TBC Bank Group (LSE:TBCG) — FY 2021 Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the TBC Bank Group PLC Full Year twenty twenty one Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would

0:31 like to submit the following poll. And if you would give that your kind attention, we would be and the company would be most grateful. And I'd now like to hand over to the CEO and CFO from TBC Bank. Good afternoon to you both. Thank you. Thank you all for joining our call. I'd like to start our presentation today with a short introduction of TBC Bank from the slide number three. We are the largest bank group in Georgia with consistent track record growth and profitability. We operate an advanced omnichannel distribution network, and we are also a leading provider of payment solutions in Georgia and also in Uzbekistan. In October 2020, we launched digital banking operations in Uzbekistan for retail customers and already achieved impressive results.

1:23 And I will discuss our progress in Uzbekistan later during the presentation. In terms of financial metric, our return of equity stood at 24.4%, and return of assets rose 3.4% in 2021. At the end of the last year, our total loan and deposits portfolios market share there were around 40%. And finally, on this slide, TBC Bank is listed on the premium segment of the London Stock Exchange and is a 4,250 constituent. It's also a member of the MSCI United Kingdom stock cap index. We have a diversified investor base with 75% of our shares on free float.

2:08 Our investors come from different geographies, the largest being UK, USA, Sweden, and South Africa. Now let's move to the next slide. You can see t is that TBC Bank is a leader with a market share of 38.10 8.8 in total loans followed by the Bank of Georgia. And I can add on this slide that in Georgia, we have two dominant banks. This is, as you see on this slide, TBC Bank and Bank of Georgia, and we have small banks with the smaller market just beginning from 4.6%. But it's important to mention that we have banks from the neighboring countries, from Turkey, from Kazakhstan, from, Azerbaijan, and also from other countries.

2:59 Now let's move to the next slide, and I'd like to recap of our key achievements in 2021. Last year, the group generated record high return of equity, as I have already mentioned, 24.4%, and our strong profitability was backed by the solid capital. At the end of December, our CET1 ratio was 13.7%, the strongest among the Georgian systemic banks. At the same time, we delivered very strong growth in loans and deposits where we outperformed our medium term targets. Our bank in Uzbekistan also delivered outstanding results for the first year of operations. Our loan book and deposits portfolios reached around 93 and 208,000,000 lari, respectively, and we had 1,100,000 registered users on our application.

3:52 We also improved our digital presence, and I'd like to highlight that we increased the number of daily active users by 24% in 2021. Now I'd like to review recent macro developments briefly in the on this slide. In quarter four, the macro environment continued to rebound, and the economy posted 10.6% GDP growth for the full year, exceeding to exceeding the 2019 level by 3.1%. Going forward, we expect the economy to grow by 6% in 2022 and five point five percent in 2023. Also, on the positive side, local currency remained stable during the quarter and depreciated by 5.5% during the year.

4:42 The next slide shows GDP growth during the last quarter that was driven by strong external inflows and decreased domestic demand. The main drivers of this strong external inflows were exports, remittances, and recovering transit tourism. Exports increased around 29%, and remittances were up by 15% year on year. At the same time, recovery in tourism flows continued its positive re performance over the year. And at the end of the year, tourism flows, are at around 60% of 2019 levels. Now let's move to the slide nine, and I'd like to reiterate the group's positioning and highlight our fast growing potential.

5:29 First of all, we are the market leader in Georgia with diversified business across all market segments. Second, we consistently deliver robust profitability and steady growth backed by the strong capital. Third, we stand out with advanced omnichannel distribution and the best in class digital customer proposition. In addition, we have fast growing payment business in Georgia and in 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 twenty twenty one, we had 2,700,000 active customers.

6:17 Now let's move to the next slide, and we show our leading position in Georgia. As you can see from this slide, we hold the leading position across all segments with steady growth levels. These leading positions indicate resilience and diversity of our business model and allow us to extract significant cross segment synergies and efficiencies.

6:42 On the next slide, I'd like to summarize our key financial results, including strong profitability and solid capital position. Last year, as I already mentioned, we delivered 24.4 of return of equity. It was especially important for us to achieve higher net interest margin, and I am happy to say that we increased our net interest margin by 0.4 percentage points last year. In addition, we managed to improve our group's cost to income ratio slightly even though we have been actively expanding our business in Uzbekistan. At the same time, our CET1 ratio increased to 13.7%, and it is important to stress that this is above the minimum required level by two percentage points.

7:30 On the next slide, you can see that we continue to deliver strong progress in our digital channels. We continue to increase digitalization and the number of digital users. Our transactions offloading ratio is 98%, and only 2% of total transactions are conducted in the branches. Additionally, we continue to increase the share of remote sales in consumer loans, which amounted to 45% at the end of the year. Now let's move to the next slide, which illustrates the solid growth of our Georgian payment business. This year was successful for our payment business in Georgia as well. As you see on this slide, we had a solid increase in both transaction number and volume, which significantly contributed to the fee and commission growth in 2021.

8:25 Now I'd like to update you about our Uzbek operations. We operate in all major regions of the country, 97% of the population. In the first quarter, we continued to develop new products and launched auto loans in a friends and family mode as well as introduced term deposits and virtual card to the wider public. I'm also delighted that our digital bank application gained international recognition, and Global Economics magazine named as the best digital banking to Uzbekistan. On the next slide, you can see that we delivered impressive growth in our Uzbek bank. By the end of the year, the number of downloads of our TBC Uz application reached 1,500,000, while the number of registered users was 1.5 1,100,000.

9:16 At the same time, we reached 208,000,000 in deposits and 93,000,000 larian loans, which resulted in 20.5% market shares in the retail segment respectively. Finally, on this slide 16, I'd like to highlight our strong performance in payment operations in Uzbekistan through our payment subsidiary Pay Me as well as TBC Uzbek. Pay Me, which is the second largest payment provider in Uzbekistan, is growing a rapid pace. Last year, its net profit more than doubled compared to the previous year and reached 18,000,000 lari. Finally, I'd like to highlight that TBCG's bank issued more than 220,000 new cards during the last year, and our customers attached more than 380,000 cards from other banks to our application.

10:13 Now I'd like to hand over to Gyorgy. Gyorgy, please. Thank you, Wolfgang. Now I will go over the financial performance of the first quarter and full year into more details. I will start with slide 18 that shows the strong financial performance for q four and full year '21. Our net profit in both periods was driven by robust income generation across the board as well as strong performance on asset quality side. I will go through each slide into next following slides. As a result, as was mentioned a few times, we achieved very high ROI of 24.4%, and the quarter q four ROAE also stood at very solid 22.1%. At the same time, our ROAE was 3.43.3% in '21 and q four, respectively.

11:02 I'd like to stress that we managed to retain this strong profitability while starting to expand into other countries as was not mentioned into specifically into Uzbekistan. Now turning to slide '19, where I will present our growing and diversified income streams. Our NIM, as was mentioned, continued a positive trend in q four and amounted to 5.4%. It was up by 10 basis points on quarterly basis. But more importantly, for full year, our NIM improved by 40 basis points and stood at 5.1%. This strong growth into our net interest margin was mainly driven by long composition changes, including

11:42 galvanization and liability structure optimization, such as wholesale funding optimization, shift towards customer deposits, and liquidity deployment. We also recorded very strong results in noninterest income, which grew by around 25% year on year in the first quarter and was up by 40% in '21. For both periods, our noninterest income grew on the back of very strong rebound in net fee and commission income of 36% year on year for full year '21,

12:13 and that was far so amplified by one off gain from sale of real estate property in '21. That was around nineteen million net. Now let's move to the slide '20, which shows our high efficiency levels. As you can see from the left hand chart, in '21, our total OpEx grew by 25% or around 180,000,000 lari. But, from that, around 60% was driven by restored management and staff bonuses. I'd like to mention here that management voluntarily waived their bonuses in 2022 during the go COVID, and TBC Uzbekistan set actually picked up scale only in 2021. The rest actually driven by the increased businesses, investments for growth, and higher performance related cost driven by increased revenues.

13:04 However, the key point I would like to highlight, we continued to increase our operating efficiency with positive cost to income, Jaws, and improved our cost to income ratio by far 30 basis points, which decreased to 37.6 for the full year, and that's a great progress towards our medium term target to be below 35% for cost to income. In the first course quarter, operating expenses increased due to staff annual bonuses and usual seasonal increase. Now turning on to slide 21, where I would like to present our strongest quality. By by the end of the year, our NPL ratio improved across all segments, but mainly was driven by remade by repayments of restructured loans in retail and MSME. At the same time, our total NPL coverage stood at very strong 175% comprised of 100% provision and 75% of collateral coverage.

14:00 The provision recoveries in corporate segments that we have since throughout the year continued into the fourth quarter as well. And as a result, our core amounted to minus 0.1, while cost of risk for the full year '21 stood at minus 0.3%. Now let's move to slide '22. Of that, provides a pro brief overview of loan and deposit portfolio growth. In '21, we maintained our leadership position in total loans by growing in line with the market at 18% on constant currency basis. At the same time, our deposit portfolio outpaced the market and grew by 25% without currency effect, which led to the increased market share. I would like to highlight that we continue to hold number one market position in Georgia both in terms of total loans and deposits.

14:50 Now let's move to slide 23 that shows our robust capital position. We remain the highest capitalized systemic bank as Waktan already mentioned, with c t one ratio standing at 30.7,200 basis points above the regulatory requirement. The c t one ratio was up by

15:08 30 basis points on quarterly basis, mainly driven by net income generation that was partially offset by growth in the loan book. At the same time, our tier one and total capital ratios were partially supported by issuance of 75,000,000 USD 81 bonds in November 21 and amounted to 16.720.3% respectively, well above the regulatory requirements. Now moving to slide 24, where I will finish my presentation with funding and liquidity summary.

15:41 As you can see from this slide, we have well balanced funding structure with high customer deposit share of 73% that increased around 8% on annual basis. Also, our NSFR and LCR ratios, we are comfortably above the minimum regulatory limit of 100%. Now I would like to hand back to who will update you about our medium term targets and future outlook. Thanks. Yeah. Thank you, Georgi. And now I'd like to reiterate our medium term guidance and compare our performance against these targets. As you see on this slide, our loan book grew by 18% against our medium term target of 10 to 15%. Our return of equity was 24.4%, meaningfully above our medium term target of 20% plus.

16:33 Our cost to income ratio was 37.6%, getting closer to our medium term target of below 35%. And finally, as you know, we have paid an interim dividend in September and are planning to pay a final dividend in 2022 to be in line with our targeted dividend payout ratio of 25 to 35%.

16:57 Now we want to move to the last slide of our presentation, and I'd like to finish today's presentation by recapping our strategic priorities, which are maintain robust profitability backed by solid capital, diversify our fee and commission income, continue sustainable growth in Georgia, capture high growth potential of OTU's back market, and continue to deliver efficient growth by leveraging our advanced digital capabilities. With that, I'd like to invite you to ask the questions. That's great. Vartan, Giorgi, thank you very much indeed for your presentation this afternoon. 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 I want the company to take a few moments to review those questions submitted already. I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investment company dashboard, and we'll notify you by e mail when they are ready for your review.

17:55 Vaktan, Gilgi, as you know, investors had the ability to pre submit questions. We received a couple. And perhaps if I may, I could start the q and a off by asking you the following. The first one is, does your company provide Visa cards to investors? Yes. We are provider of Visa and Mastercard already. As I remember, more than twenty years, and so we are doing that business in Georgia. And we are we are in the issuing and also acquiring business for the in the card business, and we are the largest player both in the issuing and also inquiring business. And we are in the beginning of the visa partnership in Uzbekistan. And I think from the second

18:40 quarter of this year, we will be going begin to issue all the visa cards in Uzbekistan. That's great. Thank you very much indeed. I a fairly topical question and and one probably expected, but do you have any exposure to Ukraine companies? You you will ask answer it too, or I will I will I'll take. So we we, actually, we don't have direct exposure to, like, Ukrainian companies. We have a certain small amount exposure of Georgian companies that might have some links to, like, Ukraine maybe through export and import, but it's not material. It's they have, like, a very small CFO in our portfolio. Therefore, we don't expect any material deterioration, you know, even in the worst case scenario in our credit quality driven by this Ukrainian exposure of Georgian companies.

19:26 And in addition to that, we have not direct or indirect exposure to The Ukraine and or to Russian banks. That's great. Thank you very much indeed. If I may, I'll turn to some of the questions that we received during your your presentation this afternoon. And firstly, thank you to everybody everybody that has submitted questions. The first one is, do you see acquisitions of some of your smaller competitors as part of the plans moving forward? The slide reflects two large players and a tale of smaller banks. Or does competition law prevent this? Yeah. I will answer this question. So thank you for this question. And as you have seen already in our presentation, our market shares beginning from the assets and ending by the deposits. We have market shares around 36 to 40%.

20:12 So we are the systemic player in Georgia. And last in last seven to eight years, we made two big acquisitions in Georgia. We bought the micro finance banking to the country. And also in 2016, we acquired Numberset player in Georgia belong to the SocGen Group. And now it will be very difficult for us agree with the Georgian local regulator to buy the smaller banks on the one hand. But on the other hand, as there is a big differences compared to the smaller bank, there is a difference as we are bigger than they around, we know, 10 to 15 times. There is no no big interest for us to do it, so it has to be very, very interesting commercial deal for us to make that decision. Otherwise, just this is our growth for half year on the portfolio side compared to if you look if you really look for the deals for the smaller banks in Georgia. But outside Georgia, as we have already mentioned in our presentation, this is a new strategy which we have, and we are expanding outside Georgia differently through our digital bank. And in Uzbekistan, everything which we are doing is everything done through our mobile application only.

21:34 And we have plans in the medium term to develop ourselves not only in Uzbekistan, but also in other countries. That's great. Thank you very much indeed. If I may turn to the the next question, can you expand further on your digital channels and and how these really enhance the ultimate customer offering? Kjerg, do you want to answer, or I will Okay. I'll take. So we provide the full scale of the digital services to our customers. It's a mobile banking, Internet banking. It was named by a few times as a best, like, digital proposition, not in the country, but I think it was. Yes. So the cohort that may help. It was, like, proposed as the best digital bank in the world as well. So our offloading ratio is around 96%.

22:23 So all our trans 98 for it. Oh, 98. So, okay, 98. So I I I can recall from the last quarter. So we are getting to 100%. So there is so much you can go. So we have only 2% to go to fully transact into, like like, let's say, digitally. And one of the things we are launching here as well, we are also starting to offload not only transactions, but the loans into our digital channels. For example, the fast consumer loans that have restarted this year, that will also help our customers actually to create the more experience as as in going to the branches, getting the loans or deposits through this way, and you can just see the strength of the graph. So In addition to that, what is GROUP is saying to sell the other products, just I think we, yeah, we have to add that in Georgia, we are not only the bank because on the other hand, we have a insurance business, which is the largest in the retail insurance.

23:19 We are the largest in the country. We have the leasing company in the country, which is also the largest in the country. We have up to 60%. We have our investment banking in the country, which is also has is the largest in the country. So in Georgia, we are providing not only the banking products, but also the financial products, all kind of the products which is available on the Georgian reality. And three years ago, also, we decided to offer other products for our ecosystems. And the last three years, we are developing. So our idea to offer to our customers not only the financial products now, but also any kind of the products, but in digital, not physically, but in digital hutches. Hutches, we have a marketplace for housing, for the car business, and other type of the business we are offering.

24:11 Great. Thank you very much indeed. If I may, the next question, if I can turn to that is, are you looking to expand the bank's footprint into different territories? Please. Yeah. So I'll I'll start and then I can continue. So one thing that I think we've mentioned into our presentation, our Uzbekistan bank based on a scalable platform technological solution. It's our fintech bank space that was initially launched and tested in Georgia. It was very successful test. And all these platforms, then we actually expanded it to Uzbekistan. This is very scalable platform, as I mentioned. It it can be used in any location. At the moment, they are for we are focusing on Toulouse, Uzbekistan for this year to expand, but this platform will provide an opportunity, like, to expand into, like, different countries, and it will be aligned with our international expansion strategy. At the moment, it may be premature to say any kind of target or, like, directions, but we have this capability. Or if you want to add something Yes. To add on that side, it's very efficient way. And when we want we are when we are saying that we want to expand, what does it mean? That in every country, we want to have only commercial field.

25:24 Otherwise, for example, if you take Uzbekistan, the product development, for example, marketing campaigns are managed from the headquarter from Georgia operations because majority of our marketing campaigns we have in the digital, in Facebook, in other type of the digital channels. And, yeah, centralized model is better because we can do from the headquarter easily. And when we add other countries, it will be very efficient way to do that business because everything we will have a simple products which will develop in the headquarter and also campaigns and everything. Also, risks, We have a centralized model, and they're also it will be managed from the central office. Thank you, guys. The next question from from Alex. Thank you, Alex.

26:12 Would Russia being excluded from SWIFT have any effect on the bank, TBC Bank? Yeah. Thank you for this very good question. So as already mentioned, so we have not a direct exposure to the Russian banks or even to the Ukrainian banks, but we have to consider that there is a some kind of the FX inflows to the Georgian economy such as remittances. And we in that case, we are adding Ukraine and Russia together, which is coming up to 20%. There is the exports which are going to the Russian market, which is up to 50 to 70, but we have to have in mind that part of the exports from Georgia to Russian market is the commodity products and easily that products could go to the other markets if there will be some kind of restrictions.

27:09 But to answer your question, if there are restrictions on a swift, we are forecasting that there will be problems in the short term for the remittances, which are coming from Russia to Georgia because that money have to come to Georgia, but from the other channels, and probably there will be decrease of the remittances from Russia to Georgia for three to six months, which is not material for the Georgian economy. That's great. Thank you very much indeed. And that is the final question that we received from investors today. So thank you once again to all of those that have submitted questions. And, of course, if we do find any questions come through in the meantime, we'll make those available for your review after today's meeting. Valkta, I know that investor feedback is particularly important to the company, and I will shortly redirect investors to provide you with their thoughts and expectations.

27:58 But before doing so, I wondered if I may just ask you for a few closing comments just to conclude. Yes. Thank you, first of all. So this is the first time we have such a conference. So I think the second time we will do better. Thank you, first of all, for the for the interest to come to the conference, and we will do our best. And we are ready to answer any questions after the conference, and we are ready twenty four hours to answer anything we want. Thanks a lot. That's great. Thank you very much indeed. Can I please ask investors not to close the session as I'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure we'll be most grateful by created by the company. On behalf of the management team of TBC Bank Group, we'd like to thank you for attending today's presentation.

28:46 Good afternoon to you all.