TBC Bank Group (LSE:TBCG) — 3Q 2022 Results presentation

0:01 Good afternoon, and welcome to the TBC Bank Group PLC Third Quarter twenty '22 Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Simply click on Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. I'll let the company review all questions submitted today. We'll publish responses where appropriate to do so on the Investor Meet company platform. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the executive management team of TBC

0:32 Bank Group PLC. Good afternoon. Good afternoon. Dear all, thank you very much for joining our call. I'd like to start today's presentation with highlight of our key achievements during the third quarter. We continue with the BANK leader in Georgia with robust profitability and strong growth supported by solid capital. We also continued strong progress in exploiting our international growth potential. In the third quarter, the group generated exceptional return of equity of 31.1%, while our CET1 ratio stood at 15.3% with above the minimum required level by 3.5 percentage points. We remind the best capitalized system is back in Georgia.

1:17 Our loan book portfolio growth was 19%, while our deposit portfolio grew by 29% on constant currency basis. In the third quarter, we continued to expand our position in Uzbek market, and our loan book reached up to 300,000,000 lari and deposits around 600,000,000 lari. I'm also delighted to report that the group's level on the group's level, the number of digital daily active users reached 1,100,000 in September, while the number of digital monthly active users amounted to 3,200,000 for the same period. On the next slide, I am pleased to announce that we are adding two new medium term targets. Uzbek operations to account for 10 to 15% of the group's net profit and to achieve 7,000,000 monthly active users on the group's level.

2:10 Now I'd like to review recent macro developments briefly on slide number five. In the first nine months of this year, GDP growth in Georgia reached 10.2% despite adverse impacts of the war in Ukraine. We expect the growth to stay at around the same level during the remaining three months, resulting in an estimated GDP growth of about 10 for the full year. Also on a positive side, the LARI continued to align with its strong term trend against the dollar. The next slide show the drivers behind the strong GDP growth. The current geopolitical crisis has once again proved the resilience of the Georgian economy. Exports have remained strong on the back of countries other than Russia and Ukraine.

2:57 And the recovery of interest inflows partially supported by the immigration impact contributed with strong export remisattis as well as recovering FDI inflows, supports about 10% GDP growth for the whole twenty twenty two year. Also, inflation remains elevated and stood at 11.5% in September, and it is expected to to gradually moderate. Now let's move to the next slide. Here, I'd like to reiterate the group's positioning and highlight our huge fast growth potential. First of all, we are the market leader in Georgia with diversified business across all market segments. Secondly, we have the consistently delivered robust profitability and steady growth backed by the strong capital.

3:45 Third, we stand out with the advanced omnichannel distribution network with the best in class digital consumer proposition and the largest ecosystem network. In addition, we have the fast growing payment business in Georgia and Uzbekistan. And finally, our Uzbek operations give us a strategic advantage to deliver long term growth and profitability. In line with our group's strong market position and growth strategy, we continue to increase the number of our customers every year. And at the end of September, we had 3,900,000 monthly active users in two geographies. Moving on to slide number nine, we show our leading position in Georgia. As you can see from this slide, we we hold the leading position across all segments with steady growth levels.

4:35 These leading positions indicate resilience and diversity of our business model and allow us to extract significant cross segment synergies and efficiency. On the next slide, I'd like to summarize our key financial results for the third quarter. On a year on year basis, our net profit increased by an exceptional 55% and stood at 321,000,000 lari. This growth was related to the strong income generation across the board with substantial contribution from noninterest income. Our return of equity in the quarter reached 31.1%, while return of assets amounted to 4.8%. As expected, our cost of risk started to normalize and amounted to an annualized 1% in the third quarter.

5:24 Over the same period, our cost to income ratio strongly improved to 5.5 percentage points and stood at a little bit less than 30. And our capital position remains strong with CET1 ratio at 15.3% as mentioned above. On the slide 11, I'd like to share with you on an update on our digital ecosystem T Net. We have the largest digital ecosystem in Georgia that consists of four digital verticals, lifestyle, housing, automobile, and ecommerce. We have 1,800,000 unique annual visitors across all verticals, which is around 40% of the Internet and traffic among the Georgian websites. Our ecosystem allows us to leverage our large customer base on a data hub capabilities.

6:14 First, to generate net fee and commission income. Second, create leads for loss. Third, strengthen our cost customer loyalty, and finally, increase our customer engagement. The following slide gives more details on the results of our digital ecosystems. Total gross merchandise volume is growing rapidly as our users are becoming more engaged. And at the same time, the number of leads generated increased four times year on year, and the loan conversion rate grew by 9%. As a result, loan disbursed reached 26,000,000 lari, accounting around 8% of our total retail loan disbursed during the quarter. Now let's move to the slide 13, which illustrate the solid growth of our Georgian payment business.

7:03 In the third quarter, the number of POS transactions and transactions with TBC cards increased by 2830%, respectively, year on year. And, also, it's important to highlight that our payment business is a significant contributor of our fee and commission income. On slide 14, you can see our digitalization metrics both in Georgia and on the group's level. We have made strong progress in expanding our digital footprint on the group's level. As already mentioned, we have up to 3,200,000 digital active users every month, while digital daily active users to get 1,100,000 in September. Importantly, our transaction of loading continues to be high at 99%, and our consumer lending and deposit sales of loading ratio also remained high at 70% in the third quarter.

7:56 Now I'd like to update you more details about continued growth progress and rapid growth on our Uzbek banking operations. By the end of quarter, the number of downloads of our TBCUs application increased to 2,800,000, while the number of registered users was 2,100,000. At the same time, as mentioned already, we reached up to 300,000,000 lari in retail deposits and up to $270,000,000 lari in our retail loan portfolio. Finally, on the slide 16, I'd like to highlight the strong performance of our payment subsidiary PayMe, which is the second largest payment provider in Uzbekistan. In the third quarter, PayMe continued its rapid growth in all major metrics.

8:46 The number of monthly active users increased by 62% year on year and reached 2,100,000 at the end of September, And total payments volume increased by around 64%. And over the same period, the both revenues and the net profit continued their impressive growth and reached 12,000,000 lari and 7,500,000 lari respectively. Now I'd like to hand over to Jordi. Jordi, please. Thanks, Really great quarter. Great financials and results. And I'll start with slide 19 that shows kind of our, I would say, outstanding financials and results. So in q three, our net profit as was done already mentioned increased by an actual impressive 55% year on year, and that's driven by continuation of our strong revenue trend that we have been delivering for the like, since the banks, let's say, started.

9:45 And as was mentioned, substantial contribution was from our noninterest income that I'm going to touch a bit later. So as a result, we are looking at an ROI of 31.1% for the quarter, probably one of the best that we have seen so far. So and I'll now go to slide two where I will deep dive a bit more into our profitability drivers. As I mentioned, both actually interest and noninterest income streams performed extremely well. And NIM, our NIM continued upward journey and increased post year on year. It's 100 basis points and quarter on quarter basis and landed at 6.3%. NIM increase is mainly driven by loan composition and loan yield actually effects. On non interest side, the contribution is twofold.

10:31 The first one is the strong ethics growth due to high volume of transactions, wider spreads, but also new treasury products. Net fee and commission income actually increased by higher payment transactions as well as our new business, let's say, products that we put in place. So all that actually resulted in a very robust and strong non interest growth. So I would like to move now to slide 21 to review our operating expenses. So in q three, the increase was 34% year on year, and that was mainly driven by we expand our business, both locally, let's say, into Uzbekistan, that also resulted in higher staff and admin cost. We actually put money into technology.

11:15 We continue to invest into our business to ensure its ongoing strength and growth. In addition, staff costs also increased due to performance costs driven by higher wage income. However, the key point is that consistent with the previous periods, our income grew at much faster rate, and our cost to income ratio decreased in q three to 29.9%. It's not only below our target of 35%, but I think it's the first time it is below 30%. Now I would like to go to slide 22 that shows a very strong book quality. As of 09/30/2022, NPL remained stable quarter on quarter at very healthy 2.3%. Year on year trend actually is mainly driven by resumed payments from loans in retail and MSME segments. That was still like COVID tail last year and season as we see customers start paying and our NPL is at 2.3%.

12:12 Total provision coverage was very robust to a 165 164%. Sorry. And in q three, cost of risk actually continued to, I would say, within our normalized range that we anticipated and landed at 1%. So I would like now to to go to slide 23 as it shows performance of our low and funding portfolios. Year on year, the loan book growth was very high at 90% that's actually above our guidance 10 to 15%

12:43 on a constant currency basis, and that was mainly driven by our our MSME and, I would say, retail segments. However, on quarter on quarter basis, our loan portfolio remained more or less stable, up by 2%, and the driver was actually the repayment from one CIB client. That is also the reason why CIB portfolio actually decreased a bit.

13:06 As far as the customer funding side, the growth was more prominent. We actually outpaced the market, and that resulted in actually to increase our customer funding share. I would touch that point later on in one of the following slides. Now I would like to move to slide 24, wherein you can see our very solid capital position. Our capital ratios remained at very strong levels at quarter end, and all of them are well above the minimum regulatory requirements. And key point to mention here is that the ratios increased despite paying a generous dividend in September, and the majority of growth was delivered by our net profit. And that also was supported by Sreksen Glar. Now I would like to move on slide 25 to 25 that shows our very strong liquidity and funding base.

13:57 This year of customer funding in total liabilities, as I already mentioned, increased and reached 73%. It is up by two percentage points on year on year basis. I five funding that includes both senior and sub laws is around 1,900,000,000. That is 8% of total liabilities. And our liquidity ratios, both LCR and NSFR, continue to be available the regulatory requirements. Here, I also would like to highlight that our LCR on Basel basis is 351%. And I would like to conclude with slide 26 with our promised and long awaited financials of our Uzbekistan business.

14:38 To start with, I'm very pleased to announce that our Uzbekistan business consisting of our fully digital consumer banking and payments subsidiaries, TBC Uzbek. Me turned profitable in q three twenty two. In addition, I also would like to highlight that we expect with let's say, the Uzbekistan bank itself to be profitable for '23 and throughout the year. For this third quarter, TBC banks whose like TBC Uzneng was 60.2% and cost of risk was 7.4%. That provides us very healthy risk, actually, let's say, risk based NIM.

15:15 And here, I would like also to announce the midterm targets of our Uzbekistan business. First, it's 30% plus ROI. Second, 5,000,000 MAU. And third, 10 to 50% share in group's net profit. So that concludes my part. Thank you. And I would like to hand back now to. Please.

15:40 Yes. Thank you, Giorgi. And now I'd like to finish today's presentation by reiterating our new and existing medium term targets and comparing our performance in this quarter against those targets on the on the slide number 27. Our monthly active users stood at 3,900,000 compared to our 7,000,000 new target.

16:03 Our banking and payment business generated positive results as mentioned in this quarter, and we plan to grow to 10 to 50% of the total gross profit in the medium term. Our loan book grow grew by 19% year on year on constant currency basis against our target of 10 to 15%. Our return of equity was 31%, meaningfully above our medium term target of 20% plus. Also, our cost to income ratio was 29.9%, meaningfully lower than the our medium term target of below 35%. And finally, our dividend payout ratio was 25% in 2021, and we paid the interim dividend of 2.5 per share in 2022 compared to our target of 25 to 20 35%.

16:54 With that, I'd like to invite to ask the questions. Fantastic. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. Just want the team to take a few moments to review those questions submitted today. I'd to remind you the recording of the presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. As you can see, we've had a number of questions come through throughout today's presentation. If I may, I'll just start off with reading the first one out. What risk do you face with such a large market share in Georgia? How do you manage this and any potentially bad debt risk?

17:30 Maybe I will try to answer this question. So, by the way, this year, we have a thirty years anniversary in Georgia as a TBC bank. And we have a brand. We have a very strong brand. So everybody knows TBC in Georgia, and we built it our brand and the market shares in every segment year over year. So already for thirty years. And, for example, in the retail, as I already mentioned, we have a very we we have a very strong brand. We have a very customer oriented products. We are doing very well in the technologies, in the digital products. If you go to the corporate SME businesses, we are trying to be long term partners to our medium sized businesses, to our corporate customers. So in every segment, we have a special strategies, and we are implementing in the long term.

18:23 And as a result, as the we've seen a question, so we have a market shares in the different ways, so from 35 to 40. And maybe I will cover on bad debt risk off tank. That was second part of the question. And one thing to add is what off tank said. Georgia market is a bit specific because two banks own 80% of the market, and third bank only has six percent share. Therefore, from market actual risk perspective, given the market structure, we don't foresee any change in future, and that may be Georgia market specifics. So on bad debt risk side, we have a very strong underwriting standards. We are quite, like, a strong risk appetite, and we monitor our customers very carefully. Even during COVID year, we when we were very prudent and very conservative, the cost of risk was around 2%, like, cost of risk. However, once COVID ended, that showed the resilience and strengths of our portfolio. Customers actually paid the loans, and we had a quite a large, I would say, recoveries last year. And therefore, given our portfolio structure, our, like, credit characteristics, that's why we say that for the bank, cost of risk is around a, let's say, 100 basis points that we are we are now, and we don't expect any material change from that level.

19:41 Fantastic. Thank you, Georgi. Next question we've got here is how sustainable are the growth rates? Obviously, you mentioned 55% here, which is is is fantastic. But how sustainable are they? Okay. Thanks. That's very good question. Probably this quarter and maybe next few will be something like head, like, would say, headwinds. So it's like let's say, supporting from FX income because Georgia market has some volatility both on wholesale side and retail side that also helped us, and 55% might be difficult. However, despite that, we have a very strong growth projections. As I mentioned, our targets are 10 to 15% loan growth, probably in near future at higher end and even higher. And we mentioned 20% plus ROA. That would say that it will be probably 20% few plus ROA. Is that what we are going to target?

20:31 And is that will be supported by our strong NIM and noninterest income? Because on NIM side, we landed 6.3%. In, like, near to medium to future, we don't anticipate that to change much. We target to remain at least at 6% less handle for the foreseeable future. And noninterest income, expect to continue at least 20 to 25% growth to continue. I already mentioned the cost of risk around kind of 1%, and plus our Uzbekistan business is also grow going to fuel the growth. So as I mentioned, next year, the bank itself will will also become a profitable business. Uzbekistan is also profitable, and that will support our growth, let's say, profitability even faster. That's it. Thank you very much indeed. We touched on the digital bank. Obviously, it's been a huge success. Question here saying it's been a huge success. How do you replicate this in other other countries, other jurisdictions?

21:26 The same applies for Pay Me. What's really driving that growth? You see, first of all, the country because Uzbekistan is very interesting for us. If you take only this population, the growth of the population, 2% every year. So and the market is underpenetrated. So the first driver is the underpenetrated market with the gross potential there. And, also, same as in TBC is very well known brand in Georgia. Pay Me has a history in Uzbek market as a payment provider. The Pay Me is very well known on Uzbek market. We have a very strong brand here, and we are bringing new products. And we are trying to be very customer oriented here. And by these new products, we are trying to grow. And as we already made presentations here, it showed that year over year, we have a very high growth first in the number of the customers and also in the number of the transactions.

22:26 And one of point, I would like to add here is that we had our CMD last week. Hopefully, if you did not dial in, all the materials are on our website that shows actually our detailed strategy, how we are going to succeed in Toulouse Uzbekistan, including PayMe, what plans do we have actually that includes super app. So I'm not going to worry, let's say, details here. But if you have a look at our website, that provides our detailed, let's say, detailed strategy breakdown. That's great. Thank you. I've got a question here from Tom, which is three questions. I think one of which we just covered off asking is this growth sustainable. Second part of that is will you make increasing dividend payments? And the third part on and how you're actually growing those active users so quickly? K.

23:12 Maybe I'll start. So Mhmm. If we think from our capital allocation perspective, we have three major pillars. One, to support our growth in Georgia. That will be probably more or less with nominal GDP growth, but it will be about 10%, 10%, like, level. So we need to support center, and we have sufficient capital to support. Second point, we need to support our Uzbekistan business growth. And here are two aspects. First, we need to support our Uzbekistan bank growth that we have a kind of, I would say, very high plans for them. And second point for Uzbekistan is that at the moment in pay me, we have minority shareholders called 49%. We have an option next year that we are going to exercise. And for that and it will happen not in a distant future, probably in q q next year. And for that, we have we need capital, and we have capital. And third, we, of course, need to pay our shareholders back.

24:08 And we also have more than sufficient capital for that and to guide you how we are thinking about this. Currently, our dividend payout ratio is 25 to 35%. Last year, we we paid 25%. However, if you compare our interim dividend in September, that was materially higher than last year's interim dividend. That probably is illegible the direction of the travel that our dividend paid out ratio most probably is actually intended to go above 25% that was last year. Well, we need to see. But from interim dividend, set what kind of the direction. And, like, I would say that with that range, probably in the middle of the range that would result in a very healthy like, even with the current share price up to nine to 10 to 10% dividend yields. So as the banks grow through, as we support our growth plans into Uzbekistan, of course, we can and we will look at our TPR, how it will evolve.

25:03 But nowadays, I would say that we will pay very healthy dividends to our shareholders. It's like again 910% yield. And we will grow not only in Georgia, but in other, let's say, countries and markets. Fantastic. Thank you very much indeed. That actually concludes all the questions that we've had through. So thank you for that. And of course, there are only further questions that do come through from investors today. The company will have the opportunity to review those questions, and we'll publish responses where appropriate to do so on the investment company platform. Vartan, before redirecting investors to provide you with their feedback, which I is particularly important to you and the team, if I could just ask you for some closing comments, please? Yeah. So from my our side, so thank you very much for participating. And as as you already mentioned, so we have a very robust results in the third quarter, and we will continue to deliver it. And as we already mentioned in our presentation today and on the CMD, we updated our medium term targets. So So now we have more ambition plans to increase number of the monthly users. So we have to do much more in Georgia.

26:07 We have to do much more in Uzbekistan. And I think as a management, we are ready to to to deliver much more. Fantastic. Thank you again for updating investors' stake. Please ask investors not to close the session. It should be automatically redirected to provide your feedback in order the management team could better understand your views and expectations. This will only take a few moments to complete, and I know it's greatly valued by the company. On behalf of the management team of TBC Bank Group PLC, we'd like to thank you for attending today's presentation. Thank you, and good afternoon to you all. Thank you.