TBC Bank Group Regulatory News (TBCG)

TBC BANK GROUP PLC ("TBC Bank")

1Q 2019 UNAUDITED CONSOLIDATED FINANCIAL RESULTS

Forward-Looking Statements

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

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

Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management's accounts and financial statements. The areas in which the management's accounts might differ from the International Financial Reporting Standards and/or U.S. generally accepted accounting principles could be significant; you should consult your own professional advisors and/or conduct your own due diligence for a complete and detailed understanding of such differences and any implications they might have on the relevant financial information contained in this presentation. Some numerical figures included in this report have been subjected to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.

First Quarter 2019 Unaudited Consolidated Financial Results

TBC Bank Group PLC ("TBC PLC") will release its first quarter 2019 unaudited consolidated financial results on Monday, 13 May 2019 at 7.00 am BST (10.00 am GET).

On the same day at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT), Vakhtang Butskhrikidze, CEO, and Giorgi Shagidze, CFO, will host a conference call to discuss the results.

Please dial-in approximately five minutes before the start of the call quoting the password "TBC":

Contacts

Table of Contents

1Q 2019 Results Announcement

TBC Bank - Background

Financial Highlights

Recent Developments

Development of Customer Focused Ecosystems

Letter from the Chief Executive Officer

Economic Overview

Unaudited Consolidated Financial Results Overview for 1Q 2019

Additional Disclosures

TBC BANK Group PLC ("TBC Bank")

1Q 2019 Consolidated Financial Results:

Net Profit for 1Q 2019 up by 36.7% YoY to GEL 133.3 million

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

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.8% of its business is concentrated, with a 37.4% market share by total assets. It offers retail, corporate, and MSME banking nationwide.

These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS.

Financial Highlights

1Q 2019 P&L Highlights

§ Net profit amounted to GEL 133.3 million (1Q 2018: GEL 97.5 million; 4Q 2018: GEL 130.1 million)

§ Return on equity (ROE) amounted to 23.8% (1Q 2018 : 21.0%; 4Q 2018: 24.3%)

§ Return on assets (ROA) amounted to 3.6 % (1Q 2018: 3.2%; 4Q 2018: 3.5%)

§ Total operating income amounted to GEL 271.9 million (1Q 2018: GEL 238.7 million; 4Q 2018: GEL 312.3 million)

§ Cost to income was 37.7% (1Q 2018: 38.1%; 4Q 2018: 39.7%)

§ Cost of risk stood at 1.4% (1Q 2018: 1.3%; 4Q 2018: 1.4%)

§ FX adjusted cost of risk stood at 1.4% (1Q 2018: 1.7%; 4Q 2018: 1.3%)

§ Net interest margin (NIM) stood at 6.1% (1Q 2018: 6.9%; 4Q 2018: 6.7%)

§ Risk adjusted net interest margin (NIM) stood at 4.7% (1Q 2018: 5.2%; 4Q 2018: 5.4%)

Balance Sheet Highlights as of 31 March 2019

§ Total assets amounted to GEL 15,172.3 million as of 31 March 2019, up by 22.3% YoY and down by 2.1% QoQ

§ Gross loans and advances to customers stood at GEL 10,366.9 million as of 31 March 2019, up by 22.9% YoY and down by 0.1% QoQ

§ Net loans to deposits + IFI funding stood at 90.5% and Net Stable Funding Ratio (NSFR) stood at 123.8%[1]

§ NPLs were 3.3%, up by 0.2 pp YoY and QoQ

§ NPLs coverage ratios stood at 100.1%, or 210.8% with collateral, on 31 March 2019 compared, to 114.6% or 225.8% with collateral, as of 31 March 2018 and 102.7%, or 216.4% with collateral on 31 December 2018

§ Total customer deposits amounted to GEL 9,166.8 million as of 31 March 2019, up by 20.4% YoY and down by 2.0% QoQ

§ As of 31 March 2019, the Bank's Basel III tier 1 and total capital adequacy ratios per NBG methodology stood at 13.8% and 19.1% respectively, while minimum requirements amounted to 11.9% and 16.9%

Market Shares[2]

§ Market share by total assets reached 37.4% as of 31 March 2019, up by 2.1pp YoY and down by 0.8pp QoQ

§ Market share by total loans was 38.4% as of 31 March 2019, up by 0.6pp YoY and down by 0.4pp QoQ

§ In terms of individual loans, TBC Bank had a market share of 39.3% as of 31 March 2019, down by 0.3pp YoY and by 0.7pp QoQ. The market share for legal entity loans was 37.4%, up by 1.8pp YoY and stable on QoQ basis

§ Market share of total deposits reached 40.4% as of 31 March 2019, up by 1.5pp YoY and down by 0.8pp QoQ

§ Market share of individual deposits stood at to 39.5%, down by 1.1pp YoY and by 1.7pp on QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 41.4%, up by 4.4pp YoY and up by 0.2pp QoQ.

Recent Developments

Payme - Expansion in Uzbekistan

TBC Bank has acquired 51% stake of LLC Inspired, a leading payment platform in Uzbekistan trading under the Payme brand.

Payme is a leading profitable payment service provider in Uzbekistan supplying high-quality payment solutions to its 1.3 million customers, including a marketplace platform for loans from certain Uzbek banks.

The company has grown rapidly in recent years, increasing its number of clients by around 70% during 2018, while its revenue and net income grew by 41.9% and 24.5% respectively year-on-year. The steady growth also continued in the first quarter 2019 with revenue and net profit growing by 21.9% and 73.0% quarter-on-quarter respectively.

The acquisition of Payme is another important step in our planned expansion into Uzbekistan. It will enable us to gain immediate access to a large customer base in the country and use our core digital strengths in Georgia to innovate the Uzbekistani market. With Payme joining our effort, we intend to further develop the payment business and also use it as a platform to develop new ecosystems in the country.

Awards

§ The Best Bank in Georgia 2019 - For the eighth consecutive year, TBC Bank has been awarded the Best Bank in Georgia 2019 by the prestigious Global Finance magazine, underlining our ongoing commitment to offering the very best banking services to our customers.

§ Special Award for Responsible Capitalism in Adversity - TBC Bank's CEO Vakhtang Butskhrikidze has won the Special Award for Responsible Capitalism in Adversity from the prestigious FIRST organisation - a multidisciplinary international affairs organization, which aims to enhance dialogue between leaders in industry, finance and government.

§ FMO - In October 2018, TBC Bank signed a loan agreement in the amount of GEL 103 million with FMO, the Dutch Development Bank. The local currency funding was obtained by FMO through a public placement of bonds on the Georgian Stock Exchange. This transaction was selected by EMEA Finance as the Best Local Currency Loan of 2018.

Development of Customer Focused Ecosystems

In order to integrate better with our customers, we started to develop customer focused ecosystems, which are closely linked with our financial products and services and enable us to create synergies with our core banking offerings.

E-commerce

§ In August 2018 we purchased Swoop, Georgia's well-known online discount and sales company for USD 70,000.

§ We have started developing an e-commerce market place in Georgia through building an innovative digital trading platform, Vendoo.

§ Our estimated investment for the next two years will be around USD 2-3 million.

Progress since acquisition:

§ Assembled a team of experienced professionals in digital business.

§ Designed a brand new cloud technology platform based on open source.

§ Beta version of the platform is already launched with electronics and personal care products on the following web-page: www.vendoo.ge. The launch of the full version is scheduled in May. 

Real Estate

§ In January 2019, we acquired 90% shares of the real estate platform Allproperty.ge for USD 225,000.

§ Started developing digital real estate ecosystem, that will offer our customers a wide range of products and services, including finding the suitable real estate, comparing different properties, getting financing, buying furniture, and many more.

§ Our estimated investment for the next two years is set at around USD 2 million.

Progress since acquisition:

§ Strengthened the management team.

§ Designed target agile operating model.

§ Started rebranding through new brand name Livo and developing new platform www.livo.ge.

§ Data mining and lead generation practices have been implemented.

Additional Information Disclosure

Additional historical information for certain P&L, balance sheet and capital items, and on asset quality is disclosed on our Investor Relations website on http://tbcbankgroup.com/ under the Financial Highlights section.

Letter from the Chief Executive Officer

I am pleased to present the financial results for the first quarter 2019 and update you on our operating performance as well as provide an overview of the recent macroeconomic developments in Georgia.

Our consolidated net profit for the first quarter of 2019 reached GEL 133.3 million, up by 36.7% year-on-year, while our return on equity was 23.8% and our return on assets stood at 3.6%. Our robust profitability was supported by strong growth in net fee and commission income of 19.7% and other operating income of 16.9% year-on-year, as well as positive operating jaws leading to the reduction of the cost to income ratio by 0.4 percentage points to 37.7%. Over the same period, cost of risk remained at 1.4%.

As anticipated, our net interest margin decreased in the first quarter of 2019 mainly due to the new regulation limiting the banks' ability to lend money to higher-yield retail customers. The requirement came into force at the beginning of the year leading to the contraction in net interest margin by 0.5 percentage points. A further decrease of 0.1 percentage points was related to our higher than usual liquidity levels resulting in a net interest margin of 6.1% in the reporting period. Over the same period, our effective interest rate on loans decreased by 0.7 percentage points quarter-on-quarter and stood at 11.5% in first quarter 2019 driven by new regulation as well as decrease in NBG refinance rate.

In terms of balance sheet, our loan book expanded by 22.9% year-on-year, supported by growth across all business segments, which resulted in a market share of 38.4%, up by 0.6 percentage points year-on-year. Over the same period, deposits increased by 20.4%, expanding our deposit market share to 40.4%, up by 1.5 percentage points year-on-year.

We continue to operate with solid capital and liquidity levels. As of 31 March 2019, our tier 1 and total capital adequacy ratios (CAR) per Basel III guidelines were 13.8% and 19.1%, respectively, compared to 12.8% and 17.9% as of year-end and well above the corresponding minimum requirements of 11.9% and 16.9%. The increase in capital ratios were mainly related to the net profit generated in the quarter and the optimization of the credit risk weighted assets, as well as decrease in the market risk. As of 31 March 2019, our net loans to deposits + IFI funding ratio stood at 90.5% and the net stable funding ratio (NSFR) was 123.8%[3].

I am also pleased with the results of our insurance subsidiary, TBC Insurance, which continues to generate strong growth and strengthen its position as a leading player in the market. In the first quarter of 2019, its P&C and life insurance market share increased by 3.3 percentage points year-on-year and stood at 22.8%[4], while over the same period its market share in the retail segment amounted to 39.8%[4].

Regarding Georgia's macro environment, in the first quarter 2019 real GDP growth averaged 4.7% year-on-year, per initial estimates of GeoStat. Over the same period, the growth of exports, tourism and remittance inflows moderated and stood at 9.1% year-on-year. This reflects a slower growth in Georgia's trading partners and continued economic difficulties in Turkey. The total banking loan portfolio growth continues to moderate, primarily reflecting the regulations on retail lending, and, as of 31 March 2019, it had increased by 14.0% year-on-year, excluding FX effect[5]. From the segments perspective corporate, MSME and retail loans grew respectively by 12.9%, 21.8% and 11.2% year-on-year. It should be also noted, that in April 2019, the international rating company Standard&Poor's (S&P) improved Georgia's sovereign rating from stable to positive and confirmed the rating at "BB". The positive outlook primarily reflects the S&P's position that Georgia's economic and external performance has the potential to outperform its current forecast over the next 12 months. It also reflects the country's continued compliance with the conditions of the existing funded IMF arrangement.

Finally, I would like to update you on our progress towards our strategic priorities:

· Digitalization. In the first quarter of 2019, our offloading ratio in the retail segment reached 91.9%[6], up by 2.9 percentage points year-on-year, while sales conducted through digital channels amounted to 44.7%. Furthermore, our mobile banking penetration increased by 5.7 percentage points year-on-year and amounted to 36.7%, while the mobile or internet banking penetration ratio grew by 3.9 percentage pionts to reach 41.9%.

· Agile transformation. We have also successfully completed the first wave of our agile transformation and established the new organisation structure for our back office operations, which we believe will lead to faster time-to-market, improved productivity and higher employee engagement.

· Ecosystems. We continue to actively develop our e-commerce platform, Vendoo by deploying a brand new cloud technology based on open source. The launch of the marketplace is scheduled in May 2019 with electronics and personal care products. In relation to our real estate platform, we have designed a target agile operating model, implemented data mining and lead generation practices and started the rebranding process.

· International expansion:

o Uzbekistan. In April 2019, we acquired a 51% stake in Payme, a leading payment platform in Uzbekistan, for a consideration of USD 5.5 million. Payme supplies high-quality payment solutions to its 1.3 million customers through facilitating utility payments, P2P transfers, loan repayments, mPOS for QR-based payments and e-commerce purchases. It also provides a marketplace platform for loans from selected Uzbek banks. Payme has grown rapidly in recent years, increasing the number of clients by around 70% during 2018, while during the same period its revenue and net profit grew by 41.9% and 24.5% respectively. The steady growth also continued in the first quarter 2019 with revenue and net profit growing by 21.9% and 73.0% quarter-on-quarter respectively. The acquisition of Payme is another important step in our planned expansion into Uzbekistan. It will enable us to gain immediate access to a large customer base in the country and use our core digital strengths in Georgia to innovate in the Uzbek market. With Payme joining our effort, we intend to further develop the payment business and also use it as a platform to develop new ecosystems in the country. 

o Azerbaijan. I am proud to report that our joint efforts with Nikoil Bank's management continue to pay off. The bank has generated a net profit of USD 1.8 million in the first quarter 2019 on the back of improved income generation and cost efficiency.

Overall, I am delighted with our first quarter financial and operating results and I feel confident that we are well-positioned to achieve sustainable growth and to deliver high returns to our shareholders. Therefore, we would like to reiterate our medium-term targets: ROE of above 20%, cost to income ratio below 35%, dividend pay-out ratio of 25-35% and loan book growth of 10-15%.

Economic Overview[7]

Economic growth

Economic growth remained strong in 2018, despite the higher volatility in Georgia's economic partners and the contractionary fiscal stance domestically GDP increased by 4.7% the 4.8% of 2017. The growth was broad-based across almost all sectors, with trade and repairs (+5.9% YoY), transport and communications (+8.2% YoY), real estate (+12.1% YoY), and manufacturing (+3.4% YoY), as major drivers in 2018. Almost all other sectors posted growth rates. Construction declined by 3.1% YoY mostly due to the finalisation of the BP's SCPX project and underperformance in the public infrastructure spending, while the development of residential and non-residential buildings maintained solid growth. In 1Q 2019 real GDP growth averaged 4.7% YoY, per initial estimates of GeoStat.

Positive tendency of the CA balance improvement continued in 4Q 2018 as well with CA deficit to GDP ratio at 7.7% in 2018 compared to 8.8% in 2017. This is mostly due to the robust growth of tourism, exports and remittance inflows as well as the narrower income account deficit for 2018. FDI inflows, representing a major source of financing for the CA deficit, declined by 34.9% YoY and came in at still solid 7.9% of GDP in 2018 - this is a normalised level following the above trend inflows over 2014-17. The reduction mostly reflected the finalisation of the BP's SCPX project and the change of ownership of non-resident companies to residents as well as repayment of some FDI related debt.

Growth of exports, tourism and remittance inflows moderated and stood at 9.1% YoY in 1Q 2019, reflecting the normalisation of growth in Georgia's economic partners and continued economic difficulties in Turkey. Also, the effect of stronger USD should be considered as when measured in EUR and GEL, better reflecting the underlying value of assets in the country, growth of inflows stood at 18.1% and 17.2% YoY, respectively.

Imports of goods further declined by 4.7% YoY, due to the retail lending regulations, lower oil prices, high base effect in the previous year reflecting some one-off imports in 1Q 2018 and a stronger USD. As a result, balance of trade in goods improved by a solid 14.2% YoY.

The National Bank of Georgia continued to refill reserves and purchased sizeable USD 186 million - an estimated 7% of 1Q 2019 GDP. As of the end of March, the NBG's gross international reserves stood at USD 3.5 billion, up by 15.2% YoY. The estimated net international reserves exceeded the lower threshold for June 2019 as defined at USD 1.456 billion for June 2019 as defined in the agreement with the IMF by around USD 200 million.

Growth of bank loan portfolio continues to moderate, primarily reflecting regulations on retail lending. As of 1Q 2019 the total bank loan portfolio increased by 14.0% YoY, excluding the FX effect[8]. From a segment perspective, corporate, MSME and retail loans increased by 12.9%, 21.8% and 11.2% YoY, respectively. Excluding one-offs in corporate segment, total loan portfolio growth would have stood at an estimated 15.3% YoY with corporate segment up by 17.0%. Overall, even taking into account one-offs, slower growth of the loan portfolio is still evident driven by retail lending regulations on the one hand and normalizing growth rates in business credit following cyclical pick up in 2018 on the other. Bank loans-to-GDP ratio stood at 64.7% in 2018, up by 5.8 pp from end 2017, driven by the higher credit growth and the exchange rate weakening. When measured in constant currency terms, the bank loans-to-GDP ratio remains close to its long-term trend, indicating that there are no signs of excessive lending growth.

Following the contractionary stance in 2018, budget spending accelerated since the beginning of 2019. In Q1 2019 the total government spending went up by 15.5% YoY. The budget deficit stood at an estimated 0.2% of GDP, compared to surplus of 1.9% over the same period last year. Stronger fiscal spending, coupled with sizeable advance payments by the end of 2018, is expected to provide significant growth stimulus in the coming months.

Annual inflation stood at 3.7% as of March 2019, mostly driven by an higher excise tax on tobacco, increased prices on travel and a low base effect. Excluding the one-off impact of excise taxes, CPI inflation remained somewhat below the NBG's 3% target. Low inflation, relatively lower risks to inflation stemming from the external sector, and likely weak demand side pressures on prices, led the NBG to cut the policy rate twice, from 7% at the end of 2018 to 6.5%. During their latest meeting on the 1st of May monetary policy committee left the policy rate unchanged at 6.5%.

As of the end of March 2019, the USD/GEL exchange rate depreciated by 11.5% YoY, while the EUR/GEL exchange rate depreciated by a more modest 1.5% YoY. Over the same period, the GEL real effective exchange rate was almost unchanged, depreciating by only 0.1% YoY.

Resilience of Georgia's economy have been confirmed by the S&P as the agency improved the outlook to Georgia's credit rating from stable to positive. According to the rating commentary, demonstrated economic resilience amid turbulent region over 2014-18, efforts to widen the exports and foreign investment geography along with the continued investments in infrastructure, country's its strong institutional framework compared to region economies in the wider region, stable public debt levels and prudent policymaking all remain supportive to the country's credit rating. 

Going forward

Georgia continues to position itself as an attractive business environment with structural reforms and high GDP growth potential. According to the IMF's recently published World Economic Outlook[9], Georgian economy is projected to increase at 4.6% in 2019 and 5.0% in 2020. Thereafter, over 2021-2024 the economy is expected to expand at 5.2%.

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

Unaudited Consolidated Financial Results Overview for 1Q 2019

This statement provides a summary of the unaudited business and financial trends for 1Q 2019 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. Starting from 1 January 2019, TBC Bank adopted IFRS 16. Therefore, the comparative information for 2018 is not comparable to the information presented for 2019.

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

Income Statement Discussion

Net Interest Income

NMF - no meaningful figures

1Q 2019 to 1Q 2018 Comparison

Net interest income increased by GEL 21.6 million, or 12.3%, to GEL 197.0 million, compared to 1Q 2018, driven by a GEL 48.1 million, or 16.6%, higher interest income and a GEL 26.5 million, or 23.2%, higher interest expense.

Interest income grew by GEL 48.1 million, or 16.6%, YoY to GEL 337.9 million, mainly due to an increase in interest income from loans and advances to customers of GEL 36.0 million, or 14.1%. This is primarily related to an increase in net loan portfolio of GEL 1,892.5 million, or 23.3%, YoY. This effect was partially offset by a 0.8 pp drop in loan yields, driven by a decrease in rates on both LC and FC-denominated loans. The gain in interest income was also driven by increased interest income from investment securities (comprising of investment securities measured at fair value through other comprehensive income and bonds carried at amortized cost) by GEL 8.2 million, or 38.5%, which resulted from a significant increase in the respective net portfolios by GEL 540.1 million, or 53.4%. This effect was partially offset by a 0.6 pp decline in respective yield, related to the declining refinance rate. The yield on interest earning assets decreased by 1.0 pp to 10.5%, compared to 1Q 2018.

The GEL 26.5 million, or 23.2%, YoY growth in interest expense to GEL 141.0 million in 1Q 2019 was mainly due to GEL 12.2 million, or 19.4%, increase in interest expense on customer accounts and a GEL 7.8 million, or 18.7%, increase in interest expense on amounts due to credit institutions. The rise in interest expense on customer accounts was attributable to a GEL 1,556.0 million, or 20.4%, increase in the respective portfolio and the expenses of the mandatory deposit insurance, which was reclassified to interest expense from administrative and other operating costs starting from January 1st 2019. Without this expense, the growth of interest expense on customer account would have been GEL 10.9 million, or 17.3%. Cost of deposits remained stable on a YoY basis. The higher interest expense on amounts due to credit institutions was attributable to a GEL 422.5 million, or 18.6%, growth in the respective portfolio. This effect was further magnified by a 0.1 pp increase in the respective yield to 7.1%. The cost of funding increased by 0.1 pp and stood at 4.5%.

Consequently, NIM stood at 6.1% in 1Q 2019, compared to 6.9% in 1Q 2018, while the risk adjusted NIM was 4.7%, compared to 5.2% in 1Q 2018.

1Q 2019 to 4Q 2018 Comparison

On a QoQ basis, net interest income declined by GEL 17.8 million, or 8.3% as a result of a GEL 17.6 million, or 5.0% decrease in interest income and a GEL 0.2 million, or 0.2% higher interest expense.

The decrease in interest income by GEL 17.6 million, or 5.0%, QoQ mainly resulted from the drop in interest income on loans by GEL 17.1 million, or 5.5%. This in turn was due to a decline in loan yields by 0.7 pp, which was attributable to a decrease in rates on both LC and FC-denominated loans. The net loan portfolio remained broadly stable on a QoQ basis. The decrease in interest income was also magnified by a decline in interest income from investment in leases by GEL 1.2 million, or 10.0%, due to decrease in the respective yield by 3.1 pp to 20.8%. This effect was partially offset by a GEL 4.4 million or 2.2% increase in portfolio of investment in leases. The yield on interest earning assets decreased by 0.6 pp from 11.1%, compared to 4Q 2018.

The increase in interest expense by GEL 0.2 million, or 0.2%, QoQ was primarily due to a GEL 4.8 million, or 6.9%, rise in interest expense on customer accounts. The main driver was a rise in the respective effective rate by 0.2 pp, to 3.3%, related to an increase in effective rate on LC-denominated deposits by 0.6 pp, to 5.9%. This effect was partially offset by a 0.1 pp drop in effective rate on FC-denominated deposit, to 1.9% and a decrease in customer accounts by GEL 185.4 million, or 2.0% on a QoQ basis. Another contributor to the rise in interest expense was the GEL 3.7 million, or 31.3% higher interest expense on subordinated loans. This resulted from a 0.2 pp rise in respective yield to 9.7%, which was further magnified by a GEL 13.4 million, or 2.1%, increase in the respective portfolio. The increase was offset by a drop in interest expense on amounts due to credit institutions by GEL 9.0 million, or 15.5%. This decline was primarily attributable to decrease in effective rate by 0.5 pp, to 7.1% and a decline in respective portfolio by GEL 338.9 million, or 11.2%, related to decreased borrowing from NBG. The cost of funding increased by 0.1 pp and stood at 4.5%.

Consequently, on a QoQ basis, NIM decreased by 0.6 pp and stood at 6.1%. Meanwhile risk adjusted NIM was down by 0.7 pp and stood at 4.7%.

NMF - no meaningful figures

1Q 2019 to 1Q 2018 Comparison

In 1Q 2019, net fee and commission income totalled GEL 41.8 million, up by GEL 6.9 million, or 19.7%, compared to 1Q 2018. This mainly resulted from an increase in net fee and commission income from card operations of GEL 2.9 million, or 25.4% and an increase in other net fee and commission income of GEL 2.8 million.

The rise in net fee and commission income from card operations is related to the increased number of active cards and POS terminals by 12.1% and 20.5% respectively. The increase in other net fee and commission income was mainly driven by corporate and investment banking segment performance.

1Q 2019 to 4Q 2018 Comparison

On a QoQ basis, net fee and commission income fell by GEL 2.3 million, or 5.1%, compared to 4Q 2018. This was primarily driven by a decline in net fee and commission income from settlement transactions of GEL 2.1 million, or 12.4% and a GEL 0.8 million decrease in net fee and commission income from cash transaction. This effect was partially offset by a GEL 1.0 million, or 7.8% increase in net fee and commission income from card operations.

The drop is explained by a seasonal high number of transactions, volumes and related fee and commission income in the fourth quarter.

1Q 2019 to 1Q 2018 Comparison

Total other operating non-interest income and gross insurance profit grew by GEL 4.8 million, or 16.9%, to GEL 33.2 million in 1Q 2019. This primarily resulted from the growth in net income from foreign currency operations by GEL 5.7 million, or 29.0% and the increase in gross insurance profit of GEL 1.7 million. This increase was partially offset by a GEL 2.3 million, or 35.6% decrease in other operating income. Higher net income from foreign currency operations resulted from an increased number and volume of FX transactions, broadly consistent with the growth of the scale of business. 

Higher gross insurance profit mainly resulted from increased cross-selling of various insurance products. More information about TBC insurance can be found in Annex 23 on pages 33-34.

1Q 2019 to 4Q 2018 Comparison

On a QoQ basis, total other operating non-interest income and gross insurance profit decreased by GEL 20.2 million, or by 37.9%. This mainly resulted from the decline in net income from foreign currency operations by GEL 7.8 million, or 23.7%, a fall in gains from sale of investment property by GEL 7.2 million and a GEL 3.8 million, or 45.4% decrease in other operating income, mainly related to the recognition of an option to buy equity shares of one large corporate client in 4Q 2018. The decrease in net income from foreign currency was mainly driven by seasonal decrease in economic activity in the first quarter as compared to the most active fourth quarter.

1Q 2019 to 1Q 2018 Comparison

In 1Q 2019, total credit loss allowance declined by GEL 6.4 million to GEL 33.1 million compared to 1Q 2018.

This was primarily attributable to a recovery of credit loss allowance for other financial assets driven by a single corporate debtor. The recovery was partially offset by a GEL 8.4 million increase in credit loss allowance for loans to customers. GEL appreciation in 1Q 2018 had a positive effect on credit loss allowance for loans to customers.

In 1Q 2019, the cost of risk stood at 1.4% (1.4% without the FX effect), compared to 1.3% (1.7% without the FX effect) in 1Q 2018.

1Q 2019 to 4Q 2018 Comparison

On a QoQ basis, total credit loss allowance declined by GEL 10.9 million to GEL 33.1 million.

This was attributable to a recovery of credit loss allowance for other financial assets due to a single corporate debtor.

In 1Q 2019, the cost of risk stood at 1.4% (1.4% without the FX effect), compared to 1.4% (1.3% without the FX effect) in 4Q 2018.

NMF - no meaningful figures

1Q 2019 to 1Q 2018 Comparison

In 1Q 2019, total operating expenses expanded by GEL 11.6 million, or 12.7% YoY to GEL 102.5 million, primarily due to an increase in staff costs of GEL 5.6 million, or 10.8% YoY and a rise in depreciation and amortization, of GEL 5.7 million, or 54.4%. The growth in staff cost was mainly driven by a higher scale and performance, while increase in depreciation and amortization was primarily related to IFRS 16.

We have continued to deliver positive operational JAWS ratio[12], leading to a decrease in cost to income ratio by 0.4 pp to 37.7% in 1Q 2019.

1Q 2019 to 4Q 2018 Comparison

On a QoQ basis, total operating expenses decreased by GEL 21.4 million, or 17.3%. This was primarily attributable to a GEL 19.6 million, or 40.5% decline in administrative & other operating expenses and a GEL 5.5 million, or 8.6% drop in staff cost. The decrease in operating expenses was related to seasonally high costs across various categories of expenses in 4Q.

Our cost to income ratio improved by 2.0 pp from 39.7%, compared to 4Q 2018.

Net Income

Net income for the first quarter increased by GEL 3.2 million, or 2.5%, QoQ and by GEL 35.8 million, or 36.7%, YoY and amounted to GEL 133.3 million.

As a result, ROE stood at 23.8%, up by 2.8 pp YoY and down by 0.5 pp QoQ, while ROA stood at 3.6%, up by 0.4 pp YoY and down by 0.1 pp QoQ.

NMF - no meaningful figures

Assets

As of 31 March 2019, the Group's total assets amounted to GEL 15,172.3 million, up by GEL 2,771.3 million, or by 22.3% YoY. The increase was mainly due to the rise in net loans to customers by GEL 1,892.5 million, or by 23.3% YoY. The YoY increase in total assets also resulted from a GEL 540.1 million, or 53.4%, rise in financial securities compared to 31 March 2018.

On a QoQ basis, total assets dropped by GEL 325.7 million, or 2.1%, mainly due to a GEL 263.1 million, or 10.0%, decline in liquid assets (comprising cash, due from banks and mandatory cash balances with the NBG) and a GEL 108.7 million or 6.5% decrease in financial securities. The decline was slightly offset by an increase in fixed and intangible assets & investment property by GEL 70.0 million, or 12.5%.

As of 31 March 2019, the gross loan portfolio reached GEL 10,366.9 million, up by 22.9% YoY and down by 0.1% QoQ. At the same time, gross loans denominated in foreign currency accounted for 59.6% of total loans, compared to 58.2% and 60.1% as of 31 March 2018 and 31 December 2018 respectively.

Asset Quality

Borrowers with FX income

 (Based on internal estimates)

* Pure exports account for 6.4%, 7.0% and 7.0% of total corporate FX denominated loans as at 31 March 2019, 31 December 2018 and 31 March 2018, respectively.

** FX income implies both direct and indirect income.

Total

Total PAR 30 increased by 0.4 pp on QoQ basis as well as on YoY basis, standing at 2.4%, which was driven by increase of PAR 30 in all segments.

Retail Segment

The retail segment's PAR 30 amounted to 2.9%, up by 0.3 pp QoQ and by 0.6pp YoY. The increase was mainly attributable to higher yield products such as credit cards and unsecured consumer loans, which have been substantially reduced by new regulations this year.

Corporate

The corporate segment's PAR 30 amounted to 1.2%, up by 0.8 pp QoQ and by 0.3 pp YoY. This was driven by two mid-sized corporate clients.

MSME

The MSME segment's PAR 30 increased by 0.3 pp QoQ and by 0.4 pp YoY and stood at 3.1% as of 31 March 2019. This was mainly driven by SME sub-segment.

Total

Total NPLs rose by 0.2 pp on QoQ and YoY basis and stood at 3.3%. The increase was mainly driven by consumer loans.

Retail Segment

The retail segment's NPLs remained increased by 0.3 pp QoQ and by 0.5 pp YoY and stood at 3.2%, driven by consumer loans.

Corporate

On both QoQ and YoY basis, the corporate segment's NPLs ratio remained broadly stable.

MSME

The MSME segment's NPLs increased by 0.2 pp QoQ and was broadly stable on YoY basis. QoQ increase was due to both SME and micro sub-segments.

Liabilities

As of 31 March 2019, TBC Bank's total liabilities amounted to GEL 12,824.6 million, up by GEL 2,353.9 million, or by 22.5% YoY. This primarily resulted from a GEL 1,556.0 million, or 20.4%, increase in customer accounts and GEL 422.5 million or 18.6% increase in amounts due to credit institutions.

On a QoQ basis, total liabilities dropped by GEL 467.5 million, or 3.5%. The decrease was mainly driven by decline in amounts due to credit institutions by GEL 338.9 million, or 11.2% and in customer accounts by GEL 185.4 million, or 2.0%. The decrease in customer accounts on a QoQ basis was related to seasonality, reduction in loan growth due to new regulation and retail deposit reduction mostly in January before the settlement of the dispute with NBG (for further details please refer to our website: www.tbcbankgroup.com).

Liquidity

As of 31 March 2019 the Bank's liquidity ratio, as defined by the NBG, stood at 35.9%, compared to 33.3% and 30.8% as of 31 December 2018 and 31 March 2018 respectively, above the NBG limit of 30%. As of 31 March 2019, the total liquidity coverage ratio (LCR), as defined by the NBG, was 117.5%, above the 100.0% limit. The LCR in GEL and FC stood at 111.9% and 122.2% respectively, above the respective limits of 75% and 100%.

Total Equity

As of 31 March 2019, TBC's total equity totalled GEL 2,347.8 million, up by GEL 417.4 million from GEL 1,930.4 million as of 31 March 2018. The YoY change in equity was primarily attributable to net profit contribution of GEL 473.2 million during last 12 months, which was partially offset by dividend distribution of GEL 88.9 million in May 2018.

On a QoQ basis TBC's total equity increased by GEL 141.8 million, or 6.4%. The QoQ change in equity was due to increase in net income by GEL 133.3 million.

Regulatory Capital

As of 31 March 2019 the Bank's Basel III tier 1 and total capital adequacy ratios (CAR) stood at 13.8% and 19.1%, respectively, compared to the minimum required levels of 11.9% and 16.9%. In comparison, as of 31 March 2018, the Bank's Basel III tier 1 and total capital adequacy ratios (CAR) stood at 13.8% and 17.7%, respectively, higher than the minimum required levels of 10.2% and 15.0%. As of 31 December 2018 the Bank's Basel III tier 1 and total capital adequacy ratios (CAR) stood at 12.8% and 17.9%, respectively, higher than the minimum required levels of 11.8% and 16.7%. We are exploring the opportunity to further strengthen our capital structure through AT1 security, which could be in the form of an USD denominated AT1 note issuance in 2019.

In 31 March 2019, the Bank's Basel III tier 1 capital amounted to GEL 1,746.7 million, up by GEL 229.5 million, or 15.1%, compared to March 2018, due to an increase in net income. The Bank's Basel III total capital amounted to GEL 2,421.5 million, up by GEL 478.0 million, or 24.6%, YoY. The increase in total capital was attributable to the generated income within the period, as well as attraction of new subordinated loans with total amount GEL 230.5 million. Risk weighted assets stood at GEL 12,689.7 million as of 31 March 2019, up by GEL 1,690.2 million, or 15.4%, compared to March 2018, mainly related to the rise in loan book, as well as growth in risk weighted assets for operational risk.

On a QoQ basis, the Bank's Basel III tier 1 capital amounted increased by GEL 68.0 million, or 4.1%, compared to December 2018, while the Bank's Basel III total capital increased by GEL 70.2 million, or 3.0%, YoY. The increase in tier 1 capital and total capital was attributable to the increase in net income. Risk weighted assets decreased by GEL 465.1 million, or 3.5%, compared to December 2018, mainly related to the optimization of the credit risk weighted assets, as well as decrease in market risk.

Results by segments and subsidiaries

The segment definitions are as follows:

· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been granted facilities of more than GEL 5.0 million. Some other business customers may also be assigned to the corporate segment or transferred to MSME on a discretionary basis;

· MSME (Micro, Small and Medium) - business customers who are not included in either the corporate or the retail segments; or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank - Space;

· Retail - non-business individual customers or individual business customers who have been granted mortgage loans; all individual customers are included in retail deposits;

· Corporate Centre - comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of the Group;

Business customers are all legal entities or individuals who have been granted a loan for business purposes.

Summary of key changes:

· Some customers were moved to the corporate segment on a discretionary basis considering practical aspects of client account servicing and administration. As a result, the corporate loan portfolio increased by GEL 128 million and the corporate deposit portfolio grew by GEL 70 million.

Income Statement by Segments

Retail Banking

As of 31 March 2019, retail loans stood at GEL 4,578.3 million, up by GEL 608.9 million, or 15.3%, YoY and they accounted for 39.3% market share of total individual loans. Compared to December 2018, retail loans declined by GEL 120.4 million, or 2.6%. As of March 2019 foreign currency loans represented 56.0% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 4,914.9 million, up by GEL 717.7 million, or 17.1%, YoY and accounted for 39.5% market share of total individual deposits. On a QoQ basis, retail deposits decreased by GEL 189 million, or 3.7%. As of 31 March 2019 term deposits accounted for 54.3% of the total retail deposit portfolio, while foreign currency deposits represented 80.8% of the total.

In 1Q 2019, retail loan yields and deposit rates stood at 12.8% and 2.8%, respectively. The segment's cost of risk on loans was 2.4% . The retail segment contributed 26.5%, or GEL 35.3 million, to the total net income in 1Q 2019.

Corporate Banking

As of 31 March 2019, corporate loans amounted to GEL 3,364.9 million, up by GEL 747.4 million, or 30.0%, YoY and up by GEL 59.7 million, or 1.9% QoQ without re-segmentation effect[13]. Foreign currency loans accounted for 70.0% of the total corporate loan portfolio as of March 2019. The market share of total legal entities loans stood at 37.4%.

As of the same date, corporate deposits totalled GEL 3,316.4 million, up by GEL 771.9 million, or 31.2%, YoY and up by GEL 15.9 million, or 0.5%, QoQ without re-segmentation effect[14]. Foreign currency corporate deposits represented 41.9% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 41.4%.

In 1Q 2019, corporate loan yields and deposit rates stood at 9.5% and 4.9%, respectively. In the same period, the cost of risk on loans was -0.1%. In terms of profitability, the corporate segment's net profit reached GEL 56.1 million, or 42.1%, of the total net income.

MSME Banking

As of 31 March 2019, MSME loans amounted to GEL 2,423.7 million, up by GEL 577.6 million, or 29.3%, YoY and up by GEL 55.1 million, or 2.2%, QoQ without re-segmentation effect1. Foreign currency loans accounted for 52.2% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 935.4 million, up by GEL 66.4 million, or 7.1%, YoY and down by GEL 12.2 million, or 1.2%, QoQ without re-segmentation effect2. Foreign currency MSME deposits represented 46.1% of the total MSME deposit portfolio.

In 1Q 2019, MSME loan yields and deposit rates stood at 11.7% and 0.9% respectively, while the cost of risk on loans was 1.6%. In terms of profitability, net profit for the MSME segment amounted to GEL 21.0 million, or 15.7%, of the total net income.

Consolidated Financial Statements of TBC Bank Group PLC

Key Ratios

Average Balances

The average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have been extracted from TBC's unaudited and consolidated management accounts prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.

(*)Per updated methodology.

Ratio definitions

1. Return on average total equity (ROE) equals net income attributable to owners divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period; annualised where applicable.

2. Return on average total assets (ROA) equals net income of the period divided by the monthly average total assets for the same period. Annualised where applicable.

3. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit loss allowance divided by the monthly average of total shareholders 'equity attributable to the PLC's equity holders for the same period.

4. Cost to income ratio equals total operating expenses for the period divided by the total revenue for the same period. (Revenue represents the sum of net interest income, net fee and commission income and other non-interest income).

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

6. FX adjusted cost of risk is calculated based on currency rates of the respective prior periods.

7. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents, excludes EUR mandatory reserves with NBG which currently has negative interest, and includes other earning items from due from banks.

8. Risk Adjusted Net interest margin is NIM minus the cost of risk without one-offs and currency effect.

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

10. Risk Adjusted Loan yield is loan yield minus the cost of risk without one-offs and currency effect.

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

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

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

14. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).

15. PAR 90 to gross loans ratio equals loans for which principal or interest repayment is overdue for more than 90 days divided by the gross loan portfolio for the same period.

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

17. NPLs coverage ratio equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.

18. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus total collateral amount of NPL loans (excluding third party guarantees) discounted at 30-50% depending on segment type divided by the NPL loans.

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

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

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

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

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

24. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as defined in Basel III.

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

26. Leverage equals total assets to total equity.

27. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

28. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1 requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

Exchange Rates

To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.6766 as of 31 December 2018. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4144 as of 31 March 2018. As of 31 March 2019 the USD/GEL exchange rate equalled 2.6914. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 1Q 2019 of 2.6680, 4Q 2018 of 2.6752, 1Q 2018 of 2.4854.

Additional Disclosures

Subsidiaries of TBC Bank Group PLC[15]