TBC Bank Group Regulatory News (TBCG)

TBC BANK GROUP PLC ("TBC Bank")

3Q AND 9M 2023 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 and Uzbek economies; 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 generally accepted U.S. 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.

3Q and 9M 2023 Consolidated Financial Results Conference Call Details

TBC Bank Group PLC ("TBC PLC") published its unaudited consolidated financial results for the third quarter and nine months of 2023 on Thursday, 9 November 2023 at 7.00 am GMT. The management team will host a conference call on the day at 2.00 pm GMT to discuss the results.

Please click the link below to join the webinar:

https://tbc.zoom.us/j/94193458741?pwd=VVVnTXgreTJ5KzdsR0o4MEFIdGtlUT09

Webinar ID: 941 9345 8741

Passcode: 083467

Other international numbers are available at:  https://tbc.zoom.us/u/ad7INMhaeO

The call will be held in two parts: the first part will comprise presentations, while participants will have the opportunity to ask questions during the second part. All participants will be muted throughout the webinar.

Webinar Instructions:

In order to ask questions, participants joining the webinar should use the "hand icon" visible at the bottom of the screen. The host will unmute those participants who have raised hands one after the other. Once the question is asked, the participant will be muted again. 

Call Instructions:

Participants who use the dial-in number to join the webinar should dial *9 to raise their hand.

Contacts

Table of Contents

3Q and 9M 2023 Unaudited Consolidated Financial Results Announcement

Interim Management Report

Financial Highlights 

Operational Highlights 

Letter from the Chief Executive Officer 

Economic Overview 

Unaudited Consolidated Financial Results Overview for 3Q 2023 

Unaudited Consolidated Financial Results Overview for 9M 2023 

Additional Disclosures 

1)  TBC Bank - Background 

2)  Consolidated Financial Statements and Key Ratios 3Q 2023 

3)  Consolidated Financial Statements and Key Ratios 9M 2023 

4)  Business Line Definition 

5)  Financial Disclosures by Business Lines 

6)  Market shares in Georgia 

7)  Subsidiaries of TBC Bank Group PLC 

8)  Impact of Changed Accounting Treatment for Option Contracts 

9)  Replacement of IFRS 4 with IFRS 17 

10)Loan Book Breakdown by Stages According IFRS 9 

11)Glossary 

12)Ratio Definitions and Exchange Rates 

3Q and 9M 2023 Unaudited Consolidated Financial Results

3Q 2023 net profit of GEL 300 million, down by 6% YoY, with ROE at 27.6%.

9M 2023 net profit of GEL 849 million, up by 9% YoY, with ROE at 27.0%.

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.

Financial Highlights

Income statement

Balance sheet

Key Ratios

Georgia FS refers to Georgian financial services.

For the ratio definitions please refer to appendix 12.

Operational Highlights

Customer base

Digital customers

Uzbekistan - key highlights

Georgian and Uzbek payments businesses 

TNET - digital lifestyle platform in Georgia

Letter from the Chief Executive Officer[1]

I am pleased to announce that 3Q 2023 has been another very strong and consistent quarter for TBC, helping us deliver an excellent result for our shareholders for the first nine months of the year. Our net profit for the third quarter amounted to GEL 300 million, up by 3% quarter-on-quarter, while our return on equity stood at a very impressive 27.6%. For 9M 2023, our net profit totaled GEL 849 million, a 9% year-on-year increase, while return on equity came in at 27.0%.

I am glad to share that it was another positive quarter of dynamic growth and continuing profitability for our fintech businesses in Uzbekistan, bringing 9M 2023 net profit to GEL 39 million, accounting for 5% of the Group's earnings, and with the loan book now contributing an 8% share of total group retail loans.

I also want to mention the appointment of Oliver Hughes, former CEO of Tinkoff Group, in September as head of international operations. We are delighted to welcome such a high calibre addition to the executive management team and we think Oliver, Nika and the team in Tashkent can take our Uzbekistan operations to a new level in the coming years. 

The economic backdrop remains supportive

The Georgian economy continues to post very strong growth, with GDP expanding by 5.4% in the third quarter of 2023 and 6.8% in 9M 2023. Importantly, large central bank and fiscal buffers continue to be accumulated. Uzbekistan's economic performance also remains impressive, with 6.1% GDP growth in 3Q 2023 and 5.8% in the first nine months of 2023. While inflation in Georgia is already below target, we are also seeing deceleration in Uzbekistan, suggesting that both countries are in easing cycles, which should be supportive for the economic outlook.

Our strong financial and operating performance continued in 3Q 2023

We continue to see very strong core revenue dynamics. In 3Q 2023, our operating income reached GEL 615 million, showing a 4% year-on-year increase (from an unusually high base in 3Q 2022), driven by both interest and non-interest income. Net interest income rose 26% year-on-year, buoyed by a highly resilient net interest margin, which rose 60 bps year-on-year to 6.9% in 3Q 2023. Over the same period, net fee and commission income increased by 21% year-on-year. Notably, despite continuing to invest in digitalization and scaling up our Uzbek operations, our favorable operating income dynamics enable us to maintain a group cost/income ratio of around 35%.

Our focus on providing high quality and convenient digital financial services continues to bear fruit, with digital MAU reaching 4.5 million at the Group level, up by a very impressive 1.3 million customers in the past 12 months, led by our fully digital Uzbek operations. This resulted in a group DAU/MAU ratio of 32% as of September 2023, while the DAU/MAU ratio for the Georgian business stood at 44%.

On the balance sheet side, our credit dynamics remain positive. Our gross loan book increased by 17% year-on-year as of 30 September 2023, or by 19% in constant currency terms. Our asset quality remained very sound in 3Q 2023, translating into a 0.9% cost of risk, with the share of NPLs continuing to decline, to 2.0%. On the funding side, customer deposits increased by 9% year-on-year, or by 12% in constant currency terms.

Our liquidity and capital positions remain strong. As of 30 September 2023, our CET1, Tier 1 and Total Capital ratios[2] stood at 17.5%, 19.9% and 22.3%, respectively, and remained comfortably above the minimum regulatory requirements by 3.1 pp, 3.1 pp and 2.4 pp, correspondingly. At the same time, we continued to operate with a high liquidity buffer, with our net stable funding (NSFR)2 and liquidity coverage (LCR)2 ratios standing at 124% and 114%, respectively.

Rock solid business in Georgia combined with dynamic growth in Uzbekistan

Our recently revised financial disclosures highlight the respective strengths of our core financial services operations in Georgia and Uzbekistan. Georgia continues to deliver excellent profitability, with 26.4% ROE in 3Q 2023 and 25.9% for 9M 2023, while on the balance sheet side, gross loans increased by 17% year-on-year on a constant currency basis.

Our Uzbek fintech businesses (TBC UZ and Payme) continued to generate positive returns in the third quarter of 2023, with their combined net profit amounting to GEL 14 million, while ROE stood at 23.4%, and 24.6% for 9M 2023.

As of 9M 2023, TBC UZ retail loans amounted to GEL 632 million, up by 20% quarter-on-quarter, giving us an unsecured consumer / micro loan market share[3] of 12.5%. At the same time, retail deposits reached GEL 516 million, up by 13% quarter-on-quarter, accounting for 3.0% retail deposit market share3. Meanwhile, in 3Q 2023, Payme's payment volumes rose by 41% year-on-year, reaching GEL 16.9 billion.

TNET retains strong growth momentum

In the third quarter of 2023, our digital lifestyle ecosystem, TNET, continued to deliver robust growth, with GEL 45 million gross merchandise value (GMV), up by 57% year-on-year. This was driven by strong progress in the lifestyle and e-commerce verticals.

Planning for a strong end of year

Finally, I would like to thank all our shareholders for their continued support as we look to deliver on our strategic targets over the next few years. We are pleased with what we have achieved so far this year and will strive to deliver a strong end to the year during the final quarter.

Economic Overview

Georgia

Economic growth remains robust

Georgia' economy continued to perform strongly in 3Q 2023, with real GDP growth of 5.4%, according to Geostat's estimates. This follows 7.7% growth in 1Q YoY and 7.5% in 2Q, implying 6.8% in 9M 3023.

External sector - positive tourism and FDI, but slowing export and import growth

As we saw in 2Q 2023, the sustained negative impact of lower international commodity prices on both exports and imports noticeably affected external sector activity in 3Q 2023. Specifically, export and import growth fell to 1.6% and 7.9% YoY, respectively. Importantly, these commodity price dynamics particularly affected domestic commodity exports, while re-exports continued to perform strongly. At the same time, the notable increase of the share of IT services in Georgian exports continued, with a major driver being the arrival of migrants over the past year. At the same time, investment goods constituted a considerable share of imports, indicating positive investment sentiment.

Given last year's high base effect, which was caused by the high level of immigration in 2022, the annual growth of tourism inflows fell further to 5.3% in 3Q 2023 as migrants are gradually being counted as residents by the NBG and hence being exluded from the tourism sector, while the figure for the first nine months was 29.2%. At the same time, the share of conventional tourism in total inflows has increased lately. TBC Capital estimates that the YoY growth of tourism inflows in January-September 2023, including the spending of migrants counted as residents by the NBG, was 42.3% while excluding migrants it reached 30.1%. Remittances also maintained a positive momentum after adjustment for Russia, increasing by 13.8%[4] YoY in 3Q and by 47.5% in the first nine months of 2023. After a slowdown in 1Q, FDI increased by 29.9% YoY in 2Q 2023.

Fiscal consolidation underway

It is important to highlight that the strong recent economic growth is not a result of fiscal stimulus. In fact, fiscal consolidation is underway. After reaching 9.3% of GDP in 2020 and a lower, but still large, level of 6.1% in 2021, the budget deficit stood at 3.1% in 2022. According to the Ministry of Finance, further fiscal consolidation is expected with deficit-to-GDP ratios of 2.8% and 2.5% in 2023 and 2024, respectively.

Credit growth still strong

As of September 2023, bank credit increased by 14.8% YoY, against 13.5% growth at the end of 2Q 2023, at constant exchange rates[5]. At the same time, as inflation remained stably low, the YoY growth in real credit increased from 12.9% in June to 14.1% in September 2023.

Low inflation enables monetary policy easing

The combination of low inflation and NBG rate cuts affecting exchange rate expectations and normalizing inflows has driven a minor depreciation in the US$/GEL exchange rate from 2.62 at the end of June to 2.68 at the end of September.

As a result of a broadly stable GEL and sustained disinflationary pass-through from international markets, CPI inflation stabilized well below the NBG target of 3%, standing at 0.7% YoY in September. At the same time, relatively rigid service inflation and higher pressures on imports due to volatile oil prices, contributed to marginally elevated MoM figures. The NBG has remained cautious and delivered this year's third rate cut of only 25 basis points in September, reducing the MPR to 10.0%. The central bank has continued accumulating substantial amounts of reserves with a net purchase of US$ 1,390 million on the FX market in January-September 2023, however, it started selling those in response to exchange rate volatility from September. Total gross international reserves still increased to US$ 5.3 billion as of Septmeber 2023,with net reserves of US$ 2.8 billion having doubled over the past 18 months.

Uzbekistan

Uzbekistan also demonstrated solid economic activity with 6.1%[6] growth in the third quarter and 5.8% in the first nine months of 2023. External trade was strong as exports of goods increased by 37.7% and imports by 32.5% YoY in the 3Q and by 24.2% and 23.6%6 in the first nine months of 2023, respectively. The retail loan portfolio grew by 53.8% YoY at the end of September, with mortgage credit expanding by 26.5% and non-mortgages by 79.1%[7]. Annual inflation increased marginally from 9.0% in June to 9.2% in September, while the central bank kept its monetary policy rate unchanged at 14.0% throughout the quarter. The US$/UZS continued its slight depreciation trend, standing at 12,175 at the end of September 20237, while the REER remained broadly unchanged.

Going forward

After two, successive years of double-digit growth in Georgia, recent trends indicate that economic activity should moderate somewhat but remain strong in 2023 at 6.6% and in 2024 at 4.8%, according to TBC Capital projections, while the baseline for Uzbekistan stands at 6.1% and 5.4%, respectively.

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

Unaudited Consolidated Financial Results Overview for 3Q 2023

This statement provides a summary of the business and financial trends for 3Q 2023 for TBC Bank Group plc and its subsidiaries. The financial information and trends are unaudited.

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

Total equity and total liabilities were restated for 30-Sep-2022 due to a change in the accounting of option contracts. As a result, ROE and leverage ratios were restated for 9M 2022. In addition, total assets and total liabilities for 30-Sep-2022 were restated due to replacement of IFRS 4 with IFRS 17. For more details, please refer to appendix 8 and 9.

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

Net Interest Income

In 3Q 2023, net interest income amounted to GEL 427.9 million, up by 25.7% and 7.2% on a YoY and QoQ basis, respectively.

The YoY rise in interest income of GEL 148.3 million, or 24.5%, was mostly attributable to an increase in interest income from loans related to a rise in the respective yield by 0.7 pp, as well as an increase in the loan portfolio of GEL 2,999.2 million, or 17.3%.

The QoQ increase in interest income of GEL 41.8 million, or 5.9%, was mainly related to an increase in interest income from loans on the back of growth in the loan portfolio of GEL 1,004.4 million, or 5.2%.

Interest expense increased by GEL 60.7 million, or 22.9%, on a YoY basis, mainly related to an increase in the deposit portfolio of GEL 1,607.4 million, or 9.4%, and a 1.0 pp growth in deposit costs.

On a QoQ basis, interest expense increased by GEL 13.2 million, or 4.2%, primarily driven by an increased average balance of our deposit portfolio, while deposit costs remained stable.

In 3Q 2023, our NIM stood at 6.9%, up by 0.6 pp and 0.1 pp on a YoY and QoQ basis, respectively.

* Interest expense includes net interest gains from currency swaps

Non-Interest Income

In 3Q 2023, our net fee and commission income increased by 21.3% YoY and remained broadly stable on a QoQ basis. The YoY increase was mainly related to increased payments transactions. In 3Q 2023, our Uzbek business contributed more than 17% to the Group's net fee & commission income.

In 3Q 2023, net gains from currency operations were down by 54.0% on a YoY basis, due to abnormally high FX revenues in 3Q 2022. 

Credit Loss Allowance

Credit loss allowance for loans in 3Q 2023 amounted to GEL 42.6 million, while cost of risk stood at 0.9%.

Operating Expenses

In 3Q 2023, our operating expenses expanded by 23.7% and 7.1% on a YoY and QoQ basis, respectively. Both increases were mainly driven by an overall expansion of business in 3Q 2023.

Net Profit

Our net profit decreased by 6.4% and increased by 2.5% on a YoY and QoQ basis, respectively and amounted to GEL 300.5 million. The YoY decline was driven by abnormally high FX revenues in 3Q 2022.

As a result, in 3Q 2023 our ROE stood at 27.6%, while our ROA reached 4.1%.

Funding and Liquidity

As of 30 September 2023, the total liquidity coverage ratio (LCR), as defined by the NBG, was 114.1%, above the 100% limit, while the LCR in GEL and FC stood at 105.7% and 121.0%, accordingly, above the respective limits of 75% and 100%.

Over the same period, the net stable funding ratio (NSFR), as defined by the NBG, stood at 124.1%, compared to the regulatory limit of 100%.

* Ratios are calculated per IFRS

Regulatory Capital for Georgian Bank

As of 30 September 2023, our capital ratios remained at a prudent level and as a result, per IFRS, our CET1, Tier 1 and Total Capital ratios stood at 17.5%, 19.9% and 22.3%, respectively, above the minimum regulatory requirements by 3.1 pp, 3.1 pp and 2.4 pp, accordingly.

The QoQ decreases in all CET1, Tier 1 and Total capital adequacy ratios were largely driven by the interim dividend payment.

Ratios and numbers are calculated per IFRS

Loan Portfolio

As of 30 September 2023, the gross loan portfolio reached GEL 20,365.1 million, up by 5.2% QoQ, or by 4.7% on a constant currency basis.

By the end of September 2023, our Georgian financial services loan portfolio increased by 4.8% on a QoQ basis and reached GEL 19,715.8 million, with 4.2% growth on a constant currency basis. Over the same period, our Uzbek portfolio increased by 20.0% and stood at GEL 632.0 million, which translated into growth of 24.1% on a constant currency basis.

* Total gross loans and advances to customers include Azerbaijan loan portfolio

* Total loans yields include Azerbaijan

Loan Portfolio Quality

As of 30 September 2023, our PAR 90 and NPL to gross loans ratios remained broadly stable for both the Georgian and Uzbek businesses on a QoQ basis.

* Total PAR 90 includes Azerbaijan

* Total non-performing loans include Azerbaijan NPLs

* Total NPL to gross loans include Azerbaijan NPLs

* Total NPL coverage include Azerbaijan loans coverage ** Total NPL coverage ratio includes provision and collateral coverage

Cost of Risk

Given strong asset quality trends in 3Q 2023, our cost of risk (CoR) remained within the expected range and stood at 0.9%.

The CoR for our Georgia FS decreased slightly YoY due to strong asset quality dynamics and stood at 0.7%. Over the same period, CoR for our Uzbek business amounted to 7.3%, also down slightly on a YoY basis. The QoQ increase in Uzbekistan was mainly driven by the fast growth of the portfolio.

* Total cost of risk includes Azerbaijan CoR

Deposit Portfolio

By the end of September 2023, the total deposit portfolio amounted to GEL 18,722.4 million, down by 1.4% QoQ or by 2.2% on a constant currency basis.

As of 30 September 2023, the Georgian financial services portfolio decreased by 1.8% on a QoQ basis and reached GEL 18,300.5 million, down by 2.7% on a constant currency basis. Over the same period, our Uzbek portfolio increased by 12.7% and stood at GEL 515.6 million, which translated into growth of 16.6% on a constant currency basis.

* Total customer accounts are adjusted for eliminations

* Total deposits rates include MOF deposits

Unaudited Consolidated Financial Results Overview for 9M 2023

This statement provides a summary of the business and financial trends for 9M 2023 for TBC Bank Group plc and its subsidiaries. The financial information and trends are unaudited.

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

Total equity and total liabilities were restated for 30-Sep-2022 due to a change in the accounting of option contracts. As a result, ROE and leverage ratios were restated for 9M 2022. In addition, total assets and total liabilities for 30-Sep-2022 were restated due to replacement of IFRS 4 with IFRS 17. For more details, please refer to appendix 8 and 9.

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

Net Interest Income

In 9M 2023, net interest income amounted to GEL 1,194.1 million, up by 28.0% on a YoY basis.

The YoY rise in interest income by GEL 451.8 million, or 26.8%, was mostly attributable to an increase in interest income from loans related to a GEL 2,999.2 million, or 17.3%, increase in the respective portfolio, as well as a 1.2 pp rise in the respective yield.

YoY interest expense increased by GEL 190.3 million, or 25.3%, mainly related to an increase in the deposit portfolio of GEL 1,607.4 million, or 9.4%, and a 1.1 pp growth in deposit cost.

In 9M 2023, our NIM stood at 6.7%, up by 0.8 pp on a YoY basis.

* Interest expense includes net interest gains from currency swaps

Non-Interest Income

Total non-interest income amounted to GEL 540.2 million in 9M 2023, increasing by 1.2% on a YoY basis.

Net fee and commission income increased by 32.9% on a YoY basis, related to increased payments transactions both in Georgia and Uzbekistan. Over the same period, given a high base in 2022, revenues from FX operations normalised and decreased by 27.4%. Our Uzbek business contributed 18% of the Group's net fee and commission income.

Credit Loss Allowance

Credit loss allowance for loans in 9M 2023 amounted to GEL 122.0 million, which translated into a 0.9% cost of risk.

Operating Expenses

In 9M 2023, our operating expenses expanded by 23.1% on a YoY basis.

In the first nine months of 2023, the annual increase in operating expenses was mainly driven by overall business expansion, both locally and internationally.

Net Profit

In 9M 2023, we delivered robust profitability and generated GEL 848.5 million in net profit, up by 8.8% YoY, driven by strong income generation, as well as strong asset quality.

The growth in the effective tax rate YoY is related to changes in tax legislation effective from 1 January 2023, which increased the corporate income tax rate for banks from 15% to 20% and abolished the potential shift to the Estonian Tax Model.

As a result, our ROE and ROA for 9M 2023 were 27.0% and 4.0%, respectively.

Loan Portfolio

As of 30 September 2023, the gross loan portfolio reached GEL 20,365.1 million, up by 17.3% YoY or 19.1% on a constant currency basis.

By the end of September 2023, the Georgian financial services' portfolio increased by 15.4% on a YoY basis and reached GEL 19,715.8 million, with 16.7% growth on a constant currency basis. Over the same period, our Uzbek portfolio more than doubled, reaching GEL 632.0 million.

* Total gross loans and advances to customers include Azerbaijan loan portfolio

* Total loans yields include Azerbaijan

Loan Portfolio Quality

As of 30 September 2023, our asset quality metrics remained strong with NPL to gross loan at 2.0%, down 30bps YoY.

* Total PAR 90 includes Azerbaijan

* Total non-performing loans include Azerbaijan NPLs

* Total NPL to gross loans include Azerbaijan NPLs

* Total NPL coverage include Azerbaijan loans coverage ** Total NPL coverage ratio includes provision and collateral coverage

Cost of Risk

In 9M 2023, our cost of risk (CoR) amounted to 0.9%.

The CoR for our Georgia FS remained stable YoY and stood at 0.7%, while CoR for our Uzbek business amounted to 6.6%, up by 0.3 pp on a YoY basis.

* Total cost of risk includes Azerbaijan CoR

Deposit Portfolio

The total deposit portfolio amounted to GEL 18,722.4 million, increasing by 9.4% YoY or 12.2% on a constant currency basis.

As of 30 September 2023, the Georgian financial services' portfolio increased by 8.7% on a YoY basis to GEL 18.300.5 million, with 11.0% growth on a constant currency basis. Over the same period, our Uzbek portfolio almost doubled and stood at GEL 515.6 million.

* Total customer accounts are adjusted for eliminations