TBC Bank Group Regulatory News (TBCG)

TBC BANK GROUP PLC ("TBC Bank")

4Q 2019 UNAUDITED CONSOLIDATED FINANCIAL RESULTS AND FY 2019 PRELIMINARY 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.

Fourth Quarter 2019 Unaudited Consolidated Financial Results and Full Year 2019 Preliminary Unaudited Consolidated Financial Results Conference Call

TBC Bank Group PLC ("TBC PLC") announces that its consolidated financial results for the fourth quarter 2019 and preliminary consolidated financial results for the full year 2019 will be published on Thursday, 20 February 2020 at 7.00 am GMT (11.00 am GET).

On that day, Vakhtang Butskhrikidze, CEO, and Giorgi Shagidze, CFO, will host a conference call to discuss the results.

Date & time: Thursday, 20 February 2020 at 14.00 (GMT) / 15.00 (CET) / 9.00 (EST)

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

Contacts

Table of Contents

4Q and FY 2019 Results Announcement

TBC Bank - Background

Performance Highlights

Letter from the Chief Executive Officer

Operating Overview

Recent Developments

International Expansion

Economic Overview

Unaudited Consolidated Financial Results Overview for 4Q 2019

Unaudited Consolidated Financial Results Overview for FY 2019

Additional Disclosures

1) Subsidiaries of TBC Bank Group PLC

2) Update on strategic objectives

3) Reconciliation of reported IFRS consolidated figures with the underlying numbers

4) Net gains from currency swaps

5) TBC Insurance

6) Azerbaijan

7) ESG ratings and scores

8) Loan book breakdown by stages according IFRS 9

TBC Bank Group PLC ("TBC Bank")

TBC Bank Announces Unaudited Preliminary 4Q and FY 2019 and Consolidated Financial Results:

Underlying Profit for the period for the FY 2019 up by 19.8% YoY to GEL 545.1 million

Reported Profit for the period for the FY 2019 up by 23.5% YoY to GEL 540.3 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 99.6% of its business is concentrated, with a 38.2% 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's 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. The Group classifies and separately discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, as one-off items in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure (APM) and the reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 3 section on pages 45-46.

Performance Highlights

4Q 2019 P&L Highlights 

o Profit for the period amounted to GEL 160.0 million (4Q 2018: GEL 130.1 million)

o Return on average equity (ROE) stood at 24.7% (4Q 2018: 24.3%)

o Return on average assets (ROA) stood at 3 .5% (4Q 2018: 3.5%)

o Cost to income of ТBC Bank standalone[1] was 36.2% (4Q 2018: 37.0%)

o Cost to income of TBC Bank Group PLC 41.8% (4Q 2018: 39.7%)

o Cost of risk stood at -0.2% (4Q 2018: 1.4%)

o Net interest margin (NIM) stood at 5.3% (4Q 2018: 6.7%)

o Risk adjusted net interest margin (NIM) stood at 5.4% (4Q 2018: 5.4%)

o Basic earnings per share stood at 2.92 (4Q 2018: 2.40)

o Diluted earnings per share 2.91 (4Q 2018: 2.37) 

FY 2019 P&L Highlights

o Underlying profit for the period amounted to GEL 545.1 million (FY 2018: GEL 454.9 million)

o Reported profit for the period amounted to GEL 540.3 million (FY 2018: GEL 437.4 million)

o Underlying return on average equity (ROE) amounted to 22.6% (FY 2018: 22.8%)

o Reported return on average equity (ROE) amounted to 22.4% (FY 2018: 22.0%)

o Underlying return on average assets (ROA) amounted to 3.3% (FY 2018: 3.3%)

o Reported return on average assets (ROA) amounted to 3.2% (FY 2018: 3.2%)

o Cost to income of ТBC Bank standalone [2] was 35.9% (FY 2018: 35.6%)

o Underlying cost to income of TBC Bank Group PLC stood at 39.5% (FY 2018: 37.8%)

o Reported Cost to income of TBC Bank Group PLC stood at 39.9% (FY 2018: 37.8%)

o Cost of risk on loans stood at 0.7% (FY 2018: 1.6%)

o Net interest margin (NIM) stood at 5.6% (FY 2018: 6.9%)

o Risk adjusted net interest margin (NIM) stood at 4.8% (FY 2018: 5.4%)

o Basic earnings per share stood at 9.83 (FY 2018: 8.07)

o Diluted earnings per share 9.76 (FY 2018: 8.00) 

Balance Sheet Highlights as of 31 December 2019

o Total assets amounted to GEL 18,410.3 million as of 31 December 2019, up by 18.8% YoY

o Gross loans and advances to customers stood at GEL 12,662.0 million as of 31 December 2019, up by 22.1% YoY

o Net loans to deposits + IFI[3] funding stood at 104.8%, up by 14.9 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR), effective from 30 September 2019, stood at 126.7%

o NPLs were 2.7%, down by 0.4 pp YoY

o NPLs coverage ratios stood at 91.1%, or 194.2% with collateral, on 31 December 2019 compared to 102.7% or 216.4% with collateral, as of 31 December 2018

o Total customer deposits amounted to GEL 10,049.3 million as of 31 December 2019, up by 7.5% YoY

o As of 31 December 2019, the Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.0%, 14.6% and 19.1% respectively, while minimum requirements amounted to 10.4%, 12.5% and 17.5% respectively

Market Share[4]

o Market share by total assets reached 38.2% as of 31 December 2019, remaining the same YoY

o Market share by total loans was 39.5% as of 31 December 2019, up by 0.7 pp YoY

o Market share of total deposits reached 39.0% as of 31 December, down by 2.2 pp YoY

4Q 2019 operating highlights

o The number of affluent customers reached 82.5 thousand as of 31 December 2019, up by 102% YoY

o 93% of all transactions were conducted through digital channels (4Q 2018: 91%)

o The number of digital transactions amounted to 21.6 million up by 20.0% YoY, while the number of branch transactions stood at 1.7 million, down by 0.2% YoY

o The penetration ratio for internet or mobile banking[5] stood at 45% for 4Q 2019 (4Q 2018: 40%)

o The penetration ratio for mobile banking[6] stood at 44% for 4Q 2019 (4Q 2018: 40%)

Letter from the Chief Executive Officer

I am delighted to present our strong financial and operating results for the full year 2019 and to provide an overview of the recent macroeconomic developments in Georgia.

Our underlying consolidated net profit[9] for the full year 2019 reached GEL 545.1 million (reported net profit amounted to GEL 540.3 million), up by 19.8% compared to 2018, while our underlying return on equity was 22.6% and our underlying return on assets stood at 3.3% (the reported return on equity stood at 22.4% and our reported return on assets stood at 3.2%).

In 2019, our operating income amounted GEL 1,128.2, up by 3.7% year-on-year, which was supported by increase in net fee and commission income and net interest income. The growth in net interest income was related to re-classification of net gains on currency swaps in the amount of GEL 28.6 million from other operating income, which offset by the decline in net interest income related to introduction of responsible lending regulation from 1 January 2019, limiting the Bank's ability to lend money to higher-yield retail customers. Consequently, the net interest margin decreased by 1.3 pp year-on-year and stood at 5.6% in 2019 and 5.3% in the fourth quarter of 2019. By the end of 2019, the net interest margin has been fully rebased to the new level and we expect it to stabilize at the 2019 fourth quarter level.

The growth in net profit was also strongly supported by a decrease in credit loss allowance, which was driven by improved performance across all segments and change in the product mix. As a result, our cost of risk stood at 0.7% in 2019 compared to 1.6% in 2018. We also updated our guidance on cost of risk for 2020 and expect it to be around 1.0%, given the positive effects of the responsible lending regulation on loan book quality.

In 2019, our operating expenses increased by 9.7% year-on-year or 8.3% on an underlying basis, resulting in an underlying cost-to-income ratio of 39.5% (the reported cost-to-income ratio stood at 39.9%), up by 1.7 pp year-on-year. The increase in the cost-to-income ratio was mainly related to investments in our new ecosystems. Over the same period, the bank's standalone cost-to-income ratio remained strong and stood at 35.9%.[10]

In terms of balance sheet growth, our loan book expanded by 22.1% year-on-year, or by 17.9% on constant currency basis, mainly supported by growth in the corporate and MSME segments. Over the same period, deposits increased by 7.5% year-on-year, or by 2.9% on constant currency basis, driven by our policy of reducing deposits due to high liquidity as a result of the recent bond issuance. As a result, as of 31 December 2019, our loan book market share stood at 39.5%, up by 0.7 pp year-on-year, while our deposit market share stood at 39.0%, down by 2.2 pp year-on-year.

Our capital position and liquidity levels continue to be strong. As of 31 December 2019, our regulatory CET 1, tier 1 and total capital adequacy ratios per Basel III guidelines stood at 12.0%, 14.6% and 19.1% respectively, while minimum requirements amounted to 10.4%, 12.5% and 17.5% respectively. Our regulatory liquidity coverage ratio stood at 110% compared to the minimum requirement of 100%, while the regulatory net stable funding ratio (NSFR) per Basel III guidelines stood at 127%, above the minimum requirement of 100%.

Regarding macro developments, the Georgian economy demonstrated continued strong performance in fourth quarter 2019 and expanded by 5.3%[11] year-on-year, following 5.8% growth in Q3 2019, while the growth for the full year 2019 was estimated to be 5.2%. High GDP growth was mainly supported by solid external inflows driven by stronger exports and remittances, which grew by 15.9% and 13.1% year-on-year in the fourth quarter respectively, as well as by recovering tourism. The number of tourists went up by 12.0% year-on-year, while tourism revenue increased by 5.4% over the same period, mainly driven by strong growth in the number of visitors from the EU, Turkey and other neighbouring countries. The expansionary fiscal stance and relatively strong increase in lending also contributed to GDP growth. The 5.2% growth of the economy for the full year 2019 is particularly encouraging given the backdrop of the challenges the economy faced in 2019, the most important being Russia's flight ban.

Turning to the development of our business, I would like to start with our progress in Uzbekistan:

o In January 2020, we obtained a preliminary banking licence in Uzbekistan, which is an essential step in the process of launching our banking operations in the country in the near future. As previously announced, our strategy is to develop a greenfield, next-generation banking ecosystem for retail and MSME customers in Uzbekistan. The primary focus will be on digital channels, including our neobank, Space. For our Uzbek venture, we are planning to join forces with International Financial Institutions and a local partner. Our plans foresee a minimum 51% shareholding. We have already secured interest from the EBRD and IFC and have reached an agreement on the main terms with the Uzbek-Oman Investment Company to act as our local partner.

o Last year, we launched several important preparatory work-streams, including implementation of the core banking system in co-operation with a local IT company. We also set up a pilot branch in Tashkent for proof of concept and built a core team for the bank. Thus, we are well advanced in the process and expect to obtain the final licence and start banking operations in summer 2020.

o The total amount of the initial investment from all the shareholders is expected to be US$ 40 million, which we plan to invest in two stages: US$ 12 million before receiving the licence, and US$ 28 million after receiving the licence. In terms of our product offerings, we plan to start with consumer loans, car loans, savings and current accounts and add mortgages and MSME loans later.

o In parallel, we are actively developing our payments business in the country through our recently acquired subsidiary, Payme, which is the leading payments company in the country, already serving around 1.8 million customers. The company is growing rapidly, and in 2019, its revenue went up by 84% and amounted to GEL 8.6 million, while its EBITDA reached GEL 4.5 million, up by 77% year-on-year.

In December 2019, we also launched our point-of-sale consumer financing operations in Uzbekistan, which is already available at 15 locations and we plan to expand to 50 locations by the end of 2020.

Another important development during the quarter was signing the partnership agreement between our neobank, Space, and Visa, a world's leader in digital payments. This will allow us to jointly develop innovative, user-centric and secure banking solutions and expand our digital banking footprint beyond Georgia.

Finally, I would like to give you an update about recent changes to the composition of the Management Board of JSC TBC Bank. David Chkonia, our Chief Risk Officer, left the bank at the end of his contractual term in order to pursue other career opportunities. Consequently, Nino Masurashvili, deputy CEO, who was previously in charge of retail banking development, has been appointed as the new Chief Risk Officer and Tornike Gogichaishvili, Deputy CEO and Chief Operations Officer (COO) of the Bank has been appointed to lead the retail banking business. The functions that were previously carried out by the COO have been re-allocated to be the responsibility of the CFO and the Deputy CEO, SME & Micro Banking. I would like to thank David Chkonia for his significant contribution to enhancing our risk management system and to wish him success in his future career. Also, I would like to wish Nino Masurashvili and Tornike Gogichaishvili success in their new roles.

Outlook

In 2019, we recorded strong financial results and made significant progress against our strategic priorities, including the development of customer focused ecosystems and international expansion in Uzbekistan. This lays a solid foundation for further development of these initiatives and I am very excited about our ambitious plans for 2020. Our leading digital capabilities, outstanding customer experience and advanced data analytical capabilities, coupled with our strong team spirit, make me confident that we are well positioned to achieve sustainable growth and to deliver superior results to our shareholders. Therefore, I would like to reiterate our medium-term targets: ROE of above 20%, cost to income ratio below 35%, dividend pay-out ratio of 25-35% and loan book growth of around 10-15%. 

Operating Overview

Recent Developments

Preliminary banking licence in Uzbekistan

o TBC PLC has obtained a preliminary banking licence in Uzbekistan, which is an essential step in the process to launch our banking operations in the country in the near future.

o As previously announced, TBC PLC's strategy is to develop a greenfield, next-generation banking ecosystem for retail and MSME customers in Uzbekistan. The primary focus will be on digital channels, including our neobank, Space.

 For more information about the international strategy in Uzbekistan please refer pages 11-12.

New borrowings from IFIs

o TBC Bank has signed a loan agreement in the amount of GEL 90 million equivalent with the European Investment Bank (EIB). The funds are available to draw either in EUR, USD or GEL. The five-year loan facility will be used primarily to finance micro, small and medium size businesses in Georgia and support the development of private enterprise.

o TBC Bank has signed three loan agreements totaling USD 23 million equivalent in Georgian Lari (GEL) with the European Bank for Reconstruction and Development (EBRD). Funding will be available for investments in green technology, especially in climate adaptation and mitigation technologies.

Structural Changes of the Management Board

TBC Bank has appointed a new Chief Risk Officer, following the departure of the previous Chief Risk Officer at the end of his contractual term in order to pursue other career opportunities. As a result, TBC Bank has decided to implement the following structural changes to the composition of the Management Board:

o Nino Masurashvili, Deputy CEO, who had previously been in charge of retail banking development of TBC Bank, has been appointed as the new Chief Risk Officer;

o Tornike Gogichaishvili, Deputy CEO and Chief Operations Officer of the Bank, has been appointed to lead the Bank's retail banking business;

o Certain functions that have previously been carried out directly by the COO have been re-allocated to be the responsibility of the CFO or the Deputy CEO, SME & Micro Banking.

Digital Channels

Our neobank, Space, has signed a partnership agreement with Visa, a world's leader in digital payments, to jointly develop innovative banking services and expand digital banking footprints in new geographies. Through the partnership, Visa will work with Space to jointly develop innovative, user-centric and secure banking solutions and help Space in their ambitions to expand to other countries focusing on CISSEE.

Awards

TBC Bank has won a number of prestigious awards from leading industry magazines:

o TBC Bank was named 'Bank of the Year 2019 in Georgia' by The Banker magazine in its annual country awards. This award is recognition of the bank's strong financial performance, coupled with superior customer experience and fully-fledged digital capabilities. The criteria for choosing country winners for this award included digital transformation, efficiency and internal capabilities to move into a new era.

o TBC Bank was named the 'Best Foreign Exchange Provider 2020 in Georgia' by Global Finance Magazine. The criteria for choosing the country winners for this award included transaction volume, market share and scope of global coverage as well as the quality of customer service, pricing and the use of innovative technologies.

o The bank received the 'Best Trade Finance Provider in Georgia' award in 2020 from Global Finance and was also named 'Market Leader' and 'Best Service Provider' in Georgia in the Trade Finance Survey 2020 conducted by Euromoney. These awards recognise TBC Bank's leading position in trade finance and emphasize the Bank's successful cooperation with international networks.

International Expansion

Uzbekistan

Preliminary Banking Licence

In January 2020, TBC Group PLC obtained a preliminary banking licence in Uzbekistan, which is an essential step in the process to launch our banking operations in the country in the near future. Obtaining a banking licence is a two-step process, wherein the banks are first granted a preliminary licence, after which they are expected to meet certain predefined requirements to receive the final licence.

Milestones completed before preliminary banking licence:

o Core Banking deployment;

o Launch of digital pilot branch;

o Key staff on boarded;

o Agreement of key terms and conditions with international and local shareholders.

Main targets for 2020:

o Meet technical requirements to obtain licence

o Data center and core banking implementation;

o Security systems;

o Get operations up and running.

o Investments in 2020:

o USD 12 mln to be invested in the share capital before obtaining licence;

o Further USD 28 mln to be invested into the share capital.

o Branches

o Initially launch 5 branches for friends and families;

o Scale up to 20 branches by the end of the year.

o Space platform

o Serve customers through space platform.

Product launch estimated plan of the greenfield bank:

o Short term

o Consumer loans;

o Auto loans;

o Saving accounts;

o Current accounts.

o Medium term

o Mortgages;

o MSME loans.

Financial targets for greenfield bank:

o 1st Year

o Loss around USD 6-8 mln.

o 2nd Year

o Break Even.

o Medium target

o ROE in the range of TBC Group's target

o Loan book target up to USD 700 mln

Other initiatives:

o Payments - Payme

o Revenue and EBITDA increased by 84.0% and 76.9% YoY, respectively for FY 2019;

o Number of transactions increased by 24.5% YoY.

o Consumer Financing - Vendoo

o 55 point of sales by the end of 2020;

o USD 10.2 million outstanding portfolio by the end of 2020;

o 61,700 installments by the end of 2020.

o Online tickets - TKT.uz

o Selling tickets of: cinema, theater, concerts, transport, sport and etc.;

o First transaction occurred in late December 2019.

Organizational structure:

Expected Supervisory Board Composition:

o Chairman - Giorgi Shagidze, Deputy CEO, CFO of TBC Bank (Project lead until launch); Former Global Operations Executive at Barclays Bank PLC

o Board Member - Nikoloz Kurdiani, Deputy CEO of TBC Bank; Former Head of the Retail Division of ATF Bank, UniCredit Group in Kazakhstan

o Independent Board Member - Wojciech Sobieraj, CEO of Aion Bank; Former CEO of Alior Bank

o Independent Board Member - Sharof Sharipov, CFO of Token Group (US/UK); Former CFO of 10x Future Technologies

o Independent Board Member - Seit Devdariani, Project Coordinator for EBRD project: PFI Capacity-Building Technical Cooperation Programme (Azerbaijan), Former CEO of BBMB Bank (Belarus)

 Expected composition of the Management Board:

o CEO - Sandro Rtveladze, Group Head of Retail Banking and a country director of Bayport Savings and Loans Plc. (Ghana) at Bayport Financial Services (in a process of exiting current employment); Former Deputy CEO at Liberty Bank (Georgia)

o CFO - Vano Baliashvili, Former Deputy CEO, COO of TBC Bank; Also served as CFO at TBC Bank

o COO - Rostom Talakhadze, Former Head of logistics of TBC Bank

o CTO - Nikoloz Mamulashvili, Former Head of Development of TBC Bank

o Deputy CEO - Sitora R. Tulyaganova, Former Head of Legal, InFinBank

 Other Key Staff:

o Head of Commercial - Evgeniy Vishnevskiy, Former Commercial Director at Uzbektelecom

o Head of HR - Hilola Suleymanova, Former Managing Partner of DaVinci Management Consulting

o Chief Accountant - Aida Nazirova, Former Chief Accountant of Ipak Yuli Bank

Additional Information Disclosure

The following materials in connection with TBC PLC's financial results are disclosed on our Investor Relations website at http://tbcbankgroup.com/ under the Results Announcement section. 

Economic Overview

Economic growth and the external sector

GDP growth came in at 5.3% YoY in 4Q 2019 and averaged 5.2% YoY in 2019, according to GeoStat's initial estimates. The growth was broad-based across different sectors of the economy. In the first 9 months of 2019, trade and repairs (+7.4% YoY), real estate (+5.9% YoY), transport and logistics (+7.5% YoY), information and communication (+14.5% YoY) and the construction sector (+5.2% YoY) all significantly contributed to overall GDP growth.

As for the external sector, the overall dynamics of the external balance remained healthy despite the negative impact stemming from the Russian flight ban. Reflecting lower tourism inflows, the balance of trade in services declined slightly from 12.7% of GDP in 2018 to 12.4% of GDP in trailing four quarters as of 3Q 2019. However, this decline was counteracted by the lower deficit of trade in goods (down by 1.9% of GDP), as well as by a more moderate improvement in the income account deficit (down by 0.5% of GDP). As a result, the Current Account (CA) balance to GDP ratio improved to 4.5% as of the last four quarters ending in 3Q 2019, compared to 6.8% in 2018. The CA deficit continued to be fully financed with FDI inflows, which posted +13.7% YoY growth in 3Q 2019 after a declining trend from very high levels. As of the last four quarters ending in 3Q 2019, net FDI stood at 4.9% of GDP. Despite being somewhat below the average of the past couple of years, FDI inflows at current levels are still quite high when compared to peer countries in the neighbourhood, as well as in Central and Eastern Europe.

The positive tendency in the major components of the CA balance continued in 4Q 2019 as well. Following the dip in tourism inflows in 3Q 2019 (-6.9% YoY in USD terms), it recovered quickly to 5.4% YoY growth in USD terms in 4Q 2019, on the back of strong growth in the number of visitors from the EU, Turkey, and other neighbouring countries, offsetting the negative impact of a falling number of visitors from Russia. Growth of the exports of goods improved to 15.9% YoY in 4Q, compared to an 11.1% increase in the first 9 months of 2019. Similarly, remittance inflows also accelerated to 13.1% YoY in 4Q 2019. At the same time, imports of goods also posted a stronger growth towards the end of the year (+5.6% YoY in 4Q 2019). Overall, based on the dynamics of the major components, the CA balance probably improved further in 4Q 2019 YoY.

Exchange rate, inflation and credit

The GEL exchange rate depreciation since June 2019 has been the major factor behind the rise in inflation up to 7% as of the end of 2019. In response to higher inflationary pressures, the NBG tightened the monetary policy rate from 6.5% at the beginning of September to 9.0% as of the end of 2019. A tighter monetary policy stance in GEL, coupled with the strong external sector, contributed to a stronger GEL exchange rate. By the end of 2019, the USD/GEL exchange rate stood at 2.87, down by 3.0% QoQ. The monthly inflation dynamics indicate some moderation of inflation by the end of 2019. According to the latest projections of the central bank, CPI inflation is projected to gradually decline towards the target, starting from 2Q 2020, before reaching the target by the end of 2020.

Despite tighter monetary policy in GEL, lending growth remained solid, mostly on the back of accelerated FX lending by the end of 2019, supported by the lower reserve requirements and ample bank liquidity in FX. As of the end of 2019, the bank loan portfolio went up by 16.1% YoY, excluding the exchange rate effect, mostly on the back of business lending (+23.3% YoY excl. FX effect), strongly supporting the solid economic growth. At the same time, retail growth was relatively slow (+6.0% YoY excl. FX effect), owing to tighter prudential regulations. Despite some acceleration of FX lending, de-dollarization of the financial sector remains a top priority for the central bank; however, in future rather more attention is expected to be devoted to de-dollarization of liabilities.

Fiscal spending

Fiscal spending significantly supported growth in 2019, with the budget deficit estimated at 2.7% of GDP in 2019. The actual impact of the fiscal sector on growth was even higher, taking into consideration the advance payments made by the end of 2018, which supported growth in 2019. Taking into account those advance payments, the fiscal deficit was estimated at around 4.2% of GDP, almost double the amount the previous year. Going forward, according to the budget projections for 2020, the fiscal stance is expected to be less expansionary for 2020 and more oriented towards social spending. Nevertheless, the share of capital expenditures remains high and, on a macro level, the budget is balanced.

Going forward

Above 5% economic growth for the full year 2019 once more underlines the resilience and high growth potential of Georgian economy. This growth is particularly encouraging on the backdrop of the challenges that economy faced in 2019, the most important being Russia's flight ban. According to the TBC research, projection of external inflows, credit and fiscal stance indicate to 5% growth in 2020, however, considering some possible election related uncertainties, 4.5% remains a baseline scenario, close to the IMF 4.3% growth projection (5.2% long term projection).

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

Unaudited Consolidated Financial Results Overview for 4Q 2019

This statement provides a summary of the unaudited business and financial trends for 4Q 2019 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

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.

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. The Group classifies and separately discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, as one-off items in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure (APM) and the reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given in Annex 3 on pages 45-46.

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

Net Interest Income

In 4Q 2019, net interest income amounted to GEL 209.3 million, down by 2.6% YoY and up by 8.1% on QoQ basis.

The YoY increase in interest income was primarily related to an increase in interest income from loans, which was related to an increase in the gross loan portfolio of GEL 2,289.4 million, or 22.1%. This effect was partially offset by a 1.3 pp drop in loan yields, mainly in the retail and MSME segments. The decrease in retail loan yields was driven by the continued impact of the NGB's regulation from January 2019, which limits the banks' ability to lend money to higher-yield retail customers, while the decrease in MSME loan yields was in line with the overall market trend.

Over the same period, interest expense increased by GEL 51.2 million, or 36.3%, which was mainly related to interest expense from bonds issued in summer 2019, as well as increase in an interest expense from deposits. The latter was related both to the growth in the respective portfolio by 7.5% YoY, and to an increase in deposit cost by 0.3 pp over the same period.

The QoQ increase in interest income was mainly due to an increase in the loan portfolio by GEL 981.7 million, or 8.4%, while loan yields remained broadly stable. Over the same period, interest expense increased by GEL 10.7 million, or 5.9%, mainly related to the increase in the NBG loan.

In 4Q 2019, we re-classified net gains on currency swaps from other operating income to net interest income. More information is given in annex 4 on page 46.

Thus, our NIM was 5.3% down by 1.4 pp YoY and up by 0.2 pp on a QoQ basis, while risk adjusted NIM for the period amounted to 5.4%, remained the same YoY and up by 1.0 pp QoQ.

Net fee and commission income

In 4Q 2019, net fee and commission income totalled GEL 54.8 million, up by 24.5% YoY and by 16.4% QoQ.

The YoY rise was mainly driven by an increase in net fee and commission income from plastic card operations, and settlement transactions. The former increase was mainly related to the increase in the number of active cards as well as the increase in the number of POS terminals related to the overall growth of the business. At the same time, the increase in net fee and commission income from settlement transactions YoY mainly driven by the increase in the number of TBC Status's clients (our affluent retail sub-segment),up by 102% YoY to 82.5 thousands.

On a QoQ basis, the rise was mainly driven by net fee and commission income from card operations and settlement transactions as mentioned above as well as seasonality.

Other Non-Interest Income

Total other non-interest income decreased by 24.9% YoY and increased by 2.7% QoQ, amounting to GEL 40.1 million in 4Q 2019.

The YoY decrease was mainly driven by the high base of other operating income last year due to the gain from sale of investment properties and the recognition of an option to buy shares in one of our large corporate clients in 2018. Another driver was the decrease in net income from foreign currency operations related to the re-classification of net gains on currency swaps. More information is given in annex 4 on page 46.

 The QoQ increase was mainly driven by other operating income, due to the gain from the sale of repossessed assets. This rise was slightly offset by the decrease in net income from foreign currency operations, mainly due to higher volatility in 3Q 2019.

Net insurance premium earned after claims and acquisition costs increased by 46.9% on YoY and by 18.3% QoQ, mainly related to the increased scale of the insurance business. More information about TBC insurance can be found in Annex 5 on page 47.

Credit Loss Allowance

In 4Q 2019, total credit loss allowance amounted to GEL 0.2 million.

The YoY decrease was mainly due to decrease in credit loss allowance on loans to customers, driven by strong performance in all segments, as well as a portfolio product mix change, related to the responsible lending regulation effective from 1 January 2019.

QoQ improvement was also related to strong performance across all segments.

NMF - no meaningful figures

Operating Expenses

In 4Q 2019, total operating expenses expanded by 2.6% YoY and by 13.8% QoQ, amounting to GEL 127.1 million.

YoY growth was mainly driven by increase in staff costs, driven by the overall expansion of business as well as the increase in the share price[13] over a three-year period for the purpose of top and middle management share based bonuses accruals (while there was no material change in expected total share compensation). This was partially offset by the decrease in depreciation and amortizations expenses, which was driven by amendments in the deprecation period of certain assets in 4Q 2019.

On QoQ basis, the increase was driven by administrative and other expenses and resulted from seasonally high costs in 4Q. Over the same period depreciation decreased by 43.1%, as mentioned above.

In 4Q 2019, cost to income stood at 41.8%, up by 2.1 pp YoY and 1.9 pp QoQ.

NMF - no meaningful figures

Net Income

Net income for the fourth quarter increased by GEL 29.9 million, or 23.0%, YoY and increased by GEL 33.2 million, or 26.2%, QoQ, amounting to GEL 160.0 million.

As a result, ROE stood at 24.7%, up by 0.4 pp YoY and by 4.3 pp QoQ, while ROA stood at 3.5%, stable on a YoY basis and up by 0.7 pp QoQ

Funding and Liquidity

In September 2019, we had high liquidity due to bond issuance in summer, which was utilised during 4Q by increasing loan book.

Regulatory Capital

As of 31 December 2019, the Bank's CET 1, Tier 1 and Total Capital adequacy ratios stood at 12.0%, 14.6% and 19.1%, respectively, above the respective minimum requirements of 10.4%, 12.5% and 17.5%.

CET 1 and Tier 1 capital adequacy ratios were broadly stable on a QoQ basis, while the total capital adequacy ratio reduced by 0.3 pp, which was mainly driven by the increase in loan portfolio and was partially offset by net income generation.

Loan Portfolio

As of 31 December 2019, the gross loan portfolio reached GEL 12,662.0 million, up by 8.4% QoQ, or by 9.8% on a constant currency basis, which was mainly supported by growth in the corporate segment due to the acquisition of both large and mid-corporate clients. Over the same period, the proportion of gross loans denominated in foreign currency increased by 0.5 pp on a QoQ basis and accounted for 58.7% of total loans.

At the end of December 2019, our market share in total loans stood at 39.5% up by 0.8 pp QoQ, while our loan market share in legal entities was 38.9% up by 1.2 pp QoQ and our loan market share in individuals stood at 40.0% up by 0.5 pp QoQ.

Loan Portfolio Quality

Total PAR 30 decreased by 0.3 pp on QoQ basis and stood at 1.7%. The decrease was driven by improved performance across all segments. Moreover, our total NPLs stood at 2.7%, down by 0.2 pp, which was attributable to the strong performance of the retail and MSME segments.

Cost of risk 

The total cost of risk for 4Q 2019 stood at -0.2% down by 1.6 pp YoY and by 0.9 pp on a QoQ basis.

The YoY decrease was driven by the product mix change as well as robust credit quality across all segments, while the decrease on a QoQ basis was related to the strong performance across all segments.

In Q4 2019, retail cost of risk decreased by 2.6pp YoY and 1.1pp QoQ, driven by the strong performance of retail segment, translated into improved credit risk parameters and change in product mix in retail portfolio, due to responsible lending regulation.

In Q4 2019, MSME cost of risk decreased by 0.9pp QoQ and YoY, mainly due to the SME sub segment. Decrease in SME portfolio is driven by repayment of several impaired borrowers, as well as overall strong performance of the portfolio, resulting in improved credit risk parameters. In case of the Micro segment, cost of risk remained broadly stable.

Deposit Portfolio

The total deposits portfolio increased by 1.5% QoQ and amounted to 10,049.3 million, while on a constant currency basis the total deposit portfolio was up by 3.3%. The slow growth in deposits is related to our high liquidity due to the recent bonds issuance in the summer. The proportion of deposits denominated in foreign currency increased by 0.4 pp on a QoQ basis and accounted for 65.9% of total deposits.

By the end December 2019, our market share in deposits amounted to 39.0% down by 0.3 pp QoQ and our market share in deposits to legal entities stood at 40.6% up by 0.5 pp QoQ. Our market share in deposits to individuals stood at 37.9% down by 0.7 pp QoQ.

Segment definition and PL

Business Segments

The segment definitions are as follows (updated in 2019):

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

·; Retail - non-business individual customers; all individual customers are included in retail deposits;

·; MSME - business customers who are not included in the corporate segment; or legal entities which have been granted a pawn shop loan; or individual customers of the fully-digital bank, Space; and

·; 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

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, which were prepared from TBC's accounting records. These were used by the management for monitoring and control purposes.

(*) Based on internal estimates

Ratio definitions

1. Underlying return on average total equity (ROE) equals underlying 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 adjusted for the respective one-off items; annualised where applicable.

2. Reported 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.

3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period; annualised where applicable.

4. Reported 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.

5. 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.

6. Underlying cost to income ratio equals total underlying 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).

7. Reported 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).

8. 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 that currently have negative interest, and includes other earning items from due from banks.

9. Risk Adjusted Net Interest Margin is NIM minus the cost of risk without one-offs and the currency effect.

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

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

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

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

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

15. 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).

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

17. 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.

18. 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.

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

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

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

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

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

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

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

26. 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.

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

28. Leverage equals total assets to total equity.

29. 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. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.

30. 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.

31. 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 2.9552 as of 30 September 2019. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.6766 as of 31 December 2018. As of 31 December 2019 the USD/GEL exchange rate equaled 2.8677. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: FY 2019 of 2.8192, FY 2018 of 2.5345, 4Q 2019 of 2.9458, 3Q 2019 of 2.9194, 4Q 2018 of 2.6752.

Unaudited Consolidated Financial Results Overview for FY 2019 

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

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.

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. The Group classifies and separately discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, as one-off items in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure (APM) and the reconciliation of the underlying profit and loss items with the reported profit and loss items and the underlying ratios are given under Annex 3 section on pages 45-46.

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

Net Interest Income

In FY 2019, net interest income amounted to GEL 801.5 million down by 3.0% YoY.

The YoY increase in interest income was primarily related to an increase in interest income from loans, which was related to growth of gross loan portfolio by GEL 2,289.4 million, or 22.1%. This effect was partially offset by a 1.3 pp drop in loan yields, mainly in the retail and MSME segments. The decrease in retail loan yields was driven by a continued impact of the NGB's regulation from January 2019, which limits the banks' ability to lend money to higher-yield retail customers, while the decrease in MSME loan yields was in line with the overall market trend.

Over the same period, interest expense increased by GEL 157.6 million, or 31.1%, which was mainly related to interest expense from bonds issued in summer 2019, as well as the increase in interest expense from deposits. The latter was related both to growth in the respective portfolio by 7.5% YoY and to an increase in deposit cost by 0.1 pp over the same period.

In 2019, we re-classified net gains on currency swaps from other operating income to net interest income. More information is given in annex 4 on page 46.

Consequently, NIM stood at 5.6% in FY 2019, compared to 6.9% in FY 2018, while risk adjusted NIM for the same period amounted to 4.8%, down by 0.6 pp YoY.

Net fee and commission income

In FY 2019, net fee and commission income totalled GEL 187.3 million, up by 18.9% on a YoY basis.

The increase on a YoY basis was spread across all categories and was related to overall growth of business.

Other Non-Interest Income

Total other non-interest income decreased by 8.2% on a YoY basis and amounted to GEL 139.4 million in FY 2019. This primarily resulted from decrease in other operating income due to high base last year as mentioned above. Another driver was the decrease in net income from foreign currency operations related to the re-classification of net gains on currency swaps. More information is given in annex 4 on page 46.

This decrease was partially offset by increase in net insurance premium earned after claims and acquisition costs, which increased by 50.8% YoY, mainly related to the increased scale of the insurance business. More information about TBC insurance can be found in Annex 5 on page 47.

Credit Loss Allowance

In FY 2019, total credit loss allowance amounted to GEL 92.0 million, down by 44.7% on a YoY basis. 

The decrease was mainly related to credit loss allowance on loans to customers, which was driven by strong performance in all segments, as well as the portfolio product mix change, related to the responsible lending regulation effective from 1 January 2019.

Operating Expenses

In FY 2019, total reported operating expenses expanded 9.7% on a YoY basis and amounted to GEL 450.8 million, while over the same period underlying operating expenses increased by 8.3% and stood at GEL 445.1 million.

The increase was primarily due to an increase in staff costs and a rise in depreciation and amortization. The increase in staff costs was due to expansion of business as well as increase in share price over the three year period for the purpose of top and middle management share based bonuses accruals. The increase in depreciation and amortization was mainly due to the adoption of IFRS 16 from January 2019, which led to the reclassification of leases from administrating expenses to depreciation.

As a result, our cost to income ratio increased by 2.1 pp and stood 39.9% in FY 2019, while underlying cost to income was 39.5% up by 1.7 pp YoY.

Net Income

Reported net income for the full year 2019 increased by GEL 102.9 million, or 23.5% and stood at GEL 540.3 million. Without one-off items our net income would have increased by GEL 90.2 million, or 19.8% and amounted to GEL 545.1 million.

As a result, ROE stood at 22.4%, up by 0.4 pp YoY, while ROA remained unchanged and stood at 3.2%. Our underlying ROE stood at 22.6% down by 0.2 pp YoY, while ROA stood at 3.3% and remained the same over the same period.

Funding and Liquidity

Regulatory Capital

As of 31 December 2019, the Bank's Basel III CET 1 capital stood at 12.0%, down by 0.4 pp on a YoY basis. The drop was mainly driven by the increased portfolio and GEL depreciation during 2019. This effect was partially offset by net income generation over the same period. Our Tier 1 and Total capital ratios increased by 1.8 pp and 1.2 pp respectively. The increase was mainly driven by income generation and issuance of AT1 instrument (in the amount of USD 125 million) in summer 2019.