TBC Bank Group (LSE:TBCG) — Q1 2022 Results

0:02 Afternoon, ladies and gentlemen, and welcome to the TBC Bank Group PLC Q1 twenty twenty two Results Investor Presentation. Company may not be in a position to answer every question received during today's meeting. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit

0:32 the following poll. And if you would give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand the floor over to the CEO and CFO from TBC Bank. Good afternoon. Good afternoon, and thank you for introduction. DRO, thank you for joining our call. I'd like to start our presentation today with a short introduction of our bank of TBC Bank. We are the largest banking group in Georgia with consistent track record of growth and profitability. We operate an advanced omnichannel distribution network with strong focus on digital channels and superior customer experience. We are also a leading provider of payment solutions in Georgia and Uzbekistan. In October 2020, we launched digital banking operations in Uzbekistan for retail customers and already achieved impressive results.

1:22 I will discuss our progress in Uzbekistan later during the presentation. TBC Bank has a listing on the premium segment of the London Stock Exchange and is a FTSE 250 constituent. It's also a member of the MSCI United Kingdom's Volcap Index. We have a diversified investor base with 74% of our shares on free float. Our investors come from different geographies, the largest being UK, USA, Sweden, and The South Africa. In terms of financial metric, we had a solid start of the year with our return of equity standing at 24.3% and return of assets at 3.7% in the first quarter. At the same time, our loan and deposits portfolio reached 17,000,000,000 lari and 15,000,000,000 lari, respectively, with a market share of around 40% in both.

2:18 Our capital and liquidity levels also remained strong. By the end of March, our CET1 capital adequacy ratio stood at 14.6%, the strongest among the Georgian systemic banks, while liquidity coverage ratio was 116%. I'm glad to inform our you that our strong capital position allowed the board to recommend payment of a final dividend for 2021 of 2.16 lari per share at the upcoming twenty twenty two AGM. This, together with the interim dividend paid in September 2021, will equal a total dividend of 3.66 lari per share. The dividend payout ratio for 2021 will be 25%, in line with our medium term target of 25 to 35%.

3:13 Slide four illustrates our competitive position in more detail. As you can see, TBC is the leader with the market share of around 39% in total loans, followed by Bank of Georgia with their respective shares of 36%. The other players are much smaller with the loan market share below 6%. Now moving to the slide five, I'd like to highlight our key achievements during the quarter. We continue to be the market leader in Georgia with a robust profitability and strong growth supported by solid capital. We also continue to rapidly grow our business in Uzbekistan. In the first quarter, the group generated, as I have already mentioned, return of equity of 24.3%, while the CET1 ratio increased to 14.6.

4:01 At the same time, our loan book grew by 21% and deposit portfolio increased by 14%. In Uzbekistan, we continue to deliver outstanding results, and our retail loan book reached 160,000,000 lari, while retail deposits amounted to 193,000,000 lari by the end of April. At the same time, our registered users reached 1,600,000. I'm also delighted to report that on the group's level, the number of digital daily active users almost reached 1,000,000 in March, while the number of monthly active users stood at 2,800,000 for the same period. Now I'd like to review the recent macro developments briefly.

4:46 In the first quarter, the Georgian economy maintained strong growth despite adverse impacts of the war in Ukraine. The GDP growth reached 14.4% for the first quarter. Going forward, we expect the economy to grow by around 5.5% in 2022, and the negative spillover from the war appears to be more limited than initially initially anticipated. Also, on a positive side, the LARI regained its value quarter on quarter after the short term volatility and remained stable. The next slide show the growth drivers in March mostly remained at and and mostly remained at strong levels. Tourist recovery strengthened in March supported by the immigration effect and stood at around 70% of the 2019 levels.

5:38 At the same time, remittances have slowed but still maintained a positive growth rate of 2.6%. Remittances from Russia decreased by 16% year on year, while inflows from other countries increased by 6.5% over the same period. The outlook for Lari is also broadly neutral. Our next slide show the major drivers underlying our GDP forecast for this year. In our baseline scenario, we expect the Georgian economy to grow by around 5.5% this year on the back of the tourist recovery and resilient exports compared to seven to 7.5% GDP growth without the war impact. Bank credit is also expected to be supportive, growing around 16% year on year in constant currency terms.

6:31 Now let's move to the next slide. And in this section, I'd like to reiterate the group's positioning and highlight our fast growth potential. 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 the advanced omnichannel distribution and best in class digital customer proposition. In addition, we have fast growing payment business in Georgia and Tuskekistan. 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 the first quarter, we had 3,600,000 active users.

7:26 Moving to the next slide, we show our leading position in Georgia. You can see from this slide that 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 first quarter, including strong profitability and solid capital position. As I mentioned already, we delivered 24.3% of return of equity, while return of assets stood at 3.7%. Net interest margin improved by 0.9 percentage points year on year and reached 5.6%.

8:14 In addition, our cost to income ratio stood at 76.6%, down by 2.7 percentage points year on year. At the same time, our CET1 ratio increased to 14.6%. It is important to stress that this is above the minimum required level by 2.4 percentage points.

8:34 Next slide illustrates the solid growth of our Georgia payment business. This quarter was successful for our payment business in Georgia as well. And 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 the first quarter. 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. We have up to 1,000,000 active digital users every day and 2,800,000 active digital users every month.

9:28 What is most important, our transaction offloading continues to be high at 99%. In consumer lending, we issue 62% of loans digital. Now I'd like to update you about our continued progress of Uzbek operations in more details. By the end of April, the number of downloads of our TBC Uzbek reached 2,100,000, while the number of registered users was 1,600,000. At the same time, we reached 193,000,000 in deposits and 160,000,000 lari in loans. Finally, I'd like to highlight the strong performance of our payment subsidiary, PayMe, which is the second largest payment provider in Uzbekistan.

10:17 In the first quarter, PayMe continue its its rapid growth and in all major metrics. The number of monthly active users continue to grow re and reached reaching a 1,800,000 at the end of the March, while the number of active merchants also increased to around 3,000. In terms of financial results, the revenue reached 9,500,000 lari, while the net profit almost doubled and reached 5,800,000 lari. Now I'd like to hand over to POP. Thank you very much, And as you already mentioned, it was a really exceptional quarter with strong financial performance. Our net profit is up by 46% year on year, but more importantly, it is up by 13% quarter on quarter, driven by the strong income generation across the board, while our asset quality remained very strong, translating into cost of risk 30 basis points. As a result, our ROA, as kind of mentioned few times, stood at very solid 24.3%.

11:20 Now I'll go to slide 19 that shows our growing and diversified revenue streams. Our NIM continued a very positive trend in q one and amounted 5.6%, up to 20 basis points on quarterly basis, but remarkable 90 basis points on year on year basis. This strong growth was mainly driven by increase in loan yields, accompanied by loan composition change as well as the liability management. We also recorded very robust growth of 44% in noninterest income year on year, which was driven by a strong increase in net fee and commission income and significant growth in FX gains due to increased volume and margins. On quarterly basis, our noninterest income increased by 10% on the back of higher FX gains.

12:11 Now let's move to slide 20 that shows our high efficiency levels. As you can see from the left hand chart, in q one twenty two, our total OpEx grew by 25% year on year or around 29,000,000 lari. And staff cost growth was mainly due to growth of business both locally and in into Uzbekistan, while admin costs were mainly driven by Uzbekistan rollout.

12:37 On a quarterly basis, our operating expenses decreased by 4%. That is mainly due to seasonally high base in q four. But the most important thing here is that we continued our positive cost to income growth trend. And as a result, our cost to income ratio stood at 36.6% in the first quarter twenty two, 2.7% down from the last year. Now slide '21. Here, I'd like to present our strong asset quality. Our NPL remained unchanged on quarterly basis at 2.4. However, materially decreased year on year from its COVID highs, mainly driven by resumed repayments of restructured loans in the retail and MSME segments. Our cost of risk for the quarter was 30 basis points as a result of the strong performance of the loan book across all segments. I just would like to highlight here that we sold our return of consumer loan portfolio, which resulted in around 13,000,000 lari provision charge reversal without that cost of risk would have been around 60 basis points.

13:42 Now move to slide 22 that provides a brief overview of loan and deposit portfolio growth. We maintained our leadership position in total loans by slightly outperforming the market growth of 21% year on year on constant currency basis. At the same time, our deposit portfolio outpaced the market and grew by 13% year on year without currency effect. I'd like to highlight that we continue to hold the number one market position in Georgia, both in terms of total loans and deposits. Now slide 23 that shows our solid capital positions. CET1 ratio stood at 14.6% at the end of q one and was 2.4 percentage points above the minimum reg requirement. All other tiers, we are also above all regulatory limits.

14:34 As already mentioned, we plan to pay a final dividend for '21 of around 25% of

14:40 last year profit. Our pro form a c t one ratio would have been 14% even after paying these dividends in q one, still well above requirements of 1.8 percentage points, positioning the bank very well for its international and local growth and withstanding any potential headwinds. Now moving to the slide '24. Here, I will conclude my presentation with funding and liquidity summary. As you can see from this slide, we have a well balanced funding structure with higher customer share of 71%. Also, our NSFR and LCR ratios, we are comfortably above the minimum reg limit of 100%. I also would like to stress here that without applying Georgia banking specifics, the LCR ratio on Basel basis would have been 208%.

15:31 Now I'd like to hand back to who will update you about our medium term targets and future outlook. Thank you. Thank you, And I'd like to reiterate our medium term guidance and compare our performance in the first quarter against these targets. Our loan book grew by 21% against our medium term target of 10 to 15%. Our return of equity was, as we already mentioned, 24.3%, meaningfully above our medium term target of 20%

16:03 plus. Our cost of ratio was 36.6%, getting closer to our medium term target of below 35%. And finally, as already mentioned, we expect our our dividend payout ratio to be at 25% for 2021 within our guidance of 25 to 35%.

16:24 And I'd like to finish today's presentation by recapping our strategic priorities, are maintain robust profitability backed by solid capital, diversify and increase our fee and commission income, continue sustainable growth in Georgia, capture the high growth potential of the Uzbek 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. Tantan, Georgi, thank you very much indeed for your presentation. I'm just gonna bring your cameras back up. 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 Just while the company 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 will be accessible via your Investor Meet company dashboard.

17:18 Thank you, firstly, to all the investors that have submitted questions. We've got a number to go through, if I may. The first one reads as follows. Given the growth of active users, are there any new complementary products or services that you'd look to offer through these digital channels?

17:35 Yeah. As you noticed, I will try to answer it if he will add something there. So as we already mentioned in our presentation today, we have we are operating into mainly operating into countries, Georgia and Uzbekistan. So in Georgia, we have full kind of the banking, I mean, beginning from the micro and ending with corporate. And to answer more, you know, your the question is that in digital, we have in Georgia all kind of the products. I mean, just beginning from the payments and and the consumer lending, and now we are trying even to doing digital mortgage businesses. So all kind of the products we are doing to do in digital and also to add on that. I think in Georgia, last four to five years, we are building ecosystems around TBC Bank, and I can say that successfully what we did that every month, we have around up to 1,800,000 active users

18:39 on our ecosystem. So what does it mean that we have a ecosystem such as marketplaces. We have a housing ecosystem. We have a car business ecosystem. We have a lifestyle. We have a ticket. So we have a different kind of the ecosystems which allows us to have a much more iterations with our customers every day. So this is in Georgia. In Uzbekistan, we have a much simpler model. So in Uzbekistan, we operate through digital banks. So everything is done through our mobile application, and we have the just payment business and also consumer lending and the kind of the deposits for for the individuals. And as we have already mentioned in our presentation, it's a commercial banking. We have digital banking in Uzbekistan. Also, in addition to that, we have a very well developed second second player in Uzbekistan payment operator.

19:39 We are we have up to 5,000,000 users.

19:42 That's great. Thank you very much indeed. Let me turn to the next question, if I may. What expansion plans do you have outside of Georgia? Yeah. Very good question. So today, as we have already mentioned, so today, we have very good results. So today, daily users, as a group, we have around 1,000,000. And not for this year, but in the medium term, it's our ambition and plan to have more than 10,000,000 users. So on that side, we have a very ambition plans that probably in two to three years, we'll develop our business. It's in other countries also. Yes. And just to add to, the key, I should say, foundation for that is that our Uzbekistan business operates on a locally developed fintech platform space that initially was tested in Georgia. Said platform is actually managed in Georgia from PLC.

20:38 Therefore, we have all the capabilities and all the tools to kind of roll it out without any material, like, efforts because all the kind of capability is there. So once we stabilize and get on our footy toilets, Uzbekistan, we will be looking all the options around. So outside Georgia,

20:55 we are looking only to have just digital banking, just digital banking operations plus the payments. So digital business. Thank you very much indeed. Just turning on to that really. Question here. Do you own a 100% of Pay Me, and what do you feel really makes that so successful? Maybe I'll try to answer this question beginning that as a country, Uzbekistan is very interesting. If you look population of the countries, little bit more than 32, the growth of the population every year around half million. And the average age of the population, it's around 25 year. And the banking sector payment is a beginning on the estate. So this is the underpenetrated market, and we are in the beginner on that.

21:42 In the payment business, there are only few players, and we try to bring the new products as much as possible. And we are to be lead to we are trying to be leader, and our results show that we are doing very well and successfully our business. So but also to add to that, also, we have a potential to do same as a bank there. So we have only one year history there as a commercial bank. But as we have already shown in our presentation, we are doing very well on the both sides. I mean, on in the loans and also on the deposit side. That's great. Thank you. I think you've touched on this somewhat. Obviously, you've you've got a number of kind of fingers in different pies. But question reads as follows. Do you have any plans to further diversify into new revenue streams?

22:33 Yes. Maybe I'll take this. And probably the on the last question on the premium ownership, I'd say, at the moment, we own 51% to conclude about. We have an option to kind of exercise next year, early next year, and that's in the pipeline next twelve months. So at the moment, we do have controlling package. We do set the strategy. And next year, we target it, like, to exercise our option. So that's on the net new revenue streams. Of course, what I mentioned actually is ecosystems in Georgia. That is a very diversified, very good addition to the groups that increases. On banking product, it's maybe a bit difficult to to see something new, but we are looking at different type of product like brokerages, different investment banking products that will help within Georgia as well along with the ecosystems. And Uzbekistan venture itself is the diversification of our revenue streams as kind of probably the bank is looking. Martin, if you have anything to add? No. K. No.

23:30 Okay. And then if I may just turn to this final question, and thank you to everybody that submitted the questions. If any more do come in, I'll obviously continue to read those out. But the question reads as follows. Would you consider share buybacks in addition to dividends? Yes. So first of all, I would like to start that I say highlighted we have a very strong capital position. Even after dividend payment, we are available regulatory limit. But at the moment, we see a big growth opportunity both locally and mainly internationally. Therefore, we do think that it's better use of capital at the moment to invest into these growth opportunities. Of course, paying our due dividend payout ratios that we due to payout ratio guidance for the market, 25 to 35%. This year, we complete 25%. Probably next year, we'll be looking to topping up that range and going higher. But to summarize, we do think that dividend payout topped up with the growth is a strategy we'll be going in the near term future. So no share no share buybacks this month.

24:29 That's great. Well, thank you, and thank you once again to everybody that submitted those questions. And thank you to you both for being so direct in answering all the questions. I know investor feedback is important to you both, and I will shortly redirect those people on the call to provide you with their thoughts and expectations. But I wondered if I may, before doing so, Vangtang, just ask you for a few closing comments. And then as I said, I'll redirect investors to give you their thoughts. Yes. Oh, no. Okay. Thank you very much for interest. And as we already mentioned in our presentation, the beginning was very good, successful beginning of this year, and we have very ambitious plans for this year. And, also, as we showed, we are performing very well. And compared to our medium targets, we believe that we'll do our best to achieve our targets.

25:19 That's right. Exceed. Not to not only achieve, but exceed. Thank you. Thank you so much to you both once again for updating investors this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be 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. That now concludes today's session, and I may wish you all a very pleasant afternoon.