TIDMTBCG
RNS Number : 9556I
TBC Bank Group PLC
18 August 2021
TBC BANK GROUP PLC ("TBC Bank")
2 Q AND 1H 2021 UNAUDITED CONSOLIDATED FINANCIAL RESULTS
Forward-Looking Statements
This document contains forward-looking statements; such
forward-looking statements contain known and unknown risks,
uncertainties and other important factors, which may cause the
actual results, performance or achievements of TBC Bank Group PLC
("the Bank" or "the Group") to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. Forward-looking statements are
based on numerous assumptions regarding the Bank's present and
future business strategies and the environment in which the Bank
will operate in the future. Important factors that, in the view of
the Bank, could cause actual results to differ materially from
those discussed in the forward-looking statements include, among
others: the achievement of anticipated levels of profitability;
growth, cost and recent acquisitions; the impact of competitive
pricing; the ability to obtain the necessary regulatory approvals
and licenses; the impact of developments in the Georgian economy;
the impact of COVID-19; the political and legal environment;
financial risk management; and the impact of general business and
global economic conditions.
None of the future projections, expectations, estimates or
prospects in this document should be taken as forecasts or
promises, nor should they be taken as implying any indication,
assurance or guarantee that the assumptions on which such future
projections, expectations, estimates or prospects are based are
accurate or exhaustive or, in the case of the assumptions, entirely
covered in the document. These forward-looking statements speak
only as of the date they are made, and, subject to compliance with
applicable law and regulations, the Bank expressly disclaims any
obligation or undertaking to disseminate any updates or revisions
to any forward-looking statements contained in the document to
reflect actual results, changes in assumptions or changes in
factors affecting those statements.
Certain financial information contained in this presentation,
which is prepared on the basis of the Group's accounting policies
applied consistently from year to year, has been extracted from the
Group's unaudited management accounts and financial statements. The
areas in which the management accounts might differ from the
International Financial Reporting Standards and/or U.S. generally
accepted accounting principles could be significant; you should
consult your own professional advisors and/or conduct your own due
diligence for a complete and detailed understanding of such
differences and any implications they might have on the relevant
financial information contained in this presentation. Some
numerical figures included in this report have been subjected to
rounding adjustments. Accordingly, the numerical figures shown as
totals in certain tables might not be an arithmetic aggregation of
the figures that preceded them.
Second Quarter and First Half of 2021 Unaudited Consolidated
Financial Results Conference Call
TBC Bank Group PLC ("TBC PLC") will release its second quarter
and first half of 2021 unaudited consolidated financial results on
Wednesday, 18 August 2021 at 7.00 am BST (10.00 am GET), while the
results call will be held at 14.00 (BST) / 15.00 (CEST) / 9.00
(EDT).
Please click the link below to join the webinar:
https://tbc.zoom.us/j/93113731736?pwd=MWhLNHlPSVVNRlZVUUxkLzZiVFdNZz09
Webinar ID: 931 1373 1736
Passcode: 124283
Or, use the following dial-ins:
-- Georgia: +995 3224 73988 or +995 7067 77954 or 800 100 293 (Toll Free)
-- The United Kingdom: 0 800 260 5801 (Toll Free) or 0 800 358
2817 (Toll Free) or 0 800 031 5717 (Toll Free)
-- US: 833 548 0276 (Toll Free) or 833 548 0282 (Toll Free) or
877 853 5257 (Toll Free) or 888 475 4499 (Toll Free)
-- Russia: 8800 100 6938 (Toll Free) or 8800 301 7427 (Toll Free)
Webinar ID 931 1373 1736# , please dial the ID number slowly.
Other international numbers available at:
https://tbc.zoom.us/u/aeIeUaqK4W
The call will be held in two parts. The first part will be
comprised of presentations and during the second part of the call,
you will have the opportunity to ask questions. All participants
will be muted throughout the webinar.
Webinar Instructions:
For those participants who will be joining through the webinar,
in order to ask questions, please use the "hand icon" that you will
see at the bottom of the screen. The host will unmute those
participants who have raised hands one after another. After the
question is asked, the participant will be muted again.
Call Instructions:
For those participants who will be using the dial in number to
join the webinar, please dial *9 to raise your hand.
Contacts
Zoltan Szalai Anna Romelashvili Investor Relations Department
Director of International Head of Investor Relations
Media and Investor Relations
E-mail: ZSzalai@Tbcbank.com.ge E-mail: IR@tbcbank.com.ge E-mail: IR@tbcbank.com.ge
Tel: +44 (0) 7908 242128 Tel: +(995 32) 227 27 Tel: +(995 32) 227 27
Web: www.tbcbankgroup.com 27 27
Address: 68 Lombard Web: www.tbcbankgroup.com Web: www.tbcbankgroup.com
St, London EC3V 9LJ, Address: 7 Marjanishvili Address: 7 Marjanishvili
United Kingdom St. Tbilisi, Georgia St. Tbilisi, Georgia
0102 0102
Table of Contents
2Q and 1H 2021 Results Announcement
Key Results
Highlights...................................................................................................................................5
Letter from the Chief Executive Officer
..............................................................................................................................7
Economic Overview
..................................................................................................................................................................
9
Unaudited Consolidated Financial Results Overview for 2Q 2021
............................................................................
11
Unaudited Consolidated Financial Results Overview for 1H 2021
.............................................................................24
Additional Disclosures
..............................................................................................................................................................
36
1) TBC Bank - Background
.....................................................................................................................................................
36
2) Subsidiaries of TBC Bank Group PLC
............................................................................................................................
36
3) TBC Insurance..
......................................................................................................................................................................
37
4) First digital bank in Uzbekistan
..........................................................................................................................................
38
5) Reclassification of certain balance sheet profit and loss
items and changes in methodology ......................... 38
6) Loan book breakdown by stages according IFRS 9
......................................................................................................
39
7) Reconciliation of Return on Equity (ROE) with ROE before
expected credit loss allowances ......................40
Material Existing and Emerging Risks
...................................................................................................................................41
Statement of Directors' Responsibilities
...............................................................................................................................
52
Unaudited Condensed Consolidated Interim Financial Statements
...............................................................................54
TBC Bank's Unaudited 2Q and 1H 2021 Consolidated Financial
Results
Record high profitability on the back of strong revenue
generation and improved performance on asset quality side
European Union Market Abuse Regulation EU 596/2014 requires TBC
Bank Group PLC to disclose that this announcement contains Inside
Information, as defined in that Regulation.
The information in this announcement, which was approved by the
Board of Directors on 17 August 2021, does not comprise statutory
accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 31 December 2020, which
contained an unmodified audit report under Section 495 of the
Companies Act 2006 and which did not make any statements under
Section 498 of the Companies Act 2006, have been delivered to the
Registrar of Companies in accordance with Section 441 of the
Companies Act 2006.
Key Results Highlights
2Q 2021 P&L Highlights
-- Profit for the period amounted to GEL 250.4 million (2Q 2020: GEL 126.2 million)
-- Operating income[1] amounted to GEL 380.3 million (2Q 2020: GEL 250.0 million)
-- Operating expenses amounted to GEL 134.7 million (2Q 2020: GEL 95.1 million)
-- Return on average equity (ROE) stood at 31.0% (2Q 2020: 19.5%)
-- Return on average assets (ROA) stood at 4.4% (2Q 2020: 2.6%)
-- Cost to income of TBC Bank Group PLC stood at 35.4% (2Q 2020: 38.0%)
-- Standalone cost to income ratio of the Bank[2] was 28.6% (2Q 2020: 32.3%)
-- Cost of risk stood at -1.3% (2Q 2020: 0.0%)
-- Net interest margin (NIM) stood at 5.0% (2Q 2020: 4.3%)
-- Basic earnings per share stood at GEL 4.55 (2Q 2020: 2.30)
-- Diluted earnings per share stood at GEL 4.49 (2Q 2020: 2.29)
1H 2021 P&L Highlights
-- Profit for the period amounted to GEL 403.4 million (1H 2020: GEL 69.2 million)
-- Operating income 1 amounted to GEL 691.4 million (1H 2020: GEL 540.3 million)
-- Operating expenses amounted to GEL 256.9 million (1H 2020: GEL 201.5 million)
-- Return on average equity (ROE) stood at 25.9% (1H 2020: 5.2%)
-- Return on average assets (ROA) stood at 3.6% (1H 2020: 0.7%)
-- Cost to income of TBC Bank Group PLC stood at 37.2% (1H 2020: 37.3%)
-- Standalone cost to income ratio of the Bank 2 was 30.6% (1H 2020: 32.0%)
-- Cost of risk stood at -0.4% (1H 2020: 2.1%)
-- Net interest margin (NIM) stood at 4.8% (1H 2020: 4.7%)
-- Basic earnings per share stood at GEL 7.33 (2Q 2020: 1.24)
-- Diluted earnings per share stood at GEL 7.24 (2Q 2020: 1.23)
Balance Sheet Highlights as of 30 June 2021
-- Gross loans and advances to customers stood at GEL 15,274.9 million , up by 12.0 % YoY or at 8.5% on a constant
currency basis
-- Total customer deposits amounted to GEL 12,870.4 million, up by 23.5% YoY or 20.1% on constant currency basis
-- NPLs were 3.4%, up by 0.5 pp YoY
-- NPL provision coverage and total coverage ratios stood at 91.3%, or 169.6%, respectively on 30 June 2021 compared
to 134.7% or 208.0%, as of 30 June 2020
-- Net loans to deposits + IFI funding stood at 102.8%, down by 2.5 pp YoY, and Regulatory Net Stable Funding Ratio
(NSFR), stood at 130.6% up by 3.1 pp YoY
-- The Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per the NBG's methodology stood at 13.0%,
15.5%, and 19.6%, respectively, compared to minimum regulatory requirements including restored buffers of 11.2%,
13.5%, and 17.8%, respectively.
Market Shares as of 30 June 2021 ([3])
-- Market share by total assets reached 38.2%, up by 0.3 pp YoY (#1 position)
-- Market share by total loans was 38.1%, down by 1.4 pp YoY (#1 position)
-- Market share of total deposits reached 37.8%, up by 0.7 pp YoY (#2 position)
Digital Highlights for 2Q 2021
-- Active retail digital users[4] increased by 15.8% YoY and amounted to 688,000
-- Average daily active retail digital users (DAU)[5] in June increased by 27.0 % YoY and stood at 249,000
-- Average daily active retail digital users (DAU) divided by monthly active retail digital users (MAU)[6] stood at
41.8% in June 2021 (June 2020: 38.6%)
-- 97% of all transactions were conducted through digital channels[7] (2Q 2020 : 96 %)
-- The penetration ratio for internet and mobile banking[8] stood at 53% for 2Q 2021 ( 2Q 2020 : 47%)
TBC UZ Highlights
-- The number of registered users increased more than four times since March 2021 and stood at around 403,000 by the
end of July.
-- During the second quarter 2021, we enriched our existing unsecured consumer-lending proposition with new types of
loans and added new savings options for deposits.
-- Our call center and online support services received the highest customer satisfaction score among 27 Uzbek banks,
according to an independent survey conducted by Bank.uz.
-- Our loan portfolio amounted to GEL 31.8 million in July 2021, compared to GEL 1.0 million in March 2021.
-- Our deposit portfolio amounted to GEL 49.6 million in July 2021, compared to GEL 2.8 million in March 2021.
For more financial information about our Uzbek subsidiary,
please refer to Annex 4.
Letter from the Chief Executive Officer
I am delighted to present a strong set of financial results for
the second quarter and first half of 2021 on the back of an
impressive recovery in the macroeconomic environment. Our
outstanding performance resulted in solid capital generation, which
allowed the Board to declare an interim dividend of GEL 1.5 per
share payable in second half of September 2021. W e also continue
to deliver on our strategic objectives and I am particularly
pleased with the results of our Uzbek business, which has been
growing faster than our expectations.
Strong economic rebound
The Georgian economy has rebounded at a speed that exceeded even
the most optimistic expectations. Importantly, this growth has been
broad-based, supported by strong external inflows and increased
domestic demand. According to the preliminary estimates of
Geostat[9], the economy posted 29.8% year-on-year real growth in
the second quarter. While the low base a year ago played a role, in
the second quarter the economy surpassed even its 2019 level by
12.6%. Together with an exceptional performance in exports, the
continued strong flow of remittances and a gradual recovery in
tourism, record-low interest rates on US$ deposits stimulated
consumer spending and real estate investments. Bank credit
displayed a solid rebound in the second quarter with 12.6%
year-on-year growth in FX adjusted terms, which is also strongly
supportive to the outlook. While COVID-19 and election related
uncertainties pose downside risks to the outlook, real GDP growth
for the year is likely to be above 10.0%, even under conservative
assumptions.
Strong financial performance
In the second quarter of 2021, our consolidated net profit
amounted to GEL 250.4 million, almost doubling year-on-year, while
our return on equity and return on assets stood at 31.0% and 4.4%,
respectively.
Our profitability was driven by strong income generation both in
the interest and non-interest income categories. Net interest
margin returned to its pre-pandemic level and amounted to 5.0%,
while net fee and commission income increased by 59.4%
year-on-year, primarily due to the revival of business activities,
the fast growth at our Uzbek subsidiary, Payme, as well as various
business initiatives undertaken in our domestic payments business.
The growth in other operating income was partially related to the
gain received from sale of one of our investment properties.
Our strong operating income was further supported by recoveries
of credit loss allowances due to the improved macro outlook on the
back of the better than expected economic performance, as well as
repayment from a single large CIB borrower. As a result, our cost
of risk decreased to -1.3% in the second quarter 2021. Over the
same period, our cost to income ratio dropped to 35.4%, down by
2.6pp year-on-year. This was driven by strong income generation,
which offset the growth in operating expenses. At the same time,
the stand-alone cost to income ratio for the Bank stood at 28.6%
([10]) .
Our strong financial performance in the second quarter of 2021,
coupled with resilient results in the first quarter of 2021,
resulted in consolidated net profit of GEL 403.4 million in the
first half 2021. Over the same period, return on equity stood at
25.9% and return on assets stood at 3.6%.
Our loan book increased by 8.5% year-on-year in constant
currency terms, which translated into a 38.1% market share. Over
the same period, our deposits increased by 20.1% in constant
currency terms. As a result, our market share in total deposits
amounted to 37.8% as of 30 June 2021.
As of 30 June 2021, our CET1, Tier 1 and Total Capital ratios
stood at 13.0%, 15.5% and 19. 6 %, respectively, comfortably above
the respective minimum regulatory requirements including the
restored buffers of 11.2%, 13.5% and 17.8%. We continue to maintain
a robust liquidity position, with net stable funding (NSFR) and
liquidity coverage ratios (LCR) standing at 130.6% and 127.1%,
respectively, as of 30 June 2021.
Progress towards our strategic objectives
During the quarter, we concentrated our efforts on increasing
the utilization of digital channels, enhancing our payments
business, as well as expanding our Uzbek operations in line with
our strategic priorities. Furthermore, we continue to make further
progress in relation to our environmental, social and governance
matters ("ESG").
o The number of retail digital transactions during the second
quarter of 2021 increased by 53.1% year-on-year and by 19.1%
quarter-on-quarter. Over the same period, the number of digital
sales also remained strong. The consumer loan sales offloading
ratio ([11]) amounted to 37%, while the deposit sales offloading
ratio ([12]) stood high at 7 2%.
o The volume of payment transactions went up by 26%
quarter-on-quarter, while the number of transactions increased by
22% in the second quarter of 2021. As the leading payments provider
in the country, we are constantly working on enhancing payments
solutions for our customers. In June, we launched a new platform,
Payments Space (available on www.tbcpayments.ge) , for our
merchants, which allows them to easily control their daily
transactions, receive analytical reports and manage their payments
products.
o Our Uzbek business demonstrated remarkable results over the
recent period. The number of registered and active users of our
digital banking app TBC UZ continued its rapid growth and reached
403,000 and 135,000, respectively, as of 31 July 2021. We have also
started expanding outside Tashkent and already operate 34 client
acquisition points in 11 regional cities. Our loan book and deposit
portfolio continued their steady growth and reached GEL 31.8
million and GEL 49.6 million, respectively, as of 31 July 2021,
while the total number of transactions more than tripled in July
compared to March.
o Our Uzbek payments subsidiary, Payme, also continued its rapid
growth, driven by P2P transfers and utility payments, which
together accounted for around 94% of total volume of transactions
conducted in the second quarter 2021. Over the same period, the
number of its registered users reached 3.5 million, up by 52.2%
year-on-year. In terms of financial metrics, Payme's revenue during
the quarter increased by 86.8% year-on-year to GEL 6.6 million,
while net profit grew by 81.9% year-on-year to GEL 4.1 million.
o TBC Bank has received accreditation by the Green Climate Fund
(GCF), making it the first commercial bank in the Caucasus region
to receive this accreditation. It will enable TBC Bank to have
direct access to GCF funding to finance various green projects. In
addition, we have published our full-scale Sustainability Report
for the second year in a row, which is available at
www.tbcbankgroup.com . Finally, I am proud to say that our
investment banking subsidiary, TBC Capital, participated as joint
lead manager in the very successful placement of US$ 500 million
Green Eurobonds by Georgian Railway on the London Stock Exchange, a
very important transaction for our country. It is only the second
Green Eurobond issued from Georgia, and last year, TBC Capital was
co-manager of the first such issuance, by "Georgia Global
Utilities".
Outlook
Our strong financial results and continued progress towards our
strategic objectives during the first half of 2021 together with
revived business activities and positive macroeconomic outlook fill
me with optimism about the rest of 2021.
To conclude, I would like to re-iterate our medium term
guidance: ROE of above 20%, a cost to income ratio below 35%, a
dividend pay-out ratio of 25-35% and annual loan growth of
10-15%.
Economic Overview
Economic growth
After a 4.5% drop in the first quarter of 2021, Georgia's
economy showed unexpected strength in April with real GDP reaching
a 44.8% year-on-year expansion, followed by similarly solid
year-on-year growth of 25.8% and 18.7% in May and June 2021,
respectively. The year-on-year growth in the second quarter was
29.8%. Taking into account the easing restrictions, the upturn in
the external sector and the global recovery, it can be firmly
stated that the economy has embarked on a rebound path. Real GDP in
2021 had already substantially surpassed 2019 levels, being around
a 5.3% higher in the first half of the year and 12.6% higher - in
the second quarter.
External sectors
Similar to GDP, the external sector experienced a strong rebound
in 2Q 2021 with exports growing by 47.1% year-on-year and 10.9%
compared with 2Q 2019. Notably, domestic exports lead the recovery
with the share of re-exports in the total exports decreasing
significantly, from 41.4% in 2Q 2019 to 27.5% in 2Q 2021. Despite
the ongoing recovery in the tourism related imports and re-exports,
imports of goods also went up by 44.8% YoY in 2Q 2021and by 1.3%
when compared with the same period in 2019. Importantly, the
rebound in the trade in goods was broad based, reflecting the
increased overall external as well as the domestic demand.
Remitta nce inflows were also very strong with a 53.5% increase
YoY in the second quarter and a 36.8% increase compared to the same
period in 2019. Although part of the rebound compared with 2019 can
be attributed to the border closures and more cash remittances
being transferred through the digital channels, overall growth is
still substantial given that the share of cash inflows is only
likely to be around 10.0% -15.0%, according to the NBG's
estimates.
Tourism inflows in 2Q 2021 increased by 753.3% year-on-year in
US$ terms, while dropping by 72.0% compared to the same period in
2019. This was a significant improvement after a 90.7% drop in the
first quarter compared to 2019 . The latest monthly dynamics are
also promising: 64.0% decline in June 2021compared with June 2019,
while early indicators based on the spending by non-residents
through TBC Bank's channels suggest an even more sizable rebound in
July ([13]) . Overall, even taking into account increased risks due
to a higher number of infection cases, TBC Capital's latest
projection of tourism inflows to recover by around 40.0% in 2021
compared to 2019 still looks reasonable[14].
Fiscal stimulus
The fiscal deficit is also expected to remain large in 2021 at
an estimated 6.9% of GDP following a deficit of 9.3% of GDP in
2020. However, according to the Ministry of Finance, fiscal
consolidation is expected in the coming years with deficit-to-GDP
ratios of 4.4%, 3.0% and 2.7% in 2022, 2023 and 2024, respectively.
Importantly, the major source of deficit financing in 2020-2021 was
an external one, largely compensating for the pandemic related drop
in net inflows.
Credit growth
By the end of 2Q 2021, bank credit growth has increased to 12.6%
year-on-year, compared to a 7.8% year-on-year growth by the end of
1Q 2021. In terms of segments, MSME lending growth has increased by
5.5pp from 1Q 2021 to 2Q 2021 and amounted to 18.1% year-on year.
Corporate lending also increased from 3.5% at the end of 1Q 2021 to
8.3% year-on-year, respectively. Growth in the retail sector,
increased by 4.3pp to 12.6% year-on-year on the back of stronger
mortgage and non-mortgage loans growth.
Inflation, monetary policy and the exchange rate
After the depreciation against the US$ in the first quarter of
2021, the GEL has regained some of its value since May, mainly on
the back of higher exports, remittances, tourism inflows and a
tighter monetary policy stance with a refinancing rate of 10.0%.
Due to stronger inflows, the NBG has eased its FX market
operations, selling US$ 83.7 million in April and only US$ 9.3
million in June. On the other hand, year-on-year inflation reached
11.9% in July, mainly due to the earlier depreciation of GEL and
higher commodity and utility prices. Inflation is expected to
moderate somewhat throughout the year before reaching the target of
3.0% in 2022.
Going forward
With a stronger than expected rebound in the second quarter, TBC
Capital's forecast for real GDP growth in 2021 has been revised
upwards to 10.5% followed by a solid 6.5% growth in 2022.
Meanwhile, in June the World Bank revised their 2021 growth
projections for Georgia from 4.0% to 6.0%, while the IMF increased
their forecast in July from 3.5% to 7.7 %
Mor e information on the Georgian economy and financial sector
can be found at www.tbccapital.ge .
Unaudited Consolidated Financial Results Overview for 2Q
2021
This statement provides a summary of the unaudited business and
financial trends for 2Q 2021 for TBC Bank Group plc and its
subsidiaries. The quarterly financial information and trends are
unaudited.
TBC Bank Group PLC's financial results has been prepared in
accordance with UK-adopted International Accounting Standard (IAS)
34 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority
(FCA).
Please note that there might be slight differences in previous
periods' figures due to rounding.
Financial Highlights
Income Statement Highlights
in thousands of GEL 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Net interest income 242,767 225,131 184,365 31.7% 7.8%
Net fee and commission income 63,008 45,293 39,517 59.4% 39.1%
Other operating non-interest income[15] 74,512 40,665 26,161 NMF 83.2%
Credit loss allowance 45,291 (17,244) (12,586) NMF NMF
Operating profit after expected credit losses 425,578 293,845 237,457 79.2% 44.8%
Losses from modifications of financial instrument (104) (1,487) (3,527) -97.1% -93.0%
Operating expenses (134,688) (122,240) (95,059) 41.7% 10.2%
Profit before tax 290,786 170,118 138,871 NMF 70.9%
Income tax expense (40,394) (17,131) (12,665) NMF NMF
Profit for the period 250,392 152,987 126,206 98.4% 63.7%
Balance Sheet and Capital Highlights
in thousands of GEL Jun-21 Mar-21 Jun-20 Change YoY Change QoQ
Total Assets 22,091,541 23,617,046 19,813,429 11.5% -6.5%
Gross Loans 15,274,926 15,332,209 13,635,392 12.0% -0.4%
Customer Deposits 12,870,418 14,239,837 10,420,330 23.5% -9.6%
Total Equity 3,336,825 3,125,735 2,653,405 25.8% 6.8%
Regulatory Common Equity Tier I Capital
(Basel III) 2,382,595 2,059,599 1,631,006 46.1% 15.7%
Regulatory Tier I Capital (Basel III) 2,837,805 2,550,144 2,068,052 37.2% 11.3%
Regulatory Total Capital (Basel III) 3,573,282 3,327,134 2,787,136 28.2% 7.4%
Regulatory Risk Weighted Assets (Basel
III) 18,275,845 18,921,231 16,249,475 12.5% -3.4%
Key Ratios 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
ROE 31.0% 20.3% 19.5% 11.5 pp 10.7 pp
ROA 4.4% 2.7% 2.6% 1.8 pp 1.7 pp
NIM 5.0% 4.7% 4.3% 0.7 pp 0.3 pp
Cost to income 35.4% 39.3% 38.0% -2.6 pp -3.9 pp
Standalone cost to income of the Bank[16] 28.6% 33.1% 32.3% -3.7 pp -4.5 pp
Cost of risk -1.3% 0.5% 0.0% -1.3pp -1.8 pp
NPL to gross loans 3.4% 4.8% 2.9% 0.5 pp -1.4 pp
NPL provision coverage ratio 91.3% 81.0% 134.7% -43.4pp 10.3 pp
Total NPL coverage ratio 169.6% 154.4% 208.0% -38.4 pp 15.2 pp
CET 1 CAR (Basel III) 13.0% 10.9% 10.0% 3.0 pp 2.1 pp
Regulatory Tier 1 CAR (Basel III) 15.5% 13.5% 12.7% 2.8 pp 2.0 pp
Regulatory Total CAR (Basel III) 19.6% 17.6% 17.2% 2.4 pp 2.0 pp
Leverage (Times) 6.6x 7.6x 7.5x -0.9 pp 1.0 pp
Net Interest Income
In 2Q 2021, net interest income amounted to GEL 242.8 million,
up by 31.7% YoY and 7.8% on a QoQ basis.
The YoY rise in interest income by GEL 65.5 million, or 16.7%,
was mainly driven by an increase in interest income from loans
related to a growth in the gross loan portfolio of GEL 1,639.5
million, or 12.0%, together with an increase in the respective
yield by 0.5pp.
In 2Q 2021, interest expense increased by GEL 10.7 million, or
5.0%, mainly driven by an increase in interest expense from
deposits, which was related to a growth in the respective portfolio
of GEL 2,450.1 million, or 23.5% YoY. Over the same period, the
cost of deposits stood at 3.4% and remained broadly flat YoY. The
growth was partially offset by a decrease in interest expense from
other borrowed funds, on the back of a decline in the respective
portfolio by GEL 821.5 million, or 19.8%. Overall, the change in
liability structure towards deposits had a positive effect on our
cost of funding, which dropped by 0.4pp on a YoY basis.
The increase in interest income on a QoQ basis of GEL 18.0
million, or 4.1%, was mainly driven by an increase in interest
income from loans to customers on the back of 0.4pp growth in loan
yields. This increase was mainly attributable to GEL loan yields,
on the back of an increase in the refinance rate . Over the same
period, the loan portfolio remained broadly stable.
The increase in interest expense of GEL 2.5 million, or 1.1% on
a QoQ basis, was mainly driven by an increase in other borrowed
funds on the back of a rise in the respective yield by 1.4pp. The
increase in GEL yields was due to growth in the refinance rate,
while the increase in FC yields was related to prepayment fees on
certain borrowed funds. The respective portfolio decreased by GEL
109.1 million, or 3.2%. This increase was partially offset by a
decrease in interest expense from customer accounts, which was
attributable to decrease in a Ministry of Finance deposits and the
release of a single short-term CIB depositor. As a result, the
respective portfolio decreased by GEL 1,369.4 million, or 9.6% on a
QoQ basis.
In 2Q 2021, our NIM stood at 5.0%, up by 0.7pp YoY and 0.3pp on
a QoQ basis.
In thousands of GEL 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Interest income 458,572 440,613 393,114 16.7% 4.1%
Interest expense (223,456) (220,980) (212,714) 5.0% 1.1%
Net gains from currency swaps 7,651 5,498 3,965 93.0% 39.2%
Net interest income 242,767 225,131 184,365 31.7% 7.8%
NIM 5.0% 4.7% 4.3% 0.7 pp 0.3 pp
Net fee and commission income
In 2Q 2021, net fee and commission income totaled GEL 63.0
million, up by 59.4% YoY and 39.1% QoQ.
The strong YoY and QoQ increases were attributable to the
revival of business activities in 2Q 2021, which was further
supported by various initiatives undertaken on our domestic
payments business, which resulted in upgrading the existing cards
with higher class cards and the contribution of our fast-growing
Uzbek payments subsidiary, Payme.
In thousands of GEL 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Net fee and commission income
Card operations 22,627 10,323 10,962 NMF NMF
Settlement transactions 28,435 24,567 18,169 56.5% 15.7%
Guarantees issued and letters of credit 9,561 9,402 9,498 0.7% 1.7%
Other 2,385 1,001 888 NMF NMF
Total net fee and commission income 63,008 45,293 39,517 59.4% 39.1%
Other Non-Interest Income
Total other non-interest income increased significantly and
amounted GEL 74.5 million in 2Q 2021.
Both the YoY and QoQ increases in other non-interest income were
related to an increase in other operating income and net income
from foreign currency operations. The former increase was driven by
the gain from the disposal of one of our investment properties, in
the amount of GEL 26.3 million, while the latter increase was due
to an increase in the scale of FX transactions.
In thousands of GEL 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Other non-interest income
Net income from foreign currency operations 31,372 28,507 19,137 63.9% 10.1%
Net insurance premium earned after claims and acquisition costs[17] 5,470 4,403 5,481 -0.2% 24.2%
Other operating income 37,670 7,755 1,543 NMF NMF
Total other non-interest income 74,512 40,665 26,161 NMF 83.2%
Credit Loss Allowance
Credit loss allowance for loans in 2Q 2021 amounted to GEL 45.3
million. The recoveries of credit loss allowances were mainly
attributable to improved macro outlook on the back of the better
than expected economic performance, as well as repayment from a
single large CIB borrower.
In thousands of GEL 2Q'21 1Q'21 2Q'20 Change Change
YoY QoQ
Credit loss allowance for
loan to customers 50,112 (17,549) (8,191) NMF NMF
Credit loss allowance for
other transactions (4,821) 305 (4,395) 9.7% NMF
Total credit loss allowance 45,291 (17,244) (12,586) NMF NMF
Operating profit after expected
credit losses 425,578 293,845 237,457 79.2% 44.8%
-1.3 -1.8
Cost of risk -1.3% 0.5% 0.0% pp pp
Operating Expenses
In 2Q 2021, our operating expenses expanded by 41.7% YoY and
10.2% on a QoQ basis.
The QoQ Increase in staff costs was related to the expansion of
our Uzbek operations as well as one-off staff costs incurred in 2Q
2021. While the YoY increase was further amplified by restoration
of management bonuses and increase in staff variable compensation
driven by increased operating income.
The QoQ growth in administrative and other expenses was entirely
attributable to expansion of the Uzbek operations, excluding
Uzbekistan operation these costs would have remained flat QoQ. As
for the YoY growth in administrative and other expenses, it was
attributable to the low base in 2Q 2020 due to cost optimizations
related to COVID-19 (including GEL 4.2 million from rent reduction
per IFRS 16).
The growth in operating expenses was offset by our strong
operating income, which resulted in exceptionally low cost to
income ratio of 35.4% in 2Q 2021.
In thousands of GEL 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Operating expenses
Staff costs (77,757) (70,314) (57,204) 35.9% 10.6%
Provisions for liabilities and charges (54) 45 (59) -8.5% NMF
Depreciation and amortization (19,337) (17,364) (16,427) 17.7% 11.4%
Administrative & other operating expenses (37,540) (34,607) (21,369) 75.7% 8.5%
Total operating expenses (134,688) (122,240) (95,059) 41.7% 10.2%
Cost to income 35.4% 39.3% 38.0% -2.6 pp -3.9 pp
Standalone cost to income* 28.6% 33.1% 32.3% -3.7 pp -4.5 pp
* For the ratio calculation all relevant group recurring costs
are allocated to the bank
Net Income
In 2Q, we generated GEL 250.4 million in net profit, up by 98.4%
YoY and 63.7% QoQ. Our record high profitability was driven by
strong operating performance across all revenue categories, as well
as recoveries in credit loss allowances across all segments.
As a result, our ROE and ROA for the second quarter reached
31.0% and 4.4%, accordingly, while ROE before credit loss
allowances stood at 26.0%.
In thousands of GEL 2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Losses from modifications of financial instruments (104) (1,487) (3,527) -97.1% -93.0%
Profit before tax 290,786 170,118 138,871 NMF 70.9%
Income tax expense (40,394) (17,131) (12,665) NMF NMF
Profit for the period 250,392 152,987 126,206 98.4% 63.7%
ROE 31.0% 20.3% 19.5% 11.5 pp 10.7 pp
ROE before expected credit loss allowances 26.0% 22.4% 21.3% 4.7 pp 3.6 pp
ROA 4.4% 2.7% 2.6% 1.8 pp 1.7 pp
Funding and Liquidity
As of 30 June 2021, total liquidity coverage ratio, as defined
by the NBG, was 127.1%, above the 100% limit. The decrease on a QoQ
basis in the foreign currency liquidity coverage ratio was
attributable to the release of a short-term placement from a single
CIB client, while the decline in the GEL liquidity coverage ratio
was mainly related to a repayment of a wholesale funding , as well
as an increase in the loan book.
As of 30 June 2021, NSFR stood at 130.6%, compared to the
regulatory limit of 100%.
30-Jun-21 31-Mar-21 Change QoQ
Minimum net stable funding ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Net stable funding ratio as defined by the NBG 130.6% 131.4% -0.8 pp
Net loans to deposits + IFI funding 102.8% 92.2% 10.6 pp
Leverage (Times) 6.6x 7.6x -1.0x
Minimum total liquidity coverage ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Minimum LCR in GEL, as defined by the NBG 75%* n/a NMF
Minimum LCR in FC, as defined by the NBG 100.0% 100.0% 0.0 pp
Total liquidity coverage ratio, as defined by the NBG 127.1% 136.7% -9.6 pp
LCR in GEL, as defined by the NBG 122.9% 140.8% -17.9 pp
LCR in FC, as defined by the NBG 129.2% 135.5% -6.3 pp
* In May 2021, NBG restored the NBG GEL LCR limit, which was
temporarily removed for one year
Regulatory Capital
As of 30 June 2021, our capital adequacy ratios were comfortably
above the minimum regulatory requirements including the restored
buffers .
By 31 July 2021, we have restored all temporarily released
capital buffers. This has lifted any restrictions on capital
distribution.
Our strong capital generation was driven by our exceptional
operating income as well as strong performance on the asset quality
side. The growth was further supported currency local currency
appreciation QoQ.
In thousands of GEL 30-Jun-21 31-Mar-21 Change QoQ
CET 1 Capital 2,382,595 2,059,599 15.7%
Tier 1 Capital 2,837,805 2,550,144 11.3%
Total Capital 3,573,282 3,327,134 7.4%
Total Risk-weighted Exposures 18,275,845 18,921,231 -3.4%
Minimum CET 1 ratio 11.2%* 7.8% 3.4 pp
CET 1 Capital adequacy ratio 13.0% 10.9% 2.1 pp
Minimum Tier 1 ratio 13.5%* 9.7% 3.8 pp
Tier 1 Capital adequacy ratio 15.5% 13.5% 2.0 pp
Minimum total capital adequacy ratio 17.8%* 13.7% 4.1 pp
Total Capital adequacy ratio 19.6% 17.6% 2.0 pp
* Minimum requirements with restored buffers
Loan Portfolio
As of 30 June 2021, the gross loan portfolio reached GEL
15,274.9 million, down by 0.4% QoQ, or up by 3.7% on a constant
currency basis.
The proportion of gross loans denominated in foreign currency
decreased by 2.9pp QoQ and accounted for 56.3% of total loans,
while on a constant currency basis the proportion of gross loans
denominated in foreign currency decreased by 1.1pp QoQ and stood at
58.0%.
As of 30 June 2021, our market share in total loans stood at
38.1%, down by 0.4pp QoQ. Our loan market share in legal entities
was 38.0%, remaining the same QoQ, and our loan market share in
individuals stood at 38.3%, down by 0.7pp QoQ.
In thousands of GEL 30-Jun-21 31-Mar-21 Change QoQ
Loans and advances to customers
Retail 5,688,519 5,761,488 -1.3%
Retail loans GEL 3,100,158 2,980,635 4.0%
Retail loans FC 2,588,361 2,780,853 -6.9%
CIB 5,851,634 5,939,056 -1.5%
CIB loans GEL 1,746,149 1,629,821 7.1%
CIB loans FC 4,105,485 4,309,235 -4.7%
MSME 3,734,773 3,631,665 2.8%
MSME loans GEL 1,828,264 1,647,846 10.9%
MSME loans FC 1,906,509 1,983,819 -3.9%
Total loans and advances to customers 15,274,926 15,332,209 -0.4%
2Q'21 1Q'21 2Q'20 Change YoY Change QoQ
Loan yields 10.2% 9.8% 9.7% 0.5 pp 0.4 pp
Loan yields GEL 15.1% 14.6% 15.0% 0.1 pp 0.5 pp
Loan yields FC 6.7% 6.6% 6.5% 0.2 pp 0.1 pp
Retail Loan Yields 11.4% 11.1% 10.7% 0.7 pp 0.3 pp
Retail loan yields GEL 15.8% 15.7% 15.8% 0.0 pp 0.1 pp
Retail loan yields FC 6.4% 6.2% 6.1% 0.3 pp 0.2 pp
CIB Loan Yields 9.0% 8.7% 8.5% 0.5 pp 0.3 pp
CIB loan yields GEL 13.8% 12.8% 13.3% 0.5 pp 1.0 pp
CIB loan yields FC 7.1% 7.1% 6.9% 0.2 pp 0.0 pp
MSME Loan Yields 10.3% 9.8% 10.2% 0.1 pp 0.5 pp
MSME loan yields GEL 15.1% 14.5% 15.2% -0.1 pp 0.6 pp
MSME loan yields FC 6.1% 5.9% 6.1% 0.0 pp 0.2 pp
Loan Portfolio Quality
In 2Q, NPL improved by 1.4pp across all segments, driven by
resumed repayments from restructured retail and MSME customers, as
well as by the repayment of a single large CIB borrower.
The total Par 30 ratio improved by 0.3pp and amounted to 2.2%.
The decrease was mainly driven by the CIB segment due to two large
borrowers (including the one mentioned above). The Retail and MSME
ratios stayed stable compared to previous quarter.
Our NPLs had a 91% provision coverage as of 30 June 2021 and an
additional 79% collateral coverage. Only 13% of NPLs were unsecured
loans with strong provision coverage of 294%.
Par 30 30-Jun-21 31-Mar-21 Change QoQ
Retail 3.0% 3.0% 0.0%
CIB 0.3% 1.2% -0.9%
MSME 3.9% 3.8% 0.1%
Total Loans 2.2% 2.5% -0.3%
Non-performing Loans 30-Jun-21 31-Mar-21 Change QoQ
Retail 4.0% 6.0% -2.0%
CIB 1.6% 2.2% -0.6%
MSME 5.4% 7.0% -1.6%
Total Loans 3.4% 4.8% -1.4%
NPL Coverage [18] 30-Jun-21 31-Mar-21
Provision Coverage Total Coverage Provision Coverage Total Coverage
Retail 117.9% 189.6% 93.8% 161.0%
CIB 82.9% 157.0% 81.9% 150.5%
MSME 64.8% 152.7% 63.1% 147.5%
Total 91.3% 169.6% 81.0% 154.4%
NPL Coverage (30 June 2021) [19]
Collateral coverage Provision coverage Total coverage Share in NPL portfolio
Secured[20] 90% 62% 152% 87%
Unsecured - 294% 294% 13%
Total 79% 91% 170% 100%
Cost of risk
The recoveries of credit loss allowances translated into -1.3%
cost of risk for 2Q 2021. As mentioned above, the recoveries were
driven by improved macro outlook on the back of the better than
expected economic performance, as well as repayment from a single
large CIB borrower.
Cost of risk 2Q'21 1Q'21 2Q'20 Change YoY Change
QoQ
Retail -0.1% 0.8% -0.7% 0.6% -0.9%
CIB -2.0% -0.2% 0.3% -2.3% -1.8%
MSME -2.0% 1.0% 1.0% -3.0% -3.0%
Total -1.3% 0.5% 0.0% -1.3% -1.8%
Deposit Portfolio
The total deposits portfolio decreased by 9.6% QoQ, or 5.0% on a
constant currency basis and amounted to GEL 12,870.4 million.
The decrease on a QoQ basis was attributable to a decline of a
Ministry of Finance deposits, as well as release of short-term
placement from a single CIB client. Without Minstry of Finance
deposits, our deposits portfolio would have been broadly stable on
constant currency basis. The proportion of deposits denominated in
a foreign currency decreased by 2.5pp QoQ and accounted for 65.7%
of total deposits, while on a constant currency basis the
proportion of deposits denominated in foreign currency decreased by
0.8pp QoQ and stood at 67.4%.
As of 30 June 2021, our market share in deposits amounted to
37.8%, down by 2.0pp QoQ, while our market share in deposits to
legal entities stood at 35.7%, down by 4.1pp QoQ. Our market share
in deposits to individuals stood at 39.6%, down by 0.2pp QoQ.
In thousands of GEL 30-Jun-21 31-Mar-21 Change QoQ
Customer Accounts
Retail 5,287,787 5,369,851 -1.5%
Retail deposits GEL 1,269,466 1,266,543 0.2%
Retail deposits FC 4,018,321 4,103,308 -2.1%
CIB 5,939,188 6,728,126 -11.7%
CIB deposits GEL 2,218,972 1,803,883 23.0%
CIB deposits FC 3,720,216 4,924,243 -24.5%
MSME 1,397,516 1,299,482 7.5%
MSME deposits GEL 675,932 619,717 9.1%
MSME deposits FC 721,584 679,765 6.2%
Total Customer Accounts* 12,870,418 14,239,837 -9.6%
* Total deposit portfolio includes Ministry of Finacne deposits
in the amount of, GEL 843 mln and GEL 245 mln as of 31 March 2021
and 30 June 2021, respectively
2Q'21 1Q'21 2Q'20 Change Change
YoY QoQ
Deposit rates 3.4% 3.5% 3.4% 0.0 pp -0.1 pp
Deposit rates GEL 6.6% 6.6% 6.4% 0.2 pp 0.0 pp
Deposit rates FC 1.7% 1.9% 1.9% -0.2% -0.2 pp
Retail Deposit Yields 2.2% 2.5% 2.7% -0.5 pp -0.3 pp
Retail deposit rates GEL 4.7% 5.0% 5.7% -1.0 pp -0.3 pp
Retail deposit rates FC 1.5% 1.7% 1.7% -0.2 pp -0.2 pp
CIB Deposit Yields 4.0% 3.9% 4.5% -0.5 pp 0.1 pp
CIB deposit rates GEL 8.3% 7.9% 8.5% -0.2 pp 0.4 pp
CIB deposit rates FC 2.1% 2.2% 2.5% -0.4 pp -0.1 pp
MSME Deposit Yields 0.9% 0.8% 0.9% 0.0 pp 0.1 pp
MSME deposit rates GEL 1.5% 1.5% 1.7% -0.2 pp 0.0 pp
MSME deposit rates FC 0.3% 0.2% 0.4% -0.1 pp 0.1 pp
Segment definition and PL
Business Segments
The segment definitions are as follows:
-- Corporate and Investment Banking (CIB) - a legal entity/group
of affiliated entities with an annual revenue exceeding GEL 12.0
million or which has been granted facilities of more than GEL 5.0
million. Some other business customers may also be assigned to the
CIB segment or transferred to the MSME segment on a discretionary
basis. In addition, CIB includes Wealth Management private banking
services to high-net-worth individuals with the threshold of US$
250,000 on assets under management (AUM), as well as on
discretionary basis;
-- Retail - non-business individual customers;
-- MSME - business customers who are not included in the CIB
segment; or individual customers of the fully digital bank,
Space.
-- Corporate centre and other operations - comprises the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
Business customers are all legal entities or individuals who
have been granted a loan for business purposes.
Income Statement by Segments
2Q'21 Retail MSME CIB Corp.Centre Total
Interest income 163,057 95,892 139,272 60,351 458,572
Interest expense (30,689) (3,058) (61,772) (127,937) (223,456)
Net gains from currency swaps - - - 7,651 7,651
Net transfer pricing (36,770) (36,678) 12,728 60,720 -
Net interest income 95,598 56,156 90,228 785 242,767
Fee and commission income 58,575 13,434 25,149 7,887 105,045
Fee and commission expense (11,920) (8,180) (19,509) (2,428) (42,037)
Net fee and commission income 46,655 5,254 5,640 5,459 63,008
Net insurance premium earned
after claims and acquisition
costs - - - 5,470 5,470
Net gains from derivatives,
foreign currency operations
and translation 8,600 6,999 14,254 1,835 31,688
Gains less Losses from Disposal
of Investment Securities Measured
at Fair Value through Other
Comprehensive Income - - 515 4,138 4,653
Other operating income 2,181 668 1,117 28,525 32,491
Share of profit of associates - - - 210 210
Other operating non-interest
income and insurance profit 10,781 7,667 15,886 40,178 74,512
Credit loss allowance for
loans to customers 1,661 18,365 30,086 - 50,112
Credit loss allowance for
performance guarantees and
credit related commitments 70 (158) 1,372 - 1,284
Credit loss allowance for
investments in finance lease - - - (1,204) (1,204)
Credit loss allowance for
other financial assets (3,309) - (1,143) (1,237) (5,689)
Credit loss allowance for
financial assets measured
at fair value through other
comprehensive income - - 840 408 1,248
Other non-financial assets
impairment 95 23 7 (585) (460)
Profit/(loss) before G&A expenses
and income taxes 151,551 87,307 142,916 43,804 425,578
Losses from modifications
of financial instruments (112) (63) 71 - (104)
Staff costs (34,266) (14,170) (11,676) (17,645) (77,757)
Depreciation and amortization (12,355) (3,085) (1,303) (2,594) (19,337)
Provision for liabilities
and charges - - - (54) (54)
Administrative and other operating
expenses (17,865) (7,256) (3,470) (8,949) (37,540)
Operating expenses (64,486) (24,511) (16,449) (29,242) (134,688)
Profit before tax 86,953 62,733 126,538 14,562 290,786
Income tax expense (10,368) (8,784) (16,307) (4,935) (40,394)
Profit 76,585 53,949 110,231 9,627 250,392
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance sheet
In thousands of GEL Jun-21 Mar-21
Cash and cash equivalents 1,414,414 2,425,584
Due from other banks 59,314 54,189
Mandatory cash balances with National Bank of Georgia 2,117,157 2,364,760
Loans and advances to customers 14,796,968 14,742,344
Investment securities measured at fair value through other comprehensive income 2,022,385 2,284,697
Bonds carried at amortized cost* 10,069 17,748
Investments in finance leases 245,261 272,090
Investment properties 33,407 65,605
Current income tax prepayment 14,966 62,022
Deferred income tax asset 6,747 1,453
Other financial assets[21] 287,761 292,410
Other assets 311,218 265,299
Premises and equipment 371,909 377,273
Right of use assets 51,160 54,535
Intangible assets 284,555 272,597
Goodwill 59,964 59,964
Investments in associates 4,286 4,476
TOTAL ASSETS 22,091,541 23,617,046
LIABILITIES
Due to credit institutions 3,482,830 3,612,067
Customer accounts 12,870,418 14,239,837
Lease liabilities 53,755 60,934
Other financial liabilities (21) 124,308 153,606
Current income tax liability 653 697
Debt Securities in issue 1,445,614 1,583,929
Deferred income tax liability 18,457 21,865
Provisions for liabilities and charges 21,435 22,526
Other liabilities 101,265 87,888
Subordinated debt 635,981 707,962
TOTAL LIABILITIES 18,754,716 20,491,311
EQUITY
Share capital 1,682 1,682
Shares held by trust (25,489) (25,494)
Share premium 848,459 848,459
Retained earnings 2,680,951 2,432,872
Group re-organisation reserve (162,167) (162,167)
Share based payment reserve (15,348) (19,288)
Fair value reserve 170 36,929
Cumulative currency translation reserve (5,199) 759
Net assets attributable to owners 3,323,059 3,113,752
Non-controlling interest 13,766 11,983
TOTAL EQUITY 3,336,825 3,125,735
TOTAL LIABILITIES AND EQUITY 22,091,541 23,617,046
* In 2020, the Group changed its business model in relation to
certain portfolio of bonds carried at amortized cost (Ministry of
Finance Treasury Bills). The respective reclassifications have been
applied prospectively from 1 January 2021, as required by IFRS. As
a result of reclassification, Bonds carried at amortized cost in
the amount of GEL 1,059,946 thousand has been transferred to
Investment securities measured at fair value through other
comprehensive income with the fair value of GEL 1,086,008 thousand.
The difference has been recognized in other comprehensive income as
required by IFRS
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
In thousands of GEL 2Q'21 1Q'21 2Q'20
Interest income 458,572 440,613 393,114
Interest expense (223,456) (220,980) (212,714)
Net gains from currency swaps 7,651 5,498 3,965
Net interest income 242,767 225,131 184,365
Fee and commission income 105,045 81,108 65,038
Fee and commission expense (42,037) (35,815) (25,521)
Net fee and commission income 63,008 45,293 39,517
Net insurance premiums earned 16,146 14,143 13,385
Net insurance claims incurred and agents' commissions (10,676) (9,740) (7,904)
Net insurance premium earned after claims and acquisition costs 5,470 4,403 5,481
Net gains from derivatives, foreign currency operations and translation 31,688 28,496 19,124
Gains less losses from disposal of investment securities measured at fair value
through other
comprehensive income 4,653 2,388 (1,480)
Other operating income 32,491 4,992 3,083
Share of profit of associates 210 386 (47)
Other operating non-interest income 69,042 36,262 20,680
Credit loss allowance for loans to customers 50,112 (17,549) (8,191)
Credit loss allowance for investments in finance lease (1,204) (1,311) (3,408)
Credit loss allowance for performance guarantees and credit related commitments 1,284 646 1,227
Credit loss allowance for other financial assets (5,689) 363 (988)
Credit loss allowance for financial assets measured at fair value through other
comprehensive
income 1,248 594 46
Other non-financial assets impairment (460) 13 (1,272)
Operating profit after expected credit losses 425,578 293,845 237,457
Losses from modifications of financial instruments (104) (1,487) (3,527)
Staff costs (77,757) (70,314) (57,204)
Depreciation and amortization (19,337) (17,364) (16,427)
(Provision for)/ recovery of liabilities and charges (54) 45 (59)
Administrative and other operating expenses (37,540) (34,607) (21,369)
Operating expenses (134,688) (122,240) (95,059)
Profit before tax 290,786 170,118 138,871
Income tax expense (40,394) (17,131) (12,665)
Profit 250,392 152,987 126,206
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve (36,758) 25,772 (38)
Exchange differences on translation to presentation currency (5,976) 2,903 (2,002)
Other comprehensive income for the period (42,734) 28,675 (2,040)
Total comprehensive income for the period 207,658 181,662 124,166
Profit attributable to:
- Shareholders of TBCG 247,945 151,224 125,100
- Non-controlling interest 2,447 1,763 1,106
Profit 250,392 152,987 126,206
Total comprehensive income is attributable to:
- Shareholders of TBCG 205,195 179,923 123,060
- Non-controlling interest 2,463 1,739 1,106
Total comprehensive income for the period 207,658 181,662 124,166
Consolidated Statement of Cash Flows
In thousands of GEL 30-Jun-2021 31-Mar-2021
Cash flows from (used in) operating activities
Interest received 906,444 442,636
Interest received on currency swaps 13,149 5,498
Interest paid (452,751) (183,320)
Fees and commissions received 170,658 74,044
Fees and commissions paid (78,793) (36,510)
Insurance and reinsurance received 43,358 20,559
Insurance claims paid (16,239) (7,270)
Income received from trading in foreign currencies 32,659 (33,046)
Other operating income received 28,880 14,282
Staff costs paid (134,594) (65,416)
Administrative and other operating expenses
paid (79,430) (37,873)
Income tax paid (4,446) (1,199)
Cash flows from operating activities before
changes in operating assets and liabilities 428,895 192,385
Net change in operating assets
Due from other banks and mandatory cash balances
with the National Bank of Georgia 23,326 100,916
Loans and advances to customers (711,980) (23,866)
Net investments in lease 24,158 6,083
Other financial assets (38,835) (89,537)
Other assets 14,151 18,454
Net change in operating liabilities
Due to credit institutions 11,940 21,347
Customer accounts 667,190 1,360,791
Other financial liabilities (137,291) (104,089)
Other liabilities and provision for liabilities
and charges 16,659 6,595
Net cash flows (used in)/from operating activities 298,213 1,489,079
Cash flows from (used in) investing activities
Acquisition of investment securities measured
at fair value through other comprehensive
income (196,871) (28,972)
Proceeds from disposal of investment securities
measured at fair value through other comprehensive
income - 275,679
Proceeds from redemption at maturity of investment
securities measured at fair value through
other comprehensive income 757,583 92,438
Proceeds from redemption of bonds carried 19,633 -
at amortised cost
Acquisition of premises, equipment and intangible
assets (91,993) (49,264)
Proceeds from disposal of premises, equipment
and intangible assets 6,334 351
Proceeds from disposal of investment property 20,210 3,430
Net cash used in investing activities 514,896 293,662
Cash flows from (used in) financing activities
Proceeds from other borrowed funds 1,757,879 1,190,364
Redemption of other borrowed funds (2,736,476) (2,160,119)
Repayment of principal of lease liabilities (5,591) (3,950)
Redemption of subordinated debt (12,562)
Dividends paid (1,741) (1,354)
Net cash flows from financing activities (998,491) (975,059)
Effect of exchange rate changes on cash and
cash equivalents (35,609) (17,502)
Net (decrease)/ increase in cash and cash
equivalents (220,991) 790,180
Cash and cash equivalents at the beginning
of the year 1,635,405 1,635,404
Cash and cash equivalents at the end of the
year 1,414,414 2,425,584
Key Ratios
Average Balances
The average balances included in this document are calculated as
the average of the relevant monthly balances as of each month-end.
Balances have been extracted from TBC's unaudited and consolidated
management accounts, which were prepared from TBC's accounting
records. These were used by the management for monitoring and
control purposes.
Key Ratios
Ratios (based on monthly averages, where applicable) 2Q'21 1Q'21 2Q'20
Profitability ratios:
ROE(1) 31.0% 20.3% 19.5%
ROA(2) 4.4% 2.7% 2.6%
ROE before expected credit loss allowances(3) 26.0% 22.4% 21.3%
Cost to income(4) 35.4% 39.3% 38.0%
NIM(5) 5.0% 4.7% 4.3%
Loan yields(6) 10.2% 9.8% 9.7%
Deposit rates(7) 3.4% 3.5% 3.4%
Yields on interest earning assets(8) 9.5% 9.2% 9.1%
Cost of funding(9) 4.6% 4.5% 5.0%
Spread(10) 4.9% 4.7% 4.1%
Asset quality & portfolio concentration:
Cost of risk(11) -1.3% 0.5% 0.0%
PAR 90 to Gross Loans(12) 1.2% 1.6% 1.0%
NPLs to Gross Loans(13) 3.4% 4.8% 2.9%
NPL provision coverage(14) 91.3% 81.0% 134.7%
Total NPL coverage(15) 169.6% 154.4% 208.0%
Credit loss level to Gross Loans(16) 3.1% 3.8% 3.9%
Related Party Loans to Gross Loans(17) 0.1% 0.0% 0.1%
Top 10 Borrowers to Total Portfolio(18) 7.8% 8.2% 8.2%
Top 20 Borrowers to Total Portfolio(19) 11.9% 12.4% 12.3%
Capital & liquidity positions:
Net Loans to Deposits plus IFI* Funding(20) 102.8% 92.2% 105.3%
Net Stable Funding Ratio(21) 130.6% 131.4% 127.5%
Liquidity Coverage Ratio(22) 127.1% 136.7% 124.8%
Leverage(23) 6.6x 7.6x 7.5x
CET 1 CAR (Basel III)(24) 13.0% 10.9% 10.0%
Regulatory Tier 1 CAR (Basel III)(25) 15.5% 13.5% 12.7%
Regulatory Total 1 CAR (Basel III)(26) 19.6% 17.6% 17.2%
* International Financial Institutions
Ratio definitions
1. Return on average total equity (ROE) equals net income
attributable to owners divided by the monthly average of total
shareholders' equity attributable to the PLC's equity holders for
the same period; annualised where applicable.
2. Return on average total assets (ROA) equals net income of the
period divided by monthly average total assets for the same period;
annualised where applicable.
3. Return on average total equity (ROE) before expected credit
loss allowances equals net income attributable to owners excluding
all credit loss allowance with respective tax effects, but after
net modification losses divided by the monthly average of total
shareholders' equity attributable to the PLC's equity holders for
the same period.
4. Cost to income ratio equals total operating expenses for the
period divided by the total revenue for the same period. (Revenue
represents the sum of net interest income, net fee and commission
income and other non-interest income).
5. Net interest margin (NIM) is net interest income divided by
monthly average interest-earning assets; annualised where
applicable. Interest-earning assets include investment securities
(excluding CIB shares), net investment in finance lease, net loans,
and amounts due from credit institutions.
6. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
7. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits; annualised
where applicable.
8. Yields on interest earning assets equal total interest income
divided by monthly average interest earning assets; annualised
where applicable.
9. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities; annualised where
applicable.
10. Spread equals difference between yields on interest earning
assets (including but not limited to yields on loans, securities
and due from banks) and cost of funding (including but not limited
to cost of deposits, cost on borrowings and due to banks).
11. Cost of risk equals credit loss allowance for loans to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
12. PAR 90 to gross loans ratio equals loans for which principal
or interest repayment is overdue for more than 90 days divided by
the gross loan portfolio for the same period.
13. NPLs to gross loans equals loans with 90 days past due on
principal or interest payments, and loans with a well-defined
weakness, regardless of the existence of any past-due amount or of
the number of days past due divided by the gross loan portfolio for
the same period.
14. NPL provision coverage equals total credit loss allowance
for loans to customers divided by the NPL loans.
15. Total NPL coverage equals total credit loss allowance plus
the minimum of collateral amount of the respective NPL loan (after
applying haircuts in the range of 0%-50% for cash, gold, real
estate and PPE) and its gross loan exposure divided by the gross
exposure of total NPL loans.
16. Credit loss level to gross loans equals credit loss
allowance for loans to customers divided by the gross loan
portfolio for the same period.
17. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
18. Top 10 borrowers to total portfolio equals the total loan
amount of the top 10 borrowers divided by the gross loan
portfolio.
19. Top 20 borrowers to total portfolio equals the total loan
amount of the top 20 borrowers divided by the gross loan
portfolio.
20. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
21. Net stable funding ratio equals the available amount of
stable funding divided by the required amount of stable funding as
defined by NBG in line with Basel III guidelines.
22. Liquidity coverage ratio equals high-quality liquid assets
divided by the total net cash outflow amount as defined by the
NBG.
23. Leverage equals total assets to total equity.
24. Regulatory CET 1 CAR equals CET 1 capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. Calculations are
made for TBC Bank stand-alone, based on local standards.
25. Regulatory tier 1 CAR equals tier I capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. Calculations are
made for TBC Bank stand-alone, based on local standards.
26. Regulatory total CAR equals total capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. Calculations are
made for TBC Bank stand-alone, based on local standards.
Exchange Rates
To calculate the QoQ growth of the Balance Sheet items without
the currency exchange rate effect, we used the US$/GEL exchange
rate of 3.4118 as of 3 1 March 2021. As of 30 June 2021 the US$/GEL
exchange rate equaled 3.1603. For P&L items growth calculations
without currency effect, we used the average US$/GEL exchange rate
for the following periods: 2Q 2021 of 3.3271, 1Q 2021 of 3.3142, 2Q
2020 of 3.1379.
Unaudited Consolidated Financial Results Overview for 1H
2021
This statement provides a summary of the unaudited business and
financial trends for 1H 2021 for TBC Bank Group plc and its
subsidiaries. The half year financial information and trends are
unaudited.
TBC Bank Group PLC's financial results has been prepared in
accordance with UK-adopted International Accounting Standard (IAS)
34 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority
(FCA).
Financial Highlights
Income Statement Highlights
in thousands of GEL 1H'21 1H'20 Change YoY
Net interest income 467,898 392,324 19.3%
Net fee and commission income 108,301 83,069 30.4%
Other operating non-interest income[22] 115,177 64,905 77.5%
Credit loss allowance 28,047 (259,676) NMF
Operating profit after expected credit losses 719,423 280,622 NMF
Losses from modifications of financial instrument (1,591) (34,170) NMF
Operating expenses (256,928) (201,535) 27.5%
Profit before tax 460,904 44,917 NMF
Income tax expense (57,525) 24,283 NMF
Profit for the period 403,379 69,200 NMF
Balance Sheet and Capital Highlights
in thousands of GEL Jun-21 Jun-20 Change YoY
Total Assets 22,091,541 19,813,429 11.5%
Gross Loans 15,274,926 13,635,392 12.0%
Customer Deposits 12,870,418 10,420,330 23.5%
Total Equity 3,336,825 2,653,405 25.8%
Regulatory Common Equity Tier I Capital (Basel III) 2,382,595 1,631,006 46.1%
Regulatory Tier I Capital (Basel III) 2,837,805 2,068,052 37.2%
Regulatory Total Capital (Basel III) 3,573,282 2,787,136 28.2%
Regulatory Risk Weighted Assets (Basel III) 18,275,845 16,249,475 12.5%
Key Ratios 1H'21 1H'20 Change YoY
ROE 25.9% 5.2% 20.7 pp
ROA 3.6% 0.7% 2.9 pp
NIM 4.8% 4.7% 0.1 pp
Cost to income 37.2% 37.3% -0.1 pp
Standalone cost to income of the Bank[23] 30.6% 32.0% -1.4 pp
Cost of risk -0.4% 2.1% -2.5 pp
NPL to gross loans 3.4% 2.9 % 0.5 pp
NPL provision coverage ratio 91.3% 134.7% -43.4 pp
Total NPL coverage ratio 169.6% 208.0% -38.4 pp
CET 1 CAR (Basel III) 13.0% 10.0% 3.0 pp
Regulatory Tier 1 CAR (Basel III) 15.5% 12.7% 2.8 pp
Regulatory Total CAR (Basel III) 19.6% 17.2% 2.4 pp
Leverage (Times) 6.6x 7.5x -0.9x
Net Interest Income
In 1H 2021, net interest income amounted to GEL 467.9 million,
up by 19.3% YoY, whereby interest income increased by 14.1% and
interest expense increased by 8.9%.
The YoY increase in interest income was primarily related to an
increase in interest income from loans, which was driven by an
increase in the gross loan portfolio by GEL 1,639.5 million, or
12.0%. Over the same period, loan yield remained broadly
stable.
Our interest expense increased by 8.9%, which was primarily
related to an increase in interest expense from deposits due to an
increase in the respective portfolio of GEL 2,450.1 million. Over
the same period, the cost of deposits remained broadly stable YoY,
as the increase in GEL cost of deposits was more than offset by a
decrease in FC cost of deposits.
In 1H 2021, our NIM stood at 4.8%, up by 0.1pp YoY .
In thousands of GEL 1H'21 1H'20 Change YoY
Interest income 899,185 787,893 14.1%
Interest expense (444,436) (408,091) 8.9%
Net gains from currency swaps 13,149 12,522 5.0%
Net interest income 467,898 392,324 19.3%
NIM 4.8% 4.7% 0.1 pp
Net fee and commission income
In 1H 2021, net fee and commission income totalled GEL 108.3
million, up by 30.4% YoY. The increase was spread across all major
sub-categories due to the revival of business activities, further
supported by various initiatives undertaken on the payments side,
as well as the contribution from our fast-growing Uzbek payments
subsidiary, Payme.
In thousands of GEL 1H'21 1H'20 Change YoY
Net fee and commission income
Card operations 32,951 23,502 40.2%
Settlement transactions 53,002 38,012 39.4%
Guarantees issued and letters of credit 18,963 17,919 5.8%
Other 3,385 3,636 -6.9%
Total net fee and commission income 108,301 83,069 30.4%
Other Non-Interest Income
Total other non-interest income increased by 77.5% YoY and
amounted to GEL 115.2 million in 1H 2021. The YoY increase was
driven by growth in net income from foreign currency operations and
growth in other operating income. The former increase was driven by
an increase in the scale of FX transactions, while the later
increase was driven by a gain from the disposal of one of our
investment properties, in the amount of GEL 26.3 million.
In thousands of GEL 1H'21 1H'20 Change YoY
Other non-interest income
Net income from foreign currency operations 59,880 47,779 25.3%
Net insurance premium earned after claims and acquisition costs[24] 9,873 10,281 -4.0%
Other operating income 45,424 6,845 NMF
Total other non-interest income 115,177 64,905 77.5%
Credit Loss Allowance
Total credit loss allowance in 1H 2021 amounted to GEL 28.0
million. This significant decrease was driven by recoveries in 2Q
across all segments, as explained above, and by a high base in 1H
2020 due to creation of COVID-19 related provisions.
In thousands of GEL 1H'21 1H'20 Change
YoY
Credit loss allowance for loans 32,563 (249,216) NMF
Credit loss allowance for other
transactions (4,516) (10,460) -56.8%
Total credit loss allowance 28,047 (259,676) NMF
Operating income after credit loss
allowance 719,423 280,622 NMF
Cost of risk -0.4% 2.1% -2.5 pp
NMF - no meaningful figures
Operating Expenses
In 1H 2021, our total operating expenses expanded by 27.5%
YoY.
YoY growth in staff costs was mainly attributable to the low
base of share-based payments in 1H 2020, as a result of reversal of
management's bonuses, increase in staff bonuses related to revival
of business activities in 1H 2021, as well as the expansion of our
Uzbekistan operations. The increase in administrative expenses were
mainly impacted by cost optimizations in 1H 2020 related to
COVID-19 (including GEL 4.2 mln from renegotiated rent expenses per
IFRS 16).
The cost to income ratio stood at 37.2%, down by 0.1 pp YoY,
while our standalone cost to income was 30.6%, down by 1.4pp over
the same period.
In thousands of GEL 1H'21 1H'20 Change YoY
Operating expenses
Staff costs (148,071) (114,006) 29.9%
Provisions for liabilities and charges (9) 77 NMF
Depreciation and amortization (36,701) (32,215) 13.9%
Administrative & other operating expenses (72,147) (55,391) 30.3%
Total operating expenses (256,928) (201,535) 27.5%
Cost to income 37.2% 37.3% -0.1 pp
Standalone Cost to income* 30.6% 32.0% -1.4 pp
* For the ratio calculation all relevant group recurring costs
are allocated to the bank
NMF - no meaningful figures
Net Income
In 1H 2021, our solid profitability was related to strong
performance in operating profit across all categories, as well as
recoveries in credit loss allowances across all segments.
As a result, our ROE stood at 25.9%, ROE before expected credit
loss allowances stood at 24.3% and ROA stood at 3.6%.
In thousands of GEL 1H'21 1H'20 Change YoY
Losses from modifications of financial instruments (1,591) (34,170) -95.3%
Profit before tax 460,904 44,917 NMF
Income tax expense (57,525) 24,283 NMF
Profit for the period 403,379 69,200 NMF
ROE 25.9% 5.2% 20.7 pp
ROE before expected credit loss allowances 24.3% 23.3% 1.0 pp
ROA 3.6% 0.7% 2.9 pp
Funding and Liquidity
As of 30 June 2021, the total liquidity coverage ratio, as
defined by the NBG, was 127.1 % , above the 100% limit, while the
LCR in GEL and FC stood at 122.9% and 129.2% respectively, above
the respective limits of 75% and 100%.
As of 30 June 2021, NSFR stood at 130.6%, compared to the
regulatory limit of 100%.
30-Jun-21 30-Jun-20 Change
YoY
Minimum net stable funding ratio, as defined by the NBG 100% 100% 0.0 pp
Net stable funding ratio as defined by the NBG 130.6% 127.5% 3.1 pp
Net loans to deposits + IFI funding 102.8% 105.3% -2.5 pp
Leverage (Times) 6.6x 7.5x -0.9x
Minimum total liquidity coverage ratio, as defined by the NBG 100.0% 100.0% 0.0 pp
Minimum LCR in GEL, as defined by the NBG 75%* n/a NMF
Minimum LCR in FC, as defined by the NBG 100.0% 100.0% 0.0 pp
Total liquidity coverage ratio, as defined by the NBG 127.1% 124.8% 2.3 pp
LCR in GEL, as defined by the NBG 122.9% 141.0% -18.1 pp
LCR in FC, as defined by the NBG 129.2% 117.3% 11.9 pp
* In May 2021, NBG restored the NBG GEL LCR limit, which was
temporarily removed for one year
Regulatory Capital
On a YoY basis, the bank's CET1, Tier 1 and Total capital
adequacy ratios increased by 3.0pp, 2.8pp and 2.4pp, respectively.
The increase was mainly driven by strong net income generation,
which was partially offset by local currency depreciation and an
increase in loan book.
In thousands of GEL 30-Jun-21 30-Jun-20 Change YoY
CET 1 Capital 2,382,595 1,631,006 46.1%
Tier 1 Capital 2,837,805 2,068,052 37.2%
Total Capital 3,573,282 2,787,136 28.2%
Total Risk-weighted Exposures 18,275,845 16,249,475 12.5%
Minimum CET 1 ratio 11.2%* 6.9% 4.3 pp
CET 1 Capital adequacy ratio 13.0% 10.0% 3.0 pp
Minimum Tier 1 ratio 13.5%* 8.7% 4.8 pp
Tier 1 Capital adequacy ratio 15.5% 12.7% 2.8 pp
Minimum total capital adequacy ratio 17.8%* 13.3% 4.5 pp
Total Capital adequacy ratio 19.6% 17.2% 2.4 pp
* Minimum requirement with restored buffers
Loan Portfolio
As of 30 June 2021, the gross loan portfolio reached GEL
15,274.9 million, up by 12.0% YoY or up by 8.5% on a constant
currency basis. The YoY increase was spread across all segments.
The proportion of gross loans denominated in foreign currency
decreased by 4.4pp YoY and accounted for 56.3 % of total loans,
while on a constant currency basis the proportion of gross loans
denominated in foreign currency was down by 5.9pp YoY and stood at
54.9%.
As of 30 June 2021, our market share in total loans stood at
38.1%, down by 1. 4 pp YoY, while our loan market share in legal
entities was 38.0%, down by 1.3pp over the same period, and our
loan market share in individuals stood at 38.3%, down by 1.6pp
QoQ.
In thousands of GEL 30-Jun-21 30-Jun-20 Change YoY
Loans and advances to customers
Retail 5,688,519 5,229,005* 8.8%
Retail loans GEL 3,100,158 2,536,206 22.2%
Retail loans FC 2,588,361 2,692,799 -3.9%
CIB 5,851,634 5,200,281 12.5%
CIB loans GEL 1,746,149 1,344,965 29.8%
CIB loans FC 4,105,485 3,855,316 6.5%
MSME 3,734,773 3,206,106 16.5%
MSME loans GEL 1,828,264 1,470,959 24.3%
MSME loans FC 1,906,509 1,735,147 9.9%
Total loans and advances to customers 15,274,926 13,635,392 12.0%
* In 1Q 2021, we reclassified all relevant BS and PL items of
the Wealth Management business from Retail Banking to CIB. As of 30
June 2020, GEL 129.7 million loans were reclassified. For more
information, please refer to Annex 5.
1H'21 1H'20 Change YoY
Loan yields 10.0% 10.1% -0.1 pp
Loan yields GEL 14.8% 15.2% -0.4 pp
Loan yields FC 6.6% 6.7% -0.1 pp
Retail Loan Yields 11.2% 11.1% 0.1 pp
Retail loan yields GEL 15.7% 16.3% -0.6 pp
Retail loan yields FC 6.3% 6.4% -0.1 pp
CIB Loan Yields 8.8% 8.8% 0.0 pp
CIB loan yields GEL 13.3% 13.3% 0.0 pp
CIB loan yields FC 7.1% 7.1% 0.0 pp
MSME Loan Yields 10.1% 10.5% -0.4 pp
MSME loan yields GEL 14.8% 15.4% -0.6 pp
MSME loan yields FC 6.0% 6.3% -0.3 pp
Loan Portfolio Quality
On a YoY basis, total par 30 and NPL ratio increased by 0.9pp
and 0.5pp, respectively, mainly driven by the Retail and MSME
segments. The increase was primarily attributable to the low base
in 2Q 2020, which was related to the payment holidays offered to
our customers. This effect was slightly offset by a 0.3pp drop in
the CIB segment, which was driven by a repayment from a single
large CIB borrower.
30-Jun-21 30-Jun-20 Change YoY
Par 30
Retail 3.0% 1.3% 1.7 pp
CIB 0.3% 0.6% -0.3 pp
MSME 3.9% 2.3% 1.6 pp
Total Loans 2.2% 1.3% 0.9 pp
Non-performing Loans 30-Jun-21 30-Jun-20 Change YoY
Retail 4.0% 3.0% 1.0 pp
CIB 1.6% 2.0% -0.4 pp
MSME 5.4% 4.2% 1.2 pp
Total Loans 3.4% 2.9% 0.5 pp
NPL Coverage 30-Jun-21 30-Jun-20
Provision Coverage Total Coverage Provision Coverage Total Coverage
Retail 117.9% 189.6% 188.5% 253.8%
CIB 82.9% 157.0% 107.7% 177.7%
MSME 64.8% 152.7% 91.9% 177.0%
Total 91.3% 169.6% 134.7% 208.0%
Cost of risk
The total cost of risk for 1H 2021 stood at -0.4%, down by 2.4pp
YoY. The recoveries in credit loss allowances were related to the
improved macro outlook on the back of the better than expected
economic performance, as well as repayment from a single large CIB
borrower as explained above.
Cost of Risk 1H'21 1H'20 Change YoY
Retail 0.4% 3.3% -2.9 pp
CIB - 1.1 % 0.7% -1.8 pp
MSME -0.5% 2.3% -2.8 pp
Total -0.4% 2.1% -2.5 pp
Deposit Portfolio
The total deposits portfolio increased by 23.5% YoY and amounted
to GEL 12,870.4 million, while on a constant currency basis the
total deposit portfolio increased by 20.1pp over the same period.
The proportion of deposits denominated in foreign currency was up
by 0.1pp YoY and accounted for 65.7% of total deposits, while on a
constant currency basis the proportion of deposits denominated in
foreign currency dropped by 0.9pp YoY and stood at 64.8%.
As of 30 June 2021, our market share in deposits amounted to
37.8%, up by 0.7 pp YoY, and our market share in deposits to legal
entities stood at 35.7%, down by 0.2 pp over the same period. Our
market share in deposits to individuals stood at 39.6%, up by 1.6pp
QoQ.
In thousands of GEL 30-Jun-21 30-Jun-20 Change YoY
Customer Accounts
Retail 5,287,787 4,227,236 * 25.1%
Retail deposits GEL 1,269,466 1,094,920 15.9%
Retail deposits FC 4,018,321 3,132,316 28.3%
CIB 5,939,188 4,874,761 * 21.8%
CIB deposits GEL 2,218,972 1,791,102 23.9%
CIB deposits FC 3,720,216 3,083,659 20.6%
MSME 1,397,516 1,178,321 18.6%
MSME deposits GEL 675,932 555,530 21.7%
MSME deposits FC 721,584 622,791 15.9%
Total Customer Accounts** 12,870,418 10,420,330 23.5%
* In 1Q 2021, we reclassified all relevant BS and PL items of
the Wealth Management business from Retail Banking to CIB. As of 30
June 2020, GEL 1,792.1 million deposits were reclassified. For more
information, please refer to Annex 5.
** Total deposit portfolio includes Ministry of Finance deposits
in the amount of GEL 140 million and GEL 24 6 million as of 3 0
June 2020 and 30 June 2021, respectively
1H'21 1H'20 Change
YoY
Deposit rates 3.4% 3.5% -0.1 pp
Deposit rates GEL 6.6% 6.4% 0.2 pp
Deposit rates FC 1.8% 1.9% -0.1 pp
Retail Deposit Yields 2.4% 2.6% -0.2 pp
Retail deposit rates GEL 4.9% 5.4% -0.5 pp
Retail deposit rates FC 1.6% 1.7% -0.1 pp
CIB Deposit Yields 4.5% 4.0% 0.5 pp
CIB deposit rates GEL 8.0% 8.3% -0.3 pp
CIB deposit rates FC 2.2% 2.5% -0.3 pp
MSME Deposit Yields 0.8% 0.9% -0.1 pp
MSME deposit rates GEL 1.5% 1.6% -0.1 pp
MSME deposit rates FC 0.3% 0.3% 0.0 pp
Segment definition and PL
Business Segments
The segment definitions are as follows:
-- Corporate and Investment Banking (CIB) - a legal entity/group
of affiliated entities with an annual revenue exceeding GEL 12.0
million or which has been granted facilities of more than GEL 5.0
million. Some other business customers may also be assigned to the
CIB segment or transferred to the MSME segment on a discretionary
basis. In addition, CIB includes Wealth Management private banking
services to high-net-worth individuals with the threshold of US$
250,000 on assets under management (AUM), as well as on
discretionary basis;
-- Retail - non-business individual customers;
-- MSME - business customers who are not included in the CIB
segment; or individual customers of the fully digital bank,
Space.
-- Corporate centre and other operations - comprises the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
Business customers are all legal entities or individuals who
have been granted a loan for business purposes.
Income Statement by Segments
1H'21 Retail MSME CIB Corp.Centre Total
Interest income 321,483 181,002 271,402 125,298 899,185
Interest expense (63,061) (5,931) (121,201) (254,243) (444,436)
Net gains from currency swaps 13,149 13,149
Net transfer pricing (72,867) (68,593) 24,865 116,595 -
Net interest income 185,555 106,478 175,066 799 467,898
Fee and commission income 101,851 23,323 46,861 14,118 186,153
Fee and commission expense (24,364) (14,698) (34,754) (4,036) (77,852)
Net fee and commission income 77,487 8,625 12,107 10,082 108,301
Net insurance premium earned
after claims and acquisition
costs - - - 9,873 9,873
Net gains from derivatives,
foreign currency operations
and translation 14,201 11,730 22,576 11,677 60,184
Gains less Losses from Disposal
of Investment Securities Measured
at Fair Value through Other
Comprehensive Income - - 515 6,526 7,041
Other operating income 3,511 726 1,642 31,604 37,483
Share of profit of associates - - - 596 596
Other operating non-interest
income and insurance profit 17,712 12,456 24,733 60,276 115,177
Credit loss allowance for loans
to customers (10,344) 9,687 33,220 - 32,563
Credit loss allowance for performance
guarantees and credit related
commitments 405 (74) 1,599 - 1,930
Credit loss allowance for investments
in finance lease - - - (2,515) (2,515)
Credit loss allowance for other
financial assets (3,309) - (625) (1,392) (5,326)
Credit loss allowance for financial
assets measured at fair value
through other comprehensive
income - - 738 1,104 1,842
Other non-financial assets
impairment 108 23 7 (585) (447)
Profit/(loss) before G&A expenses
and income taxes 267,614 137,195 246,845 67,769 719,423
Losses from modifications of
financial instruments (642) (93) (856) - (1,591)
Staff costs (66,060) (27,774) (22,140) (32,097) (148,071)
Depreciation and amortization (23,609) (5,859) (2,454) (4,779) (36,701)
Provision for liabilities and
charges - - - (9) (9)
Administrative and other operating
expenses (34,525) (13,639) (7,618) (16,365) (72,147)
Operating expenses (124,194) (47,272) (32,212) (53,250) (256,928)
Profit before tax 142,778 89,830 213,777 14,519 460,904
Income tax expense (15,329) (11,402) (24,846) (5,948) (57,525)
Profit 127,449 78,428 188,931 8,571 403,379
Consolidated Financial Statements of TBC Bank Group PLC
Consolidated Balance sheet
In thousands of GEL Jun-21 Jun-20
Cash and cash equivalents 1,414,414 981,803
Due from other banks 59,314 30,879
Mandatory cash balances with National Bank of Georgia 2,117,157 1,794,010
Loans and advances to customers 14,796,968 13,105,988
Investment securities measured at fair value through other comprehensive income 2,022,385 1,082,520
Bonds carried at amortized cost* 10,069 1,335,415
Investments in finance leases 245,261 270,172
Investment properties 33,407 70,716
Current income tax prepayment 14,966 36,703
Deferred income tax asset 6,747 7,470
Other financial assets[25] 287,761 174,378
Other assets 311,218 258,349
Premises and equipment 371,909 345,265
Right of use assets 51,160 62,664
Intangible assets 284,555 194,689
Goodwill 59,964 60,296
Investments in associates 4,286 2,112
TOTAL ASSETS 22,091,541 19,813,429
LIABILITIES
Due to credit institutions 3,482,830 4,403,406
Customer accounts 12,870,418 10,420,330
Lease liabilities 53,755 65,937
Other financial liabilities (21) 124,308 138,749
Current income tax liability 653 692
Debt Securities in issue 1,445,614 1,396,141
Deferred income tax liability 18,457 5
Provisions for liabilities and charges 21,435 25,558
Other liabilities 101,265 80,557
Subordinated debt 635,981 628,649
TOTAL LIABILITIES 18,754,716 17,160,024
EQUITY
Share capital 1,682 1,682
Shares held by trust (25,489) (34,450)
Share premium 848,459 848,459
Retained earnings 2,680,951 2,029,545
Group re-organisation reserve (162,167) (162,167)
Share based payment reserve (15,348) (31,808)
Fair value reserve 170 (1,492)
Cumulative currency translation reserve (5,199) (5,685)
Net assets attributable to owners 3,323,059 2,644,084
Non-controlling interest 13,766 9,321
TOTAL EQUITY 3,336,825 2,653,405
TOTAL LIABILITIES AND EQUITY 22,091,541 19,813,429
* In 2020, the Group changed its business model in relation to
certain portfolio of bonds carried at amortized cost (Ministry of
Finance Treasury Bills). The respective reclassifications have been
applied prospectively from 1 January 2021, as required by IFRS. As
a result of reclassification, Bonds carried at amortized cost in
the amount of GEL 1,059,946 thousand has been transferred to
Investment securities measured at fair value through other
comprehensive income with the fair value of GEL 1,086,008 thousand.
The difference has been recognized in other comprehensive income as
required by IFRS
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
In thousands of GEL 1H'21 1H'20
Interest income 899,185 787,893
Interest expense (444,436) (408,091)
Net gains from currency swaps 13,149 12,522
Net interest income 467,898 392,324
Fee and commission income 186,153 138,752
Fee and commission expense (77,852) (55,683)
Net fee and commission income 108,301 83,069
Net insurance premiums earned 30,289 26,618
Net insurance claims incurred and agents' commissions (20,416) (16,337)
Net insurance premium earned after claims and acquisition costs 9,873 10,281
Net gains from derivatives, foreign currency operations and translation 60,184 47,759
Gains less losses from disposal of investment securities measured at fair value through other
comprehensive income 7,041 (1,202)
Other operating income 37,483 7,977
Share of profit of associates 596 90
Other operating non-interest income 105,304 54,624
Credit loss allowance for loans to customers 32,563 (249,216)
Credit loss allowance for investments in finance lease (2,515) (4,278)
Credit loss allowance for performance guarantees and credit related commitments 1,930 (797)
Credit loss allowance for other financial assets (5,326) (4,222)
Credit loss allowance for financial assets measured at fair value through other comprehensive
income 1,842 (538)
Other non-financial assets impairment (447) (625)
Operating profit after expected credit losses 719,423 280,622
Losses from modifications of financial instruments (1,591) (34,170)
Staff costs (148,071) (114,006)
Depreciation and amortization (36,701) (32,215)
(Provision for)/ recovery of liabilities and charges (9) 77
Administrative and other operating expenses (72,147) (55,391)
Operating expenses (256,928) (201,535)
Profit before tax 460,904 44,917
Income tax expense (57,525) 24,283
Profit 403,379 69,200
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve (10,985) 4,984
Exchange differences on translation to presentation currency (3,072) 1,165
Other comprehensive income for the period (14,057) 6,149
Total comprehensive income for the period 389,322 75,349
Profit attributable to:
- Shareholders of TBCG 399,168 67,625
- Non-controlling interest 4,211 1,575
Profit 403,379 69,200
Total comprehensive income is attributable to:
- Shareholders of TBCG 385,120 73,793
- Non-controlling interest 4,202 1,556
Total comprehensive income for the period 389,322 75,349
Consolidated Statements of Cash Flows
In thousands of GEL 30-Jun-21 30-Jun-20
Cash flows from/(used in) operating activities
Interest received 906,444 579,414
Interest received on currency swaps 13,149 12,522
Interest paid (452,751) (404,923)
Fees and commissions received 170,658 131,347
Fees and commissions paid (78,793) (56,054)
Insurance and reinsurance received 43,358 43,373
Insurance claims paid (16,239) (13,458)
Income received from trading in foreign currencies 32,659 49,406
Other operating income received 28,880 2,860
Staff costs paid (134,594) (120,706)
Administrative and other operating expenses paid (79,430) (61,860)
Income tax paid (4,446) (11,983)
Cash flows from operating activities before changes in operating assets and
liabilities 428,895 149,938
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of
Georgia 23,326 (183,202)
Loans and advances to customers (711,980) (357,130)
Net investments in lease 24,158 11,008
Other financial assets (38,835) (8,483)
Other assets 14,151 10,847
Net change in operating liabilities
Due to credit institutions 11,940 85,357
Customer accounts 667,190 (88,078)
Other financial liabilities (137,291) 11,915
Other liabilities and provision for liabilities and charges 16,659 3,838
Net cash flows from operating activities 298,213 (363,990)
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other
comprehensive income (196,871) (251,486)
Proceeds from redemption at maturity of investment securities measured at
fair value through
other comprehensive income 757,583 180,702
Acquisition of bonds carried at amortised cost - (495,945)
Proceeds from redemption of bonds carried at amortised cost 19,633 171,137
Acquisition of premises, equipment and intangible assets (91,993) (74,550)
Proceeds from disposal of premises, equipment and intangible assets 6,334 24,172
Proceeds from disposal of investment property 20,210 3,128
Acquisition of subsidiaries and associates - 936
Net cash used in investing activities 514,896 (441,906)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 1,757,879 1,615,016
Redemption of other borrowed funds (2,736,476) (966,746)
Acquisition of treasury shares - (25,493)
Repayment of principal of lease liabilities (5,591) (5,420)
Redemption of subordinated debt (12,562) -
Proceeds from debt securities in issue - 171,531
Redemption of debt securities in issue - (12,569)
Dividends paid (1,741) -
Net cash flows from financing activities (998,491) 776,319
Effect of exchange rate changes on cash and cash equivalents (35,609) 7,797
1,635,405 1,003,583
Net increase in cash and cash equivalents (220,991) (21,780)
Cash and cash equivalents at the beginning of the period 1,635,405 1,003,583
Cash and cash equivalents at the end of the period 1,414,414 981,803
Key Ratios
Average Balances
The average balances included in this document are calculated as
the average of the relevant monthly balances as of each month-end.
Balances have been extracted from TBC's unaudited and consolidated
management accounts, which were prepared from TBC's accounting
records. These were used by the management for monitoring and
control purposes.
Key Ratios
Ratios (based on monthly averages, where applicable) 1H'21 1H'20
Profitability ratios:
ROE(1) 25.9% 5.2%
ROA(2) 3.6% 0.7%
ROE before expected credit loss allowances(3) 24.3% 23.3%
Cost to income(4) 37.2% 37.3%
NIM(5) 4.8% 4.7%
Loan yields(6) 10.0% 10.1%
Deposit rates(7) 3.4% 3.5%
Yields on interest earning assets(8) 9.4% 9.4%
Cost of funding(9) 4.6% 5.0%
Spread(10) 4.8% 4.4%
Asset quality & portfolio concentration:
Cost of risk(11) -0.4% 2.1%
PAR 90 to Gross Loans(12) 1.2% 1.0%
NPLs to Gross Loans(13) 3.4% 2.9%
NPL provision coverage(14) 91.3% 134.7%
Total NPL coverage(15) 169.6% 208.0%
Credit loss level to Gross Loans(16) 3.1% 3.9%
Related Party Loans to Gross Loans(17) 0.1% 0.1%
Top 10 Borrowers to Total Portfolio(18) 7.8% 8.2%
Top 20 Borrowers to Total Portfolio(19) 11.9% 12.3%
Capital & liquidity positions:
Net Loans to Deposits plus IFI* Funding(20) 102.8% 105.3%
Net Stable Funding Ratio(21) 130.6% 127.5%
Liquidity Coverage Ratio(22) 127.1% 124.8%
Leverage(23) 6.6x 7.5x
CET 1 CAR (Basel III)(24) 13.0% 10.0%
Regulatory Tier 1 CAR (Basel III)(25) 15.5% 12.7%
Regulatory Total 1 CAR (Basel III)(26) 19.6% 17.2%
* International Financial Institutions
Ratio definitions
1. Return on average total equity (ROE) equals net income
attributable to owners divided by the monthly average of total
shareholders' equity attributable to the PLC's equity holders for
the same period; annualised where applicable.
2. Return on average total assets (ROA) equals net income of the
period divided by monthly average total assets for the same period;
annualised where applicable.
3. Return on average total equity (ROE) before expected credit
loss allowances equals net income attributable to owners excluding
all credit loss allowance with respective tax effects, but after
net modification losses divided by the monthly average of total
shareholders' equity attributable to the PLC's equity holders for
the same period.
4. Cost to income ratio equals total operating expenses for the
period divided by the total revenue for the same period. (Revenue
represents the sum of net interest income, net fee and commission
income and other non-interest income).
5. Net interest margin (NIM) is net interest income divided by
monthly average interest-earning assets; annualised where
applicable. Interest-earning assets include investment securities
(excluding CIB shares), net investment in finance lease, net loans,
and amounts due from credit institutions.
6. Loan yields equal interest income on loans and advances to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
7. Deposit rates equal interest expense on customer accounts
divided by monthly average total customer deposits; annualised
where applicable.
8. Yields on interest earning assets equal total interest income
divided by monthly average interest earning assets; annualised
where applicable.
9. Cost of funding equals total interest expense divided by
monthly average interest bearing liabilities; annualised where
applicable.
10. Spread equals difference between yields on interest earning
assets (including but not limited to yields on loans, securities
and due from banks) and cost of funding (including but not limited
to cost of deposits, cost on borrowings and due to banks).
11. Cost of risk equals credit loss allowance for loans to
customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
12. PAR 90 to gross loans ratio equals loans for which principal
or interest repayment is overdue for more than 90 days divided by
the gross loan portfolio for the same period.
13. NPLs to gross loans equals loans with 90 days past due on
principal or interest payments, and loans with a well-defined
weakness, regardless of the existence of any past-due amount or of
the number of days past due divided by the gross loan portfolio for
the same period.
14. NPL provision coverage equals total credit loss allowance
for loans to customers divided by the NPL loans.
15. Total NPL coverage equals total credit loss allowance plus
the minimum of collateral amount of the respective NPL loan (after
applying haircuts in the range of 0%-50% for cash, gold, real
estate and PPE) and its gross loan exposure divided by the gross
exposure of total NPL loans.
16. Credit loss level to gross loans equals credit loss
allowance for loans to customers divided by the gross loan
portfolio for the same period.
17. Related party loans to total loans equals related party
loans divided by the gross loan portfolio.
18. Top 10 borrowers to total portfolio equals the total loan
amount of the top 10 borrowers divided by the gross loan
portfolio.
19. Top 20 borrowers to total portfolio equals the total loan
amount of the top 20 borrowers divided by the gross loan
portfolio.
20. Net loans to deposits plus IFI funding ratio equals net
loans divided by total deposits plus borrowings received from
international financial institutions.
21. Net stable funding ratio equals the available amount of
stable funding divided by the required amount of stable funding as
defined by NBG in line with Basel III guidelines.
22. Liquidity coverage ratio equals high-quality liquid assets
divided by the total net cash outflow amount as defined by the
NBG.
23. Leverage equals total assets to total equity.
24. Regulatory CET 1 CAR equals CET 1 capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. Calculations are
made for TBC Bank stand-alone, based on local standards.
25. Regulatory tier 1 CAR equals tier I capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. Calculations are
made for TBC Bank stand-alone, based on local standards.
26. Regulatory total CAR equals total capital divided by total
risk weighted assets, both calculated in accordance with the Pillar
1 requirements of the NBG Basel III standards. Calculations are
made for TBC Bank stand-alone, based on local standards.
Exchange Rates
To calculate the YoY growth without the currency exchange rate
effect, we used the US$/GEL exchange rate of 3.0552 as of 30 June
2020. As of 30 June 2021 the US$/GEL exchange rate equaled 3.1603.
For P&L items growth calculations without currency effect, we
used the average US$/GEL exchange rate for the following periods:
1H 2021 of 3.3207, 1H 2020 of 3.0323.
.
Additional Disclosures
1) TBC Bank - Background
TBC Bank is the largest banking group in Georgia, where 99.4% of
its business is concentrated, with a 38.2% market share by total
assets. It offers retail, CIB, and MSME banking nationwide.
These unaudited financial results are presented for TBC Bank
Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26
February 2016 as the ultimate holding company for JSC TBC Bank
Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia
on 10 August 2016, following the Group's restructuring. As this was
a common ownership transaction, the results have been presented as
if the Group existed at the earliest comparative date as allowed
under the International Financial Reporting Standards ("IFRS"), as
adopted by the United Kingdom. TBC PLC is listed on the London
Stock Exchange under the symbol TBCG and is a constituent of the
FTSE Small Cap Index. It is also a member of the FTSE4Good Index
Series and the MSCI United Kingdom Small Cap Index.
TBC Bank Group PLC's financial results has been prepared in
accordance with UK-adopted International Accounting Standard (IAS)
34 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the Financial Conduct Authority
(FCA).
2) Subsidiaries of TBC Bank Group PLC[26]
Ownership Country Year Industry Total Assets
/ voting of incorporation (after elimination)
% as of
30 June
2021
Subsidiary Amount % in
GEL'000 TBC Group
JSC TBC Bank 99.9% Georgia 1992 Banking 21,434,038 97.02%
United Financial
Corporation
JSC 99.5% Georgia 1997 Card processing 17,774 0.08%
TBC Capital
LLC 100.0% Georgia 1999 Brokerage 4,498 0.02%
TBC Leasing
JSC 100.0% Georgia 2003 Leasing 359,836 1.63%
TBC Kredit Non-banking
LLC 100.0% Azerbaijan 1999 credit institution 16,767 0.08%
TBC Pay LLC 100.0% Georgia 2009 Processing 40,565 0.18%
Real estate
Index LLC 100.0% Georgia 2011 management 1,500 0.01%
TBC Invest
LLC 100.0% Israel 2011 PR and marketing 328 0.00%
JSC TBC Insurance 100.0% Georgia 2014 Insurance 84,769 0.39%
Redmed LLC 100.0% Georgia 2019 E-commerce 1 ,262 0.00%
TBC Ecosystem
Companies 100.0% Georgia 2019 Asset Management 17 0.00%
Swoop JSC 100.0% Georgia 2010 Retail Trade 544 0.00%
LLC Online
Tickets 55.0% Georgia 2015 Software Services 1, 667 0.01%
TKT UZ 75.00% Uzbekistan 2019 Retail Trade 119 0.00%
E-commerce,
Housing and
My.ge LLC 65.0% Georgia 2008 Auto 8,752 0.04%
LLC Vendoo
(Geo) 100.0% Georgia 2019 Retail Leasing 3,228 0.01%
LLC Mypost 100.0% Georgia 2019 Postal Service 108 0.00%
LLC Billing
Solutions 51.00% Georgia 2019 Software Services 426 0.00%
All property.ge Real estate
LLC 90.0% Georgia 2013 management 2, 579 0.01%
LLC F Solutions 100.0% Georgia 2019 Software Services 9 0.00%
TBC Connect
LLC 100.0% Georgia 2020 Software Services 2 0.00%
TBC Concept 100.0% Georgia 2020 Food Industry 305 0.00%
Artarea.ge LLC 100.0% Georgia 2021 PR and marketing 51 0.00%
Saba 85.0% Georgia 2012 Education 47 0.00%
Art Gallery 100.0% Georgia 2012 PR and marketing 0 0.00%
Space International
JSC 100.0% Georgia 2021 Software Services 128 0.00%
TBC Group Support
LLC 100.0% Georgia 2020 Risk Management 0 0.00%
Inspired LLC 51.0% Uzbekistan 2011 Processing 13,265 0.06%
TBC Bank UZ
JSCB 100.0% Uzbekistan 2020 Banking 64,351 0.29%
LLC Vendoo (UZ
Leasing) 100.00% Uzbekistan 2019 Consumer financing 1,429 0.01%
3) TBC Insurance
TBC Insurance, a wholly owned subsidiary of TBC Bank, is one of
the leading players on the Georgian non-health insurance market.
The company was acquired by the Group in October 2016 and has since
grown significantly, becoming the second largest player on the
property and casualty insurance and life insurance (non-health)
market and the largest player in the retail segment, holding 1 6 .
7 % and 3 2 . 2 % market shares ([27]) without border motor third
party liability (MTPL) insurance, respectively, in 2Q 2021.
TBC Insurance serves both individual and legal entities and
provides a broad range of insurance products covering motor,
travel, personal accident, credit life and property, business
property, liability, cargo, agro, and health insurance products.
The company differentiates itself through its advanced digital
channels, which include TBC Bank's award-winning internet and
mobile banking applications, a wide network of self-service
terminals, a web channel, and B-Bot, a Georgian-speaking chat-bot
that is available through Facebook messenger.
In 2019, we entered the health insurance market, with a strategy
to target the premium segment by providing superior customer
experience coupled with the most innovative approach to products
and services. From 2021, we are planning to expand our value
proposition to the mid-premium segment, having accumulated
sufficient market knowledge and claims statistics.
In 2Q 2021, net profit including the health insurance business
amounted to GEL 2,846 thousands, which was broadly flat YoY,
attributable to a high base in 2Q 2020, which resulted from the
decrease in claims due to the COVID-19 lockdown, as well as
effective cost control.
The QoQ increase in net profit including health insurance
business was driven by the revival of business activities and the
seasonal low in 1Q 2021.
Information excluding 2Q'21 1Q' 2 2Q'20 1H'21 1H'20
health insurance 1
In thousands of GEL
Gross written premium 22,831 21,263 18,849 44,094 37,143
Net earned premium
([28]) 18,595 16,653 15,535 35,248 31,538
Net profit 3,512 2,895 3,033 6,406 5,092
Net combined ratio 81.6% 83.5% 79.4% 82.5% 82.9%
Information including 2Q'21 1Q' 2 2Q'20 1H'21 1H'20
health insurance 1
In thousands of GEL
Gross written premium 26,414 25,515 21,540 51,929 41,735
Net earned premium 21,539 19,131 17,329 40,671 34,647
Net profit 2,846 2,193 2,894 5,039 4,365
Net combined ratio 88.0% 90.1% 82.6% 89.0% 87.0%
Note: IFRS standalone data
4) First digital bank in Uzbekistan
In October 2020 we successfully launched TBC UZ, a digital
commercial bank in Uzbekistan, which demonstrated a rapid
growth:
in thousands of GEL Jul-2021 Jun-2021 May-2021 Apr-2021 Mar-2021
# of total registered users 403 302 230 157 98
Loan portfolio (GEL) 31,797 25,239 14,997 6,144 953
Deposit portfolio (GEL) 49,585 15,543 11,567 6,543 2,839
# of total cards issued (cumulative figures) 78 66 54 42 31
# of other cards attached (cumulative figures) 187 126 81 49 29
Total monthly number of transactions 626 563 407 323 203
5) Reclassification of certain balance sheet profit and loss items and changes in methodology
In 1Q 2021, we reclassified certain BS and PL items for all
quarters of 2020 and 1Q 2021, as outlined below.
Wealth Management business reclassification
Following structural changes in the Management Board, starting
from January 2021, Deputy CEO George Tkhelidze, head of Corporate
and Investment Banking, assumed responsibility for the Wealth
Management business. As a result, we reclassified all relevant BS
and PL items of the Wealth Management business from Retail Banking
to Corporate and Investment Banking.
The amounts of the Wealth Management loan and deposit portfolios
are given in a table below:
Loan book (million Deposit portfolio (million
GEL) GEL)
June 2021 142.8 2,193.7
March 2021 139.0 2,415.9
June 202 0 129.7 1,792.1
Reclassification of other non-financial assets impairment
In 2021, the Group reclassified impairment/recovery of
non-financial assets from "Administrative and other operating
expenses" to "Impairment of other non-financial assets". A
significant part of any impairment/recoveries recorded is related
to repossessed assets and investment properties. The management
believes that those type of assets are not actively used in daily
operations, but are primarily targeted for sale in the future.
Considering the nature of those expenses/recovery, such a
presentation is more appropriate and would increase the
understandability and clarity of the Group's financial statements.
The presentation of comparative figures has been adjusted to
conform to the presentation of the current period amounts:
As originally Reclassification As reclassified
presented at
at 30 June 2020 30 June 2020
Impairment of other non-financial
assets - (625) (625)
Administrative and other
operating expenses (56,016) 625 (55,391)
Changes in methodology - NPL collaterals coverage
In 1Q 2021, in order to further increase the focus on the
collateral coverage, the Bank reviewed its methodology and applied
a more conservative approach, namely under the updated methodology,
the collateral amount is capped at the respective loan amount. The
NPL coverages for all four quarters of 2020 have been recalculated
per updated methodology.
The table below outlines the NPL coverage ratios as of 30 June
2020, calculated per previous and the updated methodology.
Collateral coverage Total NPL coverage
(provisions plus collateral)
Per previous Per updated Per previous Per updated
methodology methodology methodology methodology
Retail 79% 65% 267% 254%
CIB 160% 70% 268% 178%
MSME 115% 85% 207% 177%
Total 112% 73% 247% 208%
6) Loan book breakdown by stages according IFRS 9
Total (in million GEL)
30-Jun-21 31-Mar-21 30-Jun-20
Stage Gross LLP rate* Gross LLP rate* Gross LLP rate*
1 12,709 0.9% 12,101 1.1% 11,332 1.6%
2 1,803 5.6% 2,296 5.4% 1,899 10.3%
3 763 34.4% 935 36.1% 404 38.9%
Total 15,275 3.1% 15,332 3.8% 13,635 3.9%
CIB (in million GEL)
30-Jun-21 31-Mar-21 30-Jun-20
Stage Gross LLP rate* Gross LLP rate* Gross LLP rate*
1 4,899 0.9% 4,760 1.1% 4,556 1.1%
2 826 1.0% 991 0.9% 479 1.3%
3 127 18.8% 188 24.5% 165 32.9%
Total 5,852 1.3% 5,939 1.8% 5,200 2.1%
MSME (in million GEL)
30-Jun-21 31-Mar-21 30-Jun-20
Stage Gross LLP rate* Gross LLP rate* Gross LLP rate*
1 3,026 0.7% 2,764 0.9% 2,652 1.5%
2 459 6.3% 583 7.0% 443 10.0%
3 250 31.9% 285 32.5% 111 34.7%
Total 3,735 3.5% 3,632 4.4% 3,206 3.8%
Retail (in million GEL)
30-Jun-21 31-Mar-21 30-Jun-20
Stage Gross LLP rate* Gross LLP rate* Gross LLP rate*
1 4,784 1.0% 4,577 1.0% 4,124 2.1%
2 519 12.3% 722 10.4% 976 14.9%
3 386 41.1% 462 43.1% 129 50.1%
Total 5,689 4.7% 5,761 5.6% 5,229 5.7%
* LLP rate is defined as credit loss allowances divided by gross
loans
7) Reconciliation of Return on Equity (ROE) with ROE before expected credit loss allowances
Income Statement Highlights
# in thousands of GEL 2Q'21 1Q'21 2Q'20 1H'21 1H'20
1. Net interest income 242,767 225,131 184,365 467,898 392,324
Net fee and commission
2. income 63,008 45,293 39,517 108,301 83,069
Other operating non-interest
3. income 74,512 40,665 26,161 115,177 64,905
4. Credit loss allowance 45,291 (17,244) (12,586) 28,047 (259,676)
Operating profit after
5. expected credit losses 425,578 293,845 237,457 719,423 280,622
Losses from modifications
6. of financial instrument (104) (1,487) (3,527) (1,591) (34,170)
7. Operating expenses (134,688) (122,240) (95,059) (256,928) (201,535)
8. Profit before tax 290,786 170,118 138,871 460,904 44,917
9. Income tax expense (40,394) (17,131) (12,665) (57,525) 24,283
10. Profit for the period 250,392 152,987 126,206 403,379 69,200
Profit for the period
12. less Non-controlling interest 247,946 151,224 125,100 399,170 67,625
Income tax expense of
13. credit loss allowance 4,685 (1,593) (1,215) 2,901 (25,071)
Profit before Credit loss
allowances less Non-controlling
interest and respective
tax effect
14. (12 - 4 + 13) 207,340 166,875 136,471 374,024 302,230
# in thousands of GEL 2Q'21 1Q'21 2Q'20 1H'21 1H'20
Average equity attributable
15. to the PLC's equity holders 3,203,351 3,017,527 2,576,397 3,109,965 2,607,011
Return on equity (ROE)
16. (12÷15)* 31.0% 20.3% 19.5% 25.9% 5.2%
Return on equity (ROE)
before expected credit
17. loss allowances (14÷15)* 26.0% 22.4% 21.3% 24.3% 23.3%
*annualised where applicable
Material Existing and Emerging Risks
The emergence of the COVID-19 pandemic has enhanced the critical
importance of risk management to the Group's strategy. During the
COVID-19 era, it is even more essential to identify any emerging
risks and uncertainties that could adversely impact the Group's
performance, financial condition and prospects. This section
analyses the material principal and emerging risks and
uncertainties the Group faces. However, we cannot exclude the
possibility of the Group's performance being affected by risks and
uncertainties other than those listed below.
Principal Risks and Uncertainties
1. Credit risk is an integral part of the Group's business
activities
As a provider of banking services, the Group is exposed to the
risk of loss due to the failure of a customer or counterparty to
meet their obligations to settle outstanding amounts in accordance
with agreed terms.
Risk description
Credit risk is the greatest material risk faced by the Group,
given the Group is engaged principally in traditional lending
activities. The Group's customers include legal entities as well as
individual borrowers.
Due to the high level of dollarization of Georgia's financial
sector, currency-induced credit risk is a component of credit risk,
which relates to risks arising from foreign currency-denominated
loans to unhedged borrowers in the Group's portfolio. Credit risk
also includes concentration risk, which is the risk related to
credit portfolio quality deterioration as a result of large
exposures to single borrowers or groups of connected borrowers, or
loan concentration in certain economic industries. Losses may be
further aggravated by unfavorable macroeconomic conditions. These
risks are described in more detail as a separate principal
risk.
COVID-19 has increased uncertainty and caused significant
economic disruptions in many sectors, particularly in the
hospitality & leisure, real estate management and development
sectors. Such economic disruptions run the risk of deteriorating
the financial standing of borrowers and increase the credit risk
for the Group.
Risk mitigation
A comprehensive credit risk assessment framework is in place
with a clear segregation of duties among the parties involved in
the credit analysis and approval process. The credit assessment
process is distinct across segments, and is further differentiated
across various product types to reflect the differing natures of
these asset classes. Corporate, SME and larger retail and micro
loans are assessed on an individual basis, whereas the
decision-making process for smaller retail and micro loans is
largely automated. The rules for manual and automated underwriting
are developed by units within the risk function, which are
independent from the origination and business development units. In
the case of corporate and medium-sized business borrowers, the loan
review process is conducted within specific sectoral teams, which
accumulate deep knowledge of the corresponding sectoral
developments.
The Group uses a robust monitoring system to react promptly to
macro and micro developments, identify weaknesses in the credit
portfolio and outline solutions to make informed risk management
decisions.
Monitoring processes are tailored to the specifics of individual
segments, as well as encompassing individual credit exposures,
overall portfolio performance and external trends that may impact
on the portfolio's risk profile. Additionally, the Group uses a
comprehensive portfolio supervision system to identify weakened
credit exposures and take prompt, early remedial actions, when
necessary.
The Group's credit portfolio is structurally highly diversified
across customer types, product types and industry segments, which
minimizes credit risk at the Group level. As of 30 June 2021, the
retail segment represented 37.2% of the total portfolio, which was
split between mortgage and non-mortgage exposures of 66.7% and
33.3%, respectively. No single business sector represented more
than 9.6% of the total portfolio as of 30(th) June 2021.
Collateral represents the most significant credit risk
mitigation tool for the Group, making effective collateral
management one of the key risk management components. Collateral on
loans extended by the Group may include, but is not limited to,
real estate, cash deposits, vehicles, equipment, inventory,
precious metals, securities and third party guarantees.
The Group has a largely collateralized portfolio in all its
segments, with real estate representing a major share of
collateral. As of 30 June 2021, 75.4% of the Group's portfolio was
secured by cash, real estate or gold. A sound collateral management
framework ensures that collateral serves as an adequate mitigating
factor for credit risk management purposes.
As a result of the COVID-19 pandemic, the Group has identified
highly vulnerable clients and outlined a strategy for payment
holidays, refinancing, or restructuring across all segments. Since
the start of the COVID-19 pandemic, the Bank granted payment
holidays on principal and interest payments to individual and MSME
customers as well as to corporate borrowers that have been
adversely affected by the government lockdowns. In line with our
strategy, some clients were only given payment holidays on
interest, while other clients were given payment holidays on both
interest and principal amounts. The government expanded upon a
special support programme for the affected sectors: for example,
restaurants and small and medium sized hotels received subsidies in
the amount of 70-80% of interest payments.
In the first half of 2021, the grace periods ended for those
loans that had been restructured in late 2020. On the back of
strong economic recovery and easing of Covid-19-related
restrictions,the vast majority of these borrowers managed to
successfully continue repayment, which resulted in a decrease in
non-performing loans and improvements in the portfolio quality in
general.
Additionally, the Bank actively performs stress testing and
scenario analysis in order to check the resilience of borrowers
under various stress conditions. The stress tests entail
assumptions about the depreciation of the local currency, GDP
growth, sectoral growth, unemployment, inflation, changes in real
estate and commodity prices, changes in interest rates and loan and
deposit portfolio developments. The Bank carries out intensive
financial monitoring to identify the borrower's weakened financial
and business prospects in order to offer them a restructuring plan
that is tailored to their individual needs.
The Bank revised credit underwriting standards across all
segments in light of the COVID-19 pandemic and tightened them,
where applicable. The revision and tightening of the standards,
among other measures, included: changes in the delegation on
decision-making and approval, particularly for borrowers from
vulnerable sectors, applied haircuts to the revenues of individual
borrowers from affected sectors, and the integration of
macroeconomic sectoral expectations into the assessment process for
business borrowers.
2. The Group faces currency-induced credit risk due to the high
share of loans denominated in foreign currencies in the Group's
portfolio
A potential material GEL depreciation is one of the most
significant risks that could negatively impact portfolio quality,
due to the large presence of foreign currencies on the Group's
balance sheet. Unhedged borrowers could suffer from an increased
debt burden when their liabilities denominated in foreign
currencies are amplified.
Risk description
A significant share of the Group's loans (and a large share of
the total banking sector loans in Georgia) is denominated in
currencies other than GEL, mainly in US$ and EUR. As of 30 June
2021, 56.3% of the Group's total gross loans and advances to
customers (before provision for loan impairment) were denominated
in foreign currencies.
The income of many customers is directly linked to foreign
currencies via remittances, tourism or exports. Nevertheless,
customers may not be protected against significant fluctuations in
the GEL exchange rate against the currency of the loan. The US$/GEL
rate remained volatile throughout the first half of 2021 and the
average currency exchange rate of GEL weakened by 9.5%
year-on-year. The GEL remains in free float and is exposed to many
internal and external factors that in some circumstances could
result in its depreciation.
Risk mitigation
Particular attention is paid to currency-induced credit risk,
due to the high share of loans denominated in foreign currencies in
the portfolio. Vulnerability to exchange rate depreciation is
monitored in order to promptly implement an action plan, as and
when needed. The ability to withstand certain exchange rate
depreciation is incorporated into the credit underwriting
standards, which also include significant currency devaluation
buffers for unhedged borrowers. In addition, the Group holds
significant capital against currency-induced credit risk.
Given the experience and knowledge built throughout the recent
currency volatility, the Group is in a good position to promptly
mitigate exchange rate depreciation risks. In January 2019, the
government authorities continued their efforts to reduce the
economy's dependence on foreign currency financing by increasing
the cap to GEL 200,000, under which loans must be disbursed in
local currency. In addition, the NBG, under its responsible lending
initiative, which came into force on 1 January 2019, introduced
significantly more conservative PTI and LTV thresholds for unhedged
retail borrowers, further limiting their exposure to currency
induced credit risk. The NBG eased the above-mentioned regulation
from April 2020 for hedged borrowers. For unhedged borrowers,
however, PTI and LTV thresholds will remain significantly more
conservative.
3. The Group's performance may be compromised by adverse
developments in the economic environment, particularly due to the
COVID-19 pandemic
An abrupt slowdown in the economic recovery, or even
contraction, owing to pandemic-related disruptions and further
lockdowns due to the slow vaccination process and newly emerged
virus variants, will likely have an additional adverse impact on
the repayment capacity of borrowers, restraining their future
investment and expansion plans. In addition, the Fed's new hike
cycle started earlier than expected amid fast recovery in the US
economy, which could trigger the GEL depreciation and slower growth
of the Georgian economy. These occurrences would be reflected in
the Group's portfolio quality and profitability, and would also
impede portfolio growth rates. Negative macroeconomic developments
could compromise the Group's performance through various
parameters, such as exchange rate depreciation, a spike in interest
rates, rising unemployment, a decrease in household disposable
income, falling property prices, worsening loan collateralization,
or falling debt service capabilities of companies as a result of
decreasing sales. Potential political and economic instability in
neighboring countries and main trading/economic partners could
negatively impact Georgia's economic outlook through a worsening
current account (e.g. decreased exports, tourism inflows,
remittances and foreign direct investments).
Risk description
As a result of the COVID-19 pandemic, Georgia endured an
economic downturn in 2020, with real GDP down by 6.2%. The 2021
first quarter real GDP growth came in at a negative 4.5%, yet
affected by the pandemic-related restrictions and still relatively
high base effect a year before; thereafter, amid easing
COVID-related restrictions and global recovery, the economy has
embarked on a rebound path, increasing by 44.8% YoY (+20.8 compared
to 2019), 25.8% YoY (+8.8 compared to 2019) and 18.7% YoY (+9.6%
compared to 2019) in April, May and June, respectively. Going
forward, according to TBC Capital projections the economy is
estimated to recover by 10.5% and 6.5% in 2021 and 2022
respectively. According to the World Bank's latest projections[29],
the Georgian economy is projected to grow at 6.0% in 2021 and by
5.0% in 2022.
Since the beginning of 2021, the GEL gained some value against
the US dollar, rising from 3.28 US$/GEL to 3.14 US$/GEL, as of 15
July. In June 2021, consumer prices went up considerably by 9.9%,
which can be primarily explained by increased commodity prices, a
weak GEL and increased gas tariffs in Tbilisi. Since the beginning
of 2021, the NBG increased its policy rate from 8.0% to 9.5%.
Considering the moderating inflation outlook, the recovery in
tourism inflows and lower pressures on the exchange rate, it is
likely that there will be gradual rate cuts this year.
In addition to use of the interest rate policy tool, the NBG
continued to supply FX to the market in 2021, selling in total US$
248 million as of June 2021 (US$ 873.2 million in 2020). These
interventions were primarily financed through external government
borrowing. The fiscal deficit also significantly supported the
overall growth as well as assisting those businesses and households
that were impacted negatively by the pandemic. According to the
budget plan, the fiscal deficit is expected to be sizeable again in
2021, with a deficit to GDP ratio of 6.9% (compared to 9.3% of GDP
in 2020). Bank credit growth strengthened to 12.6% year-on-year in
FX adjusted terms by the end of June 2021, compared to 9.1%
year-on-year growth by the end of 2020.
Risk mitigation
To decrease its vulnerability to economic cycles, the Group
identifies cyclical industries and proactively manages its
underwriting approach and clients within its risk appetite
framework. The Group has in place a macroeconomic monitoring
process that relies on close, recurrent observation of economic
developments in Georgia, as well as in neighboring countries, to
identify early warning signals indicating imminent economic risks.
This system allows the Group to promptly assess significant
economic and political occurrences and analyze their implications
for the Group's performance. The identified implications are duly
translated into specific action plans with regards to reviewing the
underwriting standards, risk appetite metrics or limits, including
the limits for each of the most vulnerable industries.
Additionally, the stress-testing and scenario analysis applied
during the credit review and portfolio monitoring processes enable
the Group to have an advance evaluation of the impact of
macroeconomic shocks on its business. Resilience towards a changing
macroeconomic environment is incorporated into the Group's credit
underwriting standards. As such, borrowers are expected to
withstand certain adverse economic developments through prudent
financials, debt-servicing capabilities and conservative collateral
coverage.
Taking into account the impact of the COVID-19 crisis on
Georgia's economy, the Group has adjusted its risk management
framework, leveraging its already existing stress testing
practices. This included more thorough and frequent monitoring of
the portfolio as well as stress testing, to ensure close control of
the changes in capital, liquidity, and portfolio quality during
times of increased uncertainty.
4. The Group faces the capital risk of not meeting the minimum
regulatory requirements under the increasing capital requirement
framework, which may compromise growth and strategic targets.
Additionally, adverse changes in FX rates may impact the capital
adequacy ratios
Risk description
In December 2017, the NBG introduced a new capital adequacy
framework. Under the updated regulation, capital requirements
consist of a Pillar 1 minimum requirement, combined buffers
(systemic, countercyclical and conservation buffers) and Pillar 2
buffers.
The regulation includes a phase-in schedule and gradually
introduces the buffers over the course of a four-year period.
However, in response to the COVID-19 pandemic, the NBG has
implemented certain countercyclical measures in relation to capital
adequacy requirements, which are as follows:
o Postponing the phasing-in of concentration risk and the net
General Risk Assessment Programme (GRAPE) buffer capital
requirements on CET1 and Tier 1 capital that was supposed to be
introduced in March 2020;
o Allowing banks to use the conservation buffer and 2/3 of the
Currency Induced Credit Risk (CICR) buffer;
o Allowing banks to release all the remaining Pillar 2 buffers
(remaining 1/3 CICR, concentration risk and Net Grape buffers) in
case of necessity.
Since the above-mentioned countercyclical measures were put in
place, the NBG outlined a new schedule for the gradual introduction
of capital requirements under Basel III. According to the new
schedule, concentration risk and the net GRAPE buffers phase-in
resumed from March 2021 and will be fully introduced by March 2023.
The systemic buffer will increase by 0.5pp to 2.5% at the end of
2021.
In June 2021, the NBG also announced its decision on the
restoration of CICR and Conservation buffers. Based on this
decision, the restoration of buffers will begin from January 2022
and will last for two years. Banks will be required to fully
restore the CICR buffer by the end of 2022 and Conservation buffer
by the end of 2023. However, the Bank should fully restore and
comply with the buffers in case it wants to pay out dividends.
Since the introduction of these measures, the Bank has been
utilizing both the conservation and 2/3rds of the CICR buffer, and
was restricted from making any capital distributions. However, amid
strong capital generation, as of June 2021, TBC Bank is in full
compliance with the fully restored minimum requirements and has
confirmed to the NBG that it will fully restore the temporarily
released capital buffers by 31 July 2021. This lifts any regulatory
restriction on making capital distributions.
The Bank's capitalization as of 30(th) June 2021 is given in the
table below:
Minimum Requirements Fully Restored TBC Capital Surplus Surplus over
Minimum Requirements Adequacy over Min Fully Restored
Ratios Requirements Minimum Requirements
CET1 Capital 7.8% 11.2% 13.0% 5.2% 1.8%
Tier 1 Capital 9.8% 13.5% 15.5% 5.7% 2.0%
Total Capital 13.7% 17.8% 19.6% 5.9% 1.8%
Apart from the challenges brought by the Covid-19 pandemic, GEL
volatility has been and remains one of the most significant risks
impacting the Bank's capital adequacy. A 10% GEL depreciation would
translate into a 0.87pp, 0.77pp and 0.64 pp drop in the Bank's CET
1, Tier 1 and Total regulatory capital adequacy ratios,
respectively.
Risk mitigation
The Group undertakes stress-testing and sensitivity analysis to
quantify extra capital consumption under different scenarios. Such
analyses indicate that the Group holds sufficient capital to meet
the current minimum regulatory requirements. Capital forecasts, as
well as the results of the stress-testing and what-if scenarios,
are actively monitored with the involvement of the Bank's
Management Board and Risk Committee to ensure prudent management
and timely actions when needed.
5. The Group is exposed to regulatory and enforcement action
risk
The Bank's activities are highly regulated and thus face
regulatory risk. The NBG can increase prudential requirements
across the whole sector as well as for specific institutions within
it. Therefore, the Group's profitability and performance may be
compromised by an increased regulatory burden.
Risk description
The NBG sets lending limits and other economic ratios
(including, inter alia, lending, liquidity and investment ratios)
in addition to mandatory capital adequacy ratios.
Under Georgian banking regulations, the Bank is required, among
other things, to comply with minimum reserve requirements and
mandatory financial ratios, and to regularly file periodic reports.
The Bank is also regulated by the tax code and other relevant laws
in Georgia. Following the Company's listing on the London Stock
Exchange's premium segment, the Group became subject to increased
regulations from the UK Financial Conduct Authority. In addition to
its banking operations, the Group also offers other regulated
financial services products, including leasing, insurance and
brokerage services.
The Bank's subsidiary was granted a banking license in
Uzbekistan and launched operations in 2020. As a result, the
regulatory compliance requirements have increased for the
Group.
The Group takes all necessary steps to comply with the relevant
legislation and regulations. The Group is also subject to financial
covenants in its debt agreements.
Risk mitigation
The Group has established systems and processes to ensure full
regulatory compliance, which are embedded in all levels of the
Group's operations. A dedicated compliance department reports
directly to the Chief Executive Officer and has the primary role in
the management of regulatory compliance risk. The Group's Risk
Committee is responsible for regulatory compliance at the Board
level. In terms of banking regulations and Georgia's taxation
system, the Group is closely engaged with the regulator to ensure
that new procedures and requirements are discussed in detail before
their implementation. Although the decisions made by regulators are
beyond the Group's control, significant regulatory changes are
usually preceded by a consultation period that allows all lending
institutions to provide feedback and adjust their business
practices.
6. The Group is exposed to concentration risk
Banks operating in developing markets are typically exposed to
both single-name and sector concentration risks. The Group has
large individual exposures to single-name borrowers whose potential
default would entail increased credit losses and higher impairment
charges. The Group's portfolio is well diversified across sectors,
resulting in only moderate vulnerability to sector concentration
risks. However, should exposure to common risk drivers increase,
the risks are expected to amplify correspondingly.
Risk description
The Group's loan portfolio is diversified, with maximum exposure
to the single largest industry (Hospitality, Restaurants &
Leisure) standing at 9.2% of the loan portfolio, which demonstrates
adequate credit portfolio diversification. At the end of half year
2021, exposure to the 20 largest borrowers stands at 11.9% of the
loan portfolio, which is in line with the Group's target of
alleviating concentration risk.
Risk mitigation
The Group constantly monitors the concentrations of its exposure
to single counterparties, as well as sectors and common risk
drivers, and it introduces limits for risk mitigation. As part of
its risk appetite framework, the Group limits both single-name and
sector concentrations. Any considerable change in the economic or
political environment, in Georgia as well as in neighbouring
countries, will trigger the Group's review of the risk appetite
criteria to mitigate the emerging risk of concentration. Stringent
monitoring tools are in place to ensure compliance with the
established limits. Due to the increased uncertainty caused by the
COVID-19 pandemic, close monitoring was carried out consistently,
based on macro expectations, to estimate the performance of the top
20 corporate borrowers.
In addition, the Bank has dedicated restructuring teams to
manage borrowers with financial difficulties. When it is deemed
necessary, clients are transferred to such teams for more efficient
handling and, ultimately, to limit any resulting credit risk
losses. The NBG's new capital framework introduced a concentration
buffer under Pillar 2 that helps to ensure that the Group remains
adequately capitalized to mitigate concentration risks.
7. Liquidity risk is inherent in the Group's operations
While the Group currently has sufficient financial resources
available to meet its obligations as they fall due, liquidity risk
is inherent in banking operations and can be heightened by numerous
factors. These include an overreliance on, or an inability to
access, a particular source of funding, as well as changes in
credit ratings or market-wide phenomena, such as the global
financial crisis that took place in 2007. Access to credit for
companies in emerging markets is significantly influenced by the
level of investor confidence and, as such, any factors affecting
investor confidence (e.g. a downgrade in credit ratings, central
bank or state interventions, or debt restructurings in a relevant
industry) could influence the price or availability of funding for
companies operating in any of these markets.
Risk description
The Group was in compliance with the minimum liquidity
requirements set by the NBG, which include the Liquidity Coverage
Ratio (LCR) and the Net Stable Funding Ratio (NSFR). As of 30 June
2021, the net loan to deposits plus international financial
institution funding ratio stood at 102.8%, the liquidity coverage
ratio at 127.1%, and the net stable funding ratio at 130.6%. These
figures are all comfortably above the NBG's minimum requirements or
guidance for such ratios.
30-Jun-21 31-Dec-20 31-Dec-19
Minimum net stable funding ratio,
as defined by the NBG 100% 100% 100%
Net stable funding ratio as defined
by the NBG 130.6% 126.0% 126.7%
Net loans to deposits + IFI funding 102.8% 101.2% 104.8%
Minimum total liquidity coverage
ratio, as defined by the NBG 100.0% 100.0% 100.0%
Minimum LCR in GEL, as defined
by the NBG 75% n/a 75.0%
Minimum LCR in FC, as defined
by the NBG 100.0% 100.0% 100.0%
Total liquidity coverage ratio,
as defined by the NBG 127.1% 134.2% 110.1%
LCR in GEL, as defined by the
NBG 122.9% 132.2% 83.7%
LCR in FC, as defined by the
NBG 129.2% 134.9% 128.4%
In May 2021, NBG restored the NBG GEL LCR limit (>=75%),
which was removed for one year as one of the countercyclical
measures implemented in relation to liquidity requirements as a
result of COVID-19.
Risk mitigation
To mitigate this risk, the Group holds a solid liquidity
position and performs an outflow scenario analysis for both normal
and stress circumstances to make sure that it has adequate liquid
assets and cash inflows. The Group maintains a diversified funding
structure to manage the respective liquidity risks. There is
adequate liquidity to withstand significant withdrawals of customer
deposits, but the unexpected and rapid withdrawal of a substantial
amount of deposits could have a material adverse impact on the
Group's business, financial condition, and results of operations
and/or prospects.
As part of its liquidity risk management framework, the Group
has a liquidity contingency plan in place outlining the risk
indicators for different stress scenarios and respective action
plans. The liquidity risk position and compliance with internal
limits are closely monitored by the Assets and Liabilities
Management Committee (ALCO). Due to its high liquidity position in
foreign currency, the Bank made prepayments of some IFI resources
in the amount of US$ 143m in late 2020 and throughout the first
half of 2021.
8. Any decline in the Group's net interest income or net
interest margin (NIM) could lead to a reduction in
profitability
Net interest income accounts for the majority of the Group's
total income. Consequently, fluctuations in its NIM affect the
results of operations. The new regulations as well as high
competition could drive the Group's interest rates down,
compromising the Group's profitability. At the same time, the cost
of funding is largely exogenous to the Group and is derived from
both local and international markets.
Risk description
The majority of the Group's total income derives from net
interest income. Consequently, the NIM's fluctuations affect the
Group's results. In first half of 2021, the NIM increased by 0.1pp
year-on-year to 4.8%, mainly driven by a decrease in the cost of
funding for both local and foreign currencies, as well as change in
liability structure towards deposits.
The Bank manages its exposure to interest rate risk, following
the NBG IRR regulation introduced from September 2020. As of 30
June 2021, GEL 3,959[30] million in assets (19%) and GEL 2,095(3)
million in liabilities (11%) were floating in GEL currency, whereas
GEL 7,673(3) million of assets (36%) and GEL 1,077(3) million of
liabilities (6%) were floating, related to the
LIBOR/Euribor/FED/ECB rates.
The Bank was in compliance with the EVE (Economic Value of
Equity) sensitivity limit set by the NBG at 15% of Tier 1 Capital,
with the ratio standing at 3.3% by 30 June 2021.
Risk mitigation
In 2021, NIM had an improving trend, after the decrease since
the start of the Covid-19 pandemic; this positive trend is expected
to continue throughout 2021. The strong performance in net fee and
commission income and other operating income, as well as efficient
cost discipline, helps safeguard against margin declines and
profitability concerns for the Group going forward.
To mitigate the asset-liability maturity mismatch, in cases
where loans are extended on fixed rather than floating terms, the
interest rate risk is translated into price premiums, safeguarding
against changes in interest rates.
9. The threat posed by cyber-attacks has increased in recent
years and it continues to grow. The risk of potential
cyber-attacks, which have become more sophisticated, may lead to
significant security breaches. Such risks change rapidly and
require continued focus and investment
Risk description
No major cyber-attack attempts have targeted Georgian commercial
banks in recent years. Nonetheless, the Group's rising dependency
on IT systems increases its exposure to potential
cyber-attacks.
Risk mitigation
In order to mitigate the risks associated with cyber-attacks and
ensure the security of clients, the Group continuously updates and
enhances its in-depth security strategy, which covers multiple
preventive and detective controls ranging from the data and
end-point computers to edge firewalls.
A Security Operations Center has been built, which monitors
every possible anomaly that is identified across the organization's
network in order to detect potential incidents and respond to them
effectively.
At least once a year, a full information security and cyber
security threat analysis is performed, taking into consideration
the relevant regional and sector specific perspectives. At least
once every two years, as part of this analysis, an external
consultant is contracted to assess the efficiency of our
capabilities against industry best practices and real world
cyber-attack scenarios. This analysis gives the Group a broad
review as well as detailed insight, which helps to further enhance
the information and cyber security systems. In addition,
cyber-attack readiness exercises are performed on a regular basis.
These exercises evaluate the actual position of the Group in this
area and provide a benchmark against international best
practices.
Our employees play a crucial role in information security. As a
result, regular mandatory training sessions are conducted for all
employees, which are comprised of remote learning courses on
security issues, fraud and phishing simulations as well as
informative emails to further assist our employees with information
security matters. New employees are also given training as part of
the onboarding process. These measures ensure that employees are
fully aware of their responsibilities and are prepared for various
security threats.
The Information Security Steering Committee governs information
and cyber security to ensure that relevant risks are at an
acceptable level and that continuous improvement of the management
processes are achieved.
Disaster recovery plans are in place to ensure business
continuity in case of contingency.
As a result of the COVID-19 pandemic, the Group activated secure
remote working policies, which ensure that homeworking environments
are protected against relevant cyber-threats and that the security
team provides effective oversight of teleworking channels. Although
there has been a noticeable increase in phishing attempts against
employees, there have been no major incidents. The Security
Operation Center and Threat Hunting teams have successfully adopted
effective remote collaboration and communication tools and
practices.
10. External and internal fraud risks are part of the
operational risk inherent in the Group's business. Considering the
increased complexity and diversification of operations, together
with the digitalisation of the banking sector, fraud risks are
evolving. Unless proactively managed, fraud events may materially
impact the Group's profitability and reputation
Risk description
External fraud events may arise from the actions of third
parties against the Group, most frequently involving events related
to banking cards, loans and client phishing. Internal frauds arise
from actions committed by the Group's employees, and such events
happen less frequently. None of these cases had a material impact
on the Group's profit and loss statement. As a result of the
COVID-19 pandemic, the threat of fraud and the rapid growth in
digital crime have been exacerbated and fraudsters are adopting new
techniques and approaches to exploit various possibilities to
illegally obtain funds. Therefore, unless properly monitored and
managed, the potential impact can become substantial.
Risk mitigation
The Group actively monitors, detects and prevents the risks
arising from fraud events and permanent monitoring processes are in
place to detect unusual activities in a timely manner. The risk and
control self-assessment exercise focuses on identifying residual
risks in key processes, subject to the respective corrective
actions. Given our continuous efforts to monitor and mitigate fraud
risks, together with the high sophistication of our internal
processes, the Group ensures the timely identification and control
of fraud-related activities.
11. The Group remains exposed to some reputational risk
Risk Description
There are reputational risks to which the Group may be exposed,
such as risks related to the COVID-19 pandemic, and increased cases
of cybercrimes (cyberattack, phishing). The upcoming elections in
October 2021 make all banks a target for popular resentment as some
politicians use anti-bank narratives during their pre-election
campaigns.
However, none of the aforementioned risks are unique to the
Group; instead, they are issues faced by the entire banking
sector.
Risk Mitigation
To mitigate the possibility of reputational risks, the Bank has
all of the necessary safeguards in place, including preventive
measures, contingency plans and crisis response scenarios. The Bank
works continuously to maintain strong brand recognition among its
stakeholders, actively monitoring its brand value and media
coverage by receiving feedback from stakeholders on an ongoing
basis. The Bank closely monitors and reports on any negative
publicity about TBC. The Group tries to identify early warning
signs of potential reputational or brand damage in order to both
mitigate and elevate it to the attention of the Board before
escalation. Dedicated internal and external marketing and
communications teams are in place that monitor risks, develop
response scenarios and respective action plans.
12. The Group faces the risk that its strategic initiatives do
not translate into long-term sustainable value for its
stakeholders
The Group's business strategy may not adapt to the environment
of ever changing customer needs.
Risk Description
The Group may face the risk of developing a business strategy
that does not safeguard long-term value creation in an environment
of changing customer needs, competitive environment and regulatory
restrictions. In addition, the Group may be exposed to the risk
that it will not be able to effectively deliver on its strategic
priorities and thereby compromise its capacity for long-term value
creation. With the emergence of COVID-19, the Group has
strengthened further its focus on the main strategic pillars:
customer centricity, digital capabilities, data analytics, agility
and international expansion. As such, given that the strategic
review has been a regular exercise in the past, these strategic
themes have not shifted significantly.
However, increased uncertainty together with the major economic
and social disruptions caused by the COVID-19 pandemic may hamper
the Group's ability to effectively develop and execute its
strategic initiatives in a timely manner.
Risk Mitigation
The Group conducts annual strategic review sessions involving
the Bank's top and middle management in order to ensure that it
remains on the right track and assess business performance across
different perspectives, concentrating analysis on key trends and
market practices, both in the regional and global markets. In
addition, the Bank continuously works with the world's leading
consultants in order to enhance its strategy. Further, the Group
conducts quarterly analysis and monitoring of metrics used to
measure strategy execution, and in case of any significant
deviations, it ensures the development of corrective or mitigation
actions.
13. The Group is exposed to risks related to its ability to
attract and retain highly qualified employees
A strong employee base is vital to the success of the Group.
Risk Description
The Group faces the risk of losing of key personnel or the
failure to attract, develop and retain skilled or qualified
employees. In particular, the strategic decision to transform into
a digital company entails increased demands on high calibre IT
professionals across the Group. In addition, in order to adapt to
the fast changing business environment, the Group needs to foster
an "Agile" culture and equip employees with the necessary skills.
In addition, the COVID-19 pandemic has created additional HR
challenges in relation to safeguarding employees' health and
wellbeing, maintaining high efficiency levels, strong internal
communication and a strong corporate culture.
Risk Mitigation
The Group pays significant attention to human capital management
strategies and policies, which include approaches to the
recruitment, retention and development of talent, and offers
competitive reward packages to its employees. The Group has also
developed and implemented an "Agile" framework that aims to
increase employee engagement and satisfaction. Moreover, the Bank
set up an IT and Risk academy to attract and train young
professionals. The best students are offered employment at the
Bank. In addition, the Bank has an in-house academy that provides
various courses for the employees in different fields.
In response to the COVID-19 pandemic, the Bank promptly moved
back-office employees to a remote working practice by equipping
them with all of the necessary IT infrastructure. To ensure the
maintenance of an effective internal communication system, we
enhanced different digital channels to engage with our employees.
Regular management meetings are conducted with staff in order to
keep them updated with the Group's strategic initiatives and
financial position as well as address their concerns during this
highly uncertain period. In order to further promote and enhance
our corporate culture, the Bank's internal Facebook group has
become more active by, for example, posting employee profiles and
sharing success stories. Additionally, the new remote working
policy adopted by the Bank gives the possibility to attract new
talent from beyond Georgia.
Emerging Risks
Emerging risks are those that have large unknown components and
may affect the performance of the Group over a longer time horizon.
We believe the following are risks that have the potential to
increase in significance over time and could have the same impact
on the Group as the principal risks.
1. The Group is exposed to the risks inherent in international
operations
Our subsidiary, TBC Bank in Uzbekistan, obtained a banking
license in April 2020 and launched its operations in Uzbekistan in
October 2020 to wider public. We have already invested US$ 22
million into the charter capital of the Bank and have secured
interest from our potential partners: EBRD, IFC and the Uzbek-Oman
Investment Company. Our plans foresee a minimum 51% shareholding.
This investment exposes the Group to Uzbekistan's macro-economic,
political and regulatory environments, including, but not limited
to, exposure to risks arising from credit, market, operational and
capital adequacy risks as well as risks related to the COVID-19
pandemic in Uzbekistan.
Currently, the Group's business activities are mainly
concentrated in Georgia, but international activities are expected
to contribute to around 10%-15% of the Group's net profit over the
medium to long-term.
Risk description
The risk posed by the operating environment in Uzbekistan may
change the Group's risk profile.
The Uzbekistani economy is well diversified with no major
reliance on a particular industry. It has one of the lowest public
debts as a percentage of GDP in the region and high international
reserves, implying macroeconomic stability as well as room for high
future growth. The government of Uzbekistan plans to reform the
economy and open it up to foreign investment. While the operational
environment in Uzbekistan can be assessed as attractive, there are
important risks that could materially affect the Group's
performance in the country. These risks include, but are not
limited to, political instability, the slow pace of reforms,
adverse developments in inflation and fluctuations in the exchange
rate.
Despite the impact of the COVID-19 pandemic, Uzbekistan's
economy grew by 1.6% in 2020. According to the latest World Bank's
forecasts[31] for 2021-2022, real GDP growth is expected to
accelerate to 4.8% and 5.5%, respectively.
Risk mitigation
The Group's strategy is to follow an asset-light, limited
capital investment approach with a strong focus on digital channels
and to invest in stages, to make sure that we are comfortable with
the results and the operating environment before committing
additional investment. The Group plans to serve retail and MSME
customers, which will in turn lead to a non-concentrated portfolio
and to lower credit risk. The Group will partner with international
financial institutions that intend to take a shareholding in the
Uzbek bank in order to ensure the funding of our business plan and
sufficient flexibility across our operations in Uzbekistan.
Overall, from the Group's perspective, international expansion
will result in the diversification of business lines and revenue
streams, balancing the overall risk profile of the Group.
2. The Group is exposed to the risks arising from climate
change
Risk description
The risks associated with climate change have both a physical
impact arising from more frequent and severe weather changes and a
transitional impact that may entail extensive policy, legal and
technological changes to reduce the ecological footprint of
households and businesses. For the Group, both of these risks can
materialize through the impairment of asset values and the
deteriorating creditworthiness of our customers, which could result
in a reduction of the Group's profitability. The Group may also
become exposed to reputational risks as a result of its lending to,
or other business operations with, customers deemed to be
contributing to climate change.
Risk mitigation
The Group's objective is to act responsibly and manage the
environmental and social risks associated with its operations in
order to minimize negative impacts on the environment. This
approach enables us to reduce our ecological footprint by using
resources efficiently and promoting environmentally friendly
measures in order to mitigate climate change.
The Group has in place an Environmental Policy, which governs
its Environmental Management System ("EMS") and ensures that the
Group's operations adhere to the applicable environmental, health
and safety and labour regulations and practices. We take all
reasonable steps to support our customers in fulfilling their
environmental and social responsibilities. The management of
environmental and social risks is embedded in the Group's lending
process through application of the EMS. The Group has developed
risk management procedures to identify, assess, manage and monitor
environmental and social risks. These procedures are fully
integrated in the Group's credit risk management process.
The full Environmental Policy is available at
www.tbcbankgroup.com . In June 2021, the Group released its
full-scale sustainability report for the year 2020 in reference to
the Global Reporting Initiative (GRI) standards. The Global
Reporting Initiative (GRI) helps the private sector to realise and
understand its role and influence on sustainable development issues
such as climate change, human rights and governance. The report is
designed for all interested parties and groups in Georgia as well
as abroad and aims to give them clear, fact-based information about
the social, economic and environmental impact of our activities in
2020. It presents our endeavours to create value for our employees,
clients, suppliers, partners and society as a whole. The
Sustainability Report 2020 is available at www.tbcbankgroup.com
.
We are in the process of introducing the Task Force for a
Climate-related Financial Disclosure (TCFD) framework.
Governance:
-- The ESG strategy will be further refined and developed in order to integrate the following: environmental, social and governance factors related to climate change; our direct and indirect environmental impact, sustainable development across the Group, customers, employees, suppliers and society, financial inclusion, employee relations and talent management; and workplace diversity and inclusion.
-- A framework to ensure regular reporting of ESG matters to the
Board and Risk Committee is in the process of development.
-- An ESG Committee has been established at the senior executive
level, which takes responsibility for implementing the ESG strategy
and overseeing the implementation of the TCFD framework.
-- A working group has been established with strong focus on climate related matters.
Strategy:
-- The Group is in process of analysing actual and potential
impacts of climate-related risks and opportunities on its business
activities.
-- By the end of 2021, TBC Bank is planning full implementation
of the Green Lending Framework within the Group, which will
encourage our customers to run their businesses in more
eco-friendly way. In the beginning of July 2021, TBC Bank received
accreditation from Green Climate Fund that will enable the Bank to
have direct access to GCF funding to finance projects for
adaptation to, and mitigation of, climate change and play a leading
role in supporting sustainable development in Georgia.
Risk Management
-- The Group is planning to undertake the specific risk analysis
TCFD framework, which will allow us to better understand the
climate risks and sector specific developments in order to further
enhance our E&S risk management system.
Metrics and targets:
-- The Group is working on defining climate related targets for
different time horizons and respective metrics within ESG
strategy;
ESG KPIs linked to top management remuneration will be
defined.
3. The Group's performance may be affected by Libor
discontinuation and transition
Risk description
There are a number of different types of financial instruments
on the Group's balance sheet, each of which carries interest rates
benchmarked to the London Interbank Offered Rate ("LIBOR"). LIBOR
is also used by the Group in its risk measurement, accounting and
valuation processes. In 2017, the FCA announced that it has agreed
with LIBOR panel banks to sustain LIBOR until the end of 2021 and
called upon financial sector participants to start working towards
the transition to other reference rates. As was disclosed in H1
2021, part indices will be discontinued by the end of 2021YE, while
other indices will be discontinued by the end of H1 2023. The
discontinuation of LIBOR and the process of transition exposes the
Group to execution, conduct, financial and operational risks, and
may result in earnings volatility, customer complaints and legal
proceedings, or have other adverse impact on the Group's business
and operations.
Risk mitigation
The Group is in the process of identifying the implications of
such a transition to other reference rates on its risk profile by
analysing its execution, conduct, financial and operational risks
and how such risks could be addressed. The Group is starting its
efforts to raise awareness of the transition, both internally and
externally, to ensure that staff have all the necessary knowledge
and tools to facilitate the transition and that all of the Group's
customers are treated fairly. As a first step in the transition
process, the Bank started including fall-back clauses in new loan
agreements, regulating the transition from LIBOR after its
discontinuation. We actively monitor international as well as local
transition-related developments to regulate and align the Group's
transition process with market practice.
Statement of Directors' Responsibilities
Each of the Directors (the names of whom are set out below)
confirm that to the best of their knowledge that:
-- The condensed consolidated interim financial statements have
been prepared in accordance with UK-adopted International
Accounting Standard 34, 'Interim Financial Reporting';
-- The interim management report herein includes a fair review
of the information required by Disclosure Guidance and Transparency
Rules sourcebook of the UK's Financial Conduct Authority (FCA),
4.2.7R and 4.2.8R namely:
o an indication of important events that have occurred during
the six months ended 30 June 2021 and their impact on the condensed
consolidated interim financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
o any related party transactions in the six months ended 30 June
2021 that have materially affected the financial position or
performance of TBC Bank during that period and any changes in the
related party transactions described in the last Annual Report that
could have a material effect on the financial position or
performance of TBC Bank in the six months ended 30 June 2021.
Signed on behalf of the Board by:
Vakhtang Butskhrikidze
CEO
17 August 2021
TBC Bank Group PLC Board of Directors:
Chairman
Arne Berggren
Executive Directors Non-executive Directors
Vakhtang Butskhrikidze Eran Klein
(CEO)
Maria Luisa Cicognani
Tsira Kemularia
Per Anders Fasth
Thymios P. Kyriakopoulos
Abhijit Akerkar
TBC BANK GROUP PLC
Condensed Consolidated Interim Financial
Statements (Unaudited)
30 June 2021
Contents
Independent Review Report 5 6
Unaudited Condensed Consolidated Interim Financial
Statements
Condensed Consolidated Interim Statement of Financial Position
58
Condensed Consolidated Interim Statement of Profit or Loss and
Other Comprehensive Income
59
Condensed Consolidated Interim Statement of Changes in Equity
61
Condensed Consolidated Interim Statement of Cash Flows
62
Notes to the Condensed Consolidated Interim Financial
Statements
1 Introduction
2 Significant Accounting Policies
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies
4 New or Revised Standards and Interpretations and Accounting Pronouncements
5 Cash and Cash Equivalents
6 Due from Other Banks
7 Mandatory Cash Balances with the National Bank of Georgia
8 Loans and Advances to Customers
9 Investment Securities Measured at Fair Value through Other Comprehensive Income
10 Premises, Equipment and Intangible Assets
11 Due to Credit Institutions
12 Customer Accounts
13 Provisions for Performance Guarantees, Credit Related Commitment Liabilities and Charges
14 Debt Securities in Issue
15 Subordinated Debt
16 Share Capital
17 Share Based Payments
18 Earnings per Share
19 Segment Analysis
20 Interest Income and Expense
21 Fee and Commission Income and Expense
22 Other Operating Income
23 Administrative and Other Operating Expenses
24 Income Taxes
25 Financial and Other Risk Management
26 Contingencies and Commitments
27 Fair Value Disclosures
28 Related Party Transactions
29 Events after Reporting Period 121
Independent review report to TBC Bank Group plc
Report on the unaudited Condensed Consolidated Interim Financial
Statements
Our conclusion
We have reviewed TBC Bank Group plc's unaudited condensed
consolidated interim financial statements (the "interim financial
statements") in the 2Q and 1H 2021 Financial Results of TBC Bank
Group plc for the 6 month period ended 30 June 2021 (the
"period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Consolidated Interim Statement of Financial Position as at 30 June 2021;
-- the Condensed Consolidated Interim Statement of Profit or
Loss and Other Comprehensive Income for the period then ended;
-- the Condensed Consolidated Interim Statement of Cash Flows for the period then ended;
-- the Condensed Consolidated Interim Statement of Changes in
Equity for the period then ended;
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the 2Q and 1H 2021
Financial Results of TBC Bank Group plc have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The 2Q and 1H 2021 Financial Results, including the interim
financial statements, is the responsibility of, and has been
approved by the directors. The directors are responsible for
preparing the 2Q and 1H 2021 Financial Results in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the 2Q and 1H 2021 Financial Results based
on our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the 2Q and 1H
2021 Financial Results and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
17 August 2021
Note 30 June 2021 31 December
2020
In thousands of GEL (Unaudited)
Assets
Cash and cash equivalents 5 1,414,414 1,635,405
Due from other banks 6 59,314 50,805
Mandatory cash balances with National
Bank of Georgia 7 2,117,157 2,098,506
Loans and advances to customers 8 14,796,968 14,594,274
Investment securities measured at fair
value through other comprehensive income 9 2,022,385 1,527,268
Bonds carried at amortised cost 10,069 1,089,801
Net investments in leases 245,261 271,660
Investment properties 33,407 68,689
Current income tax prepayment 14,966 69,888
Deferred income tax asset 6,747 2,787
Other financial assets 287,761 171,302
Other assets 311,218 266,960
Premises and equipment 10 371,909 372,956
Right of use assets 51,160 53,927
Intangible assets 10 284,555 239,523
Goodwill 59,964 59,964
Investments in associates 4,286 4,090
Total assets 22,091,541 22,577,805
Liabilities
Due to credit institutions 11 3,482,830 4,486,373
Customer accounts 12 12,870,418 12,572,728
Other financial liabilities 124,308 227,432
Current income tax liability 24 653 853
Deferred income tax liability 18,457 13,088
Debt securities in issue 14 1,445,614 1,496,497
Provisions for liabilities and charges 13 21,435 25,335
Other liabilities 101,265 87,842
Lease liabilities 53,755 58,983
Subordinated debt 15 635,981 672,740
Total liabilities 18,754,716 19,641,871
EQUITY
Share capital 16 1,682 1,682
Shares held by trust (25,489) (33,413)
Share premium 848,459 848,459
Retained earnings 2,680,951 2,281,428
Group reorganisation reserve (162,167) (162,167)
Share based payment reserve 17 (15,348) (20,568)
Fair value reserve 170 11,158
Cumulative currency translation reserve (5,199) (2,124)
Net assets attributable to owners 3,323,059 2,924,455
Non-controlling interest 13,766 11,479
Total equity 3,336,825 2,935,934
Total liabilities and equity 22,091,541 22,577,805
The condensed consolidated interim financial statements on pages
62 to 121 were approved by the Board of Directors on 17 August 2021
signed on its behalf by:
___________________________
Vakhtang Butskhrikidze
Chief Executive Officer
Six months ended
30 June 2021 30 June 2020
In thousands of GEL Note (Unaudited) (Unaudited/restated * )
Interest income 20 899,185 787,893
Interest expense 20 (444,436) (408,091)
Net interest gains on currency swaps 20 13,149 12,522
Net interest income 467,898 392,324
Fee and commission income 21 186,153 138,752
Fee and commission expense 21 (77,852) (55,683)
Net fee and commission income 108,301 83,069
Net insurance premiums earned 30,289 26,618
Net insurance claims incurred and agents' commissions (20,416) (16,337)
Insurance profit 9,873 10,281
Net gains from currency derivatives, foreign currency operations and
translation 60,184 47,759 *
Net gains/(losses) from disposal of investment securities measured at
fair value through other
comprehensive income 7,041 (1,202)
Other operating income 22 37,483 7,977
Share of profit of associates 596 90
Other operating non-interest income 105,304 54,624
Recovery of/(charges to) credit loss allowance for loan to customers 8 32,563 (249,216)
Credit loss allowance for investments in leases (2,515) (4,278)
Recovery of/(charges to) credit loss allowance for performance guarantees
and credit related
commitments 13 1,930 (797)
Credit loss allowance for other financial assets (5,326) (4,222)
Recovery of/(charges to) credit loss allowance for financial assets
measured at fair value
through other comprehensive income 1,842 (538)
Net impairment of non-financial assets (447) (625) *
Operating profit after expected credit and non-financial asset impairment
losses 719,423 280,622 *
Losses from modifications of financial instruments 8 (1,591) (34,170)
Staff costs (148,071) (114,006)
Depreciation and amortisation 10 (36,701) (32,215)
(Charges to)/recovery of provision for liabilities and charges (9) 77
Administrative and other operating expenses 23 (72,147) (55,391) *
Operating expenses (256,928) (201,535) *
Profit before income tax 460,904 44,917
Income tax (expense)/credit 24 (57,525) 24,283
Profit for the period 403,379 69,200
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve (10,985) 4,984
Exchange differences on translation to presentation currency (3,072) 1,165
Other comprehensive (expense)/income for the period (14,057) 6,149
Total comprehensive income for the PERIOD 389,322 75,349
*Certain amounts do not correspond to the 30 June 2020 condensed
consolidated interim financial statements as they reflect the
adjustments made due to the changes in classification, as described
in Note 2.
Six months ended
30 June 2021 30 June 2020
In thousands of GEL Note (Unaudited) (Unaudited/restated * )
Profit is attributable to:
- Shareholders of TBCG 399,168 67,625
- Non-controlling interest 4,211 1,575
Profit for the period 403,379 69,200
Total comprehensive income is attributable to:
- Shareholders of TBCG 385,120 73,793
- Non-controlling interest 4,202 1,556
Total comprehensive income for the period 389,322 75,349
Earnings per share for profit attributable to the owners of the Group:
- Basic earnings per share 18 7.33 1.24
- Diluted earnings per share 18 7.24 1.23
*Certain amounts do not correspond to the 30 June 2020 condensed
consolidated interim financial statements as they reflect the
adjustments made due to changes in classification, as described in
Note 2.
Note Share Shares Share Group Share Fair Cumulative Retained Total Non-control-ling Total
capital held by pre-mium reorganisation based value currency earnings interest equity
In thousands of trust reserve payments reserve translation
GEL reserve reserve
Balance as of 1
January 2020 1,682 (27,517) 848,459 (162,166) (17,803) (6,476) (6,850) 1,961,172 2,590,501 8,589 2,599,090
Profit for the
six months
ended 30 June
2020
(unaudited) - - - - - - - 67,625 67,625 1,575 69,200
Other
comprehensive
income for six
months ended 30
June 2020
(unaudited) - - - - - 4,984 1,184 - 6,168 (19) 6,149
Total
comprehensive
income for six
months ended 30
June 2020
(unaudited) - - - - - 4,984 1,184 67,625 73,793 1,556 75,349
Share based
payment expense 17 - - - - 6,063 - - - 6,063 (28) 6,035
Delivery of
shares to
employees under
SBP scheme - 18,559 - - (20,068) - - - (1,509) - (1,509)
Share buy-back - (25,493) - - - - - - (25,493) - (25,493)
Other movements - - - - - - (19) 748 729 (796) (67)
Balance as of 30
June 2020
(unaudited) 1,682 (34,451) 848,459 (162,166) (31,808) (1,492) (5,685) 2,029,545 2,644,084 9,321 2,653,405
Balance as of 31
December 2020 1,682 (33,413) 848,459 (162,167) (20,568) 11,158 (2,124) 2,281,428 2,924,455 11,479 2,935,934
Profit for the
six months
ended 30 June
2021
(unaudited) - - - - - - - 399,168 399,168 4,211 403,379
Effect of change
in business
model* - - - - - 26,062 - - 26,062 - 26,062
Other
comprehensive
income for six
months ended 30
June 2021
(unaudited) - - - - - (37,047) (3,063) - (40,110) (9) (40,119)
Total
comprehensive
income for six
months ended 30
June 2021
(unaudited) - - - - - (10,985) (3,063) 399,168 385,120 4,202 389,322
Share based
payment expense 17 - - - - 14,258 - - 238 14,496 (3) 14,493
Delivery of
shares to
employees under
SBP scheme - 7,924 - - (9,038) - - - (1,114) - (1,114)
Dividends paid
to
non-controlling
interest - (1,741) (1,741)
Other movements - - - - - (3) (12) 117 102 (171) (69)
Balance as of 30
June 2021
(unaudited) 1,682 (25,489) 848,459 (162,167) (15,348) 170 (5,199) 2,680,951 3,323,059 13,766 3,336,825
* Changes in business model in late 2020 resulted in
reclassification of bonds carried at amortised cost to investment
securities measured at fair value through other comprehensive
income, which takes effect from 1 January 2021.
Six months ended
In thousands of GEL Note 30 June 21 (Unaudited) 30 June 20 (Unaudited/restated*)
Cash flows from/(used in) operating activities
Interest received 906,444 579,414
Interest received on currency swaps 13,149 12,522
Interest paid (452,751) (404,923)
Fees and commissions received 170,658 131,347
Fees and commissions paid (78,793) (56,054)
Insurance and reinsurance received 43,358 43,373
Insurance claims paid (16,239) (13,458)
Income received from trading in foreign currencies 32,659 49,406
Other operating income received 28,880 2,860
Staff costs paid (134,594) (120,706)
Administrative and other operating expenses paid (79,430) (61,860)
Income tax paid (4,446) (11,983)
Cash flows from operating activities before changes in
operating assets and liabilities 428,895 149,938
Net change in operating assets
Due from other banks and mandatory cash balances with
the National Bank of Georgia 23,326 (183,202)
Loans and advances to customers (711,980) (357,130)
Net investments in lease 24,158 11,008
Other financial assets (38,835) ( 8,483 ) *
Other assets 14,151 10,847
Net change in operating liabilities
Due to credit institution 11,940 85,357
Customer accounts 667,190 (88,078)
Other financial liabilities (137,291) 11,915
Other liabilities and provision for liabilities and
charges 16,659 3,838
Net cash from/(used in) operating activities 298,213 (363,990) *
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair
value through other comprehensive income (196,871) (251,486)
Proceeds from redemption at maturity/disposal of
investment securities measured at fair value
through other comprehensive income 757,583 180,702
Acquisition of bonds carried at amortised cost - (495,945)
Proceeds from redemption of bonds carried at amortised
cost 19,633 171,137
Acquisition of premises, equipment and i ntangible
assets 10 (91,993) (74,550)
Proceeds from disposal of premises, equipment and i
ntangible assets 10 6,334 24,172
Proceeds from disposal of investment property 20,210 3,128
Acquisition of subsidiaries and associates - 936
Net cash from/(used in) investing activities 514,896 (441,906)
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds 1,757,879 1,615,016
Redemption of other borrowed funds (2,736,476) (966,746)
Acquisition of treasury shares - (25,493) *
Repayment of principal of lease liabilities (5,591) (5,420)
Redemption of subordinated debt (12,562) -
Proceeds from debt securities in issue 14 - 171,531
Redemption of debt securities in issue 14 - (12,569)
Dividends paid (1,741) -
Net cash flows (used in)/from financing activities (998,491) 776,319 *
Effect of exchange rate changes on cash and cash
equivalents (35,609) 7,797
Net decrease in cash and cash equivalents (220,991) (21,780)
Cash and cash equivalents at the beginning of the
period 5 1,635,405 1,003,583
Cash and cash equivalents at the end of the period 5 1,414,414 981,803
*Certain amounts do not correspond to the 30 June 2020 condensed
consolidated interim financial statements as they reflect the
adjustments made due to changes in classification, as described in
Note 2.
1 Introduction
Principal activity . TBC Bank Group PLC ("TBCG" or "Group") is a
public limited company, incorporated in England and Wales. TBCG
held 99.88% of the share capital of JSC TBC Bank (hereafter the
"Bank") as at 30 June 2021 (31 December 2020: 99.88%), thus
representing the Bank's ultimate parent company. The Bank is a
parent of a group of companies incorporated in Georgia, Azerbaijan
and Uzbekistan and its primary business activities include
providing banking, leasing, brokerage and card processing services
to corporate and individual customers. The Group's list of
subsidiaries is provided below.
The shares of TBCG ("TBCG Shares") were admitted to the Premium
Listing segment of the Official List of the UK Listing Authority
and admitted to trading on the London Stock Exchange PLC's main
market for listed securities effective on 10 August 2016 (the
"Admission", Note 1 6 ). TBC Bank Group PLC's registered legal
address is Elder House St Georges Business Park, 207 Brooklands
Road, Weybridge, Surrey, KT13 0TS. Registered number of TBC Bank
Group PLC is 10029943. The Bank is the Group's main operating unit
and it accounts for most of the Group's activities.
JSC TBC Bank was incorporated on 17 December 1992 and is
domiciled in Georgia. The Bank is a joint stock company limited by
shares and was arranged in accordance with Georgian regulations.
The Bank's registered address and place of business is 7
Marjanishvili Street, 0102 Tbilisi, Georgia.
The Bank's principal business activity is universal banking
operations that include corporate, small and medium enterprises,
retail and micro operations within Georgia. The Bank has been
operating since 20 January 1993 under a general banking license
issued by the National Bank of the Georgia ("NBG"). In 2018, the
Bank launched fully digital bank, Space.
The Group had 151 branches and 8,937 employees mainly within
Georgia as at 30 June 2021 (The Group had 156 branches and 7,854
employees mainly within Georgia as at 30 June 2020).
As at 30 June 2021 and 31 December 2020, the following
shareholders directly owned more than 3% of the total outstanding
shares of the Group. Other shareholders individually owned less
than 3% of the outstanding shares. As at 30 June 2021 and 31
December 2020, the Group had no ultimate controlling party. Other
includes individual as well as corporate shareholders.
Shareholders 30 June 2021 31 December
ownership 2020 ownership
interest interest
European Bank for Reconstruction and Development 5.05% 5.05%
Dunross & Co. 7.42% 7.42%
Schroder Investment Management 3.27% 3.12%
JPMorgan Asset Management 3.45% 4.56%
Creation Investments Capital Management 3.22% 3.22%
Allan Gray Investment Management 5.33% 4.26%
Founders* 14.61% 14.64%
Other** 57.65% 57.73%
Total 100.00% 100.00%
* Includes effective ownership of Mamuka Khazaradze and Badri
Japaridze.
** Other includes individual as well as corporate
shareholders.
1 Introduction (Continued)
The condensed consolidated interim financial statements
("financial statements") include the following principal
subsidiaries:
Proportion of voting rights and
ordinary share capital
Principal place Year of Industry
of business or incorpo-ration
Subsidiary Name 30 June 2021 31 December 2020 incorporation
JSC TBC Bank 99.88% 99.88% Tbilisi, Georgia 1992 Banking
United Financial
Corporation JSC 99.53% 99.53% Tbilisi, Georgia 2001 Card processing
TBC Capital LLC 100.00% 100.00% Tbilisi, Georgia 1999 Brokerage
TBC Leasing JSC 100.00% 100.00% Tbilisi, Georgia 2003 Leasing
Non-banking credit
TBC Credit LLC 100.00% 100.00% Baku, Azerbaijan 1999 institution
TBC Pay LLC 100.00% 100.00% Tbilisi, Georgia 2008 Processing
TBC Invest LLC 100.00% 100.00% Ramat Gan,Israel 2011 PR and marketing
Real estate
Index LLC 100.00% 100.00% Tbilisi, Georgia 2009 management
JSC TBC Insurance 100.00% 100.00% Tbilisi, Georgia 2014 Insurance
Redmed LLC 100.00% 100.00% Tbilisi, Georgia 2019 Insurance
TBC Ecosystem
companies LLC[32] 100.00% 100.00% Tbilisi, Georgia 2019 Asset management
Swoop JSC 100.00% 100.00% Tbilisi, Georgia 2010 Retail trade
Computer and
Online Tickets LLC 55.00% 55.00% Tbilisi, Georgia 2015 software services
Tashkent,
TKT UZ 75.00% 75.00% Uzbekistan 2019 Retail trade
My.Ge LLC 65.00% 65.00% Tbilisi, Georgia 2008 E-Commerce
Mypost LLC 100.00% 100.00% Tbilisi, Georgia 2019 Postal service
Billing Solutions
LLC 51.00% 51.00% Tbilisi, Georgia 2019 Software services
Vendoo LLC (Geo) 100.00% 100.00% Tbilisi, Georgia 2018 Retail leasing
Real estate
Allproperty.ge LLC 90.00% 90.00% Tbilisi, Georgia 2013 management
F Solutions LLC 100.00% 100.00% Tbilisi, Georgia 2016 Software services
TBC Connect 100.00% 100.00% Tbilisi, Georgia 2020 Software services
Tashkent,
Inspired LLC 51.00% 51.00% Uzbekistan 2011 Processing
VOO LLC (UZ Tashkent,
Leasing) 100.00% 100.00% Uzbekistan 2019 Retail leasing
TBC Concept LLC 100.00% 100.00% Tbilisi, Georgia 2020 Food and beverage
Tashkent,
TBC Bank UZ 100.00% 100.00% Uzbekistan 2020 Banking
TBC Group Support
LLC 100.00% 100.00% Tbilisi, Georgia 2020 Risk monitoring
SABA LLC 85.00% N/A Tbilisi, Georgia 2012 Education
Artarea.ge LLC 100.00% N/A Tbilisi, Georgia 2012 PR and marketing
TBC Art Gallery LLC 100.00% N/A Tbilisi, Georgia 2012 PR and marketing
Space International 100.00% N/A Tbilisi, Georgia 2021 S oftware services
JSC
The country of registration or incorporation is also the
principal area of operation of each of the above subsidiaries.
The Group has investments in the following associates :
Associate name 30 June 31 December Principal Year of Principal
2021 2020 place of business incorporation activities
or incorporation
Credit Info Georgia Financial
JSC 21.08% 21.08% Tbilisi, Georgia 2005 intermediary
Tbilisi Stock Exchange Finance,
JSC 28.87% 28.87% Tbilisi, Georgia 2015 Service
Georgian Central Securities Finance,
Depository JSC 22.87% 22.87% Tbilisi, Georgia 1999 Service
Georgian Stock Exchange Finance,
JSC 17.33% 17.33% Tbilisi, Georgia 1999 Service
Finance,
Kavkasreestri JSC 10.03% 10.03% Tbilisi, Georgia 1998 Service
1 Introduction (Continued)
The Group's corporate structure consists of related undertakings
not accounted for due to immateriality. A full list of these
undertakings, the country of incorporation is set out in appendix A
below.
Proportion of voting rights and
ordinary share capital
30 June 31 December 2020 Principal place of Year of Industry
2021 business or incorpo-ration
Company Name incorporation
TBC Invest
International Ltd 100.00% 100.00% Tbilisi, Georgia 2016 Investment Vehicle
University
Development Fund 33.33% 33.33% Tbilisi, Georgia 2007 Education
Natural Products of
Georgia LLC 25.00% 25.00% Tbilisi, Georgia 2001 Trade, Service
Data Monitoring
Mobi Plus JSC 14.81% 14.81% Tbilisi, Georgia 2007 and Processing
JSC Givi
Zaldastanishvili
American Academy
in Georgia 14.48% 14.48% Tbilisi, Georgia 2001 Education
Banking and Finance
Academy of Georgia 16.67% 16.67% Tbilisi, Georgia 1998 Education
Tbilisi City JSC 1.80% 1.80% Tbilisi, Georgia 1996 Education
TBC Trade 100.00% 100.00% Tbilisi, Georgia 2008 Trade, Service
Mineral Oil
Distribution Data Monitoring
Corporation JSC 9.90% 9.90% Tbilisi, Georgia 2009 and Processing
TBC Capital Asset
Management LLC 100.00% N/A Tbilisi, Georgia 2021 Asset Management
Freeshop.ge LLC 100.00% 100.00% Tbilisi, Georgia 2010 Retail Trade
The.ge LLC 100.00% 100.00% Tbilisi, Georgia 2012 Retail Trade
Operating environment of the Group . Georgia, where Group's most
activities are located, displays certain characteristics of an
emerging market. The legal, tax and regulatory frameworks continue
to develop and are subject to frequent changes and varying
interpretations (Note 26). Starting from Q2 2021, the Georgian
economy is rebounding faster than expected after contracting
sharply in 2020. However, Georgia continues to face downside risks
to economic growth due to prolongation of the pandemic, internal
and external political tensions as well as undesirable side effects
of the Fed's sooner-than-expected rate hike.
After declining in early 2021, daily new COVID-19 cases
accelerated alongside the emergence of new variants and increased
population mobility. Georgia, among other region countries, faces
vaccination process challenges, lagging behind the world average.
Thus, the probability of reintroduction of restrictive measures is
considerable. These measures, among other things, could severely
restrict economic activity in Georgia, negatively impacting
business environment and clients of the Group, however, likely only
temporarily.
Management is taking necessary measures to ensure sustainability
of the Group's operations and support its customers and employees.
Furthermore, in response of the deteriorated economic situation,
the Management took additional measures to identify inefficient
processes and through optimising them further support the financial
condition of the Group.
The future effects of the current economic situation and the
above measures are difficult to predict and management's current
expectations and estimates could differ from actual results.
For the purpose of measurement of expected credit losses ("ECL")
the Group uses supportable forward-looking information, including
forecasts of macroeconomic variables. As with any economic
forecast, however, the projections and likelihoods of their
occurrence are subject to a high degree of inherent uncertainty and
therefore the actual outcomes may be significantly different from
those projected. Note 25 provides more information of how the Group
incorporated forward-looking information in the ECL models.
Climate Impact
Although, global market conditions have affected market
confidence and consumer spending patterns, the Group remains well
placed to continue displaying strong financial results through
investing in local and Uzbekistan markets. The Group has reviewed
its exposure to climate-related and other emerging business risks ,
but has not identified any risks , that could significantly impact
the financial performance or position of the Group as at 30 June
2021.
2 Significant Accounting Policies
2.1 Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being
subject to endorsement by the UK Endorsement Board. TBC Bank Group
PLC and its subsidiaries (together referred to as the "Group")
transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 January 2021. This
change constitutes a change in accounting framework. However, there
is no impact on recognition, measurement or disclosure in the
period reported as a result of the change in framework.
These condensed consolidated interim financial statements for
six months ended 30 June 2021 for the Group has been prepared in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the Financial Conduct Authority (FCA), and in
accordance with UK-adopted International Accounting Standard (IAS)
34 'Interim Financial Reporting'. These condensed consolidated
interim financial statements do not include all the notes, normally
included in annual consolidated financial statements. Accordingly,
this report is to be read in conjunction with the annual
consolidated financial statements for the year ended 31 December
2020, which were prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards
(IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union.
These condensed consolidated interim financial statements have
been reviewed, not audited. Auditor's review conclusion is included
in this report.
Going Concern. T he Board of Directors of TBC Bank Group PLC
have prepared these interim financial statements on a going concern
basis. In making this judgement, management considered the Group's
financial position, current intentions, profitability of operations
and access to financial resources. Management is not aware of any
material uncertainties that may cast significant doubt upon the
Group's ability to continue as a going concern. In reaching this
assessment, the directors have specifically considered the
implications of the COVID-19 pandemic upon the Group's performance
and projected funding and capital position and also taken into
account the impact of further stress scenarios. On this basis, the
directors are satisfied that the Group will maintain adequate
levels of funding and capital and comply with the loan covenant
requirements for the foreseeable future .
Presentation currency. These condensed consolidated interim
financial statements are presented in thousands of Georgian Lari
("GEL thousands"), except per-share amounts and unless otherwise
indicated.
Condensed consolidated interim financial statements.
Subsidiaries are those investees, including structured entities,
that the Group controls because it (i) has power to direct relevant
activities of the investees that significantly affect their
returns, (ii) has exposure, or rights, to variable returns from its
involvement with the investees, and (iii) has the ability to use
its power over the investees to affect the amount of investor's
returns. The existence and effect of substantive rights, including
substantive potential voting rights, are considered when assessing
whether the Group has power over another entity. For a right to be
substantive, the holder must have practical ability to exercise
that right when decisions about the direction of the relevant
activities of the investee need to be made. The Group may have
power over an investee even when it holds less than the majority of
voting power in it. In such a case, the Group assesses the size of
its voting rights relative to the size and dispersion of holdings
of the other vote holders to determine if it has de-facto power
over the investee. Protective rights of other investors, such as
those that relate to fundamental changes of investee's activities
or apply only in exceptional circumstances, do not prevent the
Group from controlling an investee. Subsidiaries are consolidated
from the date on which control is transferred to the Group, and are
deconsolidated from the date on which control ceases.
Accounting policies and relevant changes within. Except as
described below, the same accounting policies and methods of
computation were followed in the preparation of this condensed
consolidated interim financial statements as compared with the
annual consolidated financial statements of the Group for the year
ended 31 December 2020.
Interim period tax measurement . Interim period income tax
expense is accrued using the effective tax rate that would be
applicable to expected total annual earnings, that is, the
estimated weighted average annual effective income tax rate applied
to the pre-tax income of the interim period.
2 Significant Accounting Policies (Continued)
Changes in presentation of the net gains from currency
derivatives, foreign currency operations and translation
To further foster clarity of the condensed consolidated interim
financial statement of profit or loss and other comprehensive
income, the Group has re-considered the presentation of the net
gains from currency derivatives, foreign currency operations and
translation. As a result of reclassification, management has
combined "Net gains/(losses) from trading in foreign currencies",
"Net gains/(losses) from foreign exchange translation" and "Net
gains/(losses) from derivative financial instruments", under one
financial statement line item "Net gains from currency derivatives,
foreign currency operations and translation". Management believes,
that such presentation will allow the Group to present the results
of foreign currency operations clearly and allow the users to
understand the effectiveness of the Group's foreign currency
management. June 2020 presentation is in accordance with 2020
year-end report updated policies. The presentation of comparative
figures has been adjusted to confirm to the presentation of the
current period amounts (detailed breakdown below represents before
changes figures, while total represents current presentation):
in thousands of GEL 30 June 2021 30 June 2020
Net gains/(losses) from trading in foreign currencies 32,650 49,406
Net gains/(losses) from foreign exchange translation 27,230 (1,627)
Net gains/(losses) from derivative financial instruments 304 (20)
Total net gains from currency derivatives, foreign currency operations and translation 60,184 47,759
Changes in presentation of the cash flows from operating and
financing activities
To further foster clarity and comparability of the condensed
consolidated interim statements of cash flow, the Group made
following changes: for condensed consolidated interim statements of
cash flow, it has re-considered the presentation of acquisition of
treasury shares from change in other financial assets (operating
activity) and transferred it to "acquisition of treasury shares"
(financing activity). For separate statement of cash flows, it has
re-considered the presentation of acquisition of treasury shares
from Income received from recharge agreement (investing activities)
and transferred it to "acquisition of treasury shares" (financing
activity).
Management believes, that reclassifications will enable the
Group to enhance the presentation of the condensed consolidated
interim statements of cash flow from operating, investing and
financing activities. June 2020 presentation is in accordance with
2020 year-end report updated policies. The presentation of
comparative figures for condensed consolidated interim statements
of cash flow has been adjusted per 2020 annual report presentation
changes reported:
Effect on consolidated statement of cash flows
in thousands of GEL As originally presented Reclassification As restated at
30 June 2020
Cash flows from operating activities: change
in other financial assets (33,976) 25,493 (8,483)
Cash flows used in financing activities:
acquisition of treasury shares - (25,493) (25,493)
Changes in presentation of the impairment of non-financial
assets
During 2021, the Group reclassified impairment/recovery of
non-financial assets from "Administrative and other operating
expenses" to "Impairment of other non-financial assets".
Significant part of any impairment/recoveries recorded are related
to repossessed assets and investment properties. Management
believes , that those type of assets are not actively used in daily
operations, but are primarily targeted for sale in future.
Considering nature of those expenses/recovery such presentation is
more appropriate and would increase understandibility and clarity
of the Group's financial statements. The presentation of
comparative figures has been adjusted to confirm to the
presentation of the current period amounts:
in thousands of GEL As originally presented Reclassification As restated at
at 30 June 2020 30 June 2020
Impairment of other non-financial assets - (625) (625)
Administrative and other operating expenses (56,016) 625 (55,391)
2 Significant Accounting Policies (Continued)
Business model change
The Bank historically used Ministry of Finance (MoF) securities
to invest the excess monetary resources and receive interest
charges in return of the investment. In majority of the cases the
securities were held till their maturity and the Bank has not been
engaged in trading activities for profit making purposes. As a
result, according to their business model such securities were
classified under hold to collect category and were recorded as
"Bonds carried at amortised cost" in the consolidated and separate
statements of financial position.
From the end of 2020 Ministry of Finance has launched a new
primary dealer platform to increase liquidity of the securities,
further encourage the trading of Government notes and develop
Georgian securities market. Third party dealers were established
for trading between the Ministry of Finance and investors. The
platform should expand investor data base and enhance liquidity of
secondary market. TBC Bank will have a primary dealer status in the
platform, that enable to act as an intermediary between investors
and the Ministry of Finance by executing an order on behalf of
investors.
As far as, secondary market became more active from the end of
2020, the Bank plans to stay alert on beneficial market
opportunities and start selling Ministry of Finance securities in
rare cases, if the action will not impact the liquidity position of
the Bank and generate strong profit compared to collecting
principal and interest till their maturity. As a result, treasury
securities management practices for holding majority of Ministry of
Finance securities till their maturity has changed and will depend
on the market and liquidity condition of the Bank.
Respective change in Management's processes caused changes in
existing business model from hold to collect to hold to collect and
sell. Accordingly MOF securities has been re-classified from "Bonds
carried at amortised cost" to "Investment securities measured at
fair value through other comprehensive income" in the consolidated
and separate statements of financial position, with respective
effects also accounted in the statement of profit or loss and other
comprehensive income. According to IFRS 9 requirement the change
has been accounted for prospectively from the reclassification
date. The reclassification date represents the first day of the
first reporting period following the change in business model, that
results in an entity reclassifying financial assets, which is 1
January 2021. Management believes that such presentation is more
appropriate for the nature of the transactions.
Based on business model assessment performed, Management
considers respective securities should be carried at fair value
through other comprehensive income (FVTOCI). Internally performed
test of solely payment of principal and interest ('SPPI') has
shown, that those securities are held for collection of contractual
cash flows and for selling, where those cash flows represent SPPI,
and they are not designated at fair value through profit and loss
(FVTPL).
Effects on respective periods are disclosed below:
in thousands of GEL Balance as at Change in business Balance as at
31 December model 1 January 2021
2020
Fair value reserve 11,158 26,062 37,220
Bonds carried at amortised
cost 1,089,801 (1,059,946) 29,855
Investment securities
measured at fair value
through other comprehensive
income 1,527,268 1,086,008 2,613,276
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated
and are based on the management's experience and other factors,
including expectations of future events, that are believed to be
reasonable under the circumstances. The management also makes
certain judgements, apart from those involving estimations, in the
process of applying the accounting policies. Judgements that have
the most significant effect on the amounts recognised in the
consolidated financial statements and estimates that can cause a
significant adjustment to the carrying amount of assets and
liabilities within the next financial year include:
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued)
ECL measurement. Measurement of ECLs is a significant estimate
that involves forecasting future economic conditions, longer the
term of forecasts more management judgment is applied and those
judgements may be the source of uncertainty. Details of ECL
measurement methodology are disclosed in Note 25. The following
components have a major impact on credit loss allowance: definition
of default, definition of significant increase in credit risk
(SICR), probability of default ("PD"), exposure at default ("EAD"),
and loss given default ("LGD"), as well as models of macro-economic
scenarios. The Group regularly reviews and validates the models and
inputs to the models to reduce any differences between expected
credit loss estimates and actual credit loss experience.
Significant increase in credit risk ("SICR"). The Bank applies
both qualitative and quantitative indicators to determination of
SICR considering all reasonable and supportable information
available without undue cost and effort, on past events, current
conditions and future behavioural aspects of particular portfolios.
The Bank tries to identify indicators of increase in credit risk of
individual instruments prior to delinquency and incorporates
significant assumptions in the model in doing so. One of such
judgement is determination of thresholds of significant increase in
credit risk. The effects of respective sensitivity are described
below :
In thousands of GEL 30 June 2021 31 December 2020
20% decrease in SICR Increase credit loss
thresholds allowance on loans Increase credit loss
and advances by GEL allowance on loans and
1,734. advances by GEL 2,543.
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 2 basis points. ratio by 2 basis points.
10% increase in Stage Increase credit loss
2 exposures allowance on loans Increase credit loss
and advances by GEL allowance on loans and
2,220. advances by GEL 3,311.
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 3 basis points. ratio by 2 basis points.
Risk parameters: Probability of default (PD) and Loss given
default (LGD) parameters are one of the key drivers of expected
credit losses. The effects of respective sensitivity are described
below:
In thousands of GEL 30 June 2021 31 December 2020
10% increase (decrease) Increase (decrease)
in PD estimates credit loss allowance Increase (decrease)
on loans and advances credit loss allowance
by GEL 19,928 (GEL on loans and advances
20,308). by GEL 24,901 (GEL 26,013).
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 26 (27) basis ratio by 18 (19) basis
points. points.
10% increase (decrease) Increase (decrease) Increase (decrease)
in LGD estimates credit loss allowance credit loss allowance
on loans and advances on loans and advances
by GEL 41,674 (GEL by GEL 50,719 (GEL 53,813).
44,199).
Change of the Bank's Change of the Bank's
cost of credit risk cost of credit risk
ratio by 55 (58) basis ratio by 37 (39) basis
points. points.
Macroeconomic scenarios: The Bank incorporates forward-looking
information with three macro-economic scenarios to calculate
unbiased and probability weighted ECL. They represent the Baseline
scenario (most likely outcome) and two less likely scenarios,
referred as the Upside (better than Baseline) and Downside (worse
than Baseline).
In 2020, due to severity of the COVID-19 pandemic impact, the
scenario probabilities were adjusted to reflect the management's
expectations regarding their future realisation. The baseline,
upside and downside scenarios were assigned probability weighing of
60%, 10% and 30%, respectively. Taking into account the
prolongation of the pandemic, the weights remained unchanged.
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued)
The following table describes the key macroeconomic variables
under each scenario for future 3-year period as at 30 June 2021.
Macro assumptions are in line with the range of expected forecasted
levels available from Group's macro team as well as external
parties as of June 2021.
Baseline Upside Downside
Growth rates 2021 2022 2023 2021 2022 2023 2021 2022 2023
YoY, %
GDP 6.5% 6.5% 5.0% 7.0% 7.4% 6.1% 5.2% 4.4% 2.3%
USD/GEL rate
(EOP) 3.25 3.20 3.05 3.03 2.86 2.70 3.46 3.44 3.34
EUR/GEL rate
(EOP) 3.90 3.74 3.66 3.55 3.26 3.02 4.26 4.30 4.28
RE Price (in
USD) 2.5% 1.5% 2.3% 4.0% 3.7% 5.1% 0.3% -1.8% -1.9%
Employment 2.6% 1.0% 1.0% 2.9% 1.3% 1.3% 2.3% 0.7% 0.6%
The Bank assessed the impact of changes in GDP growth and
unemployment variables on ECL. These two macroeconomic variables
were identified as most critical economic factors in ECL
assessment. The sensitivity analysis was performed separately for
each of the variable to show their significant in ECL assessment,
but changes in those variables may not happen in isolation as
various economic factors tend to be correlated across the
scenarios. The variables were adjusted in all three macroeconomic
scenarios. From the assessment of forward looking scenarios
management is comfortable with the scenarios capturing the
non-linearity of the losses.
The table below shows the impact of +/-20% change in GDP growth
and unemployment variables across all scenarios on the Bank's ECL
:
Change in GDP growth Change in unemployment
in thousands of GEL 20% increase 20% decrease 20% increase 20% decrease
Impact on ECL (4,150) 4,617 3,044 (2,790)
4 New or Revised Standards and Interpretations and Accounting Pronouncements
The following amended standards became effective from 1 January
2021:
Covid-19-Related Rent Concessions - Amendments to IFRS 16
(issued on 31 March 2021 and effective for annual periods beginning
on or after 1 April 2021).
In May 2020 an amendment to IFRS 16 was issued that provided an
optional practical expedient for lessees from assessing whether a
rent concession related to COVID-19, resulting in a reduction in
lease payments due on or before 30 June 2021, was a lease
modification. An amendment issued on 31 March 2021 extended the
date of the practical expedient from 30 June 2021 to 30 June
2022.
Management believes, that the amendment did not have any
material impact on the Group.
Interest rate benchmark (IBOR) reform - phase 2 amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (issued on 27 August
2020 and effective for annual periods beginning on or after 1
January 2021).
The Phase 2 amendments address issues that arise from the
implementation of the reforms, including the replacement of one
benchmark with an alternative one. The amendments cover the
following areas:
-- Accounting for changes in the basis for determining
contractual cash flows as a result of IBOR reform: For instruments
to which the amortised cost measurement applies, the amendments
require entities, as a practical expedient, to account for a change
in the basis for determining the contractual cash flows as a result
of IBOR reform by updating the effective interest rate using the
guidance in paragraph B5.4.5 of IFRS 9. As a result, no immediate
gain or loss is recognised. This practical expedient applies only
to such a change and only to the extent it is necessary as a direct
consequence of IBOR reform, and the new basis is economically
equivalent to the previous basis. Insurers applying the temporary
exemption from IFRS 9 are also required to apply the same practical
expedient. IFRS 16 was also
4 New or Revised Standards and Interpretations and Accounting Pronouncements (Continued)
amended to require lessees to use a similar practical expedient
when accounting for lease modifications that change the basis for
determining future lease payments as a result of IBOR reform.
-- End date for Phase 1 relief for non contractually specified
risk components in hedging relationships: The Phase 2 amendments
require an entity to prospectively cease to apply the Phase 1
reliefs to a non-contractually specified risk component at the
earlier of when changes are made to the non-contractually specified
risk component, or when the hedging relationship is discontinued.
No end date was provided in the Phase 1 amendments for risk
components.
-- Additional temporary exceptions from applying specific hedge
accounting requirements: The Phase 2 amendments provide some
additional temporary reliefs from applying specific IAS 39 and IFRS
9 hedge accounting requirements to hedging relationships directly
affected by IBOR reform.
-- Additional IFRS 7 disclosures related to IBOR reform: The
amendments require disclosure of: (i) how the entity is managing
the transition to alternative benchmark rates, its progress and the
risks arising from the transition; (ii) quantitative information
about derivatives and non-derivatives that have yet to transition,
disaggregated by significant interest rate benchmark; and (iii) a
description of any changes to the risk management strategy as a
result of IBOR reform.
Libor is the most frequently used floating rate within the
Group, as a result, below analysis is primarily concentrated on
Libor change.
Libor change
On 5 March 2021, the IBA confirmed its intention to cease the
publication of GBP, CHF, EUR, and JPY LIBOR (all tenors) and USD
LIBOR (one week and two-month tenors) at the end of 2021. The
remaining USD LIBOR tenors will be published by IBA until the end
of June 2023.
Under these amendments, practical expedient exists for the
changes to the basis for determining the contractual cash flows are
reflected by adjusting the effective interest rate. No immediate
gain or loss is recognised. These revisions of effective interest
rate are only applicable when the change is necessary as a direct
consequence of interest rate benchmark reform, and the new basis
for determining the contractual cash flows is economically
equivalent to the previous basis.
The Group has implemented a robust plan, that sets out the
actions we will take in case LIBOR tenors ceases to exist or
materially changes. According to this plan, the Group is taking the
following steps:
(a) An impact assessment in relation to that affected benchmark
will be performed;
(b) If it has not been feasible and appropriate to nominate an
alternative benchmark, a proposal of actions to be taken in
relation to the affected benchmark may be prepared. The proposal
will take into account the impact assessment and shall consider,
for example, the replacement of that benchmark with an alternative
benchmark, seeking approval or notifying a regulatory body (where
relevant), an amendment to contractual documentation, and
notification to stakeholders;
(c) Once the proposal has been approved, internal stakeholders
will work together to implement the proposal. For example, clients
may be notified or their consent may be sought to change the
benchmark, and contractual documentation may be amended.
In coordination with the regulator, international financial
institutions, and other stakeholders, the Group is working on the
transition process to avoid risking any disorderly cessation
events. The Group also enhances its IT systems and internal
processes to ensure a smooth transition from LIBOR to alternative
benchmark interest rates.
Once alternative benchmark rates are agreed with the
international financial institutions for the Group's borrowings,
the Management will then assess and match the lending side to
manage potential liquidity risks and any arbitrage differences
between LIBOR and alternative rates.
New Accounting Pronouncements
The IASB has published a number of amendments some of which has
not yet been endorsed for use in the EU. The Group has not early
adopted any of the amendments effective after 30 June 2021 and it
expects they will have an insignificant effect, when adopted, on
the condensed consolidated interim financial statements of the
Group.
4 New or Revised Standards and Interpretations and Accounting Pronouncements (Continued)
IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and
effective for annual periods beginning on or after 1 January
2023).
IFRS 17 replaces IFRS 4, which has given companies dispensation
to carry on accounting for insurance contracts using existing
practices. As a consequence, it was difficult for investors to
compare and contrast the financial performance of otherwise similar
insurance companies. IFRS 17 is a single principle-based standard
to account for all types of insurance contracts, including
reinsurance contracts that an insurer holds.
The standard requires recognition and measurement of groups of
insurance contracts at: a risk-adjusted present value of the future
cash flows (the fulfilment cash flows) that incorporates all of the
available information about the fulfilment cash flows in a way that
is consistent with observable market information; plus (if this
value is a liability) or minus (if this value is an asset) (ii) an
amount representing the unearned profit in the group of contracts
(the contractual service margin). Insurers will be recognising the
profit from a group of insurance contracts over the period they
provide insurance coverage, and as they are released from risk. If
a group of contracts is or becomes loss-making, an entity will be
recognising the loss immediately. The Group expects to apply the
standard to performance guarantees that it issues and is currently
assessing the impact of the new standard on its financial
statements. Potential impact on insurance products embedded in
loans and similar instruments is also under consideration .
Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of
Accounting policies (issued on 12 February 2021 and effective for
annual periods beginning on or after 1 January 2023).
IAS 1 was amended to require companies to disclose their
material accounting policy information rather than their
significant accounting policies. The amendment provided the
definition of material accounting policy information. The amendment
also clarified that accounting policy information is expected to be
material if, without it, the users of the financial statements
would be unable to understand other material information in the
financial statements. The amendment provided illustrative examples
of accounting policy information that is likely to be considered
material to the entity's financial statements. Further, the
amendment to IAS 1 clarified that immaterial accounting policy
information need not be disclosed. However, if it is disclosed, it
should not obscure material accounting policy information. To
support this amendment, IFRS Practice Statement 2, 'Making
Materiality Judgements' was also amended to provide guidance on how
to apply the concept of materiality to accounting policy
disclosures.
Deferred tax related to assets and liabilities arising from a
single transaction - Amendments to IAS 12 (issued on 7 May 2021 and
effective for annual periods beginning on or after 1 January
2023).
The amendments to IAS 12 specify how to account for deferred tax
on transactions such as leases and decommissioning obligations. In
specified circumstances, entities are exempt from recognising
deferred tax when they recognise assets or liabilities for the
first time. Previously, there had been some uncertainty about
whether the exemption applied to transactions such as leases and
decommissioning obligations - transactions for which both an asset
and a liability are recognised. The amendments clarify that the
exemption does not apply and that entities are required to
recognise deferred tax on such transactions. The amendments require
companies to recognise deferred tax on transactions that, on
initial recognition, give rise to equal amounts of taxable and
deductible temporary differences.
Classification of liabilities as current or non-current -
Amendments to IAS 1 (issued on 23 January 2020 and effective for
annual periods beginning on or after 1 January 2022) .
These narrow scope amendments clarify that liabilities are
classified as either current or non-current, depending on the
rights that exist at the end of the reporting period. Liabilities
are non-current if the entity has a substantive right, at the end
of the reporting period, to defer settlement for at least twelve
months. The guidance no longer requires such a right to be
unconditional. Management's expectations whether they will
subsequently exercise the right to defer settlement do not affect
classification of liabilities. The right to defer only exists if
the entity complies with any relevant conditions as of the end of
the reporting period. A liability is classified as current if a
condition is breached at or before the reporting date even if a
waiver of that condition is obtained from the lender after the end
of the reporting period. Conversely, a loan is classified as
non-current if a loan covenant is breached only after the reporting
date. In addition, the amendments include clarifying the
classification requirements for debt a company might settle by
converting it into equity. 'Settlement' is defined as the
extinguishment of a liability with cash, other resources embodying
economic benefits or an entity's own equity instruments. There is
an exception for convertible instruments that might be converted
into equity, but only for those instruments where the conversion
option is classified as an equity instrument as a separate
component of a compound financial instrument.
5 Cash and Cash Equivalents
30 June 31 December
In thousands of GEL 2021 2020
Cash on hand 832,304 755,687
Cash balances with the National Bank
of Georgia (other than mandatory reserve
deposits) 166,365 102,522
Correspondent accounts and overnight
placements with other banks 415,806 588,409
Placements with and receivables from
other banks with original maturities
of less than three months 12 188,867
Total gross amount of cash and cash equivalents 1,414,487 1,635,485
Less: Credit loss allowance (73) (80)
Stage 1 (73) (80)
Stage 2 - -
Stage 3 - -
Total cash and cash equivalents 1,414,414 1,635,405
As 30 June 2021, 84% of the correspondent accounts and overnight
placements with other banks was placed with OECD (The Organization
for Economic Co-operation and Development) banking institutions (31
December 2020: 89%).
As 30 June 2021, there was no interbank placed term deposits
neither in non-OECD, nor in OECD banks (As at 31 December 2020 GEL
25,030 thousand was placed on interbank term deposits with one
non-OECD bank and GEL 163,838 thousand with one OECD bank).
6 Due from Other Banks
Amounts due from other banks include placements with original
maturities of more than three months, that are not collateralised
and do not represent past due amounts at the 30 June 2021 and 31
December 2020 .
As at 30 June 2021 the Group had no placements, with original
maturities of more than three months and with aggregated amounts
above GEL 5,000 thousand (2020 : GEL 5,000 thousand). The total
aggregated amount of these placement was GEL nil (2020: GEL 2,012
thousand) or 0.0% of the total amount due from other banks (2020:
4.0%).
As at 30 June 2021 GEL 29,132 thousand (2020: GEL 11,744
thousand) were kept on deposits as restricted cash under an
arrangement with a credit card company or credit card related
services with other banks. Refer to Note 27 for the estimated fair
value of amounts due from other banks.
For the purpose of ECL measurement due from other banks balances
are included in Stage 1. The ECL for these balances at 30 June 2021
is GEL 7.4 thousand (2020: GEL 8 thousand).
7 Mandatory Cash Balances with the National Bank of Georgia
Mandatory cash balances with the National Bank of Georgia
("NBG") represent amounts deposited with the NBG. Resident
financial institutions are required to maintain an interest-earning
obligatory reserve with the NBG, the amount of which depends on the
level of funds attracted by the financial institutions. The Group
earned up to 9.5%, (0.25%) and (0.7%) annual interest in GEL, USD
and EUR respectively on mandatory reserve with NBG in June 2021
(2020: 8.0%, (0.25%) and (0.7%) in GEL, USD and EUR
respectively).
In February 2021, Fitch Ratings has affirmed Georgia's Long-Term
Foreign and Local Currency Issuer Default Rating (IDRs) at 'BB'.
The Outlook is Negative; The Country Ceiling Rating is affirmed at
'BBB-', short-term foreign and local-currency IDRs at 'B'.
8 Loans and Advances to Customers
30 June 31 December
In thousands of GEL 2021 2020
Corporate loans 5,851,634 5,690,749
Consumer loans 1,892,441 2,011,585
Mortgage loans 3,796,078 3,942,102
Loans to micro, small and medium enterprises 3,734,773 3,556,084
Total gross loans and advances to customers
at amortised cost 15,274,926 15,200,520
Less: credit loss allowance (477,958) (606,246)
Total loans and advances to customers at
amortised cost 14,796,968 14,594,274
As at 30 June 2021, loans and advances to customers carried at
GEL 935,836 thousand have been pledged to local banks or other
financial institutions as collateral with respect to other borrowed
funds (31 December 20 20 :
GEL 889,353 thousand).
In 2021, the Group has reassessed its definition of segments as
disclosed in Note 19. Wealth Management business with high net
worth individuals has been transferred from retail to corporate
segment due to changes in segment definitions. Other transfers
between segments were primarily due to changes in client size and
specifications compared to prior period .
The following tables disclose the changes in the credit loss
allowance and gross carrying amount for loans and advances to
customers carried at amortised cost between the beginning and the
end of the reporting periods. Major movements in the table are
described below:
-- Transfers between Stage 1, 2 and 3 due to balances
experiencing significant increase (or decrease) of credit risk or
becoming defaulted in the period, and the consequent "step up" (or
"step down") between 12-month and lifetime ECL. It should be noted,
that:
o Movement does not include exposures of loans, which were
issued and repaid during the period;
o For loans, which existed at the beginning of the period,
opening exposures are disclosed as transfer amounts;
o For newly issued loans, starting exposures are disclosed as
transfer amount;
o For the loan exposures which changed stage several times
during the period, transfers between starting and ending stage is
disclosed.
-- Newly originated or purchased gives us information regarding
gross loans and corresponding expected credit losses issued during
the period (however, exposures which were issued and repaid during
the period and issued to refinance existing loans are
excluded);
-- Derecognised during the period refers to the balance of loans
and credit loss allowance at the beginning of the period, which
were fully repaid during the period. Exposures which were issued
and repaid during the period, written off or refinanced by other
loans, are excluded;
-- Net repayments refers to the net changes in gross carrying
amounts, which is loan disbursements less repayments;
-- Net write offs refer to write off of loans during the period,
while net of written off and recoveries refer to already written
off loans for ECL;
-- Foreign exchange movements refers to the translation of
assets denominated in foreign currencies and effect to translation
in presentational currency for foreign subsidiary;
-- Net re-measurement due to stage transfers and risk parameters
changes refers to the movements in ECL as a result of transfer of
exposure between stages or changes in risk parameters and forward
looking expectations;
Re - segmentation refers to the transfer of loans from one
reporting segment to another. For presentation purposes, amounts
are rounded to the nearest thousands of GEL, which in certain cases
is disclosed as nil.
8 Loans and Advances to Customers (Continued)
Total loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime
(lifetime ECL for (lifetime ECL for
In thousands of (12-months ECL for credit (12-months ECL for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2021 11,860,556 2,448,127 891,837 15,200,520 130,226 142,912 333,108 606,246
Movements with impact on credit loss allowance
charge for the period:
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) 805,405 (805,405) - - 36,456 (36,456) - -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (507,875) 563,130 (55,255) - (9,269) 32,399 (23,130) -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) (70,295) (113,970) 184,265 - (8,238) (20,480) 28,718 -
New originated
or purchased 2,470,736 - - 2,470,736 28,957 - - 28,957
Derecognised
during
the period (636,690) (86,633) (59,962) (783,285) (96) (5,552) (27,777) (33,425)
Net repayments (871,862) (133,469) (71,902) (1,077,233) - - - -
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - (62,587) (11,346) 45,838 (28,095)
Movements without impact on credit loss allowance
charge for the period:
Net write-offs - - (107,321) (107,321) - - (92,338) (92,338)
Modification 3,237 1,068 1,718 6,023 - - - -
Foreign exchange
movements (344,723) (70,762) (23,864) (439,349) (808) (643) (1,936) (3,387)
Other movements 297 648 3,890 4,835 - - - -
At 30 June 2021 12,708,786 1,802,734 763,406 15,274,926 114,641 100,834 262,483 477,958
Total loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 11,551,934 757,094 352,927 12,661,955 95,689 82,687 134,180 312,556
Transfers:
- to lifetime
(from
Stage 1 and
Stage
3 to Stage 2) (1,284,853) 1,313,249 (28,396) - (27,215) 36,666 (9,451) -
- to defaulted
(from
Stage 1 and
Stage
2 to Stage 3) (53,073) (67,656) 120,729 - (2,074) (10,526) 12,600 -
- to 12-months
ECL
(from Stage 2
and
Stage 3 to Stage
1) 103,973 (103,709) (264) - 13,411 (13,196) (215) -
New originated or
purchased 1,579,595 - - 1,579,595 58,395 - - 58,395
Derecognised
during
the period (511,370) (59,941) (8,921) (580,232) (2,709) (9,238) (4,735) (16,682)
Net repayments (461,982) (4,097) (15,890) (481,969) - - - -
Net Write-offs - - (41,673) (41,673) - - (34,200) (34,200)
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - 37,170 106,430 52,858 196,458
Modifications (21,392) (6,885) (847) (29,124) - - - -
Foreign exchange
movements 427,657 71,613 17,875 517,145 3,468 3,430 5,980 12,878
Other movements 2,032 (827) 8,490 9,695 - - - -
At 30 June 2020 11,332,521 1,898,841 404,030 13,635,392 176,135 196,253 157,017 529,405
8 Loans and Advances to Customers (Continued)
Corporate loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2021 4,700,871 965,036 165,964 5,831,871 54,160 8,408 46,489 109,057
Movements with impact on credit loss allowance
charge for the period:
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) 129,211 (129,211) - - 785 (785) - -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (88,857) 95,068 (6,211) - (1,388) 1,883 (495) -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) 973 (14,096) 13,123 - 9,034 (267) (8,767) -
New originated
or purchased 680,196 - - 680,196 (2,352) - - (2,352)
Derecognised
during
the period (244,255) (2,570) (16,907) (263,732) (1,227) (47) (7,778) (9,052)
Net repayments (205,683) (63,554) (27,631) (296,868) - - - -
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - (12,726) (1,135) (7,955) (21,816)
Movements without impact on credit loss allowance
charge for the period:
Re-segmentation 90,053 19,704 1,865 111,622 322 91 1,865 2,278
Net write-offs - - (1) (1) - - 900 900
Modification 273 563 623 1,459 - - - -
Foreign Exchange
movements (164,035) (45,374) (3,504) (212,913) (529) (113) (349) (991)
Other movements - - - - - - - -
At 30 June 2021 4,898,747 825,566 127,321 5,851,634 46,079 8,035 23,910 78,024
Corporate loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 4,434,685 104,409 121,379 4,660,473 39,153 1,969 39,628 80,750
Transfers:
- to lifetime (from
Stage 1 and Stage
3 to Stage 2) (363,236) 366,356 (3,120) - (3,171) 3,253 (82) -
- to defaulted
(from
Stage 1 and Stage
2 to Stage 3) (32,464) (13,190) 45,654 - (163) (1,305) 1,468 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 11,288 (11,288) - - 166 (166) - -
New originated or
purchased 469,844 - - 469,844 9,512 - - 9,512
Derecognised during
the period (99,799) (55) (2,862) (102,716) (3,987) (11) (1,071) (5,069)
Net repayments (200,350) (3,037) (5,624) (209,011) - - - -
Re-segmentation 27,220 - - 27,220 91 - - 91
Net Write-offs - - - - - - 125 125
Net re-measurement
due to stage
transfers
and risk
parameters
changes - - - - 4,870 2,071 11,011 17,952
Modifications (2,091) (728) 132 (2,687) - - - -
Foreign exchange
movements 196,905 21,997 8,538 227,440 2,043 197 2,951 5,191
At 30 June 2020 4,442,002 464,464 164,097 5,070,563 48,514 6,008 54,030 108,552
8 Loans and Advances to Customers (Continued)
Loans to micro, Gross carrying amount Credit loss allowance
small and medium
enterprises
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime
(lifetime ECL for (lifetime ECL for
In thousands of (12-months ECL for credit (12-months ECL for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2021 2,661,786 631,347 262,951 3,556,084 24,490 46,852 88,567 159,909
Movements with impact on credit loss allowance
charge for the period:
Transfers:
- to lifetime
(from
Stage 1 and
Stage
3 to Stage 2) 243,352 (243,352) - - 12,810 (12,810) - -
- to defaulted
(from
Stage 1 and
Stage
2 to Stage 3) (150,051) 162,650 (12,599) - (1,342) 6,061 (4,719) -
- to 12-months
ECL
(from Stage 2
and
Stage 3 to Stage
1) (20,344) (35,602) 55,946 - (4,085) (5,521) 9,606 -
New originated or
purchased 821,123 - - 821,123 9,004 - - 9,004
Derecognised
during
the period (200,535) (35,251) (9,958) (245,744) (306) (1,409) (4,624) (6,339)
Net repayments (195,150) (17,612) (18,640) (231,402) - - - -
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - (18,909) (4,650) 11,207 (12,352)
Movements without impact on credit loss allowance
charge for the period:
Re-segmentation (58,422) 9,423 (1,346) (50,345) (294) 521 (1,768) (1,541)
Net Write-offs - - (22,148) (22,148) - - (17,098) (17,098)
Modifications 673 210 279 1,162 - - - -
Foreign exchange
movements (76,541) (13,331) (7,810) (97,682) (172) (179) (1,359) (1,710)
Other movements 6 131 3,588 3,725 - - - -
At 30 June 2021 3,025,897 458,613 250,263 3,734,773 21,196 28,865 79,812 129,873
Loans to micro,
small and medium
enterprises Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 2,650,261 204,699 93,319 2,948,279 18,341 18,593 29,211 66,145
Transfers:
- to lifetime
(from
Stage 1 and
Stage
3 to Stage 2) (292,430) 297,657 (5,227) - (3,762) 5,231 (1,469) -
- to defaulted
(from
Stage 1 and
Stage
2 to Stage 3) (7,278) (22,749) 30,027 - (488) (2,831) 3,319 -
- to 12-months
ECL
(from Stage 2
and
Stage 3 to Stage
1) 32,938 (32,938) - - 3,287 (3,287) - -
New originated or
purchased 476,744 - - 476,744 11,170 - - 11,170
Derecognised
during
the period (194,995) (14,872) (2,663) (212,530) (3,239) (1,155) (1,069) (5,463)
Net repayments (69,938) (2,812) (7,300) (80,050) - - - -
Re-segmentation (28,301) - - (28,301) (91) - - (91)
Net write-offs - - (8,725) (8,725) - - (5,504) (5,504)
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - 14,058 26,475 12,839 53,372
Modification (4,790) (1,350) (315) (6,455) - - - -
Foreign exchange
movements 90,073 15,440 4,542 110,055 876 1,160 1,058 3,094
Other movements 112 46 6,931 7,089 - - - -
At 30 June 2020 2,652,396 443,121 110,589 3,206,106 40,152 44,186 38,385 122,723
Consumer loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime
(lifetime ECL for (lifetime ECL for
In thousands of (12-months ECL for credit (12-months ECL for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2021 1,499,148 267,075 187,328 1,953,551 48,240 66,330 126,984 241,554
Movements with impact on credit loss allowance
charge for the period:
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) 109,255 (109,255) - - 16,828 (16,828) - -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (103,770) 121,644 (17,874) - (6,994) 19,988 (12,994) -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) (24,762) (42,815) 67,577 - (9,538) (13,084) 22,622 -
New originated
or purchased 467,005 - - 467,005 21,234 - - 21,234
Derecognised
during
the period (127,652) (13,609) (15,632) (156,893) (304) (3,282) (8,754) (12,340)
Net repayments (236,450) (29,243) (8,317) (274,010) - - - -
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - (24,439) 650 32,539 8,750
Movements without impact on credit loss allowance
charge for the period:
Re-segmentation (2,165) (1,003) (403) (3,571) (10) (25) (104) (139)
Net Write-offs - - (84,905) (84,905) - - (76,815) (76,815)
Modification 1,378 223 627 2,228 - - - -
Foreign exchange
movements (9,651) (984) (1,439) (12,074) (25) (166) (48) (239)
Other movements 291 517 302 1,110 - - - -
At 30 June 2021 1,572,627 192,550 127,264 1,892,441 44,992 53,583 83,430 182,005
Consumer loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime
(lifetime ECL for (lifetime ECL for
In thousands of (12-months ECL for credit (12-months ECL for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 1,593,262 216,817 73,927 1,884,006 36,724 52,439 44,793 133,956
Transfers:
- to lifetime
(from
Stage 1 and Stage
3 to Stage 2) (189,868) 198,858 (8,990) - (19,486) 24,134 (4,648) -
- to defaulted
(from
Stage 1 and Stage
2 to Stage 3) (11,156) (21,424) 32,580 - (1,239) (5,796) 7,035 -
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage
1) 32,915 (32,651) (264) - 9,396 (9,181) (215) -
New originated or
purchased 382,704 - - 382,704 37,196 - - 37,196
Derecognised
during
the period (163,490) (22,160) (3,519) (189,169) 4,072 (7,201) (1,733) (4,862)
Net repayments (97,337) 1,813 (1,224) (96,748) - - - -
Re-segmentation 1,000 - - 1,000 - - - -
Net write-offs - - (32,569) (32,569) - - (28,706) (28,706)
Net re-measurement
due to stage
transfers
and risk
parameters
changes - - - - 10,830 55,436 21,913 88,179
Modification (9,293) (2,879) (323) (12,495) - - - -
Foreign exchange
movements 19,770 3,430 1,132 24,332 154 395 573 1,122
Other movements 1,625 (853) 275 1,047 - - - -
At 30 June 2020 1,560,132 340,951 61,025 1,962,108 77,647 110,226 39,012 226,885
Mortgage loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime
(lifetime ECL for (lifetime ECL for
In thousands of (12-months ECL for credit (12-months ECL for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2021 2,998,751 584,669 275,594 3,859,014 3,336 21,322 71,068 95,726
Movements with impact on credit loss allowance
charge for the period:
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) 323,587 (323,587) - - 6,033 (6,033) - -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (165,197) 183,768 (18,571) - 455 4,467 (4,922) -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) (26,162) (21,457) 47,619 - (3,649) (1,608) 5,257 -
New originated
or purchased 502,412 - - 502,412 1,071 - - 1,071
Derecognised
during
the period (64,248) (35,203) (17,465) (116,916) 1,741 (814) (6,621) (5,694)
Net repayments (234,579) (23,060) (17,314) (274,953) - - - -
Net
re-measurement
due to stage
transfers
and risk
parameters
changes - - - - (6,513) (6,211) 10,047 (2,677)
Movements without impact on credit loss allowance
charge for the period:
Re-segmentation (29,466) (28,124) (116) (57,706) (18) (587) 7 (598)
Net write-offs - - (267) (267) - - 675 675
Modification 913 72 189 1,174 - - - -
Foreign exchange
movements (94,496) (11,073) (11,111) (116,680) (82) (185) (180) (447)
At 30 June 2021 3,211,515 326,005 258,558 3,796,078 2,374 10,351 75,331 88,056
Mortgage loans Gross carrying amount Credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 1 2 3
(lifetime (lifetime (lifetime
(lifetime ECL for ECL ECL for
In thousands of (12-months ECL for credit (12-months for credit
GEL ECL) SICR) im-paired) Total ECL) SICR) im-paired) Total
At 1 January 2020 2,873,726 231,169 64,302 3,169,197 1,471 9,686 20,548 31,705
Transfers:
- to lifetime
(from Stage 1
and Stage 3 to
Stage 2) (439,319) 450,378 (11,059) - (796) 4,048 (3,252) -
- to defaulted
(from Stage 1
and Stage 2 to
Stage 3) (2,175) (10,293) 12,468 - (184) (594) 778 -
- to 12-months
ECL (from Stage
2 and Stage 3
to Stage 1) 26,832 (26,832) - - 562 (562) - -
New originated
or purchased 250,303 - - 250,303 517 - - 517
Derecognised during
the period (53,086) (22,854) 123 (75,817) 445 (871) (862) (1,288)
Net repayments (94,357) (61) (1,742) (96,160) - - - -
Re-segmentation 81 - - 81 - - - -
Net write-offs - - (379) (379) - - (115) (115)
Net re-measurement
due to stage
transfers
and risk
parameters
changes - - - - 7,412 22,448 7,095 36,955
Modification (5,218) (1,928) (341) (7,487) - - - -
Foreign exchange
movements 120,909 30,746 3,663 155,318 395 1,678 1,398 3,471
Other movements 295 (20) 1,284 1,559 - - - -
At 30 June 2020 2,677,991 650,305 68,319 3,396,615 9,822 35,833 25,590 71,245
8 Loans and Advances to Customers (Continued)
The credit quality of loans to customers carried at amortised
cost is as follows at 30 June 2021:
Stage 1 Stage 2 Stage 3
(lifetime ECL
In thousands of (12-months (lifetime ECL for credit
GEL ECL) for SICR) impaired) Total
Corporate loans
risk category
- Very low 4,828,391 11,095 - 4,839,486
- Low 68,770 705,079 - 773,849
- Moderate 1,586 109,392 - 110,978
- High - - - -
- Default - - 127,321 127,321
Gross carrying amount 4,898,747 825,566 127,321 5,851,634
Credit loss allowance (46,079) (8,035) (23,910) (78,024)
Carrying amount 4,852,668 817,531 103,411 5,773,610
Consumer loans risk
category
- Very low 1,023,448 17,059 1,076 1,041,583
- Low 461,524 36,248 - 497,772
- Moderate 87,655 110,724 - 198,379
- High - 28,519 - 28,519
- Default - - 126,188 126,188
Gross carrying amount 1,572,627 192,550 127,264 1,892,441
Credit loss allowance (44,992) (53,583) (83,430) (182,005)
Carrying amount 1,527,635 138,967 43,834 1,710,436
Mortgage loans risk
category
- Very low 2,877,349 18,835 912 2,897,096
- Low 307,024 193,247 - 500,271
- Moderate 27,142 99,408 - 126,550
- High - 14,515 - 14,515
- Default - - 257,646 257,646
Gross carrying amount 3,211,515 326,005 258,558 3,796,078
Credit loss allowance (2,374) (10,351) (75,331) (88,056)
Carrying amount 3,209,141 315,654 183,227 3,708,022
Loans to MSME risk
category
- Very low 2,475,428 73,393 8,826 2,557,647
- Low 538,428 275,104 - 813,532
- Moderate 12,041 93,130 - 105,171
- High - 16,986 - 16,986
- Default - - 241,437 241,437
Gross carrying amount 3,025,897 458,613 250,263 3,734,773
Credit loss allowance (21,196) (28,865) (79,812) (129,873)
Carrying amount 3,004,701 429,748 170,451 3,604,900
8 Loans and Advances to Customers (Continued)
The credit quality of loans to customers carried at amortised
cost is as follows at 31 December 2020:
31 December 2020 Total
in thousands of GEL Stage 1 Stage 2 Stage 3
(12-months (lifetime (lifetime ECL
ECL) ECL for SICR) for credit impaired)
Corporate loans risk
category
- Very low 4,324,191 6,178 - 4,330,369
- Low 248,246 913,832 - 1,162,078
- Moderate 1,697 35,177 - 36,874
- Default - - 161,428 161,428
Gross carrying amount 4,574,134 955,187 161,428 5,690,749
Credit loss allowance (53,995) (8,194) (45,452) (107,641)
Carrying amount 4,520,139 946,993 115,976 5,583,108
Consumer loans risk
category
- Very low 1,010,723 20,041 - 1,030,764
- Low 453,899 64,950 - 518,849
- Moderate 91,937 159,726 - 251,663
- High - 22,579 - 22,579
- Default - - 187,730 187,730
Gross carrying amount 1,556,559 267,296 187,730 2,011,585
Credit loss allowance (48,372) (66,352) (127,101) (241,825)
Carrying amount 1,508,187 200,944 60,629 1,769,760
Mortgage loans risk
category
- Very low 2,852,661 97,936 - 2,950,597
- Low 186,597 334,579 - 521,176
- Moderate 28,822 154,372 - 183,194
- High - 7,409 - 7,409
- Default - - 279,726 279,726
Gross carrying amount 3,068,080 594,296 279,726 3,942,102
Credit loss allowance (3,371) (21,516) (71,983) (96,870)
Carrying amount 3,064,709 572,780 207,743 3,845,232
Loans to MSME risk
category
- Very low 2,252,448 145,445 - 2,397,893
- Low 395,733 348,147 - 743,880
- Moderate 13,605 121,925 - 135,530
- High - 15,830 - 15,830
- Default - - 262,951 262,951
Gross carrying amount 2,661,786 631,347 262,951 3,556,084
Credit loss allowance (24,490) (46,853) (88,567) (159,910)
Carrying amount 2,637,296 584,494 174,384 3,396,174
The contractual amounts outstanding on loans to customers that
have been written off during the period partially or fully, but are
still subject to enforcement activity was principal amount GEL 6.6
million (31 December 20 20 : GEL 48 million), accrued interest GEL
1.6 million (31 December 2020: GEL 11 million) and accrued off
balance sheet penalty GEL 111 million (31 December 2020: GEL 135
million).
8 Loans and Advances to Customers (Continued)
The table below presents the economic sector risk concentrations
within the customer loan portfolio:
30 June 2021 31 December 2020
In thousands of GEL Amount % Amount %
Individual 5,817,104 38% 5,948,346 39%
Real Estate 1,462,407 10% 1,460,821 10%
Hospitality, Restaurants
& Leisure 1,406,877 9% 1,368,887 9%
Energy & Utilities 1,092,806 7% 1,078,504 7%
Food Industry 715,320 5% 898,597 6%
Trade 745,773 5% 708,559 4%
Agriculture 704,309 5% 667,904 4%
Construction 733,874 5% 642,024 4%
Healthcare 383,879 2% 369,645 2%
Services 299,760 2% 268,982 2%
Automotive 305,644 2% 263,276 2%
Metals and Mining 191,369 1% 229,368 2%
Pawn Shops 157,476 1% 168,571 1%
Transportation 159,820 1% 159,857 1%
Financial Services 109,928 1% 78,923 1%
Communication 42,724 0% 46,406 0%
Other 945,856 6% 841,850 6%
Total gross loans and advances
to customers 15,274,926 100% 15,200,520 100%
As 30 June 2021, the Group had 314 borrowers (31 December 2020:
307 borrowers) with the aggregated gross loan amounts above GEL
5,000 thousand. The total aggregated amount of these loans was GEL
5,535,718 thousand (31 December 2020: GEL 5,598,041 thousand) or
36.3% of the gross loan portfolio (31 December 2020: 36.8%).
The amount and type of collateral required depends on an
assessment of the credit risk of the counterparty. There are three
key types of collateral:
-- Real estate;
-- Movable property including fixed assets, inventory and precious metals;
-- Financial assets including deposits, shares, and third party guarantees.
In March 2021 the Bank reviewed its definition of secured and
the types of collateral and the haircuts were modified to bring
them into line with the IFRS loan loss provisioning
methodology.
The financial effect of collateral is presented by disclosing
the collateral values separately for (i) those assets where
collateral and other credit enhancements are equal to or exceed the
assets' carrying value ("over-collateralised assets") and (ii)
those assets where collateral and other credit enhancements are
less than the assets' carrying value ("under-collateralised
assets").
The following table illustrates the effect of collateral as 30
June 2021:
Over-collateralised Under-collateralised
Assets Assets
Carrying value of the Fair value of Carrying value of the Fair value of
In thousands of GEL assets collateral assets collateral
Corporate loans 3,614,712 7,994,167 2,236,922 878,015
Consumer loans 636,027 1,731,923 1,256,414 23,490
Mortgage loans 3,448,586 7,367,097 347,492 131,231
Loans to micro, small
and medium
enterprises 2,829,915 6,571,834 904,858 364,678
Total 10,529,240 23,665,021 4,745,686 1,397,414
8 Loans and Advances to Customers (Continued)
The following table illustrated the effect of collateral as 31
December 2020:
Over-collateralised Under-collateralised
Assets Assets
Carrying value of the Fair value of Carrying value of the Fair value of
In thousands of GEL assets collateral assets collateral
Corporate loans 4,603,143 9,630,768 1,087,606 477,701
Consumer loans 869,317 2,231,778 1,142,268 20,474
Mortgage loans 3,703,164 7,915,172 238,938 158,292
Loans to micro, small
and medium
enterprises 3,114,829 7,102,534 441,255 157,047
Total 12,290,453 26,880,252 2,910,067 813,514
The effect of collateral by classes as at 30 June 2021[33]:
Over-collateralised Under-collateralised
Assets Assets
in thousands of GEL Carrying Fair value Carrying Fair value
value of of collateral value of of collateral
the assets the assets
Cash Cover 217,499 167,808 133,111 133,072
Gold 115,237 142,999 23,043 23,043
Inventory 320,546 1,121,494 87,815 87,786
Real Estate 9,875,958 22,232,720 1,155,410 1,153,513
Unsecured - - 3,346,307 -
Total 10,529,240 23,665,021 4,745,686 1,397,414
The effect of collateral by classes as at 31 December 2020:
Over-collateralised Under-collateralised
Assets Assets
in thousands of GEL Carrying Fair value Carrying Fair value
value of of collateral value of of collateral
the assets the assets
Cash Cover 332,438 358,847 12,937 39,109
Gold 115,139 158,008 37,856 37,946
Inventory 753,658 2,149,849 24,536 24,498
Other 137,749 849,249 7,960 20,313
Real Estate 10,697,040 23,217,956 428,092 395,398
Third party guarantees 254,429 146,343 310,272 296,250
Unsecured - - 2,088,414 -
Total 12,290,453 26,880,252 2,910,067 813,514
The financial effect of collateral is determined by comparing
the fair value of collateral to outstanding gross loans and
advances in the reporting date.
8 Loans and Advances to Customers (Continued)
Stage 3 loans presented by segments and collateral classes as at
30 June 2021 are the following[34]:
Loans to
micro, small
and medium
enterprises
in thousands of GEL Corporate Consumer Mortgage
Cash Cover 20 39 39 87
Gold - 582 - 311
Inventory 6,472 12 - 1,897
Real Estate 101,994 57,298 249,552 219,829
Unsecured 18,834 69,334 8,967 28,140
Total 127,320 127,265 258,558 250,264
Stage 3 loans presented by segments and collateral classes as at
31 December 2020 are the following:
in thousands of GEL Corporate Consumer Mortgage Loans to
micro, small
and medium
enterprises
Cash Cover 21 36 38 47
Gold - 1,717 - 430
Inventory 15,991 8,909 185 4,250
Real Estate 97,824 65,645 273,577 231,925
Third Party Guarantees 5,013 968 2,308 7,347
Unsecured 42,579 110,455 3,618 18,898
Other - - - 54
Total 161,428 187,730 279,726 262,951
The gross carrying amount of loans by stages, that have been
modified since initial recognition and for which stages have
changed during the reporting period:
in thousands of GEL 30 June 2021 31 December
2020
Stage 1 71,686 737,197
Stage 2 270,499 1,602,759
Stage 3 578,999 293,205
Total 921,184 2,633,161
At the central level a specific unit manages collateral to
ensure that they serve as an adequate mitigation for credit risk
management purposes. In line with the Group's internal policies,
collateral provided to loans are evaluated by the internal
appraisal group (external reviewers are used in case of loans to
related parties or specific cases when complex objects are
appraised). The internal appraisal group is part of the collateral
management unit and, in order to ensure adequate and objective
appraisal procedures, it is independent from the loan granting
process. Real estate collateral of significant value is
re-evaluated annually by internal appraisers. Statistical methods
are used to monitor the value of real estate collateral that are of
non-significant value and other types of collateral such as movable
assets and precious metals.
In some instances, where the discounted recovery from the
liquidation of collateral (adjusted for the liquidity haircut and
discounted for the period of expected selling time) is larger than
the estimated exposure at default, no credit loss allowance is
recognised. Collateral values include the contractual price of
third-party guarantees, which, due to their nature, are capped at
the loan's carrying value. The values of third-party guarantees in
the tables above amounted to GEL 653,856 thousand and GEL 564,701
thousand, as of 30 June 2021 and 31 December 2020, respectively.
These third-party guarantees are not taken into consideration when
assessing the impairment allowance. Information on related party
balances is disclosed in Note 28.
For the year ended 30 June 2021 net (losses)/ gains recognised
in profit or loss on modifications of loans with lifetime ECL that
did not lead to derecognition was GEL 8,382,717 thousand (30 June
2020: GEL 3,081,142 thousand).
9 Investment Securities Measured at Fair Value through Other Comprehensive Income
in thousands of GEL 30 June 31 December
2021 2020
Corporate bonds 668,132 666,133
Ministry of Finance of Georgia treasury bills 1,354,972 839,839
Ministry of Finance of Uzbekistan treasury
bills 1,807 1,951
Certificates of deposit of the National Bank
of Georgia - 21,687
Less: credit loss allowance by stages (3,582) (3,258)
Stage 1 (3,582) (3,258)
Stage 2 - -
Stage 3 - -
Total debt securities 2,021,329 1,526,352
Corporate shares - unquoted 1,056 916
Total investment securities measured at fair
value through other comprehensive income 2,022,385 1,527,268
All debt securities in 2021 and 2020 except for corporate bonds
and Uzbekistan treasury bills are issued by the Government of
Georgia and National Bank of Georgia. Country rating for Georgia
stands at BB with negative outlook (as affirmed by Fitch Rating in
February 2021). Latest country rating for Uzbekistan stands at BB-.
67% of corporate bonds are issued by triple A rated international
financial institutions, 33% of corporate bonds are issued at BB-
rated corporations. The investees have not published recent
financial information about their operations, their shares are not
quoted and recent trade prices are not publicly accessible.
The Group designated investments in corporate shares disclosed
in the above table as equity securities at FVOCI. The FVOCI
designation was made because the investments are expected to be
held for strategic purposes rather than with a view to profit on a
subsequent sale, and there are no plans to dispose of these
investments in the short or medium term (for more details please
refer to note 2).
As at 30 June 2021 investment securities measured at fair value
through other comprehensive income carried at GEL 733,306 thousand
have been pledged with local banks or financial institutions as a
collateral with respect to other borrowed funds (2020: GEL 699,483
thousand).
As at 30 June 2021 the principal equity investment securities
measured at fair value through other comprehensive income are as
follows:
in thousands of GEL Nature of business Country of 30 June 31 December
registration 2021 2020
Hilversum,
GRDC N.V Property development Netherlands 365 365
Other Various Various 691 551
Total corporate shares 1,056 916
The movements in investment securities measured at fair value
through other comprehensive income are as follows:
in thousands of GEL Note 30 June 30 June 2020
2021
Carrying amount as of 31 December 2020 1,527,268 986,730
Transfer from investment securities measured
at amortised cost due to changes in business
model[35] 1,059,946 -
Revaluation at transfer date 26,062 -
Carrying amount as of 1 January 2,613,276 986,730
Transfer from investment securities measured
at amortised cost - 15,000
Purchases 196,871 251,484
Disposals (402,255) (67,301)
Redemption at maturity (355,328) (113,401)
Revaluation (34,694) 4,984
Interest income accrued 20 98,500 47,406
Interest income received (89,708) (43,871)
Effect of translation to presentation
currency (3,953) 3,066
Change in credit loss allowance (324) (1,577)
Carrying amount as of period end 2,022,385 1,082,520
10 Premises, Equipment and Intangible Assets
Land, Office and Construction Total Intangible Total
Premises and Other in premises and Assets
leasehold equipment* progress equipment
In thousands of GEL improvements
C arrying amount at 1 January
2020 162,637 89,890 82,201 334,728 167,597 502,325
Additions 1,101 14,831 9,702 25,634 37,417 63,051
Transfers - (779) 779 - - -
Disposals (1,044) (732) (175) (1,951) - (1,951)
Transfer to Inventory (388) (39) - (427) - (427)
Transfer to financial leases
and repossessed assets - (198) - (198) - (198)
(Impairment charge)/reversal
of impairment to profit or
loss - (94) - (94) - (94)
Depreciation/amortisation
charge (2,782) (10,893) - (13,675) (10,473) (24,148)
Elimination of accumulated
depreciation/amortisation on
disposals 99 1,115 - 1,214 44 1,258
Effect of translation to
presentation currency Cost (55) (218) - (273) 371 98
Effect of translation to
presentation currency
Accumulated depreciation 56 50 - 106 (125) (19)
Transfer from Provision for
other assets impairment - - - - (142) (142)
Carrying amount at 30 June
2020 159,624 92,933 92,507 345,064 194,689 539,753
Cost at 30 June 2020 205,693 244,842 92,507 543,042 278,256 821,298
Accumulated
depreciation/amortisation
including accumulated
impairment loss at 30 June
2020 (46,069) (151,909) - (197,978) (83,567) (281,545)
C arrying amount at 1 January 2021 163,747 105,453 103,756 372,956 239,523 612,479
Additions 4,605 16,364 6,869 27,838 60,811 88,649
Transfers 2,708 (32) (2,708) (32) 32 -
Disposals (16,306) (4,975) (1,649) (22,930) (561) (23,491)
Transfer to financial leases and repossessed
assets (614) (1,887) - (2,501) - (2,501)
(Impairment charge)/reversal of impairment to
profit or loss - (3) - (3) - (3)
Depreciation/amortisation charge (2,789) (11,226) - (14,015) (15,164) (29,179)
Elimination of accumulated
depreciation/amortisation on disposals 7,141 3,385 - 10,526 9 10,535
Effect of translation to presentation currency
Cost (58) (75) - (133) (134) (267)
Effect of translation to presentation currency
accumulated depreciation 44 159 - 203 39 242
Carrying amount at 30 June 2021 158,478 107,163 106,268 371,909 284,555 656,464
Cost at 30 June 2021 202,731 273,380 106,268 582,379 396,952 979,331
Accumulated depreciation/amortisation including
accumulated impairment loss at 30 June 2021 (44,253) (166,217) - (210,470) (112,397) (322,867)
*Office and other equipment include furniture and fixtures,
computer and office equipment, motor vehicles as well as other
equipment.
On 18 June 2021, the Group sold land and buildings, where some
of its back office functions is currently located, to IG
Development LLC for cash consideration of USD 25 million. USD 5
million (GEL 16.5 million) has already been received, while the
remaining USD 20 million (GEL 63.2 million) will be received until
30 April 2022 . Selling of those assets was part of the Group's
plan to gradually prepare for relocation to new headquarter, which
is in the process of construction. Under the existing plan the
Group will gradually discharge the occupied part of the buildings
up until 30 April 2022 and staff will be distributed to existing
offices before the new headquarter will be completed. Net carrying
amount of disposed properties was GEL 37,416 thousand, out of which
net balance disposed from premises and equipment were GEL 5,442
thousand, while the remaining part was disposed from investment
property. Net gain on disposal from the sale was recognised as part
of other operating income in the condensed consolidated interim
statement of profit or loss in the amount of GEL 26,294
thousand.
Depreciation and amortisation charge presented on the face of
the statement of profit or loss and other comprehensive income
include depreciation and amortisation charge of premises and
equipment, investment properties and intangible assets.
Construction in progress consists of construction and
refurbishment of branch premises and the Bank's new headquarters.
Upon completion, assets are to be transferred to premises.
11 Due to Credit Institutions
In thousands of GEL 30 June 2021 31 December 2020
Due to other banks
Correspondent accounts and overnight placements 78,617 43,298
Deposits from banks 76,863 97,496
Total due to other banks 155,480 140,794
Other borrowed funds
Borrowings from foreign banks and international financial institutions 1,773,377 2,370,656
Borrowings from other financial institutions 59,308 58,949
Borrowings from other local banks and financial institutions 8,137 32,684
National Bank of Georgia 1,486,528 1,883,290
Total other borrowed funds 3,327,350 4,345,579
Total amounts due to credit institutions 3,482,830 4,486,373
As of 30 June 2021 for the purposes of maturity analysis of
financial liabilities (Note 25) the above-mentioned loans are
included within the amounts for which repayment is expected within
3 months.
12 Customer Accounts
In thousands of GEL 30 June 2021 31 December 2020
State and public organisations
- Current/settlement accounts 546,104 504,019
- Term deposits 318,318 590,426
Other legal entities
- Current/settlement accounts 3,643,908 3,490,836
- Term deposits 911,195 722,710
Individuals
- Current/demand accounts 3,723,253 3,487,017
- Term deposits 3,727,640 3,777,720
Total customer accounts 12,870,418 12,572,728
State and public organisations include government owned profit
orientated businesses.
12 Customer Accounts (Continued)
Economic sector concentrations within customer accounts are as
follows:
30 June 2021 31 December 2020
In thousands of GEL Amount % Amount %
Individual 7,450,894 58% 7,264,737 58%
Financial services 1,051,494 8% 709,943 6%
Trade 953,248 7% 873,995 7%
Services 569,059 4% 526,227 4%
Construction 502,976 4% 610,321 5%
Government sector 470,491 4% 647,856 5%
Real estate 336,247 3% 323,547 3%
Energy & utilities 299,352 2% 384,660 3%
Transportation 296,701 2% 332,850 2%
Healthcare 164,026 1% 131,936 1%
Hospitality & leisure 113,198 1% 99,770 1%
Agriculture 58,104 1% 58,005 0%
Metals and mining 23,446 0% 18,458 0%
Other 581,182 5% 590,423 5%
Total customer accounts 12,870,418 100% 12,572,728 100%
As at 30 June 202 1 the Group had 461 customers (31 December
2020: 452 customers) with balances above GEL 3,000 thousand. Their
aggregate balance was GEL 5,723,401 thousand (31 December 2020: GEL
5, 569,608 thousand) or 43.7% of total customer accounts (31
December 2020: 44.0%).
As at 30 June 2021 included in customer accounts are deposits of
GEL 9,579 thousand and GEL 73,634 thousand (31 December 2020: GEL
4,903 thousand and GEL 94,348 thousand) held as collateral for
irrevocable commitments under letters of credit and guarantees
issued, respectively. Refer to Note 25. As at 30 June 2021,
deposits held as collateral for loans to customers amounted to GEL
499,833 thousand (31 December 2020: GEL 512,637 thousand).
Refer to Note 27 for the disclosure of the fair value of
customer accounts. Information on related party balances is
disclosed in Note 28.
13 Provisions for Performance Guarantees, Credit Related Commitment Liabilities and Charges
Movements in provisions for performance guarantees, credit
related commitment and liabilities and charges are as follows:
In thousands of GEL Perfor-mance guarantees Credit related commitments Other Total
Carrying amount as of 1 January 2021 5,603 4,247 15,485 25,335
Charges less releases recorded in profit or
loss (1,566) (364) (1,682) (3,612)
Effect of translation to presentation
currency (196) (92) - (288)
Carrying amount at 30 June 2021 3,841 3,791 13,803 21,435
In thousands of GEL Perfor-mance guarantees Credit related commitments Other Tota l
Carrying amount as of 1 January 2020 7,466 4,511 11,151 23,128
Charges less releases recorded in profit or loss (1,900) 2,697 1,280 2,077
Effect of translation to presentation currency 400 - (47) 353
Carrying amount at 30 June 2020 5,966 7,208 12,384 25,558
Credit related commitments and performance guarantees:
Impairment allowance estimation methods differ for (i) letter of
credits and guarantees and (ii) undrawn credit lines. For letter of
credits and guarantees allowance estimation purposes the Bank
applies the staged approach and classifies them in stage 1, stage 2
or stage 3. Significant stage 2 and stage 3 guarantees are assessed
individually. Non-significant stage 3 as well as all stage 1 and
stage 2 guarantees and letter of credits are assessed collectively
using exposure, marginal probability of conversion, loss given
default and discount factor. Amount of the expected allowance
differs based on the classification of the facility in the
respective stage.
For impairment allowance assessment purposes, for undrawn
exposures the Group distinguishes between revocable and irrevocable
loan commitments. For revocable commitments, the Bank does not
create an impairment allowance. As for the irrevocable undisbursed
exposures the Group estimates utilization parameter (which
represents expected limit utilization percentage conditional on the
default event) in order to convert off-balance part of the exposure
to on-balance.
Once the respective on balance exposure is estimated, the Group
applies the same impairment framework approach as the one used for
the respective type of on balance exposures.
Charges less releases recorded in profit or loss for "Other"
provisions does not include gross change in total reserves for
insurance claims in amount of GEL 1,691 thousand (30 June 2020: GEL
1,335 thousand) that are included in net claims incurred. Additions
less releases recorded in profit or loss for provision for
impairment of credit related commitments include provision for
insurance payables in the amount of GEL 9 thousand (June 2020:
recovery of GEL 77 thousand), that are included in charges less
releases recorded in profit or loss for "Other" provision.
14 Debt Securities in Issue
Currency Carrying Maturity Coupon rate Effective
amount Date interest
as of rate
30 June
in thousands of GEL 2021
Bonds issued on Irish Stock
Exchange USD 934,513 6/19/2024 5.8% 6.4%
Bonds issued on Irish Stock
Exchange USD 398,442 10/3/2024 10.8% 11.4%
Private placement USD 42,487 5/27/2023 8.2% 9.0%
Private placement USD 31,654 3/19/2023 6.5% 7.1%
Bonds issued on Georgian
Stock Exchange GEL 38,518 3/20/2023 TIBR3M+3.25% 12.5%
Total debt securities in
issue 1,445,614
14 Debt Securities in Issue (Continued)
Currency Carrying Maturity Coupon rate Effective
amount Date interest
as of rate
31 December
in thousands of GEL 2020
Bonds issued on Irish Stock
Exchange USD 966,793 6/19/2024 5.8% 6.4%
Bonds issued on Irish Stock
Exchange USD 414,216 10/3/2024 10.8% 11.4%
Private placement USD 44,467 5/27/2023 8.2% 9.0%
Private placement USD 32,517 3/19/2023 6.5% 7.1%
Bonds issued on Georgian
Stock Exchange GEL 38,504 3/20/2023 TIBR3M+3.25% 12.5%
Total debt securities in
issue 1,496,497
On 27 May 2020 the TBC Bank Group PLC completed the transaction
of a USD 15 million 3-year 8.2% senior unsecured bonds issue (the
"Notes"). The private placement is direct, unsecured and
unsubordinated obligations of the Company.
On 20 March 2020, TBC Leasing with the help of TBC Capital
placed senior secured bonds of amount GEL 58.4 million on the
Georgian Stock Exchange. The percentage of securities is variable,
3.25% added to the 3-month interbank rate in Tbilisi. Fitch rates
the bonds 'BB-'.
On 19 March 2020 the TBC Bank Group PLC completed the
transaction of a debut USD 10 million 3-year 6.45% senior unsecured
bonds issue. The private placement is direct, unsecured and
unsubordinated obligations of the Company.
15 Subordinated Debt
As 30 June 2021, subordinated debt comprised of:
Grant Maturity Currency Outstanding Outstanding
Date Date amount amount
in original in GEL
In thousands of GEL currency
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-25 USD 14,954 47,258
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-28 USD 14,944 47,226
ResponsAbility SICAV (Lux)
- Financial Inclusion
Fund 30-Nov-18 30-Nov-28 USD 3,114 9,840
European Fund for Southeast
Europe 18-Dec-15 16-Dec-30 USD 7,593 23,997
European Fund for Southeast
Europe 15-Mar-16 17-Mar-31 USD 7,591 23,991
European Fund for Southeast
Europe 21-Dec-18 21-Dec-28 USD 20,074 63,439
Green for Growth Fund 18-Dec-15 16-Dec-30 USD 15,187 47,996
Micro and SME Finance
Leaders 30-Nov-18 30-Nov-28 USD 1,004 3,174
Global Climate Partnership
Fund 20-Nov-18 20-Nov-28 USD 25,090 79,292
ResponsAbility SICAV (Lux)
Micro and SME Finance
Fund 30-Nov-18 30-Nov-28 USD 5,927 18,733
Asian Development Bank 18-Oct-16 31-Dec-26 USD 50,447 159,426
Private Lenders 8-Jun-17 19-Dec-24 USD 25,212 79,677
Subordinated Bond (Private
lender) 31-Aug-18 25-Jan-23 USD 10,104 31,932
Total subordinated debt 635,981
15 Subordinated Debt (Continued)
As of 31 December 2020, subordinated debt comprised of:
Grant Date Maturity Date Currency Outstanding amount in Outstanding amount in GEL
In thousands of GEL original currency
KfW 10-June-14 8-May-21 GEL 6,161 6,161
KfW 4-May 15 8-May-21 GEL 6,737 6,737
Green for Growth Fund 18-Dec-15 18-Dec-25 USD 15,244 49,950
European Fund for
Southeast Europe 21-Dec-18 21-Dec-28 USD 20,079 65,789
European Fund for
Southeast Europe 18-Dec-15 16-Dec-30 USD 7,633 25,010
European Fund for
Southeast Europe 15-Mar-16 17-Mar-31 USD 7,631 25,004
Private Lenders 8-Jun-17 19-Dec-24 USD 25,217 82,628
Subordinated Bond
(Private lender) 31-Aug-18 25-Jan-23 USD 10,102 33,098
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-25 USD 14,949 48,983
BlueOrchard Microfinance
Fund 14-Dec-18 14-Dec-28 USD 14,941 48,956
Asian Development Bank 18-Oct-16 31-Dec-26 USD 50,438 165,266
ResponsAbility SICAV
(Lux) Micro and SME
Finance Fund 30-Nov-18 30-Nov-28 USD 5,930 19,430
Micro and SME Finance
Leaders 30-Nov-18 30-Nov-28 USD 1,005 3,292
Global Climate
Partnership Fund 20-Nov-18 20-Nov-28 USD 25,096 82,230
ResponsAbility SICAV
(Lux) - Financial
Inclusion Fund 30-Nov-18 30-Nov-28 USD 3,115 10,206
Total subordinated debt 672,740
The debt ranks after all other creditors in case of
liquidation.
Refer to Note 27 for the disclosure of the fair value of
subordinated debt. Information on related party balances is
disclosed in Note 28.
16 Share Capital
Number of Share capital
In thousands of GEL except for number of shares ordinary shares
As of 1 January 2020 55,155,896 1,682
As of 31 December 2020 55,155,896 1,682
As of 30 June 2021 55,155,896 1,682
As 30 June 2021 the total authorised number of ordinary shares
was 55,155,896 shares (31 December 2020: 55,155,896 shares). Each
share has a nominal value of one British Penny. All issued ordinary
shares are fully paid and entitled to dividends.
Part of the shares are held by employee benefit trust (EBT) for
the purpose of future employee share based payments plan. The
number of shares held by trust as at 30 June 2021 comprised 641,391
shares (31 December 2020: 778,183 shares). The EBT has waived its
rights to receive dividends on such shares.
17 Share Based Payments
June 2015 arrangement:
In June 2015, the Bank's Supervisory Board approved new
management compensation scheme for the top and middle management
and it accordingly authorised the issue of a maximum 3,115,890 new
shares. The system was enforced from 2015 through 2018. According
to the scheme, each year, subject to predefined performance
conditions, a certain number of shares were awarded to the Group's
top managers and most of the middle ones. The performance features
key performance indicators (KPIs) divided into (i) corporate and
(ii) individual. The corporate KPIs are mainly related to achieving
profitability, efficiency, and portfolio quality metrics set by the
Board as well as non-financial indicators with regards to
customers' experience and employees' engagement. The individual
performance indicators are set on an individual basis and are used
to calculate the number of shares to be awarded to each employee.
According to the scheme, members of top management also received
the fixed number of shares. Once awarded, all shares carry service
conditions and, before those conditions are met, are eligible to
dividends; however they cannot be sold or transferred to third
parties.
Service conditions foresee continuous employment until the
gradual transfer of the full title to the scheme participants is
complete. Shares for each of the 2015, 2016, 2017 and 2018 tranche
gradually ran over on the second, third and fourth year following
the performance appraisal. Eighty percent of the shares are vested
in 3 years after being awarded. Under this compensation system the
total vesting period extends to March 2022.
In 2015 the Group considered 17 June as the grant date. Based on
the management's estimate of reached targets, as of 31 December
2015 1,908,960 shares were granted. The shares were gradually
awarded to the members as per the described scheme. At the grant
date the fair value amounted to GEL 24.64 per share, as quoted on
the London Stock Exchange.
Following the listing on the Premium segment of the London Stock
Exchange, the share-based payment scheme remained conceptually the
same and was only updated to reflect the Group's new structure,
whereby TBC Bank Group PLC distributes its shares to the scheme's
participants, instead of JSC TBC Bank. The respective shares' value
is recharged to JSC TBC Bank. As a result, the accounting of the
scheme did not change in the consolidated financial statements.
The share based payment scheme for middle management and other
eligible employees continues under existing terms for
2020-2021.
December 2018 arrangements:
A new compensation system was approved by shareholders at the
AGM on 21 May 2018 and came into effect on 1 January 2019 and it
covers the period 2019-2021 inclusive. On 28 December 2018, the
Board of Directors approved the following details for this new
compensation schemes for the top management and the Group considers
that as a grant date. All the top management schemes are equity
settled and accounted respectively.
Deferred share salary plan
Part of the top management salary is paid with shares with the
objective of closely promoting the long-term success of the Group
and aligning senior executive directors' and shareholders'
interests. Shares are usually delivered during the first quarter of
the second year (i.e. the year after the performance year) and the
exact date is determined by the Board. 50% of the shares have 1
year deferral period and the remaining 50% is deferred for 2 years
from the delivery date. The shares are registered in the trustees
name as nominee for the participants and the participants are
entitled to receive dividends .
Where applicable, deferred share salary is paid in part under
the executive director's service contract with TBC JSC and in part
under his service contract with TBC PLC, to reflect the executive
director's duties to each. Initial salaries are set and approved by
the Supervisory Board and Board of Directors. The Remuneration
Committee assists both Boards in compensation related matters and
makes respective recommendations. Deferred compensation is subject
to the Group's malus and clawback policies until the shares are
vested and during the holding period. If at any time after making
the deferred compensation there is a material misstatement in the
financial results for the year in respect of which the compensation
was formally granted, the Remuneration Committee has the right to
cause some or all of the deferred compensation for that year or any
subsequent financial year that is unvested (or unpaid) to lapse (or
not be paid).
17 Share Based Payments (Continued)
The number of shares is calculated based on the average share
price of the last 10 days preceding the committee decision
date.
Deferred Bonus plan
The annual bonus for the top management is determined as to the
extent that the annual KPIs have been met. Shares are usually
delivered during the first quarter of the second year (i.e. the
year after the performance year): and the exact date is determined
by the Board. 50% of the shares have 1 year deferral period and the
remaining 50% is deferred for 2 years from the delivery date. The
shares are registered in the trustees name as nominee for the
participants and the participants are entitled to receive dividends
.
Annual KPIs are set by the Remuneration Committee at the
beginning of each year in relation to that year and approved by the
Board. To the extent that the KPIs are achieved, the Remuneration
Committee may recommend to the Board whether an award may be made
and the amount of such award. The Group does not pay guaranteed
bonuses to executive directors. The nature of the KPIs with their
specific weightings and targets is disclosed in the published
annual report. Awards are subject to the Group's malus and clawback
policies until the shares are vested and during the holding period.
If at any time after making the award there is a material
misstatement in the financial results for the year in respect of
which the award was formally granted, the Remuneration Committee
can recommend to the Board that some or all of the award for that
year or any subsequent financial year that is unvested (or unpaid)
to lapse (or not be paid).
The number of shares is calculated based on the average share
price of the last 10 days preceding the committee decision
date.
Long Term Incentive Plan (LTIP)
Long term incentive plan is used to provide a strong
motivational tool to achieve long term performance conditions and
to provide rewards to the extent those performance conditions are
achieved. Performance conditions are chosen to align the Group's
and the Bank's executive directors' interests with strategic
objectives of the Group over multi-year periods and encourage a
long-term view. In order for the shares to be delivered, the
executive directors need to meet rolling performance conditions
over the 3 year performance period.
More details about the LTIP and share based payments are given
in Remuneration Committee report for FY 2020 available
publicly.
Tabular information on the schemes is given below:
17 Share Based Payments (Continued)
In GEL except for number of shares 30 June 2021 31 December 2020
Number of unvested shares at the beginning of the period 3,028,818 3,141,541
Number of shares granted 759,112*** 528,325***
Number of shares granted - Middle management, subsidiaries' management and other
eligible
employees 759,112*** 528,325 ***
Number of shares granted 759,112*** 528,325***
Change in estimates of number of shares expected to be granted**
Change in estimates for 2020 award for Deferred salary, 2021 awards for Deferred bonus
and
LTIP - 479,580
Management forfeiture of rights for 2020 bonus - (428,451)
Change in estimates of number of shares expected to be granted** 51,129
Change in estimate of number of shares expected to vest based on performance
conditions -
2019 performance - (71,847)
Number of shares vested
2016 year award - 80% vesting - (413,544)
2017 year award - 10% vesting - (105,527)
2017 year award - 80% vesting (451,251) -
2018 year award - 10% vesting (57,102) (101,259)
2019 year award - MM 33% vesting (47,401) -
2019 year award - TM 50% vesting (137,779) -
Number of shares vested (693,533) (620,330)
Number of unvested shares at the end of the period 3,094,397 3,028,818
Value at grant date per share according to June 2015 scheme (GEL) 25 25
Value at grant date per share (GEL) middle management and other eligible employees
plan 50 50
Value at grant date per share (GEL) Deferred share salary plan 50 50
Value at grant date per share (GEL) Deferred bonus plan 50 50
Value at grant date per share (GEL) LTIP* 50 50
Expense on equity-settled part (GEL thousand) 11,361 19,448
Expense on cash-settled part (GEL thousand) 2,255 (950)
Expense recognised as staff cost during the period (GEL thousand) 13,616 18,498
*Grant date for LTIP plan has been determined for the first
award tranche only, which is planned in 2022. For remaining
tranches expense is accrued based on estimated fair value during
the future grant date.
** The maximum amount is fixed for deferred share compensations
for top management, the exact number will be calculated as per
policy.
*** Represents shares granted to subsidiaries' management.
Liability in respect of the cash-settled part of the award
amounted to GEL 2,255 thousand as 30 June 2021 (31 December 2020:
GEL 2,000 thousand). Tax part of the new bonus system for the top
management is accounted under equity settled basis.
17 Share Based Payments (Continued)
Staff costs related to equity settled part of the share based
payment schemes are recognised in the income statement on a
straight line basis over the vesting period of each relevant
tranche and corresponding entry is credited to share based payment
reserve in equity.
In 2019 the Group established employee benefit trust (EBT) set
up Executive Equity Compensation Trustee - Sanne Fiduciary Services
Limited (the "Trustee") which acts as the trustee of the Group's
share based payments plan. It purchases Group's shares from the
open market and holds them before they are awarded to participants
and vesting date is due. The number of shares to be purchased and
held are instructed by the Group. The shares are presented as
treasury shares under Shares held by trust category in the
Statement of Financial Position until they are awarded to
participants. As at 30 June 2021 the share number held by Trustee
was 641,391 (31 December 2020: 778,183), which represents 1.2% of
total outstanding shares (31 December 2020: 1.4%).
18 Earnings per Share
Basic earnings per share are calculated by dividing the profit
or loss attributable to the owners of the Group by the weighted
average number of ordinary shares in issue during the period.
In thousands of GEL except for number of shares 30 June 2021 30 June 2020
Profit for the period attributable to the owners
of the Bank 399,168 67,625
Weighted average number of ordinary shares
in issue 54, 451,777 54,421,866
Basic earnings per ordinary share attributable
to the owners of the Bank (expressed in GEL
per share) 7.33 1.24
Diluted earnings per share are calculated by dividing the profit
or loss attributable to owners of the Group by the weighted average
number of ordinary shares adjusted for the effects of all dilutive
potential ordinary shares during the year. Ordinary shares with
dilutive potential represent those shares, that were granted to the
participants of the share based payments scheme and are not yet
distributed
In thousands of GEL except for number of
shares 30 June 2021 30 June 2020
Profit for the period attributable to
the owners
of the Bank 399,168 67,625
Weighted average number of ordinary
shares
in issue adjusted for the effects of
all dilutive
potential ordinary shares during the
period 55,156,405 54,950,082
Diluted earnings per ordinary share
attributable
to the owners of the Bank (expressed in
GEL
per share) 7.24 1.23
19 Segment Analysis
The Management Board (the "Board") is the chief operating
decision maker and it reviews the Group's internal reporting in
order to assess the performance and to allocate resources. In 2021
the Group made the re-segmentation after which some of the clients
were reallocated to different segments - GEL 99.6 million of loans
and GEL 64.7 million of customer accounts were transferred from
MSME to Corporate segment. Wealth Management business with high net
worth individuals has been transferred from retail to corporate
segment due to changes in segment definitions. Other transfers
between segments were primarily due to changes in client size and
specifications compared to prior period. In the tables below is
disclosed the information as of 30 June 2021 both with and without
re-segmentation effect.
The operating segments according to the definition are
determined as follows:
-- Corporate (CIB) - a legal entity/group of affiliated entities
with an annual revenue exceeding GEL 12.0 million or which has been
granted facilities of more than GEL 5.0 million. Corporate segment
also includes wealth management private banking services to high
net worth individuals, with the threshold of USD 250,000 on assets
under management (AUM). Some other business customers may also be
assigned to the corporate segment on a discretionary basis.
-- Retail - non-business individual customers;
-- MSME - business customers who are not included in the
corporate segment; or individual customers of the fully-digital
bank, Space;
-- Corporate centre and other operations - comprises the
Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
Business customers are all legal entities or individuals who
have been granted a loan for business purposes.
The Board of Directors assesses the performance of the operating
segments based on a measure of profit before income tax.
The reportable segments are the same as the operating
segments.
No revenue from transactions with a single external customer or
counterparty amounted to 10% or more of the Group's total revenue
in as 30 June 2021 and 31 December 2020.
The vast majority of the entity's revenues are attributable to
Georgia. A geographic analysis of origination of the Group's assets
and liabilities is given in Note 25.
A summary of the Group's reportable segments as 30 June 2021
with updated segmentation and also without re-segmentation effect
(for comparative reasons) and 30 June 2020 is provided below.
19 Segment Analysis (Continued)
Segment disclosure below is prepared with the effect of 2021 re-segmentation as described
above.
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2021
- Interest income 271,402 321,483 181,002 125,298 899,185
- Interest expense (121,201) (63,061) (5,931) (254,243) (444,436)
- Net gains on currency swaps - - - 13,149 13,149
- Inter-segment interest
income/(expense) 24,865 (72,867) (68,593) 116,595 -
- Net interest income 175,066 185,555 106,478 799 467,898
- Fee and commission income 46,861 101,851 23,323 14,118 186,153
- Fee and commission expense (34,754) (24,364) (14,698) (4,036) (77,852)
- Net Fee and commission income 12,107 77,487 8,625 10,082 108,301
- Insurance profit - - - 9,873 9,873
- Net gains/(loss) from
derivatives, foreign currency
operations and translation 22,576 14,201 11,730 11,677 60,184
- Gains less losses from disposal
of investment securities measured
at FVOCI 515 - - 6,526 7,041
- Other operating income 1,642 3,511 726 31,604 37,483
- Share of profit of associates - - - 596 596
- Other operating non-interest
income and insurance profit 24,733 17,712 12,456 60,276 115,177
- Credit loss allowance for loans
to customers 33,220 (10,344) 9,687 - 32,563
- Credit loss allowance reversal/
(credit loss allowance) for
performance guarantees and credit
related commitments 1,599 405 (74) - 1,930
- Credit loss allowance for net
investments in lease - - - (2,515) (2,515)
- Credit loss allowance for other
financial assets (625) (3,309) - (1,392) (5,326)
- Credit loss allowance for
financial assets measured at
FVOCI 738 - - 1,104 1,842
- Net impairment of non-financial
assets 7 108 23 (585) (447)
- Operating profit after expected
credit and non-financial asset
impairment losses 246,845 267,614 137,195 67,769 719,423
- Losses from modifications of
financial instruments (856) (642) (93) - (1,591)
- Staff costs (22,140) (66,060) (27,774) (32,097) (148,071)
- Depreciation and amortisation (2,454) (23,609) (5,859) (4,779) (36,701)
- Provision for liabilities and
charges - - - (9) (9)
- Administrative and other
operating expenses (7,618) (34,525) (13,639) (16,365) (72,147)
- Operating expenses (32,212) (124,194) (47,272) (53,250) (256,928)
- Profit before tax 213,777 142,778 89,830 14,519 460,904
- Income tax expense (24,846) (15,329) (11,402) (5,948) (57,525)
- Profit for the period 188,931 127,449 78,428 8,571 403,379
30 June 2021
Total gross loans and advances to
customers reported 5,851,634 5,688,519 3,734,773 - 15,274,926
Total customer accounts reported 6,185,115 5,287,787 1,397,516 - 12,870,418
Total credit related commitments
and performance guarantees 2,999,097 177,427 334,281 - 3,510,805
19 Segment Analysis (Continued)
For comparison purposes segment disclosure for 2021 below is prepared without the effect of
2021 re-segmentation as described above.
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2021
- Interest income 267,098 321,483 185,306 125,298 899,185
- Interest expense (120,825) (63,061) (6,307) (254,243) (444,436)
- Net gains on currency swaps - - - 13,149 13,149
- Inter-segment interest
income/(expense) 26,118 (72,867) (69,846) 116,595 -
- Net interest income 172,391 185,555 109,153 799 467,898
- Fee and commission income 46,405 101,851 23,779 14,118 186,153
- Fee and commission expense (34,754) (24,364) (14,698) (4,036) (77,852)
- Net Fee and commission income 11,651 77,487 9,081 10,082 108,301
- Insurance profit - - - 9,873 9,873
- Net gains/(loss) from
derivatives, foreign currency
operations and translation 21,900 14,201 12,406 11,677 60,184
- Gains less losses from disposal
of investment securities measured
at FVOCI 515 - - 6,526 7,041
- Other operating income 1,642 3,511 726 31,604 37,483
- Share of profit of associates - - - 596 596
- Other operating non-interest
income and insurance profit 24,057 17,712 13,132 60,276 115,177
- Credit loss allowance for loans
to customers 32,635 (10,344) 10,272 - 32,563
- Credit loss allowance reversal/
(credit loss allowance) for
performance guarantees and credit
related commitments 1,591 405 (66) - 1,930
- Credit loss allowance for net
investments in lease - - - (2,515) (2,515)
- Credit loss allowance for other
financial assets (625) (3,309) - (1,392) (5,326)
- Credit loss allowance for
financial assets measured at FVOCI 738 - - 1,104 1,842
- Net impairment of non-financial
assets 7 108 23 (585) (447)
- Operating profit after expected
credit and non-financial asset
impairment losses 242,445 267,614 141,595 67,769 719,423
- Losses from modifications of
financial instruments (856) (642) (93) - (1,591)
- Staff costs (22,140) (66,060) (27,774) (32,097) (148,071)
- Depreciation and amortisation (2,454) (23,609) (5,859) (4,779) (36,701)
- Provision for liabilities and
charges - - - (9) (9)
- Administrative and other
operating expenses (7,618) (34,525) (13,639) (16,365) (72,147)
- Operating expenses (32,212) (124,194) (47,272) (53,250) (256,928)
- Profit before tax 209,377 142,778 94,230 14,519 460,904
- Income tax expense (24,053) (15,329) (12,195) (5,948) (57,525)
- Profit for the period 185,324 127,449 82,035 8,571 403,379
30 June 2021
Total gross loans and advances to
customers reported 5,752,029 5,688,519 3,834,378 - 15,274,926
Total customer accounts reported 6,120,436 5,287,787 1,462,195 - 12,870,418
Total credit related commitments
and performance guarantees 2,999,097 177,427 334,281 - 3,510,805
19 Segment Analysis (Continued)
Segment disclosure below is prepared without the effect of 2020 re-segmentation as described
above :
Corpo-rate Retail MSME Corpo-rate centre and other Total
In thousands of GEL operations
30 June 2020
- Interest income 225,082 285,336 162,144 115,331 787,893
- Interest expense (87,181) (86,768) (5,426) (228,716) (408,091)
- Net gains on currency swaps - - - 12,522 12,522
- Inter-segment interest
income/(expense) 841 (32,744) (64,097) 96,000 -
- Net interest income 138,742 165,824 92,621 (4,863) 392,324
- Fee and commission income 24,949 96,189 11,443 6,171 138,752
- Fee and commission expense (3,990) (45,757) (5,171) (765) (55,683)
- Net fee and commission income 20,959 50,432 6,272 5,406 83,069
- Insurance profit - - - 10,281 10,281
- Net gains/(loss) from
derivatives, foreign currency
operations and translation 25,763 17,897 13,748 (9,649) 47,759
- Gains less losses from disposal
of investment securities measured
at FVTOCI - - - (1,202) (1,202)
- Other operating income 858 2,390 129 4,600 7,977
- Share of profit of associates - - - 90 90
- Other operating non-interest
income and insurance profit 26,621 20,287 13,877 4,120 64,905
- Credit loss allowance for loans
to customers (26,627) (160,861) (61,728) - (249,216)
- Credit loss allowance for
performance guarantees and credit
related commitments 650 (378) (1,069) - (797)
- Credit loss allowance for net
investments in lease - - - (4,278) (4,278)
- Credit loss allowance for other
financial assets (1,964) (69) - (2,189) (4,222)
- Credit loss allowance for
financial assets measured at FVOCI 8 - - (546) (538)
- Other non-financial assets
impairment (332) (295) (100) 102 (625)
- Profit/(loss) before
administrative and other expenses
and income taxes 158,057 74,940 49,873 (2,248) 280,622
- Losses from modifications of
financial instruments (2,675) (22,547) (7,068) (1,880) (34,170)
- Staff costs (14,894) (54,421) (23,331) (21,360) (114,006)
- Depreciation and amortisation (2,028) (21,738) (5,422) (3,027) (32,215)
- Provision for liabilities and
charges - - - 77 77
- Administrative and other
operating expenses (5,471) (27,977) (9,184) (12,759) (55,391)
- Operating expenses (22,393) (104,136) (37,937) (37,069) (201,535)
- Profit/(loss) before tax 132,989 (51,743) 4,868 (41,197) 44,917
- Income tax expense (8,990) 25,745 5,991 1,537 24,283
- Profit/(loss) for the period 123,999 (25,998) 10,859 (39,660) 69,200
30 June 2020
Total gross loans and advances to
customers reported 5,070,563 5,358,723 3,206,106 - 13,635,392
Total customer accounts reported 3,222,718 6,019,291 1,178,321 - 10,420,330
Total credit related commitments
and performance guarantees 2,861,193 190,710 261,182 - 3,313,085
19 Segment Analysis (Continued)
Corporate Retail Micro, small Corporate Total
and medium centre and
in thousands of GEL enterprises other operations
30 June 2021
- Fee and commission
income 46,861 101,851 23,323 14,118 186,153
- Other operating
income 1,642 3,511 726 31,604 37,483
Total 48,503 105,362 24,049 45,722 223,636
Timing of revenue
recognition:
- At point in time 48,474 104,452 24,046 45,722 222,694
- Over a period of
time 29 910 3 942
Corporate Retail Micro, small Corporate Total
and medium centre and
in thousands of GEL enterprises other operations
30 June 2020
- Fee and commission
income 24,949 96,189 11,443 6,171 138,752
- Other operating
income 858 2,390 129 4,600 7,977
Total 25,807 98,579 11,572 10,771 146,729
Timing of revenue
recognition:
- At point in time 25,761 97,124 11,549 10,771 145,205
- Over a period of
time 46 1,455 23 - 1,524
Reportable segments' assets were reconciled to total assets as
follows:
in thousands of GEL 30 June 31 December
2021 2020
Total segment assets (gross loans and advances
to customers) 15,274,926 15,200,520
Credit loss allowance (477,958) (606,246)
Cash and cash equivalents 1,414,414 1,635,405
Mandatory cash balances with National Bank
of Georgia 2,117,157 2,098,506
Due from other banks 59,314 50,805
Investment securities measured at fair value
through other comprehensive income 2,022,385 1,527,268
Bonds carried at amortised cost 10,069 1,089,801
Current income tax prepayment 14,966 69,888
Deferred income tax asset 6,747 2,787
Other financial assets 287,761 171,302
Net investments in leases 245,261 271,660
Other assets 311,218 266,960
Premises and equipment 371,909 372,956
Intangible assets 284,555 239,523
Investment properties 33,407 68,689
Goodwill 59,964 59,964
Right of use assets 51,160 53,927
Investments in associates 4,286 4,090
Total assets per statement of financial position 22,091,541 22,577,805
19 Segment Analysis (Continued)
Reportable segments' liabilities are reconciled to total
liabilities as follows:
in thousands of GEL 30 June 2021 31 December
2020
Total segment liabilities (customer accounts) 12,870,418 12,572,728
Due to credit institutions 3,482,830 4,486,373
Debt securities in issue 1,445,614 1,496,497
Current income tax liability 653 853
Deferred income tax liability 18,457 13,088
Provisions for liabilities and charges 21,435 25,335
Other financial liabilities 124,308 227,432
Other liabilities 101,265 87,842
Subordinated debt 635,981 672,740
Lease Liabilities 53,755 58,983
Total liabilities per statement of financial
position 18,754,716 19,641,871
20 Interest Income and Expense
In thousands of GEL 30 June 2021 30 June 2020
Interest income calculated using effective
interest method
Loans and advances to customers 762,432 663,530
Investment securities measured at fair
value through OCI 98,500 46,056
Due from other banks 9,225 9,573
Bonds carried at amortised cost 1,344 42,363
Other financial asset 1,186 854
Other interest income
Net investments in lease 26,498 25,517
Total interest income 899,185 787,893
Interest expense
Customer accounts 230,839 177,846
Due to credit institutions 125,448 149,560
Subordinated debt 27,624 27,650
Debt Securities in issue 58,989 51,498
Other interest expense
Lease liabilities 1,452 1,537
Other 84 -
Total interest expense 444,436 408,091
Net gains on currency swaps 13,149 12,522
Net interest income 467,898 392,324
During the six months ended 30 June 2021 the interest accrued on
impaired loans amounted to GEL 34,663 thousand (30 June 2020: GEL
16,175 thousand).
21 Fee and Commission Income and Expense
In thousands of GEL 30 June 2021 30 June 2020
Fee and commission income in respect of
financial instruments not at fair value
through profit or loss:
- Card operations 89,891 65,033
- Settlement transactions 61,375 43,868
- Guarantees issued 18,369 17,047
- Cash transactions 3,959 3,886
- Issuance of letters of credit 2,913 2,686
- Foreign exchange operations 964 580
- Other 8,682 5,652
Total fee and commission income 186,153 138,752
Fee and commission expense in respect of
financial instruments not at fair value
through profit or loss:
- Card operations 56,941 41,531
- Settlement transactions 8,373 5,856
- Cash transactions 3,104 3,989
- Guarantees received 1,279 1,149
- Letters of credit 1,040 665
- Foreign exchange operations 156 110
- Other 6,959 2,383
Total fee and commission expense 77,852 55,683
Net fee and commission income 108,301 83,069
22 Other Operating Income
In thousands of GEL 30 June 2021 30 June 2020
Gain from sale of investment properties 22,752 368
Gain on disposal of premises and equipment 5,106 48
Revenues from e-commerce 2,998 2,759
Gain from sale of repossessed collateral 2,064 322
Revenues from operational leasing 1,341 1,283
Revenues from non-credit related fines 149 122
Revenues from sale of cash-in terminals 95 317
Other 2,978 2,758
Total other operating income 37,483 7,977
Revenue from operational leasing is wholly attributable to
investment properties. The carrying value of
repossessed collateral disposed of in the period ended 30 June
2021 was GEL 15,630 thousand (30 June 2020: GEL 4,840
thousand).
Gain on disposal of premises and equipment and gain from sale of
investment properties include gain generated from disposal of land
and buildings where Bank's headquarter is currently located.
Details of the transaction are described i n note 10.
23 Administrative and Other Operating Expenses
30 June 30 June
In thousands of GEL 2021 2020
Advertising and marketing services 12,036 10,348
Professional services 11,701 8,122
Intangible asset maintenance 9,514 6,756
Rent expense 7,661 6,641
Taxes other than on income 5,071 4,839
Premises and equipment maintenance 4,467 3,262
Utility services 4,271 3,426
Communications and supply 3,434 2,952
Stationery and other office expenses 2,831 3,086
Insurance 1,200 954
Transportation and vehicle maintenance 1,189 794
Security services 939 943
Personnel training and recruitment 615 511
Loss on disposal of premises and equipment 524 10
Charity 278 799
Loss on disposal of inventories 113 120
Business trip expenses 109 558
Other 6,194 1,270
Total administrative and other operating
expenses 72,147 55,391
24 Income Taxes
As at 30 June 2021, the statutory income tax rate applicable to
the majority of the Group's income is 15% (six months ended 30 June
2020: 15%). O n 12 June 2018, the new amendment to the current
corporate taxation model came into force that postpones tax relief
for re-invested profit from 1 January 2019 to 1 January 2023 for
commercial banks, credit unions, insurance organizations,
microfinance organizations and pawnshops. As a result, deferred tax
assets/liabilities are measured to the amounts that are realizable
until 31 December 2022.
25 Financial and Other Risk Management
Credit Quality
Depending on the type of financial asset the Group may utilize
different sources of asset credit quality information including
credit ratings assigned by the international rating agencies
(Standard & Poor's, Fitch), credit scoring information from
credit bureau and internally developed credit ratings. Financial
assets are classified in an internally developed credit quality
grades by taking into account the internal and external credit
quality information in combination with other indicators specific
to the particular exposure (e.g. delinquency). The Group defines
following credit quality grades:
-- Very low risk - exposures demonstrate strong ability to meet financial obligations;
-- Low risk - exposures demonstrate adequate ability to meet financial obligations;
-- Moderate risk - exposures demonstrate satisfactory ability to meet financial obligations;
-- High risk - exposures that require closer monitoring, and
-- Default - exposures in default, with observed credit impairment.
The internal credit ratings are estimated by the Group by
statistical models with the limited involvement of credit officers.
Statistical models include qualitative and quantitative information
that shows the best predictive power based on historical data on
defaults.
The rating models are regularly reviewed and back tested on
actual default data. The Group regularly validates the accuracy of
ratings estimates and appraises the predictive power of the
models.
25 Financial and Other Risk Management (Continued)
Expected credit loss (ECL) measurement
ECL is a probability-weighted estimate of the present value of
future cash shortfalls. An ECL measurement is unbiased and is
determined by evaluating a range of possible outcomes. ECL
measurement is based on four components used by the Group:
Probability of Default ("PD"), Exposure at Default ("EAD"), Loss
Given Default ("LGD") and Discount Rate. The estimates consider
forward looking information, that is, ECLs reflect probability
weighted development of key macroeconomic variables that have an
impact on credit risk.
The Bank uses is a three-stage model for ECL measurement and
classifies its borrowers across three stages: The Bank classifies
its exposures as Stage 1 if no significant deterioration in credit
quality occurred since initial recognition and the instrument was
not defaulted when initially recognized. The exposure is classified
to Stage 2 if the significant deterioration in credit quality was
identified since initial recognition but the financial instrument
is not considered defaulted. The exposures for which the defaulted
indicators have been identified are classified as Stage 3
instruments. The Expected Credit Loss (ECL) amount differs
depending on exposure allocation to one of the Stages. In the case
of Stage 1 instruments, the ECL represents that portion of the
lifetime ECL that can be attributed to default events potentially
occurring within the next 12 months from the reporting date. In
case of Stage 2 instruments, the ECL represents the lifetime ECL,
i.e. credit losses that can be attributed to possible default
events during the whole lifetime of a financial instrument.
Generally, lifetime is set equal to the remaining contractual
maturity of the financial instrument. Factors such as existence of
contractual repayment schedules, options for extension of repayment
maturity and monitoring processes held by the Bank affect the
lifetime determination. In case of Stage 3 instruments, default
event has already incurred and the lifetime ECL is estimated based
on the expected recoveries.
Definition of default
Financial assets for which the Group observed occurrence of one
or more loss events are classified in Stage 3. The Group's
definition of default for the purpose of ECL measurement is in
accordance with the Capital Requirements Regulation (EU).
The Group uses both quantitative and qualitative criteria for
the definition of default. The borrower is classified as defaulted
if at least one of the following occurred:
-- Any amount of contractual repayments is past due more than 90 days;
-- Factors indicating the borrower's unlikeliness-to-pay.
In case of individually significant borrowers the Bank
additionally applies criteria including but not limited to:
bankruptcy proceedings, significant fraud in the borrower's
business that significantly affected its financial condition,
breach of the contract terms etc. For SME and corporate borrowers
default is identified on the counterparty level, meaning that all
the claims against the borrower are treated as defaulted. As for
retail and micro exposures, facility level default definition is
applied considering additional pulling effect criteria. If the
amount of defaulted exposure exceeds predefined threshold, all the
claims against the borrower are classified as defaulted. Once
financial instrument is classified as defaulted, it remains as such
until it no longer meets any of the default criteria for a
consecutive period of six months, in which case exposure is
considered to no longer be in default (i.e. to have cured). Grace
period of six months has been determined on analysis of likelihood
of a financial instrument returning to default status after curing.
Exposures which are moved to stage 2 from default state are kept
there for certain period before transferring to Stage 1 and
classified as fully performing instruments again.
In As a result of Covid 19, the Group introduced additional
default criteria to exposures particularly affected by the covid-19
restriction. The criteria included lower days past due threshold
and deterioration in debt coverage ratio for the compromised
borrowers. Given that majority of the credit moratoria has already
expired, the past due days appropriately reflect the credit quality
of the borrower and the respective additional criteria is no longer
applicable as of June 2021. Deteriorating debt coverage rates is
still maintained as of June 2021.
Significant increase in credit risk ("SICR")
Financial assets for which the Group identifies significant
increase in credit risk since its origination are classified in
Stage 2. SICR indicators are recognized at financial instrument
level even though some of them refer to the borrower's
characteristics. The Group uses both quantitative and qualitative
indicators of SICR.
Quantitative criteria
On a quantitative basis the Bank assess change in probability of
default parameter for each particular exposure since initial
recognition and compares it to the predefined threshold. When
absolute change in probability of default exceeds the applicable
threshold, SICR is deemed to have occurred and exposure is
25 Financial and Other Risk Management (Continued)
transferred to Stage 2. Quantitative indicator of SICR is
applied to retail and micro segments, where the Group has
sufficient number of observations.
Qualitative criteria
Financial asset is transferred to Stage 2 and lifetime ECLs is
measured if at least one of the following SICR qualitative criteria
is observed:
-- delinquency period of more than 30 days on contractual repayments;
-- exposure is restructured, but is not defaulted;
-- borrower is classified as "watch".
The Group has not rebutted the presumption that there has been
significant increase in credit risk since origination when
financial asset becomes more than 30 days past due. This
qualitative indicator of SICR together with debt restructuring is
applied to all segments. Particularly for corporate and SME segment
the Group uses downgrade of risk category since origination of the
financial instrument as a qualitative indicator of SICR. Based on
the results of the monitoring borrowers are classified across
different risk categories. In case there are certain weaknesses
present, which if materialized may lead to loan repayment problems,
borrowers are classified as "watch" category. Although watch
borrowers' financial standing is sufficient to repay obligations,
these borrowers are closely monitored and specific actions are
undertaken to mitigate potential weaknesses. Once the borrower is
classified as "watch" category it is transferred to Stage 2. If any
of the SICR indicators described above occur financial instrument
is transferred to Stage 2. Financial asset may be moved back to
Stage 1, if SICR indicators are no longer observed.
As a result of COVID 19, the Group introduced additional SICR
criteria to compromised borrowers who were subject to COVID-19
restrictions. The criteria was based on the repayment history of
the exposure after the grace period and availability of recent
financial monitoring information for the vulnerable business
borrowers. As of June 2021, the effect of additional SICR criteria
have been exhausted.
ECL measurement
The Group utilizes two approaches for ECL measurement -
individual assessment and collective assessment. Individual
assessment is mainly used for stage 2 and stage 3 individually
significant borrowers. Additionally, the Bank may arbitrarily
designate selected exposures to individual measurement of ECL based
on the Bank's credit risk management or underwriting departments'
decision.
The Bank uses the discounted cash flow (DCF) method for the
determination of recovery amount under individual assessment. In
order to ensure the accurate estimation of recoverable amount the
Bank may utilize scenario analysis approach. Scenarios may be
defined considering the specifics and future outlook of individual
borrower, sector the borrower operates in or changes in values of
collateral. In case of scenario analysis the Bank forecasts
recoverable amount for each scenario and estimates respective
losses. Ultimate ECL is calculated as the weighted average of
losses expected in each scenario, weighted by the probability of
scenario occurring.
As a result of COVID-19 pandemic, the Bank performed individual
assessment for the majority of individually significant borrowers
operating in vulnerable sectors, such as Hospitality & Leisure
and Real Estate. Under an individual assessment, the Bank
considered the financial prospects of the borrowers by taking into
account the future macroeconomic conditions and analyzing the
implications of COVID-19 pandemic on their business and
operations.
As for the non-significant and non-impaired significant
borrowers the Bank estimates expected credit losses collectively.
For the collective assessment and risk parameters estimation
purposes the exposures are grouped into a homogenous risk pools
based on similar credit risk characteristics. Common credit risk
characteristics of the group include but are not limited to: Stage
(Stage 1, Stage 2 or Stage 3), type of counterparty (individual vs
business), type of product, rating (external or internal), overdue
status, restructuring status, months in default category or any
other characteristics that may differentiate certain sub-segments
for risk parameter's estimation purposes. Number of pools differs
for different products/ segments considering specifics of portfolio
and availability of data within each pool. Collective ECL is the
sum of the multiplications of the following credit risk parameters:
EAD, PD and LGD, that are defined as explained below, and
discounted to present value using the instrument's effective
interest rate.
The key principles of calculating the credit risk
parameters:
25 Financial and Other Risk Management (Continued)
Exposure at default (EAD)
The EAD represents estimation of exposure to credit risk at the
time of default occurring during the life of financial instrument.
The EAD parameter used for the purpose of the ECL calculation is
time-dependent, i.e. the Bank allows for various values of the
parameter to be applied to subsequent time periods during the
lifetime of an exposure. Such structure of the EAD is applied to
all Stage 1 and Stage 2 financial instruments. In case of Stage 3
financial instruments and defaulted POCI assets, the EAD vector is
one-element with current EAD as the only value. EAD is determined
differently for amortising financial instruments with contractual
repayment schedules and for revolving facilities. For amortising
products EAD is calculated considering the contractual repayments
of principal and interest over the 12-month period for facilities
classified in Stage 1 and over lifetime period for remaining
instruments. It is additionally adjusted to include effect of
reduction in exposure due to prepayments. In light of the COVID-19
pandemic, the Group expects that prepayment rates will be lower
compared to the pre-pandemic levels. In order to reflect this
expectation in the EAD modelling, the respective downward
adjustment was applied to the prepayment rates for the future
one-year period in December 2020. The Group decided to follow the
assumption made as of 31 December 2020 and gradually ease
adjustments made to the prepayment rates to return to pre-pandemic
level at the end of 2021. As the result, in June 2021 downward
adjustment was applied to the prepayment rates for future half-year
period (except for Corporate Segment, where FPR adjustment is still
applied for the following 12 months, as improved prepayment rates
were not observed). For revolving products, the Group estimates the
EAD based on the expected limit utilisation percentage conditional
on the default event.
Probability of default (PD)
Probability of default parameter describes the likelihood of a
default of a facility over a particular time horizon. It provides
an estimate of the likelihood that a borrower will be unable to
meet its contractual debt obligations. The PD parameter is
time-dependent (i.e. has a specific term structure) and is applied
to all non-defaulted contracts. Taking into account specific nature
of different segments of clients for which the PD is estimated as
well as unique characteristics that drive their default propensity,
the PD is modelled differently for Retail and Micro segments and
Corporate and SME segments. PD assessment approach is also
differentiated for different time horizons and is further adjusted
due to expected influence of macroeconomic variables as forecasted
for the period (see 'Forward Looking Information" section for
further details on incorporation of macroeconomic expectations in
ECL calculation). Two types of PDs are used for calculating ECLs:
12-month and lifetime PD. Lifetime PDs represent the estimated
probability of a default occurring over the remaining life of the
financial instrument and it is a sum of the 12 months marginal PDs
over the life of the instrument. The Group uses different
statistical approaches such as the extrapolation of 12-month PDs
based on migration matrixes, developing lifetime PD curves based on
the historical default data and gradual convergence of long-term PD
with the long-term default rate.
Loss given default (LGD)
The LGD parameter represents the share of an exposure that would
be irretrievably lost if a borrower defaults. For Stage 1 and Stage
2 financial instruments, the LGD is estimated for each period in
the instrument's lifetime and reflects the share of the expected
EAD for that period that will not be recovered over the remaining
lifetime of the instrument after the default date. For Stage 3
financial instruments, the LGD represents the share of the EAD as
of reporting date that will not be recovered over the remaining
life of that instrument. Assessment of LGD varies by the type of
counterparty, segment, type of product, securitization level and
availability of historical observations. The general LGD estimation
process employed by the Bank is based on the assumption that after
the default of the exposure, two mutually exclusive scenarios are
possible. The exposure either leaves the default state (cure
scenario) or does not leave the default state and will be subject
to recovery process (non-cure scenario). The probability that an
exposure defaults again in the cure scenario is involved in the
estimation process. Risk parameters applicable to both scenarios,
i.e. cure rates and recovery rates, are estimated by means of
migration matrices approach, where risk groups are defined by
consecutive months-in-default. For certain portfolios based on the
limitations of observations alternative versions of the general
approach may be applied. As a result of COVID, the Bank reduced
recovery rates for retail and micro exposures in stage 3 to reflect
the expected impact of the pandemic related restrictions. As of
June recovery rate related assumptions were remained unchanged.
Further, the Group applied an additional downward adjustment to the
collateral values for stage 3 exposures in SME and Corporate
segments to capture the expected real estate price drop. As of
June, the Group updated the adjustment based on the new
macroeconomic forecast.
Forward-looking information
The measurement of unbiased, probability weighted ECL requires
inclusion of forward looking information obtainable without undue
cost or effort. For forward-looking information purposes the Bank
defines three
25 Financial and Other Risk Management (Continued)
macro scenarios. The scenarios are defined as baseline (most
likely), upside (better than most likely) and downside (worse than
most likely) scenarios of the state of the Georgian economy. To
derive the baseline macro-economic scenario, the Group takes into
account forecasts from various external sources - the National Bank
of Georgia, Ministry of Finance, International Monetary Fund
("IMF") as well as other International Financial Institutions
("IFI"'s) - in order to ensure the to the consensus market
expectations. Upside and downside scenarios are defined based on
the framework developed by the Bank's macroeconomic unit.
The Bank uses statistical models and historical relationship
between the various macroeconomic factors and default observations
to derive forward-looking adjustments. In case these models do not
provide reasonable results either from statistical or business
perspective, the Bank may apply expert judgment or use alternative
approach. As at 30 June 2021, The Bank uses same approaches as in
31 December 2020. The bank employees statistical models to derive
forward looking adjustment in all segments except for corporate. In
corporate segment, due to the availability of comprehensive
borrower-level financial information and insignificance of the
statistical models, the Bank uses stress test approach instead. The
baseline, upside and downside scenarios were remained unchanged
from 31 December 2020 and assigned probability weighing of 60%, 10%
and 30%, respectively. The conservative probability weighting was
kept to account for the uncertainty caused by the global pandemic
.
The forward looking information is incorporated in both
individual and collective assessment of expected credit losses.
Model maintenance and validation
The Group regularly reviews its methodology and assumptions to
reduce any difference between the estimates and the actual credit
loss. Such back-testing is performed at least once a year. As part
of the back-testing process, the Group evaluates actual realization
of the risk parameters and their consistency with the model
estimates. Additionally staging criteria are also analysed within
the back-testing process. The results of back-testing the ECL
measurement methodology are communicated to the Group Management
and further actions for tuning the models and assumptions are
defined after discussions between authorised persons.
Geographical risk concentrations.
Assets, liabilities, credit related commitments and performance
guarantees have generally been attributed to geographic regions
based on the country in which the counterparty is located. Balances
legally outstanding to/from offshore companies, which are closely
related to Georgian counterparties, are allocated to the caption
"Georgia". Cash on hand and premises and equipment have been
allocated based on the country in which they are physically
held.
25 Financial and Other Risk Management (Continued)
The table below presents the geographical concentration of the
Group's assets and liabilities as at 30 June 2021:
In thousands of GEL Georgia OECD Non-OECD Total
Assets
Cash and cash equivalents 1,060,943 349,266 4,205 1,414,414
Due from other banks 45,920 13,394 - 59,314
Mandatory cash balances with National
Bank of Georgia 2,117,157 - - 2,117,157
Loans and advances to customers 14,359,764 111,137 326,067 14,796,968
Investment securities measured
at fair value through other comprehensive
income 1,562,476 458,136 1,773 2,022,385
Bonds carried at amortised cost - - 10,069 10,069
Investments in leases 243,223 - 2,038 245,261
Other financial assets 283,750 3,880 131 287,761
Total financial assets 19,673,233 935,813 344,283 20,953,329
Non-financial assets 1,133,823 338 4,051 1,138,212
Total assets 20,807,056 936,151 348,334 22,091,541
Liabilities
Due to credit institutions 1,882,998 1,572,069 27,763 3,482,830
Customer accounts 10,881,616 1,022,119 966,683 12,870,418
Debt securities in issue 1,445,614 - - 1,445,614
Other financial liabilities 122,134 324 1,850 124,308
Lease liabilities 53,384 - 371 53,755
Subordinated debt 111,501 364,026 160,454 635,981
Total financial liabilities 14,497,247 2,958,538 1,157,121 18,612,906
Non-financial liabilities 139,041 - 2,769 141,810
Total liabilities 14,636,288 2,958,538 1,159,890 18,754,716
Net balance sheet position 6,170,768 (2,022,387) (811,556) 3,336,825
Performance guarantees 656,898 723,172 242,453 1,622,523
Credit related commitments 1,877,652 3,638 6,992 1,888,282
25 Financial and Other Risk Management (Continued)
The table below shows the geographical concentration of the
Group's assets and liabilities as at 31 December 2020.
in thousands Georgia OECD Non-OECD Total
of GEL
Assets
Cash and cash
equivalents 940,076 686,110 9,219 1,635,405
Due from other
banks 37,753 13,052 - 50,805
Mandatory cash
balances
with National
Bank of
Georgia 2,098,506 - - 2,098,506
Loans and
advances to
customers 14,111,683 131,066 351,525 14,594,274
Investment
securities
measured
at fair value
through OCI 1,206,673 318,682 1,913 1,527,268
Bonds carried
at amortised
cost 1,089,801 - - 1,089,801
Investments in
leases 271,314 - 346 271,660
Other
financial
assets 167,163 3,978 161 171,302
Total
financial
assets 19,922,969 1,152,888 363,164 21,439,021
Non-financial
assets 1,133,766 396 4,622 1,138,784
Total assets 21,056,735 1,153,284 367,786 22,577,805
Liabilities
Due to credit
institutions 2,363,147 2,110,307 12,919 4,486,373
Customer
accounts 10,647,808 911,146 1,013,774 12,572,728
Debt
securities in
issue 1,496,497 - - 1,496,497
Other
financial
liabilities 227,063 356 13 227,432
Lease
liabilities 57,317 - 1,666 58,983
Subordinated
debt 115,394 390,941 166,405 672,740
Total
financial
liabilities 14,907,226 3,412,750 1,194,777 19,514,753
Non-financial
liabilities 122,684 63 4,371 127,118
Total
liabilities 15,029,910 3,412,813 1,199,148 19,641,871
Net balance
sheet
position 6,026,825 (2,259,529) (831,362) 2,935,934
Performance
guarantees 745,511 746,871 258,659 1,751,041
Credit related
commitments 1,868,011 4,678 8,627 1,881,316
Market risk
The Bank follows the Basel Committee's definition of market risk
as the risk of losses in on- and off-balance sheet positions
arising from movements in market prices. This risk is principally
made up of (a) risks pertaining to interest rate instruments and
equities in the trading book and (b) foreign exchange rate risk (or
currency risk) and commodities risk throughout the Bank. The Bank's
strategy is not to be involved in trading book activity or
investments in commodities. Accordingly, the Bank's exposure to
market risk is primarily limited to foreign exchange rate risk in
the structural book.
Currency risk
Foreign exchange rate risk arises from the potential change in
foreign currency exchange rates, which can affect the value of a
financial instrument. This risk stems from the open currency
positions created due to mismatches in foreign currency assets and
liabilities. The NBG requires the Bank to monitor both balance
sheet and total aggregate (including off-balance sheet) open
currency positions and to maintain the later one within 20% of the
Bank's regulatory capital. The Asset-Liability Management Committee
("ALCO") has set limits on the level of exposure by currency as
well as on aggregate exposure positions which are more conservative
than those set by the NBG. The Bank's compliance with such limits
is monitored daily by the heads of the Treasury and Financial Risk
Management Departments.
On 13 August 2018 the NBG introduced new regulation on changes
to OCP ("open currency position") calculation method, according to
this regulation, from March 2019 special reserves assigned to FC
balance-sheet assets would be deductible gradually for OCP
calculation purposes. As a result of COVID-19 pandemic, the NBG
implemented countercyclical measure in relation to OCP
requirements: suspended the phasing in of special reserved planned
to be fully implemented by July 2022.
Currency risk management framework is governed through the
Market Risk Management Policy, market risk management procedure and
relevant methodologies. The Bank has in place the methodology
developed for allocating capital charges for FX risk following
Basel guidelines. The table below summarises the Group's exposure
to foreign currency exchange rate risk at the balance sheet date.
While managing open currency position the Group considers part of
the provisions to be denominated in the USD, Euro and other
currencies. Gross amount of currency swap deposits is included in
Derivatives. Therefore total financial assets and
25 Financial and Other Risk Management (Continued)
liabilities below are not traceable with either balance sheet or
liquidity risk management tables, where net amount of gross
currency swaps is presented.
As of 30 June 2021 Monetary Monetary Derivatives Net position
financial financial
in thousands of GEL assets liabilities
Georgian Lari 9,031,314 6,686,428 67,840 2,412,726
US Dollar 7,507,337 10,421,811 2,893,009 (21,465)
Euro 4,304,743 1,374,259 (2,949,796) (19,312)
Other 109,935 130,408 53,015 32,542
Total 20,953,329 18,612,906 64,068 2,404,491
As of 31 December 2020 Monetary Monetary Derivatives Net position
financial financial
in thousands of GEL assets liabilities
Georgian Lari 8,756,581 7,115,738 159,241 1,800,084
US Dollar 8,004,885 10,956,193 2,914,494 (36,814)
Euro 4,556,780 1,315,871 (3,227,918) 12,991
Other 120,775 126,951 61,164 54,988
Total 21,439,021 19,514,753 (93,019) 1,831,249
US Dollar strengthening by 20% (weakening 20%) would decrease
Group's profit or loss and equity in 2021 by GEL 3,181 thousand
(increase by GEL 3,181 thousand). Euro strengthening by 20%
(weakening 20%) would increase Group's profit or loss and equity in
2020 by GEL 8,623 thousand (decrease by GEL 8,623 thousand).
US Dollar strengthening by 20% (weakening 20%) would decrease
Group's profit or loss and equity in 2020 by GEL 3,862 thousand
(increase by GEL 3,862 thousand). Euro strengthening by 20%
(weakening 20%) would increase Group's profit or loss and equity in
2020 by GEL 2,598 thousand (decrease by GEL 2,598 thousand).
Interest rate risk
Interest rate risk arises from potential changes in the market
interest rates that can adversely affect the fair value or future
cash flows of the financial instrument. This risk can arise from
maturity mismatches of assets and liabilities, as well as from the
re-pricing characteristics of such assets and liabilities.
The Bank's deposits and the part of the loans are at fixed
interest rates, while a portion of the Bank's borrowings is at a
floating interest rate. In case of need, the Bank also applies for
interest rate risk hedging instruments in order to mitigate
interest rate risk. Furthermore, many of the Bank's loans to
customers contain a clause allowing it to adjust the interest rate
on the loan in case of adverse interest rate movements,
thereby limiting the Bank's exposure to interest rate risk. The
management also believes that the Bank's interest rate margins
provide a reasonable buffer to mitigate the effect of possible
adverse interest rate movements.
The Group employs an advanced framework for the management of
interest rate risk by establishing appropriate Risk Appetite
limits, monitoring compliance with them and preparing
forecasts.
Interest rate risk is managed by the financial risk management
department and is monitored by the ALCO, which decides on actions
that are necessary for effective interest rate risk management and
follows up on their implementation. The major aspects of interest
rate risk management development and the respective reporting are
periodically provided to the Management Board, the Supervisory
Board and the Risk Committee.
25 Financial and Other Risk Management (Continued)
Following main assumptions under NBG IRR Regulation and EBA 2018
guidelines, at 30 June 2021, if interest rates had been 200 basis
points higher, with all other variables held constant, profit would
have been GEL 105,080 thousand higher, mainly as a result of higher
interest income on variable interest assets. Other comprehensive
income would have been GEL 39,200 thousand higher (30 June 2020:
GEL 23,698 thousand, as a result of an increase in the fair value
of fixed rate financial assets measured at fair value through other
comprehensive income and repurchase receivables.
If interest rates at 30 June 2021 had been 200 basis points
lower with all other variables held constant, profit for the year
would have been GEL 31,641 thousand lower, mainly as a result of
lower interest income on variable interest assets. Other
comprehensive income would have been GEL 39,200 thousand lower (30
June 2020: GEL 24,600 thousand), as a result of decrease in the
fair value of fixed rate financial assets measured at fair value
through other comprehensive income.
The Bank calculates the impact of changes in interest rates
using both Net Interest Income and Economic Value sensitivity. Net
Interest Income sensitivity measures the impact of a change of
interest rates along the various maturities on the yield curve on
the net interest revenue for the nearest year. Economic Value
measures the impact of a change of interest rates along the various
maturities on the yield curve on the present value of the Group's
assets, liabilities and off-balance sheet instruments. When
performing Net Interest Income and Economic Value sensitivity
analysis, the Bank uses parallel shifts in interest rates as well
as number of different scenarios. TBC Bank closely monitors the
adverse effect of possible parallel yield curve shift scenarios on
net interest income over a one-year period to ensure compliance
with the predefined risk appetite of the Bank.
In order to manage interest rate risk the Bank establishes
appropriate limits. The Bank monitors compliance with the limits
and prepares forecasts. ALCO decides on actions that are necessary
for effective interest rate risk management and follows up on the
implementation. Periodic reporting is done to Management Board and
the Board's Risk, Ethics and Compliance Committee.
Liquidity Risk
The liquidity risk is the risk that TBC Bank either does not
have sufficient financial resources available to meet all of its
obligations and commitments as they fall due, or can access those
resources only at a high cost. The risk is managed by the Financial
Risk Management and Treasury Departments and is monitored by the
ALCO.
The principal objectives of the TBC Bank's liquidity risk
management policy are to: (i) ensure the availability of funds in
order to meet claims arising from total liabilities and off-balance
sheet commitments, both actual and contingent, at an economic
price; (ii) recognise any structural mismatch existing within TBC
Bank's statement of financial position and set monitoring ratios to
manage funding in line with well-balanced growth; and (iii) monitor
liquidity and funding on an on-going basis to ensure that approved
business targets are met without compromising the risk profile of
the Bank.
The liquidity risk is categorised into two risk types: the
funding liquidity risk and the market liquidity risk.
Funding liquidity risk
is the risk that TBC will not be able to efficiently meet both
expected and unexpected current and future cash flow and collateral
needs without affecting either its daily operations or its
financial condition. To manage funding liquidity risk TBC Bank uses
the Liquidity Coverage ratio and the Net Stable Funding ratio set,
forth under Basel III, and defined further by the NBG. In addition
the Bank performs stress tests and "what-if" scenario analysis. In
2017, for liquidity risk management purposes National Bank of
Georgia introduced Liquidity Coverage Ratio ("NBG LCR"), where in
addition to Basel III guidelines conservative approaches are
applied to the deposits' withdrawal rates depending on the clients
group's concentration. From September, 2017 the Bank also monitors
compliance with NBG LCR limits. In 2019, for long-term liquidity
risk management purposes NBG introduced Net Stable Funding Ratio
(""NBG NSFR"). From September, 2019, on a monthly basis the Bank
monitors compliance with the set limit for NBG NSFR.
The Liquidity Coverage ratio is used to help manage short-term
liquidity risks. The Bank's liquidity risk management framework is
designed to comprehensively project cash flows arising from assets,
liabilities and off-balance sheet items over certain time bands and
ensure that NBG LCR limits are met on a daily basis.
The Net Stable Funding ratio is used for long-term liquidity
risk management to promote resilience over a longer time horizon by
creating additional incentives for TBC Bank to rely on more stable
sources of funding on a continuous basis.
The Bank also monitors deposit concentration for large deposits
and set limits for non-Georgian residents deposits share in total
deposit portfolio.
25 Financial and Other Risk Management (Continued)
The management believes that a strong and diversified funding
structure is one of TBC Bank's differentiators. The Bank relies on
relatively stable deposits from Georgia as the main source of
funding. In order to maintain and further enhance the liability
structure TBC Bank sets the targets for deposits and IFI funding
within the Bank's risk appetite.
The management believes, that a strong and diversified funding
structure is one of TBC Bank's differentiators. The Bank relies on
relatively stable deposits from Georgia as the main source of
funding. In order to maintain and further enhance the liability
structure TBC Bank sets the targets for deposits and IFI funding
within the Bank's risk appetite.
Maturity analysis
The table below summarizes the maturity analysis of the Group's
financial liabilities; based on remaining undiscounted contractual
obligations as at 30 June 2021 Subject-to-notice repayments are
treated as if notice were to be given immediately. However, the
Group expects that many customers will not request repayment on the
earliest date the Group could be required to pay and the table does
not reflect the expected cash flows indicated by the Group's
deposit retention history.
The maturity analysis of financial liabilities as at 30 June
2021 is as follows:
in thousands of GEL Less than 3 From 3 From 1 Over Total
months to 12 to 5 Years 5 years
months
Due to credit institutions 1,809,247 624,139 1,226,301 22,609 3,682,296
Customer accounts -
individuals 4,425,301 1,699,304 1,412,607 61,632 7,598,844
Customer accounts -
other 4,129,370 495,061 760,440 427,291 5,812,162
Other financial liabilities 109,461 5,567 29 - 115,057
Lease liabilities 3,419 9,553 35,738 5,322 54,032
Subordinated debt 5,593 45,942 328,970 546,760 927,265
Debt securities in issue 885 100,711 1,644,237 - 1,745,833
Gross settled forwards 2,556,190 2,043,951 87,267 - 4,687,408
Performance guarantees 153,027 663,063 795,147 11,358 1,622,595
Financial guarantees 324,073 - - - 324,073
Letters of credit 17,574 41,642 64,783 - 123,999
Other credit related
commitments 1,440,210 - - - 1,440,210
Total potential future
payments for financial
obligations 14,974,350 5,728,933 6,355,519 1,074,972 28,133,774
The maturity analysis of financial liabilities as 31 December
2020 is as follows:
in thousands of GEL Less than From From 1 Over 5 Total
3 months 3 to to 5 Years years
12 months
Due to credit institutions 2,138,399 1,156,117 2,678,130 146,205 6,118,851
Customer accounts - individuals 4,275,412 1,828,748 1,282,427 53,445 7,440,032
Customer accounts - other 4,077,900 502,224 619,298 492,887 5,692,309
Other financial liabilities 208,111 10,236 537 - 218,884
Lease liabilities 3,098 9,029 35,298 5,849 53,274
Subordinated debt 13,998 75,845 1,441,419 1,635,831 3,167,093
Debt securities in issue 1,230 59,356 1,451,263 - 1,511,849
Gross settled forwards 3,561,859 484,099 90,172 - 4,136,130
Performance guarantees 211,607 588,883 937,975 12,610 1,751,075
Financial guarantees 318,935 - - - 318,935
Letters of credit 10,820 90,559 59,463 - 160,842
Other credit related commitments 1,401,539 - - - 1,401,539
Total potential future
payments for financial
obligations 16,222,908 4,805,096 8,595,982 2,346,827 31,970,813
25 Financial and Other Risk Management (Continued)
The undiscounted financial liability analysis does not reflect
the historical stability of the current accounts.
Their liquidation has historically taken place over a longer
period than the one indicated in the tables above. These balances
are included in amounts due in less than three months in the tables
above.
Term Deposits included in the customer accounts are classified
based on remaining contractual maturities, according to the
Georgian Civil Code, however, individuals have the right to
withdraw their deposits prior to maturity if they partially or
fully forfeit their right to accrued interest and the Group is
obliged to repay such deposits upon the depositor's demand. Based
on the Bank's deposit retention history, the management does not
expect that many customers will require repayment on the earliest
possible date; accordingly, the table does not reflect the
management's expectations as to actual cash outflows.
The Group does not use the above undiscounted maturity analysis
to manage liquidity. Instead, the Group monitors the liquidity gap
analysis based on the expected maturities. In particular, the
customers' deposits are distributed in the given maturity gaps
following their behavioural analysis.
As at 30 June 2021, the analysis by expected maturities may be
as follows:
in thousands of Less than From 3 to From 1 to Over 5 years Total
GEL 3 months 12 months 5 Years
Cash and cash
equivalents 1,413,640 774 - - 1,414,414
Due from other
banks 18,696 9,661 16,905 14,052 59,314
Mandatory cash
balances with
National Bank
of Georgia 2,117,157 - - - 2,117,157
Loans and advances
to customers 1,261,272 2,739,999 6,161,944 4,633,753 14,796,968
Investment securities
measures at fair
value through
OCI 2,022,385 - - - 2,022,385
Bonds carried
at amortised cost 8,969 300 800 - 10,069
Net investments
in leases 30,585 66,383 144,358 3,935 245,261
Insurance and
reinsurance Receivables 9,484 17,614 - - 27,098
Other financial
assets 220,181 21,026 19,456 - 260,663
Total financial
assets 7,102,369 2,855,757 6,343,463 4,651,740 20,953,329
Due to credit
institutions 1,788,506 551,600 1,120,971 21,753 3,482,830
Customer accounts 979,438 57,917 - 11,833,063 12,870,418
Debt securities
in issue 132 92,372 1,353,110 - 1,445,614
Other financial
liabilities 109,461 5,568 29 - 115,058
Lease liabilities 3,114 8,923 34,661 7,057 53,755
Insurance contract
liabilities 1,950 7,300 - - 9,250
Subordinated debt 2,419 3,474 162,694 467,394 635,981
Total financial
liabilities 2,885,020 727,154 2,671,465 12,329,267 18,612,906
Performance guarantees 3,012 - - - 3,012
Financial guarantees 4,619 - - - 4,619
Other credit related
commitments 100,214 - - - 100,214
Credit related
commitments and
performance guarantees 107,845 - - - 107,845
Net liquidity
gap as of 30 June
2021 4,109,504 2,128,603 3,671,998 (7,677,527) 2,232,578
Cumulative gap
as of 30 June
2021 4,109,504 6,238,107 9,910,105 2,232,578
25 Financial and Other Risk Management (Continued)
As at 31 December 2020, the analysis by expected maturities may
be as follows:
in thousands Less than From 3 to From 1 to Over 5 years Total
of GEL 3 months 12 months 5 Years
Cash and cash
equivalents 1,634,585 820 - - 1,635,405
Due from other
banks 11,736 14,600 24,469 - 50,805
Mandatory cash
balances with
National Bank
of Georgia 2,098,506 - - - 2,098,506
Loans and advances
to customers 1,555,793 2,512,140 6,117,469 4,408,872 14,594,274
Investment securities
measures at fair
value through
OCI 1,527,268 - - - 1,527,268
Bonds carried
at amortised
cost 41,168 164,846 559,823 323,964 1,089,801
Net investments
in leases 23,675 73,284 168,447 6,254 271,660
Insurance and
reinsurance Receivables 7,641 14,190 - - 21,831
Other financial
assets 135,716 2,094 11,652 9 149,471
Total financial
assets 7,036,088 2,781,974 6,881,860 4,739,099 21,439,021
Due to credit
institutions 2,116,391 1,007,235 1,322,468 40,279 4,486,373
Customer accounts 1,267,458 380,992 - 10,924,278 12,572,728
Debt securities
in issue 121 56,031 1,440,345 - 1,496,497
Other financial
liabilities 208,111 10,236 537 - 218,884
Lease liabilities 4,061 9,061 35,281 10,580 58,983
Insurance contract
liabilities 1,950 6,598 - - 8,548
Subordinated
debt 11,747 16,369 258,110 386,514 672,740
Total financial
liabilities 3,609,839 1,486,522 3,056,741 11,361,651 19,514,753
Performance guarantees 4,427 - - - 4,427
Financial guarantees 5,424 - - - 5,424
Other credit
related commitments 100,214 - - - 100,214
Credit related
commitments and
performance guarantees 110,065 - - - 110,065
Net liquidity
gap as of 31
December 2020 3,316,184 1,295,452 3,825,119 (6,622,552) 1,814,203
Cumulative gap
as of 31 December
2020 3,316,184 4,611,636 8,436,755 1,814,203
The management believes that the Group has sufficient liquidity
to meet its current on- and off-balance sheet obligations.
26 Contingencies and Commitments
Legal proceedings
When determining the level of provision to be set up with
regards to such claims, or the amount (not subject to provisioning)
to be disclosed in the financial statements, the management seeks
both internal and external professional advice. The management
believes that the provision recorded in these condensed
consolidated interim financial statements is adequate and the
amount (not subject to provisioning) need not be disclosed as it
will not have a material adverse effect on the financial condition
or the results of future operations of the Group.
Tax legislation
Georgian , Azerbaijani and Uzbekistan tax and customs
legislation is subject to varying interpretations, and changes,
which can occur frequently. The management's interpretation of the
legislation as applied to the Group's transactions and activity may
be challenged by the relevant authorities.
26 Contingencies and Commitments (Continued)
Fiscal periods remain open to review by the authorities in
respect of taxes for five calendar years preceding the review
period. To respond to the risks, the Group has engaged external tax
specialists to carry out periodic reviews of Group's taxation
policies and tax filings. The Group's management believes that its
interpretation of the relevant legislation is appropriate and the
Group's tax and customs positions will be sustained. Accordingly,
as of 30 June 2021 and 31 December 2020 no material provision for
potential tax liabilities has been recorded.
Compliance with covenants
The Group is subject to certain covenants primarily related to
its borrowings. Non-compliance with such covenants may result in
negative consequences for the Group including growth in the cost of
borrowings and declaration of default. During 2020 and 2021, the
bank renegotiated some of its lender covenants to reflect the
changes in the operations as a result of the COVID -19. The Group
was in compliance with all covenants as of 31 December 2020 and 30
June 2021.
Management of Capital
The Bank manages capital requirements under regulatory rules.
The Bank complied with all its imposed capital requirements
throughout the reporting period.
Credit related commitments and financial guarantees
The primary purpose of these instruments is to ensure that funds
are available to a customer as required. Financial guarantees and
standby letters of credit, which represent the irrevocable
assurances that the Group will make payments in the event that a
customer cannot meet its obligations to third parties, carry the
same credit risk as loans. Documentary and commercial letters of
credit, that are written undertakings by the Group on behalf of a
customer authorising a third party to draw drafts on the Group up
to a stipulated amount under specific terms and conditions, are
collateralised by the underlying shipments of goods to which they
relate or cash deposits and therefore carry less risk than a direct
borrowing
Commitments to extend credit represent unused portions of
authorisations to prolong credit in the form of loans, guarantees
or letters of credit. With respect to credit risk on commitments to
extend credit, the Group is potentially exposed to a loss in an
amount equal to the total unused commitments. However, the likely
amount of loss is lower than the total unused commitments since
most commitments to extend credit are contingent upon customers
maintaining specific credit standards. The Group monitors the term
to maturity of credit related commitments because longer-term
commitments generally have a greater degree of credit risk than
shorter-term ones.
As of 30 June 2021 Outstanding credit related commitments are as
follows:
in thousands of GEL Stage 1 Stage Stage
2 3
Undrawn credit lines 1,374,620 57,553 8,037
Letters of credit issued 122,483 355 1,161
Financial guarantees issued 316,437 5,693 1,943
Total credit related commitments (before
provision) 1,813,540 63,601 11,141
Undrawn credit lines (3,138) (650) (3)
Letters of credit issued (219) (0) -
Financial guarantees issued (598) (2) (9)
Credit loss allowance for credit related
commitments (3,955) (652) (12)
Total credit related commitments 1,809,585 62,949 11,129
As of 31 December 2020 Outstanding credit related commitments
are as follows:
in thousands of GEL Stage Stage Stage
1 2 3
Undrawn credit lines 1,222,916 165,798 12,825
Letters of credit issued 158,131 1,464 1,247
Financial guarantees issued 303,046 14,571 1,318
Total credit related commitments (before
provision) 1,684,093 181,833 15,390
Undrawn credit lines (3,246) (986) (15)
Letters of credit issued (376) - -
Financial guarantees issued (795) (4) (2)
Credit loss allowance for credit related
commitments (4,417) (990) (17)
Total credit related commitments 1,679,676 180,843 15,373
26 Contingencies and Commitments (Continued)
The credit quality of contingencies and commitments is as
follows at 30 June 2021:
in thousands of GEL Stage 1 Stage 2 Stage 3 Total
(12-months (lifetime (lifetime ECL
ECL) ECL for SICR) for credit impaired)
Undrawn credit lines
risk category
- Very low 1,314,504 2,378 - 1,316,882
- Low 58,194 43,697 - 101,891
- Moderate 1,922 10,724 - 12,646
- High - 754 - 754
- Default - - 8,037 8,037
Gross carrying amount 1,374,620 57,553 8,037 1,440,210
Credit loss allowance (3,138) (650) (3) (3,791)
Carrying amount 1,371,482 56,903 8,034 1,436,419
Letters of credit -
issued risk category
- Very low 122,483 - - 122,483
- Low - 355 - 355
- Moderate - - - -
- High - - - -
- Default - - 1,161 1,161
Gross carrying amount 122,483 355 1,161 123,999
Credit loss allowance (219) - - (219)
Carrying amount 122,264 355 1,161 123,780
Financial guarantees -
issued risk category
- Very low 314,538 93 - 314,631
- Low 1,899 2,802 - 4,701
- Moderate - 2,798 - 2,798
- High - - - -
- Default - - 1,943 1,943
Gross carrying amount 316,437 5,693 1,943 324,073
Credit loss allowance (598) (2) (9) (609)
Carrying amount 315,839 5,691 1,934 323,464
26 Contingencies and Commitments (Continued)
The credit quality of contingencies and commitments is as
follows at 31 December 2020:
in thousands of GEL Stage 1 Stage 2 Stage 3 Total
(12-months (lifetime (lifetime ECL
ECL) ECL for SICR) for credit impaired)
Undrawn credit lines
risk category
- Very low 1,157,753 3,820 - 1,161,573
- Low 62,193 146,114 - 208,307
- Moderate 2,963 14,723 - 17,686
- High 7 1,141 - 1,148
- Default - - 12,825 12,825
Gross carrying amount 1,222,916 165,798 12,825 1,401,539
Credit loss allowance (3,246) (986) (15) (4,247)
Carrying amount 1,219,670 164,812 12,810 1,397,292
Letters of credit
issued risk category
- Very low 157,992 - - 157,992
- Low 139 1,464 - 1,603
- Moderate - - - -
- High - - - -
- Default - - 1,247 1,247
Gross carrying amount 158,131 1,464 1,247 160,842
Credit loss allowance (376) - - (376)
Carrying amount 157,755 1,464 1,247 160,466
Financial guarantees
issued risk category
- Very low 268,333 100 - 268,433
- Low 34,713 14,471 - 49,184
- Moderate - - - -
- High - - - -
- Default - - 1,318 1,318
Gross carrying amount 303,046 14,571 1,318 318,935
Credit loss allowance (795) (4) (2) (801)
Carrying amount 302,251 14,567 1,316 318,134
The total outstanding contractual amount of undrawn credit
lines, letters of credit, and guarantees does not necessarily
represent future cash requirements, as these financial instruments
may expire or terminate without being funded. Non-cancellable
commitments as at 30 June 2021 included in undrawn credit lines
above were GEL 603,051 thousand (31 December 2020: GEL 579,915
thousand).
Performance guarantees. Performance guarantees are contracts
that provide compensation in case of another party fails to perform
a contractual obligation. Such contracts do not transfer credit
risk. The risk under the performance guarantee contracts is the
possibility that the insured event occurs (i.e.: the failure to
perform the contractual obligation by another party). The key risks
the Group faces are significant fluctuations in the frequency and
severity of payments incurred on such contracts, relative to
expectations.
Outstanding amount of performance guarantees and respective
provision as at 30 June 2021 amounted to GEL 1,622,523 thousand and
GEL 3,012 thousand (31 December 2020: GEL 1,751,041 thousand and
GEL 4,427 thousand).
Fair value of credit related commitments and financial
guarantees provisions was GEL 4,619 thousand as at 30 June 2021 (31
December 2020: GEL 5,424 thousand). Total credit related
commitments and performance guarantees are denominated in
currencies as follows:
26 Contingencies and Commitments (Continued)
In thousands of GEL 30 June 2021 31 December 2020
Georgian Lari 1,227,196 1,208,199
US Dollars 1,676,054 1,584,878
Euro 545,612 776,307
Other 61,943 62,973
Total 3,510,805 3,632,357
Capital expenditure commitments . As at 30 June 2021, the Group
has contractual capital expenditure commitments amounting to GEL
91,048 thousand (31 December 2020: GEL 14,631 thousand). Out of
total amount contractual commitments related to the head office
construction amounted GEL 57,124 thousand (31 December 2020: GEL
4,853 thousand).
27 Fair Value Disclosures
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting
standards require or permit in the statement of financial position
at the end of each reporting period. The level in the fair value
hierarchy into which the recurring fair value measurements are
categorised as follows:
30 June 2021 Total 31 December 2020 Total
in thousands of Level Level Level Level Level Level
GEL 1 2 3 1 2 3
ASSETS CARRIED
AT FAIR VALUE
FINANCIAL ASSETS
Investment securities measured at fair value
through other comprehensive income
- Certificates
of Deposits of
National Bank of
Georgia - - - - - 21,687 - 21,687
- Corporate Bonds - 667,299 - 667,299 - 664,563 - 664,563
- Ministry of Finance
of Uzbekistan treasury
bills - 1,807 - 1,807 - 1,950 - 1,950
- Ministry of Finance
of Georgia Treasury
Bills - 1,352,222 - 1,352,222 - 838,152 - 838,152
- Corporate shares - - 1,056 1,056 - - 916 916
- Foreign exchange
forwards and gross
settled currency
swaps, included
in other financial
assets or due from
banks - 79,828 - 79,828 - 28,915 - 28,915
- Investment held
at fair value through
profit or loss - - 11,528 11,528 - - 17,239 17,239
TOTAL ASSETS RECURRING
FAIR VALUE MEASUREMENTS - 2,101,156 12,584 2,113,740 - 1,555,267 18,155 1,573,422
LIABILITIES CARRIED
AT FAIR VALUE
FINANCIAL LIABILITIES
Foreign exchange
forwards and gross
settled currency
swaps, included
in other financial
liabilities - 15,759 - 15,759 - 121,934 - 121,934
TOTAL LIABILITIES
RECURRING FAIR
VALUE MEASUREMENTS - 15,759 - 15,759 - 121,934 - 121,934
There were no transfers between levels during the six months
ended 30 June 2021 (2020: none).
27 Fair Value Disclosures (Continued)
The description of the valuation technique and the description
of inputs used in the fair value measurement for level 2
measurements:
in thousands of GEL 30 June 31 December Valuation
2021 2020 technique Inputs used
ASSETS CARRIED AT FAIR VALUE
FINANCIAL ASSETS
- Certificates of Deposits of
NBG, Ministry of Finance Treasury Discounted Government
Bills, Government notes, Corporate cash flows bonds yield
bonds 2,021,328 1,526,352 ("DCF") curve
Forward Official
- Foreign exchange forwards pricing exchange
and gross settled currency swaps, using present rate, risk-free
included in due from banks 79,828 28,915 value calculations rate
Total assets recurring fair
value measurements at level
2 2,101,156 1,555,267
LIABILITIES CARRIED AT FAIR VALUE
FINANCIAL LIABILITIES
Forward Official
- Foreign exchange forwards pricing exchange
included in other financial using present rate, risk-free
liabilities 15,759 121,934 value calculations rate
Total liabilities recurring
fair value measurements at level
2 15,759 121,934
There were no changes in the valuation technique for the level 2
and level 3 recurring fair value measurements during the six month
period ended 30 June 2021 (2020: none).
(b) Assets and liabilities not measured at fair value but for
which fair value is disclosed
Fair values analysed by level in the fair value hierarchy and
carrying value of assets not measured at fair value are as
follows:
30 June 2021 31 December 2020
in thousands Level 1 Level 2 Level 3 Carrying Level 1 Level 2 Level 3 Carrying
of GEL Value Value
FINANCIAL
ASSETS
Cash and cash
equivalents 832,304 582,110 - 1,414,414 755,686 879,719 - 1,635,405
Due from other
banks - 59,314 - 59,314 - 50,805 - 50,805
Mandatory cash
balances with
the NBG - 2,117,157 - 2,117,157 - 2,098,506 - 2,098,506
Loans and advances to customers:
- Corporate
loans - - 5,788,317 5,773,610 - - 5,728,134 5,583,108
- Consumer
loans - - 2,015,109 1,710,436 - - 2,025,055 1,769,760
- Mortgage
loans - - 4,125,803 3,708,022 - - 4,032,243 3,845,232
- Loans to
micro, small
and medium
enterprises - - 3,681,325 3,604,900 - - 3,508,881 3,396,174
Bonds carried
at amortised
cost - 10,069 - 10,069 - 1,086,007 - 1,089,801
Investments in
leases - - 244,691 245,261 - - 274,402 271,660
Other
financial
assets - - 196,405 196,405 - - 125,148 125,148
NON-FINANCIAL ASSETS
Investment
properties,
at cost - - 42,649 33,407 - - 105,628 68,689
TOTAL ASSETS 832,304 2,768,650 16,094,299 18,872,995 755,686 4,115,037 15,799,49 1 19,934,28 8
FINANCIAL LIABILITIES
Customer
accounts - 7,913,265 4,958,564 12,870,418 - 7,481,872 5,113,469 12,572,728
Debt
securities in
issue 1,522,291 - - 1,445,614 1,463,830 - - 1,496,497
Due to credit
institutions - 3,485,963 - 3,482,830 - 4,490,963 - 4,486,373
Other
financial
liabilities - 162,304 - 162,304 - 164,479 - 164,479
Subordinated
debt - 640,268 - 635,981 - 677,246 - 672,740
TOTAL
LIABILITIES 1,522,291 12,201,800 4,958,564 18,597,147 1,463,830 12,814,560 5,113,469 19,392,817
27 Fair Value Disclosures (Continued)
The fair values of financial assets and liabilities in the level
2 and level 3 of fair value hierarchy were estimated using the
discounted cash flows valuation technique. The fair value of
unquoted fixed interest rate instruments was calculated based on
estimated future cash flows expected to be received discounted at
current interest rates for new instruments with similar credit risk
and remaining maturity.
The fair value of investment properties was estimated using
market comparatives. The unobservable input to which the fair value
estimate for premises is most sensitive is price per square meter:
the higher the price per square meter, the higher the fair value.
Management assessed the prices per square meter and they have not
changed significantly from the end of 2020.
Amounts due to credit institutions were discounted at the
Group's own incremental borrowing rate. Liabilities due on demand
were discounted from the first date that the Group could be
required to pay the amount.
There were no changes in the valuation technique for the level 2
and level 3 measurements of assets and liabilities not measured at
fair values in the six months ended 30 June 2021 (2020: none).
28 Related Party Transactions
Pursuant to IAS 24 "Related Party Disclosures", parties are
generally considered to be related if the parties are under common
control or one party has the ability to control the other or it can
exercise significant influence over the other party in taking
financial or operational decisions. In considering each possible
related party relationship, attention is directed to the substance
of the relationship, not merely the legal form:
-- Parties with more than 5% of ownership stake in the TBCG or
with representatives in the Board of Directors are considered as
Significant Shareholders.
-- The key management personnel include members of TBCG's Board
of Directors, the Management Board of the Bank and their close
family members.
Transactions between TBC Bank Group PLC and its subsidiaries
also meet the definition of related party transactions. Where these
are eliminated on consolidation, they are not disclosed in the
Group Financial Statements.
The definition of the related party is different per standards
of National Bank of Georgia and is regulated by the published
Decree N 26/04 of the Governor of the National Bank of Georgia
(link to the document below in the footnote).
As of 30 June 2021, the outstanding balances with related
parties were as follows:
in thousands of GEL Contractual Significant Key management
interest rate shareholders personnel
Gross amount of loans and advances
to customers 4%-33% 39 7,777
Credit loss allowance for loans
and advances to customers - 3
Customer accounts 0.0%-12.5% 13,672 18,809
As of 31 December 2020, the outstanding balances with related
parties were as follows:
in thousands of GEL Contractual Significant Key management
interest rate shareholders personnel
Gross amount of loans and advances
to customers 6.6% - 36.0% 54 6,869
Credit loss allowance for loans
and advances to customers - 4
Customer accounts 0.0% - 11.5% 16,574 16,555
28 Related Party Transactions (Continued)
The income and expense items with related parties except from
key management compensation during the period end 30 June 2021 were
as follows:
Significant Key management
In thousands of GEL shareholders personnel
Interest income 3 153
Interest expense - 1
Fee and commission income 14 28
Administrative and other operating expenses
(excluding staff costs) - 177
The income and expense items with related parties except from
key management compensation during the period ended 30 June 2020
were as follows:
Significant Key management
In thousands of GEL shareholders personnel
Interest income 4 164
Interest expense 1 2
Fee and commission income 18 19
Administrative and other operating expenses
(excluding staff costs) - 281
The aggregate loan amounts advanced to, and repaid, by related
parties during the period end 30 June 2021 were as follows:
Significant Key management
In thousands of GEL shareholders personnel
Amounts advanced to related parties during
the period 41 4,056
Amounts repaid by related parties during
the period (55) (2,453)
Aggregate amounts of loans advanced to and repaid by related
parties during the six months ended 30 June 2020 were as
follows:
Significant Key management
In thousands of GEL shareholders personnel
Amounts advanced to related parties during
the period 59 1,232
Amounts repaid by related parties during
the period (39) (1,265)
The compensation of the TBCG Board of Directors and the Bank's
Management Board is presented below:
Expense over the six
months ended
In thousands of GEL 30 June 2021 30 June 2020
Salaries and bonuses 4,972 4,753
Equity-settled share-based compensation 5,805 4,945
Total 10,777 9,698
Included in salaries and bonuses for six months ended 30 June
2021 GEL 1,236 thousand relates to compensation for directors of
TBCG paid by TBC Bank Group PLC (six months ended 30 June 2020: GEL
1,329 thousand).
29 Events after Reporting Period
Subsequent to the year end the Board of Directors of TBC Bank
Group PLC has declared an interim dividend of GEL 1.5 per TBC PLC
share (the "Interim Dividend"). The Interim Dividend will be
payable in Pounds Sterling to ordinary shareholders of TBC Bank
Group PLC on the register of members at the close of business on
the record date of 20 August 2021. Dividend payment date will be 17
September 2021.
Appendix A - A full list of related undertakings and the country
of incorporation is set out below.
Company Name Country of incorporation
JSC TBC Bank 7 Marjanishvili Street, 0102, Tbilisi, Georgia
United Financial Corporation JSC 154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia
TBC Capital LLC 11 Chavchavadze Avenue, 0179, Tbilisi, Georgia
TBC Leasing JSC 76 Chavchavadze Avenue, 0162,, Tbilisi, Georgia
TBC Kredit LLC 71-77, 28 May Street, AZ1010, Baku, Azerbaijan
Banking System Service Company LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Pay LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Invest LLC 7 Jabonitsky street, , 52520, Tel Aviv, Israel
Index LLC 8 Tetelashvili,0102,, Tbilisi, Georgia
JSC TBC Insurance 24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
TBC Invest International Ltd 7 Marjanishvili Street, 0102, Tbilisi, Georgia
University Development Fund 1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
JSC CreditInfo Georgia 2 Tarkhnishvili street, 0179, Tbilisi, Georgia
LTD Online Tickets 3 Irakli Abashidze street, 0179, Tbilisi, Georgia
VOO LLC 44 Petre Kavtaradze street, 0128, Tbilisi, Georgia
Swoop JSC 44 Petre Kavtaradze street, 0162, Tbilisi, Georgia
Natural Products of Georgia LLC 1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
Mobi Plus JSC 45 Vajha Pshavela Street, 0177, Tbilisi, Georgia
Mineral Oil Distribution Corporation JSC 11 Tskalsadeni Street, 0153, Tbilisi, Georgia
Georgian Card JSC 106 Beliashvili Street, 0159, Tbilisi Georgia
Georgian Securities Central Depositor 74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
JSC Givi Zaldastanishvili American Academy In Georgia 37 Chavchavadze Avenue, 0162, Tbilisi Georgia
United Clearing Centre 5 Sulkhan Saba Street, 0105, Tbilisi, Georgia
GRDC N.V Utrechtseweg 95, 1213 TN Hilversum,Netherlands
Banking and Finance Academy of Georgia 123, Agmashenebeli Avenue, 0112, Tbilisi, Georgia
Tbilisi's City JSC 15 Rustaveli Avenue, 0108, Tbilisi Georgia
TBC Trade 11A Chavchavadze Ave, 0179, Tbilisi, Georgia
TBC Support LLC 12 Rustaveli Avenue, 0108, Tbilisi Georgia
Redmed LLC 25 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
TBC Ecosystem companies LLC 7 Marjanishvili st. Didube-chugureti District,
Tbilisi,Georgia
TKT UZ 12, Shota Rustaveli, Yakkasaray district, Tashkent,
Uzbekistan
My.Ge LLC 129a Sh. Nutsubidze St. Vake,Tbilisi, Georgia
Mypost LLC 129a Sh. Nutsubidze St. Vake,Tbilisi, Georgia
Billing Solutions LLC 14 Khelovanta St. Isani, Tbilisi, Georgia
Allproperty.ge LLC 4 Besiki St.Mtatsminda District, Tbilisi,Georgia
F Solutions LLC 36, Kakheti Hwy, Isani-Samgori District, Tbilisi, Georgia
TBC Connect 7 Marjanishvili st. Didube-chugureti District,
Tbilisi,Georgia
Inspired LLC 1, Chust, Mirzo Ulugbek district, Tashkent, Uzbekistan
VOO LLC (UZ Leasing) 10B, Fidokor, Yakkasaray, Tashkent, Uzbekistan
TBC Concept LLC 7 Marjanishvili st. Didube-chugureti District,
Tbilisi,Georgia
TBC Bank UZ 118/1, Amir Temur avenue, Yunusobod district, Tashkent,
Uzbekistan
TBC Group Support LLC 7 Marjanishvili st. Didube-chugureti District,
Tbilisi,Georgia
Tbilisi Stock Exchange JSC floor 2th block 8, 71 Vazha Pshavela Ave, Tbilisi, Georgia
Georgian Stock Exchange JSC 74a chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia
Kavkasreestri JSC 74a chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia
Freeshop.ge LLC2 74 chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia
The.ge LLC2 20 amaglebis st. old Tbilisi, Georgia
SABA LLC 5, Gabashvili street, vake-saburtalo Tbilisi, Georgia
Artarea.ge LLC 25 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
TBC Art Gallery LLC 6, Tsimakuridze str, Tbilisi, Georgia
TBC Capital Asset Management LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
Swift 1 Adele Avenue, B-1310, La Hulpe, Belgium
Space International JSC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
[1] Operating income includes net interest income, net fee and
commission income and other non-interest income
[2] For the ratio calculation, all relevant group recurring
costs are allocated to the Bank.
[3] Market share figures are based on data from the National
Bank of Georgia (NBG), which includes interbank loans.
[4] Active digital users include unique users of TBC Bank
internet and mobile banking, Space app and TBC Pay mobile app.
[5] Users with at least one visit on our internet or mobile
banking application every day during the given period. Average DAU
is an average number of daily active retail digital users for the
given period.
[6] DAU/MAU equals daily active digital users divided by monthly
active digital users. Figures are given for TBC
Bank internet & mobile banking only
[7] Including Space transactions
[8] Internet and mobile banking penetration equals the number of
active digital users divided by the total number of active
clients.
[9] National Statistics Office of Georgia
[10] For the ratio calculation, all relevant group recurring
costs are allocated to the Bank.
[11] Includes consumer loans issued via internet and mobile
bank, call center, web platform tbccredit.ge and Space to total
consumer loans issued
([12]) Includes deposits opened through internet and mobile
banking, call center and Space to total deposits opened
[13] Tracking the recovery, July 23, 2021, TBC Capital
[14] Macro Insights: Restart in action - only partially led by
the tourism recovery, July 1, 2021, TBC Capital
[15] Other operating non-interest income includes net insurance
premium earned after claims and acquisition costs.
[16] For the ratio calculation, all relevant group recurring costs are allocated to the Bank.
[17] Net insurance premium earned after claims and acquisition
costs can be reconciled to the standalone net insurance profit (as
shown in Annex 3) as follows: net insurance premium earned after
claims and acquisition costs less credit loss allowance,
administrative expenses and taxes, plus fee and commission income
and net interest income.
[18] In 1Q 2021, we updated the calculation methodology of NPL
collateral coverage; please refer to annex 5 for more details.
[19] In 1Q 2021, we updated the calculation methodology of NPL
collateral coverage; please refer to annex 5 for more details.
[20] Secured loans are those that are secured with cash, gold,
real estate and other PPE.
[21] Other financial assets and liabilities do not contain
offset amounts of omnibus accounts for TBC Capital (nominee
accounts, where TBC Capital acts as a fiduciary on client's
behalf).
[22] Other operating non-interest income includes net insurance
premium earned after claims and acquisition costs.
[23] For the ratio calculation, all relevant group recurring costs are allocated to the Bank.
[24] Net insurance premium earned after claims and acquisition
costs can be reconciled to the standalone net insurance profit (as
shown in Annex 3) as follows: net insurance premium earned after
claims and acquisition costs less credit loss allowance,
administrative expenses and taxes, plus fee and commission income
and net interest income.
[25] Other financial assets and liabilities do not contain
offset amounts of omnibus accounts for TBC Capital (nominee
accounts, where TBC Capital acts as a fiduciary on client's
behalf).
[26] TBC Bank Group PLC became the parent company of JSC TBC
Bank on 10 August 2016.
[27] Market shares are based on internal estimates. Source is
Insurance State Supervision Service of Georgia. Total non-health
and retail market share in 2Q 2021 including MTPL stood at 16.2%
and 29.6% respectively
([28]) Net earned premium equals earned premium minus the
reinsurer's share of earned premium.
[29] World Bank, Global Economic Prospects, June 2021
[30] Standalone figures of the Bank, calculated per NBG
standards
[31] World Bank, Global Economic Prospects, June 2021
[32] The company was renamed from TBC International LLC to TBC
Ecosystem companies LLC in the end of 2020.
[33] Loan collateral secured/unsecured definition has changed
since year end 2020. June 2021 schedules correspond to numbers
after changes.
[34] Loan collateral secured/unsecured definition has changed
since year end 2020. June 2021 schedules correspond to numbers
after changes.
[35] refer to note 2 for detailed explanation of changes in
business model
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END
IR FLFIDTSIDLIL
(END) Dow Jones Newswires
August 18, 2021 02:00 ET (06:00 GMT)
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