TBC Bank Group PLC (TBCG) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the TBC Bank Group PLC Full Year 2021 Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. And if you would get that to your kind attention, we would be and the company would be most grateful. And I'd now like to hand over to the CEO and CFO from TBC Bank. Good afternoon to you both.

Thank you all for joining our call. I'd like to start our presentation today with a short introduction of TBC Bank from Slide #3. We are the largest bank group in Georgia with consistent record growth and profitability. We operate and address omnichannel distribution network. And we are also a leading provider of payment solutions in Georgia and also in Uzbekistan. In October 2020, we launched digital banking operations in Uzbekistan for retail customers and already achieved impressive results. And I will discuss our progress in Uzbekistan later during the presentation. In terms of financial metrics, our return on equity stood at 24.4% and return on assets rose 3.4% in 2021. At the end of the last year, our total loan and deposits portfolio market share were around 40%. And finally, on this slide, TBC Bank is listed on the premium segment of the London Stock Exchange and is a 40 to 150 constituent. It's also a member of the MSCI United Kingdom Small Cap Index. We have a diversified investor base with 75% of our shares on free float. Our investors come from different geographies, the largest being U.K., U.S.A., Sweden, and South Africa. Now let's move to the next slide. You can see that TBC Bank is a leader, with a market share of 38.8% in total loans, followed by the Bank of Georgia. And I can add on this slide that, in Georgia, we have 2 dominant banks. This is, as you see on this slide, TBC Bank and Bank of Georgia. And we have small banks with the smaller market shares beginning from 4.6%. But it's important to mention that we have banks from the neighboring countries, from Turkey, from Kazakhstan, from Azerbaijan and also from other countries. Now let's move to the next slide. And I'd like to recap our key achievements in 2021. Last year, the group generated record high return of equity, as I have already mentioned, 24.4%. And our strong profitability was backed by the solid capital. At the end of December, our CET1 ratio was 13.7%, the strongest among the Georgian systemic banks. At the same time, we delivered very strong growth in loans and deposits, where we outperformed our medium-term targets. Our bank in Uzbekistan also delivered outstanding results for the first year of operations. Our loan book and deposit portfolios reached around GEL 93 million and GEL 208 million, respectively, and we had 1.1 million registered users on our application. We also improved our digital presence, and I'd like to highlight that we increased the number of daily active users by 24% in 2021. Now I'd like to review recent macro developments briefly on this slide. In quarter 4, the macro environment continued to rebound and the economy posted 10.6% GDP growth for the full year, exceeding the 2019 level by 3.1%. Going forward, we expect the economy to grow by 6% in 2022 and 5.5% in 2023. Also, on the positive side, lari local currency remained stable during the quarter and appreciated by 5.5% during the year. The next slide shows GDP growth during the last quarter that was driven by strong external inflows and decreased domestic demand. The main drivers of the strong external inflows were exports, remittances and recovering transit tourism. Exports increased around 29% and the remittances were up by 15% year-on-year. At the same time, recovery in tourist inflows continued its positive performance over the year. And at the end of the year, tourist inflows were at around 60% of 2019 levels. Now let's move to the Slide 9. And I'd like to reiterate the group's positioning and we highlight our fast-growing potential. First of all, we are the market leader in Georgia, with diversified business across all market segments. Second, we consistently deliver robust profitability and steady growth backed by the strong capital. Third, we stand out with advanced omnichannel distribution and the best-in-class digital customer proposition. In addition, we have fast-growing payment business in Georgia and in Uzbekistan. And finally, our Uzbek operations give us a strategic advantage to deliver long-term growth and profitability. In line with our group strong market position and growth strategy, we continue to increase the number of our customers every year. And at the end of 2021, we had 2.7 million active customers. Now let's move to the next slide, and we show our leading position in Georgia. As you can see from this slide, we hold the leading position across all segments with steady growth levels. These leading positions indicate resilience and diversity of our business model and allow us to extract significant cross-segment synergies and efficiencies. On the next slide, I'd like to summarize our key financial results, including strong profitability and solid capital position. Last year, as I already mentioned, we delivered 24.4% of return on equity. It was especially important for us to achieve higher net interest margin. And I'm happy to say that we increased our net interest margin by 0.4 percentage points last year. In addition, we managed to improve our group's cost-to-income ratio slightly, even though we have been actively expanding our business in Uzbekistan. At the same time, our CET1 ratio increased to 13.7%. And it is important to stress that this is above the minimum required level by 2 percentage points. On the next slide, you can see that we continue to deliver strong progress in our digital channels. We continue to increase digitalization and the number of digital users. Our transactions of floating ratio is 98% and only 2% of total transactions are conducted in the branches. Additionally, we continue to increase the share of remote sales in consumer loans, which amounted to 45% at the end of the year. Now let's move to the next slide, which illustrates the solid growth of our Georgian payment business. This year was successful for our payment business in Georgia as well. As you see on this slide, we had a solid increase in both transaction number and volume, which significantly contributed to the fee and commission growth in 2021. Now I'd like to update you about our Uzbek operations. We operate in all major regions of the country, reaching 97% of the population. In the fourth quarter, we continued to develop new products and launched auto loans in friends and family mode as well as introduced time deposits and virtual card to the wider public. I'm also delighted that our digital bank application gained international recognition and Global Economics Magazine named us the Best Digital Banking in Uzbekistan. On the next slide, you can see that we delivered impressive growth in our Uzbek bank. By the end of the year, the number of downloads of our TBC UZ application reached 1.5 million, while the number of registered users was 1.1 million. At the same time, we reached GEL 208 million in deposits and GEL 93 million in loans, which resulted in 2% and 0.5% market shares in the retail segment, respectively. Finally, on the Slide 16, I'd like to highlight our strong performance in payment operations in Uzbekistan through our payment subsidiary, Payme as well as TBC Uzbek. Payme, which is the second largest payment provider in Uzbekistan, is growing in a rapid pace. Last year, its net profit more than doubled compared to the previous year and reached GEL 18 million. Finally, I'd like to highlight that TBC Uzbek issued more than 220,000 new cards during the last year, and our customers attached more than 380,000 cards from other banks to our application. Now I'd like to hand over to Giorgi. Giorgi, please.

Yes. Thank you, Vakhtang. Now I will go over the financial performance of the first quarter and full year into more details. I will start with Slide 18 that shows a strong financial performance for Q4 and full year '21. Our net profit in both periods was driven by robust income generation across the board as well as strong performance on asset quality side. I will go through each slide in the next following slides. As a result, as Vakhtang mentioned a few times, we achieved very high ROI of 24.4% and Q4 ROI also stood at very solid 22.1%. At the same time, our ROA was 3.4% and 3.3% in '21 and Q4, respectively. I'd like to stress that we managed to retain this strong profitability while starting to expand into other countries, as Vakhtang mentioned, specifically into Uzbekistan. Now turning to Slide 19, where I will present our growing and diversified income streams. Our NIM, as was mentioned, continued the positive trend in Q4 and amounted to 5.4%. It was up by 10 basis points on a quarterly basis. But more importantly, for full year, our NIM improved by 40 basis points and stood at 5.1%. This strong growth into our net interest margin was mainly driven by loan composition changes, including larization, and liability structure optimization, such as wholesale funding optimization, shift towards customer deposits and liquidity deployment. We also recorded very strong results in noninterest income, which grew by around 25% year-on-year in the first quarter and was up by 40% in '21. For both periods, our noninterest income grew on the back of very strong rebound in net fee and commission income of 36% year-on-year for full year '21. And this was further amplified by a one-off gain from sale of a real estate property in '21. That was around GEL 19 million net. Now let's move to the Slide 20, which shows our high efficiency levels. As you can see from the left-hand chart, in '21, our total OpEx grew by 25% or around GEL 180 million. But from that, around 60% was driven by restored management and staff bonuses. I'd like to mention here that management voluntarily waived their bonuses in 2020 during the COVID, and TBC Uzbekistan actually picked up scale only in 2021. This is actually driven by the increased businesses, investments for growth and higher performance-related costs, driven by increased revenues. However, the key point I would like to highlight, we continued to increase our operating efficiency, its positive cost-to-income jaws, and improved our cost-to-income ratio by positive 30 basis points, which decreased to 37.6% for the full year. And that's great progress towards our medium-term target to be below 45% for cost to income. In the first quarter, operating expenses increased due to staff annual bonuses and usual seasonal increase. Now turning on to Slide 21, where I would like to present our strong asset quality. By the end of the year, our NPL ratio improved across all segments, but mainly was driven by repayment of restructured loans in retail and MSME. At the same time, our total NPL coverage stood at very strong 175%, comprised of 100% provision and 75% of collateral coverage. The provision recoveries in corporate segments that we have seen throughout the year continued into the fourth quarter as well. And as a result, our core amounted to minus 0.1%, while cost of risk for the full year '21 stood at minus 0.3%. Now let's move to Slide 22, that provides a brief overview of loan and deposit portfolio growth. In '21, we maintained our leadership position in total loans by growing in line with the market at 18% on constant currency basis. At the same time, our deposit portfolio outpaced the market and grew by 25% without currency effect, which led to the increased market share. I would like to highlight that we continue to hold #1 market position in Georgia, both in terms of total loans and deposits. Now let's move to Slide 23 that shows our robust capital position. We remain the highest capitalized systemic bank, as Vakhtang already mentioned, with CET1 ratio standing at 30.7%, 200 basis points above the regulatory requirement. The CET1 ratio was up by 30 basis points on a quarterly basis, mainly driven by net income generation that was partially offset by growth in the loan book. At the same time, our Tier 1 and total capital ratios were partially supported by issuance of USD 75 million AT1 bonds in November '21 and amounted to 16.7% and 20.3%, respectively, well above the regulatory requirements. Now moving to Slide 24, where I will finish my presentation with funding and liquidity summary. As you can see from this slide, we have a well-balanced funding structure with high customer deposit share of 73%. That increased around 8% on annual basis. Also, our NSFR and LCR ratios, we are comfortably above the minimum regulatory limit of 100%. Now I would like to hand back to Vakhtang, who will update you about our medium-term targets and future outlook. Thanks.

Yes. Thank you, Giorgi. And now I'd like to reiterate our medium-term guidance and compare our performance against these targets. As you see on this slide, our loan book grew by 18% against our medium-term target of 10% to 15%. Our return on equity was 24.4%, meaningfully above our medium-term target of 20% plus. Our cost-to-income ratio was 37.6%, getting closer to our medium-term target of below 35%. And finally, as you know, we have paid the interim dividend in September and are planning to pay a final dividend in 2022 to be in line with our targeted dividend payout ratio of 25% to 35%. Now we want to move to the last slide of our presentation. And I'd like to finish today's presentation by recapping our strategic priorities, which are: maintain robust profitability backed by solid capital; diversify our fee and commission income; continue sustainable growth in Georgia; capture high growth potential of the Uzbek back market; and continue to deliver efficient growth by leveraging our advanced digital capabilities. With that, I'd like to invite you to ask the questions.

[Operator Instructions] I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your Investor Meet Company dashboard and we will notify you by e-mail when they are ready for your review. Vakhtang, Giorgi, as you know, investors had the ability to pre-submit questions. We received a couple. And perhaps if I may, I could start the Q&A off by asking you the following. The first one is, does your company provide Visa cards to investors?

Yes. We have provided Visa and Mastercard already, as I remember, more than 20 years. And so we are doing that business in Georgia. And we are in the issuing and also acquiring business in the card business. And we are the largest player both in issuing and also acquiring business. And we are in the beginning of the Visa partnership in Uzbekistan. And I think from the second quarter of this year, we will begin to issue the Visa cards in Uzbekistan.

That's great. I guess a fairly topical question and one probably expected. But do you have any exposure to Ukrainian companies?

Giorgi, you will answer the question?

I'll take. So actually, we don't have direct exposure to Ukrainian companies. We have a certain small amount of exposure of Georgian companies that might have some legs to Ukraine maybe for export and import, but it's not material. It's like a very small share in our portfolio. Therefore, we don't expect any material deterioration even in the worst case scenario in our credit quality driven by this Ukrainian exposure of Georgian companies.

And in addition to that, we have not direct or indirect exposure to the Ukraine and North or Russian banks.

That's great. If I may, I'd turn to some of the questions that we received during your presentation this afternoon. And firstly, thank you to everybody that has submitted questions. The first one is, do you see acquisitions of some of your smaller competitors as part of the plans moving forward? The slide reflects 2 large players and a tad of smaller banks. Or does competition law prevent this?

Yes. I will answer this question. So thank you for this question. And as you have seen already in our presentation, our market shares, beginning from the assets and ending by the deposits, we have market share around 36% to 40%. So we are the systemic player in Georgia. And in the last 7 to 8 years, we made 2 big acquisitions in Georgia. We brought the micro finance banking to the country. And also in 2016, we acquired number set player in Georgia belonging to the Soc Gen Group. And now it will be very difficult for us, agreeing with the Georgian local regulator, to buy these smaller banks, on the one hand. But on the other hand, as there is a big difference -- as compared to the smaller bank, there is a difference, as we are bigger than them, around meaning 10 to 15 times. There is no big interest for us to do it. So it has to be very, very interesting commercial deal for us to make that decision. Otherwise, this is our growth for half year on the portfolio side if you will look for the deals for the smaller banks in Georgia. But outside Georgia, as we have already mentioned in our presentation, this is a new strategy which we have, and we are expanding outside Georgia differently through our digital bank. And in Uzbekistan, everything which we are doing is everything done through our mobile application only. And we have plans in the medium term to develop ourselves not only in Uzbekistan, but also in other countries.

That's great. If I may turn to the next question. Can you expand further on your digital channels and how these really enhance the ultimate customer offering?

Giorgi, do you want to answer or I will?

Okay. I'll take. So we provide the full scale of the digital services to our customers. It's mobile banking, Internet banking. It was named a few times as a best like digital proposition in the country, but I think it's worth as it was like the best digital bank in the world as well. So our offloading ratio is around 96%. So all...

98%.

98%. So I can recall from the last quarter. So we are getting to 100%. So there is so much you can grow. So we have only 2% to go to fully transacting to like, say, transactions digitally. And one of the things we are launching here as well, we are also starting to offload not only transactions, but in loans into our digital channels. For example, the first consumer loans, et cetera, we started this year. So that will also help our customers actually to get more experience rather than going to the branches, getting the loans or deposits through this way. And you can just see this trend on the graph, so...

In addition to what is Giorgi saying, to sell the other products, just I think we have to add that in Georgia we are not only the bank, because on the other hand we have an insurance business, which is the largest. In the retail insurance, we are the largest in the country. We have the leasing company in the country, which is also the largest in the country with up to 60%. We have our investment banking in the country, which is also the largest in the country. So in Georgia, we are providing not only the banking products, but also the financial products, all kind of the products which is available on the Georgian reality. And 3 years ago, also, we decided to offer other products for our ecosystem. And the last 3 years, we are developing. So our idea to offer to our customers not only the financial products now, but also any kind of the products, not physically, but in digital, such as we have a marketplace for housing, for the car business, and other type of the business, we are open.

Great. If I may, the next question, if I can turn to that is, are you looking to expand the bank's footprint into different territories?

Yes. So I'll start and you may want to continue. So one thing that I think we mentioned in our presentation, our Uzbekistan bank based on scalable plus for technological solution, it's our fintech next space. That was initially launched and tested in Georgia. It was a very successful test. And on these platforms, then we actually expanded to Uzbekistan. This is very scalable platform, as I mentioned. It can be used in any location. At the moment, we are focusing Uzbekistan for this year to expand, but this platform will provide an opportunity like to expect like different countries. And this will be aligned with our international special strategy. At the moment, it may look premature to say any kind of a target or directions, but we have this capability. Vakhtang, if you want to add.

To add on that side, it's a very efficient way. And when we want, we are saying that we want to expand, what does it mean, that in every country, we want to have only commercial field. Otherwise, for example, if you take Uzbekistan, the product development, for example, marketing campaigns are managed from the headquarter, from Georgia operations, because majority of our marketing campaigns we have in the digital, in Facebook, in other types of the digital channels, and yes, centralized model is better because we can do from the headquarter easily. And when we add other countries, it will be a very efficient way to do that business because everything, we will have a simple products which we'll develop in the headquarter and also campaigns. And there we see also risks. We have a centralized model and there also it will be managed from the central office.

The next question from Alex. Would Russia being excluded from SWIFT have any effect on the bank, TBC Bank?

Yes. Thank you for this very good question. So as Giorgi already mentioned, so we have not a direct exposure to the Russian banks or into the Ukrainian banks. But we have to consider that there is some kind of the FX inflows to the Georgian economy such as remittances. And in that case, we are adding Ukraine and Russia together, which has come up to 20%. There is the exports which are going to the Russian market, which is up to 15% to 17%. But we have to have in mind that part of the exports from Georgia to Russian market is the commodity products. And easily, that products could go to the other markets if there will be some kind of restrictions. But to answer your question, if there are restriction on the SWIFT, we are forecasting that there will be problems in the short term for the remittances, which are coming from Russia to Georgia because that money had to come to Georgia, but from the other channels, and probably there will be decrease of the remittances from Russia to Georgia for 3 to 6 months, which is not material for the Georgian economy.

That's great. And that is the final question that we received from investors today. So thank you once again to all of those that have submitted questions. And of course, if we do find any questions come through in the meantime, we'll make those available for your review after today's meeting. Vakhtang, I know that investor feedback is particularly important to the company, and I will shortly redirect investors to provide you with their thoughts and expectations. But before doing so, I wondered if I may just ask you for a few closing comments just to conclude.

Yes. Thank you, first of all. So this is the first time we have such a conference. So I think the second time, we will do better. Thank you, first of all, to come to the conference, and we will do our best and be ready to answer any questions after the conference. And we are ready 24 hours to answer anything you want. Thanks a lot.

That's great. Thank you very much indeed. Could I please ask investors not to close the session as I'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure we'll be most grateful by the company. On behalf of the management team of TBC Bank Group, we'd like to thank you for attending today's presentation. Good afternoon to you all.