enhance its strategy. Further, the Group conducts quarterly analysis and monitoring of metrics used to measure strategy execution, and in case of any significant deviations, it ensures the development of corrective or mitigation actions.

 

 

13. The Group is exposed to risks related to its ability to attract and retain highly qualified employees

A strong employee base is vital to the success of the Group.

 

Risk Description

The Group faces the risk of losing of key personnel or the failure to attract, develop and retain skilled or qualified employees. In particular, the strategic decision to transform into a digital company entails increased demands on high calibre IT professionals across the Group. In addition, in order to adapt to the fast changing business environment, the Group needs to foster an "Agile" culture and equip employees with the necessary skills. In addition, the COVID-19 pandemic has created additional HR challenges in relation to safeguarding employees' health and wellbeing, maintaining high efficiency levels, strong internal communication and a strong corporate culture.

 

Risk Mitigation

The Group pays significant attention to human capital management strategies and policies, which include approaches to the recruitment, retention and development of talent, and offers competitive reward packages to its employees. The Group has also developed and implemented an "Agile" framework that aims to increase employee engagement and satisfaction. Moreover, the Bank set up an IT and Risk academy to attract and train young professionals. The best students are offered employment at the Bank. In addition, the Bank has an in-house academy that provides various courses for the employees in different fields.

 

In response to the COVID-19 pandemic, the Bank promptly moved back-office employees to a remote working practice by equipping them with all of the necessary IT infrastructure. To ensure the maintenance of an effective internal communication system, we enhanced different digital channels to engage with our employees. Regular management meetings are conducted with staff in order to keep them updated with the Group's strategic initiatives and financial position as well as address their concerns during this highly uncertain period. In order to further promote and enhance our corporate culture, the Bank's internal Facebook group has become more active by, for example, posting employee profiles and sharing success stories. Additionally, the new remote working policy adopted by the Bank gives the possibility to attract new talent from beyond Georgia.

 

 

Emerging Risks

Emerging risks are those that have large unknown components and may affect the performance of the Group over a longer time horizon. We believe the following are risks that have the potential to increase in significance over time and could have the same impact on the Group as the principal risks.

 

1. The Group is exposed to the risks inherent in international operations

Our subsidiary, TBC Bank in Uzbekistan, obtained a banking license in April 2020 and launched its operations in Uzbekistan in October 2020 to wider public. We have already invested US$ 22 million into the charter capital of the Bank and have secured interest from our potential partners: EBRD, IFC and the Uzbek-Oman Investment Company. Our plans foresee a minimum 51% shareholding. This investment exposes the Group to Uzbekistan's macro-economic, political and regulatory environments, including, but not limited to, exposure to risks arising from credit, market, operational and capital adequacy risks as well as risks related to the COVID-19 pandemic in Uzbekistan.

 

Currently, the Group's business activities are mainly concentrated in Georgia, but international activities are expected to contribute to around 10%-15% of the Group's net profit over the medium to long-term.

 

Risk description

The risk posed by the operating environment in Uzbekistan may change the Group's risk profile.

 

The Uzbekistani economy is well diversified with no major reliance on a particular industry. It has one of the lowest public debts as a percentage of GDP in the region and high international reserves, implying macroeconomic stability as well as room for high future growth. The government of Uzbekistan plans to reform the economy and open it up to foreign investment. While the operational environment in Uzbekistan can be assessed as attractive, there are important risks that could materially affect the Group's performance in the country. These risks include, but are not limited to, political instability, the slow pace of reforms, adverse developments in inflation and fluctuations in the exchange rate.

 

Despite the impact of the COVID-19 pandemic, Uzbekistan's economy grew by 1.6% in 2020. According to the latest World Bank's forecasts[31] for 2021-2022, real GDP growth is expected to accelerate to 4.8% and 5.5%, respectively.

 

Risk mitigation

The Group's strategy is to follow an asset-light, limited capital investment approach with a strong focus on digital channels and to invest in stages, to make sure that we are comfortable with the results and the operating environment before committing additional investment. The Group plans to serve retail and MSME customers, which will in turn lead to a non-concentrated portfolio and to lower credit risk. The Group will partner with international financial institutions that intend to take a shareholding in the Uzbek bank in order to ensure the funding of our business plan and sufficient flexibility across our operations in Uzbekistan.

 

Overall, from the Group's perspective, international expansion will result in the diversification of business lines and revenue streams, balancing the overall risk profile of the Group.

 

 

2. The Group is exposed to the risks arising from climate change

 

Risk description

The risks associated with climate change have both a physical impact arising from more frequent and severe weather changes and a transitional impact that may entail extensive policy, legal and technological changes to reduce the ecological footprint of households and businesses. For the Group, both of these risks can materialize through the impairment of asset values and the deteriorating creditworthiness of our customers, which could result in a reduction of the Group's profitability. The Group may also become exposed to reputational risks as a result of its lending to, or other business operations with, customers deemed to be contributing to climate change.

 

Risk mitigation

The Group's objective is to act responsibly and manage the environmental and social risks associated with its operations in order to minimize negative impacts on the environment. This approach enables us to reduce our ecological footprint by using resources efficiently and promoting environmentally friendly measures in order to mitigate climate change.

 

The Group has in place an Environmental Policy, which governs its Environmental Management System ("EMS") and ensures that the Group's operations adhere to the applicable environmental, health and safety and labour regulations and practices. We take all reasonable steps to support our customers in fulfilling their environmental and social responsibilities. The management of environmental and social risks is embedded in the Group's lending process through application of the EMS. The Group has developed risk management procedures to identify, assess, manage and monitor environmental and social risks. These procedures are fully integrated in the Group's credit risk management process.

 

The full Environmental Policy is available at www.tbcbankgroup.com. In June 2021, the Group released its full-scale sustainability report for the year 2020 in reference to the Global Reporting Initiative (GRI) standards. The Global Reporting Initiative (GRI) helps the private sector to realise and understand its role and influence on sustainable development issues such as climate change, human rights and governance. The report is designed for all interested parties and groups in Georgia as well as abroad and aims to give them clear, fact-based information about the social, economic and environmental impact of our activities in 2020. It presents our endeavours to create value for our employees, clients, suppliers, partners and society as a whole. The Sustainability Report 2020 is available at www.tbcbankgroup.com.

We are in the process of introducing the Task Force for a Climate-related Financial Disclosure (TCFD) framework.

 

Governance:

·      The ESG strategy will be further refined and developed in order to integrate the following: environmental, social and governance factors related to climate change; our direct and indirect environmental impact, sustainable development across the Group, customers, employees, suppliers and society, financial inclusion, employee relations and talent management; and workplace diversity and inclusion.

·      A framework to ensure regular reporting of ESG matters to the Board and Risk Committee is in the process of development.

·      An ESG Committee has been established at the senior executive level, which takes responsibility for implementing the ESG strategy and overseeing the implementation of the TCFD framework. 

·      A working group has been established with strong focus on climate related matters.

Strategy:

·      The Group is in process of analysing actual and potential impacts of climate-related risks and opportunities on its business activities.

·      By the end of 2021, TBC Bank is planning full implementation of the Green Lending Framework within the Group, which will encourage our customers to run their businesses in more eco-friendly way. In the beginning of July 2021, TBC Bank received accreditation from Green Climate Fund that will enable the Bank to have direct access to GCF funding to finance projects for adaptation to, and mitigation of, climate change and play a leading role in supporting sustainable development in Georgia.

Risk Management

·      The Group is planning to undertake the specific risk analysis TCFD framework, which will allow us to better understand the climate risks and sector specific developments in order to further enhance our E&S risk management system.

Metrics and targets:

·      The Group is working on defining climate related targets for different time horizons and respective metrics within ESG strategy;

ESG KPIs linked to top management remuneration will be defined.

 

 

3. The Group's performance may be affected by Libor discontinuation and transition

 

Risk description

There are a number of different types of financial instruments on the Group's balance sheet, each of which carries interest rates benchmarked to the London Interbank Offered Rate ("LIBOR"). LIBOR is also used by the Group in its risk measurement, accounting and valuation processes. In 2017, the FCA announced that it has agreed with LIBOR panel banks to sustain LIBOR until the end of 2021 and called upon financial sector participants to start working towards the transition to other reference rates. As was disclosed in H1 2021, part indices will be discontinued by the end of 2021YE, while other indices will be discontinued by the end of H1 2023.  The discontinuation of LIBOR and the process of transition exposes the Group to execution, conduct, financial and operational risks, and may result in earnings volatility, customer complaints and legal proceedings, or have other adverse impact on the Group's business and operations.

Risk mitigation

The Group is in the process of identifying the implications of such a transition to other reference rates on its risk profile by analysing its execution, conduct, financial and operational risks and how such risks could be addressed. The Group is starting its efforts to raise awareness of the transition, both internally and externally, to ensure that staff have all the necessary knowledge and tools to facilitate the transition and that all of the Group's customers are treated fairly. As a first step in the transition process, the Bank started including fall-back clauses in new loan agreements, regulating the transition from LIBOR after its discontinuation. We actively monitor international as well as local transition-related developments to regulate and align the Group's transition process with market practice.

 

Statement of Directors' Responsibilities

 

Each of the Directors (the names of whom are set out below) confirm that to the best of their knowledge that:

·    The condensed consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting';

·    The interim management report herein includes a fair review of the information required by Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority (FCA), 4.2.7R and 4.2.8R namely:

o an indication of important events that have occurred during the six months ended 30 June 2021 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

o any related party transactions in the six months ended 30 June 2021 that have materially affected the financial position or performance of TBC Bank during that period and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of TBC Bank in the six months ended 30 June 2021.

 

 

 

Signed on behalf of the Board by:

 

Vakhtang Butskhrikidze
CEO
17 August 2021
TBC Bank Group PLC Board of Directors:
Chairman
Arne Berggren
Executive Directors	Non-executive Directors
Vakhtang Butskhrikidze (CEO)	Eran Klein
	Maria Luisa Cicognani
	Tsira Kemularia Per Anders Fasth Thymios P. Kyriakopoulos Abhijit Akerkar