TBC Bank Group (LSE:TBCG) — H1 Results

0:00 Good afternoon, and welcome to the TBC Bank Group PLC H1 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 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 will now review your questions submitted today and we'll publish responses where appropriate to do so. 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 Bank Group PLC. Good afternoon.

0:32 Good afternoon. Thank you all. Thank you for joining our call, and I would like to start today's call with announcement of an interim dividend of 2.5 lari per share payable in October in accordance with our updated dividend policy to pay semiannual payments as announced last year. I'd also like to inform you that the board of director has approved a share buyback program up of up to 75,000,000, out of which 50,000,000 will be canceled, and the rest will be transferred to the employee benefit trust in due course. We believe this is a good decision at the current price levels. Now turning to our second quarter results, let me highlight our key achievements during the quarter.

1:23 We continue to be the market leader in Georgia with robust profitability and strong growth supported by solid capital. We also continue strong progress leveraging our international growth potential. In the second quarter, the group generated a return of equity of 24.1%, while our CET1 ratio stood at 15%, which is above the minimum required level by 2.9 percentage points. And we remain the best capitalized systemic bank in Georgia. Our portfolio growth in the quarter was 23%, which strongly outperformed our normalized growth of 15%. In the second quarter, we continued to deliver impressive business growth in Uzbekistan. As a result, our retail loan book reached 180,000,000 lari, while retail deposits exceeded 230,000,000 lari.

2:16 I am also delighted to report that on the group's level, the number of digital daily active users reached 1,000,000 in June, while the number of monthly active users amounted to 3,000,000 for the same period. Now I'd like to review the recent macro developments briefly on the slide number five. In the first half of this year, GDP growth in Georgia reached 10.5% despite adverse impacts of the war in Ukraine. We expect the growth to stay at around the same level during the second half of the year, resulting in an estimate GDP growth of about 10% for the full year. Also, on a positive side, the Larry continued to strengthen again the dollar. The next slide show the drivers behind the strong GDP growth.

3:04 Recovery in tourists further strengthened during the second quarter and even exceeded 2,019 levels in July supported by the immigration impact. Exports also remain strong on the back of countries other than Russia and Ukraine. Importantly, in terms of trade measured at export prices over the import prices remained stable, indicating the reasonably balanced net effect of the highly volatile commodity prices. So inflation remained elevated and stood at 12.8% in June, and it is expected to moderate on the back of the stronghold lari and decline the commodity prices. Now let's move to the slide eight. Here, I'd like to reiterate the group's positioning and highlight our offers our fast growth potential.

3:53 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 strong capital. Third, we stand out with advanced omnichannel distribution with best in class digital customer proposition and 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 June, we had 3,700,000 active users into geographies.

4:42 Moving on to slide nine, we show our leading position in Georgia. As you can see from this slide, we hold leading positions 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 efficiency. On the next slide, I'd like to summarize our key financial results for the second quarter. As already mentioned, we generated strong results in second quarter with return of equity standing at 24.1%, while return of assets amounted to 3.7%.

5:21 The year on year decrease in net profit was related to high base a year ago due to provision recoveries and one off gain from the disposal of invested property. As expected, our cost of risk started to normalize and amounted to annualized 0.9 in the second quarter. Over the same period, our cost income ratio slightly improved and stood at 35.3%. On the slide 11, I'd like to share with you an update on our digital ecosystems. We have the largest digital ecosystem in Georgia that consists of four digital verticals, lifestyle, housing, auto, and ecommerce. We have 1,750,000 unique visitors across all verticals, which is around 40% of the Internet traffic among the Georgian websites.

6:14 Our ecosystems allow us to leverage our large customer base and to data hub capabilities to first, generate a net fee and commission income. Second, create leads for loss. Third, strengthen customer loyalty and lock in, and finally, increase customer engagement. The following slide gives more details on the results of our digital ecosystems. Total gross merchandise volume is growing rapidly and as our users are becoming more engaged. Our main sales performance indicator GMV and GMV per user have increased by more than three times year on year. At the same time, number of lead generation has more than doubled year on year, and a loan conversion rate grew to 8%.

7:01 As a result, the loan disbursements reached to 22,000,000 lari accounting for 6% of our total retail loans disbarred during the quarter. Let's move to slide 13, which illustrates a strong growth of our Georgian payment business. In the second quarter, the volume of POS POS transactions and transactions conducted by TBCGards grew by around 30% year on year. It is important to highlight that our payment business is a significant contributor to our fee and commission income accounting for around 30% of the total. On the slide 14, you can see our digitalization metrics both in Georgia and on the group's level. We have strong progress in expanding our digital footprint on the group's level.

7:51 As already mentioned, we have up to 3,000,000 active digital users every month, while daily digital users exceeded 1,000,000 in June of this year. Most importantly, our transaction offloading continues to be high at 99%. In consumer lending, we issue 60% of loans digitally, while 70% of our deposits are issued outside the branches. Now I'd like to update you about our continued progress in Uzbek Bank operations in more detail starting on the slide 15. By the end of June, the number of downloads of our TBCGUSA application increased to 2,400,000, while the number of registered users was 1,800,000. At the same time, we reached 236,000,000 lari in deposits and 181,000,000 lari in loans.

8:46 As the business is growing successfully, we invested additional capital in TBCG's bank in the amount of $21,000,000 while our partners, IFC and TBRD, injected $7,000,000 each to support our expansion plans. 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 second quarter, PayMe continued its rapid growth in all major metrics. The number of monthly active users doubled year on year and reached 2,000,000 at the end of June,

9:26 while the total payments volume increased by more than 50% year on year. Over the same period, the revenue and net profit continued impressive growth and reached 12,000,000 lari and 7,100,000, respectively. Now I'd like to hand over to Jorke. Thanks, Waktank. And as usual, I'll go over the financial performance starting from the slide 18. And as Waktank mentioned, it shows very strong offset financial results. In q two, our net profit is up by five percentage quarter on quarter on the back of the very strong income generation. And our ROIC stood, as I mentioned, 24.1, and ROA was 3.7%. On annual basis, our net profit decrease is due to high base a year ago, mainly actually related to the provision recoveries and came from disposal of a real estate property.

10:17 Now turning to slide 19 that shows our growing and diversified revenue streams. Our NIM continued a very positive trend in q two and amounted to 5.8%, up by 20 basis points on quarter on quarter basis and by remarkable 80 basis points year on year basis. The strong growth in NIM was mainly driven by loan composition and loan yield effects. We also recorded 17% growth in noninterest income year on year and 29% increase on quarterly basis, which was mainly driven by strong FX gains and net fee and commission income. Now as you can see from slide 20,

10:56 we maintained our high efficiency levels. The cost growth in absolute terms was 29,000,000 or around 21%, out of which circa 30% was due to our, let's, Uzbekistan expansion. However, we continued our positive cost to income growth trend, and our cost to income ratio decreased both year on year and quarter on quarter basis and stood at 35.3%. Now slide, 21. We I would like to present our strong asset quality. Our NPL decreased both on year on year on quarterly basis and stood at 2.3. NPLs improved significantly on year on year basis due to resumed repayment of restructured loans in the retail and MSME. Also, our total NPL coverage ratio remained very strong at 168%, comprised of 100% provision coverage and 68% collateral coverage.

11:51 In q two, the cost of risk started to normalize after the recoveries in '21 amounting to 90 basis points. The largest increase is coming from the retail due to the acceleration of consumer loans. Now going to slide 22 that provides a brief overview of our loan and deposit portfolio growth. We maintained our leadership position in both areas. Our loan book grew by 23% year on year on constant currency basis, while our deposit portfolio increased by 30% year on year without currency effect.

12:26 Slide 23 shows our solid capital positions. CET one ratio stood at 15% at the end of q two, two 0.9 percentage points above the minimum regulatory requirement. All other tiers, we are also comfortably above all regulatory requirements. One thing I would like to highlight here that you probably this audience is not aware. These ratios on a local basis, and if you translate them on Basel three basis, they are around 250 to 300 basis points more. Therefore, when I'm saying, like, 15%, it's more like 17 to 18% on the Basel basis. And based on these strong capital positions, we are happy to distribute interim dividend of 2.5 lari per share and declare share share buyback as Waktank already mentioned. Now moving to slide 24 where I will conclude my presentation with funding and liquidity summary.

13:17 As you can see on this slide, we have a well balanced funding structure with high customer funding share of around 72%.

13:24 Also, our NSFR and LCR ratios, we are comfortably above the minimum reg limit of 100%. Here also, those ratios are on local basis. Our LCR ratio on a Basel basis is around 223%. Now I would like to hand back to who will update you about our medium term targets and future outlook. Now up up to you, Yeah. Thank you, and I'd I'd like to reiterate our medium term guidance and compare our performance in the second quarter against these targets. Our loan book grew by 23% against our medium term target of 10 to 15%. Our return of equity was 24.1%, as we mentioned already, meaningfully above our medium term target of 20% plus. Our cost to income ratio was 35.3%, getting closer to our mid term target of below 35%.

14:16 And finally, I'd like to reiterate that our decision to declare an interim dividend of 2.5 lari per share payable in October, which will be supplemented by the buyback program of up to 75,000,000 lari. And I'd like to finish today's presentation by recapping our strategic priorities going forward, which are maintain robust profitability backed by solid capital, diversify and increase our fee and commission income streams, continue steady growth in Georgia, harness high growth potential of the Uzbek market, and continue to leverage our advanced digital capabilities to achieve high efficiency.

14:58 Finally, I'd like to inform you that we are planning to hold the capital markets day in Uzbekistan on November 10 and would be glad to see you all there. Invitations will be sent out in the near future. With that, I'd like to invite you 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 just on the right hand corner of your screen. So the company take a few moments to review those questions submitted today, I'd like 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 your investor dashboard. As you can see, we've had a number of questions come through today's presentation. And perhaps, if I may, I will start with the first one. It reads as follows. The digital client base and active users is very impressive. What opportunities do you have to cross sell into this digital user base to drive margin?

15:53 Okay. I can take what is so if we start, like if we need we need to think in terms of the two countries, Georgia and Uzbekistan. If we start from Georgia here, actually, we are market leaders, and we are have universal banking model, and our customers has access to all the banking. But key point, as was mentioned, we now are we have very strong focus on T Net. It's our ecosystem that provides very, I would say, strong cross selling or cross functional opportunity to our customers where they can get product in one space. Our target at some point, probably somewhere like this year, end of next year, is to kind of also look at something like the super app that will help us to kind of support our customers and cross selling opportunities, but that's kind of one of the key options in Georgia. And the data shows that it's a growing opportunity and growing business. In Uzbekistan, we have two businesses there. It is the bank and the payment business. They are also it's a new startup business. We just started our bank last year. It's growing.

16:52 And pay in payment business, we, at the moment, have the minority shareholders here who own 49%. We own 51. We have an option there to acquire the minority shareholders next year that we are kind of probably are going to take. That also will open additional cross and less opportunities between those two businesses, and we think there is a lot of upside. Want to give you anything Just to add, just the Anna, if you go to the slide number 11. Next slide. Just as we see on the lower right hand side, just it's very important to mention here that just to begin, as said already, that we are beginning our journey through our network and through our ecosystems.

17:44 And only in the second quarter, we generated 6% of our disbursement of the loans in the retail business by our ecosystem. So this is the beginning of our journey, and we believe that at the medium term, this will grow up. So and this is we have already done in Georgia, but as Georgi is saying, just we began our business in Uzbekistan. This is a start up business. We began from the greenfield, our banking operations, but probably it will take years. So in one year, in two years, we will see the huge results because in PayMe, we have already more than 7,000,000 registered customers. And in the bank, as we are reporting today, we have more than 2,000,000 registered customers. As we already mentioned, we are inviting all of you to Uzbekistan on Investors Day, and that you will see on a place in Tashkent what we are doing there.

18:37 Fantastic. Thank you very much indeed. The next question we've got here, with the increase in loan book on 2339% market share, how do you manage bad debts with such a large share of the market? Yes. From the number, we can say we manage it very well. But now going how we do it, it's kind of our, like, normalized, like, range is around 80 to a 100 basis points. That's usually, like, how and it's a product of portfolio structure because we are incorporate. We are it's quite a we have quite a low cost of risk. We have very high quality portfolio working with customers on kind of one to one individual basis. In MSM, it's the same rate. In retail, one thing that you need to keep in mind in Georgia, even in consumer lending, we because the bank can't lend to the supply market because of the regulation and this audience, again, may not be aware of this.

19:24 In 2019, there have been quite strict regulation coming into place, very high PTI, for example, that are in place or other kind of, let's say let's say, eligibility of the customers that allows us only access to the more high quality customers. And we have a very strong underwriting standards. We have a different committee, large loans going even up to board level. Therefore, I think as a product of this, our kind of cost of risk range is around 80 to 100 basis points that we expect. That's fantastic. And really just following on from that, just touched on the regulation. We've got a question here. Do you have a consumer finance offering like Klarna, the buy now pay later provider for online purchases? I think you just said, obviously, there there are regulations around, you know, the lenders that you can lend to. But is that something that you've been looking at?

20:13 Yeah. We are in a process in Georgia. So we are now operating in two geographies in Georgia and Uzbekistan. So in Georgia, we are launching that project in the first quarter and same. We already have such a project in Uzbekistan. Just only regulations in Georgia and Uzbekistan where we have just we have a caps on the interest rates. For example, in Georgia, the cap on the interest rate, we have 50%. So this is the only regulations and other type of the ratios we are using in Georgia. It's a PTIs and the same normal retail consumer lending ratios, which our regulators is asking in Georgia. I think a question here that you you have touched on, but the Uzbek business has been fantastic. You said that you've grown it from a greenfield.

21:00 How replicable is that? What are the barriers to entry to take that into different geographic markets? You've got such a strong presence already and so quickly, but can you replicate this and, I guess, the barriers to entry of doing so? Yeah. Thank you for this question. So we believe that that this this is our first geography, but we believe that as our business we are doing in Uzbekistan, mobile bank, which we developed internally in TBC. So same products. Afterwards, we want to develop in other geographies, in other countries. So this is a very simple product. So this is a mobile application, and all the products and everything is done through our So loans, deposits, and payments, and all kind of the operations are done only through our mobile app.

21:46 So we have not branches. We have not cash in terminals. We have the ATMs, POS. So everything our business in Uzbekistan, everything is in digital. And we want to copy and duplicate that business to the to other countries also. That's fantastic. Thank you very much indeed. You have covered all the question that we've received from Investors Day. Of course, any further questions that do come through, the company will be able to review those, and we'll publish responses where appropriate to do so on the Investor Me company platform. Vakta, before we redirect investors to provide you with their feedback, which I know is particularly important to you and the team, may I just ask for a few closing comments, please? Yeah. Thank you once more. As we have already mentioned, we have very good results in the second quarter, and probably it will be continued in the medium term. But once more, as we are doing very well and majority of our investors have visited Georgia. They know us already thirty years in the country. We are the we have a new venture in Uzbekistan.

22:38 But as we are showing last eighteen months, we are we are having very high growth and very pro very interesting and high growth business in Uzbekistan. So on the November 10, we'll have investors day in Tashkent in the capital Uzbekistan, and we are inviting all investors to to to our investors day. So I I we promise that it will be very interesting to all the people who will be participating on the investors' Thank you very much. That's fantastic. Thank you both indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I know it's greatly valued by the company. On behalf of the management team of TBCGROUP PLC, we'd like to thank you very much indeed for attending today's presentation.

23:25 Thank you very much.