TIDMTBCG
RNS Number : 4729O
TBC Bank Group PLC
21 August 2017
TBC BANK GROUP PLC ("TBC Bank")
1H 2017 AND 2Q 2017 Unaudited Financial Results
The information contained in this announcement and in the
appendices is unaudited and does not constitute statutory accounts
within the meaning of section 434 of the Companies Act 2006 or
interim financial statements in accordance with International
Accounting Standard 34 'Interim Financial Reporting'. Statutory
accounts for the year to 31 December 2016 were approved by the
Board of Directors on 31 March 2017, published on 3 April 2017, and
delivered to the Registrar of Companies. The report of the auditors
on those accounts was unqualified and did not contain any statement
under Section 498 of the Companies Act 2006.
This statement provides a summary of the unaudited business and
financial trends for the six months ended 30 June 2017 for TBC Bank
Group plc and its subsidiaries. Quarterly financial information and
trends are unaudited and also not subject to the interim review.
Unless otherwise stated, references to results in previous periods
and other general statements regarding past performance refer to
the business results for the same period in 2016.
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 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 has
been extracted from the Group's unaudited management accounts and
financial statements. The areas in which management accounts might
differ from International Financial Reporting Standards and/or U.S.
generally accepted accounting principles could be significant and
you should consult your own professional advisors and/or conduct
your own due diligence for 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 subject to
rounding adjustments. Accordingly, numerical figures shown as
totals in certain tables might not be an arithmetic aggregation of
the figures that preceded them.
Second Quarter and First Half of 2017 Unaudited Financial
Results Conference Call
TBC Bank Group PLC ("TBC PLC") will release its second quarter
and first half of 2017 unaudited financial results on Monday, 21
August 2017 at 7am BST (10am GET).
On that day, Vakhtang Butskhrikidze, CEO, and Giorgi Shagidze,
CFO, will host a conference call to discuss the results.
Date & time: Monday, 21 August at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT)
Please dial-in approximately 5 minutes before the start of the
call quoting the password TBC Bank:
Password: TBC Bank
UK Toll Free: 0808 109 0700
+44 (0) 20 3003
Standard International Access: 2666
USA Toll Free: 1 866 966 5335
New York New York: +1 212 999 6659
Russia Toll Free: 8 10 8002 4902044
+7 (8) 495 249
Moscow: 9843
Replay Numbers
Replay Passcode: 9565892
UK Toll Free: 0800 633 8453
+44 (0) 20 8196
Standard International Access: 1998
USA Toll Free: 1 866 583 1035
Russia Toll Free: 8 10 8002 4832044
+7 (8) 495 249
Moscow: 9840
Contacts
Sean Wade Anna Romelashvili Investor Relations
Director of International Head of Investor Department
Media and IR Relations
E-mail: SWade@Tbcbank.com.ge E-mail: ARomelashvili@Tbcbank.com.ge E-mail: ir@tbcbank.com.ge
Web: www.tbcgroupbank.com Web: www.tbcgroupbank.com Web: www.tbcgroupbank.com
Tel: +44 (0) 7464 Tel: +(995 32) Tel: +(995 32)
609025 227 27 27 227 27 27
Address: 68 Lombard Address: 7 Marjanishvili Address: 7 Marjanishvili
St, London EC3V St. Tbilisi, Georgia St. Tbilisi, Georgia
9LJ, United Kingdom 0102 0102
Table of Contents
2Q and 1H Results Announcement
TBC Bank - Background
Financial Highlights
Recent Developments
Letter from the Chief Executive Officer
Economic Overview..
Results Overview 1H and 2Q 2017
Income Statement Discussion
Balance Sheet Discussion
Results by Segments and Subsidiaries
Annexes
Principal Risks and Uncertainties
Statement of Directors' Responsibilities
Unaudited Condensed Consolidated Interim Financial
Information
TBC BANK Group PLC ("TBC Bank")
TBC Bank Announces 1H 2017 and 2Q 2017 Consolidated Results:
Underlying(1) Net Profit for 1H 2017 up by 45.6% YoY to GEL
184.4 million
Underlying(1) Net Profit for 2Q 2017 up by 37.2% YoY to GEL 86.3
million
The 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
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 on 10 August 2016.
In 4Q 2016, TBC Bank acquired Bank Republic which has been
consolidated into the Group's results.
Results reported below prior to 30 September 2016 relate to the
group previously headed by JSC TBC Bank Georgia.
TBC Bank is the largest banking group in Georgia. Following the
acquisition of Bank Republic in late 2016, TBC Bank became the
country's leading universal bank, accounting for 36.3% market share
by total assets, where 99.7% of its business is concentrated. TBC
Bank offers retail, corporate, and MSME banking nationwide.
Financial Highlights
2Q 2017 P&L Highlights
-- Underlying[1] net profit amounted to GEL 86.3 million (2Q
2016: GEL62.9 million; 1Q 2017: GEL 98.1 million)
-- Reported net profit amounted to GEL 79.9 million (2Q 2016:
GEL 80.5 million; 1Q 2017: GEL 96.6 million)
-- Underlying(1) return on equity (ROE) amounted to 20.4% (2Q
2016: 19.9%; 1Q 2017: 24.6%)
-- Reported return on equity (ROE) amounted to 18.9% (2Q 2016:
25.5%; 1Q 2017: 24.2%)
-- Underlying(1) return on asset (ROA) amounted to 3.2% (2Q
2016:3.8%; 1Q 2017:3.7%)
-- Reported return on asset (ROA) amounted to 3.0% (2Q
2016:4.9%; 1Q 2017: 3.7%)
-- Total operating income for the period was up by 32.9% YoY (up
by 9.1% YoY to GEL 170.1 million without the Bank Republic
estimated contribution) and by 1.8% QoQ to GEL 207.1 million
-- Underlying(1) cost to income ratio stood at 41.2% (2Q 2016:
41.7%; 1Q 2017: 39.8%)
-- Reported cost to income was 44.9% (2Q 2016: 45.1%; 1Q 2017:
40.8%)
-- Cost of risk on loans stood at 1.3% and increased by 0.2 pp
YoY. QoQ cost of risk remained stable at constant currency rate
-- Net interest margin (NIM) stood at 6.8% in 2Q 2017, down by
1.1 pp YoY and up by 0.2 pp QoQ
-- Risk adjusted net interest margin (NIM) stood at 5.3% in 2Q
2017(2Q 2016: 6.7%; 1Q 2017: 5.1%)
1H 2017 P&L Highlights
-- Underlying(1) net profit was up by 45.6% YoY to GEL 184.4
million, delivering ROE without one-offs of 22.5% (1H 2016:
20.4%)
-- Reported net profit was up by 26.7% YoY to GEL176.4 million,
delivering ROE of 21.5% (1H 2016: 22.5%)
-- Underlying(1) ROA was 3.5% (1H 2016: 3.8%)
-- Reported ROA was 3.3% (1H 2016: 4.2%)
-- Total operating income for the period was up by 36.4% YoY to
GEL 410.6 million (up by 11.4% YoY to GEL 335.3 million without the
Bank Republic estimated contribution effect)
-- Underlying(1) cost to income ratio stood at 40.5% (1H 2016:
41.0%)
-- Reported cost to income stood at 42.8% (1H 2016: 44.7%)
-- Cost of risk on loans stood at 1.1% unchanged from 1H
2016
-- Net interest margin (NIM) stood at 6.7% (1H 2016: 7.8%)
-- Risk adjusted net interest margin (NIM) stood at 5.3% (1H
2016: 6.5%)
Balance Sheet Highlights as at 30 June 2017
-- Total assets reached GEL 11,280.8 million as of 30 June 2017,
up by 66.6% YoY and 8.9% QoQ
-- Gross loans and advances to customers stood at GEL 7,386.4
million as of 30 June 2017, up by 56.8% YoY (up by 30.8% YoY to
6,160.4 million without the Bank Republic estimated contribution
effect) and up by 3.7% QoQ
-- Net loans to deposits + IFI funding stood at 90.6% and Net
Stable Funding Ratio (NSFR) stood at 129%
-- NPLs stood at 3.4%, down by 1.3 pp YoY and stable QoQ
-- NPLs coverage stood at 84.3%, (at 219.3% with collateral) (31
March 2017: 84.6%; 30 June 2016: 85.6%)
-- Total customer deposits stood at GEL 6,666.4 million as of 30
June 2017, up by 56.1% YoY (up by 43.3% YoY to 6,116.9 million
without the Bank Republic estimated contribution) and up by 9.8%
QoQ
-- Regulatory tier I and total capital adequacy ratios stood at
10.8% and 14.6% respectively
Market Shares[2]
-- Market share in total assets stood at 36.3% up by 10.4 pp YoY
and down by 0.1 pp QoQ
-- Market share in total loans was 38.0% as of 30 June 2017, up
by 9.8 pp YoY and up by 0.3 pp QoQ
-- In terms of individual loans, the Bank had a market share of
40.8% as of 30 June 2017, up by 9.4 pp YoY and down by 1.0% QoQ.
The market share for legal entity loans was 34.9% up by 9.7 pp YoY
and up by 1.5 pp QoQ
-- Market share of total deposits stood at 39.8% as of 30 June
2017, up by 10.6 pp YoY and up by 2.3 pp QoQ
-- The Bank maintains its longstanding leadership in individual
deposits with a market share of 40.2% up by 5.7 pp YoY and up by
0.1 pp QoQ. In terms of legal entity deposits, TBC Bank holds a
market share of 39.4%, up by 16.1 pp YoY and up by 4.9 pp QoQ
Recent Developments
TBC Bank Group PLC is included in FTSE 250 Index
-- TBC Bank Group PLC joined the FTSE 250 Index on 19 June
2017
TBC Bank wins several awards
-- TBC Bank won two country and four regional awards (CEE) in
Digital Banking assigned by Global Finance Magazine:
- Best Consumer and Corporate Digital Bank in Georgia
- Best Integrated Consumer and Corporate Bank Site in Central
and Eastern Europe (CEE)
- Best in Social Media and Best Mobile Banking App for Corporate
in the CEE region
-- TBC Bank was named the Best Bank in Georgia by Euromoney in
its Awards for Excellence for 2017. The bank received this
prestigious award for the sixth time.
TBC Bank attracted GEL 45 million from Symbiotics
-- TBC Bank Group PLC's subsidiary, JSC TBC Bank and Symbiotics
(through its MSME Bond Platform) completed a transaction amounting
to GEL 45 million (USD 18.5 million). The 3-year local currency
facility will enable TBC Bank to finance micro, small and
medium-sized enterprises in Georgia
Additional Information Disclosure
Additional historical information for certain P&L, balance
sheet and capital items and on asset quality is disclosed on our
Investor Relations website on http://tbcbankgroup.com/ under
Financial Highlights section.
Letter from the Chief Executive Officer
I am pleased to report another set of strong financial results
and to update you on recent favorable economic developments.
In the second quarter of 2017, we recorded an underlying(1)
consolidated net profit of GEL 86.3 million (reported net profit
amounted to GEL 79.9 million). Our return on equity excluding
one-off costs related to the Bank Republic integration was 20.4%
(18.9% including one-off costs), while return on assets excluding
one-off costs stood at 3.2% (3.0% including one-off costs). Over
the same period, the net interest margin reached 6.8%, marking an
increase by 0.2 pp quarter-on-quarter driven by a rise in loan
yields by 0.5 pp to 12.4%. Our financial performance was further
strengthened by a growth in net fee and commission income which
increased by 34.4% or 26.2% year-on-year without the Bank
Republic's estimated effect. At the same time, our cost to income
ratio excluding one-off costs stood at 41.2% (44.9% with one-off
costs).
In terms of balance sheet growth, we have achieved strong
results in terms of both loans and deposits. Our loan book grew by
30.8% year-on-year without Bank Republic, or by 56.8% with Bank
Republic, while our deposit portfolio increased by 43.3%
year-on-year without Bank Republic, or by 56.1% with Bank Republic.
The growth was recorded across all segments and, as a result, our
market share in loans and deposits reached 38.0% and 39.8%
respectively.
We continue to maintain sound asset quality and strong capital
adequacy and liquidity levels. As of 30 June 2017, our
non-performing loan ratio was 3.4%, down by 1.3 pp on a
year-on-year basis, while our non-performing coverage ratio stood
at 84% or 219% including collateral. At the same time, our total
capital adequacy ratio (CAR) per Basel II/III regulation stood at
14.6% compared to the minimum requirement of 10.8%, and our
regulatory tier I ratio stood at 10.8% compared to the minimum
requirement of 8.5%. Net loans to deposits + IFI funding stood at
90.6% and the net stable funding ratio (NSFR) stood at 129%.
The macroeconomic outlook is encouraging and continues to
outperform the government's initial annual GDP growth projection of
4.0% for 2017. It is also supported by an improved economic
environment in the region. According to the initial estimates of
National Statistics Office of Georgia, GDP growth reached 4.5% for
1H 2017. Export of goods grew steadily in the reporting period,
increasing by 30.1% year-on-year, while remittances rose by 19.7%
year-on-year. The tourism sector also confirmed a positive trend as
the number of tourists recorded an annual growth of 29.1%. As of
June 2017, annual inflation stood at 7.1% due to the one-off
increase in administered prices related to the introduction of the
excise taxes from January 2017 and higher commodity prices. In the
same period, the core inflation was 4.5%.
Accelerated economic development and a stable currency rate in
2Q 2017 continue to underpin sound growth in the banking sector. As
a result, total banking loans increased by 14.8%[3] YoY as of 30
June 2017. Also, the National Bank of Georgia's de-dollarisation
initiatives introduced from the beginning of this year proved to be
successful as we continued to see a positive trend in the reduction
of the dollarization level in the banking sector.
In terms of operating performance, usage of our digital channels
continue to grow, especially mobile banking. In the second quarter
of 2017, the number of transactions conducted via mobile banking
was 1.5 times higher than those via internet banking and the number
of mobile banking-only users reached approximately 100,000, marking
a 29% increase quarter-on-quarter. We also continue to actively
enhance our Chat Bot capabilities with the recent addition of new
feature-P2P transfers.
Finally, I am also pleased to announce that TBC Bank has won two
country and four regional awards in Digital Banking assigned by
Global Finance in recognition of our continued innovation in our
digital capabilities. TBC Bank has been named Best Consumer and
Corporate Digital Bank in Georgia; Best Integrated Consumer and
Corporate Bank Site in Central and Eastern Europe (CEE). We are
also proud to be awarded for the first time Best Bank in Social
Media and Best Mobile Banking App for Corporate in the CEE region.
Furthermore, Euromoney Magazine assigned to TBC Bank "the Best Bank
in Georgia Award for 2017," acknowledging our efforts to provide
the best customer experience in Georgia, develop the best
multichannel capabilities in the region, and continue to deliver
superior financial results.
Outlook
The favorable macroeconomic conditions combined with our leading
positions in the market lay a strong foundation for our future
growth prospects. Thus, we would like to reiterate our targets: ROE
above 20%, cost to income ratio below 40%, dividend pay-out ratio
at 25-35% and loan book growth at c.15% and tier 1 capital adequacy
ratio around 10.5%. At the same time, we will continue to focus on
extracting cost synergies after the successful integration of Bank
Republic; and continue to further enhance our multichannel
capabilities, superior customer experience, as well as utilising
our cross selling opportunities to increase net fee and commission
income and product per customer ratio[4].
Economic Overview
Information set out below relating to the broad economic
overview in 2Q 2017, sets the context for TBC Bank's operating
activities and financial results. Around 99% of TBC Bank's
operations take place in Georgia and, although developments in the
CEE, CIS as well as immediate Caucasus region are an important
factor in the regional business climate, the bank's performance is
therefore largely affected by the developments in the Georgian
economy.
The economic growth continues to outperform the initial
projections for 2017. Initial estimates show that in 1H 2017 GDP
growth averaged 4.5%, compared to the forecast for the whole year
of 3.5% and 4% by the International Monetary Fund (IMF) and the
Georgian government respectively. The improvement in economic
growth in the 1Q 2017 was broad-based across almost all sectors of
the economy. Construction (+21.6% YoY), manufacturing (+6.2% YoY)
and transport and communications sector (+7.3% YoY) were the major
drivers of growth in 1Q 2017. Growth remained robust in Hotels and
Restaurants (+8.3%), Financial Sector (+6.8% YoY), Real estate
(+6.3%) while most of the other sectors of the economy also
increased in real terms in 1Q 2017 compared to the same period last
year.
The favourable external environment continues to underpin growth
in export, tourism and remittances inflows. The regional setting
improved markedly since the end of 2016, with the economies of all
of major trading partners showing improvements in growth rates
compared to the 2016 figures.
The current account deficit showed sizeable improvement, in 1Q
2017 the deficit to GDP ratio stood at 11.8%, down from 13.5% in
the same period of the previous year. Sharp growth in export
inflows (+4.8% of GDP YoY) almost fully balanced for the increased
imports and the trade balance in goods worsened slightly by 0.1% of
GDP YoY. The significant growth of tourism inflows boosted the
trade balance in services from 8.3% in 1Q 2016 to 10.5% in 1Q 2017.
Transfers also went up by 1.2% of GDP YoY in 1Q 2017, largely
offsetting the decrease of the income account by 1.4% of GDP. Major
positive components of current account balance maintained growth
trends, implying that it improved further in 2Q 2017.
Annual growth of exports of goods remained at an impressive 30%
in 2Q 2017, with the 1H 2017 export growth figure averaging 30.1%
YoY. Export growth has been solid to EU countries, recording a
+30.4% YoY in 1H 2017. The sharpest rise in export was registered
towards CIS markets (+61.2% YoY), partly to be explained by the low
base registered in previous years, as in 2015-2016 exports
contracted the most towards this region. Exports to other states
increased by a relatively modest 8.7%. However, it is worth
highlighting that export to China continues impressive growth, in
1H exports to this market was up by 34% YoY, making China the
second largest destination for Georgian exports. Free trade
agreement with China is expected to enter into force by the end of
2017 further improving growth potential of Georgian exports to the
largest market of the world.
From the goods perspective, traditional export commodities such
as ferro-alloys (+106.1% YoY), wines (+53% YoY), other spirits
(+27.4% YoY) and mineral waters (+16% YoY) contributed the most to
the export growth in 1H 2017. In addition, the increase of copper
ores re-export (+46.1% YoY), medications (+37.8% YoY) and cars
(+13% YoY) also supported the export figures.
Some setbacks in oil and metal commodities' prices, a sharper
reduction in imports of passenger cars, resulted in a slower annual
import growth in 2Q 2017 (+3.6% YoY), compared to previous quarter
(+15.1% YoY). As a result of the lower growth of imports, the trade
balance improved by 6.7% YoY or by about USD 90 mln in 2Q 2017.
Overall in 1H 2017 imports of goods increased by 8.8% YoY,
mostly due to the higher imports of petroleum products and
medicaments. Growth of imports was fully offset by expanding
exports, in 1H 2017 trade balance remained broadly unchanged (-0.2%
YoY) on an annual basis.
The tourism industry maintained impressive growth rates, in 1H
2017 the number of tourists increased by 29.1% YoY while money
inflows from the tourism grew by an estimated 26.2% YoY to USD 1.1
billion.
The positive trend was confirmed by the remittances inflow which
in 2Q increased by 17.6% YoY, following a 22.3% YoY increase in 1Q
2017. This growth was primarily driven by growth of transfers from
Israel (+102.2% YoY), Russia (+14.5% YoY), Turkey (+24.8% YoY), USA
(+16.6% YoY) and Italy (+11.1% YoY).
The improved external inflows enabled the National Bank of
Georgia ("NBG") to start refilling its international reserves. In
2Q 2017 the NBG purchased about USD 90 million on the foreign
exchange market to remove excessive appreciating pressure on the
GEL exchange rate. In 2Q 2017 USD/GEL exchange rate appreciated by
1.5% QoQ, while in the same period the GEL depreciated by 4.5%
against the EUR.
As expected at the beginning of 2017, the headline inflation
exceeded the target due to the one-off increase in administered
prices related to the introduction of the excise taxes from January
2017 as well as higher commodity prices on the global markets. As
of June 2017, annual inflation stood at 7.1% while core[5]
inflation remained close to target at 4.5% over the same period.
Direct impact of increased excise taxes on tobacco, petroleum and
higher oil prices on CPI inflation stood at c. 2.7 pp, which should
gradually decrease by the end of 2017. The NBG tightened the policy
rate modestly to 7% in early May, from 6.5% of end-2016, and left
it unchanged during the following two monetary policy committee
meetings, announcing that the current level of policy rate, was
enough to ensure that inflation would move to the 3% target
starting from next year. Over the medium term the refinancing rate
is expected to gradually align closer to its long run neutral rate
of 5-6%.
In order to ensure fiscal sustainability after the significant
profit tax reform, the government has taken the number of steps,
including the increase of excise taxes on petroleum, cars, tobacco
and imposing stricter controls to current spending In 1H 2017
fiscal deficit stood at an estimated 1.3% of GDP, 1.8 pp lower
compared to the same indicator of the last year. Narrower fiscal
deficit reflects better-than-expected economic growth as well as a
more prudent management of current and social spending by the
government. Approval of IMF's 3 year program in the first half of
2017 is an additional factor ensuring the public finances will
remain healthy over the medium term.
To sum up, the improved external environment, coupled with a
more active public infrastructure spending and gradual improvement
in consumer and business([6]) expectations lays the foundations for
the economy to outperform the initial expectation for the FY 2017
making Georgia one of the top performers compared to CIS and or CEE
region in 2017 in terms of economic growth rates.
Results Overview 1H and 2Q 2017
Income Statement
Highlights
in thousands 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
of GEL in YoY QoQ
%
Net Interest
Income 292,074 216,538 34.9% 149,742 142,333 107,654 39.1% 5.2%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Net Fee and
Commission Income 55,217 39,683 39.1% 28,741 26,477 21,385 34.4% 8.6%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Other Operating
Non-Interest
Income 63,283 44,771 41.3% 28,611 34,672 26,840 6.6% -17.5%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Provisioning
Charges -43,375 -28,669 51.3% -25,717 -17,658 -14,329 79.5% 45.6%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Operating Income
after Provisions
for Impairment 367,200 272,323 34.8% 181,377 185,823 141,550 28.1% -2.4%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Operating Expenses -175,850 -134,668 30.6% -92,929 -82,920 -70,369 32.1% 12.1%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Profit Before
Tax 191,350 137,655 39.0% 88,447 102,903 71,181 24.3% -14.0%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Income Tax Expense -14,936 1,582 NMF -8,590 -6,345 9,359 -191.8% 35.4%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Profit for the
Period 176,415 139,237 26.7% 79,857 96,558 80,540 -0.8% -17.3%
-------------------- --------- --------- ------- -------- -------- -------- -------- -------
Balance Sheet
and Capital Highlights
Jun-17 Mar-17 Change Jun-16 Change
QoQ YoY
In Millions GEL USD GEL USD GEL USD
------------------------- --------- -------- --------- -------- ------- -------- -------- -------
Total Assets 11,280.8 4,686.3 10,362.6 4,237.9 8.9% 6,772.2 2,891.3 66.6%
Gross Loans 7,386.4 3,068.5 7,121.0 2,912.3 3.7% 4,711.1 2,011.3 56.8%
Customer Deposits 6,666.4 2,769.4 6,070.8 2,482.8 9.8% 4,269.8 1,822.9 56.1%
Total Equity 1,690.5 702.3 1,680.5 687.3 0.6% 1,314.9 561.4 28.6%
Regulatory Tier
I Capital 1,282.9 532.9 1,115.2 456.1 15.0% 999.2 426.6 28.4%
Regulatory Total
Capital 1,732.8 719.8 1,472.7 602.3 17.7% 1,241.5 530.0 39.6%
Regulatory Risk
Weighted Assets 11,866.0 4,929.4 9,878.1 4,039.8 20.1% 7,912.5 3,378.1 50.0%
------------------------- --------- -------- --------- -------- ------- -------- -------- -------
Key Ratios 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
in YoY QoQ
%
ROE 21.5% 22.5% -1.0% 18.9% 24.2% 25.5% -6.6% -5.3%
ROA 3.3% 4.2% -0.9% 3.0% 3.7% 4.9% -1.9% -0.7%
Pre-Provision
ROE 26.9% 27.1% -0.2% 25.1% 28.7% 30.0% -4.9% -3.6%
Cost to Income 42.8% 44.7% -1.9% 44.9% 40.8% 45.1% -0.2% 4.1%
Cost of Risk 1.1% 1.1% 0.0% 1.3% 0.9% 1.1% 0.2% 0.4%
NPL to Gross Loans 3.4% 4.7% -1.3% 3.4% 3.4% 4.7% -1.3% 0.0%
Regulatory Tier
1 CAR 10.8% 12.6% -1.8% 10.8% 11.3% 12.6% -1.8% -0.5%
Regulatory Total
CAR 14.6% 15.7% -1.1% 14.6% 14.9% 15.7% -1.1% -0.3%
Leverage (Times) 6.7 5.2 1.5 6.7 6.2 5.2 1.5 0.5
-------------------- ------ ------ ------- ------ ------ ------ ------- -------
Income Statement Discussion
Net Interest
Income
In thousands 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
of GEL in YoY QoQ
%
------------------- -------- -------- ------- -------- -------- -------- ------- -------
Loans and
Advances to
Customers 438,753 302,373 45.1% 223,665 215,089 147,908 51.2% 4.0%
Investment
Securities
Available
for Sale 19,088 12,181 56.7% 10,286 8,801 5,127 100.6% 16.9%
Due from Other
Banks 4,908 2,536 93.6% 3,157 1,752 1,281 146.5% 80.2%
Bonds Carried
at Amortized
Cost 15,250 16,215 -6.0% 7,809 7,440 8,335 -6.3% 5.0%
Investment
in Leases 9,667 7,721 25.2% 4,981 4,686 3,516 41.7% 6.3%
Interest Income 487,667 341,026 43.0% 249,898 237,769 166,167 50.4% 5.1%
------------------- -------- -------- ------- -------- -------- -------- ------- -------
Customer Accounts 108,411 70,453 53.9% 54,560 53,852 34,674 57.3% 1.3%
Due to Credit
Institutions 68,952 38,465 79.3% 36,589 32,363 16,266 124.9% 13.1%
Subordinated
Debt 17,187 14,716 16.8% 8,502 8,685 7,206 18.0% -2.1%
Debt Securities
in Issue 1,042 855 21.8% 505 536 366 38.1% -5.8%
Interest Expense 195,592 124,488 57.1% 100,157 95,436 58,512 71.2% 4.9%
------------------- -------- -------- ------- -------- -------- -------- ------- -------
Net Interest
Income 292,074 216,538 34.9% 149,742 142,333 107,654 39.1% 5.2%
------------------- -------- -------- ------- -------- -------- -------- ------- -------
Net Interest
Margin 6.7% 7.8% -1.1% 6.8% 6.6% 7.9% -1.1% 0.2%
------------------- -------- -------- ------- -------- -------- -------- ------- -------
1H 2017 to 1H 2016 Comparison
In 1H 2017, net interest income grew by 34.9% YoY to GEL 292.1
million (GEL 234.5 million without the Bank Republic estimated
contribution effect), resulting from a 43.0% higher interest income
and 57.1% higher interest expense.
Without the Bank Republic estimated contribution effect,
interest income increased by GEL 55.8 million, or 16.4% YoY, mainly
driven by a higher interest income from loans to customers by GEL
51.5 million, or 17.0%, which is primarily related to the 30.8%
gross loan portfolio increase. An increase in interest income from
investment securities (comprising both investment securities
available for sale and bonds carried at amortized cost) of GEL 1.0
million, or 3.5% also contributed to the overall increase. This
resulted primarily from the large rise in the respective portfolio.
This effect was magnified by a higher net interest income from due
from other banks by GEL 1.4 million or 55.9%, which was caused by
the large increase in respective portfolio.
The Bank Republic effect mainly contributed a GEL 84.9 million,
or 19.4%, to the interest income from loans and advances to
customers, which totaled GEL 438.8 million in 1H 2017, and GEL 4.9
million, or 25.9%, to interest income from investment securities,
which totaled GEL 19.1 million in 1H 2017. As a result, the overall
Bank Republic estimated contribution effect was GEL 90.8 million,
or 18.6%, to the interest income.
Loan yields declined over the same period from 13.5% to 12.1%.
The drop was driven by a decrease in rates on FC-denominated loans,
from 10.2% to 9.3%, as well as by decline in GEL-denominated loans
rates from 19.6% to 16.9%. The decline of yields on investment
securities, from 9.2% to 7.9%, over the same period is related to a
lower average refinance rate in the country in 1H 2017 compared to
1H 2016. As a result, the yields on average interest earning assets
dropped from 12.3% in 1H 2016 to 11.1% in 1H 2017.
In the reporting period, without the Bank Republic estimated
contribution effect, interest expense increased by GEL 38.5
million, or 30.9% YoY. The rise was mainly due to a higher interest
expense on due to customer accounts by GEL 23.1 million, or 32.8%,
and due to credit institutions by GEL 14.1 million or 36.7%. The
increase in interest expense on customer accounts primarily
resulted from the 56.1% rise in the respective portfolio. The
increase in interest expense on due to credit institutions was
driven by the large increase in portfolio.
The Bank Republic estimated contribution effect added a GEL 14.8
million, or 13.7%, to the interest expense on customer accounts,
which amounted GEL 108.4 million in 1H 2017 and GEL 16.4 million or
23.7% to interest expense on interest expense due to credit
institutions, which amounted GEL 69.0 million. As a result, the
overall Bank Republic contribution effect was a GEL 32.6 million,
or 16.7%, to the interest expense.
The cost of deposits decreased by 0.1 pp to 3.4% in 1H 2017. The
cost of borrowing dropped to 6.3% compared to 8.1% in 1H 2016. This
was mainly due to the 3.2 pp decrease in rates on Lari-denominated
borrowings and the 0.8 pp decrease in rates on FC-denominated
borrowings. As a result, the cost of funding ratio declined by 0.3
pp to 4.4% in 1H 2017.
Consequently, NIM was 6.7% in 1H 2017, compared to 7.8% in 1H
2016.
2Q 2017 to 2Q 2016 Comparison
In 2Q 2017, the net interest income increased by GEL 42.1
million, or 39.1% YoY to GEL 149.7 million (GEL 119.5 million
without the Bank Republic estimated contribution effect), as a
result of a GEL 83.7 million, or 50.4%, increase in interest income
and a GEL 41.6 million, or 71.2%, rise in interest expense,
compared to 2Q 2016.
Without the Bank Republic estimated contribution effect, the GEL
38.8 million growth, or 23.3% YoY, increase in interest income was
mainly due to a GEL 33.3 million, or 22.5%, increase in interest
income from loans. This in turn was due to the 30.8% rise in the
loan portfolio. The gain in interest income was also driven by the
growth in interest income from investment securities (comprising
both investment securities available for sale and bonds carried at
amortized cost) by GEL 3.3 million, or 20.6%, which resulted from
the significant increase in respective portfolio.
The Bank Republic estimated contribution effect added a GEL 42.5
million, or 19.0%, to the interest income from loans and advances
to customers, which amounted GEL 223.7 million in 2Q 2017. It is
also added GEL 1.9 million, or 10.3%, to interest income from
investment securities, which amounted to GEL 18.1 million in 2Q
2017. Consequently, the overall Bank Republic contribution effect
was a GEL 45.0 million, or 18.0%, to the interest income. In the
reporting period loan yields declined from 13.3% to 12.4% resulting
from the decrease in FC rates from 9.9% to 9.5% and decrease in GEL
rates from 19.8% to 17.0%. The decrease in yields on investment
securities, by 1.3 pp to 7.8%, is in line with the refinance rate
decrease. Consequently, these changes led to the decrease in yields
on average interest earning assets from 12.2% in 2Q 2016 to 11.3%
in 2Q 2017.
Without the Bank Republic estimated contribution effect,
interest expense amounted to GEL 86.0 million, marking as increase
of GEL 27.5 million, or 47.0% YoY. The growth was primarily
attributable to the increased interest expense on due to credit
institutions by GEL 14.1 million, or 86.4%, and due customer
accounts by GEL 12.9 million, or 37.2%. The former resulted from
the expansion in the respective portfolio, while the increase in
interest expense on customer accounts was due to a 43.3% rise in
respective portfolio.
The Bank Republic estimated contribution added GEL 7.4 million,
or 13.5%, to the interest expense on customer accounts, which
amounted to GEL 54.6 million in 2Q 2017. It also added GEL 6.3
million, or 17.1%, to the interest expense on due to credit
institutions, which totaled GEL 36.6 million in 2Q 2017.
Consequently, the Bank Republic contribution effect was GEL 14.1
million or 14.1% to expense.
The rate on credit institutions decreased by 1.5 pp to 6.4%,
while the cost of deposits increased by 0.1 pp to 3.5%. As a
result, the cost of funds stood at 4.5%, unchanged from 2Q
2016.
Consequently, NIM decreased to 6.8% in 2Q 2017, compared to 7.9%
in 2Q 2016.
2Q 2017 to 1Q 2017 Comparison
On a QoQ basis, net interest income increased by GEL 7.4
million, or 5.2% QoQ, to GEL 149.7 million due to a 12.1 million,
or 5.1%, higher interest income and GEL 4.7 million, or 4.9%,
higher interest expense.
The increase in interest income mainly resulted from the
increase in interest income on loans by GEL 8.6 million, or 4.0%,
which in turn was due to the 0.5 pp increase in yields on loans to
12.4% and the 3.7% increase in loan portfolio. The increase in loan
yields stemmed from 0.2 pp rise in GEL rates to 17.0% and 0.2 pp
increase in FC rates to 9.5%. The rise in interest income was also
driven by the increase in interest income from investment
securities by GEL 1.5 million, or 16.9%, which was mainly driven by
a 13.9% increase in respective portfolio. This effect was slightly
offset by the reduced yields on such securities by 0.6 pp to 7.8%.
Yields on investment securities dropped despite the slight increase
in refinance rate due to the increased demand on local securities
from the banking sector. As a result, yields on average interest
earning assets increased to 11.3%, compared to 11.1% in 1Q
2017.
The increase in interest expense was primarily due to the rise
in the interest expense on borrowed funds from financial
institutions by GEL 4.2 million, or 13.1%, which resulted from the
9.5% increase in the respective portfolio and 0.3 pp increase in
respective rate to 6.4%. It should be noted, that all Bank Republic
borrowings have been re-negotiated, resulting in net positive
effect on P&L. The GEL 0.7 million, or 1.3% QoQ increase in
interest expense on customer deposits was mainly due to the 9.8%
increase in respective portfolio and a 0.1 pp rise in the cost of
deposits, to 3.5%. As a result, the cost of funds increased to
4.5%, from 4.4% in 1Q 2017.
Consequently, on a QoQ basis, NIM increased by 0.2 pp to
6.8%.
Fee and Commission
Income
In thousands of 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
GEL in YoY QoQ
%
-------------------------- ------- ------- ------- ------- ------- ------- -------- --------
Card Operations 40,245 26,848 49.9% 19,416 20,829 13,566 43.1% -6.8%
Settlement Transactions 28,159 18,114 55.5% 14,063 14,095 9,615 46.3% -0.2%
Guarantees Issued 6,072 6,132 -1.0% 3,328 2,744 3,812 -12.7% 21.3%
Issuance of Letters
of Credit 3,459 2,553 35.5% 2,050 1,409 1,074 90.8% 45.5%
Cash Transactions 7,470 5,489 36.1% 4,042 3,428 3,134 29.0% 17.9%
Foreign Exchange
Operations 582 554 5.1% 362 220 209 73.1% 64.3%
Other 3,731 2,538 47.0% 1,957 1,774 1,271 54.0% 10.3%
Fee and Commission
Income 89,719 62,228 44.2% 45,219 44,500 32,681 38.4% 1.6%
-------------------------- ------- ------- ------- ------- ------- ------- -------- --------
Card Operations 24,005 14,910 61.0% 11,229 12,777 7,322 53.4% -12.1%
Settlement Transactions 3,385 2,598 30.3% 1,866 1,520 1,358 37.4% 22.8%
Guarantees Issued 561 267 110.4% 294 267 126 132.8% 10.0%
Letters of Credit 465 904 -48.5% 252 213 423 -40.5% 18.1%
Cash Transactions 2,105 1,269 65.9% 1,098 1,007 710 54.6% 9.0%
Foreign Exchange
Operations 89 67 32.3% 1 88 -1 -183.1% -99.0%
Other 3,891 2,531 53.7% 1,740 2,152 1,358 28.1% -19.2%
Fee and Commission
Expense 34,502 22,546 53.0% 16,478 18,023 11,296 45.9% -8.6%
-------------------------- ------- ------- ------- ------- ------- ------- -------- --------
Card Operations 16,240 11,938 36.0% 8,187 8,053 6,244 31.1% 1.7%
Settlement Transactions 24,773 15,516 59.7% 12,198 12,576 8,258 47.7% -3.0%
Guarantees 5,512 5,865 -6.0% 3,034 2,477 3,686 -17.7% 22.5%
Letters of Credit 2,994 1,649 81.5% 1,798 1,195 651 176.3% 50.4%
Cash Transactions 5,365 4,220 27.1% 2,944 2,421 2,424 21.5% 21.6%
Foreign Exchange
Operations 493 487 1.4% 361 132 210 71.7% 173.2%
Other -160 7 NMF 218 -378 -87 NMF -157.7%
Net Fee And Commission
Income 55,217 39,683 39.1% 28,741 26,477 21,385 34.4% 8.6%
-------------------------- ------- ------- ------- ------- ------- ------- -------- --------
1H 2017 to 1H 2016 Comparison
In 1H 2017, net fee and commission income totaled GEL 55.2
million, up by GEL 15.5 million, or 39.1%, compared to 1H 2016.
This increase resulted mainly from a GEL 9.3 million, or 59.7%,
rise in net fee and commission income from settlement transactions,
a GEL 4.3 million, or 36.0%, increase in net card operations, a GEL
1.3 million, or 81.5%, rise in net letters of credit issued, and a
GEL 1.1 million, or 27.1%, increase in net cash transactions. The
Bank Republic estimated contribution was GEL 3.7 million, or 6.6%,
in the net fee and commission income.
2Q 2017 to 2Q 2016 Comparison
In 2Q 2017, net fee and commission income totaled GEL 28.7
million, up by GEL 7.4 million, or 34.4% compared to 2Q 2016. This
increase resulted mainly from a GEL 3.9 million, or 47.7%, gain in
net fee and commission income from settlement transactions, GEL 1.9
million, or 31.1%, increase in net card operations and GEL 1.1
million, or 176.3%, GEL increase in net letters of credit issued.
This increase was partially offset GEL 0.7 million, or 17.7%,
decrease in net guarantees issued which was due to one-off income,
in the amount of GEL 1.5 million, related to one large customer in
2Q 2016. The Bank Republic estimated contribution effect was a GEL
1.8 million, or 6.1%, in net fee and commission income.
2Q 2017 to 1Q 2017 Comparison
On a QoQ basis, net fee and commission income increased by GEL
2.3 million, or 8.6%, compared to 1Q 2017. This was primarily
driven by a GEL 0.6 million, or 50.4%, increase in net fee and
commission income from net letters of credit, by a GEL 0.6 million,
or 22.5%, increase in guarantees issued, and by a GEL 0.5 million,
or 21.6%, increases in the net cash transactions.
Other Operating
Non-Interest Income
and Insurance
Profit
In thousands of 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
GEL in YoY QoQ
%
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Gains Less Losses
from Trading in
Foreign Currencies
and Foreign Exchange
Translations 45,429 28,085 61.8% 23,237 22,192 13,459 72.7% 4.7%
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Share of Profit
of Associates 577 - NMF 484 93 - NMF NMF
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Gains Less Losses/(Losses
Less Gains) from
Derivative Financial
Instruments -38 -472 -91.9% -35 -3 -109 -68.0% NMF
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Gains less Losses
from Disposal
of Investment
Securities Available
for Sale - 8,795 -100.0% - - 8,795 -100.0% NMF
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Revenues from
Cash-In Terminal
Services 597 509 17.3% 334 262 276 20.9% 27.4%
Revenues from
Operational Leasing 3,510 3,528 -0.5% 1,726 1,784 1,718 0.5% -3.3%
Gain from Sale
of Investment
Properties 1,174 230 NMF 982 192 15 NMF NMF
Gain from Sale
of Inventories
of Repossessed
Collateral 945 1,169 -19.2% 591 354 947 -37.6% 67.1%
Revenues from
Non-Credit Related
Fines 96 400 -76.0% 46 50 267 -82.8% -8.4%
Gain on Disposal
of Premises and
Equipment 191 96 99.4% 164 27 30 NMF NMF
Other 7,722 2,432 NMF -774 8,496 1,442 NMF NMF
Other Operating
Income 14,234 8,363 70.2% 3,069 11,166 4,695 -34.6% -72.5%
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Insurance Profit 3,081 - NMF 1,856 1,225 - NMF 51.5%
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
Other Operating
Non-Interest Income
and Insurance
Profit 63,283 44,771 41.3% 28,611 34,672 26,840 6.6% -17.5%
--------------------------- ------- ------- -------- ------- ------- ------- -------- -------
1H 2017 to 1H 2016 Comparison
Total other operating non-interest income and insurance profit
increased by GEL 18.5 million, or by 41.3% YoY, to GEL 63.3 million
in 1H 2017. This increase was mainly driven by a GEL 17.3 million
or 61.8% increase in net gains less losses from trading in foreign
currencies and foreign exchange translations mainly driven by
increased trade volume. The rise is also due to a GEL 3.1 million
increase in insurance profit and a GEL 0.9 million increase in gain
from sale of investment properties. The increase across these
items, was largely offset by a GEL 8.8 million drop in net gains
less losses from disposal of investment securities available for
sale due to one-off gain from sale of investment security in 2Q
2016. The Bank Republic's estimated contribution in total other
operating non-interest income was GEL 14.1 million or 22.2% , out
of which GEL 7.6 million was related to gains less losses from
trading in foreign currencies and foreign exchange
translations.
2Q 2017 to 2Q 2016 Comparison
Total other operating non-interest income and insurance profit
increased by GEL 1.8 million or by 6.6% YoY, to GEL 28.6 million in
2Q 2017. This increase was mainly driven by the GEL 9.8 million or
72.7% increase in gains less losses from trading in foreign
currencies and foreign exchange translations mainly driven by
increased trade volume, and GEL 1.9 million increase in insurance
profit. This effect was largely offset by GEL 8.8 million decrease
in gains less losses from disposal of investment securities
available for sale due to one-off case mentioned above. The Bank
Republic's estimated contribution was GEL 5.0 million or 17.4%, out
of which GEL 3.6 million was related to gains less losses from
trading in foreign currencies and foreign exchange
translations.
2Q 2017 to 1Q 2017 Comparison
On a QoQ basis, total other operating non-interest income and
insurance profit contracted by GEL 6.1 million, or by 17.5%,
primarily driven by the GEL 7.5 million decrease in other operating
income related to the gain on sale of Credit Info shares and fair
value adjustments on the Bank Republic loan portfolio in 1Q 2017.
This effect was slightly offset by a GEL 1.0 million or 4.7%
increase in gains less losses from trading in foreign currencies
and foreign exchange translations.
Provision for
Impairment
In thousands of 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
GEL in YoY QoQ
%
------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Provision for
Loan Impairment -40,367 -25,277 59.7% -23,444 -16,922 -12,211 92.0% 38.5%
Provision for
Impairment of
Investments in
Finance Lease -129 -111 16.5% -97 -31 74 NMF NMF
Provision for/(Recovery
of Provision)
Performance Guarantees
and Credit Related
Commitments 1,546 -2,076 -174.5% 1,454 92 -1,047 NMF NMF
Provision for
Impairment of
Other Financial
Assets -4,425 -1,194 NMF -3,628 -797 -1,145 NMF NMF
Impairment of
Investment Securities
Available for
Sale - -11 -100.0% - - - -100.0% NMF
Total Provision
Charges for Impairment -43,375 -28,669 51.3% -25,717 -17,658 -14,329 79.5% 45.6%
------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Operating Income
after Provisions
for Impairment 367,200 272,323 34.8% 181,377 185,823 141,550 28.1% -2.4%
------------------------- -------- -------- -------- -------- -------- -------- -------- -------
Cost of Risk 1.1% 1.1% 0.0% 1.3% 0.9% 1.1% 0.2% 0.4%
------------------------- -------- -------- -------- -------- -------- -------- -------- -------
1H 2017 to 1H 2016 Comparison
In 1H 2017, total provision charges increased by GEL 14.7
million to GEL 43.4 million, compared to 1H 2016, mainly driven by
the increased charges on loans by GEL 15.1 million, while cost of
risk on loans was stable amounting to 1.1%. A GEL 3.2 million
increase in provision for impairment of other financial assets,
related to one of the debtors of the bank, was offset by a GEL 3.6
million decrease in provision for performance guarantees and credit
related commitments, related to the overall improvement in the
corporate book performance.
2Q 2017 to 2Q 2016 Comparison
In 2Q 2017, total provision charges increased by GEL 11.4
million to GEL 25.7 million compared to 2Q 2016. The increase is
mainly caused by the increase in charges on loans by GEL 11.2
million. A GEL 2.5 million increase in provision for impairment of
other financial assets, related to one of the debtors of the bank,
was offset by a GEL 2.5 million decrease in provision for
performance guarantees and credit related commitments.
In 2Q 2017, the cost of risk on loans was 1.3%, compared to 1.1%
in 2Q 2016.
2Q 2017 to 1Q 2017 Comparison
On a QoQ basis, total provision increased by a GEL 8.1 million,
amounting to GEL 25.7 million. Provision charges on loans increased
by GEL 6.5 million, which was mainly driven by the GEL exchange
rate appreciation in 1Q 2017; without currency effect provision
charges on loans would have been broadly stable. A GEL 2.8 million
increase in provisions for other financial assets also contributed
to increase in total provision charges. This increase was partially
offset by the GEL 1.4 million decrease in provision charges for
performance guarantees and credit related commitments.
The cost of risk on loans amounted to 1.3%, compared to 0.9% in
1Q 2017, without the currency effect cost of risk would have been
Bank broadly stable.
Further details on asset quality are available under Balance
Sheet Discussion section.
Operating Expenses
In thousands of 1H'17 1H'16 Change 2Q'17 1Q'17 2Q'16 Change Change
GEL in YoY QoQ
%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Staff Costs 102,375 69,473 47.4% 54,838 47,538 35,301 55.3% 15.4%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Provisions for
Liabilities and
Charges -2,495 - NMF -2,400 -95 - NMF NMF
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Depreciation and
Amortization 17,523 13,610 28.8% 8,919 8,605 7,042 26.6% 3.6%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Professional services 5,825 16,807 -65.3% 2,410 3,415 10,106 -76.2% -29.4%
Advertising and
marketing services 6,797 4,846 40.3% 3,737 3,060 2,923 27.9% 22.1%
Rent 11,589 8,397 38.0% 5,753 5,836 4,056 41.8% -1.4%
Utility services 3,020 2,422 24.7% 1,302 1,717 1,102 18.2% -24.2%
Intangible asset
enhancement 4,781 3,700 29.2% 2,567 2,214 1,821 41.0% 16.0%
Taxes other than
on income 2,812 2,492 12.9% 1,301 1,511 1,329 -2.1% -13.9%
Communications
and supply 1,801 1,505 19.7% 1,015 786 750 35.5% 29.2%
Stationary and
other office expenses 2,240 1,633 37.2% 1,140 1,100 790 44.3% 3.6%
Insurance 1,976 1,270 55.6% 1,446 530 665 117.4% 173.0%
Security services 999 881 13.5% 483 517 481 0.3% -6.5%
Premises and equipment
maintenance 2,697 1,269 112.6% 1,054 1,644 682 54.4% -35.9%
Business trip
expenses 907 876 3.6% 543 365 523 3.7% 48.8%
Transportation
and vehicles maintenance 798 642 24.3% 381 416 328 16.1% -8.4%
Charity 417 486 -14.2% 145 271 215 -32.4% -46.4%
Personnel training
and recruitment 727 509 42.9% 323 404 275 17.4% -20.0%
Write-down of
current assets
to fair value
less costs to
sell -183 52 NMF -126 -57 122 NMF 119.6%
Loss on disposal
of Inventory 1,186 537 121.0% 231 955 252 -8.4% -75.9%
Loss on disposal
of investment
properties 385 - NMF 385 - - NMF NMF
Loss on disposal
of premises and
equipment 171 74 130.9% 48 123 34 42.4% -61.3%
Impairment of
intangible assets 1,850 19 NMF 1,850 - - NMF NMF
Gains/(losses) - - NMF - - - NMF NMF
on initial recognition
of assets at rates
above/below market
Acquisition costs 825 - NMF 518 307 - NMF 68.9%
Gross Change in
IBNR 391 - NMF 170 221 - NMF -23.1%
Other 6,435 3,171 102.9% 4,897 1,537 1,571 NMF NMF
Administrative
and Other Operating
Expenses 58,446 51,586 13.3% 31,573 26,873 28,026 12.7% 17.5%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Operating Expenses 175,850 134,668 30.6% 92,929 82,920 70,369 32.1% 12.1%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Profit before
Tax 191,350 137,655 39.0% 88,447 102,903 71,181 24.3% -14.0%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Income Tax Expense -14,936 1,582 NMF -8,590 -6,345 9,359 -191.8% 35.4%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Profit for the
Period 176,415 139,237 26.7% 79,857 96,558 80,540 -0.8% -17.3%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
Cost to Income 42.8% 44.7% -1.9% 44.9% 40.8% 45.1% -0.2% 4.1%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
ROE 21.5% 22.5% -1.0% 18.9% 24.2% 25.5% -6.6% -5.3%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
ROA 3.3% 4.2% -0.8% 3.0% 3.7% 4.9% -1.9% -0.7%
---------------------------- -------- -------- ------- ------- -------- ------- -------- -------
1H 2017 to 1H 2016 Comparison
Total operating expenses excluding one-offs and the Bank
Republic estimated contribution effect amounted to GEL 138.1
million, up by 15.4%, or GEL 18.4 million, YoY. This increase was
driven by a GEL 13.7 million increase in staff costs, mainly
related to the expanded business scale and performance associated
with the Bank Republic integration, as well as GEL 5.6 million rise
in administrative and other operating expenses.
The one-off costs in 1H 2016 were GEL 15.0 million related to
Premium Listing, while in 1H 2017 one-off costs of GEL 9.5 million
were related to the Bank Republic integration, out of which GEL 6.4
million is attributable to administrative and other operating
expenses and GEL 3.1 million - to staff costs.
The Bank Republic estimated contribution amounted to GEL 28.3
million, or 20.5%, of total operating expenses which was mainly
related to staff costs in the amount of GEL 16.1 million and to
administrative and other operating expenses, in the amount of GEL
9.8 million. Total operating expense including one-offs and the
Bank Republic estimated contribution effect was GEL 175.8
million.
As a result, the cost to income ratio stood at 40.5% (42.8% with
one-offs) in 1H 2017, compared to 41.0% (44.7% with one-offs) in 1H
2016.
2Q 2017 to 2Q 2016 Comparison
In 2Q 2017 total operating expenses excluding one-offs and the
Bank Republic estimated contribution effect were GEL 67.2 million,
up by GEL 5.9 million, or 9.6% YoY. This increase was due to a GEL
6.0 million increase in staff costs, mainly related to the expanded
business scale and performance, and a GEL 1.7 million increase in
administrative and other operating expenses. This increase was
partially offset by a GEL 2.4 million reversal of provision related
to liabilities and charges.
The one-off costs in amount of GEL 9.1 million in 2Q 2016 were
related to Premium Listing, while one-off costs in 2Q 2017 amounted
to GEL 7.6 million, out of which GEL 3.1 million is attributable to
staff costs and the rest GEL 4.6 million - to administrative and
other operating expenses.
Bank Republic estimated contribution to total operating expenses
is an addition of GEL 18.1 million, mainly driven by a GEL 10.4
million increase in staff costs and by a GEL 6.4 million increase
in administrative and other operating expenses. Total operating
expense including one-offs and the Bank Republic estimated
contribution effect amounted to GEL 92.9 million.
As a result, the cost to income ratio was 41.2% (or 44.9% with
the one-off effect) in 2Q 2017, compared to 41.7% in 2Q 2016 (or
45.1% with one-offs).
2Q 2017 to 1Q 2017 Comparison
On a QoQ basis, total operating expenses excluding one-off
increased by GEL 4.2 million, or 5.2%, compared to 1Q 2017, mostly
due to a GEL 4.2 million increase in staff costs mainly related to
performance of the business. QoQ increase in administrative and
other operating expenses, in the amount of GEL 2.0 million, was
offset by a reversal of provision related liabilities and charges
in the amount of GEL 2.4 million in 2Q 2017.
In 1Q 2017, the Bank Republic integration costs were related to
administrative and other operating expense and amounted to GEL 1.9
million, while in 2Q the Bank Republic integration costs were
related to staff costs, in the amount of GEL 3.1million, and the
administrative and other operating costs, in the amount of GEL 4.6
million.
Total operating expenses including the Bank Republic integration
cost were GEL 92.9 million. As a result, the cost to income ratio
stood at 41.2% (44.9% with one-offs), up by 4.1 pp to 39.8% in 1Q
2017 (40.8% with one-offs).
Balance Sheet Discussion
In millions of GEL Jun-17 Mar-17 Jun-16 Change Change
QoQ YoY
---------------------------- ------- ------- ------- ------- -------
Cash, Due from Banks
and Mandatory Cash
Balances with NBG 2,192 1,753 981 25.0% 123.4%
Loans and Advances
to Customers (Net) 7,174 6,918 4,521 3.7% 58.7%
Financial Securities 1,007 813 636 23.9% 58.4%
Fixed and Intangible
Assets & Investment
Property 479 481 367 -0.4% 30.6%
Other Assets 429 397 268 7.9% 60.1%
Total Assets 11,281 10,363 6,772 8.9% 66.6%
---------------------------- ------- ------- ------- ------- -------
Due to Credit Institutions 2,314 2,112 791 9.5% 192.5%
Customer Accounts 6,666 6,071 4,270 9.8% 56.1%
Debt Securities in
Issue 24 24 16 -1.1% 46.4%
Subordinated Debt 390 345 283 13.1% 37.9%
Other Liabilities 196 130 97 51.3% 101.7%
Total Liabilities 9,590 8,682 5,457 10.5% 75.7%
---------------------------- ------- ------- ------- ------- -------
Total Equity 1,691 1,681 1,315 0.6% 28.6%
---------------------------- ------- ------- ------- ------- -------
Assets
As of 30 June 2017, TBC Bank's total assets amounted to GEL
11,280.8 million, up by GEL 4,508.6 million, or 66.6%, YoY. The
rise was mainly due to the increase in gross loans to customers by
the GEL 2,675.3 million, or 56.8%, (by GEL 1,449.2 or 30.8%
increase without the Bank Republic estimated contribution effect).
In addition, the YoY increase in total assets resulted from a GEL
1,210.9 million, or 123.4%, increase in cash due from banks and
mandatory cash balances with NBG and a GEL 371.4 million or 58.4%
rise in financial securities, largely attributable to the Bank
Republic estimated contribution effect.
On a QoQ basis, total assets increased by GEL 918.2 million, or
8.9%, mainly due to increased cash, due from banks and mandatory
cash balances with the NBG by GEL 438.5 million, or 25.0% ,
increased net loans by GEL 256.1 million or 3.7% and increased
financial assets by GEL 194.2 million or 23.9% . The liquid assets
to liability ratio stood at 33.3%, compared to 28.8% as of 30 June
2016 and 29.5% as of 31 March 2017.
As of 30 June 2017, the gross loan portfolio amounted to GEL
7,386.4 million, up by GEL 2,675.3 million or 56.8% YoY (up by GEL
1,449.2 or 30.8% increase without the Bank Republic estimated
contribution effect) and by GEL 265.4 million or 3.7% QoQ. Gross
loans denominated in foreign currency accounted for 60.8% of the
total, compared to 66.2% as of 30 June 2016 and 61.4% as of 31
March 2017. As of 30 June 2017, NPLs stood at 3.4%, compared to
4.7% and 3.4% as of 30 June 2016 and 31 March 2017, respectively.
The NPLs provision coverage ratio stood at 84.3% (219.3% including
the collateral), compared to 85.6% as of 30 June 2016 and 84.6% as
of 31 March 2017.
Asset Quality
Foreign Currency Income Linked Borrowers
30-June-17 31-Mar-17*
------------ ---------------------- ----------------------
Segments FC share FC linked FC share FC linked
income income
borrowers borrowers
share share
------------ --------- ----------- --------- -----------
Retail 50.4% 25.6% 50.1% 24.1%
Consumer 21.3% 21.0% 20.9% 19.6%
Mortgage 83.0% 27.0% 85.1% 25.4%
Corporate 74.9% 51.3% 79.6% 57.9%
MSME 66.3% 17.0% 67.5% 16.6%
Total Loan
Portfolio 60.8% 34.4% 62.8% 38.9%
------------ --------- ----------- --------- -----------
(Based on internal estimates)
* Figures without Bank Republic
PAR 30(1) by Segments
and Currencies
Par 30 Jun-17 Mar-17 Jun-16
------------- -------------------- -------------------- --------------------
GEL FC Total GEL FC Total GEL FC Total
Corporate 0.4% 1.6% 1.3% 0.3% 1.6% 1.2% 0.0% 1.3% 1.1%
Retail 3.1% 2.2% 2.7% 2.7% 2.4% 2.6% 2.9% 3.4% 3.2%
MSME 2.3% 3.9% 3.4% 1.9% 4.0% 3.3% 1.4% 3.3% 2.8%
Total 2.5% 2.4% 2.4% 2.1% 2.5% 2.4% 2.2% 2.6% 2.4%
------------- ----- ----- ------ ----- ----- ------ ----- ----- ------
(1) loans overdue by more than 30 days to gross loans
Total
Total PAR 30 stood at 2.4% unchanged on YoY and QoQ
basis.
Retail Segment
Retail segment PAR 30 decreased by 0.5 pp YoY, which
was caused by improved performance of mortgage book
and stayed broadly stable on QoQ.
Corporate
Corporate segment PAR 30 increased by 0.2 pp YoY, but
remained unchanged on QoQ basis.
MSME
The MSME segment PAR 30 increased by 0.6 pp YoY due
to several borrowers but stayed unchanged QoQ.
NPLs
NPLs Jun-17 Mar-17 Jun-16
----------- -------------------- -------------------- --------------------
GEL FC Total GEL FC Total GEL FC Total
Corporate 0.3% 5.0% 3.8% 0.7% 5.2% 4.1% 1.7% 8.3% 7.1%
Retail 2.4% 3.0% 2.7% 2.1% 2.9% 2.5% 2.1% 4.3% 3.2%
MSME 2.0% 5.9% 4.6% 2.5% 5.4% 4.5% 1.5% 5.6% 4.5%
Total 1.9% 4.4% 3.4% 1.9% 4.3% 3.4% 1.9% 6.1% 4.7%
----------- ----- ----- ------ ----- ----- ------ ----- ----- ------
Total
Total NPLs stood at 3.4% down by 1.3 pp on YoY basis
and unchanged QoQ. The YoY decrease was mainly driven
by improved performance of the corporate book.
Retail Segment
Retail segment NPLs decreased by 0.5 pp YoY, which was
caused by improved performance of mortgage loans and
increased by 0.2 pp QoQ.
Corporate
Corporate segment NPLs decreased by 3.3 pp YoY, which
was due to recovery of several NPL borrowers and write
off of one large borrower in 1Q 2017 which was almost
fully provisioned. On QoQ basis NPLs decreased by 0.3
pp driven by repayment of several NPL borrowers.
MSME
The MSME segment NPLs increased by 0.1 pp YoY and QoQ.
NPLs
Coverage
NPLs
Coverage Jun-17 Mar-17 Jun-16
Exc. Incl. Exc. Incl. Exc. Incl.
Collateral Collateral Collateral Collateral Collateral Collateral
----------- ----------- ----------- ----------- ----------- ----------- -----------
Corporate 59.7% 273.0% 69.2% 271.0% 86.3% 230.8%
Retail 126.8% 211.5% 121.4% 207.6% 110.2% 195.9%
MSME 53.6% 174.9% 54.4% 170.9% 50.0% 166.3%
Total 84.3% 219.3% 84.6% 217.4% 85.6% 205.3%
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
NPL coverage and collateral coverage ratios stayed broadly
stable at 84% and 219% respectively.
Liabilities
As of 30 June 2017, TBC Bank's total liabilities amounted to GEL
9,590.3 million, up by 75.7% YoY and by 10.5% QoQ. The YoY growth
of GEL 4,133.0 million was primarily due to a GEL 2,396.6 million,
or 56.1%, increase in customer deposits (GEL 1,847.1 million or
43.3% increase without the Bank Republic estimated contribution
effect). Total liabilities also grew due to the increase in amounts
due to credit institutions by GEL 1,522.6 million and following a
rise in subordinated debt by GEL 107.3 million. All these increases
in liabilities largely resulted from the Bank Republic estimated
contribution effect.
On a QoQ basis, total liabilities increased by GEL 908.3
million, or 10.5%, primarily due to the GEL 595.6 million, or 9.8%,
increase in customer deposits, due to liquidity needs. This mainly
resulted from the growth in corporate deposits. A GEL 201.2
million, or 9.5%, rise in amounts due to credit institutions
increased contributed to the growth of total liabilities.
Liquidity
The Bank's liquidity ratio, as defined by the NBG, stood at
34.2% as of 30 June 2017, compared to 33.3% and 29.4% as of 30 June
2016 and 31 March 2017, respectively.
Total Equity
As of 30 June 2017, TBC's total equity amounted to GEL 1,690.5
million, up from GEL 1,314.9 million as of 30 June 2016, and from
GEL 1,680.5 million as of 31 March 2017. YoY change in equity was
mainly due to net profit contribution of GEL 335.4 million, which
was offset by a GEL 74.8 million (consisting of GEL 66.7 million
Cash based and GEL 8.1 million Share based) dividend distribution
(gross of tax). QoQ change was primarily due to net profit, which
increased total equity by GEL 79.9 million, which was largely
offset by a GEL 74.8 million dividend distribution.
Regulatory Capital
As of 30 June 2017, the Bank's Basel II/III Tier 1 and Total
Capital Adequacy Ratios (CAR) stood at 10.8% and 14.6%,
respectively, compared to 12.6% and 15.7% as of 30 June 2016, and
11.3% and 14.9% as of 31 March 2017. The minimum capital
requirements set by the NBG for Basel II/III Tier 1 and Total
Capital Adequacy Ratios are 8.5% and 10.5%, respectively.
The Bank's Basel II/III tier 1 capital amounted to GEL 1,282.9
million, compared to GEL 999.2 million as of 30 June 2016 and GEL
1,115.2 million as of 31 March 2017. The Bank's Basel II/III total
capital amounted to GEL 1,732.8 million, compared to GEL 1,241.5
million as of 30 June 2016 and GEL 1,472.7 million as of 31 March
2017. Risk weighted assets were GEL 11,866.0 million as of 30 June
2017, up by GEL 3,953.5 million YoY and up by GEL 1,987.9 million
QoQ.
QoQ Tier 1 and total capital increased by GEL 167.7 million
mainly due to the Bank Republic integration effect and net profit
which was partially reduced due to the disbursement of dividends.
Bank Republic integration effect was comprised of a release in
regulatory capital deductions from significant investments in the
capital of financial subsidiaries, which was partially offset by
the increase in goodwill, as well as a decrease in retained
earnings related to IFRS vs NBG accounting difference. Additional
increase in total capital with the amount of GEL 92.4 million, was
related to the increase in subordinated loans, general reserves and
Bank Republic merger effect on Tier 2.
QoQ risk weighed assets increased by 1,987.9 million due to
addition of Bank Republic's risk weighted assets as well as organic
growth of the bank's loan book.
Results by Segments and Subsidiaries
The segment definitions are as per below:
-- Corporate - Legal Entities with an annual revenue of GEL 8.0
million or more or who have been granted a loan in an amount
equivalent to USD 1.5 million or more. Some other business
customers may also be assigned to this segment or transferred to
the MSME segment on a discretionary basis.
-- MSME (Micro, Small and Medium) - all business customers who
are not included in either Corporate and Retail segments; or Legal
Entities who have been granted a Pawn shop loan;
-- Retail - all non-business individual customers or individual
business customers who have been granted a loan in an amount
equivalent below USD 8.0 thousand. All individual customers are
included in retail deposits.
Businesses customers are all legal entities or individuals who
have been granted a loan for business purpose.
Income Statement by Segments
1H'17 Retail MSME Corporate Corp.Centre Total
------------------------------------- --------- -------- ---------- ------------ ------------
Interest Income 256,428 89,182 93,144 48,913 487,667
Interest Expense -57,945 -4,960 -45,507 -87,181 -195,592
Net Transfer Pricing -33,850 -24,924 7,984 50,789 -
Net Interest Income 164,633 59,299 55,621 12,522 292,074
------------------------------------- --------- -------- ---------- ------------ ------------
Fee and Commission Income 67,482 9,428 12,110 699 89,719
Fee and Commission Expense -26,982 -3,841 -3,243 -436 -34,502
Net fee and Commission Income 40,500 5,587 8,867 263 55,217
------------------------------------- --------- -------- ---------- ------------ ------------
Insurance Profit - - - 3,081 3,081
------------------------------------- --------- -------- ---------- ------------ ------------
Gains Less Losses from Trading
in Foreign Currencies 10,065 15,674 17,888 -236 43,392
Foreign Exchange Translation
Gains Less Losses/(Losses
Less Gains) - - - 2,037 2,037
Net Losses from Derivative
Financial Instruments - - - -38 -38
(Losses Less Gains)/Gains - - - - -
Less Losses from Disposal
of Investment Securities
Available for Sale
Other Operating Income 6,134 617 4,045 3,438 14,234
Share of profit of associates - - - 577 577
Other Operating Non-Interest
Income and Insurance Profit 16,200 16,292 21,933 8,858 63,283
------------------------------------- --------- -------- ---------- ------------ ------------
Provision for Loan Impairment -55,286 -7,210 22,129 - -40,367
(Provision)/Recovery of
Provision for Liabilities,
Charges and Credit Related
Commitments 108 552 886 - 1,546
Recovery of Provision/(Provision)
for Impairment of Investments
in Finance Lease - - - -129 -129
(Provision)/Recovery of
Provision for Impairment
of other Financial Assets 14 -107 -410 -3,922 -4,425
Recovery of Impairment/(Impairment) - - - - -
of Investment Securities
Available for Sale
Profit before G&A Expenses
and Income Taxes 166,170 74,412 109,026 17,592 367,200
------------------------------------- --------- -------- ---------- ------------ ------------
Staff Costs -63,933 -16,106 -12,840 -9,496 -102,375
Depreciation and Amortization -14,010 -2,332 -712 -469 -17,523
Provision for Liabilities
and Charges - - - 2,495 2,495
Administrative and Other
Operating Expenses -37,924 -7,478 -3,639 -9,404 -58,446
Operating Expenses -115,867 -25,917 -17,191 -16,875 -175,850
------------------------------------- --------- -------- ---------- ------------ ------------
Profit before Tax 50,303 48,495 91,834 717 191,350
------------------------------------- --------- -------- ---------- ------------ ------------
Income Tax Expense -6,225 -6,681 -13,909 11,879 -14,936
Profit for the Year 44,078 41,815 77,925 12,596 176,415
------------------------------------- --------- -------- ---------- ------------ ------------
Portfolios by Segments
In thousands of GEL Jun-17 Mar-17 Jun-16
---------------------------------------------------------- ---------- ------------ ----------
Loans and Advances to Customers
Consumer 1,919,788 1,859,865 1,200,659
Mortgage 1,744,421 1,736,302 931,980
Pawn 35,648 33,985 35,361
Retail 3,699,858 3,630,152 2,168,000
Corporate 2,057,644 1,922,615 1,431,937
MSME 1,628,934 1,568,270 1,111,192
Total Loans and Advances to Customers
(Gross) 7,386,435 7,121,036 4,711,130
Less: Provision for Loan Impairment -212,129 -202,791 -190,104
Total Loans and Advances to Customers
(Net) 7,174,305 6,918,245 4,521,026
---------------------------------------------------------- ---------- ------------ ----------
Customer Accounts
Retail Deposits 3,707,854 3,543,911 2,639,960
Corporate Deposits 2,057,651 1,733,114 982,282
MSME 900,908 793,808 647,536
Total Customer Accounts 6,666,413 6,070,833 4,269,778
---------------------------------------------------------- ---------- ------------ ----------
Retail Banking
As of 30 June 2017, retail loans stood at GEL 3,699.9 million
(or GEL 2,845.8 million without Bank Republic estimated
contribution effect), up by GEL 1531.9 million, or 70.7%, YoY (up
by GEL 677.8 million or 31.3% excluding Bank Republic estimated
contribution effect). Retail loans increased by GEL 69.7 million,
or 1.9%, QoQ, mainly related to a temporary focus on integration
with the Bank Republic. As of 30 June 2017, TBC Bank's retail loans
accounted for 40.8% market share of total individual loans. As of
30 June 2017, foreign currency loans represented 50.4% of the total
retail loan portfolio.
In the reporting period, retail deposits increased to GEL
3,707.9 million (or to GEL 3446.5 million without Bank Republic
estimated contributed effect), up by GEL 1,067.9 million or 40.5%
YoY (or up by GEL 806.6 million or 30.6% without Bank Republic
estimated contribution effect). QoQ retail deposits grew by GEL
163.9 million or 4.6%, and accounted for 40.2% market share of
total individual deposits. The increase in retail deposits was
mainly attributable to the increase in current deposits by 54.1%
YoY and 6.0% QoQ. Term deposits accounted for 56.5% of the total
retail deposit portfolio as of 30 June 2017, while foreign currency
deposits represented 83.8% of the total retail deposit
portfolio.
In 1H 2017, retail loan yields and deposit rates stood at 14.0%
and 3.2% respectively, and the segment's cost of risk on loans was
3.0%. The retail segment contributed 25.0%, or GEL 44.1 million, to
the TBC's total net income in 1H 2017.
Corporate Banking
As of 30 June 2017, corporate loans amounted to GEL 2,057.6
million (or GEL 1,836.2 million excluding Bank Republic estimated
effect), up by GEL 625.7 million or 43.7% YoY (GEL 404.3 million or
28.2% without Bank Republic estimated loan portfolio). QoQ growth
in corporate loans accounted for GEL 135.0 million or 7.0%. Foreign
currency loans accounted for 74.9% of the total corporate loan
portfolio. Market share in legal entities increased by 1.5 pp QoQ
due to attracting new blue chip customers; Coca-cola, McDonald's
and Nikora (the leading food producer in Georgia).
As of the same date, corporate deposits totaled GEL 2,057.7
million (or GEL 1,830.1 million without the Bank Republic effect),
up by GEL 1,075.4 million or 109.5% (up by GEL 847.8 million or
86.3% without Bank Republic estimated deposit portfolio) YoY.
Corporate deposits grew by GEL 324.5 million or 18.7% QoQ. Foreign
currency corporate deposits represented 51.5% of the total
corporate deposit portfolio.
In 1H 2017, corporate loan yields and deposit rates stood at
9.4% and 5.0%, respectively. In the same period, the cost of risk
on loans was -2.2%. In terms of profitability, the corporate
segment's net profit reached GEL 77.9 million, or 44.2% of the
Bank's total net income.
MSME Banking
As of 30 June 2017, MSME loans amounted to GEL 1,628.9 million
(GEL 1,478.4 million excluding Bank Republic estimated loan
portfolio), up by GEL 517.7 million or 46.6% YoY (up by GEL 367.2
million or 33.0% without Bank Republic estimated effect). MSME loan
portfolio growth was GEL 60.7 million or 3.9% QoQ. Foreign currency
loans accounted for 66.3% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 900.9 million
(GEL 840.3 million excluding Bank Republic estimated deposit
portfolio), up by GEL 253.4 million or 39.1% (up by GEL 192.8
million or 29.8% without the Bank Republic effect) YoY and by GEL
107.1 million or 13.5% QoQ. Foreign currency MSME deposits
represented 53.4% of the total MSME deposit portfolio.
In 1H 2017, MSME loan yields and deposit rates stood at 11.2%
and 1.2%, respectively while the cost of risk on loans was 0.9%. In
terms of profitability, net profit for the MSME segment amounted to
GEL 41.8 million, or 23.7%, of TBC's total net income.
Annexes
Subsidiaries of TBC Bank Group PLC[7]
Ownership Country Year Industry Total Assets
/ voting of incorporation (after
% or acquisition elimination)
as
of
30
June
2017
---------- ----------- ------------------ ------------- --------------------
Subsidiary Amount % in
GEL'000 TBC
Group
------------------ ---------- ----------- ------------------ ------------- ----------- -------
United Financial
Corporation Card
JSC 98.7% Georgia 1997 processing 6,633 0.06%
TBC Capital
LLC 100.0% Georgia 1999 Brokerage 1,934 0.02%
TBC Leasing
JSC 99.6% Georgia 2003 Leasing 128,549 1.14%
Non-banking
TBC Kredit credit
LLC 75.0% Azerbaijan 2008 institution 35,621 0.32%
Banking System
Service Company Information
LLC 100.0% Georgia 2009 services 623 0.01%
TBC Pay LLC 100.0% Georgia 2009 Processing 26,431 0.23%
Real
estate
Mali LLC 100.0% Georgia 2011 management 197 0.00%
Real Estate Real
Management estate
Fund JSC 100.0% Georgia 2010 management 23 0.00%
TBC Invest PR and
LLC 100.0% Israel 2011 marketing 103 0.00%
Financial
JSC TBC Bank 98.7% Georgia 2016 sector 11,067,517 98.10%
TBC Insurance 100.0% Georgia 2016 Insurance 11,252 0.10%
LTD Merckhali Operating
Pirveli 100.0% Georgia 2009 Leasing - 0.00%
------------------ ---------- ----------- ------------------ ------------- ----------- -------
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance Sheet
In thousands of GEL Jun-17 Mar-17 Jun-16
-------------------------------------------- ----------- ----------- ----------
Cash and cash equivalents 1,219,108 697,118 344,205
Due from other banks 41,096 151,780 12,256
Mandatory cash balances with National
Bank of Georgia 931,654 904,487 624,502
Loans and advances to customers
(Net) 7,174,305 6,918,246 4,521,026
Investment securities available
for sale 608,083 428,138 242,450
Investment in subsidiaries 1021 537 -
Repurchase receivables 9,961 - 42,347
Investment securities held to maturity 389,036 384,756 350,885
Investments in finance leases 96,329 88,627 77,043
Investment properties 93,501 96,064 69,984
Goodwill 28,657 28,658 2,726
Intangible assets 65,034 63,906 45,954
Premises and equipment 320,139 320,659 250,654
Other financial assets 88,852 82,254 75,692
Deferred tax asset 3,407 3,406 2,326
Current income tax prepayment 7,719 10,058 10,871
Insurance and reinsurance receivables 5,386 3,414 -
Other assets 197,533 180,479 99,304
TOTAL ASSETS 11,280,822 10,362,587 6,772,226
-------------------------------------------- ----------- ----------- ----------
LIABILITIES
Due to Credit Institutions 2,313,550 2,112,360 790,971
Customer accounts 6,666,413 6,070,833 4,269,778
Current income tax liability 273 2,902 406
Debt Securities in issue 24,106 24,376 16,460
Deferred income tax liability 2,138 3,727 7,323
Provisions for liabilities and
charges 10,733 15,528 11,537
Other financial liabilities 119,948 53,690 49,272
Subordinated debt 390,070 344,841 282,815
Insurance contracts liabilities 1,943 342 -
Other liabilities 61,014 52,354 28,177
Items in suspense 128 1,090 562
TOTAL LIABILITIES 9,590,315 8,682,043 5,457,302
-------------------------------------------- ----------- ----------- ----------
EQUITY
Share capital 1,601 1,581 19,623
Share premium 706,580 677,211 408,649
Retained earnings 1,051,974 1,055,011 798,443
Group reorganisation reserve -162,167 -162,167 -
Share based payment reserve 4,753 21,303 17,469
Revaluation reserve for premises 70,045 70,460 70,038
Revaluation reserve for available-for-sale
securities -1,105 -5,088 1,452
Cumulative currency translation
reserve -7,695 -7,636 -6,916
TOTAL EQUITY 1,663,985 1,650,677 1,308,759
-------------------------------------------- ----------- ----------- ----------
Non-controlling interest 26,522 29,867 6,165
TOTAL EQUITY 1,690,506 1,680,544 1,314,924
-------------------------------------------- ----------- ----------- ----------
TOTAL LIABILITIES AND EQUITY 11,280,822 10,362,587 6,772,226
-------------------------------------------- ----------- ----------- ----------
Consolidated Statement of Profit
or Loss and Other Comprehensive
Income
In thousands of GEL 1H'17 1H'16 2Q'17 1Q'17 2Q'16
----------------------------------------- --------- --------- --------- -------- --------
Interest income 487,667 341,026 249,898 237,769 166,167
Interest expense -195,592 -124,488 -100,157 -95,436 -58,512
Net interest income 292,074 216,538 149,742 142,333 107,654
----------------------------------------- --------- --------- --------- -------- --------
Fee and commission income 89,719 62,228 45,219 44,500 32,681
Fee and commission expense -34,502 -22,546 -16,478 -18,023 -11,296
Net Fee and Commission Income 55,217 39,683 28,741 26,477 21,385
----------------------------------------- --------- --------- --------- -------- --------
Insurance profit 3,081 - 1,856 1,225 -
----------------------------------------- --------- --------- --------- -------- --------
Gains less losses from trading
in foreign currencies 43,392 29,085 22,246 21,146 14,466
Foreign exchange translation gains
less losses 2,037 -999 991 1,046 -1,007
Gains less losses/(losses less
gains) from derivative financial
instruments -38 -472 -35 -3 -109
(Losses less gains) / Gains less
losses from disposal of investment
securities available for sale - 8,795 - - 8,795
Share of profit of associates 577 - 484 93 -
Other operating income 14,234 8,363 3,069 11,166 4,695
Other operating non-interest income 60,202 44,771 26,755 33,447 26,840
----------------------------------------- --------- --------- --------- -------- --------
Provision for loan impairment -40,367 -25,277 -23,444 -16,922 -12,211
Provision for impairment of investments
in finance lease -129 -111 -97 -31 74
Provision for/ (recovery of provision)
performance guarantees and credit
related commitments 1,546 -2,076 1,454 92 -1,047
Provision for impairment of other
financial assets -4,425 -1,194 -3,628 -797 -1,145
Impairment of investment securities - -11 - - -
available for sale
Operating income after provisions
for impairment 367,200 272,323 181,377 185,823 141,550
----------------------------------------- --------- --------- --------- -------- --------
Staff costs -102,375 -69,473 -54,838 -47,538 -35,301
Depreciation and amortisation -17,523 -13,610 -8,919 -8,605 -7,042
Provision for liabilities and
charges 2,495 - 2,400 95 -
Administrative and other operating
expenses -58,446 -51,586 -31,573 -26,873 -28,026
Operating expenses -175,850 -134,668 -92,929 -82,920 -70,369
----------------------------------------- --------- --------- --------- -------- --------
Profit before tax 191,350 137,655 88,447 102,903 71,181
----------------------------------------- --------- --------- --------- -------- --------
Income tax expense -14,936 1,582 -8,590 -6,345 9,359
Profit for the period 176,415 139,237 79,857 96,558 80,540
----------------------------------------- --------- --------- --------- -------- --------
Other Comprehensive income:
----------------------------------------- --------- --------- --------- -------- --------
Items that may be reclassified
subsequently to profit or loss:
----------------------------------------- --------- --------- --------- -------- --------
Revaluation 2,615 3,145 -4,022 1,407 -2,549
----------------------------------------- --------- --------- --------- -------- --------
Gains less losses reclassified
to profit or loss upon disposal - -8,853 - - 8,853
----------------------------------------- --------- --------- --------- -------- --------
Income tax recorded directly in
other comprehensive income - 1,401 - - -1,366
----------------------------------------- --------- --------- --------- -------- --------
Exchange differences on translation
to presentation currency -158 -325 62 96 302
----------------------------------------- --------- --------- --------- -------- --------
Items that will not be reclassified
to profit or loss:
----------------------------------------- --------- --------- --------- -------- --------
Revaluation of premises and equipment - - - - -
----------------------------------------- --------- --------- --------- -------- --------
Income tax recorded directly in
other comprehensive income -422 10,506 422 - -10,506
----------------------------------------- --------- --------- --------- -------- --------
Other comprehensive income for
the year 2,035 5,873 3,538 -1,503 5,265
----------------------------------------- --------- --------- --------- -------- --------
Total comprehensive income for
the year 178,450 145,110 83,395 95,055 85,806
----------------------------------------- --------- --------- --------- -------- --------
Profit attributable to:
----------------------------------------- --------- --------- --------- -------- --------
- Owners of the Bank 173,519 140,261 78,544 94,975 80,778
----------------------------------------- --------- --------- --------- -------- --------
- Non-controlling interest 2,895 -1,024 1,313 1,582 -237
----------------------------------------- --------- --------- --------- -------- --------
Profit for the period 176,415 139,237 79,857 96,558 80,540
----------------------------------------- --------- --------- --------- -------- --------
Total comprehensive income is
attributable to:
----------------------------------------- --------- --------- --------- -------- --------
- Owners of the Bank 175,523 146,133 82,082 93,473 86,043
----------------------------------------- --------- --------- --------- -------- --------
- Non-controlling interest 2,925 -1,024 1,313 1,582 -237
----------------------------------------- --------- --------- --------- -------- --------
Total comprehensive income for
the year 178,448 145,110 83,395 95,055 85,806
----------------------------------------- --------- --------- --------- -------- --------
Consolidated Statements of Cash Flows
In thousands of GEL As of 30-Jun-2017 As of 30-Jun-2016
--------------------------------------- -------------------------------------- ------------------
Cash flows from operating activities
Interest received 468,391 328,321
Interest paid (195,640) (123,338)
Fees and commissions received 89,329 62,899
Fees and commissions paid (34,802) (22,739)
Insurance premium received 7,153
Insurance claims paid -3,497
Income received from trading
in foreign currencies 43,392 29,085
Other operating income received 8,334 5,516
Staff costs paid (102,975) (72,219)
Administrative and other operating
expenses paid (53,075) (46,369)
Income tax (paid) / refunded (21,785) (10,873)
Cash flows from operating activities
before changes in operating assets
and liabilities 204,825 150,283
--------------------------------------- -------------------------------------- ------------------
Net change in operating assets
Due from other banks and mandatory
cash balances with the National
Bank of Georgia 3,043 (143,663)
Loans and advances to customers (499,822) (173,777)
Investment in finance lease (8,531) (1,943)
Other financial assets 1,007 (2,071)
Other assets 1,103 1,694
Net change in operating liabilities
Due to other banks (223,686) 128,868
Customer accounts 610,920 156,872
Other financial liabilities (8,600) 1,967
Other liabilities and provision
for liabilities and charges (211) (303)
Net cash from operating activities 80,048 117,927
--------------------------------------- -------------------------------------- ------------------
Cash flows from investing activities
Acquisition of investment securities
available for sale (401,304) (73,382)
Proceeds from redemption at maturity
of investment securities available
for sale 218,981 111,500
Acquisition of bonds carried
at amortised cost (141,849) (171,391)
Proceeds from redemption of bonds
carried at amortised cost 131,693 179,799
Acquisition of premises, equipment
and intangible assets (32,262) (18,437)
Disposal of premises, equipment
and intangible assets 1,506 315
Proceeds from disposal of investment
property 2,570 1,119
Acquisition of subsidiaries,
net of cash acquired (350)
Net cash used in investing activities (221,015) 29,523
--------------------------------------- -------------------------------------- ------------------
Cash flows from financing activities
Proceeds from other borrowed
funds 1,019,147 18,699
Redemption of other borrowed
funds (640,409) (459,423)
Proceeds from subordinated debt 52,990 18,131
Redemption of subordinated debt (13,644)
Proceeds from debt securities
in issue 2,823
Redemption of debt securities
in issue (4,636)
Dividends paid (1,193)
Issue of ordinary shares 31 (54,560)
Net cash from / (used in) financing
activities 433,389 (495,433)
--------------------------------------- -------------------------------------- ------------------
Effect of exchange rate changes
on cash and cash equivalents (18,494) (28,159)
--------------------------------------- -------------------------------------- ------------------
Net increase / (decrease) in
cash and cash equivalents 273,928 (376,142)
--------------------------------------- -------------------------------------- ------------------
Cash and cash equivalents at
the beginning of the year 945,180 720,347
--------------------------------------- -------------------------------------- ------------------
Cash and cash equivalents at
the end of the year 1,219,108 344,205
--------------------------------------- -------------------------------------- ------------------
2Q 2017 Bank Republic Financial Results Based on Internal
Estimates
Bank Republic Profit and Loss
In thousands of GEL 2Q 2017
------------------------------------ --------
Interest income 44,977
Interest expense 14,111
Net interest income 30,867
------------------------------------ --------
Net F&C income 1,753
------------------------------------ --------
Card operations -364
Settlement transactions 1,281
Guarantees and letters of credit 735
Other 101
Other non-interest income 4,984
------------------------------------ --------
FX gain/losses 3,678
Other 1,305
Operating income 37,603
------------------------------------ --------
Operating expenses 18,078
------------------------------------ --------
Staff costs 10,443
Depreciation and amortization 1,253
Administrative and other operating
expenses 6,382
Operating profit 19,525
------------------------------------ --------
Bank Republic Loan Portfolio
In thousands of GEL as of 30 June
2017
------------------------------ --------------
Total gross loans 1,226,064
------------------------------ --------------
Retail 854,104
Corporate 221,449
MSME 150,511
Bank Republic Deposit Portfolio
In thousands of GEL as of 30 June
2017
--------------------------------- --------------
Total deposits 549,553
--------------------------------- --------------
Retail 261,335
Corporate 227,596
MSME 60,622
Key Ratios
Average Balances
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, which
were used by the Management for monitoring and control
purposes.
Key Ratios
Ratios (based on monthly 1H'17 1H'16 2Q'17 1Q'17 2Q'16
averages, where applicable)
------------------------------ ------- ------- ------- ------- -------
ROE 21.5% 22.5% 18.9% 24.2% 25.5%
ROA 3.3% 4.2% 3.0% 3.7% 4.9%
Pre-provision ROE 26.9% 27.1% 25.1% 28.7% 30.0%
Pre-provision ROA 4.1% 5.0% 3.9% 4.4% 5.8%
Cost to Income 42.8% 44.7% 44.9% 40.8% 45.1%
Cost of Risk 1.1% 1.1% 1.3% 0.9% 1.1%
NIM 6.7% 7.8% 6.8% 6.6% 7.9%
Risk Adjusted NIM 5.3% 6.5% 5.3% 5.1% 6.7%
Loan Yields 12.1% 13.5% 12.4% 11.9% 13.3%
Risk Adjusted Loan
Yields 10.7% 12.1% 10.9% 10.5% 12.1%
Deposit rates 3.4% 3.5% 3.5% 3.4% 3.4%
Yields on interest
Earning Assets 11.1% 12.3% 11.3% 11.1% 12.2%
Cost of Funding 4.4% 4.7% 4.5% 4.4% 4.5%
Spread 6.7% 7.6% 6.8% 6.7% 7.7%
PAR 90 to Gross Loans 1.6% 1.5% 1.6% 1.5% 1.5%
NPLs to Gross Loans 3.4% 4.7% 3.4% 3.4% 4.7%
NPLs coverage 84.3% 85.6% 84.3% 84.6% 85.6%
Provision Level to
Gross Loans 2.9% 4.0% 2.9% 2.8% 4.0%
Related Party Loans
to Gross Loans 0.1% 0.1% 0.1% 0.1% 0.1%
Top 10 Borrowers to
Total Portfolio 9.1% 9.0% 9.1% 8.3% 9.0%
Top 20 Borrowers to
Total Portfolio 13.0% 14.4% 13.0% 12.2% 14.4%
Net Loans to Deposits
plus IFI Funding 90.6% 96.0% 90.6% 97.2% 96.0%
Net Stable Funding
Ratio 128.7% 112.0% 128.7% 106.8% 112.0%
Leverage 6.7 5.2 6.7 6.2 5.2
Hypothetical Tier 1
CAR 14.4% 17.6% 14.4% 15.0% 17.6%
Hypothetical Total
CAR 19.4% 21.3% 19.4% 19.8% 21.3%
Regulatory Tier 1 CAR 10.8% 12.6% 10.8% 11.3% 12.6%
Regulatory Total CAR 14.6% 15.7% 14.6% 14.9% 15.7%
------------------------------ ------- ------- ------- ------- -------
Ratio definitions
1. Return on average total equity (ROE) equals net income
attributable to owners divided by monthly average of total
shareholders 'equity attributable to the PLC's equity holders for
the same period; Pre-provision ROE excludes all provision charges.
Annualized where applicable.
2. Return on average total assets (ROA) equals net income of the
period divided by monthly average total assets for the same period.
Pre-provision ROE excludes all provision charges. Annualised where
applicable.
3. 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).
4. Cost of risk equals provision for loan impairment divided by
monthly average gross loans and advances to customers. Annualized
where applicable.
5. Net interest margin (NIM) is net interest income divided by
monthly average interest-earning assets. Annualised where
applicable. Interest-earning assets include investment securities
excluding corporate shares, net investment in finance lease, net
loans, amount due from credit institutions. The latter excludes all
items from cash & cash equivalents, excludes EUR mandatory
reserves with NBG which currently has negative interest, and
includes other earning items from due from banks
6. Risk Adjusted Net interest margin is NIM minus Cost of Risk
without one -offs and currency effect
7. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers. Annualised where applicable.
8. Risk Adjusted Loan yield is loan yield minus cost of risk
without one-offs and currency effect
9. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits. Annualised
where applicable.
10. Yields on interest earning assets equal total interest
income divided by monthly average interest earning assets.
Annualized where applicable.
11. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities. Annualised where
applicable.
12. 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).
13. 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.
14. 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.
15. NPLs coverage ratio equals total loan loss provision divided
by the NPL loans.
16. NPLs coverage with collateral ratio equals loan loss
provision plus total collateral amount of NPL loans (excluding
third party guarantees) discounted at 30-50% depending on segment
type divided by the NPL loans.
17. Provision level to gross loans equals loan loss provision
divided by the gross loan portfolio for the same period.
18. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
19. Top 10 borrowers to total portfolio equals total loan amount
of top 10 borrowers divided by the gross loan portfolio.
20. Top 20 borrowers to total portfolio equals total loan amount
of top 20 borrowers divided by the gross loan portfolio.
21. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
22. Net stable funding ratio equals available amount of stable
funding divided by required amount of stable funding as defined in
Basel III. NSFR ratio for 1H'17 and 2Q'17 is calculated per updated
internal methodology in line with Basel 2014 guidelines.
23. Liquidity coverage ratio equals high-quality liquid assets
divided by total net cash outflow amount as defined in Basel III
(calculated according to NBG standards).
24. Leverage equals total assets to total equity.
25. Hypothetical ratios - hypothetical ratio based on the Basel
III guidelines except for calculation of credit equivalent amounts
for interest rate and foreign exchange related contracts, which are
calculated based on original exposure method being in line with NBG
Pillar 1 requirements. Calculations are made for TBC Bank
stand-alone, based on local standards.
26. Regulatory tier 1 CAR equals tier I capital divided by total
risk weighted assets, both calculated in accordance with the pillar
1 requirements of NBG Basel II/III standards. The reporting started
from the end of 2012. Calculations are made for TBC Bank
stand-alone, based on local standards.
27. Regulatory total CAR equals total capital divided by total
risk weighted assets, both calculated in accordance with the pillar
1 requirements of NBG Basel II/III standards. The reporting started
from the end of 2012. Calculations are made for TBC Bank
stand-alone, based on local standards.
Exchange Rates
To calculate the Balance Sheet items' QoQ growth without
currency exchange rate effect, we used USD/GEL exchange rate of
2.4452 as of 31 March 2017. For calculations of YoY growth without
currency exchange rate effect, we used USD/GEL exchange rate of
2.3423 as of 30 June 2016. The USD/GEL exchange rate as of 30 June
2017 equaled 2.4072. For P&L items growth calculations without
currency effect, we used the average USD/GEL exchange rate for the
following periods: 2Q 2017 of 2.4187, 1Q 2017 of 2.6029, 2Q 2016 of
2.2127.
Segment Definition & Bank Republic Contribution
Assumption
Segment Definitions:
Corporate: legal entities with an annual revenue of GEL 8.0
million or more or who have been granted a loan in an amount
equivalent to USD 1.5 million or more. Some other business
customers may also be assigned to the corporate segment or
transferred to MSME on a discretionary basis;
MSME: business customers who are not included in either
corporate or retail segments; or legal entities who have been
granted a Pawn shop loan;
Retail: non-business individual customers or individual business
customers who have been granted a loan in an amount equivalent
below USD 8 thousand; all individual customers are included in
retail deposits.
Corporate Centre and Other Operations: comprise the Treasury,
other support and back office functions, and non-banking
subsidiaries of the Group;
Business customers: legal entities or individuals who have been
granted a loan for business purpose.
Bank Republic Contribution Assumptions:
To make YoY analyses more comparable, the bank has segregated
Bank Republic contribution after the merger on 8th of May 2017,
which is based on direct income and cost attribution calculation
and where not practicable, based on established allocation rules,
appropriate management assumptions and estimates.
The management has estimated Bank Republic contribution effect
within the Group's financial results based on the following
rationale:
-- Loan and deposit portfolio as well as the interest income and
expense from these portfolios have been calculated for all existing
clients of Bank Republic having outstanding exposure for the
reporting period, as well as for all new clients attracted through
the former branches of Bank Republic
-- For the remaining items of B/S and P&L where the direct
attribution is not practical, the management has used the
allocation based on Bank Republic loan and deposit books
contribution to each operating segment
Additional Disclosures
1) Earnings per Share
In GEL 2Q 2017
Earnings per share for profit attributable
to the owners of the Group:
-------------------------------------------- --------
- Basic earnings per share 3.31
- Diluted earnings per share 3.26
-------------------------------------------- --------
Source: IFRS Consolidated
2) Sensitivity Scenario
10% Currency
Devaluation
Sensitivity Scenario 30-Jun-17 Effect
----------------------------- ---------- --------------
NIM* -0.1%
Technical Cost of Risk +0.2%
----------------------------- ---------- --------------
Regulatory Total Capital 1,733 1,768
Regulatory Capital adequacy 0.67% - 0.73%
ratios tier 1 and total
capital decrease by
----------------------------- ---------- --------------
(*) Linear depreciation is assumed for NIM sensitivity
analysis
Source: IFRS statements and Management Figures
3) FC details for Selected P/L Items
Selected P&L Items 2Q
2017 FC % of Respective Totals
---------------------------- --------------------------
Interest Income 46%
Interest Expense 55%
Fee and Commission Income 37%
Fee and Commission Expense 57%
Administrative Expenses 22%
---------------------------- --------------------------
Source: IFRS statements and Management figures
4) GEL Refinance Rate and Libor Linked B/S Items 30 June
2017
GEL Refinance GEL -182 GEL 579
Rate Gap m Libor Gap m
---------------------------- ---------------- ---------------------- ----------------
GEL % share GEL % share
m in m in
totals totals
---------------------------- ------ -------- ---------------------- ------ --------
Assets 1,529 14% Assets 1,880 16%
---------------------------- ------ -------- ---------------------- ------ --------
Securities with
fixed yield(<=1y)* 488 48% Nostro** 195 56%
---------------------- ------ --------
Securities with
floating yield 101 10% NBG Reserves** 932 76%
---------------------- ------ --------
Loans with Floating
yield 829 11% NBG Deposits 125 10%
---------------------- ------ --------
Reserves in NBG 90 7% Libor Loans 598 8%
---------------------- ------ --------
Interbank loans& Interest
Deposits & Repo 21 4% Rate Options 32
---------------------------- ------ -------- ---------------------- ------ --------
Liabilities 1,602 18%
---------------------------- ------ -------- ---------------------- ------ --------
Current accounts*** 682 10% Liabilities 1,301 14%
---------------------------- ------ -------- ---------------------- ------ --------
Saving accounts*** 150 3% Senior Loans 1,003 46%
---------------------------- ------ --------
Refinancing Loan Subordinated
of NBG 540 24% Loans 3298 76%
---------------------------- ------ --------
Interbank Loans
&Deposits & Repo 79 67%
---------------------------- ------ --------
IFI Borrowings 152 12%
---------------------------- ------ --------
(*) 61% of the less than 1 year securities are maturing in 6
months
(**) Income on NBG reserves and Nostros are calculated as
benchmark minus margin whereby benchmarks are correlated with
Libor. According to NBG regulation from March, 2016 it is possible
to apply negative interest rates on NBG reserves and correspondent
accounts, therefore these two items close the gap in case of both
upward and downward movement of Libor rate.
(***) The Bank considers that current and saving deposits
promptly react to interest rate changes on the market (within 1
month prior notification)
Source: IFRS Group Data
5) Yields and
Rates
Yields and Rates 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 1Q'16
----------------------- ------ ------ ------ ------ ------ ------
Loan yields 12.4% 11.9% 13.8% 13.5% 13.3% 13.6%
Retail loan
yields GEL 19.7% 20.0% 23.3% 22.8% 22.7% 22.5%
Retail loan
yields FX 9.0% 9.1% 10.0% 9.9% 10.3% 11.1%
Retail Loan
Yields 14.2% 13.9% 15.8% 16.0% 16.3% 16.5%
Corporate loan
yields GEL 10.6% 10.0% 9.6% 12.4% 13.7% 13.2%
Corporate loan
yields FX 9.5% 8.8% 12.5% 10.6% 8.8% 9.3%
Corporate Loan
Yields 9.8% 9.1% 11.8% 11.0% 9.7% 10.1%
MSME loan yields
GEL 13.4% 13.3% 14.3% 14.2% 14.8% 15.1%
MSME loan yields
FX 10.4% 10.1% 11.1% 10.6% 10.8% 11.6%
MSME Loan Yields 11.4% 11.0% 12.0% 11.7% 11.9% 12.5%
Deposit rates 3.5% 3.4% 3.3% 3.3% 3.4% 3.6%
Retail deposit
rates GEL 3.9% 3.9% 3.7% 4.0% 4.1% 3.8%
Retail deposit
rates FX 3.0% 3.2% 3.4% 3.5% 3.6% 3.9%
Retail Deposit
Yields 3.1% 3.3% 3.4% 3.6% 3.7% 3.9%
Corporate deposit
rates GEL 8.5% 8.7% 7.5% 7.3% 7.5% 6.7%
Corporate deposit
rates FX 2.1% 1.7% 2.0% 1.5% 1.3% 1.7%
Corporate Deposit
Yields 5.2% 4.9% 4.4% 4.2% 4.0% 4.1%
MSME deposit
rates GEL 2.2% 2.0% 1.7% 2.1% 2.5% 2.4%
MSME deposit
rates FX 0.6% 0.5% 0.6% 0.4% 0.4% 0.7%
MSME Deposit
Yields 1.3% 1.1% 1.1% 1.1% 1.2% 1.3%
Yields on Securities 7.8% 8.1% 8.1% 8.3% 9.1% 9.4%
----------------------- ------ ------ ------ ------ ------ ------
Source: IFRS Consolidated
6) Risk Adjusted
Yields
Risk-adjusted 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 1Q'16
Yields
-------------------- ------ ------ ------ ------ ------ ------
Loan yields 10.9% 10.5% 12.6% 12.2% 12.1% 12.2%
Retail Loan
Yields 10.9% 10.6% 13.0% 13.3% 13.5% 13.4%
Corporate Loan
Yields 11.3% 11.1% 14.3% 12.5% 11.1% 12.2%
MSME Loan Yields 10.5% 9.4% 9.6% 9.9% 10.7% 10.2%
-------------------- ------ ------ ------ ------ ------ ------
Source: IFRS Consolidated
Cost 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 1Q'16
of Risk
------------ ------ ------ ------ ------ ------ ------
Retail 3.1% 2.9% 3.5% 2.6% 2.8% 3.1%
Corporate -1.6% -2.9% -6.4% -1.6% -1.7% -2.3%
MSME 0.7% 1.1% 3.3% 1.6% 1.2% 2.0%
Total 1.3% 0.9% 0.6% 1.1% 1.1% 1.2%
------------ ------ ------ ------ ------ ------ ------
Source: IFRS Consolidated
7) Loan Quality per NBG
Sub-Standard, Doubtful and Loss (SDL) Loans Ratio per NBG
Jun-17 Mar-17 Dec-16 Sep-16 Jun-16
------------------------- ------- ------- ------- ------- ------------
SDL Loans as % of Gross
Loans 3.3% 4.1% 4.3% 5.1% 6.9%
------------------------- ------- ------- ------- ------- ------------
Source: NBG
8) Cross Sell Ratio[8] and Number Active Products
Jun-17 Mar-17 Dec-16 Sep-16
--------------------------- ------- ------- ------- -------
Cross Sell Ratio 3.67 3.57 3.68 3.55
Number of Active Products
(in millions) 3.78 3.16 3.14 2.83
--------------------------- ------- ------- ------- -------
Source: Management figures
9) Diversified Deposit Base
Status: monthly income >=2,000 GEL or loans/deposits
>=20,000 GEL
VIP: deposit >=100,000 USD as well as on discretionary basis;
WM: >=100,000 USD as well as on discretionary basis
Wealth Management includes UHNW and HNW non-resident clients
30 June 2017 Volume of Deposits Number of Deposits
------------------- ------------------- -------------------
MASS 37% 93.9%
STATUS 27% 5.5%
VIP 23% 0.4%
Wealth Management
for non-resident
clients 13% 0.2%
------------------- ------------------- -------------------
Source: Management figures
10) Loan Concentration
Jun-17 Mar-17 Dec-16 Sep-16 Jun-16
------------------ ------- ------- ------- ------- -------
Top 20 Borrowers
as % of total
portfolio 13.0% 12.2% 11.3% 13.4% 14.4%
Top 10 Borrowers
as % of total
portfolio 9.1% 8.3% 7.6% 8.6% 9.0%
Related Party
Loans as % of
total portfolio 0.1% 0.1% 0.1% 0.1% 0.1%
------------------ ------- ------- ------- ------- -------
Source: IFRS consolidated
11) Sales breakdown (for products offered through
Multichannel)
Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Dec-15
------------------ ------- ------- ------- ------- ------- ------- -------
Digital Channels 22% 24% 26% 24% 23% 27% 21%
------------------ ------- ------- ------- ------- ------- ------- -------
Call Center 27% 28% 29% 33% 32% 23% 28%
------------------ ------- ------- ------- ------- ------- ------- -------
Branches 51% 49% 45% 43% 46% 50% 51%
------------------ ------- ------- ------- ------- ------- ------- -------
Source: Management figures
12) Number of Transactions in Digital Channels
2Q
17 1Q 17 4Q 16 3Q 16 2Q 16
------------------------- ------- ------ ------ ------ ------
Internet banking
number of transactions
(in thousands) 2,166 2,098 2,280 1,828 1,797
------------------------- ------- ------ ------ ------ ------
Mobile banking
number of transactions
(in thousands) 3,163 2,622 2,532 1,814 1,485
------------------------- ------- ------ ------ ------ ------
POS number of
transactions (in
thousands) 11,328 9,636 8,508 7,146 6,671
------------------------- ------- ------ ------ ------ ------
POS volume of
transactions (in
mln GEL) 447 394 376 319 276
------------------------- ------- ------ ------ ------ ------
* Data includes e-commerce and excludes transactions at POS
terminals in TBC Bank's branches
Source: Management figures
13) Penetration Ratios of Digital Channels
Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Dec-15
------------------- ------- ------- ------- ------- ------- ------- -------
IB&MB Penetration
Ratio 33% 34% 37% 34% 34% 32% 32%
------------------- ------- ------- ------- ------- ------- ------- -------
Mobile Banking
Penetration
Ratio 25% 25% 24% 20% 19% 17% 15%
------------------- ------- ------- ------- ------- ------- ------- -------
Source: Management figures
The mid-term targets for digital channels are to broaden the
penetration ratio of internet or mobile banking users to above 45%
from the current level of 33% and to increase the mobile banking
penetration ratio to above 35% from the current level of 25%.
14) Net outflow of borrowed funds
Subordinated and Senior Loans' Principal Amount
Outflow by Year (GEL million)
--------------------------------------------------------------------
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
127 480 265 325 241 100 139 27 66 145
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Source: Management figures, Revolving non IFI loans from NBG are
excluded
15) Portfolio Breakdown by
Collateral Types as of 30-Jun-17
Cash Cover 2%
------------------------------ -----
Gold 4%
------------------------------ -----
Inventory 7%
------------------------------ -----
Real Estate 64%
------------------------------ -----
Third Party Guarantees 6%
------------------------------ -----
Other 1%
------------------------------ -----
Unsecured 16%
------------------------------ -----
Source: IFRS Consolidated
16) Loan to Value by Segments as of 30-Jun-17
Retail Corporate MSME Total
------------ ----------------- -------- ---------
42% 45% 44% 44%
17) IFRS 9 project update
The Bank is in the process of implementing IFRS 9 standard,
which will come into effect starting from 1st January 2018.
Relevant Change Areas for the Bank
-- Key areas of IFRS 9 are classification and measurement,
impairment and hedge accounting
-- Based on the Bank's Business model no significant changes are
expected from classification and measurement and hedge
accounting
-- Key changes come from the impairment part, where the standard
moved from incurred credit loss to expected credit loss model
IFRS 9 Project
-- The Bank started the IFRS 9 implementation project in June
2016
-- The project is carried out with support from Deloitte
-- In parallel to methodology and model development, the Bank is
in the process of respective software implementation
High Level Expected Impact
-- During the project's gap analysis phase, a high level impact
assessment was performed, which applied simplified approaches e.g.
for macro factors incorporation
-- Based on the results of the impact assessment,, calculated on
31 March 2017 loan portfolio, the provision level for the portfolio
is expected to increase in the range of 0.2-0.5% of the loan book
(6-18% of provision level). However, the final impact may be
different, considering the Bank's finalised models and
methodologies and the macro outlook
-- The expected impact is in the lower range of market
expectations, due to the fact that the Bank already applies a
conservative approach under the IAS 39 provisioning methodology
-- Based on EBA's report from November 2016, which covers sample
of 50 financial institutions in Europe, the estimated increase of
provisions compared to the current levels of provisions under IAS
39 is on average 18%, with upper limit being 30% for 86% (75th
percentile) of respondents. The assessment is done on a high level
applying simplified approaches, with one macro scenario being one
of the simplifications
-- No impact is expected on capital adequacy ratios, which are
calculated based on local standards, and profit and loss statement
as the amount will directly affect equity.
18) Income tax guidance
Our effective Income tax guidance for 2017-2018 is in the range
of 6-9% due to changes in Georgian Tax Code in relation to
corporate income tax. Beginning from 2017, reinvested profit will
become tax-free for all companies except for financial services
companies, which will benefit from 2019.
19) NBG Loan Larisation Program
The NBG Larisation program consist of two parts:
-- One-time conversion program. On 11 January 2017, in order to
ease the increased debt service burden caused by the exchange rate
fluctuation, the government of Georgia approved a subsidised,
one-time program on the voluntary conversion of US
dollar-denominated bank loans of individuals into lari loans. The
program started on 17 January and lasted for two months. As a
result, loans of up to USD 80 million were converted in GEL through
this Program
-- Issue of small loans in local currency only. Based on an
amendment to the civil code, from 15 January 2017, individuals will
only be able to borrow amounts up to GEL 100,000 in the national
currency
Loans of up to USD 80 million were converted in GEL through the
Larisation Program:
% Amounts in
million GEL
--------------------- ------ -------------
TBC + Bank Republic 55.1% 44.1
Bank of Georgia 33.1% 26.5
VTB 6.1% 4.9
Other 5.7% 4.6
Around 5,600 loans were converted during this program:
% Number of
Loans
--------------------- ------ ----------
TBC + Bank Republic 55.0% 3,080
Bank of Georgia 29.6% 1,658
VTB 9.6% 538
Other 5.8% 325
--------------------- ------ ----------
Total amount of loans issued below GEL 100,000:
In Absolute amounts 1H 2016 1H 2017
----------------------------------- -------- --------
TBC Bank + Bank Republic 545 946
Share in Retail + MSME portfolio
with Bank Republic 12.4% 11.6%
Share in total portfolio
with Bank Republic 8.6% 16.6%
----------------------------------- -------- --------
* Data is given for retail
and MSME portfolios and excludes
credit cards and overdrafts
20) NBG Initiatives
Newly introduced Liquidity Coverage Ratio
NBG has introduced new liquidity requirements (NBG LCR) for
short-term liquidity risk management purposes, which is developed
under Basel III with additional constraints above Basel
requirements. This requirement will come into force starting from
September and will slightly increase the effective liquidity
requirements.
The Limits are defined for total and as well for both GEL and FC
currencies:
Limits Our performance (30 Jun 2017)
-- Total LCR>=100% 106%
-- GEL LCR>=75% 96%
-- FC LCR>=100% 113%
Together with the introduction of LCR, in order to improve
management of long-term liquidity, NBG plans to implement Net
Stable Funding Ratio (NSFR), which will void existing liquidity
requirement.
In 2016, the NBG initiated several measures to promote
larization and increase public trust in the domestic currency.
Within NBG LCR framework the national currency is treated
preferentially.
Newly introduced changes to RWA under Capital Adequacy
Framework
NBG has also introduced PTI and LTV ratio for retail loans which
will affect loans issued after 30 November 2017. The exposures
which are out of the defined range will be assigned higher risk
weights from normal 75-100% to higher 100-150%. These changes will
have negative effect on capital, however are expected to be
compensated through higher pricing of such loans. In addition, NBG
has also increased the group exposure limit from GEL 350,000 to GEL
2 million for the regulatory retail category.
Required PTI
Income Hedged Non-hedged
range borrowers borrowers
<1000 30% 25%
1,000 -
2,000 35% 30%
2,000 -
4,000 40% 35%
4,000 -
8,000 45% 40%
>8,000 50% 45%
Required LTV
Collateral GEL loans FX loans
type
Ordinary
liquid asset 80% 75%
High liquid
asset 90% 85%
Upcoming changes in the Capital Adequacy Framework
The NBG is reviewing the existing capital adequacy regulation
and is going to introduce certain changes. Currently these changes
are in draft form and are being discussed with the banks and other
stakeholders. Estimated introduction date is Q4 2017.
The summary of main changes:
-- Current capital requirement will be divided across Pillar 1
and Pillar 2 buffers to increase clarity and comparability
-- Capital conservation buffer currently incorporated in minimum
capital requirements will be separated
-- Systemic risk buffer will be introduced for systematically
important banks over 3 year period
-- Countercyclical capital buffer will be introduced and the
rate will be 0%
-- Additional loan portfolio concentration buffer will be
introduced under Pillar 2
-- Current conservative weighting for CICR will be replaced by
appropriate Pillar 2 buffer (Unhedged Currency Induced Credit Risk
Buffer)
-- GRAPE buffer defined by the supervisor will be applied based
on the bank specific risks
The exact requirements, as well as amount of the buffers and its
impact on the capital planning is not yet determined. Based on the
initial assessments the changes should not impact the growth and
dividend guidelines.
Principal Risks and Uncertainties
Risk management is a critical pillar of the Group's strategy and
in order to perform it effectively it is essential to identify
emerging risks and uncertainties. The following table presents the
principal risks that could adversely impact the Group's
performance, financial condition and future prospects. The Group's
performance may be affected by additional risks and uncertainties
other than the ones listed below and some yet unknown risks that
emerge in the future.
Principal risk Risk description Risk mitigation
-------------------------- -------------------------------------------------------------- --------------------------
The Group faces A significant Specific attention
currency induced share of the Group's is paid to
credit risk due loans (and by currency-induced
to the high dollarisation large of the total credit risk due
of the Group's portfolio. banking sector to the portfolio's
The risk of further loans in Georgia) high dollarisation.
depreciation of is denominated The vulnerability
GEL is one of the in currencies towards exchange
most significant other than GEL, rate depreciation
risks with negative particularly US is monitored on
impact on the portfolio Dollar. As of a frequent basis
quality. This is 30 June 2017 the in order to promptly
due to high dollarisation National Bank implement the
of the Group's balance of Georgia (hereafter action plan in
sheet. Unhedged NBG) reported case of need.
borrowers could that, 57.9% of Ability to withstand
suffer from increased total banking certain FX depreciation
debt burden when sector loans were is incorporated
their FX denominated denominated in into the credit
liabilities are foreign currencies. underwriting standards
amplified. As at the same which also include
date, 60.8% of applying significant
the Group's total currency devaluation
gross loans and buffers for the
advances to customers unhedged borrowers.
(before provision In addition, the
for loan impairment) Group holds significant
were denominated capital against
in foreign currencies. currency induced
The income of credit risk. Given
a number of customers the experience
is directly linked and knowledge
to built throughout
US Dollars via the recent currency
remittances, or volatility, the
exports in case Group is in a
of business borrowers, good position
and some customers to promptly mitigate
hedge their exposure emerging FX depreciation
through savings risks.
in US Dollars.
Nevertheless, Given more stable
customers may exchange rate
not be protected and improved operating
against significant environment, the
fluctuations of level of the Group's
the exchange rates non-performing
of the GEL against loan portfolio
the currency of decreased from
the loan. 4.7% in June 2016
to 3.4% in June
The GEL exchange 2017. The Group
rate has been maintains a reserve
mainly consistent coverage of 84%
with those of with cash and
Georgia's trading 219% in cash,
partners. It depreciated plus collateral.
against the US
Dollar by 10.5%
in 2016 and has
appreciated by
9.1% in first
half of 2017.
The NBG operates
effectively under
its inflation-targeting
framework. However,
GEL remains in
free float and
is exposed to
many internal
and external factors
that in some circumstances
could result in
devaluation against
the US Dollar.
-------------------------- -------------------------------------------------------------- --------------------------
The Group's performance As the Group operates To decrease the
may be compromised primarily in, vulnerability
by adverse developments and sources nearly to the economic
in the economic all of its revenue cycles and adverse
environment. from Georgia, economic developments,
The slowdown of its business, the Group identifies
economic growth financial condition and limits its
in Georgia will and results of exposure to cyclical
have an adverse operations are, industries within
impact on the repayment and will continue its risk appetite
capacity of the to be, highly framework.
borrowers and restrain dependent on the
their future investment general economic The Group has
and expansion plans. conditions in established a
These occurrences the country. macroeconomic
will be reflected monitoring process.
in the Group's portfolio During 2011-2016, This enables a
quality and the Georgian economy closely and recurrent
profitability, recorded an average observation of
and also impede real GDP growth the economic developments
the portfolio growth of 4.5% per annum. in Georgia, as
rates. Negative In H1 2017 the well as its neighbouring
macroeconomic growth of Georgian countries, and
developments economy accelerated to identify early
can compromise the from 2.7% in 2016 warning signals
Group's performance and reached 4.5%. indicating imminent
through different economic risks.
parameters such Georgian economy The given system
as higher unemployment is open, liberal, allows the Group
rates, increasing well diversified, to timely assess
retail sector default and reasonably significant economic
rates, falling property reformed. While and political
values, worsening it showed resilience occurrences and
loan collateralisation, during international analyse their
lower debt service or regional crises, implications for
capabilities of it is still exposed the loan portfolio.
companies suffering to many internal The identified
from decreasing and external developments. implications are
sales. These could result duly translated
The political and in lower growth into specific
economic instability or, in some severe action plans with
in the neighbouring circumstances, regards to reviewing
and main trading a contraction the underwriting
partner countries of the economy. standards, risk
negatively impacts appetite metrics
the economic outlook or limits including
of Georgia through limits per each
a worsening current of the most vulnerable
account industries.
(e.g. decreasing
exports, decreasing Additionally,
tourism inflows, the stress testing
lower remittances and scenario analysis
and foreign direct applied during
investments). the credit review
and portfolio
monitoring processes
enable the Group
to have an advance
evaluation of
the impact of
macroeconomic
shocks on the
business and the
portfolio.
Resilience towards
a changing macroeconomic
environment is
also incorporated
into credit underwriting
standards. As
such, borrowers
are expected to
withstand certain
adverse economic
developments through
prudent financials,
debt-servicing
capabilities and
conservative collateral
coverage.
-------------------------- -------------------------------------------------------------- --------------------------
The Group encounters The NBG sets the The Group scrutinises
the capital risk minimum regulatory an introduction
of not meeting the requirement for of the new requirements
minimum regulatory total capital and is in close
requirements that adequacy ratio discussions with
may compromise growth at 9.6% (Basel NBG. The exact
and strategic targets. I) and 10.5% (Basel requirements,
II/III). The Bank's as well as amount
The Bank is regulated capitalisation of
by the NBG. The stands at the buffers and
regulations and 14.7% and 14.6% its impact on
various terms of respectively as the capital planning
its funding and of 30 June 2017. is not yet determined.
other arrangements In terms of Tier Based on the initial
require compliance 1 capital, TBC assessments the
with certain capital Bank's capital changes should
adequacy ratio and adequacy ratio not impact the
other ratios. Local is 10.8% per Basel growth and dividend
regulatory requirements II/III and 9.6% guidelines.
are more conservative per Basel I, versus
than the current the minimum requirements As part of the
Basel standards. of 8.5% and 6.4% ongoing capital
In addition, NBG's respectively. management process,
proposed new capital The ratios are the Group undertakes
adequacy framework above the respective stress-testing
(discussed in this regulatory minimums and sensitivity
section) could increase and additional analysis to quantify
the risk and stress buffers extra capital
uncertainties set by the Bank. consumption under
related to the capital Basel I requirements different scenarios.
management process. will expire by Based on such
the end of 2017. analyses, the
Group holds extra
The NBG is reviewing capital buffers
the existing capital to steadily meet
adequacy regulation the existing minimum
and is going to regulatory requirements.
introduce certain Capital forecasts,
changes. Currently as well as the
these changes results of the
are in draft form stress tests and
and are being what-if scenarios,
discussed with are actively monitored
the banks and with the involvement
other stakeholders. of the Bank's
Estimated introduction Management Board
date is Q4 2017. (the "Management
The summary of Board") and its
main changes: risk committee
* Current capital requirement will be divided across to ensure prudent
Pillar 1 and Pillar 2 buffers to increase clarity and management and
comparability timely actions
when needed.
* Capital conservation buffer currently incorporated in With regards to
minimum capital requirements will be separated the changes in
PTI and LTV, the
Group expects
* Systemic risk buffer will be introduced for to compensate
systematically important banks over 3 year period negative capital
impact through
appropriate pricing
* Countercyclical capital buffer will be introduced and of such loans.
the rate will be 0%
* Additional loan portfolio concentration buffer will
be introduced under Pillar 2
* Current conservative weighting for CICR will be
replaced by appropriate Pillar 2 buffer (Unhedged
Currency Induced Credit Risk Buffer)
* GRAPE buffer defined by the supervisor will be
applied based on the bank specific risks
Finally, NBG has
also introduced
PTI and LTV ratio
for retail loans
which will affect
loans issued after
30 November 2017.
The exposures
which are out
of the defined
range will be
assigned higher
risk weights from
normal 75-100%
to higher 100-150%.
These changes
will have negative
effect on capital.
In addition, NBG
has also increased
the group exposure
limit from GEL
350,000 to GEL
2 million for
the regulatory
retail category.
-------------------------- -------------------------------------------------------------- --------------------------
The Group is exposed The Group's loan The Group constantly
to concentration portfolio is diversified, checks its concentrations
risk. with maximum exposure to single counterparties
Banks operating to a single industry as well as sectors
in developing markets (i.e. energy and and common risk
are typically exposed utility) standing drivers, and introduces
to both single name at 8.6%.. The limits for risk
and sector concentration share of top 20 mitigation. As
risks. The Group borrowers' exposure part of the Risk
has large individual decreased from Appetite Framework,
exposures to single 14.4% to 13.0% the Group limits
name borrowers. YoY. both name concentration
Their eventual default as well as sectorial
will entail increased concentrations.
credit losses and Any considerable
high impairment change in the
charges. The Group's economic or political
portfolio is well environment, in
diversified across Georgia or neighboring
sectors, resulting countries, will
in only a moderate trigger the Group's
vulnerability to review of the
sector concentration risk appetite
risks. However should criteria in order
exposure to common to mitigate emerging
risk drivers increase, risk concentrations.
the risks are expected Stringent monitoring
to amplify tools are in place
correspondingly. to ensure the
compliance with
the set limits.
In addition, the
Bank has dedicated
restructuring
teams to manage
weakened borrowers.
When it is deemed
necessary, clients
are transferred
to such teams
for a more efficient
handling and,
ultimately, to
limit resulting
credit risk losses.
According to the
Basel II Pillar
2 guidelines,
the Group has
developed a model
to estimate unexpected
losses from single
name borrowers
and sector concentration.
This model ensures
that the Group
remains adequately
capitalised towards
concentration
risks.
-------------------------- -------------------------------------------------------------- --------------------------
Liquidity risk is Throughout H1 The group is already
inherent in the 2017 the Group prepared for the
Group's operations. was in compliance new liquidity
While the Board with Risk Appetite requirement and
believes that the limits, as well as of June 30
Group currently as the minimum 2017 the Group
has sufficient financial liquidity requirements is compliant with
resources available set by the NBG. the newly introduced
to meet its obligations As of 30 June LCR requirement.
as they fall due, 2017, the net
liquidity risk is loan to deposits To properly manage
inherent in banking plus IFI funding liquidity, the
operations and can ratio stood group operates
be heightened by with time-tested
a number of factors. forecasting and
These include an at 90.6%, liquidity monitoring framework
coverage ratio[9] and holds appropriate
overreliance on, was at 352% and liquidity buffers.
or an inability, net stable funding The Group performs
to access a particular ratio was at 129%[10]. an outflow scenario
source of funding, analysis for both
changes in credit NBG has introduced normal and stress
ratings or market-wide new liquidity circumstances
phenomena, such requirements (NBG to make sure that
as, for example, liquidity coverage they can be met
the global financial ratio, "LCR") by the Group's
crisis that commenced for short-term liquid assets
in 2007. Access liquidity risk and cash inflows.
to credit for companies management purposes, The Group maintains
in emerging market which is developed diversified funding
is significantly under Basel III structure to manage
influenced by the with additional respective liquidity
level of investor constraints above risk.
confidence and, Basel requirements.
as such, any factors Furthermore, the
affecting investor Based on the new new framework
confidence (for framework, the both increases
example, a downgrade limits are defined the effective
in credit ratings, for total and liquidity requirement
central bank or as well for both and improves the
state interventions GEL and FC currencies liability structure
or debt restructurings as follows: through appropriate
in a relevant industry) liquidity requirement.
could influence * Total LCR>=100%
the price or availability As a part of liquidity
of funding for companies risk management
operating in any * GEL LCR>=75% framework the
of these markets. Group has a Liquidity
Contingency Plan
Although, the Group * FC LCR>=100% in place outlining
believes there is risk indicators
adequate liquidity for different
to withstand significant stress scenarios
withdrawals of customer This requirement and respective
deposits, but the will come into action plans.
unexpected and rapid force starting
withdrawal of a from September
substantial amount and will slightly
of deposits could increase the effective
have a material liquidity requirements.
adverse impact on
the Group's business, Together with
financial condition, the introduction
and results of operations of LCR, in order
and/or prospects. to improve management
of long-term liquidity,
In addition, NBG NBG plans to implement
introduced a new Net Stable Funding
liquidity management Ratio (NSFR),
framework described which will void
in this section, existing liquidity
which has increased requirement.
the effective liquidity
requirement for
the Group. While
the new requirement
decreases structural
liquidity risk through
more adequate framework,
it has increased
the risk of not
meeting minimum
liquidity requirement.
-------------------------- -------------------------------------------------------------- --------------------------
Any decline in the The majority of Still high level
Group's net interest Group's total of current margins,
income or net interest income derives continuous increase
margin could lead from net interest in fee and commission
to a reduction in income. Consequently, income and efforts
profitability. the Group's results in cost optimisation
The net interest of operations represents a safeguard
income accounts are affected by against margin
for the majority fluctuations in declines posing
of the Group's total its net interest profitability
income. Consequently, margin ("NIM"). concerns for the
fluctuations in In Q2 2017 the Group.
its net interest NIM stood at 6.8% Pricing framework
margin affect the down by 1.1 pp and profitability
results of operations. yoy and up by analysis assist
High competition 0.2 pp QoQ. The the Group in decision
on the local banking reduction in NIM making. In cases
sector could drive was driven by where loans are
interest rates down, the Group's proactive extended on fixed
compromising the decision to strengthen terms rather than
Group's profitability. the market position floating, the
At the same time, across all segments interest rate
the cost of funding and products in risk is adequately
is largely exogenous the anticipation translated into
to the Group and of falling yields price premiums,
is derived based on the market. safeguarding against
on both the national increasing interest
and international The Group tries rates.
markets. to close a direct
exposure to LIBOR The Group expects
Recent decrease and the local margins to decrease
in margins have refinancing rates in the medium
a negative contribution or, where this term. The decrease
to the Group's is not feasible, has been included
profitability. price them appropriately. in the forecast
Above mentioned As of 30 June which provides
new liquidity requirement 2017, GEL 1,880 the basis for
could have further million in assets the Group's guidance.
negative effect (17%) and GEL
on the margins and 1,301 million In addition, the
profitability of in liabilities Group expects
the Group. (14%) were floating, that the decreasing
related to the effect will be
LIBOR/ FED/ECB compensated in
(deposit facility) practice by increased
rates. During fee and commission
the same period income and decreased
GEL 1,529 million unit cost spent
of assets (14%) per transaction.
and GEL 1,711
million of liabilities
(18%) were floating
related to the
NBG's refinancing
rate.
-------------------------- -------------------------------------------------------------- --------------------------
The threat posed No major cyber-attack The Group actively
by cyber-attacks attempts have monitors, detects
has increased in targeted a Georgian and prevents risks
recent years and commercial banks arising from
it continues to in recent years. cyber-attacks.
grow. The risk of Nonetheless, the The Group's staff
potential cyber-attacks, Group's increasing monitors developments
which have become dependency on on both local
more sophisticated, IT systems increases and international
may lead to significant its exposure to markets to increase
security breaches. potential cyberattacks. awareness of emerging
Such risks change forms of cyber-attacks.
rapidly and require Intrusion Prevention
continued focus and DDoS protection
and investment. systems are in
place to protect
the Group from
external cyber-threats.
Security incident
and event monitoring
system in conjunction
with respective
processes and
procedures are
in place to handle
cyber-incidents
effectively. Processes
are continuously
updated and enhanced
in order to respond
to new potential
threats. The Data
Recovery Policy
is in place to
ensure business
continuity in
case of serious
cyber-attacks.
-------------------------- -------------------------------------------------------------- --------------------------
The Group is exposed The Bank is regulated The Group has
to regulatory risk. by the NBG. In established systems
The Group's activities addition to mandatory and processes
are highly regulated capital adequacy to ensure full
and thus face regulatory and liquidity regulatory compliance.
risk. The local ratios (please The dedicated
regulator, the National see capital and compliance department,
Bank of Georgia, liquidity risks), reporting directly
can increase the the NBG sets lending to the Chief Executive
prudential requirements limits and other Officer is the
across the whole economic ratios, primary responsible
sector as well as including, inter for the regulatory
for specific institutions alia, lending compliance. However,
within it. Therefore, ratios, and investment the compliance
the Group's profitability ratios. Under is embedded in
and performance the Georgian banking all levels of
may be compromised regulations, the the Bank. The
by an increased Bank is required, Group's Risks,
regulatory burden, among other things, Ethics and Compliance
including higher to comply with Committee is responsible
capital requirements. minimum reserve for the regulatory
In this context, requirements and compliance at
recent NBG initiatives mandatory financial the Board level.
are relevant, whereby, ratios and regularly In terms of banking
while these initiatives file periodic regulations as
improve risk profile reports. The Bank well as Georgia's
of the Group (though is also regulated taxation system,
mainly higher liquidity, by respective the Group is closely
better diversified tax code or other engaged with the
liability and stronger relevant laws regulator to ensure
capital position), in Georgia. Following that new procedures
they could negatively the Company's and requirements
impact Profitability, listing on the are discussed
growth and dividend London Stock Exchange's in detail before
plans of the group premium segment, their implementation.
if the changes are the Group became While the decisions
not properly reflected subject to increased made by the regulator
into the pricing. regulations from are beyond the
the UK Listing Group's control,
The group is also Authority. In significant regulatory
subject to certain addition to its changes are usually
UK, European or banking operations, preceded by a
global regulations the Group also consultative period
that increase the offers other regulated that allows all
regulation risk financial services lenders to provide
or the regulatory products, including feedback and adjust
uncertainty. leasing, insurance their business
and brokerage practice.
services. The
Group's current
operations in
Azerbaijan (through
TBC Kredit) are
required to comply
with the Azerbaijani
regulations. The
Group's operations
remain in full
compliance with
all relevant legislation
and regulations.
The Group is also
subject to financial
covenants in its
debt agreements
and is fully compliant
with all covenants.
.
-------------------------- -------------------------------------------------------------- --------------------------
Statement of Directors' Responsibilities
Each of the Directors (the names of whom are set out below)
confirm that to the best of their knowledge that:
-- The condensed consolidated interim financial statements have
been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European
Union;
-- The interim management report herein includes a fair review
of the information required by Disclosure Guidance and Transparency
Rules 4.2.7R and 4.2.8R namely:
o an indication of important events that have occurred during
the six months ended 30 June 2017 and their impact on the condensed
consolidated interim financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
o any related party transactions in the six months ended 30 June
2017 that have materially affected the financial position or
performance of TBC Bank during that period and any changes in the
related party transactions described in the last Annual Report that
could have a material effect on the financial position or
performance of TBC Bank in the six months ended 30 June 2017.
Signed on behalf of the Board by:
Vakhtang Butskhrikidze Giorgi Shagidze
CEO Deputy CEO, CFO
21 August 2017 21 August 2017
TBC Bank Group PLC Board
of Directors:
Chairman Deputy Chairman
Mamuka Khazaradze Badri Japaridze
Executive Directors Non-executive Directors
Vakhtang Butskhrikidze Nikoloz Enukidze (SID)
(CEO)
Giorgi Shagidze (CFO) Stefano Marsaglia
Nicholas Dominic Haag
Eric J. Rajendra
Stephan Wilcke
Unaudited Condensed Consolidated Interim Financial
Information
Contents
Review Report
Unaudited Condensed Consolidated Interim Statement of Financial
Position
....................................................................
53
Unaudited Condensed Consolidated Interim Statement of Profit or
Loss and Other Comprehensive Income....................54
Unaudited Condensed Consolidated Interim Statement of Changes in
Equity.....................................................................
56
Unaudited Condensed Consolidated Interim Statement of Cash
Flows................................................................................
57
Notes to the Unaudited Condensed Consolidated Financial
Statements................................................................58
Independent review report to TBC Bank Group plc
Report on the unaudited condensed consolidated interim financial
information
Our conclusion
We have reviewed TBC Bank Group plc's unaudited condensed
consolidated interim financial information (the "interim financial
statements") for the 6 month period ended 30 June 2017. Based on
our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in
all material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 30 June 2017;
-- the condensed consolidated statement of profit or loss and
other comprehensive income for the period then ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim financial statements are the responsibility of, and
have been approved by, the directors. The directors are responsible
for preparing the interim financial statements in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements based on our review. This report, including
the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial statements
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
PricewaterhouseCoopers LLP
Chartered Accountants
London
21 August 2017
Unaudited Condensed Consolidated Statements
of Financial Position
30 June 31 December
2017 2016
In thousands of GEL Note (Unaudited) (Audited)
-------------------------------- ---- ----------- -----------
Assets
Cash and cash equivalents 6 1,219,108 945,180
Due from other banks 7 41,096 24,725
Mandatory cash balances
with the National Bank of
Georgia 8 931,654 990,642
Loans and advances to customers 9 7,174,305 7,133,702
Investment securities available
for sale 618,044 430,703
Bonds carried at amortized
cost 389,036 372,956
Investments in subsidiaries
and associates 1,021 -
Investments in finance leases 96,329 95,031
Investment properties 93,502 95,615
Current income tax prepayment 7,719 7,430
Deferred income tax asset 3,407 3,511
Other financial assets 94,238 94,627
Other assets 197,533 171,263
Premises and equipment 10 320,139 314,032
Intangible assets 10 65,034 60,957
Goodwill 28,657 28,658
Total assets 11,280,822 10,769,032
Liabilities
Due to credit institutions 11 2,313,550 2,197,577
Customer accounts 12 6,666,413 6,454,949
Other financial liabilities 122,019 50,998
Current income tax liability 272 2,577
Debt securities in issue 24,106 23,508
Deferred income tax liability 2,138 5,646
Provisions for liabilities
and charges 13 10,733 16,026
Other liabilities 61,013 66,739
Subordinated debt 14 390,070 368,381
Total liabilities 9,590,314 9,186,401
EQUITY
Share capital 15 1,601 1,581
Share premium 15 706,580 677,211
Retained earnings 1,051,973 955,173
Group reorganisation reserve (162,166) (162,166)
Share based payment reserve 16 4,753 23,327
Revaluation reserve for
premises 70,045 70,460
Revaluation reserve for
available-for-sale securities (1,106) (3,681)
Cumulative currency translation
reserve (7,694) (7,538)
Net assets attributable
to owners 1,663,986 1,554,367
Non-controlling interest 26,522 28,264
Total equity 1,690,508 1,582,631
Total liabilities and equity 11,280,822 10,769,032
The financial statements on pages 53 to 108 were approved by the
Board of Directors on 21 August 2017 and signed on its behalf
by:
______________________________ ______________________________
Vakhtang Butskhrikidze Giorgi Shagidze
Chief Executive Officer Chief Financial Officer
Unaudited Condensed Consolidated Statements of Profit or Loss and Other Comprehensive Income
Six months ended
--------------------------
30 June 2017 30 June 2016
In thousands of GEL Note (Unaudited) (Unaudited)
------------------------------------------------------------------------------------ ---- ------------ ------------
Interest income 19 487,667 341,026
Interest expense 19 (195,593) (124,488)
Net interest income 292,074 216,538
Fee and commission income 20 89,719 62,228
Fee and commission expense 20 (34,502) (22,546)
Net fee and commission income 55,217 39,682
Net insurance premiums earned 6,382 -
Net insurance claims incurred (3,301) -
Insurance Profit 3,081 -
Net gains from trading in foreign currencies 43,392 29,085
Net gain/(losses) from foreign exchange translation 2,037 (999)
Net losses from derivative financial instruments (38) (472)
Net gains from disposal of available for sale investment securities - 8,795
Other operating income 21 14,234 8,362
Share of profit of associates 577 -
Other operating non-interest income 60,202 44,771
Provision for loan impairment 9 (40,367) (25,277)
Provision for impairment of investments in finance lease (129) (111)
(Provision for)/recovery of provision for performance guarantees and credit related
commitments 13 1,547 (2,076)
Provision for impairment of other financial assets (4,425) (1,193)
Impairment of investment securities available for sale - (11)
Operating income after provisions for impairment 367,200 272,323
Staff costs (102,376) (69,473)
Depreciation and amortisation 10 (17,523) (13,610)
Provision for liabilities and charges 2,495 -
Administrative and other operating expenses 22 (58,446) (51,585)
Operating expenses (175,850) (134,668)
Profit before tax 191,350 137,655
Income tax expense (14,935) 1,582
Profit for the period 176,415 139,237
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Revaluation of available-for-sale investments 2,613 3,144
Gain less losses reclassified to profit or loss upon disposal of available for-sale
investments - (8,853)
Exchange differences on translation to presentation currency (158) (325)
Income tax recorded directly in other comprehensive income - 1,401
Items that will not be reclassified to profit or loss:
Income tax recorded directly in other comprehensive income (422) 10,506
Other comprehensive income for the period 2,033 5,873
Total comprehensive income for the PERIOD 178,448 145,110
------------------------------------------------------------------------------------ ---- ------------ ------------
Profit is attributable to:
* Owners of the Bank 173,519 140,261
* Non-controlling interest 2,896 (1,024)
Profit for the period 176,415 139,237
Total comprehensive income
is attributable to:
* Owners of the Bank 175,523 146,134
* Non-controlling interest 2,925 (1,024)
Total comprehensive income
for the period 178,448 145,110
Earnings per share for profit
attributable to the owners
of the Bank:
* Basic earnings per share 17 3.31 2.81
* Diluted earnings per share 17 3.26 2.78
Unaudited Condensed Consolidated Statements of Changes in Equity
------------------------------------------------------------------------------------------------------------------------------------------
Net assets Attributable to owners
-------------- ---- ----------------
Share Share Group Share based Revaluation Revaluation Cumulative Retained Total
capital pre-mium reorganisation payments reserve reserve for reserve for currency earnings
reserve Premises Available translation
In thousands for sale reserve Non-control-ling Total
of GEL Note securities interest equity
-------------- ---- ------- -------- -------------- ---------------- ----------- ----------- ----------- ------------- --------- ---------------- ---------
Balance as of
1 January
2016 19,587 407,474 - 12,755 59,532 5,759 (6,590) 712,743 1,211,260 7,189 1,218,449
Profit for the
six months
ended 30 June
2016 - - - - - - - 140,261 140,261 (1,024) 139,237
Other
comprehensive
income/(loss)
for six
months ended
30 June 2016 - - - - 10,506 (4,308) (325) - 5,873 - 5,873
Total
comprehensive
income/(loss)
for six
months ended
30 June 2016 - - - - 10,506 (4,308) (325) 140,261 146,134 (1,024) 145,110
Share based
payment 16 - - - 5,925 - - - - 5,925 - 5,925
Increase in
share capital
arising from
share based
payment 36 1,175 - (1,211) - - - - - - -
Dividends paid - - - - - - - (54,560) (54,560) - (54,560)
Balance as of
30 June 2016 19,623 408,649 - 17,469 70,038 1,451 (6,915) 798,444 1,308,759 6,165 1,314,924
Balance as
of 1 January
2017 1,581 677,211 (162,166) 23,327 70,460 (3,681) (7,538) 955,173 1,554,367 28,264 1,582,631
Profit for the
six months
ended 30 June
2017 - - - - - - - 173,519 173,519 2,896 176,415
Other
comprehensive
income/(loss)
for six
months ended
30 June 2017 - - - - (415) 2,575 (156) - 2,004 29 2,033
Total
comprehensive
income/(loss)
for six
months ended
30 June 2017 - - - - (415) 2,575 (156) 173,519 175,523 2,925 178,448
Share issue 16 24,237 - (24,253) - - - - - - -
Share based
payment
accrual 16 - - - 5,679 - - - - 5,679 (278) 5,401
Conversion of
shares 4 5,132 - - - - - (1,909) 3,227 (3,196) 31
Dividends
declared - - - - - - - (74,810) (74,810) (1,193) (76,003)
Balance as of
30 June 2017 1,601 706,580 (162,166) 4,753 70,045 (1,106) (7,694) 1,051,973 1,663,986 26,522 1,690,508
Unaudited Condensed Consolidated Statements of Cash Flows
----------------------------------------------------------------------------------------------------------------------
Six months ended
In thousands of GEL Note 30 June 2017 (Unaudited) 30 June 2016 (Unaudited)
Cash flows from operating activities
Interest received 468,391 328,321
Interest paid (195,640) (123,338)
Fees and commissions received 89,329 62,899
Fees and commissions paid (34,802) (22,739)
Insurance premium received 7,153 -
Insurance claims paid (3,497) -
Income received from trading in foreign currencies 43,392 29,085
Other operating income received 8,334 5,516
Staff costs paid (102,975) (72,219)
Administrative and other operating expenses paid (53,075) (46,369)
Income tax paid (21,785) (10,873)
Cash flows from operating activities before changes in
operating assets and liabilities 204,825 150,283
Net change in operating assets
Due from other banks and mandatory cash balances with the
National Bank of Georgia 3,043 (143,663)
Loans and advances to customers (499,822) (173,777)
Investment in finance lease (8,531) (1,943)
Other financial assets 1,007 (2,071)
Other assets 1,103 1,694
Net change in operating liabilities
Due to other banks (223,686) 128,868
Customer accounts 610,920 156,872
Other financial liabilities (8,600) 1,967
Other liabilities and provision for liabilities and charges (211) (303)
Net cash from operating activities 80,048 117,927
Cash flows from investing activities
Acquisition of investment securities available for sale (401,304) (73,382)
Proceeds from redemption at maturity of investment
securities available for sale 218,981 111,500
Acquisition of bonds carried at amortised cost (141,849) (171,391)
Proceeds from redemption of bonds carried at amortised cost 131,693 179,799
Acquisition of premises, equipment and intangible assets (32,262) (18,437)
Disposal of premises, equipment and intangible assets 1,506 315
Proceeds from disposal of investment property 2,570 1,119
Acquisition of subsidiaries and associates (350) -
Net cash (used in)/ from investing activities (221,015) 29,523
Cash flows from financing activities
Proceeds from other borrowed funds 1,019,147 18,699
Redemption of other borrowed funds (640,409) (459,423)
Proceeds from subordinated debt 52,990 18,131
Redemption of subordinated debt - (13,644)
Proceeds from debt securities in issue 2,823 -
Redemption of debt securities in issue - (4,636)
Dividends paid (1,193) (54,560)
Issue of ordinary shares 31 -
Net cash from/(used in) financing activities 433,389 (495,433)
Effect of exchange rate changes on cash and cash equivalents (18,494) (28,159)
Net increase in cash and cash equivalents 273,928 (376,142)
Cash and cash equivalents at the beginning of the period 6 945,180 720,347
Cash and cash equivalents at the end of the period 6 1,219,108 344,205
Notes to the Unaudited Condensed Consolidated Financial
Statements
1 Introduction
This condensed consolidated interim financial information has
been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting" for the six months ended 30 June
2017 for TBC Bank Group PLC and its subsidiaries (together referred
to as the "Group" or "TBC Bank Group PLC").
This condensed consolidated interim financial information has
been reviewed, not audited.
The Group has 157 (2016: 167) branches within Georgia and 6,898
employees (2016: 6,292).
On 1 June 2016, TBC Bank Group PLC ("TBCG"), a public limited
liability company, incorporated in England and Wales on 26 February
2016, launched the Tender Offer (the "Tender Offer") to exchange
its entire ordinary share capital for an equivalent number of the
Bank's ordinary shares and thus to acquire the entire issued share
capital, including those shares represented by Global Depositary
Receipts ("GDRs"), of JSC TBC Bank (hereafter the "Bank").
Following the successful completion of the Tender Offer on 4 August
2016, as of 30 June 2017 TBCG holds 98.67% of the share capital of
the Bank, thus representing the Bank's ultimate parent company.
Together with the Bank and subsidiaries, TBCG makes up a group of
companies. The Bank is a parent of a group of companies
incorporated in Georgia and Azerbaijan, their primary business
activities include providing banking, leasing, brokerage and card
processing services to corporate and individual customers. The
Group's list of companies is provided in Note 2.
The shares of TBCG ("TBCG Shares") were admitted to the Premium
Listing segment of the Official List of the UK Listing Authority
and admitted to trading on the London Stock Exchange PLC's Main
Market for listed securities effective on 10 August 2016 (the
"Admission", Note 15). The Bank is the Group's main operating unit
and it accounts for most of the Group's activities.
TBC Bank Group PLC's registered legal address is St. Andrew 6,
London, United Kingdom EC4A3AE. Registered number of TBC Bank Group
PLC is 10029943.
As of 30 June 2017 and 31 December 2016, the following
shareholders directly owned more than 5% of the total outstanding
shares of the Group. Other shareholders individually owned less
than 5% of the outstanding shares. As of 30 June 2017 and 31
December 2016 the Group had no ultimate controlling party. Other
includes individual as well as corporate shareholders.
30 June 2017 31 December 2016
Ownership interest Ownership interest
Shareholders Note
TBC Holdings LTD 15% 15%
European Bank for Reconstruction and Development 8% 12%
JPMorgan Asset Management 9% 7%
Schroder Investment Management 8% 7%
Dunross & Co. 6% 6%
Liquid Crystal International N.V. LLC 6% 5%
Societe Generale SA - 5%
Other 48% 43%
Total 100% 100%
As a result of the conversion of the Bank's shares into TBCG
shares as described above and following the cancellation of GDR
Programme in October 2016, the Group has no GDRs outstanding as of
30 June 2017.
The TBC Bank Group PLC holds 98.67% of the Bank as of 30 June
2017. The condensed consolidated financial statements include the
following principal subsidiaries:
Proportion of voting rights and
ordinary share capital
Principal place Year of Industry
of business or incorpo-ration
Company Name 30 June 2017 31 December 2016 incorporation
JSC TBC Bank 98. 67% 98.48% Tbilisi, Georgia 1992 Banking
Ltd Merckhali
Pirevli 100% 100% Tbilisi, Georgia 2009 Operating leasing
United
Financial
Corporation
JSC 98.67% 98.67% Tbilisi, Georgia 1997 Card processing
TBC Capital
LLC 100% 100% Tbilisi, Georgia 1999 Brokerage
TBC Leasing
JSC 99.61% 99.61% Tbilisi, Georgia 2003 Leasing
Non-banking credit
TBC Kredit LLC 75% 75% Baku, Azerbaijan 2008 institution
Banking System
Service Information
Company LLC 100% 100% Tbilisi, Georgia 2009 services
TBC Pay LLC 100% 100% Tbilisi, Georgia 2009 Processing
Real Estate
Management Real estate
Fund JSC 100% 100% Tbilisi, Georgia 2010 management
TBC Invest LLC 100% 100% Ramat Gan, Israel 2011 PR and marketing
Real estate
Mali LLC 100% 100% Tbilisi, Georgia 2011 management
Bank Republic - 100% Tbilisi, Georgia 2016 Banking
Group
JSC TBC Insurance 100% 100% Tbilisi, Georgia 2014 Insurance
Presentation currency. These consolidated financial statements
are presented in thousands of Georgian Lari ("GEL thousands"),
unless otherwise indicated.
The country of registration or incorporation is also the
principal area of operation of each of the above subsidiaries. On 8
May 2017 the Group completed the legal and operational process of
merging JSC Bank Republic with TBC Bank.
The Group's corporate structure consists of a number of related
undertakings, comprising subsidiaries and associates, which are not
consolidated due to immateriality. A full list of these
undertakings, the country of incorporation and the ownership of
each share class is set out below.
Proportion of voting rights and
ordinary share capital
30 June 31 December 2016 Principal place of Year of Industry
2017 business or incorpo-ration
Company Name incorporation
UFC International British Virgin
Ltd 80% 80% Islands 2001 Investment Vehicle
Amsterdam,
TBC Capital B.V. 90% 90% Netherlands 2007 Investment Vehicle
TBC Invest
International Ltd 100% 100% Tbilisi, Georgia 2016 Investment Vehicle
University
Development Fund 33.33% 33.33% Tbilisi, Georgia 2007 Education
Ltd Georgian Mill
Company 100% 100% Tbilisi, Georgia 2010 Manufacturing
2 Summary of Significant Accounting Policies
Basis of preparation. This condensed consolidated interim
financial information for the half-year reporting period ended 30
June 2017 has been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority
and IAS 34 Interim Financial Reporting as adopted by the European
Union. This condensed consolidated interim financial report does
not include all the notes of the type normally included in an
annual financial report. Accordingly, this report is to be read in
conjunction with the annual report for the year ended 31 December
2016, which has been prepared in accordance with IFRSs as adopted
by the European Union and any public announcements made by TBC Bank
Group PLC during the interim reporting period.
Except as described below, the same accounting policies and
methods of computation were followed in the preparation of this
condensed consolidated interim financial information as used in the
preparation of the annual consolidated financial statements for the
year ended 31 December 2016.
Going Concern. The Board of Directors of TBC Bank Group PLC has
prepared these financial statements on a going concern basis. In
making this judgement the management considered the Group's
financial position, current intentions, profitability of operations
and access to financial resources, and it analysed the impact of
the recent financial crisis on future operations of the Group. The
management is not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going
concern.
Interim period tax measurement. Interim period income tax
expense is accrued using the effective tax rate that would be
applicable to expected total annual earnings, that is, the
estimated weighted average annual effective income tax rate applied
to the pre-tax income of the interim period.
Foreign currency translation. At 30 June 2017 the closing rate
of exchange used for translating foreign currency balances was USD
1 = GEL 2.3423 (31 December 2016: USD 1 = GEL 2.6468); EUR 1 = GEL
2.7444 (31 December 2016: EUR 1 = GEL 2.7940); GBP 1 = GEL 3.1192
(31 December 2016: GBP 1 = GEL 3.2579).
3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies
Estimates and judgements that have the most significant effect
on the amounts recognised in the interim financial information:
Impairment losses on loans and advances and finance lease
receivables. The Group regularly reviews its loan portfolio and
finance lease receivables to assess impairment. In determining
whether an impairment loss should be recorded in the statement of
profit or loss and other comprehensive income, the Group conclude
whether there is, or not, any observable data indicating a
measurable decrease in the estimated future cash flows from a
portfolio of loans or finance lease receivables before the decrease
can be identified with an individual loan in that portfolio. This
evidence may include observable data indicating that there has been
an adverse change in the payment status of borrowers in a group, or
national or local economic conditions that correlate with defaults
on assets in the group. When scheduling future cash flows the
management uses estimates based on historical loss experience for
assets with similar credit risk characteristics. The methodology
and assumptions used for estimating both the amount and timing of
future cash flows are reviewed regularly to reduce any differences
between loss estimates and actual loss experience. A 5% increase or
decrease between actual loss experience and the loss estimates used
will result in an additional or lower charge for loan loss
impairment of GEL 10,606 thousand (30 June 2016: GEL 9,505
thousand) and additional charge for impairment of finance lease
receivables of GEL 58.9 thousand (30 June 2016: GEL 40.7 thousand),
respectively.
Impairment provisions for individually significant loans and
leases are based on the estimate of discounted future cash flows of
the individual loans and leases taking into account repayments and
realisation of any assets held as collateral against the loan or
the lease. A 5% increase or decrease in the actual future
discounted cash flows from individually significant loans which
could arise from a mixture of differences in amounts and timing of
the cash flows will result in an additional or lower charge for
loan loss provision of GEL 876 thousand (30 June 2016: GEL 2,638
thousand), respectively.
A 5% increase or decrease in the actual future discounted cash
flows from individually significant leases which could arise from a
mixture of differences in amounts and timing of the cash flows will
result in an additional or lower charge for provision of GEL 61.4
thousand (30 June 2016: GEL 40.7 thousand), respectively.
Deferred and current income tax. On 13 May 2016 the Government
of Georgia enacted the changes in the Tax Code of Georgia effective
from 1 January 2019, for commercial banks, credit unions, insurance
organizations, microfinance organizations and pawnshops and from 1
January 2017 for other entities. The new code impacts the
recognition and measurement principles of the Group's income tax
and it also affects the Group's deferred income tax
assets/liabilities. Companies do not have to pay income tax on
their profit before tax (earned since 1 January 2017 or 1 January
2019 for commercial banks, credit unions, insurance organizations,
microfinance organizations and pawnshops) until that profit is
distributed in a form of dividend or other forms of profit
distributions. Once dividend is paid, 15% income tax is payable at
the moment of the dividend payment, regardless of whether in
monetary or non-monetary form, to the foreign non-resident legal
entities and foreign and domestic individuals. The dividends paid
out to the resident legal entities are tax exempted. Apart from
dividends' distribution, the tax is still payable on expenses or
other payments incurred not related to economic activities, free
delivery of goods/services and/or transfer of funds and
representation costs that exceed the maximum amount determined by
the Income Tax Code of Georgia, in the same month they are
incurred.
As of 30 June 2017, deferred tax assets/liabilities are
re-measured to the amounts that are estimated to be utilized in the
period from 1 January 2017 to 31 December 2018.
4 Adoption of New or Revised Standards and Interpretations
The adopted accounting policies are consistent with those of the
previous financial year. There were no new or amended standards or
interpretations that resulted in a change of the accounting
policy.
5 New Accounting Pronouncements
Minor amendments to IFRSs
The IASB has published a number of minor amendments some of
which has not yet been endorsed for use in the EU. The Group has
not early adopted any of the amendments effective after 31 December
2016 and it expects they will have an insignificant effect, when
adopted, on the consolidated financial statements of the Group and
the separate financial statements of TBC Bank Group PLC.
Major new IFRSs
The IASB has published IFRS 9 'Financial Instruments', IFRS 15
'Revenue from Contracts with Customers' and IFRS 16 'Leases'. IFRS
9 and IFRS 15 have been endorsed for use in the EU and IFRS 16 has
not yet been endorsed.
IFRS 9 "Financial Instruments: Classification and Measurement"
(amended in July 2014 and effective for annual periods beginning on
or after 1 January 2018). Key features of the new standard are:
-- Financial assets are required to be classified into three
measurement categories: (i) those to be measured subsequently at
amortised cost, (ii) those to be measured subsequently at fair
value through other comprehensive income (FVOCI) and (iii) those to
be measured subsequently at fair value through profit or loss
(FVPL);
-- The classification for debt instruments is driven by the
entity's business model for managing the financial assets and
whether the contractual cash flows represent solely payments of
principal and interest (SPPI). If a debt instrument is held to
collect, it may be carried at amortised cost if it also meets the
SPPI requirement. Debt instruments in line with the SPPI
requirement that are held in a portfolio where an entity both holds
to collect assets' cash flows and sells assets may be classified as
FVOCI. Financial assets that do not contain cash flows that are
SPPI must be measured at FVPL (for example, derivatives). Embedded
derivatives are no longer separated from financial assets but will
be included in assessing the SPPI condition;
Investments in equity instruments are always measured at fair
value. However, the management can make an irrevocable election to
present changes in fair value in other comprehensive income,
provided the instrument is not held for trading. If the equity
instrument is held for trading, changes in fair value are presented
in profit or loss;
-- Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged
to IFRS 9. The key difference is that an entity will be required to
present the effects of changes in own credit risk of financial
liabilities designated at fair value through profit or loss in
other comprehensive income;
-- IFRS 9 introduces a new model for the recognition of
impairment losses - the expected credit losses (ECL) model. There
is a 'three stage' approach which is based on the change in credit
quality of financial assets since initial recognition. In practice,
the new rules mean that entities will have to record an immediate
loss equal to the 12-month ECL on initial recognition of financial
assets that are not credit impaired (or lifetime ECL for trade
receivables). In case of a significant increase in credit risk,
impairment is measured using lifetime ECL rather than 12-month ECL.
The model includes operational simplifications for lease and trade
receivables;
-- Hedge accounting requirements were amended to align more
closely the accounting with the risk management. The standard
provides entities with an accounting policy choice between applying
the hedge accounting requirements of IFRS 9 and continuing to apply
IAS 39 to all hedges because the standard currently does not
address accounting for macro hedging.
IFRS 9 implementation project started in June 2016. In parallel
to methodology and model development, the Bank is in the process of
respective software implementation. Based on the Bank's Business
model, no significant changes are expected from classification and
measurement and hedge accounting parts of the standard. During the
project's gap analysis phase, a high level impact assessment was
performed which applied simplified approaches e.g. for macro
factors incorporation. Based on the results of the impact
assessment results calculated on 31 March 2017 loan portfolio, the
provision level for the portfolio is expected to increase in the
range of 0.2-0.5% of the loan book (6-18% of provision level).
However the final impact may be different, considering the Bank's
finalized models and methodologies and the macro outlook.
No impact is expected on capital adequacy ratios, which are
calculated based on local standards, and profit and loss statement
as the amount will directly affect equity.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May
2014 and effective for the periods beginning on or after 1 January
2018). The new standard introduces the core principle that revenue
must be recognized when the goods or services are transferred to
the customer, at the transaction price. Any bundled goods or
services that are distinct must be separately recognized, and any
discounts or rebates on the contract price must generally be
allocated to the separate elements. When the consideration varies
for any reason, minimum amounts must be recognized if they are not
at significant risk of reversal. Costs incurred to secure contracts
with customers have to be capitalized and amortized over the period
when the benefits of the contract are consumed. The Group is
currently assessing the impact of the new standard on its financial
statements.
IFRS 16, Leases (issued on 13 January 2016 and effective for
annual periods beginning on or after 1 January 2019). The new
standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the
lease and, if lease payments are made over time, also to access
financing. Accordingly, IFRS 16 eliminates the classification of
leases as either operating leases or finance leases as is required
by IAS 17 and, instead, introduces a single lessee accounting
model. Lessees will be required to recognize: (a) assets and
liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value; and (b) depreciation
of lease assets separately from interest on lease liabilities in
the income statement. IFRS 16 substantially carries forward the
lessor accounting requirements in IAS 17. Accordingly, a lessor
continues to classify its leases as operating leases or finance
leases, and to account for those two types of leases differently.
The Group is currently assessing the impact of the new standard on
its financial statements.
6 Cash and Cash Equivalents
In thousands of GEL 30 June 2017 31 December 2016
Cash on hand 381,865 402,532
Cash balances with the National Bank of Georgia (other than mandatory reserve
deposits) 289,151 135,557
Correspondent accounts and overnight placements with other banks 388,329 406,319
Placements with and receivables from other banks with original maturities of less than
three
months 159,763 772
Total cash and cash equivalents 1,219,108 945,180
As of 30 June 2017, 96% of the correspondent accounts and
overnight placements with other banks are placed with OECD banking
institutions (31 December 2016: 96%). As of 30 June 2017, GEL
124,564 thousand included in cash balances with National Bank of
Georgia have been pledged to local banks or other financial
institutions as collateral with respect to other borrowed funds (31
December 2016: GEL nil).
As of 30 June 2017, GEL 159,763 thousand was placed on interbank
term deposits with two OECD banks and one Georgian bank (31
December 2016: GEL 772 thousand with one OECD bank).
7 Due from Other Banks
Amounts due from other banks include placements with original
maturities of more than three months that are not collateralised
and represent neither past due nor impaired amounts at the 30 June
2017 and 31 December 2016. As of 30 June 2017 GEL 16,229 thousand
(31 December 2016: GEL 19,511 thousand) were kept on deposits as
restricted cash. Refer to Note 27 for the estimated fair value of
amounts due from other banks.
As of 30 June 2017 the Group had loan issued to one bank, with
original maturities of more than three months and with aggregated
amounts above GEL 5,000 thousand (2016: nil).
8 Mandatory cash balances with the National Bank of Georgia
Mandatory cash balances with the National Bank of Georgia
("NBG") represent amounts deposited with the NBG. Resident
financial institutions are required to maintain an interest-earning
obligatory reserve with the NBG, the amount of which depends on the
level of funds attracted by the financial institutions. The Group
earned up to 0.9% annual interest on the mandatory reserve with the
NBG in the six months ended 30 June 2017 (30 June 2016: nil).
In September 2016 Fitch Ratings re-affirmed Georgia's long-term
foreign and local currency Issuer Default Ratings (IDRs) at 'BB-'
with Stable Outlooks. The issue ratings on Georgia's senior
unsecured foreign- and local-currency bonds are also affirmed at
'BB-'. The Country Ceiling is affirmed at 'BB' and the Short-term
foreign-currency IDR at 'B'.
9 Loans and Advances to Customers
In thousands of GEL 30 June 2017 31 December 2016
Corporate 2,057,644 2,062,229
Consumer 1,955,436 1,872,142
Mortgage 1,744,421 1,808,434
MSME 1,628,934 1,615,920
Total loans and advances to customers (before impairment) 7,386,435 7,358,725
Less: Provision for loan impairment (212,130) (225,023)
Total loans and advances to customers 7,174,305 7,133,702
Following the merger of Bank Republic with TBC Bank, the Group
has reassessed its definition of segments as disclosed in note 18.
Some of the clients were reallocated to different segments.
Relevant changes are applied to all periods presented in this
report. As per current presentation, micro and SME loans are
combined in one MSME category. Consumer loans include all retail
loans, except mortgage loans. Other loans category which
represented pawn shop loans as per prior presentation, was split
between consumer and MSME category.
As of 30 June 2017 loans and advances to customers carried at
GEL 240,001 thousand have been pledged to local banks or other
financial institutions as collateral with respect to other borrowed
funds (31 December 2016: GEL 120,093 thousand).
Movements in the provision for loan impairment during the six
months ended 30 June 2017 are as follows:
In thousands of GEL Corpo-rate Consumer Mortgage MSME Total
Provision for loan impairment as of 1 January 2017 90,100 73,730 23,602 37,591 225,023
Total provision for impairment during the period:
Provision for impairment (credited)/charged to income
statement during the period. (22,129) 56,938 (1,650) 7,208 40,367
Recoveries of loans previously written off 1,306 8,940 1,876 4,108 16,230
Amounts written off during the period as uncollectible (22,721) (34,532) (3,248) (8,549) (69,050)
Effect of translation to presentation currency - (76) (90) (272) (438)
Provision for loan impairment as of 30 June 2017 46,556 104,998 20,490 40,086 212,130
Loans and advances to customers written off in the first half of
2017 included loans to customers in the gross amount of GEL 4,444
thousand issued in 2017 and GEL 64,606 thousand issued in previous
years.
At year-end 2016 the Bank updated its methodology for loan loss
provisioning purposes to include impairment assessment of acquired
portfolios. As per the upgraded methodology, an impairment
allowance is not created on the initial recognition of purchased
portfolio considering that expected losses are reflected in fair
value of the portfolio. For the next reporting periods, the
impairment allowance is recognised if the incurred losses at the
reporting date have increased compared to the level of incurred
losses at the moment of acquisition.
Movements in the provision for loan impairment during 2016 were
as follows:
In thousands of GEL Corpo-rate Consumer Mortgage MSME Total
Provision for loan impairment as of 1 January 2016 108,050 52,527 13,135 20,431 194,144
Total provision for impairment during the period:
Provision for impairment (credited)/charged to income
statement during the period (13,905) 25,172 5,502 8,508 25,277
Recoveries of loans previously written off 30 4,116 1,160 1,746 7,052
Amounts written off during the period as uncollectible (6,109) (22,655) (1,882) (5,609) (36,256)
Effect of translation to presentation currency - (14) (21) (78) (113)
Provision for loan impairment as of 30 June 2016 88,066 59,146 17,894 24,998 190,104
Economic sector risk concentrations within the customer loan
portfolio are as follows:
30 June 2017 31 December 2016
In thousands of GEL Amount % Amount %
Individual 3,664,210 50% 3,721,450 51%
Energy & Utilities 637,988 9% 540,116 7%
Food Industry 428,346 6% 301,290 4%
Trade 402,403 5% 447,541 6%
Hospitality & Leisure 360,121 5% 319,497 4%
Pawn Shops 295,522 4% 305,031 4%
Real Estate 239,909 3% 252,112 3%
Construction 226,333 3% 210,888 3%
Agriculture 216,463 3% 212,148 3%
Healthcare 167,686 2% 182,131 3%
Automotive 120,697 2% 144,157 2%
Financial Services 90,769 1% 188,646 3%
Services 88,064 1% 109,187 1%
Transportation 87,644 1% 89,467 1%
Communication 66,290 1% 45,864 1%
Metals and Mining 63,031 1% 62,464 1%
Other 230,959 3% 226,736 3%
Total loans and advances to customers (before impairment) 7,386,435 100% 7,358,725 100%
As of 30 June 2017 the Group had 118 borrowers (31 December
2016: 112 borrowers) with aggregated gross loan amounts above GEL
5,000 thousand. The total aggregated amount of these loans was GEL
1,976,166 thousand (31 December 2016: GEL 1,900,916 thousand) or
26.8% of the gross loan portfolio (31 December 2016: 25.8%).
Following the merger with Bank Republic, economic sector
concentration for certain clients was reassessed and loans in the
amount of GEL 56,320 thousand presented under the Trade sector as
of 31 December 2016, were reclassified into the Food Industry
sector as of 30 June 2017.
Analysis by credit quality of loans outstanding as of 30 June
2017 is as follows:
In thousands of GEL Corpo-rate Consumer Mortgage MSME Total
Neither past due nor impaired
* Borrowers with credit history over two years 1,460,396 1,380,594 1,419,847 978,257 5,239,094
* New borrowers 532,967 445,269 274,745 553,340 1,806,321
Total neither past due nor impaired 1,993,363 1,825,863 1,694,592 1,531,597 7,045,415
Past due but not impaired
* 1 to 30 days overdue 6,546 45,685 16,384 34,726 103,341
* 31 to 90 days overdue 910 28,234 6,569 13,141 48,854
* 91 to 180 days overdue - 108 - 2,717 2,825
* 181 to 360 days overdue - 71 - - 71
* More than 360 days overdue - 29 - - 29
Total past due but not impaired 7,456 74,127 22,953 50,584 155,120
Individually assessed impaired loans
* Not overdue 30,225 - - - 30,225
- - - - -
* 1 to 30 days overdue
* 31 to 90 days overdue 1,489 - - 744 2,233
* 91 to 180 days overdue 4,276 - - 2,298 6,574
* 181 to 360 days overdue 8,636 - - - 8,636
* More than 360 days overdue 3,180 - - - 3,180
Total individually assessed impaired loans 47,806 - - 3,042 50,848
Collectively assessed impaired loans
* not overdue 1,328 6,286 6,863 6,206 20,683
* 1 to 30 days overdue - 1,930 4,132 1,338 7,400
* 31 to 90 days overdue 230 2,636 1,513 4,086 8,465
* 91 to 180 days overdue 3,143 29,062 4,286 8,914 45,405
* 181 to 360 days overdue 2,367 10,809 6,916 13,010 33,102
- More than 360 days overdue 1,951 4,723 3,166 10,157 19,997
Total collectively assessed impaired loans 9,019 55,446 26,876 43,711 135,052
Total loans and advances to customers (before impairment) 2,057,644 1,955,436 1,744,421 1,628,934 7,386,435
Total provision (46,556) (104,999) (20,489) (40,086) (212,130)
Total loans and advances to customers 2,011,088 1,850,437 1,723,932 1,588,848 7,174,305
Analysis by credit quality of loans outstanding as of 31
December 2016 is as follows:
In thousands of GEL Corpo-rate Consumer Mortgage MSME Total
Neither past due nor impaired
* Borrowers with credit history over two years 1,279,999 1,030,204 1,203,461 836,773 4,350,437
* New borrowers 647,613 738,255 557,777 689,106 2,632,751
Total neither past due nor impaired 1,927,612 1,768,459 1,761,238 1,525,879 6,983,188
Past due but not impaired
* 1 to 30 days overdue 10,369 38,214 7,565 31,904 88,052
* 31 to 90 days overdue 1,714 21,205 8,241 14,269 45,429
* 91 to 180 days overdue - 146 - 227 373
* 181 to 360 days overdue - 91 - - 91
* More than 360 days overdue 2,864 28 - - 2,892
Total past due but not impaired 14,947 59,684 15,806 46,400 136,837
Individually assessed impaired loans
* Not overdue 101,273 - 195 2,832 104,300
* 1 to 30 days overdue 1,059 - - - 1,059
* 31 to 90 days overdue 7,966 - - - 7,966
* 91 to 180 days overdue - - - 88 88
* 181 to 360 days overdue 2,455 - 34 436 2,925
* More than 360 days overdue 4,000 - 167 - 4,167
Total individually assessed impaired loans 116,753 - 396 3,356 120,505
Collectively assessed impaired loans
* not overdue 776 5,493 7,129 5,301 18,699
* 1 to 30 days overdue - 1,488 2,316 1,316 5,120
* 31 to 90 days overdue 908 2,622 2,443 5,223 11,196
* 91 to 180 days overdue - 21,779 6,569 10,074 38,422
* 181 to 360 days overdue 1,233 7,660 8,371 11,291 28,555
- More than 360 days overdue - 4,957 4,166 7,080 16,203
Total collectively assessed impaired loans 2,917 43,999 30,994 40,285 118,195
Total loans and advances to customers (before impairment) 2,062,229 1,872,142 1,808,434 1,615,920 7,358,725
Total provision (90,100) (73,730) (23,602) (37,591) (225,023)
Total loans and advances to customers 1,972,129 1,798,412 1,784,831 1,578,329 7,133,702
The Group applied the portfolio provisioning methodology
prescribed by IAS 39, Financial Instruments: Recognition and
Measurement, and it created portfolio provisions for impairment
losses that were incurred but have not been specifically identified
with any individual loan by the end of reporting period.
The tables above provide an analysis of the loan portfolio based
on credit quality. The Group's policy for credit risk management
purposes is to classify each loan as 'neither past due nor
impaired', 'past due but not impaired', 'individually assessed
impaired loans' and 'collectively assessed impaired loans'. The
pool of 'neither past due nor impaired loans' includes exposures
that are not overdue and are not classified as impaired. 'Past due
but not impaired' loans include overdue performing loans but with
no objective evidence of impairment identified. The classification
includes as well triggered loans that are not impaired because the
current value of the expected cash and collateral recoveries are
sufficient for full repayment. 'Individually assessed impaired
loans' include exposures which were assessed for impairment on an
individual basis, and an ad-hoc impairment allowance was created.
'Collectively assessed impaired loans' include exposures for which
objective evidence of impairment was identified and the respective
collective impairment allowance was created. The Group conducts
collective assessment of the borrowers on a monthly basis. As for
the individual assessment, it is performed quarterly.
The amount and type of collateral required depend on an
assessment of the credit risk of the counterparty. There are three
key types of collateral:
-- Real estate;
-- Movable property including fixed assets, inventory and precious metals;
-- Financial assets including deposits, stocks, and third party guarantees.
The financial effect of collateral is presented by disclosing
the collateral values separately for (i) those assets where
collateral and other credit enhancements are equal to or exceed the
assets' carrying value ("over-collateralised assets") and (ii)
those assets where collateral and other credit enhancements are
less than the assets' carrying value ("under-collateralised
assets").
The effect of collateral as of 30 June 2017:
Over-collateralised assets Under-collateralised assets
Carrying value of the Value of collateral Carrying value of the Value of
In thousands of GEL assets assets collateral
Corporate 1,788,525 4,162,486 269,119 94,079
Consumer 942,455 2,164,278 1,012,981 26,710
Mortgage 1,721,500 3,783,358 22,921 13,519
MSME 1,571,188 3,627,876 57,746 54,959
Total 6,023,668 13,737,998 1,362,767 189,267
The effect of collateral as of 31 December 2016:
Over-collateralised assets Under-collateralised assets
Carrying value of the assets Value of collateral Carrying value of the Value of
In thousands of GEL assets collateral
Corporate 1,849,202 5,683,279 213,027 109,076
Consumer 1,040,644 2,761,580 831,498 28,102
Mortgage 1,780,553 4,694,003 27,881 16,360
MSME 1,479,200 4,959,947 136,720 131,967
Total 6,149,599 18,098,809 1,209,126 285,505
The effect of collateral is determined by comparing the fair
value of collateral to outstanding gross loans and advances in the
reporting date.
At the central level a specific unit manages collateral to
ensure that they serve as an adequate mitigation for credit risk
management purposes. In line with the Group's internal policies,
collateral provided to loans are evaluated by the Internal
Appraisal Group (external reviewers are used in case of loans to
related parties or specific cases when complex objects are
appraised). The Internal Appraisal Group is part of the collateral
management unit and, in order to ensure adequate and objective
appraisal procedures, it is independent from the loan granting
process. Real estate collateral of significant value is
re-evaluated annually by internal appraisers. Statistical methods
are used to monitor the value of real estate collateral that are of
non-significant value and other types of collaterals such as
movable assets and precious metals.
Collateral values include the contractual price of third-party
guarantees, which, due to their nature, are capped at the loan's
carrying value. The values of third-party guarantees in the tables
above amounted to GEL 463,957 thousand and GEL 608,058 thousand as
of 30 June 2017 and 31 December 2016, respectively. These
third-party guarantees are not taken into consideration when
assessing the impairment allowance. Refer to Note 27 for the
estimated fair value of each class of loans and advances to
customers. Interest rate analysis of loans and advances to
customers is disclosed in Note 24. Information on related party
balances is disclosed in Note 28.
10 Premises, Equipment and Intangible Assets
Premises and Office and Construction in Total premises Computer Total
leasehold computer progress and software
In thousands of GEL improve-ments equipment* equipment licences
Carrying amount at 1 January
2016 132,581 65,153 50,033 247,767 44,344 292,111
Additions 2,104 8,946 2,669 13,719 4,717 18,436
Disposals (1,024) (1,224) - (2,248) - (2,248)
Transfer 1,304 - (1,304) - - -
Effect of translation to
presentation currency (cost) (14) (24) - (38) (5) (43)
(Impairment charge)/reversal
of impairment to profit or
loss (265) (206) - (471) (19) (490)
Depreciation/amortisation
charge (2,052) (8,005) - (10,057) (3,085) (13,142)
Elimination of accumulated
depreciation/amortisation on
disposals 945 1,010 - 1,955 - 1,955
Effect of translation to
presentation currency
(accumulated depreciation) 13 14 - 27 2 29
Carrying amount at 30 June
2016 133,592 65,664 51,398 250,654 45,954 296,608
Cost or valuation at 30 June
2016 164,231 160,154 51,398 375,783 72,037 447,820
Accumulated
depreciation/amortisation
including accumulated
impairment loss (30,639) (94,490) - (125,129) (26,083) (151,212)
Carrying amount at 1 January 2017 186,950 73,918 53,164 314,032 60,957 374,989
Additions 2,718 11,403 6,664 20,785 10,823 31,608
Disposals (1,133) (2,210) - (3,343) - (3,343)
Transfer 1,634 5 (1,639) - - -
Effect of translation to presentation currency (cost) (19) (20) - (39) (8) (47)
(Impairment charge)/reversal of impairment to profit or
loss (1,120) (562) (47) (1,729) (1,850) (3,579)
Depreciation/amortisation charge (2,705) (9,407) - (12,112) (4,892) (17,004)
Elimination of accumulated depreciation/amortisation on
disposals 546 1,968 - 2,514 - 2,514
Effect of translation to presentation currency
(accumulated depreciation) 19 12 - 31 4 35
Carrying amount at 30 June 2017 186,890 75,107 58,142 320,139 65,034 385,173
Cost or valuation at 30 June 2017 219,379 184,253 58,142 461,774 99,914 561,688
Accumulated depreciation/amortisation including
accumulated impairment loss (32,489) (109,146) - (141,635) (34,880) (176,515)
*Office and other equipment include furniture and fixtures,
computer and office equipment, motor vehicles as well as other
equipment.
Depreciation and amortisation charge presented on the face of
the statement of profit or loss and other comprehensive income
include depreciation and amortisation charge of premises and
equipment, investment properties and intangible assets.
Construction in progress consists of construction and
refurbishment of branch premises and the Bank's new headquarters.
Upon completion, assets are to be transferred to premises.
Premises were revalued to market value on 30 September 2015. The
valuation was carried out by an independent firm of valuators which
holds a recognised and relevant professional qualification and who
have recent experience in valuation of assets of similar location
and category. In the process of comparison, they have used three
comparative analogues (registered sale and/or offer for sale), in
which prices were applied adjustments based on the difference
between subject assets and analogues. Most of the assets have been
estimated by using the market approach/method due to the market
situation, namely by existence of a sufficient number of registered
sales and proposals by the date of valuation. At Bank Republic
acquisition date of 20 October 2016, valuation of assets was
performed. Fair value of respective assets is disclosed below.
The management considers that the fair value has not changed
significantly between 30 September 2015 (or 20 October 2016 in case
of JSC Bank Republic's assets) and 30 June 2017.
In thousands of Fair value as of Fair value as of Valuation Other key Unobser-vable Range of
GEL (except for 20 October 2016 30 September technique informa-tion inputs unobser-vable inputs
range of inputs) (acquisition date) 2015 (valuation (weighted average)
date)
Sales
comparison Price per
Office buildings 30,753 51,115 approach Land square meter 472 - 3,432 (797)
Buildings 601 - 6,598 (1,781)
Sales
comparison Price per
Branches 18,645 124,069 approach Land square meter 2 - 3,427 (280)
Buildings 452 - 11,514 (2,360)
11 Due to Credit Institutions
In thousands of GEL 30 June 2017 31 December 2016
Due to other banks
Correspondent accounts and overnight placements 77,341 22,872
Deposits from banks 30,790 176,443
Short-term loans from banks 9,502 117,592
Total due to other banks 117,633 316,907
Other borrowed funds
Borrowings from foreign banks and financial institutions 1,499,438 1,412,095
Borrowings from local banks and financial institutions 666,544 439,234
Borrowings from Ministry of Finance 3,346 4,203
Borrowings from other financial institutions 26,589 25,138
Total other borrowed funds 2,195,917 1,880,670
Total amounts due to credit institutions 2,313,550 2,197,577
As of 30 June 2017, the Group was in compliance with all
covenants. As of 31 December 2016 TBC Kredit had breached certain
covenants under the loan agreement with OPIC. The carrying amount
of the affected loan was GEL 14,816 thousands. As of 31 December
2016 for the purposes of maturity analysis of financial liabilities
(Note 24) the above-mentioned loans are included within the amounts
for which repayment is expected within 3 months.
12 Customer Accounts
In thousands of GEL 30 June 2017 31 December 2016
State and public organisations
* Current/settlement accounts 523,723 240,743
* Term deposits 73,983 78,990
Other legal entities
* Current/settlement accounts 2,174,610 2,143,483
* Term deposits 186,243 243,582
Individuals
* Current/demand accounts 1,611,889 1,618,434
* Term deposits 2,095,965 2,129,717
Total customer accounts 6,666,413 6,454,949
State and public organisations include government owned profit
orientated businesses.
Economic sector concentrations within customer accounts are as
follows:
30 June 2017 31 December 2016
In thousands of GEL Amount % Amount %
Individual 3,707,854 56% 3,748,151 58%
Financial Services 431,623 6% 501,591 8%
Government Sector 372,409 6% 140,852 2%
Energy and Utilities 357,951 5% 283,497 4%
Transportation 274,864 4% 188,388 3%
Construction 245,501 4% 222,372 4%
Services 184,863 3% 269,824 4%
Trade 153,848 2% 305,022 5%
Hotels and Leisure 138,273 2% 104,066 2%
Food Industry 113,024 2% 82,983 1%
Communication 110,330 2% 56,787 1%
Real Estate 94,009 1% 82,893 1%
Automotive 82,463 1% 53,865 1%
Healthcare 80,850 1% 64,493 1%
Agriculture 35,942 1% 37,850 1%
Metals and Mining 30,828 0% 22,817 0%
Other 251,781 4% 289,498 4%
Total customer accounts 6,666,413 100% 6,454,949 100%
As of 30 June 2017 the Group had 227 customers (31 December
2016: 222 customers) with balances above GEL 3,000 thousand. Their
aggregate balance was GEL 2,890,864 thousand (2016: GEL 2,539,513
thousand) or 43.4% of total customer accounts (31 December 2016:
39%).
As of 30 June 2017 included in customer accounts are deposits of
GEL 8,343 thousand and GEL 117,259 thousand (31 December 2016: GEL
13,355 thousand and GEL 119,146 thousand) held as collateral for
irrevocable commitments under letters of credit and guarantees
issued, respectively. Refer to Note 26. As of 30 June 2017,
deposits held as collateral for loans to customers amounted to GEL
172,698 thousand (31 December 2016: GEL 342,365 thousand).
Refer to Note 27 for the disclosure of the fair value of
customer accounts. Information on related party balances is
disclosed in Note 28.
13 Provisions for Performance Guarantees, Credit Related
Commitments and Liabilities and Charges
Movements in provisions for performance guarantees, credit
related commitment and liabilities and charges are as follows:
In thousands of GEL Perfor-mance guarantees Credit related commitments Other Total
Carrying amount at 1 January 2016 1,472 5,589 2,400 9,461
Additions less releases recorded in profit or
loss 1,033 1,043 - 2,076
Carrying amount at 30 June 2016 2,505 6,632 2,400 11,537
Carrying amount at 1 January 2017 2,635 8,049 5,342 16,026
Charges less releases recorded in profit or
loss (649) (898) (1,814) (3,361)
Utilization of provision - - (1,932) (1,932)
Carrying amount as of 30 June 2017 1,986 7,151 1,596 10,733
Credit related commitments and performance guarantees: Provision
was created against losses incurred on financial and performance
guarantees and commitments to extend credit to borrowers whose
financial conditions deteriorated.
Impairment allowance estimation methods differ for (i) letter of
credits and guarantees and (ii) undrawn credit lines.
For letter of credits and guarantees allowance estimation
purposes the Bank classifies borrowers as significant and
non-significant ones. Triggered significant guarantees and letter
of credits are assessed for impairment on an individual basis,
whereas for not triggered significant and all non-significant ones
the Bank estimates allowances applying statistical risk parameters,
such as credit conversion factor and loss given default.
Undrawn credit lines are classified as committed and uncommitted
exposures, with impairment allowance created for committed ones.
The undrawn part of the credit lines is multiplied by the
respective credit conversion factor and provisioned in the similar
manner as corresponding on balance sheet exposures.
Provisions for liabilities, charges, performance guarantees and
credit related commitments are primarily expected to be utilised
within twelve months after the period-end.
Additions less releases recorded in profit and loss for "Other"
provisions does not include gross change in total reserves for
insurance claims in amount of GEL 680 thousands that are included
in net claims incurred and administrative expenses.
14 Subordinated Debt
As of 30 June 2017, subordinated debt comprised of:
Grant Date Maturity Date Currency Outstanding amount in Outstanding amount in
In thousands of GEL original currency GEL
Deutsche Investitions und
Entwicklungsgesellschaft
MBH 19-Feb-08 15-Jul-18 USD 10,448 25,150
Deutsche Investitions und
Entwicklungsgesellschaft
MBH 26-Jun-13 15-Jun-20 USD 7,483 18,013
Nederlandse
Financierings-Maatschappij
Voor Ontwikkelingslanden
N.V. 19-Dec-13 15-Apr-23 USD 35,498 85,452
Kreditanstalt für
Wiederaufbau Bankengruppe 10-Jun-14 8-May-21 GEL 6,400 6,400
Kreditanstalt für
Wiederaufbau Bankengruppe 4-May-15 8-May-21 GEL 6,999 6,999
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,252 36,716
European Fund for Southeast
Europe 18-Dec-15 18-Dec-25 USD 7,637 18,384
European Fund for Southeast
Europe 15-Mar-16 15-Mar-26 USD 7,636 18,381
Asian Developement Bank
(ADB) 18-Oct-16 18-Oct-26 USD 50,425 121,384
Private lenders 30-Jun-17 30-Jun-23 USD 22,096 53,191
Total subordinated debt 390,070
As of 31 December 2016, subordinated debt comprised of:
Grant Date Maturity Date Currency Outstanding amount in Outstanding amount in
In thousands of GEL original currency GEL
Deutsche Investitions und
Entwicklungsgesellschaft
MBH 19-Feb-08 15-Jul-18 USD 10,446 27,649
Deutsche Investitions und
Entwicklungsgesellschaft
MBH 26-Jun-13 15-Jun-20 USD 7,480 19,799
Nederlandse
Financierings-Maatschappij
Voor Ontwikkelingslanden
N.V. 19-Dec-13 15-Apr-23 USD 35,474 93,891
Kreditanstalt für
Wiederaufbau Bankengruppe 10-Jun-14 8-May-21 GEL 6,162 6,162
Kreditanstalt für
Wiederaufbau Bankengruppe 4-May-15 8-May-21 GEL 6,737 6,737
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,239 40,335
European Fund for Southeast
Europe 18-Dec-15 18-Dec-25 USD 7,631 20,197
European Fund for Southeast
Europe 15-Mar-16 15-Mar-26 USD 7,629 20,194
Asian Developement Bank
(ADB) 18-Oct-16 18-Oct-26 USD 50,407 133,417
Total subordinated debt 368,381
The debt ranks after all other creditors in case of
liquidation.
Refer to Note 27 for the disclosure of the fair value of
subordinated debt.
15 Share Capital
Number of Share capital
In thousands of GEL except for number of shares ordinary shares
As of 1 January 2016 49,529,463 19,811
Increase in share capital arising from share based payment 525,456 210
Conversion of shares following the Tender Offer* (895,039) (358)
Share capital adjustment for new nominal value** - (18,169)
Shares issued 3,006,823 87
As of 31 December 2016 52,166,703 1,581
Shares issued 516,140 16
Conversion of shares 102,121 4
As of 30 June 2017 52,784,964 1,601
*895,039 is the number of JSC TBC Bank shares that were not
converted into the TBC Bank Group PLC shares
** Negative GEL 18,169 thousand is effect of nominal value
adjustment whereby the nominal value of 49,159,880 TBC Bank Group
PLC shares was changed from GEL 0.4 to one British Penny translated
I n GEL with the official exchange rate on share conversion
date
On 4 August 2016, the Group completed the Tender Offer under
which 49,159,880 of the Bank's shares then outstanding or 98.21%,
were converted into 49,159,880 shares of TBC Bank Group PLC (Note
1)
As of 30 June 2017 the total authorised number of ordinary
shares was 52,784,964 shares (31 December 2016: 52,166,703 shares).
Each share has a nominal value of one British Penny (31 December
2016: GEL one per share). All issued ordinary shares are fully paid
and entitled to dividends.
Following the Admission (Note 15), TBCG's Directors undertook a
reduction of capital in order to create distributable reserves for
TBCG. The original difference between the fair value of the Bank's
shares and the nominal value of TBCG's shares was credited to the
merger reserve created in connection with the Tender Offer. Each
TBCG share had an original (Tender Offer) nominal value of GBP 5.00
and the minimum premium amount required by the Company Act 2006 of
GEL 565,030 thousand was transferred to share premium. Following
the capital cut the nominal value of TBCG shares was reduced to GBP
0.01. The capital cut created a new reserve on the statement of
TBCG's financial position (comprising of the reduction of the
original nominal value from GBP 5.00 to GBP 0.01 per share)
amounting to GEL 745,638 thousand. The reduction represents a legal
and accounting adjustment and did not, in itself, have any direct
impact on TBCG shares' market value. As a result of the reduction,
the Group's total additional paid-in capital outstanding at the
time became distributable to the shareholders and was fully
reclassified to retained earnings.
These transactions were treated as a reorganisation of an
existing entity that has not changed the substance of the reporting
entity. The consolidated financial statements of TBCG are presented
using the values from the consolidated financial statements of JSC
TBC Bank. On the date that TBCG became the new parent of the Group,
the statutory amounts of share capital and share premium of the
Company have been recognised through an adjustment in the Statement
of Changes in Equity under the heading 'Change of parent company to
TBCG'. The resulting difference has been recognised as a component
of equity under the heading "Group reorganisation reserve".
On 5 June 2017, at the Annual General Meeting, TBC Bank Group
PLC's shareholders agreed on a dividend of GEL 1.42 per share,
based on the 2016 audited financial statements. The dividend was
recorded on 9 June 2017 at the amount of GEL 74,910 thousand. Cash
dividend in the amount of GEL 66,733 thousand was paid in July
2017. Scrip dividend shares amounted to 146,703 and were issued on
14th of July.
On 23 June 2017 102,121 new ordinary shares of TBC PLC were
admitted to the premium segment of the London Stock Exchange. The
Offer Shares were issued pursuant to the terms of a private offer
to the holders of the ordinary shares of JSC TBC Bank who have
tendered Bank Shares pursuant to the Offer. The holders of Bank
Shares are individuals that did not participate in the tender offer
to holders made in 2016 by TBC PLC prior to TBC PLC's admission to
the premium segment of the London Stock Exchange. Holders of Bank
Shares received one Offer Share for each Bank Share tendered
pursuant to the Offer.
16 Share Based Payments
June 2013 arrangement:
In June 2013, the Bank's Supervisory Board approved a new
management compensation scheme for the years 2013 - 2015 and
authorised a maximum of 4,150 new shares to be issued in accordance
with the scheme. The authorized number of new shares has increased
to 1,037,500 in order to reflect the share split 250-for-1 approved
by the shareholders on 4 March 2014. According to the scheme, each
year, (subject to predefined performance conditions) a certain
number of shares will be awarded to the top management and some of
the middle managers of the Group.
The performance evaluation is divided into (i) team goals and
(ii) individual performance indicators. The total number of the
shares to be awarded (legally transferred) depends on meeting the
team goals and the book value per share according to the audited
IFRS consolidated financial statements of the Group for the year
preceding the award date. The team goals primarily focus on meeting
the target for growth, profitability and portfolio quality metrics
set by the Supervisory Board as well as compliance with certain
regulatory requirements. The total number of shares in the bonus
pool depends on achieving the team goals. Individual performance
indicators are defined on an individual basis and are used to
calculate the number of shares to be awarded to each employee out
of the total bonus pool. Once awarded, these shares carry service
conditions and, before those conditions are met, are eligible to
dividends. However, they do not carry voting rights and cannot be
sold or transferred to third parties. Service conditions foresee
continuous employment until the gradual transfer of the full title
to the scheme participants is complete. Shares for each of the
2013, 2014 and 2015 tranche gradually ran over on the second,
third, and fourth year following the performance appraisal. Eighty
percent of the shares were vested in the fourth year after being
awarded. Under this compensation system the total vesting period
extends to June 2019.
Under the management compensation scheme, both shareholders and
Supervisory Board held put options on the shares to be awarded. In
addition, they both held put options on all bonus shares awarded
under the previous share-based payment arrangements. All the
put-options became null and void upon the listing on the LSE in
June 2014. At no point of the operation of the share-based payment
scheme did the management expect the put-options to be exercised.
Consequently, the scheme was accounted for as equity-settled scheme
and no obligation was recognized for the put-options.
In 2013 the Group considered 20 June as the grant date. Based on
the management's expectation of performance and service conditions,
732,000 shares have been granted and will be gradually awarded to
the members of the described scheme. An external evaluator assessed
the fair value per share at the grant date at GEL 13.93 adjusted
for the effect of 250-for-1 share split Income and market
approaches were applied for the evaluation. The market approach
involved an estimate of the market capitalization to book value of
equity multiple and deal price to book value of equity multiple for
comparable banks. When selecting comparable banks, the appraiser
chose lenders operating in the Black Sea region and Central and
Eastern Europe with a portfolio mix and growth priorities similar
to TBC Bank. The income approach involved discounting free cash
flows to equity estimated over a 10-year horizon. When developing
the projections, the following major assumptions were made:
-- Over the 2013-2023 periods, the compound annual growth rate
was assumed at 15.2% for loans and at 15.1% for customer
accounts;
-- The spread on the Bank's customer business was assumed to
gradually decline from an estimated 10.2% in 2013 to stabilize at
5.8% by 2021;
-- Over 2013-2023 period, non-interest income was forecast to
average 1.8% of customer volume (i.e. gross loans and
deposits);
-- Year-on-year growth in various components of employee's
compensation was assumed at 37.6%-56.0% in 2014, 2.4%-9.8% in 2015
and was then assumed to gradually decline to 2.1%-3.6% in 2023.
Year-on-year growth in administrative expenses was assumed at 38.3%
in 2014, 10.4% in 2015 and to gradually decline to 3.3% in
2023;
-- The Bank's terminal value was estimated using the Gordon
growth model, applying US long-term inflation forecast (2.1%) as
the Bank's terminal cash flows growth rate;
-- Bank's cost of equity was estimated at 15.10%.
The final valuation was based on the income approach and the
market one was used to check the results obtained by the former.
The calculated value of Bank's equity was then divided by the
number of ordinary shares issued as of date and further reduced
with the discount for lack of control.
June 2015 arrangement:
In June 2015, the Bank's Supervisory Board approved new
management compensation scheme for the top and middle management
and it accordingly authorised the issue of a maximum 3,115,890 new
shares. The new system will be enforced from 2015 through 2018,
replacing the system introduced in June 2013 -- the performance
evaluation as well as the respective compensation for 2015 year-end
results will be paid under the new system. According to the scheme,
each year, subject to predefined performance conditions, a certain
number of shares will be awarded to the Group's top managers and
most of the middle ones. The performance features key performance
indicators (KPIs) divided into (i) corporate and (ii) individual.
The corporate KPIs are mainly related to achieving profitability,
efficiency, and portfolio quality metrics set by the Board as well
as non-financial indicators with regards to customers' experience
and employees' engagement. The individual performance indicators
are set on an individual basis and are used to calculate the number
of shares to be awarded to each employee. According to the scheme,
members of top management will also receive the fixed number of
shares. Once awarded, all shares carry service conditions and,
before those conditions are met, are eligible to dividends; however
they cannot be sold or transferred to third parties.
Service conditions foresee continuous employment until the
gradual transfer of the full title to the scheme participants is
complete. Shares for each of the 2015, 2016, 2017 and 2018 tranche
gradually ran over on the second, third and fourth year following
the performance appraisal. Eighty percent of the shares were vested
in the fourth year after being awarded. Under this compensation
system the total vesting period extends to March 2022.
In 2015 the Group considered 17 June as the grant date. Based on
the management's estimate of reached targets, as of 31 December
2015 1,908,960 shares were granted. The shares will be gradually
awarded to the members as per the described scheme. At the grant
date the fair value amounted to GEL 24.64 per share, as quoted on
the London Stock Exchange.
Following the listing on the Premium segment of the London Stock
Exchange, the share-based payment scheme remained conceptually the
same and was only updated to reflect the Group's new structure,
whereby TBC Bank Group PLC distributes its shares to the scheme's
participants, instead of JSC TBC Bank. The respective shares' value
is recharged to the JSC TBC Bank. As a result, the accounting of
the scheme did not change in the consolidated financial
statements.
The Bank also pays personal income tax on behalf of equity
settled scheme beneficiaries, which is accounted as cash settled
part. Tabular information on both of the schemes is given
below:
In GEL except for number of shares 30 June 2017 30 June 2016
Number of unvested shares at the beginning of the period 2,622,707 2,756,605
Change in estimate of number of shares expected to vest based on
performance conditions (13,100) (8,497)
Number of shares forfeited during the period - (35,146)
Number of shares vested (324,834) (90,255)
Number of unvested shares at the end of the period 2,284,773 2,622,707
Value at grant date per share according to June 2013 scheme
(GEL) 13.93 13.93
Value at grant date per share according to June 2015 scheme
(GEL) 24.64 24.64
Expense on equity-settled part (GEL thousand) 5,401 6,742
Decrease in equity due to utilisation of cash compensation
alternative (GEL thousand) - (817)
Expense on cash-settled part (GEL thousand) 2,578 1,981
Expense recognised as staff cost during the period (GEL
thousand) 7,979 7,906
Liability in respect of the cash-settled part of the award
amounted to GEL 10,535 thousand as of 30 June 2017 (31 December
2016: GEL 13,725 thousand).
Staff costs related to equity settled part of the share based
payment schemes are recognised in the income statement on a
straight line basis over the vesting period of each relevant
tranche and corresponding entry is credited to share based payment
reserve in equity.
On 30 June 2017 based on level of achievement of key performance
indicators the management has reassessed the number of shares that
will have to be issued to the participants of the share based
payment system and decreased estimated number of shares to vest by
13,098 (30 June 2016: 8,497).
17 Earnings per Share
Basic earnings per share are calculated by dividing the profit
or loss attributable to the owners of the Bank by the weighted
average number of ordinary shares in issue during the period.
In thousands of GEL except for number of shares 30 June 2017 30 June 2016
Profit for the period attributable to the owners of the Bank (excluding the profit
attributable
to the shares encumbered under the share based payment scheme 173,519 138,856
Weighted average number of ordinary shares in issue 52,438,704 49,368,582
Basic earnings per ordinary share attributable to the owners of the Bank (expressed in
GEL
per share) 3.31 2.81
Diluted earnings per share are calculated by dividing the profit
or loss attributable to owners of the Bank by the weighted average
number of ordinary shares adjusted for the effects of all dilutive
potential ordinary shares during the period:
In thousands of GEL except for number of shares 30 June 2017 30 June 2016
Profit for the period attributable to the owners of the Bank (excluding the profit
attributable
to the shares encumbered under the share based payment scheme - 173,519 140,034
Weighted average number of ordinary shares in issue adjusted for the effects of all
dilutive
potential ordinary shares during the period 53,169,508 50,350,409
Diluted earnings per ordinary share attributable to the owners of the Bank (expressed in
GEL
per share) 3.26 2.78
18 Segment Analysis
The Management Board (the "Board) is the chief operating
decision maker and it reviews the Group's internal reporting in
order to assess the performance and to allocate resources.
In 2017, the Group has combined its micro and SME segments into
one MSME category, as well as reclassified certain loans and
clients among segments.
The operating segments according to the new definition are now
determined as follows:
-- Corporate - Legal entities with an annual revenue of GEL 8.0
million or more or who have been granted a loan in an amount
equivalent to USD 1.5 million or more. 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 or individual
business customers who have been granted a loan in an amount
equivalent below USD 8.0 thousand. All individual customers are
included in retail deposits;
-- MSME - Business customers who are not included in either
corporate and retail segments; or legal entities who have been
granted a Pawn shop loan;
-- Corporate centre and other operations - comprises of the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
The Board of Directors assesses the performance of the operating
segments based on a measure of adjusted profit before income
tax.
The reportable segments are the same as the operating
segments.
No revenue from transactions with a single external customer or
counterparty amounted to 10% or more of the Group's total revenue
in as of 30 June 2017 and 31 December 2016.
The vast majority of the entity's revenues are attributable to
Georgia. A geographic analysis of origination of the Group's assets
and liabilities is given in Note 24.
A summary of the Group's reportable segments as of 30 June 2017
and 31 December 2016 is provided below:
Corporate Retail MSME Corporate Total
centre and
other
In thousands of GEL operations
30 June 2017
* Interest income 93,144 256,428 89,182 48,913 487,667
* interest expense (45,509) (57,944) (4,960) (87,180) (195,593)
* Inter-segment interest income/(expense) 7,985 (33,851) (24,923) 50,789 -
* Net interest income 55,620 164,633 59,299 12,522 292,074
* Fee and commission income 12,110 67,482 9,428 699 89,719
* Fee and commission expense (3,243) (26,982) (3,841) (436) (34,502)
* Net Fee and commission income 8,867 40,500 5,587 263 55,217
* Net insurance premiums earned - - - 6,382 6,382
* Net insurance claims incurred - - - (3,301) (3,301)
* Insurance Profit - - - 3,081 3,081
* Net gains from trading in foreign currencies 17,888 10,065 15,675 (236) 43,392
* Net losses from foreign exchange translation - - - 2,037 2,037
* Net losses from derivative financial instruments - - - (38) (38)
- - - - -
* Net gains from disposal of available for sale
investment securities
4,045 6,135 617 3,437 14,234
* Other operating income - - - 577 577
* Share of profit of associates
* Other operating non-interest income 21,933 16,200 16,292 5,777 60,202
* Provision for loan impairment 22,129 (55,288) (7,208) - (40,367)
* Provision for performance guarantees and credit
related commitments 887 108 552 - 1,547
* Provision for impairment of investments in finance
lease - - - (129) (129)
* Provision for impairment of other financial assets (409) 14 (108) (3,922) (4,425)
- - - - -
* Impairment of investment securities available for
sale
* Profit before administrative and other expenses and
income taxes 109,027 166,167 74,414 17,592 367,200
* Staff costs (12,840) (63,933) (16,106) (9,497) (102,376)
* Depreciation and amortisation (712) (14,010) (2,332) (469) (17,523)
* Provision for liabilities and charges - - - 2,495 2,495
* Administrative and other operating expenses (3,640) (37,922) (7,479) (9,405) (58,446)
* Operating expenses (17,192) (115,865) (25,917) (16,876) (175,850)
* Profit before tax 91,835 50,302 48,497 716 191,350
* Income tax expense (13,909) (6,225) (6,681) 11,880 (14,935)
* Profit for the period 77,926 44,077 41,816 12,596 176,415
30 June 2017
Total gross loans and advances to customers reported 2,057,644 3,699,857 1,628,934 - 7,386,435
Total customer accounts reported 2,057,651 3,707,854 900,908 - 6,666,413
Total credit related commitments and performance guarantees 863,933 189,459 148,720 - 1,202,112
In thousands of GEL
Corporate Retail MSME Corporate Total
centre and
other
30 June 2016 operations
* Interest income 67,370 170,312 64,691 38,653 341,026
* interest expense (17,910) (48,658) (3,885) (54,035) (124,488)
* Inter-segment interest income/(expense) (14,958) (15,673) (17,383) 48,014 -
* Net interest income 34,502 105,981 43,423 32,632 216,538
* Fee and commission income 10,330 43,448 6,927 1,523 62,228
* Fee and commission expense (1,542) (18,624) (2,127) (253) (22,546)
* Net Fee and commission income 8,788 24,824 4,800 1,270 39,682
* Net gains from trading in foreign currencies 9,364 7,193 10,842 1,686 29,085
* Net losses from foreign exchange translation - - - (999) (999)
* Net losses from derivative financial instruments - - - (472) (472)
* Net gains from disposal of available for sale
investment securities - - - 8,795 8,795
* Other operating income 4,812 1,117 352 2,081 8,362
* Other operating non-interest income 14,176 8,310 11,194 11,091 44,771
* Provision for loan impairment 13,905 (30,676) (8,506) - (25,277)
* Provision for performance guarantees and credit
related commitments (2,022) (68) 14 - (2,076)
* Provision for impairment of investments in finance
lease - - - (111) (111)
* Provision for impairment of other financial assets (620) (251) (28) (294) (1,193)
* Impairment of investment securities available for
sale - - (11) - (11)
* Profit before administrative and other expenses and
income taxes 68,729 108,120 50,886 44,588 272,323
* Staff costs (9,024) (43,640) (11,827) (4,982) (69,473)
* Depreciation and amortisation (521) (10,523) (1,619) (947) (13,610)
- - - - -
* Provision for liabilities and charges
* Administrative and other operating expenses (6,429) (30,379) (6,904) (7,873) (51,585)
* Operating expenses (15,974) (84,542) (20,351) (13,801) (134,668)
* Profit before tax 52,755 23,578 30,536 30,786 137,655
* Income tax expense (8,055) (2,003) (4,853) 16,493 1,582
* Profit for the period 44,700 21,575 25,683 47,279 139,237
31 December 2016
Total gross loans and advances to customers reported 2,060,172 3,763,255 1,535,298 - 7,358,725
Total customer accounts reported 1,795,503 3,666,385 993,061 - 6,454,949
Total credit related commitments and performance guarantees 724,402 189,604 232,814 - 1,146,820
Reportable segments' assets were reconciled to total assets as
follows:
In thousands of GEL 30 June 2017 31 December 2016
Total segment assets (gross loans and advances to customers) 7,386,435 7,358,725
Provision for loan impairment (212,130) (225,023)
Cash and cash equivalents 1,219,108 945,180
Mandatory cash balances with National Bank of Georgia 931,654 990,642
Due from other banks 41,096 24,725
Investment securities available for sale 618,044 430,703
Bonds carried at amortized cost 389,036 372,956
Investments in subsidiaries and associates 1,021 -
Current income tax prepayment 7,719 7,430
Deferred income tax asset 3,407 3,511
Other financial assets 94,238 94,627
Investments in finance leases 96,329 95,031
Other assets 197,533 171,263
Premises and equipment 320,139 314,032
Intangible assets 65,034 60,957
Investment properties 93,502 95,615
Goodwill 28,657 28,658
Total assets per statement of financial position 11,280,822 10,769,032
Reportable segments' liabilities are reconciled to total
liabilities as follows:
In thousands of GEL 30 June 2017 31 December 2016
Total segment liabilities (customer accounts) 6,666,413 6,454,949
Due to Credit institutions 2,313,550 2,197,577
Debt securities in issue 24,106 23,508
Current income tax liability 272 2,577
Deferred income tax liability 2138 5,646
Provisions for liabilities and charges 10,733 16,026
Other financial liabilities 122,019 50,998
Other liabilities 61,013 66,739
Subordinated debt 390,070 368,381
Total liabilities per statement of financial position 9,590,314 9,186,401
19 Interest Income and Expense
In thousands of GEL 30 June 2017 30 June 2016
Interest income
Loans and advances to customers 438,753 302,373
Investment securities available for sale 19,088 12,181
Bonds carried at amortised cost 15,250 16,215
Investments in leases 9,667 7,721
Due from other banks 4,909 2,536
Total interest income 487,667 341,026
Interest expense
Customer accounts 108,412 70,453
Due to credit institutions 68,952 38,465
Subordinated debt 17,187 14,716
Debt Securities in issue 1,042 854
Total interest expense 195,593 124,488
Net interest income 292,074 216,538
During the six months ended 30 June 2017 the interest accrued on
impaired loans amounted to GEL 10,192 thousand (30 June 2016: GEL
10,105 thousand).
20 Fee and Commission Income and Expense
In thousands of GEL 30 June 2017 30 June 2016
Fee and commission income
Fee and commission income in respect of financial instruments not at fair value through
profit
or loss:
- Card operations 40,245 26,848
- Settlement transactions 28,159 18,114
- Cash transactions 7,470 5,489
- Guarantees issued 6,073 6,132
- Issuance of letters of credit 3,459 2,553
- Foreign exchange operations 582 554
- Other 3,731 2,538
Total fee and commission income 89,719 62,228
Fee and commission expense
Fee and commission expense in respect of financial instruments not at fair value through
profit
or loss:
- Card operations 24,005 14,910
- Settlement transactions 3,385 2,598
- Cash transactions 2,105 1,269
- Letters of credit 465 904
- Guarantees received 561 267
- Foreign exchange operations 89 67
- Other 3,892 2,531
Total fee and commission expense 34,502 22,546
Net fee and commission income 55,217 39,682
21 Other Operating Income
In thousands of GEL 30 June 2017 30 June 2016
Revenues from operational leasing 3,510 3,528
Gain from sale of investment properties 1,174 230
Gain from sale of inventories of repossessed collateral 945 1,169
Revenues from sale of cash-in terminals 597 509
Gain on disposal of premises and equipment 191 96
Revenues from non-credit related fines 96 400
Reimbursed taxes 13 -
Administrative fee income from international financial institutions - 359
Other 7,708 2,071
Total other operating income 14,234 8,362
Revenue from operational leasing is wholly attributable to
investment properties. The carrying value of the
inventories of repossessed collateral disposed of in the period
ended 30 June 2017 was GEL 10,284 thousand (30 June 2016: GEL
10,281 thousand).
22 Administrative and Other Operating Expenses
In thousands of GEL 30 June 2017 30 June 2016
Rent 11,589 8,397
Advertising and marketing services 6,797 4,846
Professional services 5,825 16,807
Intangible asset enhancement 4,781 3,700
Utility services 3,020 2,422
Taxes other than on income 2,812 2,492
Premises and equipment maintenance 2,697 1,269
Stationery and other office expenses 2,240 1,633
Insurance 1,976 1,270
Impairment of intangible assets 1,850 19
Communications and supply 1,802 1,505
Impairment of Premises & Equipment 1,729 -
Loss on disposal of inventories 1,186 537
Security services 999 881
Business trip expenses 907 876
Insurance contract acquisition costs 825 -
Transportation and vehicle maintenance 798 642
Personnel training and recruitment 727 509
Charity 417 486
Gross Change in IBNR 391 -
Loss on disposal of investment properties 385 -
Loss on disposal of premises and equipment 171 74
Write-down of current assets to fair value less costs to sell (183) 52
Other 4,705 3,168
Total administrative and other operating expenses 58,446 51,585
23 Income Taxes
As at 30 June 2017, the statutory income tax rate applicable to
the majority of the Group's income is 15% (six months ended 30 June
2016: 15%). Interim period income tax expense is recognised based
on the income tax rate expected for the full financial year which
equaled 7.8% (six months ended 30 June 2016: minus 1.1%). Income
tax credit in the six months period ended 30 June 2016 is due to
re-measurement of deferred tax liability as at 30 June 2016 to
reflect the change in the Georgian tax code. Refer to note 3.
24 Financial and Other Risk Management
TBC Bank Group's strong risk governance reflects the importance
placed by the Board and the Group's Risks, Ethics and Compliance
Committee on shaping the risk strategy and managing credit,
financial and non-financial risks. All components necessary for
comprehensive risk governance are embedded into risk organization
structure: enterprise risk management; credit, financial and
non-financial risks management; risk reporting & supporting IT
infrastructure; cross-risk analytical tools and techniques such as
capital adequacy management and stress-testing. Comprehensive,
transparent and prudent risk governance facilitates understanding
and trust from multiple stakeholders, ensures sustainability and
resiliency of the business model and positioning of risk management
as Group's competitive advantage and strategic enabler.
The TBC Bank Group's governance structure ensures adequate
oversight and accountabilities as well as clear segregation of
duties. The Risks, Ethics and Compliance Committee is responsible
for taking all the day-to-day decisions relating to the Group apart
from those that are reserved for the Board. Namely, the committee
carries out following duties: 1) Review and assessment of the
Group's risk management strategy, risk appetite and tolerance, risk
management system and risk policies; 2) Review and monitoring of
the processes for compliance with laws, regulations and ethical
codes of practice; 3) monitoring of the remediation of internal
control deficiencies identified by internal and external auditors
around compliance, ethics and risk management functions; 4) Annual
self-assessment of the committee's performance and reporting of the
results to the Board; 5) Review of the key risk management
framework and other policy documents and make recommendations to
the Board for their approval.
On the Bank level, risk management is the duty of the
Supervisory Board, which has the overall responsibility to set the
tone at the top and monitor compliance with established objectives.
At the same time, Management Board governs and directs Groups'
daily activities.
Both the Supervisory Board and the Management Board have
established dedicated risk committees. Risk, Ethics and Compliance
Committee of Supervisory Board approves Bank's Risk Appetite,
supervises risk profile and risk governance practice within the
Bank while Audit Committee is responsible for implementation of key
accounting policies and facilitation of activities of internal and
external auditors. Management Board Risk Committee is established
to guide group-wide risk management activities and monitor major
risk trends to make sure risk profile complies with the established
Risk Appetite of the Group. Operational Risk Committee makes
decisions related to operational risk governance while
Asset-Liability Management Committee ("ALCO") is responsible for
implementation of ALM policies.
The Management Board of the Group and, the Supervisory Board and
Senior Management of the Bank govern risk objectives through Risk
Appetite Statement ("RAS") which sets desired risk profile and
respective risk limits for different economic environments. Risk
Appetite ("RA") establishes monitoring and reporting
responsibilities as well as escalation paths for different trigger
events and limit breaches which as well prompt risk teams to
establish and implement agreed mitigation actions. In order to
effectively implement Risk Appetite in the Group's day-to-day
operations, the RA metrics are cascaded into more granular business
unit level limits. That way risk allocation is established across
different segments and activities. The Board level oversight
coupled with the permanent involvement of the Senior Management in
TBC Group risk management ensures the clarity regarding risk
objectives, intense monitoring of risk profile against risk
appetite, prompt escalation of risk-related concerns and
establishment of remediation actions.
The daily management of individual risks is based on the
principle of the three lines of defense. While business lines are
primary risk owners, risk teams assume the function of the second
line defense. This role is performed through sanctioning
transactions as well as tools and techniques for risk
identification, analysis, measurement, monitoring and reporting.
The committees are established at operational levels in charge of
making transaction-level decisions that comprise of component of
clear and sophisticated delegations of the authority framework
based on "four-eye principle". All new products/projects go through
the risk teams to assure risks are analyzed comprehensively.
Such control arrangements guarantee that the Bank takes informed
risk-taking decisions that are adequately priced, avoiding taking
risks that are beyond the Group's established threshold. Within the
Risk Organization the below teams manage the credit, liquidity,
market, operational and other non-financial risks:
-- Enterprise Risk Management (ERM);
-- Credit Risk Management;
-- Underwriting (Credit sanctioning);
-- Restructuring and Collections;
-- Financial Risk Management;
-- Operational Risk Management.
The strong and independent structure enables fulfilment of all
the required risk management functions within the second line of
defense by highly skilled professionals with a balanced mix of
credentials in banking and real sectors both on the local and
international markets.
In addition to the above-mentioned risk teams, the Compliance
Department (reporting directly to CEO) is specifically in charge of
AML and compliance risk management. As the third line of defense,
the Internal Audit Department provides an independent and objective
assurance and recommendations to Group that facilitates further
improvement of operations and risk management.
For the management of each significant risk, the Bank puts in
place specific policies and procedures, governance tools and
techniques, methodologies for risk identification, assessment and
quantification. Sound risk reporting systems and IT infrastructure
are important tools for efficient risk management of TBC Bank.
Thus, significant emphasis and investments are made by the Bank to
constantly drive the development of required solutions.
Comprehensive reporting framework is in place for the Management
Board of the Group and the Supervisory Board and the Senior
Management of the Bank that enables intense oversight over risk
developments and taking early remedial actions upon necessity.
Beyond the described risk governance components, compensation
system features one of the most significant tools for introducing
incentives for staff, aligned with the Bank's long term interests
to generate sustainable risk-adjusted returns. The risk Key
Performance Indicators ("KPIs") are incorporated into both the
business line and the risk staff remunerations. The performance
management framework differentiates risk staff incentives to
safeguard the independence from business areas that they supervise
and at the same time enable attraction and maintenance of qualified
professionals. For that purpose, the Bank overweighs risk KPIs for
risk and control staff and caps the share of variable
remuneration.
Credit risk. The Group is exposed to credit risk, which is the
risk that a customer or counterparty will be unable to meet its
obligation to settle outstanding amounts. The Group's exposure to
credit risk arises as a result of its lending operations and other
transactions with counterparties giving rise to financial assets.
Maximum exposure to credit risk of on-balance sheet items equals
their carrying values. For maximum exposure on off-balance sheet
commitments refer to Note 26.
Credit risks include: risks arising from transactions with
individual counterparties, concentration risk, currency-induced
credit risks and residual risks.
- Risks arising from transactions with individual counterparties
are the loss risk related to default or non-fulfillment of
contracts due to deterioration in the counterparty's credit
quality;
- Concentration risk is the risk related to the quality
deterioration due to large exposures provided to single borrowers
or a group of connected borrowers, or loan concentration in certain
economic industries;
- Currency-induced credit risks relate to risks arising from
foreign currency-denominated loans in the Group's portfolio;
- Residual risks result from applying credit risk-mitigation
techniques, which could not satisfy expectation in relation to
received collateral.
Comprehensive risk management methods and processes are
established as part of the Group's risk management framework to
manage credit risk effectively. The main principles for Group's
credit risk management are: establish a prudent credit risk
environment; operate under a sound credit-granting process; and
maintain efficient processes for credit risk identification,
measurement, control and monitoring. Respective policies and
procedures establish a framework for lending decisions reflecting
the Group's tolerance for credit risk. This framework includes
detailed and formalised credit evaluation and collateral appraisal
processes, administration and documentation, credit approval
authorities at various levels, counterparty and industry
concentration limits, and clearly defined roles and
responsibilities of entities and staff involved in the origination,
monitoring and management of credit.
Comprehensive risk management methods and processes are
established as part of the Group's risk management framework to
manage credit risk effectively. The main principles for Group's
credit risk management are: establish a prudent credit risk
environment; operate under a sound credit-granting process; and
maintain efficient processes for credit risk identification,
measurement, control and monitoring. Respective policies and
procedures establish a framework for lending decisions reflecting
the Group's tolerance for credit risk. This framework includes
detailed and formalised credit evaluation and collateral appraisal
processes, administration and documentation, credit approval
authorities at various levels, counterparty and industry
concentration limits, and clearly defined roles and
responsibilities of entities and staff involved in the origination,
monitoring and management of credit.
Credit Approval: The Group strives to ensure a sound
credit-granting process by establishing well-defined credit
granting criteria and building up an efficient process for the
comprehensive assessment of a borrower's risk profile. The concept
of three lines of defense is embedded in the credit risk assessment
framework, with a clear segregation of duties among the parties
involved in the credit assessment process.
The credit assessment process differs across segments, being
further differentiated across various product types reflecting the
different natures of these asset classes. Corporate, SME and larger
retail and micro loans are assessed on an individual basis with
thorough analysis of the borrower's creditworthiness and structure
of the loan; whereas smaller retail and micro loans are mostly
assessed in an automated way applying respective scoring models for
the loan approval. Lending guidelines for business borrowers have
been tailored to individual economic sectors, outlining key lending
criteria and target ratios within each industry.
The Loan Approval Committees are responsible to review the
credit applications and approve the credit products. Different Loan
Approval Committees with clearly defined delegation authority are
in place for the approval of credit exposures to Corporate, SME,
Retail and Micro customers (except those products which are
assessed applying scorecards). The composition of a Loan Approval
Committee depends on aggregated liabilities of the borrower and the
borrower's risk profile. Credit risk managers (as members of
respective Loan Approval Committees) ensure that the borrower and
the proposed credit exposure risks are thoroughly analysed. 1. A
loan to the Bank's top 20 borrowers or exceeding 5% of the Bank's
regulatory capital requires the review and the approval of the
Supervisory Board's Risk, Ethics and Compliance Committee. This
committee also approves transactions with related parties resulting
in exposures to individuals and legal entities exceeding GEL 150
and 200 thousand, respectively.
Credit Risk Monitoring: The Group's risk management policies and
processes are designed to identify and analyse risk in a timely
manner, and monitor adherence to predefined limits by means of
reliable and timely data. The Group dedicates considerable
resources to gain a clear and accurate understanding of the credit
risk faced across various business segments. The Group uses a
robust monitoring system to react timely to macro and micro
developments, identify weaknesses in the credit portfolio and
outline solutions to make informed risk management decisions.
Monitoring processes are tailored to the specifics of individual
segments, as well as they encompass individual credit exposures,
overall portfolio performance and external trends that may impact
the portfolio's risk profile. Early warning signals serve as an
important early alert system for the detection of credit
deteriorations, leading to mitigating actions.
Reports relating to the credit quality of the credit portfolio
are presented to the Board's Risk, Ethics and Compliance Committees
on a quarterly basis. By comparing current data with historical
figures and analysing forecasts, the management believes that it is
capable identifying risks and responding to them by amending its
policies in a timely manner.
Credit Risk Mitigation: Credit decisions are based primarily on
the borrower's repayment capacity and creditworthiness; in
addition, the Group uses credit risk mitigation tools such as
collateral and guarantees to reduce the credit risk. The reliance
that can be placed on these mitigants is carefully assessed for
legal certainty and enforceability, market valuation of collateral
and counterparty risk of the guarantor.
A centralised unit for collateral management governs the Group's
view and strategy in relation to collateral management and ensures
that collateral serves as an adequate mitigating factor for credit
risk management purposes. The collateral management framework
consists of a sound independent appraisal process, haircut system
throughout the underwriting process, monitoring and
revaluations.
Credit Risk Restructuring and Collection: A comprehensive
portfolio supervision system is in place to identify weakened or
problem credit exposures in a timely manner and to take prompt
remedial actions. Dedicated restructuring units manage weakened
borrowers across all business segments. The primary goal of the
restructuring units is to rehabilitate the borrower and return to
the performing category. The sophistication and complexity of
rehabilitation process differs based on the type and size of
exposure.
A centralised monitoring team monitors retail borrowers in
delinquency, which coupled with branches' efforts, are aimed at
maximizing collection. The specialised software is applied for
early collection processes management. Specific strategies are
tailored to different sub-groups of customers, reflecting
respective risk levels, so that greater effort is dedicated to
customers with a higher risk profile.
Dedicated recovery units manage loans with higher risk profile.
Corporate and SME borrowers are transferred to a recovery unit in
case of a strong probability that a material portion of the
principal amount will not be paid and the main stream of recovery
is no longer the borrower's cash flow. Retail and micro loans are
generally transferred to the recovery unit or external collection
agencies (in the case of unsecured loans) at 90 days overdue,
although they may be transferred earlier if it is evident that the
borrower is unable to repay the loan.
Geographical risk concentrations. Assets, liabilities, credit
related commitments and performance guarantees have generally been
attributed to geographic regions based on the country in which the
counterparty is located. Balances legally outstanding to/from
off-shore companies which are closely related to Georgian
counterparties are allocated to the caption "Georgia". Cash on hand
and premises and equipment have been allocated based on the country
in which they are physically held.
The geographical concentration of the Group's assets and
liabilities as of 30 June 2017 is set out below:
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 685,299 527,939 5,870 1,219,108
Due from other banks 30,561 8,109 2,426 41,096
Mandatory cash balances with National Bank of Georgia 931,654 - - 931,654
Loans and advances to customers 6,957,168 46,756 170,381 7,174,305
Investment securities available for sale 607,346 - 737 608,083
Bonds carried at amortised cost 389,036 - - 389,036
Repurchase receivables 9,961 - - 9,961
Investments in leases 96,329 - - 96,329
Other financial assets 94,049 60 129 94,238
Total financial assets 9,801,403 582,864 179,543 10,563,810
Non-financial assets 712,543 25 4,444 717,012
Total assets 10,513,946 582,889 183,987 11,280,822
Liabilities
Due to credit institutions 808,822 1,488,388 16,340 2,313,550
Customer accounts 5,589,458 550,059 526,896 6,666,413
Debt securities in issue 12,085 - 12,021 24,106
Other financial liabilities 97,865 23,539 615 122,019
Subordinated debt 53,191 214,344 122,535 390,070
Total financial liabilities 6,561,421 2,276,330 678,407 9,516,158
Non-financial liabilities 72,372 1,069 715 74,156
Total liabilities 6,633,793 2,277,399 679,122 9,590,314
Net balance sheet position 3,880,153 (1,694,510) (495,135) 1,690,508
Performance guarantees 340,197 47,354 85,197 472,748
Credit related commitments 717,038 9,646 2,680 729,364
The geographical concentration of the Group's assets and
liabilities as of 31 December 2016 is set out below:
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 549,279 389,223 6,678 945,180
Due from other banks 5,874 18,851 - 24,725
Mandatory cash balances with National Bank of Georgia 990,642 - - 990,642
Loans and advances to customers 6,923,037 88,616 122,049 7,133,702
Investment securities available for sale 429,985 - 718 430,703
Bonds carried at amortised cost 372,956 - - 372,956
Investments in leases 95,031 - - 95,031
Other financial assets 94,398 229 - 94,627
Total financial assets 9,461,202 496,919 129,445 10,087,566
Non-financial assets 676,665 29 4,772 681,466
Total assets 10,137,867 496,948 134,217 10,769,032
Liabilities
Due to credit institutions 718,699 1,408,693 70,185 2,197,577
Customer accounts 5,421,782 530,370 502,797 6,454,949
Debt securities in issue 13,261 - 10,247 23,508
Other financial liabilities 49,092 1,286 620 50,998
Subordinated debt - 233,657 134,724 368,381
Total financial liabilities 6,202,834 2,174,006 718,573 9,095,413
Non-financial liabilities 89,298 1,098 592 90,988
Total liabilities 6,292,132 2,175,104 719,165 9,186,401
Net balance sheet position 3,845,735 (1,678,156) (584,948) 1,582,631
Performance guarantees 274,614 56,406 95,588 426,608
Credit related commitments 706,646 10,175 3,391 720,212
Market risk. The Bank follows the Basel Committee's definition
of market risk as the risk of losses in on- and off-balance sheet
positions arising from movements in market prices. This risk is
principally made up of (a) risks pertaining to interest rate
instruments and equities in the trading book and (b) foreign
exchange rate risk (or currency risk) and commodities risk
throughout the Bank. The Bank's strategy is not to be involved in
trading book activity or investments in commodities. Accordingly,
the Bank's exposure to market risk is primarily limited to foreign
exchange rate risk in the structural book.
Currency risk. Foreign exchange rate risk arises from the
potential change in foreign currency exchange rates, which can
affect the value of a financial instrument. This risk stems from
the open currency positions created due to mismatches in foreign
currency assets and liabilities. The NBG requires the Bank to
monitor both balance-sheet and total aggregate (including
off-balance sheet) open currency positions and to maintain the
later one within 20% of the Bank's regulatory capital. As of 30
June 2017, the Bank maintained an aggregate open currency position
of 1.6% of regulatory capital (2016: 3.2%). The Asset-Liability
Management Committee ("ALCO") has set limits on the level of
exposure by currency as well as on aggregate exposure positions
which are more conservative than those set by the NBG. The Bank's
compliance with such limits is monitored daily by the heads of the
Treasury and Financial Risk Management Departments.
Currency risk management framework is governed through the
Market Risk Management Policy, market risk management procedure and
relevant methodologies. In 2016 within the ICAAP framework the Bank
developed methodology for allocating capital charges for FX risk
following Basel guidelines. The table below summarises the Group's
exposure to foreign currency exchange rate risk at the balance
sheet date. While managing open currency position the Group
considers all provisions to be denominated in the local currency.
Gross amount of currency swap deposits is included in Derivatives.
Therefore total financial assets and liabilities below are not
traceable with either balance sheet or liquidity risk management
tables, where net amount of gross currency swaps is presented:
As of 30 June 2017 As of 31 December 2016
Monetary Monetary Deri-vatives Net Monetary Monetary Deri-vatives Net
financial financial balance financial financial balance
In thousands assets liabilities sheet assets liabilities sheet
of GEL position position
Georgian
Lari 4,099,396 3,199,058 65,522 965,860 3,484,840 2,478,715 9,394 1,015,519
US Dollars 5,658,187 5,597,328 (65,059) (4,200) 5,821,734 5,848,266 (8,905) (35,437)
Euros 621,346 618,714 (0) 2,632 690,728 697,568 (13) (6,853)
Other 184,881 101,058 (407) 83,416 90,264 70,864 (288) 19,112
Total 10,563,810 9,516,158 56 1,047,708 10,087,566 9,095,413 188 992,341
To assess the currency risk the Bank performs a value-at-risk
("VAR") sensitivity analysis on a quarterly basis. The analysis
calculates the effect on the Group's income determined by possible
worst movement of currency rates against the Georgian Lari, with
all other variables held constant. To identify the maximum expected
losses resulting from currency fluctuations, a 99% confidence level
is defined based on the monthly variations in exchange rates over 3
year look-back period. During the six months ended 30 June 2017 and
the year ended 31 December 2016 the sensitivity analysis did not
reveal any significant potential effect on the Group's equity:
In thousands of GEL 30 June 2017 31 December 2016
Maximum loss (VAR, 99% confidence level) (767) (1,184)
Maximum loss (VAR,95% confidence level) (550) (868)
Interest rate risk. Interest rate risk arises from potential
changes in the market interest rates that can adversely affect the
fair value or future cash flows of the financial instrument. This
risk can arise from maturity mismatches of assets and liabilities,
as well as from the re-pricing characteristics of such assets and
liabilities.
The Bank's deposits and the most loans are at fixed interest
rates, while a portion of the Bank's borrowings is at a floating
interest rate. The Bank's floating rate borrowings are, to a
certain extent, hedged by the NBG paying a floating rate on the
minimum reserves that the Bank holds with the NBG. The Bank has
also entered into interest rate swap agreements in order to
mitigate interest rate risk. Furthermore, many of the Bank's loans
to customers contain a clause allowing it to adjust the interest
rate on the loan in case of adverse interest rate movements,
thereby limiting the Bank's exposure to interest rate risk. The
management also believes that the Bank's interest rate margins
provide a reasonable buffer to mitigate the effect of possible
adverse interest rate movements.
The table below summarises the Group's exposure to interest rate
risks. It illustrates the aggregated amounts of the Group's
financial assets and liabilities at the amounts monitored by the
management and categorised by the earlier of contractual interest
re-pricing or maturity dates. Currency and interest rate swaps are
not netted when assessing the Group's exposure to interest rate
risks. Therefore, total financial assets and liabilities below are
not traceable with either balance sheet or other financial risk
management tables. The tables consider both reserves placed with
NBG and Interest bearing Nostro accounts. Income on NBG reserves
and Nostros are calculated as benchmark minus margin whereby for
benchmark Federal funds rate and ECB rates are considered in case
of USD and EUR respectively. Therefore, they have impact on the
TBC's Net interest income in case of both upward and downward shift
of interest rates.
In thousands of GEL Less than 1 year More than 1 year Total
30 June 2017
Total financial assets 6,058,192 4,532,338 10,590,530
Total financial liabilities 6,773,064 2,769,813 9,542,877
Net interest sensitivity gap as of 30 June 2017 (714,872) 1,762,525 1,047,653
31 December 2016
Total financial assets 5,519,746 4,606,991 10,126,737
Total financial liabilities 6,633,005 2,501,580 9,134,585
Net interest sensitivity gap as of 31 December 2016 (1,113,259) 2,105,411 992,152
As of 30 June 2017, if interest rates had been 100 basis points
lower with all other variables held constant, profit for the period
would have been GEL 6,417 thousands higher (30 June 2016: GEL 800
thousand), mainly as a result of lower interest expense on variable
interest liabilities. Other comprehensive income would have been
GEL 4,935 thousand higher (30 June 2016: GEL 1,116 thousand), as a
result of an increase in the fair value of fixed rate financial
assets classified as available for sale and repurchase
receivables.
If interest rates had been 100 basis points higher, with all
other variables held constant, profit would have been GEL 6,417
thousands lower (30 June 2016: GEL 800 thousand), mainly as a
result of higher interest expense on variable interest liabilities.
Other comprehensive income would have been GEL4,760 thousand lower
(30 June 2016: GEL 1,093 thousand), as a result of decrease in the
fair value of fixed rate financial assets classified as available
for sale.
With the assistance of Ernst & Young LLC the Bank has
developed an advanced model to manage the interest rate risk on a
standalone basis. The interest rate risk analysis is performed
monthly by the Financial Risk Management Department.
The Bank calculates the impact of changes in interest rates
using both Net Interest Income and Economic Value sensitivity. Net
Interest Income sensitivity measures the impact of a change of
interest rates along the various maturities on the yield curve on
the net interest revenue for the nearest year. Economic Value
measures the impact of a change of interest rates along the various
maturities on the yield curve on the present value of the Group's
assets, liabilities and off-balance sheet instruments. When
performing Net Interest Income and Economic Value sensitivity
analysis, the Bank uses parallel shifts in interest rates as well
as number of different scenarios. Under the ICAAP framework, TBC
Bank reserves capital in the amount of the adverse effect of
possible parallel yield curve shift scenarios on net interest
income over a one-year period for Basel II Pillar 2 capital
calculation purposes.
In order to manage Interest Rate risk the Bank establishes
appropriate limits. The Bank monitors compliance with the limits
and prepares forecasts. ALCO decides on actions that are necessary
for effective interest rate risk management and follows up on the
implementation. Periodic reporting is done to Management Board and
the Board's Risk, Ethics and Compliance Committee.
Liquidity Risk. The liquidity risk is the risk that TBC Bank
either does not have sufficient financial resources available to
meet all of its obligations and commitments as they fall due, or
can access those resources only at a high cost. The risk is managed
by the Financial Risk Management and Treasury Departments and is
monitored by the ALCO.
The principal objectives of the TBC Bank's liquidity risk
management policy are to: (i) ensure the availability of funds in
order to meet claims arising from total liabilities and off-balance
sheet commitments, both actual and contingent, at an economic
price; (ii) recognise any structural mismatch existing within TBC
Bank's statement of financial position and set monitoring ratios to
manage funding in line with well-balanced growth; and (iii) monitor
liquidity and funding on an ongoing basis to ensure that approved
business targets are met without compromising the risk profile of
the Bank.
The liquidity risk is categorised into two risk types: the
funding liquidity risk and the market liquidity risk.
Funding liquidity risk is the risk that TBC will not be able to
efficiently meet both expected and unexpected current and future
cash flow and collateral needs without affecting either its daily
operations or its financial condition. To manage funding liquidity
risk TBC Bank uses the Liquidity Coverage ratio and the Net Stable
Funding ratio set forth under Basel III, as well as minimum
liquidity ratio defined by the NBG. In addition the Bank performs
stress tests, what if and scenarios analysis.
The Liquidity Coverage ratio is used to help manage short-term
liquidity risks. The Bank's liquidity risk management framework is
designed to comprehensively project cash flows arising from assets,
liabilities and off-balance sheet items over certain time bands and
ensure that liquidity coverage ratio limits are put in place. TBC
Bank also stress tests the results of liquidity through large shock
scenarios set by the NBG. Internal liquidity coverage ratio and
stress tests are carried out on a weekly basis.
The Net Stable Funding ratio is used for long-term liquidity
risk management to promote resilience over a longer time horizon by
creating additional incentives for TBC Bank to rely on more stable
sources of funding on a continuous basis. The Bank also sets
deposit concentration limits for large deposits and deposits of
non-Georgian residents in its deposit portfolio.
Net Stable Funding ratio is calculated based on the IFRS
consolidated financial statements. In addition, for internal
purposes TBC Bank calculates NSFR ratio on the basis of standalone
financial statements prepared in accordance with NBG's accounting
rules.
The management believes that a strong and diversified funding
structure is one of TBC Bank's differentiators. The Bank relies on
relatively stable deposits from Georgia as the main source of
funding. In order to maintain and further enhance the liability
structure TBC Bank sets the targets for retail deposits in its
strategy and sets the loan to deposit ratio limits.
The loan to deposit ratio (defined as total value of net loans
divided by total value of deposits) stood at 107.6% and 110.5%, at
the 30 June 2017 and 31 December 2016, respectively.
Market liquidity risk is the risk that the Bank cannot easily
offset or eliminate a position at the then-current market price
because of inadequate market depth or market disruption. To manage
it, TBC Bank follows Basel III guidelines on high-quality liquidity
asset eligibility in order to ensure that the Bank's high-quality
liquid assets can be sold without causing a significant movement in
the price and with minimum loss of value.
In addition, TBC Bank has a liquidity contingency plan, which is
part of the Bank's overall prudential liquidity policy and is
designed to ensure that TBC Bank is able to meet its funding and
liquidity requirements and maintain its core business operations in
deteriorating liquidity conditions that could arise outside the
ordinary course of its business.
The Bank calculates its liquidity ratio on a daily basis in
accordance with the NBG's requirements. The limit is set by the NBG
for average liquidity ratio, which is calculated as the ratio of
average liquid assets to average liabilities for the respective
month, including borrowings from financial institutions and part of
off-balance sheet liabilities with residual maturity up to 6
months. As of 30 June the ratios were well above the prudential
limit set by the NBG as follows:
30 June 2017 31 December 2016
Average Liquidity Ratio 34.2% 30.8%
According to daily cash flow forecasts and the surplus in
liquidity standing, the Treasury Department places funds in
short-term liquid assets , largely made up of short-term risk-free
securities, interbank deposits and other inter-bank facilities, to
ensure that sufficient liquidity is maintained within the Group as
a whole.
Maturity analysis. The table below summarizes the maturity
analysis of the Group's financial liabilities, based on remaining
undiscounted contractual obligations as of 30 June 2017
Subject-to-notice repayments are treated as if notice were to be
given immediately. However, the Group expects that many customers
will not request repayment on the earliest date the Group could be
required to pay and the table does not reflect the expected cash
flows indicated by the Group's deposit retention history.
The maturity analysis of financial liabilities as of 30 June
2017 is as follows:
Less than 3 months From 3 to 12 months From 12 months to 5 Over 5 years Total
In thousands of GEL years
Liabilities
Due to Credit
institutions 838,513 382,218 1,140,321 174,918 2,535,970
Customer accounts -
individuals 2,168,834 1,129,771 451,946 37,582 3,788,133
Customer accounts - other 2,738,042 160,777 114,348 45,733 3,058,900
Other financial
liabilities 117,761 3,736 522 - 122,019
Subordinated debt 5,521 33,856 214,428 333,531 587,336
Debt securities in issue 5,491 1,059 20,511 - 27,061
Gross settled forwards 64,860 7,685 - - 72,545
Performance guarantees 80,272 202,411 189,258 807 472,748
Financial guarantees 33,609 99,903 39,000 137 172,649
Other credit related
commitments 556,715 - - - 556,715
Total potential future
payments for financial
obligations 6,609,618 2,021,416 2,170,334 592,708 11,394,076
The maturity analysis of financial liabilities as of 31 December
2016 is as follows:
Less than 3 months From 3 to 12 months From 12 months to 5 Over 5 years Total
In thousands of GEL years
Liabilities
Due to Credit
institutions 837,188 310,447 1,103,959 168,271 2,419,865
Customer accounts -
individuals 2,147,015 1,284,067 360,609 39,578 3,831,269
Customer accounts - other 2,287,043 238,551 134,293 74,180 2,734,067
Other financial
liabilities 46,971 2,883 1,144 - 50,998
Subordinated debt 4,853 29,510 238,224 360,551 633,138
Debt securities in issue 616 6,584 22,745 - 29,945
Gross settled forwards 16,084 3,641 369 - 20,094
Performance guarantees 60,552 154,616 210,595 845 426,608
Financial guarantees 117,994 102,311 50,657 140 271,102
Other credit related
commitments 449,110 - - - 449,110
Total potential future
payments for financial
obligations 5,967,426 2,132,610 2,122,595 643,565 10,866,196
The undiscounted financial liability analysis gap does not
reflect the historical stability of the current accounts. Their
liquidation has historically taken place over a longer period than
the one indicated in the tables above. These balances are included
in amounts due in less than three months in the tables above.
Term Deposits included in the customer accounts are classified
based on remaining contractual maturities, according to the
Georgian Civil Code, however, individuals have the right to
withdraw their deposits prior to maturity if they partially or
fully forfeit their right to accrued interest and the Group is
obliged to repay such deposits upon the depositor's demand. Based
on the Bank's deposit retention history, the management does not
expect that many customers will require repayment on the earliest
possible date; accordingly, the table does not reflect the
management's expectations as to actual cash outflows.
The Group does not use the above undiscounted maturity analysis
to manage liquidity. Instead, the Group monitors the liquidity gap
analysis based on the expected maturities. In particular, the
customers' deposits are distributed in the given maturity gaps
following their behavioural analysis.
As of 30 June 2017 the analysis by expected maturities may be as
follows:
In thousands of GEL Less than 3 months From 3 to 12 months From 1 to 5 Years Over 5 years Total
Assets
Cash and cash equivalents 1,219,108 - - - 1,219,108
Due from other banks 24,888 - 2,426 13,782 41,096
Mandatory cash balances with
National Bank of Georgia 931,654 - - - 931,654
Loans and advances to customers 1,181,092 1,378,195 2,896,679 1,718,339 7,174,305
Investment securities available
for sale 608,083 - - - 608,083
Bonds carried at amortised cost 42,130 127,244 180,717 38,945 389,036
Finance lease receivables 17,739 30,445 48,145 - 96,329
Repurchase receivables 9,961 - - - 9,961
Other financial assets 62,168 14,578 17,492 - 94,238
Total financial assets 4,096,823 1,550,462 3,145,459 1,771,066 10,563,810
Liabilities
Due to Credit institutions 829,532 321,767 1,000,732 161,519 2,313,550
Customer accounts 784,846 162,811 - 5,718,756 6,666,413
Debt securities in issue 4,979 - 19,127 - 24,106
Other financial liabilities 117,761 3,736 522 - 122,019
Subordinated debt 3,889 11,720 115,167 259,294 390,070
Total financial liabilities 1,741,007 500,034 1,135,548 6,139,569 9,516,158
Credit related commitments and
performance guarantees
Performance guarantees 2,708 - - - 2,708
Financial guarantees 6,429 - - - 6,429
Other credit related commitments 60,333 - - - 60,333
- - -
Credit related commitments and
performance guarantees 69,470 - - - 69,470
Net liquidity gap as of 30 June
2017 2,286,346 1,050,428 2,009,911 (4,368,503) 978,182
Cumulative gap as of 30 June
2017 2,286,346 3,336,774 5,346,685 978,182
The management believes that the Group has sufficient liquidity
to meet its current on- and off-balance sheet obligations. As of 31
December 2016 the analysis by expected maturities may be as
follows:
In thousands of GEL Less than 3 months From 3 to 12 months From 1 to 5 Years Over 5 years Total
Assets
Cash and cash equivalents 945,180 - - - 945,180
Due from other banks 4,417 5,210 5,544 9,554 24,725
Mandatory cash balances with
National Bank of Georgia 990,642 - - - 990,642
Loans and advances to customers 1,119,128 1,481,095 2,949,227 1,584,252 7,133,702
Investment securities available
for sale 430,703 - - - 430,703
Bonds carried at amortised cost 123,763 94,250 128,201 26,742 372,956
Finance lease receivables 18,770 30,600 45,661 - 95,031
Other financial assets 64,328 10,595 19,704 - 94,627
Total financial assets 3,696,931 1,621,750 3,148,337 1,620,548 10,087,566
Liabilities
Due to Credit institutions 796,148 260,046 986,857 154,526 2,197,577
Customer accounts 723,340 154,513 - 5,577,096 6,454,949
Debt securities in issue 145 5,277 18,086 - 23,508
Other financial liabilities 46,971 2,883 1,144 50,998
Subordinated debt 3,333 4,893 125,174 234,981 368,381
Total financial liabilities 1,569,937 427,612 1,131,261 5,966,603 9,095,413
Credit related commitments and
performance guarantees
Performance guarantees 2,635 - - - 2,635
Financial guarantees 8,049 - - - 8,049
Other credit related commitments 45,854 - - - 45,854
Credit related commitments and
performance guarantees 56,538 - - - 56,538
Net liquidity gap as of 31
December 2016 2,070,456 1,194,138 2,017,076 (4,346,055) 935,615
Cumulative gap as of 31 December
2016 2,070,456 3,264,594 5,281,670 935,615
The management believes that the Group has sufficient liquidity
to meet its current on- and off-balance sheet obligations.
In order to assess the possible outflow of the bank's customer
accounts management applied value-at-risk analysis. The statistical
data was used on the basis of a holding period of one month for a
look-back period of five years with a confidence level of 99%. The
value at risk analysis was performed for the following maturity
gaps: (0-1 months), (0-3 months), (0-6 months) and (0-12 months),
based on which the maximum percentage of deposits' outflow was
calculated.
Management believes that in spite of a substantial portion of
customers' accounts being on demand, diversification of these
deposits by number and type of depositors, and the past experience
of the Group would indicate that these customer accounts provide a
long-term and stable source of funding for the Group. Moreover, the
Group's liquidity risk management includes estimation of maturities
for its current deposits. The estimate is based on statistical
methods applied to historic information on the fluctuations of
customer account balances.
Operating environment. Most of the Group's business is based in
Georgia. Over the last few years the Georgian government has
embarked in a number of civil, criminal, tax, administrative and
commercial reforms that have positively affected the overall
investment climate of the country. Today Georgia has an
international reputation as a country with a favourable investment
environment. Georgia continued to progress in the report "Doing
Business 2017" by the World Bank (WB) and International Financing
Corporation (IFC), ranking as the 16th easiest country in the world
to do business (out of 190), up by 7 steps compared to the previous
year rankings. The country improved its ranking in almost all
categories, confirming its position as regional leader and
outperforming most of the EU economies. Georgia also boasts low
corruption levels, a low tax burden, and high transparency of its
institutions according to the number of surveys by international
institutions.
The domestic economic environment remains stable and the banking
sector continues to grow, supported by broader macroeconomic
stability and attractive business climate. Economic growth
continues to outperform the initial projections of growth for 2017.
In H1 2017 GDP growth averaged 4.5%, per initial estimates, above
the IMF's 3.5% and government's 4% growth forecast for FY 2017.
Improvement in economic growth in Q1 2017 was broad-based on almost
all sectors of the economy. Construction (+21.6% YoY),
manufacturing (+6.2% YoY) and transport and communications sector
(+7.3% YoY) represented major drivers of growth in Q1 2017, while
all other sectors of the economy posted positive annual growth
rates. Agriculture was the only sector of the economy to decline
moderately by 1.5% YoY in Q1 2017.
Favourable external environment continues to underpin growth in
export, tourism and remittances inflows. Regional environment
improved markedly since the end of 2016, with all of the major
trading partner economies showing improvements in growth rates
compared to 2016 figures.
Current Account deficit showed sizeable improvement, in spite of
the increasing imports of goods driven mostly by higher commodity
prices. In Q1 2017 CA deficit to GDP ratio stood at 11.8%, down
from 13.5% in the same period previous year. Balance of trade in
goods worsened slightly by 0.1% of GDP YoY, sharp improvement in
export inflows (+4.8% of GDP YoY) almost fully offset increasing
imports in Q1 2017. Sharp growth of tourism inflows boosted the
balance of trade in services from 8.3% in Q1 2016 to 10.5% in Q1
2017. Transfers also went up by 1.2% of GDP YoY in Q1 2017, this
largely offsets 1.4% of GDP deterioration of income account. Major
positive components of CA balance maintained growth trends,
implying that CA balance improved further in Q2 2017 as well.
Improved external inflows enabled NBG to start refilling its
international reserves. In Q2 2017 NBG purchased c. USD 90 mln on
FX market to remove excessive appreciating pressure on GEL exchange
rate. In Q2 2017 USD/GEL exchange rate appreciated by 1.5% QoQ,
while GEL depreciated by 4.5% against EUR over the same period.
As expected in the beginning of 2017, headline inflation
exceeded the target due to the one-off increase in administered
prices as well as higher commodity prices on global markets. As of
June, 2017 annual inflation stood at 7.1% while core[11] inflation
remained close to target at 4.5%, over the same period. NBG
tightened policy rate modestly from 6.5% as of the end of 2016 to
7% as of the beginning of May. During the following 2 meetings of
monetary policy committee policy rate was left unchanged at 7% as
NBG judged the current tightening was enough to ensure inflation
goes to 3% target starting from the next year, as one-off factors
start to dissipate. Over the medium term refinancing rate is
expected to gradually align closer to its long run neutral rate of
5-6%
Fiscal deficit narrowed to an estimated 1.3% of GDP in H1
2017[12] , down from 3.1% of GDP in H1 2016. Negative impact on
government tax revenues from the profit tax reform was fully offset
by increased revenues from excise taxes. In addition, better than
expected economic growth as well as more prudent approach towards
the current spending of the government contributed positively to
the reduction of budget deficit. Government debt retreated from its
historical high of 44.5% in Q4 2016 to 42% of GDP as of the end of
Q2 2017, partially helped by the 9% appreciation of GEL against USD
in first 6 months of 2017.
To sum up, improved external environment, coupled with the more
active public infrastructure spending and gradual improvement in
consumer as well as business[13] expectations lays ground for the
economic growth to outperform the initial expectation for the FY
2017 making Georgia one of the top performer in CIS and CEE region
in 2017 in terms of economic growth rates.
25 Management of Capital
The Group's objectives in terms of capital management are to
maintain appropriate levels of capital to support the business
strategy, meet regulatory and stress testing-related requirements
and safeguard the Group's ability to continue as a going concern.
Additionally, the Group's capital management objectives entail
ensuring that the Bank complies with the capital requirements set
by the Basel Capital Accord 1988 capital adequacy ratios as
stipulated by borrowing agreements. The compliance with capital
adequacy ratios set by the NBG is monitored monthly with the
reports outlining their calculation and are reviewed and signed by
the Bank's CFO and Deputy CFO.
The NBG is reviewing the existing capital adequacy regulation
and is going to introduce certain changes. Currently these changes
are in draft form and are being discussed with the banks and other
stakeholders. Estimated introduction date is quarter 4 2017.
The summary of main changes is as follows:
-- Current capital requirement will be divided across Pillar 1
and Pillar 2 buffers to increase clarity and comparability;
-- Capital conservation buffer currently incorporated in minimum
capital requirements will be separated;
-- Systemic risk buffer will be introduced for systematically important banks;
-- Countercyclical capital buffer will be introduced and the rate will be 0%;
-- Additional loan portfolio concentration buffer will be introduced under Pillar 2;
-- Current conservative weighting for CICR will be replaced by
appropriate Pillar 2 buffer (Unhedged Currency Induced Credit Risk
Buffer);
-- GRAPE buffer defined by the supervisor will be applied based on the bank specific risks;
-- PTI and LTV ratio thresholds will be introduced for the
retail loans. The exposures which are out of the defined range will
be assigned higher risk weights from normal 75-100% to higher
100-150%.
The exact requirements, as well as amount of the buffers and its
impact on the capital planning is not yet determined. Based on the
initial assessments the changes should not impact the growth and
dividend guidelines.
The Bank and the Group complied with all its internally and
externally imposed capital requirements throughout the six months
periods ended 30 June 2017 and the year 2016.
NBG Basel I Capital adequacy ratio
Under the Basel I capital requirements set by the NBG in 2017
banks have to maintain a ratio of regulatory capital to risk
weighted assets ("statutory capital ratio") above the minimum level
of 9.6% and a ratio of Tier 1 capital to risk weighted assets above
the minimum level of 6.4%. No additional add-ons are in place. In
mid-2015, the NBG removed previously established 3% capital add-on.
The regulatory capital is based on the Bank's standalone reports
prepared in accordance with the NBG accounting rules:
In thousands of GEL 30 June 2017 31 December 2016
Share capital 555,488 567,089
Retained earnings and other disclosed reserves 790,856 770,345
General loan loss provisions (up to 1.25 % of risk - weighted assets) 146,421 115,559
Less intangible assets (86,280) (53,074)
Less Investments into subsidiary companies and capital of other banks (55,683) (61,855)
Less Investments in the capital of the resident banks - (351,040)
Subordinated debt (included in regulatory capital) 354,974 342,653
Total regulatory capital 1,705,776 1,329,677
Risk-weighted Exposures
Credit risk weighted assets (including off-balance obligations) 8,560,636 6,750,917
Currency Induced Credit Risk 3,262,371 2,855,296
minus general and special reserves (215,291) (205,968)
Risk-weighted assets 11,607,716 9,400,245
Tier 1 Capital adequacy ratio 9.6% 10.9%
Total Capital adequacy ratio 14.7% 14.1%
In thousands of GEL 30 June 2017
Risk weighted Exposures Carrying Value RW amount
Cash, cash equivalents, Interbank Deposits and Securities 3,137,505 170,516
Gross Loans and accrued interests 7,465,507 10,480,628
Repossessed Assets 59,181 59,181
Fixed Assets and intangible assets 432,567 346,287
Other assets 253,906 204,715
Total 11,348,666 11,261,327
Total Off-balance sheet 1,363,192 561,680
minus general and special reserves (215,291) (215,291)
Total Amount 12,496,567 11,607,716
In thousands of GEL 31 December 2016
Risk weighted Exposures Carrying Value RW amount
Cash, cash equivalents, Interbank Deposits and Securities 2,372,263 163,294
Gross Loans and accrued interests 5,979,125 8,427,081
Repossessed Assets 46,441 46,441
Fixed Assets and intangible assets 328,184 275,110
Other assets 620,428 278,394
Total 9,346,441 9,190,320
Total Off-balance sheet 875,585 415,893
minus general and special reserves (205,968) (205,968)
Total Amount 10,016,058 9,400,245
NBG Basel II Capital adequacy ratio
After adopting the NBG Basel II/III requirements, the Bank, in
addition to above capital ratios calculates its capital
requirements and risk weighted assets separately for Pillar 1. The
NBG provides detailed instructions of Pillar 1 calculations. The
reporting started at the end of 2013. The composition of the Bank's
capital calculated in accordance with Basel II (Pillar I) is as
follows:
In thousands of GEL 30 June 2017 31 December 2016
Tier 1 Capital 1,282,880 1,041,270
Tier 2 Capital 449,881 380,751
Regulatory capital 1,732,761 1,422,021
Risk-weighted Exposures
Credit Risk Weighted Exposures 11,105,383 9,399,140
Risk Weighted Exposures for Market Risk 21,387 45,689
Risk Weighted Exposures for Operational Risk 739,231 576,628
Total Risk-weighted Exposures 11,866,001 10,021,457
Minimum Tier 1 ratio 8.5% 8.5%
Tier 1 Capital adequacy ratio 10.8% 10.4%
Minimum total capital adequacy ratio 10.5% 10.5%
Total Capital adequacy ratio 14.6% 14.2%
The breakdown of the Bank's assets into the carrying amounts
based on NBG accounting rules and relevant risk-weighted exposures
as of 30 June 2017 and 31 December 2016 are given in the tables
below:
30 June 2017
In thousands of GEL Carrying Value RW amount
Cash, cash equivalents, Interbank Exposures and Securities 3,175,561 1,127,287
Gross loans and accrued interests, 7,241,023 8,814,400
Repossessed Assets 59,181 59,181
Fixed Assets and intangible assets 432,567 355,304
Other assets 275,800 334,671
minus general provision, penalty and interest provision (46,853) (46,853)
Total 11,137,279 10,643,990
Total Off-balance 1,456,491 461,393
Market Risk 21,387 21,387
Operational Risk 517,462 739,231
Total Amount 13,132,619 11,866,001
31 December 2016
In thousands of GEL Carrying Value RW amount
Cash, cash equivalents, Interbank Exposures and Securities 2,397,259 1,086,262
Gross loans and accrued interests, 5,771,369 7,149,145
Repossessed Assets 46,441 46,441
Fixed Assets and intangible assets 328,184 273,176
Other assets 647,261 536,747
minus general provision, penalty and interest provision (45,534) (45,534)
Total 9,144,980 9,046,237
Total Off-balance 978,221 352,903
Market Risk 45,689 45,689
Operational Risk 403,640 576,628
Total Amount 10,572,530 10,021,457
Capital adequacy ratio under Basel Capital Accord 1988
The Group and the Bank are also subject to minimum capital
requirements established by covenants stated in loan agreements.
These requirements include capital adequacy levels calculated in
accordance with the requirements of the Basel Accord, as defined in
the International Convergence of Capital Measurement and Capital
Standards (updated April 1998) and Amendment to the Capital Accord
to incorporate market risks (updated November 2005), commonly known
as Basel I. The composition of the Group's capital calculated in
accordance with Basel Accord is as follows:
In thousands of GEL 30 June 2017 31 December 2016
Tier 1 capital
Share capital 524,807 524,778
Retained earnings and disclosed reserves 1,065,358 983,387
Less: Goodwill (26,892) (26,892)
Non-controlling interest 4,558 4,383
Total tier 1 capital 1,567,831 1,485,656
Tier 2 capital
Revaluation reserves 61,275 59,240
General Reserve 93,316 88,300
Subordinated debt (included in tier 2 capital) 258,105 323,087
Subordinated bond (included in tier 2 capital) 26,577 -
Total tier 2 capital 439,273 470,627
Total capital 2,007,104 1,956,283
Credit risk weighted assets (including off-balance obligations) 7,465,318 7,064,035
Less: General Reserve (118,812) (136,721)
Market Risk 18,005 46,484
Total Risk-weighted assets 7,364,511 6,973,798
Minimum Tier 1 ratio 6.4% 4.0%
Tier 1 Capital adequacy ratio 21.3% 21.3%
Minimum total capital adequacy ratio 9.6% 8.0%
Total Capital adequacy ratio 27.25% 28.1%
Following the Basel I guidelines the General Reserve is defined
by the management as the minimum among the following:
a) IFRS provisions created on loans without impairment trigger
event;
b) 2% of loans without impairment trigger event;
c) 1.25% of total RWA (Risk Weighted Assets).
The breakdown of the Group's assets into the carrying amounts
and relevant risk-weighted exposures as of 30 June 2017 and 31
December 2016 provided in the tables below:
In thousands of GEL 30 June 2017
Risk weighted Exposures Carrying Value RW amount
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other
banks,
investment securities available for sale 3,197,492 182,752
Gross loans and accrued interests 7,386,435 5,954,322
Repossessed assets 106,506 106,506
Fixed assets and intangible assets 410,875 383,985
Other assets 379,556 379,556
Total 11,480,864 7,007,121
Total Off-balance 1,434,973 458,197
Less: Loan loss provision minus General Reserve (118,812) (118,812)
Market Risk 18,005 18,005
Total Amount 12,815,030 7,364,511
In thousands of GEL 31 December 2016
Risk weighted Exposures Carrying Value RW amount
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other
banks,
investment securities available for sale 2,762,892 133,527
Gross loans and accrued interests 7,358,725 5,609,312
Repossessed assets 90,873 90,873
Fixed assets and intangible assets 401,174 374,282
Other assets 373,118 373,118
Total 10,986,782 6,581,112
Total Off-balance 1,290,813 482,923
Less: Loan loss provision minus General Reserve (136,721) (136,721)
Market Risk 46,484 46,484
Total Amount 12,187,358 6,973,798
26 Contingencies and Commitments
Legal proceedings. The Bank is a defendant in a number of legal
claims. When determining the level of provision to be set up with
regards to such claims, the management seeks both internal and
external professional advice. The management believes that the
provision recorded in these financial statements is adequate.
Tax legislation. Georgian and Azerbaijani tax and customs
legislation is subject to varying interpretations, and changes,
which can occur frequently. The management's interpretation of the
legislation as applied to the Group's transactions and activity may
be challenged by the relevant authorities. Fiscal periods remain
open to review by the authorities in respect of taxes for five
calendar years preceding the review period. To respond to the
risks, the Group has engaged external tax specialists to carry out
periodic reviews of Group's taxation policies and tax filings. The
Group's management believes that its interpretation of the relevant
legislation is appropriate and the Group's tax and customs
positions will be sustained. Accordingly, as of 30 June 2017 and 31
December 2016 no provision for potential tax liabilities has been
recorded.
Operating lease commitments. Where the Group is the lessee, as
of 30 June 2017, the future minimum lease payments under
non-cancellable operating leases over the next year amounted to GEL
5,421 thousand (31 December 2016: 5,016 thousand).
Compliance with covenants. The Group is subject to certain
covenants primarily related to its borrowings. Non-compliance with
such covenants may result in negative consequences for the Group
including growth in the cost of borrowings and declaration of
default. As disclosed in Note 11, as of 31 December 2016, TBC
Kredit had breached certain borrowing covenants agreed with foreign
financial institution lenders. The major reason for the breach was
drastic devaluation of Azerbaijani Manat in February and December
2015. Apart from this, the Group was in compliance with
all other covenants as of 31 December 2016. In 2017, TBC Kredit
was no longer in breach. As of 30 June 2017 the Group was in
compliance with all covenants.
Credit related commitments and financial guarantees. The primary
purpose of these instruments is to ensure that funds are available
to a customer as required. Financial guarantees and standby letters
of credit, which represent the irrevocable assurances that the
Group will make payments in the event that a customer cannot meet
its obligations to third parties, carry the same credit risk as
loans. Documentary and commercial letters of credit, that are
written undertakings by the Group on behalf of a customer
authorising a third party to draw drafts on the Group up to a
stipulated amount under specific terms and conditions, are
collateralised by the underlying shipments of goods to which they
relate or cash deposits and therefore carry less risk than a direct
borrowing.
Commitments to extend credit represent unused portions of
authorisations to prolong credit in the form of loans, guarantees
or letters of credit. With respect to credit risk on commitments to
extend credit, the Group is potentially exposed to a loss in an
amount equal to the total unused commitments. However, the likely
amount of loss is lower than the total unused commitments since
most commitments to extend credit are contingent upon customers
maintaining specific credit standards. The Group monitors the term
to maturity of credit related commitments because longer-term
commitments generally have a greater degree of credit risk than
shorter-term ones.
Performance guarantees. Performance guarantees are contracts
that provide compensation in case of another party fails to perform
a contractual obligation. Such contracts do not transfer credit
risk. The risk under the performance guarantee contracts is the
possibility that the insured event occurs (i.e.: the failure to
perform the contractual obligation by another party). The key risks
the Group faces are significant fluctuations in the frequency and
severity of payments incurred on such contracts, relative to
expectations.
Outstanding credit related commitments and performance
guarantees are as follows:
In thousands of GEL 30 June 2017 31 December2016
Performance guarantees issued 472,748 426,608
Financial guarantees issued 92,037 116,260
Undrawn credit lines 556,715 449,110
Letters of credit issued 80,612 154,842
Total credit related commitments and performance guarantees (before provision) 1,202,112 1,146,820
Provision for performance guarantees (1,986) (2,635)
Provision for credit related commitments and financial guarantees (7,151) (8,049)
Total credit related commitments and performance guarantees 1,192,975 1,136,136
The total outstanding contractual amount of undrawn credit
lines, letters of credit, and guarantees does not necessarily
represent future cash requirements, as these financial instruments
may expire or terminate without being funded. Non-cancellable
commitments as of 30 June 2017 were GEL 208,053 thousand (31
December 2016: GEL 169,831 thousand).
Fair value of credit related commitments and financial
guarantees were GEL 7,151 thousand as of 30 June 2017 (31 December
2016: GEL 8,049 thousand). Total credit related commitments and
performance guarantees are denominated in currencies as
follows:
In thousands of GEL 30 June 2017 31 December 2016
Georgian Lari 489,812 409,498
US Dollars 559,851 545,621
Euro 74,960 101,892
Other 77,489 89,809
Total 1,202,112 1,146,820
Capital expenditure commitments. As of 30 June 2017, the Group
has contractual capital expenditure commitments amounting to GEL
1,977 thousand (31 December 2016: GEL 5,665 thousand).
27 Fair Value Disclosures
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting
standards require or permit in the statement of financial position
at the end of each reporting period. The level in the fair value
hierarchy into which the recurring fair value measurements are
categorised as follows:
30 June 2017 31 December 2016
Level Level 2 Level 3 Total Level Level 2 Level 3 Total
In thousands of GEL 1 1
Assets AT FAIR VALUE
FINANCIAL Assets
Investment securities available for sale
* Government notes - - - - - 1,016 - 1,016
* Certificates of Deposits of National Bank of Georgia - 29,037 - 29,037 - 36,002 - 36,002
* Corporate bonds - 271,544 - 271,544 - 150,073 - 150,073
* Ministry of Finance Treasury Bills - 305,795 - 305,795 - 241,810 - 241,810
Repurchase receivables
* Certificates of Deposits of National Bank of Georgia - 9,961 - 9,961 - - - -
Foreign exchange forwards and gross settled currency swaps,
included in other financial assets
or due from banks - 774 - 774 - 508 - 508
NON-FINANCIAL Assets
* Premises and leasehold improvements - - 267,216 267,216 - - 229,549 229,549
Total ASSETS RECURRING FAIR VALUE MEASUREMENTS - 617,111 267,216 884,327 - 429,409 229,549 658,958
Liabilities Carried AT FAIR VALUE
FINANCIAL liabilities
* Interest rate swaps included in other financial
liabilities - 560 - 560 - 1,055 - 1,055
Foreign exchange forwards and gross settled currency swaps,
included in other financial liabilities - 719 - 719 - 320 - 320
Total Liabilities RECURRING FAIR VALUE MEASUREMENTS - 1,279 - 1,279 - 1,375 - 1,375
There were no transfers between levels 1 and 2 during the six
months ended 30 June 2017 (2016: none).
(a) Recurring fair value measurements (continued)
The description of the valuation technique and the description
of inputs used in the fair value measurement for level 2
measurements:
Fair value
31 Valuation Inputs
30 June December technique used
In thousands of GEL 2017 2016
Assets AT FAIR VALUE
FINANCIAL Assets
Government
Certificates of Deposits of NBG, Ministry of Finance bonds
Treasury Bills, Government notes, Corporate Discounted cash flows yield
bonds 616,337 428,901 ("DCF") curve
774 508 Forward pricing using Official
present value exchange
calculations rate,
Foreign exchange forwards and gross settled currency swaps, risk-free
included in due from banks rate
Total ASSETS RECURRING FAIR VALUE MEASUREMENTS 617,111 429,409
LIABILITIES CARRIED AT FAIR VALUE
FINANCIAL LIABILITIES
Other financial liabilities
560 1,055 Swap model using Observable
* Interest rate swaps included in other financial present value yield
liabilities calculations curves
719 320 Forward pricing using Official
* Foreign exchange forwards included in other financial present value exchange
liabilities calculations rate,
risk-free
rate
Total RECURRING FAIR VALUE MEASUREMENTS at level 2 1,279 1,375
There were no changes in the valuation technique for the level 2
and level 3 recurring fair value measurements during the six month
period ended 30 June 2017 (2016: none).
For details the techniques and inputs used for Level 3 recurring
fair value measurement of (as well as reconciliation of movements
in) premises refer to Note 10. The unobservable input to which the
fair value estimate for premises is most sensitive is price per
square meter: the higher the price per square meter,
the higher the fair value.
(b) Assets and liabilities not measured at fair value but for
which fair value is disclosed
Fair values analysed by level in the fair value hierarchy and
carrying value of assets not measured at fair value are as
follows:
30 June 2017 31 December 2016
In thousands of GEL Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3 Carrying Value
Financial Assets
Cash and cash
equivalents 1,219,108 - - 1,219,108 945,180 - - 945,180
Due from other banks - 41,096 - 41,096 - 24,725 - 24,725
Mandatory cash
balances with the NBG - 931,654 - 931,654 - 990,642 - 990,642
Loans and advances to
customers:
* Corporate loans - - 2,092,585 2,011,088 - - 2,085,249 1,972,129
* Consumer loans - - 1,952,509 1,850,437 - - 1,877,490 1,798,412
* Mortgage loans - - 1,740,781 1,723,932 - - 1,840,981 1,784,832
* MSME - - 1,609,065 1,588,848 - - 1,606,448 1,578,329
Bonds carried at
amortised cost - 395,593 - 389,036 - 377,749 - 372,956
Investments in leases - - 94,774 96,329 - - 95,907 95,031
Other financial assets - - 88,077 88,077 - - 94,119 94,119
NON-FINANCIAL Assets
Investment properties,
at cost - 123,864 93,502 - - 123,852 95,615
Total ASSETS 1,219,108 1,368,343 7,701,655 10,033,107 945,180 1,393,116 7,724,046 9,751,970
FINANCIAL liabilities
Due to credit
institutions - 2,309,040 - 2,313,550 - 2,197,016 - 2,197,577
Customer accounts - 4,310,222 2,367,626 6,666,413 - 4,002,659 2,463,392 6,454,949
Debt securities in
issue - 24,106 - 24,106 - 23,508 - 23,508
Other financial
liabilities - 118,798 - 118,798 - 49,623 - 49,623
Subordinated debt - 388,642 - 390,070 - 369,320 - 368,381
Total Liabilities - 7,150,808 2,367,626 9,512,937 - 6,642,126 2,463,392 9,094,038
The fair values in the level 2 and level 3 of fair value
hierarchy were estimated using the discounted cash flows valuation
technique. The fair value of unquoted fixed interest rate
instruments was calculated based on estimated future cash flows
expected to be received discounted at current interest rates for
new instruments with similar credit risk and remaining maturity.
The fair value of investment properties was estimated using market
comparatives.
Amounts due to credit institutions were discounted at the
Group's own incremental borrowing rate. Liabilities due on demand
were discounted from the first date that the Group could be
required to pay the amount.
There were no changes in the valuation technique for the level 2
and level 3 measurements of assets and liabilities not measured at
fair values in the six months ended 30 June 2017 (2016: none).
28 Related Party Transactions
Pursuant to IAS 24 "Related Party Disclosures", parties are
generally considered to be related if the parties are under common
control or one party has the ability to control the other or it can
exercise significant influence over the other party in taking
financial or operational decisions. In considering each possible
related party relationship, attention is directed to the substance
of the relationship, not merely the legal form. Parties with more
than 10% of ownership stake in the TBCG or with representatives in
the Board of Directors are considered as Significant Shareholders.
The key management personnel include members of TBCG's Board of
Directors, the Management Board of the Bank and their close family
members.
Transactions between TBC Bank Group PLC and its subsidiaries
also meet the definition of related party transactions. Where these
are eliminated on consolidation, they are not disclosed in the
Group Financial Statements.
As of 30 June 2017, the outstanding balances with related
parties were as follows:
In thousands of GEL Significant shareholders Key management personnel
Gross amount of loans and advances to customers (contractual
interest rate: 7.5 - 23%) 193 6,676
Impairment provisions for loans and advances to customers - 20
Derivative financial liability 1,263 -
Customer accounts (contractual interest rate: 0 - 11.8 %) 47,296 13,039
Guarantees 17,628 1,157
Provision on guarantees 66 5
The income and expense items with related parties except from
key management compensation during 30 June 2017 were as
follows:
In thousands of GEL Significant shareholders Key management personnel
Interest income 9 199
Interest expense 128 228
Gains less losses from trading in foreign currencies 91 18
Foreign exchange translation gains less losses (48) (459)
Fee and commission income 75 44
Fee and commission expense - -
Administrative and other operating expenses (excluding staff
costs) 47 171
Net loss on derivative financial instruments 38 -
The aggregate loan amounts advanced to, and repaid, by related
parties during 30 June 2017 were as follows:
In thousands of GEL Significant shareholders Key management personnel
Amounts advanced to related parties during the period 232 970
Amounts repaid by related parties during the period (899) (1,647)
As of 31 December 2016, the outstanding balances with related
parties were as follows:
In thousands of GEL Significant shareholders Key management personnel
Gross amount of loans and advances to customers (contractual
interest rate: 6.3 - 20%) 900 7,612
Impairment provisions for loans and advances to customers 2 26
Derivative financial liability 1,055 -
Due to credit institutions (contractual interest rate: 5.7 - 9.7
%) 257,403 -
Customer accounts (contractual interest rate: 0 - 13.5 %) 38,982 14,548
Guarantees 28,509 -
Provision on guarantees 192 -
The income and expense items with related parties except from
key management compensation during 30 June 2016 were as
follows:
In thousands of GEL Significant shareholders Key management personnel
Interest income 143 160
Interest expense 9,332 249
Gains less losses from trading in foreign currencies 65 (3)
Foreign exchange translation gains less losses (445) (68)
Fee and commission income 16 9
Fee and commission expense 287 -
Administrative and other operating expenses (excluding staff
costs) - 167
Net loss on derivative financial instruments 472 -
Aggregate amounts of loans advanced to and repaid by related
parties during the six months ended 30 June 2016 were as
follows:
In thousands of GEL Significant shareholders Key management personnel
Amounts advanced to related parties during the period 2,033 6,059
Amounts repaid by related parties during the period (4,900) (2,730)
The compensation of the TBCG Board of Directors and the Bank's
Management Board is presented below:
Expense over the six months ended Accrued liability as of
In thousands of GEL 30 June 2017 30 June 2016 30 June 2017 31 December 2016
Salaries and bonuses 6,709 6,002 186 -
Cash settled bonuses related to share-based
compensation 1,953 1,696 7,884 10,715
Equity-settled share-based compensation 4,338 4,946 - -
Total 13,000 12,644 8,070 10,715
Included in salaries and bonuses for six months ended 30 June
2017 GEL 937 thousand relates to compensation for directors of TBCG
paid by TBC Bank Group PLC (six months ended 30 June 2016:
nil).
[1]Excluding one-off items
(1) Excluding one-off items
[2] Market share figures are based on data from the National
Bank of Georgia (NBG). NBG includes interbank loans for calculating
market share in loans
(1) Excluding one-off items
[3] Or by 13.0% at a constant currency rate. The growth rates
are calculated without the Credo Bank effect
[4] Number of active products divided by number of active
customers.
[5] Inflation excluding prices of energy, food and administered
prices
[6] Based on the consumer and business confidence indices of
ISET-PI
[7] TBC Bank Group PLC became the parent company of JSC TBC Bank
on 10 August 2016
[8] Cross-sell ratio is defined as the number of active products
divided by the number of active customers
[9] based on internal methodology per local accounting
standards
[10] Per updated internal methodology in line with Basel 2014
guidelines
[11] Inflation excluding prices of energy, food and administered
prices
[12] Estimated growth figures for Q2 2017 nominal GDP
[13] Based on the consumer and business confidence indices of
ISET-PI
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFLETTIIFID
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