TBC Bank Group Regulatory News (TBCG)

TBC BANK GROUP PLC ("TBC Bank")

2Q AND 1H 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.

Contacts

Table of Contents

2Q and 1H 2019 Results Announcement

TBC Bank - Background

Financial Highlights

Recent Developments

Support from NBG and International Partners

Additional Funding

Development of Customer Focused Ecosystems.

Letter from the Chief Executive Officer

Economic Overview

Unaudited Consolidated Financial Results Overview for 2Q 2019

Unaudited Consolidated Financial Results Overview for 1H 2019

Additional Disclosures

Principal Risks and Uncertainties

Statement of Directors' Responsibilities

Unaudited Condensed Consolidated Interim Financial Information

TBC Bank Group PLC ("TBC Bank")

TBC Bank Announces Unaudited 2Q and 1H 2019 Consolidated Financial Results:

Underlying[1] Net Profit for 2Q 2019 up by 4.3% YoY to GEL 125.0 million

Underlying1 Net Profit for 1H 2019 up by 18.8% YoY to GEL 258.3 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.

The preliminary unaudited and not reviewed results were published on 29 July 2019. This report contains a more detailed information on the same results.

The information in this announcement, which was approved by the Board of Directors on 14 August 2019, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2018, which contained an unmodified audit report under Section 495 of the Companies Act 2006 (which did not make any statements under Section 498 of the Companies Act 2006) have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.7% of its business is concentrated, with a 39.1% 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. 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 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 26 section on pages 51-52.

Financial Highlights

2Q 2019 P&L Highlights 

§ Underlying1 net profit amounted to GEL 125.0 million (2Q 2018: GEL 119.9 million; 1Q 2019: GEL 133.3 million)

§ Reported net profit amounted to GEL 120.2 million (2Q 2018: GEL 102.4 million; 1Q 2019: GEL 133.3 million)

§ Underlying1 return on equity (ROE) amounted to 21.5% (2Q 2018: 24.9%; 1Q 2019: 23.8%)

§ Reported return on equity (ROE) amounted to 20.7% (2Q 2018: 21.3%; 1Q 2019: 23.8%)

§ Underlying1 return on assets (ROA) amounted to 3.1 % (2Q 2018: 3.7%; 1Q 2019: 3.6%)

§ Reported return on assets (ROA) amounted to 3.0% (2Q 2018: 3.2%; 1Q 2019: 3.6%)

§ Total operating income amounted to GEL 272.3 million, up by 5.4% YoY and up by 0.1% QoQ

§ Underlying1 cost to income was 38.1% (2Q 2018: 35.6%; 1Q 2019: 37.7%)

§ Reported cost to income was 40.2% (2Q 2018: 35.6%; 1Q 2019: 37.7%)

§ Cost of risk stood at 1.1% (2Q 2018: 1.8%; 1Q 2019: 1.4%)

§ FX adjusted cost of risk stood at 0.8% (2Q 2018: 1.7%; 1Q 2019: 1.4%)

§ Net interest margin (NIM) stood at 5.6% (2Q 2018: 7.1%; 1Q 2019: 6.1%)

§ Risk adjusted net interest margin (NIM) stood at 4.8% (2Q 2018: 5.5%; 1Q 2019: 4.7%)

1H 2019 P&L Highlights

§ Underlying[2] net profit amounted to GEL 258.3 million (1H 2018: GEL 217.4 million)

§ Reported net profit amounted to GEL 253.5 million (1H 2018: GEL 200.0 million)

§ Underlying2 return on equity (ROE) of 22.7% (1H 2018: 23.0%)

§ Reported return on equity (ROE) amounted to of 22.3% (1H 2018: 21.2%)

§ Underlying2 return on assets (ROA) was 3.3% (1H 2018: 3.4%)

§ Reported return on assets (ROA) was 3.3% (1H 2018: 3.1%)

§ Total operating income for the period was up by 9.5% YoY to GEL 544.2 million

§ Underlying2 cost to income stood at 37.9% (1H 2018: 36.8%)

§ Reported cost to income stood at 38.9% (1H 2018: 36.8%)

§ Cost of risk on loans stood at 1.3% (1H 2018: 1.6%)

§ FX adjusted cost of risk stood at 1.2% (1H 2018: 1.7%)

§ Net interest margin (NIM) stood at 5.8% (1H 2018: 7.0%)

§ Risk adjusted net interest margin (NIM) stood at 4.6% (1H 2018: 5.3%)

Balance Sheet Highlights as of 30 June 2019

§ Total assets amounted to GEL 17,278.4 million as of 30 June 2019, up by 27.2% YoY and up by 13.9% QoQ

§ Gross loans and advances to customers stood at GEL 11,141.4 million as of 30 June 2019, up by 25.2% YoY and up by 7.5% QoQ

§ Net loans to deposits + IFI[3] funding stood at 91.4% and Net Stable Funding Ratio (NSFR) stood at 130.4%

§ NPLs were 3.1%, unchanged YoY and down by 0.2pp QoQ

§ NPLs coverage ratios stood at 97.9%, or 206.0% with collateral, on 30 June 2019 compared, to 116.1% or 216.1% with collateral, as of 30 June 2018 and 100.1%, or 210.8% with collateral, as of 31 March 2019

§ Total customer deposits amounted to GEL 9,876.8 million as of 30 June 2019, up by 24.5% YoY and up by 7.7% QoQ

§ As of 30 June 2019, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 12.4% and 17.4% respectively, while minimum requirements amounted to 11.9% and 16.7%

Market Shares[4]

§ Market share by total assets reached 39.1% as of 30 June 2019, up by 2.0pp YoY and up by 1.7pp QoQ

§ Market share by total loans was 38.5% as of 30 June 2019, up by 0.2pp YoY and up by 0.1pp QoQ

§ In terms of individual loans, TBC Bank had a market share of 39.6% as of 30 June 2019, down by 0.2pp YoY and up by 0.3pp QoQ. The market share for legal entity loans was 37.3%, up by 0.8pp YoY and down by 0.1pp QoQ

§ Market share of total deposits reached 41.0% as of 30 June 2019, up by 1.5pp YoY and up by 0.6pp QoQ

§ Market share of individual deposits stood at to 39.5%, down by 1.7pp YoY and unchanged on QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 42.8%, up by 5.3pp YoY and up by 1.4pp QoQ.

Recent Developments

Buyback of shares

• The Company has initiated a share buyback programme on 29 July 2019 (for more information please see our press release at www.tbcbankgroup.com)

Board changes

• In July 2019, the Chairman Mamuka Khazaradze and Deputy Chairman Badri Japaridze stepped down from the board of TBC Bank Group PLC, to focus on the allegations made against them regarding historic transactions that took place in 2007 and 2008. The Board has appointed Senior Independent Director Nikoloz Enukidze to serve as the Chairman of TBC Bank Group PLC, based on his deep knowledge of the Bank, prior Chairmanship roles in the banking sector and extensive regional and international experience. (For more information please see our press release at www.tbcbankgroup.com) 

• TBC Bank also strengthened its supervisory board by appointing Jyrki Koskelo as a member and Chairman of the TBC Bank Supervisory Board in May 2019 and Arne Berggren as a member of the TBC Bank Supervisory Board in July 2019.

• Mr Koskelo serves and has served as a board member and senior advisor in multiple emerging market focused banks and companies. Prior to joining TBC, he held a number of senior leadership positions during his 24 years at the International Financial Corporation.

• Mr Berggren currently serves as a member of the board of Bank of Cyprus and Piraeus Bank and has extensive experience of senior leadership and advisory roles in prominent financial institutions including the IMF, World Bank, Swedbank, Carnegie Investment Bank AB and the Swedish Ministry of Finance and Bank Support Authority.

Awards

• Best Bank in Georgia from EMEA Finance Magazine - TBC Bank has been awarded the Best Bank in Georgia 2019 by the Global EMEA Finance magazine. This award is confirmation of the Bank's outstanding financial performance, advanced digital capabilities and consistent focus on providing a superior customer experience. Alongside this, TBC Bank won the award for Best Investment Bank in Georgia 2018, whilst its subsidiary TBC Capital was named the Best Broker in Georgia 2018.

• Best Bank in Georgia 2019 award from Euromoney - TBC Bank has been named The Best Bank in Georgia 2019 at the Euromoney Awards for Excellence ceremony. The award recognizes our continuous efforts to provide the highest standard of customer experience in Georgia and develop the best multichannel capabilities in the region, while delivering consistently superior financial results.

Internal control systems' review

TBC Bank, with the assistance of one of the big four audit firms, has undertaken benchmarking and review of its AML and Related Party policies and procedures compliance with local and international requirement. These reviews did not identify any material deficiencies.

Support from NBG and International Partners

National Bank of Georgia (NBG)

On 26 July 2019, the NBG issued the following statement: "In the light of recent events, National Bank of Georgia welcomes the decision of the founding shareholders to step down from the Board of Directors of TBC Bank Group PLC (which is a London based 100% shareholder of JSC TBC Bank).

National Bank of Georgia emphasizes that TBC Bank is one of the leading financial organization in the country and the region. It is a strong and robust financial institution. Since April 2019, Mamuka Khazaradze and Badri Japaridze no longer serve as the Supervisory Board members of JSC TBC Bank and the recent events will not have any impact on the operations of the bank."

The full statement is available on the following website: www.nbg.gov.ge

European Bank for Reconstruction and Development (EBRD)

On 25 July 2019, EBRD issued the following statement: "The EBRD notes the recent board changes at TBC Bank Group PLC. The bank is a solid financial institution led by a strong management and an independent board of directors.

We welcome the decision by the chairman and the deputy chairman of the bank to step down from the board at this time to focus on allegations made against them in a legal dispute.

We also welcome the strengthening of the board with the addition of independent directors with extensive executive level experience in financial institutions.

We expect a fair and transparent due process and a prompt resolution of the case with no adverse impact on the operations of the bank.

Meanwhile, the EBRD as a longstanding partner, shareholder and lender of TBC Bank will continue to work with and support TBC Bank Group PLC."

The full statement is available on the following website: www.ebrd.com

International Finance Corporation (IFC)

On 25 July 2019, IFC issued the following statement: "IFC, a member of the World Bank Group, is aware of the developments around TBC Bank, noting the recent board changes at TBC Bank Group PLC. We welcome the decision by the chairman and the deputy chairman of the bank to step down from the board to focus on legal proceedings.

We note the leading role of TBC Bank in Georgia's banking sector and expect a fair and transparent resolution of the case, with no adverse consequences for the bank's operations. IFC was the first international financial institution to become a shareholder of TBC Bank in 2000, and we will continue to support TBC Bank Group PLC.

The banking sector's growth is critical for the development of other sectors of the economy and our continued emphasis will be on strengthening the financial sector and increasing access to finance for businesses."

The full statement is available on the following website: www.ifc.org

Additional Funding

Senior Unsecured Bonds

In June 2019, TBC Bank successfully issued debut USD 300 million 5-year 6.0% yield senior unsecured bonds, representing the lowest ever yield achieved by a Georgian issuer in the international debt capital markets.

Additional Tier 1 Bond

In July 2019, TBC Bank successfully issued USD 125 million 10.75% yield Additional Tier 1 Capital Perpetual Subordinated Notes, which represents the largest and lowest coupon Additional Tier 1 issue ever to have been priced by a Georgian issuer.

IFI Funding

To meet future funding needs when and as required by the business, we have been working with our long term IFI partners - EBRD, ADB, EIB, FMO, DEG, Proparco, BSTDB, OFID, CDB, AIIB, Blue Orchard, EFSE, GCPF,GCF - on a funding pipeline of up to USD 900 million in total in 2019-2020, both in local currency and USD.

Under such approach, we have signed an agreement and attracted USD 10 million from ResponsAbility Investments AG.. The funds will be used to support SME Business growth.

Furthermore, we have signed a Continuing Agreement for Reimbursement of Trade Advances (CARTA) with Citibank. The trade finance framework agreement will primarily be used to finance trade activities of local importers and exporters in Georgia.

Development of Customer Focused Ecosystems

In order to integrate better with our customers, we have 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

Our strategy is to develop an innovative e-commerce market place in Georgia, comprising:

§ An asset light platform (Intermediation);

§ A diverse products range and fast delivery within 24 hours; and

§ Exceptional customer service - NPS[5] 80%+;

Our estimated investment for the next two years will be around USD 2-3 million, or GEL6-9 million[6].

Our Progress

§ The soft launch of the marketplace took place in April and the full launch took place in May 2019.

§ In 2Q 2019, Vendoo developed an analytical system, a logistics system, an SMS communication system and service monitoring for customers, as well as a portal for merchants for managing their assortment and sales.

§ In addition, Vendoo enriched its existing product offering (comprising of electronics and personal care products) with gardening & housing, toys and household chemistry.

Real Estate

Our strategy is to create the first housing ecosystem in the region, with the following features:

§ An intuitive design & exceptional customer experience; and

§ A diverse products range.

Our estimated investment for the next two years is set at around USD 2 million, or GEL 6 million6.

Our Progress

§ We completed the rebranding process and launched a beta version of the platform in May 2019. The full launch is planned in October 2019.

§ We have introduced the first real-estate valuation service in Georgia, which provides independent valuation certificate within 24 hours.

§ We have developed a premier agent service for brokers, which will allow them to enhance their value proposition.

§ We have launched a customer contact center.

Additional Information Disclosure

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

Letter from the Chief Executive Officer

I would like to start my letter with an update about the recent board changes. As we announced last week due to recent developments, regarding historic transactions that took place in 2007 and 2008, the Chairman and Deputy Chairman have decided to step down from the board of TBC Bank Group PLC with immediate effect. They have both arrived at this decision after careful consideration in order to ensure that the allegations made against them do not affect the Group. Following their resignation, the Board has appointed, with immediate effect, Senior Independent Director Nikoloz Enukidze to serve as the Chairman of TBC Bank Group PLC. I would like to thank both the Chairman and Deputy Chairman for their invaluable contribution to the bank and welcome the appointment of Mr Enukidze with whom we have enjoyed excellent working relationship over past 6 years.

Despite recent board changes, we continue to operate in our usual manner capitalising on our leading market share, strong capital and liquidity positions and operational excellence for the benefit of our shareholders. I welcome the supporting statements made by the NBG, EBRD and IFC in support of TBC. In light of our strong financial position and current share price, we have initiated a share buyback programme that was approved by the board yesterday.

Now I am pleased to present our financial results for the second quarter 2019 and first half of 2019.

In the second quarter of 2019, we achieved an underlying consolidated net profit[7] of GEL 125.0 million, up by 4.3% year-on-year (our consolidated net reported profit was GEL 120.2 million, up by 17.4% year-on-year). The growth was mainly driven by an increase in net fee and commission income and other operating income, which was largely offset by a rise in operating expenses. Our operating expenses increased by 18.8% year-on-year, or by 12.7% on an underlying basis. Over the same period, provision expenses decreased by 4.9%, resulting in cost of risk of 1.1% (or FX adjusted cost of risk of 0.8%), driven by the decreasing share of higher-yield and higher-risk loans and improved performance across all segments. In the second quarter 2019, net interest income increased only by 1.2% year-on-year. The pressure on net interest income was related to a continued impact of the regulation implemented in January 2019, that limits the ability of banks to lend money to higher-yield retail customers, an increase in minimum reserve requirements for foreign currency funds, as well as competition in interest rates. As a result, net interest margin decreased by 0.5 percentage points quarter-on-quarter and stood at 5.6%. Our underlying return on equity reached 21.5%, while the underlying return on assets was 3.1% (our reported return on equity was 20.7%, while reported return on assets stood at 3.0%).

In the first half of 2019, our underlying net profit7 stood at GEL 258.3 million, up by 18.8% year-on-year, which resulted in an underlying return on equity of 22.7% and an underlying return on assets of 3.3% (our consolidated reported net profit was GEL 253.5 million, up by 26.8% year-on-year, while our reported return on equity was 22.3%, and reported return on assets stood at 3.3%).

Regarding balance sheet growth, our loan book expanded by 25.2% year-on-year, or by 14.7% at a constant currency rate. As a result, our market share increased to 38.5%, up by 0.2 percentage points year-on-year. Over the same period, customer accounts grew by 24.5% year-on-year, or by 13.4% at a constant currency rate leading to a market share of 41.0%, up by 1.5 percentage points year-on-year.

We continue to operate with a strong capital base and a robust liquidity position. As of 30 June 2019, our total capital adequacy ratio (CAR) per Basel III guidelines stood at 17.4%, above the minimum requirement of 16.7%, while our tier I capital ratio was 12.4%, also above the minimum requirement of 11.9%. The proceeds from the issuance of AT1 bonds in the amount of USD 125 million will be reflected in our capital in July, increasing our total and tier 1 capital by approximately 2.5 percentage points. Our regulatory liquidity coverage ratio stood at 126% (which will be increased by around 12 percentage points by AT1), compared to the minimum requirement of 100%, while the ratio of net loans to deposits + IFI funding was 91% and the net stable funding ratio (NSFR) was 130%.

According to Geostat's initial estimates, real GDP increased by 4.9% in the first 5 months of 2019. While credit growth has moderated, external inflows were reasonably strong and, unlike in 2018, the fiscal stance was expansionary. Also, the current account deficit has narrowed in the first quarter and this tendency is likely to be sustained in the second quarter as well, driven by the improved trade balance and the growth in tourism and remittances inflows. Going forward, the recent restriction on flights from Russia to Georgia will have a substantial impact on tourism inflows. However, according to TBC Research, taking into account the increase in tourism inflows from other destinations and the strengthening external balance, the growth will be still positive[8]. In terms of GDP growth, according to TBC Research as well as the National Bank of Georgia, real GDP is expected to increase by more than 4.0% in 2019, once again underlining the high growth potential and the resilience of the economy.

In May 2019, TBC Insurance entered the health insurance market. Our strategy is to focus on affluent individuals and to capture the affluent market by leveraging our strong brand name and cross-selling opportunities with payroll customers. Our medium term target is to reach 25% market share in the premium health insurance business.

I would also like to update you on the progress that we made in development of our ecosystems:

§ Vendoo: The full launch of the platform took place in May 2019, and during the second quarter Vendoo focused on developing its various internal systems. In addition, Vendoo enriched its existing product offering (comprised of electronics and personal care products) with gardening & housing, toys and household chemistry and is already selling up to 15,000 different items. 

§ Livo: We completed the rebranding process and launched the beta version of the platform in May 2019, and we have already reached around 9,000 users daily. The full launch is planned in October 2019. We have introduced the first real-estate valuation service in Georgia, which provides an independent valuation certificate within 24 hours. We have also developed a premier agent service for brokers, which will allow them to enhance their value proposition, and we have launched a customer contact center.

We have also made progress in our international ventures:

§ In Azerbaijan, Nikoil bank is in the process of a significant reorganization, which includes re-branding and a shift to digitalization. It has also opened four new branches during the second quarter 2019.

§ In Uzbekistan, before the license is granted, we are working on core banking implementation, team formation and branch concept. At the same time, our newly acquired payment company, Payme, continued to grow rapidly, increasing its number of customers by 10.9% quarter-on-quarter to reach 1.4 million, while its revenue increased by 19.7% over the same quarter and amounted to around USD 700,000.

In terms of funding, I am pleased to report that in June 2019, our subsidiary, JSC TBC Bank successfully issued its first senior Eurobond in the amount of USD 300 million with a 5-year maturity and a coupon rate of 5.75% per annum, payable semi-annually. The bonds are priced at 6% yield, which represents the lowest ever yield achieved by a Georgian issuer in the international debt capital markets. The notes are listed on the regulated market of Euronext Dublin and on the Georgian Stock Exchange, making it the first dual-listed international offering of senior unsecured notes from Georgia. In July 2019, JSC TBC Bank also issued USD 125 million additional Tier 1 capital perpetual subordinated notes at 10.75% yield. This is the largest ever additional Tier 1 issue by a Georgian issuer, priced at the lowest ever coupon. The notes are listed on the regulated market of Euronext Dublin and on the Georgian Stock Exchange, making it the first dual-listed international offering of additional Tier 1 capital notes from Georgia.

Moreover, JSC TBC Bank strengthened its supervisory board by appointing Jyrki Koskelo as a member and Chairman of the JSC TBC Bank Supervisory Board in May 2019, and Arne Berggren as a member of the JSC TBC Bank Supervisory Board in July 2019. Mr Koskelo serves and has served as a board member and senior advisor in multiple emerging market focused banks and companies. Prior to joining TBC, he held number of senior leadership positions during his 24 years at The International Financial Corporation. Mr Berggren currently serves as a member of the board of Bank of Cyprus and Piraeus Bank and has extensive experience at senior leadership and advisory roles in prominent financial institutions including the IMF, World Bank, Swedbank, Carnegie Investment Bank AB and the Swedish Ministry of Finance and Bank Support Authority.

Finally, 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 10-15%.

Economic Overview

Economic growth

According to Geostat's initial estimates, real GDP increased by 4.9% in the first half of 2019. While the credit growth has moderated, the inflows were reasonably strong and unlike 2018, the fiscal stance was expansionary. At the same time, the flight ban imposed by Russia will lower growth going forward. According to TBC Research estimates, GDP is still expected to increase by over 4% for the FY 2019 and 2020.

In terms of the sectors, transport and communications (+12.7% YoY), as well as the trade and repairs sector (+6.7% YoY), contributed the most to the growth. At the same time, the education (+15.7% YoY) and healthcare sectors (+11.4% YoY) increased substantially, mainly due to higher budget spending on education (+57.7% YoY) and healthcare (+14.4% YoY) in 1Q 2019.

Similarly, strong growth was observed in hotels and restaurants (+13.1% YoY), and real estate (+11.1% YoY). All of the other major sectors also increased, with the exception of construction (-9.6% YoY), agriculture (-0.3% YoY), and manufacturing (-1.3% YoY). The decline in the construction sector was broadly expected to reflect the finalization of BP's pipeline construction project. The decline in the construction sector was also aggravated by the weakness of residential buildings construction, which is related to the slower mortgage growth and tighter construction permit regulations. On the other hand, strong government capital expenditures partly offset the decline.

The trade balance continued to improve in 2Q 2019 with exports of goods up by 10.3% while imports fell by 6.1%. As a result, the trade deficit improved significantly by 15.7% YoY over the same period, all in USD terms. The growth in tourism inflows also accelerated to an estimated 15.5% in 2Q 2019, compared to the 5.0% growth in 1Q 2019. Remittance inflows went up by 9.3% YoY over the same period, which is somewhat faster growth than in the previous quarter.

FDI inflows decreased by 6.3% YoY in the USD terms from 300 million USD in 1Q 2018 to 281 million USD in 1Q 2019 (in EUR and GEL, 1.9% and 0.9% YoY increase, respectively). As in 2018, the finalization of the South Caucasus Pipeline Extension Project and the change of ownership of non-resident companies to residents likely played a role in 1Q 2019 as well. As of the last four quarters ending in 1Q 2019, FDI inflows still stood at a strong 7.3% of GDP. Furthermore, 2018 gross fixed capital formation was at a solid 33.3% of GDP

The current account balance improvement trend continued in 1Q 2019 as well, with a deficit to same quarter GDP ratio of 6.2%: this is historically low, reflecting an improvement of 5.7pp YoY, with the strongest contribution coming from trade in goods. This positive tendency has likely been sustained in 2Q as well, judging from the trade balance, tourism and remittances inflows, as the figures described above suggest. Over the last four quarters, the current account deficit to GDP ratio stood at 6.4%, which is improvement of 1.3pp compared to the previous quarter. Despite the reduction, FDI inflows, which stood at 6.6% of GDP, remained the key source of financing the current account deficit. At the same time, over the first six months of 2019 the NBG bought 216 million USD, or around 3% of GDP over the same period, indicating that the inflows were sufficient for even higher growth. The recent restriction on flights from Russia to Georgia will have a substantial impact on tourism inflows. However, according to TBC Research, taking into account the increase in tourism inflows from other destinations and the strengthening external balance, the impact should be manageable[9].

Bank credit growth came in at 14.1% YoY in June 2019 being 1.4 pp higher compared to the 12.7% in the previous month. In terms of the segments, corporate loans were the main driver of the acceleration with a 18.0% YoY growth rate, partly thanks to the one-off transactions. On top of that, MSME lending also increased by a solid 17.2% YoY. On the other hand, retail lending continues to moderate. Mortgage lending growth slowed to 25.7% YoY, while non-mortgage lending declined by around the same 5.6% rate on an annual basis, similar to previous months. At the same time, there are ongoing discussions on a possible revision of the retail credit regulatory framework. The NBG assesses around 13% credit growth to be moderate.

Inflation and the exchange rate

An annual inflation stood at 4.3% in June 2019, over the same period, while core inflation[10] came in at 3.6%.

As of the end of June 2019, the USD/GEL exchange rate of GEL depreciated by 17.0% YoY, while the EUR/GEL exchange rate depreciated by 14.4% YoY. GEL also depreciated compared to the major trading country currencies, as evidenced by the weaker effective exchange rate. As of July 15th, the estimated real effective exchange rate was around 10% below its medium term average, also indicating potential pressures on inflation.

On 24 July meeting, the Monetary Policy Committee (MPC) of the National Bank of Georgia decided to keep the policy rate unchanged at 6.5%. According to the NBG, the GEL was assessed as being undervalued and if the upward pressure from the exchange rate on inflation continues, the central bank will consider the monetary policy tightening, as well.

Going forward

According to the IMF's recently published World Economic Outlook[12], the Georgian economy is projected to grow by 4.6% in 2019 and 5.0% in 2020. Thereafter, the economy is expected to expand by 5.2%. Based on TBC Research estimates, taking into account the Russian flights ban, growth over the next 12 months should stand at around 4% with somewhat higher growth rates expected for FY 2019 and 2020.

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

Unaudited Consolidated Financial Results Overview for 2Q 2019

This statement provides a summary of the unaudited business and financial trends for 2Q 2019 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited. The preliminary unaudited and not reviewed results were published on 29 July 2019. This report contains a more detailed information on the same results.

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 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 26 section on pages 51-52.

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

NMF - no meaningful figures

The Jun-19 figures are converted into US$ using exchange rate of 2.8786 as of 30 June 2019, while Mar-19 figures are converted using exchange rate of 2.6914 as of 31 March 2019

Income Statement Discussion

 Net Interest Income

NMF - no meaningful figures

2Q 2019 to 2Q 2018 Comparison

Net interest income increased by GEL 2.3 million, or 1.2%, to GEL 190.5 million, compared to 2Q 2018, driven by a GEL 32.1 million, or 10.4%, higher interest income and a GEL 29.9 million, or 24.9%, higher interest expense.

Interest income grew by GEL 32.1 million, or 10.4%, YoY to GEL 340.3 million, mainly due to an increase in interest income from loans and advances to customers of GEL 20.5 million, or 7.6%. This is primarily related to an increase in the gross loan portfolio of GEL 2,245.4 million, or 25.2%, YoY. This effect was slightly offset by a 1.5 pp drop in loan yields, which was mainly driven by decreased loan yields on retail loans. The 2.5pp drop in yields on retail loans was primarily driven by a continued impact of the NGB's regulation effective from January 2019, which limits the banks' ability to lend money to higher-yield retail customers. The gain in interest income was also driven by the growth in interest income from financial securities (comprised of investment securities measured at fair value through other comprehensive income and bonds carried at amortized cost) by GEL 9.2 million, or 42.1%, which resulted from a significant increase in the respective portfolios. Yields on investment securities remained stable on a YoY basis. The yield on interest earning assets decreased by 1.7 pp to 10.0%, compared to 2Q 2019.

The GEL 29.9 million, or 24.9%, YoY growth in interest expense to GEL 149.8 million in 2Q 2019 was mainly due to a GEL 15.7 million, or 24.2%, increase in interest expense on customer accounts, a GEL 6.1 million, or 61.4%, increase in interest expense on subordinated debt and a GEL 6.0 million, or 13.4% increase in interest expense on amounts due to credit institutions. The higher interest expense on customer accounts was attributable to a GEL 1,944.2 million, or 24.5%, growth in the respective portfolio, further magnified by a 0.1pp increase in the cost of customer accounts attributable to the increased share of LC denominated deposits in total deposits. The rise in interest expense on subordinated debt was attributable to a GEL 290.4 million, or 73.0%, increase in the respective portfolio. This effect was slightly offset by a 0.4 pp decrease in the cost of subordinated debt to 9.6%. The increase in interest expense on amounts due to credit institutions was mainly driven by an increase in the average respective portfolio, slightly offset by a 0.1 pp drop in the respective cost. The cost of funding increased by 0.1 p p and stood at 4.5%.

Consequently, NIM stood at 5.6% in 2Q 2019, compared to 7.1% in 2Q 2018, while risk adjusted NIM stood at 4.8%, compared to 5.5% in 2Q 2018.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, net interest income decreased by 3.3% as a result of a 0.7% higher interest income and a 6.3% higher interest expense.

The increase in interest income by GEL 2.4 million, or 0.7%, QoQ mainly resulted from the growth in interest income on investments in leases by GEL 2.1 million, or 19.4% and a GEL 1.6 million increase in interest income on financial securities (comprised of investment securities measured at fair value through other comprehensive income and bonds carried at amortized cost). The rise in interest income on investments in leases was due to a GEL 12.6 million, or 6.1%, increase in the respective portfolio. This effect was further magnified by a 2.8 pp rise in yields on investments in leases. The increase in financial securities was mainly driven by a GEL 124.1 million or 8.0% growth in the respective portfolios and a 0.2 pp rise in the respective yields. The increase was offset a GEL 1.2 million or by 0.4%, decline in interest income on loans to customers, which was driven by a drop of 0.5 pp in loan yields to 11.0%. This resulted from a 0.6 pp decline in yields on retail deposits, related to NBG's new regulation, as mentioned above. This effect was partially offset by a GEL 774.4 million or by 7.5%, increase in the gross loan portfolio. The yield on interest earning assets decreased by 0.5 pp to 10.0%, compared to 1Q 2019.

The GEL 8.9 million, or 6.3%, QoQ increase in interest expense was primarily due to the GEL 5.4 million, or 7.1%, rise in interest expense on customer accounts. The main driver was a GEL 710.0 million, or 7.7%, increase in the portfolio of customer accounts and a 0.1 pp rise in the cost of customer accounts to 3.4%. Other contributors to the increased interest expense were a GEL 1.5 million rise in interest expense on debt securities in issue and a GEL 1.5 million increase in interest expense on amounts due to credit institutions, both of which were related to an increase in the respective portfolios by GEL 835.4 million and GEL 360.2 million. The cost of funding remained stable at 4.5%.

Consequently, on a QoQ basis, NIM decreased by 0.5 pp and stood at 5.6%. Meanwhile risk adjusted NIM increased by 0.1 pp from 4.7% in 1Q 2019.

NMF - no meaningful figures

2Q 2019 to 2Q 2018 Comparison

In 2Q 2019, net fee and commission income totalled GEL 43.5 million, up by GEL 4.4 million, or 11.2%, compared to 2Q 2018. This mainly resulted from an increase in other net fee and commission income of GEL 3.6 million and an increase in net fee and commission income from guarantees of GEL 1.7 million, or 37.0%.

The rise in other net fee and commission income was related to the reclassification of certain fee expenses from this category to settlement transactions. Without this reclassification, net fee and commission income from settlement transactions would have increased by GEL 0.6 million, or by 3.7% driven by our affluent retail sub-segment, TBC Status. The increase in net fee and commission income from guarantees was mainly related to an increase in the respective portfolio of GEL 559.2 million, or 67.9%.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, net fee and commission income increased by GEL 1.7 million, or 4.1%, compared to 1Q 2019. This was primarily driven by an increase in other net fee and commission income of GEL 2.1 million, or 54.8%, a GEL 0.8 million, or 14.2%, increase in net fee and commission income from guarantees and a GEL 0.8 million, or 37.1%, increase in net fee and commission income from cash transactions, partially offset by a GEL 2.4 million, or 16.7%, decrease in net fee and commission income from card operations.

The rise in other net fee and commission income was mainly due to the increased brokerage activities of our subsidiary, TBC Capital. The increase in net fee and commission income from guarantees was mainly driven by the growth of the respective portfolio by GEL 172.4 million, or 14.3%. The decrease in net interest income from card operations was mainly driven by the depreciation of the local currency, as fee expenses are mostly denominated in FC. 

2Q 2019 to 2Q 2018 Comparison

Total other operating non-interest income and gross insurance profit grew by GEL 7.2 million, or 23.3%, to GEL 38.3 million in 2Q 2019. This primarily resulted from the growth in net income from foreign currency operations by GEL 6.9 million, or 29.5%, and an increase in gross insurance profit of GEL 1.1 million, or 33.4%. This increase was slightly offset by a GEL 0.8 million, or 49.1% drop in revenues from operational leasing. Higher net income from foreign currency operations resulted from an increased number and volume of FX transactions in the retail and corporate segments.

The growth in gross insurance profit was related to the increase in non-health[13] insurance business as well as entry into a new business line, health insurance in May 2019. More information about TBC insurance can be found in Annex 23 on page 49.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, total other operating non-interest income and gross insurance profit increased by GEL 5.1 million, or by 15.4%. This mainly resulted from the growth in net income from foreign currency operations by GEL 4.9 million, or 19.5%, mainly related to the increased number and volume of FX transactions across all segments, as well as the higher volatility of the local currency.

2Q 2019 to 2Q 2018 Comparison

In 2Q 2019, total credit loss allowance declined by GEL 1.7 million, or by 4.9% to GEL 33.4 million compared to 2Q 2018.

This was primarily attributable to a drop in credit loss allowance for loans to customers by GEL 7.9 million, or 20.8%, which was mainly driven by recoveries in the corporate segment in 2Q 2019, as well as portfolio product mix change. This decrease was partially offset by increases in credit loss allowances for other financial assets and for performance guarantees and credit related commitments by GEL 4.2 million and GEL 2.2 million, respectively.

In 2Q 2019, the cost of risk stood at 1.1% (0.8% without the FX effect), compared to 1.8% (1.7% without the FX effect) in 2Q 2018.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, total credit loss allowance increased by GEL 0.3 million, or 0.8%, to GEL 33.4 million.

This was mainly driven by an increase in credit loss allowance for other financial assets of GEL 5.4 million and a GEL 1.3 million increase in credit loss allowance for performance guarantees and credit related commitments. The rise in credit loss allowance for other financial assets was primarily related to the recovery of a single corporate debtor in 1Q 2019. The increase was partially offset by a drop in credit loss allowance for loans to customers of GEL 6.3 million, or 17.4%, which was mainly attributable to an improvement in the performance of the corporate and MSME segments, as well as portfolio product mix change.

In 2Q 2019, the cost of risk stood at 1.1% (0.8% without the FX effect), compared to 1.4% (1.4% without the FX effect) in 1Q 2019.

NMF - no meaningful figures

2Q 2019 to 2Q 2018 Comparison

In 2Q 2019, total operating expenses expanded by GEL 17.3 million, or 18.8%, YoY to GEL 109.4 million, primarily due to an increase in staff costs of GEL 8.2 million, or 16.1%, YoY and a rise in professional services of GEL 7.0 million. The growth in staff cost was mainly driven by the increase in share price over the three year period for the purpose of top and middle management share based bonuses (while the change in the number of shares did not have material effect). The increase in professional services was mainly attributable to one-off consulting fees in the amount of GEL 5.6 million, in relation to the recent events regarding historic matters surrounding TBC Bank. For further details, please see the following press release. Without these one-off costs operating expenses would have increased by 12.7%.

As a result, cost to income ratio increased by 4.6 pp (or by 2.5 pp on an underlying basis) from 35.6% in 2Q 2018.

2Q 2019 to 1Q 2019 Comparison

On a QoQ basis, total operating expenses grew by GEL 6.9 million, or 6.7%. This was primarily attributable to a GEL 5.0 million rise in professional services and a GEL 1.1 million, or 2.0%, increase in staff costs. The increase in professional services was related to one-off costs as mentioned above. Without these one-off costs operating expenses would have increased by 1.2%.

As a result, the cost to income ratio expanded by 2.5 pp (or by 0.4 pp on an underlying basis) from 37.7%, compared to 1Q 2019.

Net Income

Reported net income for the second quarter decreased by GEL 13.1 million, or 9.8%, QoQ and increased by GEL 17.8 million, or 17.4%, YoY and amounted to GEL 120.2 million. Underlying net income decreased by GEL 8.3 million, or 6.3%, QoQ and increased by GEL 5.1 million, or 4.3%, YoY and amounted to GEL 125.0 million.

As a result, underlying ROE stood at 21.5%, down by 3.4 pp YoY and by 2.3 pp QoQ, while underlying ROA stood at 3.1%, down by 0.6 pp YoY but by 0.5 pp QoQ. Reported ROE stood at 20.7%, down by 0.6 pp YoY and by 3.1 pp QoQ, while reported ROA stood at 3.0%, down by 0.2 pp YoY but by 0.6 pp QoQ.

Assets

On a QoQ basis, total assets rose by GEL 2,106.1 million, or 13.9%, mainly due to a GEL 1,123.5 million, or 47.3%, increase in liquid assets (comprising cash, due from banks and mandatory cash balances with NBG) and a GEL 771.9 million, or 7.7%, growth in net loans to customers. The expansion in liquid assets was primarily attributable to the rise in mandatory reserve requirements in FC effective from May 2019.

As of 30 June 2019, the gross loan portfolio reached GEL 11,141.4 million, up by GEL 774.4 million, or by 7.5% QoQ. Without the currency effect, the loans to customers would have increased by 3.3% QoQ. At the same time, gross loans denominated in foreign currency accounted for 59.9 % of total loans, compared to 59.6% as of 31 March 2019.

Asset Quality

Borrowers with FX income

 (Based on internal estimates)

* Pure exports account for 5.8% and 6.4% of total corporate FX denominated loans as at 30 June 2019 and 31 March 2019, respectively

** FX income implies both direct and indirect income

Liabilities

As of 30 June 2019, TBC Bank's total liabilities amounted to GEL 14,909.4 million, up by GEL 2,084.8 million, or 16.3%, QoQ. This primarily resulted from a GEL 835.4 million increase in debt securities in issue and a GEL 710.0 million or 7.7%, increase in customer accounts.

As of 30 June 2019, TBC Bank's customer accounts amounted to GEL 9,876.8, up by 3.5% on a constant currency. At the same time, customer accounts in foreign currency accounted for 62.8% of total customer accounts, compared to 63.2% as of 31 March 2019.

Liquidity

As of 30 June 2019, the Bank's liquidity ratio, as defined by the NBG, stood at 37.1%, compared to 35.9% as of 31 March 2019 and above the NBG limit of 30%. As of 30 June 2019, the total liquidity coverage ratio (LCR), as defined by the NBG, was 126.3%, above the 100.0% limit. The LCR in GEL and FC stood at 100.4% and 143.8% respectively, above the respective limits of 75% and 100%.

Total Equity

As of 30 June 2019, TBC's total equity totalled GEL 2,369.0 million, up by GEL 21.2 million from GEL 2,347.8 million as of 31 March 2019. The QoQ change in equity was mainly due to an increase in net income of GEL 120.2 million, which was partially offset by a declared dividend in the amount of GEL 108.6 million.

Regulatory Capital

As of 30 June 2019, the Bank's Basel III Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 12.4% and 17.4%, respectively, compared to the minimum required levels of 11.9% and 16.7%. In comparison, 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, higher than the minimum required levels of 11.9% and 16.7%.

In 30 June 2019, the Bank's Basel III Tier 1 Capital amounted to GEL 1,730.3 million, down by GEL 16.4 million, or 0.9%, compared to March 2019, due to dividend declared in 2Q 2019, which was partially offset by net income. The Bank's Basel III Total Capital amounted to GEL 2,430.1 million, up by GEL 8.7 million, or 0.4%, QoQ. The increase in total capital was attributable to the increase in net income as well as the increase in general reserves of loans to customers, mainly driven by the GEL depreciation. This increase was partially offset by the declared dividend. Risk weighted assets stood at GEL 13,986.2 million as of 30 June 2019, up by GEL 1,296.5 million, or 10.2%, compared to March 2019, mainly related to the increase in loan book as well as the rise in mandatory cash reserves in FC.

Results by Segments and Subsidiaries

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

·; Corporate - legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or who 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 MSME 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 corporate segment; or legal entities who have been granted a Pawn shop loan; or individual customers of the fully-digital bank, Space; and

·; Corporate centre and other operations - comprises of 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

Retail Banking

As of 30 June 2019, retail loans stood at GEL 4,835.3 million, up by GEL 257.0 million, or 5.6%, QoQ and accounted for 39.6% market share of total individual loans. Without the currency effect, retail loans would have increased by 1.8%. As of the same date, foreign currency loans represented 55.1% of the total retail loan portfolio.

In the reporting period, retail deposits stood at GEL 5,360.1 million, up by GEL 445.2 million, or 9.1%, QoQ and accounted for 39.5% market share of total individual deposits. Without the currency effect, retail deposits would have increased by 3.5%. As of 30 June 2019, term deposits accounted for 53.7% of the total retail deposit portfolio, while foreign currency deposits represented 80.5% of the total.

In 2Q 2019, retail loan yields and deposit rates stood at 12.2% and 3.0%, respectively. The segment's cost of risk on loans was 2.4% . The retail segment contributed 22.3%, or GEL 26.8 million, to the total net income in 2Q 2019.

Corporate Banking

As of 30 June 2019, corporate loans amounted to GEL 3,658.3 million, up by GEL 293.4 million, or 8.7%, QoQ. Foreign currency loans accounted for 71.4% of the total corporate loan portfolio. Without the currency effect, corporate loans would have increased by 3.7%. The market share of total legal entities loans stood at 37.3%.

As of the same date, corporate deposits totalled GEL 3,510.2 million, up by GEL 193.7 million, or 5.8%, QoQ. Foreign currency corporate deposits represented 41.1% of the total corporate deposit portfolio. Without the currency effect, corporate deposits would have increased by 3.1%. The market share of total legal entities deposits stood at 42.8%.

In 2Q 2019, corporate loan yields and deposit rates stood at 8.8% and 4.9%, respectively. In the same period, the cost of risk on loans was -0.5%. In terms of profitability, the corporate segment's net profit reached GEL 55.3 million, or 46.0%, of the total net income.

MSME Banking

As of 30 June 2019, MSME loans amounted to GEL 2,647.7, up by GEL 224.0 million, or 9.2%, QoQ. Without the currency effect, MSME loans would have increased by 5.5%. Foreign currency loans accounted for 52.7% of the total MSME portfolio.

As of the same date, MSME deposits stood at GEL 1,006.5 million, up by GEL 71.1 million, or 7.6%, QoQ. Without the currency effect, MSME deposits would have increased by 4.5%. Foreign currency MSME deposits represented 44.6% of the total MSME deposit portfolio.

In 2Q 2019, MSME loan yields and deposit rates stood at 11.5% and 1.0%, respectively, while the cost of risk on loans was 0.9%. In terms of profitability, net profit for the MSME segment amounted to GEL 28.3 million, or 23.5%, 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.

Ratio definitions

1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period adjusted for the respective one-off items; Annualized 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 the 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. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

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

10. 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.

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

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

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

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

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

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

17. 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).

18. 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.

19. 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.

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

21. 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.

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

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

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

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

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

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

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

29. Leverage equals total assets to total equity.

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 2.6914 as of 31 March 2019. For the calculations of the YoY growth without the currency exchange rate effect, we used the USD/GEL exchange rate of 2.4516 as of 30 June 2018. As of 30 June 2019 the USD/GEL exchange rate equalled 2.8687. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for the following periods: 2Q 2019 of 2.7393, 1Q 2019 of 2.6680, 2Q 2018 of 2.4460.

Unaudited Consolidated Financial Results Overview for 1H 2019

This statement provides a summary of the unaudited business and financial trends for 1H 2019 for TBC Bank Group plc and its subsidiaries. The semi-annual financial information and trends are reviewed. The preliminary unaudited and not reviewed results were published on 29 July 2019. This report contains a more detailed information on the same results.

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.

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 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 26 section on pages 51-52.

The Jun-19 figures are converted into US$ using exchange rate of 2.8786 as of 30 June 2019, while Jun-18 figures are converted using exchange rate of 2.4516 as of 30 June 2018

Income Statement Discussion