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

Good afternoon, ladies and gentlemen, and welcome to the TBC Bank Group plc Q1 '22 Results Investor Presentation. Throughout this recording presentation, investors will be in listen-only mode. [Operator Instructions] The company may not be in a position to answer every question received during today's meeting. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And if you would give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand the floor over to the CEO and CFO from TBC Bank. Good afternoon.

Good afternoon, and thank you for your introduction. Dear all, thank you for joining our call. I'd like to start our presentation today with a short introduction of our bank, TBC Bank. We are the largest banking group in Georgia with consistent track record of growth and profitability. We operate an advanced omnichannel distribution network with strong focus on digital channels and superior customer experience. We are also a leading provider of payment solutions in Georgia and Uzbekistan. In October 2020, we launched digital banking operations in Uzbekistan for retail customers and already achieved impressive results. I will discuss our progress in Uzbekistan later during the presentation. TBC Bank is listed on the premium segment of the London Stock Exchange and is a FTSE 250 constituent. It's also a member of the MSCI United Kingdom Small Cap Index. We have a diversified investor base with 74% of our share on in free float. Our investors come from different geographies, the largest being U.K., U.S.A., Sweden and the South Africa. In terms of financial metrics, we had a solid start of the year with our return on equity standing at 24.3% and return on assets at 3.7% in the first quarter. At the same time, our loan and deposit portfolio reached GEL 17 billion and GEL 15 billion, respectively, with a market share of around 40% in both. Our capital and liquidity levels also remain strong. By the end of March, our CET1 capital adequacy ratio stood at 14.6%, the strongest among the Georgian system in banks while liquidity coverage ratio was 116%. I'm glad to inform you that our strong capital position allowed the Board to recommend payment of a final dividend for 2021 of GEL 2.16 per share at the upcoming 2022 AGM. This, together with the interim dividend paid in September 2021, will equal a total dividend of GEL 3.66 per share. The dividend payout ratio for 2021 will be 25%, in line with our medium-term target of 25% to 35%. Slide 4 illustrates our competitive position in more detail. As you can see, TBC's the leader with a market share of around 39% in total loss followed by Bank of Georgia with the respective shares of 36%. The other players are much smaller with the loan market share below 6%. Now moving to the Slide 5, I'd like to highlight our key achievements during the quarter. We continue to be the market leader in Georgia with the robust profitability and strong growth, supported by solid capital. We also continue to rapidly grow our business in Uzbekistan. In the first quarter, the group generated, as I already mentioned, return on equity of 24.3%, while the CET1 ratio increased to 14.6%. At the same time, our loan book grew by 21% and deposit portfolio increased by 14%. In Uzbekistan, we continue to deliver outstanding results and our retail loan book reached GEL 160 million, while retail deposits amounted to GEL 193 million by the end of April. At the same time, our registered users reached 1.6 million. I'm also delighted to report that on the group's level, the number of digital daily active users almost reached 1 million in March, while the number of monthly active users stood at 2.8 million for the same period. Now I'd like to review the recent market developments briefly. In the first quarter, the Georgian economy maintained strong growth despite the adverse impact of the war in Ukraine. Real GDP growth reached 14.4% for the first quarter. Going forward, we expect the economy to grow by around 5.5% in 2022. And the negative spillover from the world appears to be more limited than initially anticipated. Also on a positive side, the lari regained its value quarter-on-quarter after the short-term volatility and remained stable. The next slide shows the growth drivers in March, and mostly remained at strong levels. Tourist recovery strengthened in March, supported by the migration effect and stood at around 70% of the 2019 levels. At the same time, remittances have slowed, but still maintained a positive growth rate of 2.6%. Remittances from Russia decreased by 60% year-on-year, while inflows from other countries increased by 6.5% over the same period. The outlook for lari is also broadly neutral. Next slide shows the major drivers underlying our GDP forecast for this year. In our baseline scenario, we expect the Georgian economy to grow by around 5.5% this year on the back of the tourist recovery and the resilient exports compared to 7% to 7.5% GDP growth without the war impact. Bank credit is also expected to be supportive, growing around 16% year-on-year in constant currency terms. Now let's move to the next slide. And in this section, I'd like to reiterate the group's positioning and highlight our fast growth potential. First of all, we are the market leader in Georgia with diversified business across all market segments. Second, we consistently delivered robust profitability and steady growth by strong capital. Third, we stand out with advanced omnichannel distribution and best-in-class digital customer proposition. In addition, we have fast-growing payment business in Georgia and Uzbekistan. And finally, our Uzbek operations give us a strategic advantage to lower 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 the first quarter, we had 3.6 million active users. Moving to the next slide, we show our leading position in Georgia. You can see from this slide that we hold leading positions across all segments with steady growth levels. This leading positions indicate the 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 for the first quarter, including strong profitability and solid capital position. As I mentioned already, we delivered 24.3% of return on equity, while return on assets stood at 3.7%. Net interest margin improved by 0.9 percentage points year-on-year and reached 5.6%. In addition, our cost-to-income ratio stood at 36.6%, down by 2.7 percentage points year-on-year. At the same time, our CET1 ratio increased to 14.6%. It is important to stress that this is about the minimum required level by 2.4 percentage points. Next slide illustrates the solid growth of our Georgian payment business. This quarter was successful for our payment business in Georgia as well. And as you see on this slide, we had a solid increase in both transaction number and volume, which significantly contributed to the fee and commission growth in the first quarter. It is important to highlight that our payment business is a significant contributor to our fee and commission income accounting for around 30% of the total. On the Slide 14, you can see our digitalization metrics, both in Georgia and on the group's level. We have strong progress in expanding our digital footprint on the group's level. We have up to 1 million active digital users every day and 2.8 million active digital users every month. What is most important, our transaction offloading continues to be high at 99%. In consumer lending, we issued 62% of loans digital. Now I'd like to update you about our continued progress of Uzbek back operations in more details. By the end of April, the number of downloads of our TBC UZ application reached 2.1 million, while the number of registered users were 1.6 million. At the same time, we reached GEL 193 million in deposit and GEL 160 million in loans. Finally, I'd like to highlight the strong performance of our payment subsidiary, Payme, which is the second largest payment provider in Uzbekistan. In the first quarter, Payme continued its rapid growth in all major metrics. The number of monthly active users continue to grow, reaching 1.8 million at the end of the March, while the number of active merchants also increased to around 3,000. In terms of financial results, the revenue reached GEL 9.5 million, while the net profit almost doubled and reached GEL 5.8 million. Now I'd like to hand over to Giorgi, please.

Thank you very much, Vakhtang. And as you already mentioned, it was a really exceptional quarter with strong financial performance. Our net profit is up by 46% year-on-year. But more importantly, it is up by 13% quarter-on-quarter driven by the strong income generation across the board, while our asset quality remained very strong, translating into cost of risk 30 basis points. As a result, our ROE, as Vakhtang a few times, stood at very solid 24.3%. Now I'll go to Slide 19 that shows our growing and diversified revenue streams. Our NIM continued a very positive trend in Q1 and amounted to 5.6%, up to 20 basis points on a quarterly basis, but remarkable 90 basis points on a year-on-year basis. This strong growth was mainly driven by increase in loan yields, accompanied by loan composition change as well as the liability management. We also recorded a very robust growth of 44% in noninterest income year-on-year, which was driven by a strong increase in net fee and commission income and significant growth in FX gains due to increased volume and margins. On a quarterly basis, our noninterest income increased by 10% on the back of higher FX gains. Now let's move to Slide 20 that shows our high efficiency levels. As you can see from the left-hand chart, in Q1 '22, our total OpEx grew by 25% year-on-year or around GEL 29 million. And staff cost growth was mainly due to growth of business, both locally and into Uzbekistan, while admin costs were mainly driven by Uzbekistan rollout. On a quarterly basis, our operating expenses decreased by 4%. That is mainly due to seasonally high base in Q4. But the most important thing here is that we continued our positive cost-to-income growth trend. And as a result, our cost-to-income ratio stood at 36.6% in the fourth quarter '22, 2.7% down from the last year. Now Slide 21. Here, I'd like to present our strong asset quality. Our NPL remained unchanged on quarterly basis at 2.4%. However, materially decreased year-on-year from COVID [indiscernible], mainly driven by resumed repayment of restructured loans in the retail and MSME segments. Our cost of risk for the quarter was 30 basis points as a result of the strong performance of the loan book across all segments. I just would like to highlight here that we sold our return of consumer loan portfolio, which resulted in around GEL 13 million provision charge reversal, without the cost of goods would have been around 60 basis points. Now moving to Slide 22 that provides a brief overview of loan and deposit portfolio growth. We maintained our leadership position in total loans by slightly outperforming the market growth of 21% year-on-year on a constant currency basis. At the same time, our deposit portfolio outpaced the market and grew by 13% year-on-year without currency effect. I'd like to highlight that we continue to hold the #1 market position in Georgia, both in terms of total loans and deposits. Now Slide 23 that shows our solid capital position. CET1 ratio stood at 14.6% at the end of Q1 and was 2.4 percentage points above the minimum reg requirement. Over the period, we are also well above all regulatory limits. As Vakhtang already mentioned, we plan to pay a final dividend for '21 of around 25% of last year profit. Our pro forma CET1 ratio would have been 14% even after paying this dividend in Q1, still were above reg requirements of 1.8 percentage points, positioning the bank very well for its international and the local growth and withstanding any potential headwinds. Now moving to the Slide 24. Here, I will conclude my presentation with funding and liquidity summary. As you can see from this slide, we have a very balanced funding structure with higher customer share of 71%. Also, our NSFR and LCR ratios were comfortably above the minimum reg limit of 100%. I also would like to stress here that without applied Georgia banking specifics, the LCR ratio of Basel basis would have been 208%. Now I'd like to hand back to Vakhtang who will update you about our medium-term targets and future outlook.

Thank you, Giorgi. And I'd like to reiterate our medium-term guidance and compare our [ results ] in the first quarter against these targets. Our loan book grew by 21% against our medium-term target of 10% to 15%. Our return on equity was, as we already mentioned, 24.3%, meaningfully above our medium-term target of 20% plus. Our cost-to-income ratio was 36.6%, getting closer to our medium-term target of below 35%. And finally, as already mentioned, we expect our dividend payout ratio to be at 25% for 2021, within our guidance of 25% to 35%. And I'd like to finish today's presentation by recapping our strategic priorities, which are: maintain robust profitability backed by solid capital; diversify and increase our fee and commission income; continue sustainable growth in Georgia; capture the high-growth potential of the Uzbek market; and continue to deliver efficient growth by leveraging our advanced digital capabilities. With that, I'd like to invite you to ask the questions.

[Operator Instructions] Just like the company take a few moments to review those questions submitted already. I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, will be accessible via our Investor Meet company dashboard. Thank you, firstly, to all the investors that have submitted questions. We've got a number to go through, if I may. The first one reads as follows, given the growth of active users, are there any new complementary products or services that you look to offer through these digital channels?

Yes. As you noticed, I will try to answer it and if Giorgi wants, he will add something there. So as we already mentioned in our presentation today, we are operating into -- mainly operating in 2 countries, Georgian and Uzbekistan. So in Georgia, we have full kind of the banking, I mean, beginning from the micro and increase corporate. And to answer more the question is that in digital, we have in Georgia, all kinds of the products. I mean just beginning from the payments and the consumer lending and now we are trying even to doing digital mortgage businesses. So all kinds of the products we are doing to do in digital. And also provide [indiscernible] in Georgia. The last 4 to 5 years, we are building ecosystems around TBC Bank. And I can say that successfully, what we did at every month, we have around up to 1.8 million FT users on our ecosystem. So what does it mean? That we have an ecosystem such as marketplaces, we have a housing ecosystem. We have a car business ecosystem. We have a lifestyle. So we have a different kind of ecosystem, which allows us to have a much more iterations with our customers at retail. So this is in Georgia. In Uzbekistan, we have a much simpler model. So in Uzbekistan, we operate through digital banks. So everything stands through our mobile application, and we have the just payment business and also consumer lending and the kind of the deposits for the individuals. And as we have already mentioned in our presentation, it's a commercial banking. We have digital bank in Uzbekistan. Also in addition to that, we have a very well-developed second player in Uzbekistan, payment operator, where we have up to 5 million dealers.

Let me turn to the next question, if I may. What expansion plans do you have outside of Georgia?

Yes. Very good question. So today, as we have already mentioned, so today, we have very good results. So today, [ retail ] users, as a group, we have around 1 million and -- not for this year, but in the medium term. It's our ambition and plan to have more than 10 million users. So on that side, we have a very ambition plan and probably in 2 to 3 years, we'll develop our businesses in other countries also.

And just to add to that, Vakhtang, the key, I would say, foundation for that is that our Uzbekistan business operates on a locally developed fintech platform space that initially was tested in Georgia. Said platform is actually managed in Georgia for Tbilisi. Therefore, we have all the capabilities and all the tools to kind of roll it out without any material like efforts because of the kind of capability is there. So once we stabilize and get on our [indiscernible] at Uzbekistan, we will be looking all the options around.

So outside Georgia, we are looking only to have a just digital banking, just digital bank for business plus the payments. So this is to be [indiscernible].

Just turning on to that really, a question here. Do you own 100% of Payme? And what do you feel really makes that so successful?

Maybe I'll try to answer this question beginning that, as a country, Uzbekistan is very interesting. If you look at population of the countries, little bit more than 32. The growth of the population every year to around 0.5 million. And the average age of the population is around 35 years, and the banking sector payment is the beginning on the estate. So this is underpenetrated market, and we are in the beginning of that. In the payment business, there are only a few players, and we try to bring the new products as much as possible. And we believe -- we are trying to deliver and our results show that we are doing very well and successfully our business as well. But also to add to that, also, we have a potential to do same as a bank there. So we have only 1 year history there as a commercial bank. But as we have already shown in our presentation, we are doing very well on the both sides, I mean, in the loans and also on the deposit side.

I think you've touched on this somewhat. Obviously, you've got a number of kind of fingers in different pies. But question raised as follows, do you have any plans to further diversify into new revenue streams?

Maybe, I'll [indiscernible]. Probably on the last question on the Payme ownership, I'd say, at the moment, we own 51% to a corporate, but we have an option to kind of exercise next year, early next year, and that's in the pipeline in the next 12 months. So at the moment, we do have controlling package, we do set the strategy. And next year, we target it to exercise our option. So on the net new revenue streams, of course, Vakhtang mentioned [ TBC Bank's ] ecosystems in Georgia that is very diversified, very good addition to the group that increases. On banking product, it may be a bit difficult to fix something new, but we are looking at different type of products like brokerage investment banking products that will help within Georgia as well along with the ecosystems, and Uzbekistan venture itself is the diversification of our revenue streams as kind of probably the [ better ] looking. Vakhtang, do you have anything to add?

No.

The question reads as follows, would you consider share buybacks in addition to dividends?

Yes. So first of all, I would like to start that, as I highlighted, we have a very strong capital position. Even after dividend payment, we are [ available ] regulatory limit. But at the moment, we see a big growth opportunity, both locally and mainly internationally. Therefore, we do think that it's better use of capital at the moment to invest into these growth opportunities. Of course, paying our -- the dividend payout ratio that we -- the payout ratio guidance for the market, 25% to 35%. This year, we compare 25%. Probably next year, we'll be looking to topping up that range and going higher. But to summarize, we do think that dividend payout topped up with the growth is the strategy we'll be going in the near term future. So no share buyback response.

That's great. I know investor feedback is important to you both, and I will shortly redirect those people on the call to provide you with their thoughts and expectations. But I wondered, if I may, before doing, [ sir Vakhtang ], just ask you for a few closing comments. And then as I said, I'll redirect investors to give you their thoughts.

Yes. Okay. Thank you very much for your interest. And as we already mentioned in our presentation, the beginning was very good, successful, beginning of this year, and we have a very ambitious plans for this year. And also, as we showed, we are performing very well and compared to our medium targets, we believe that we'll do our best to achieve our [ plans ].

And exit. Not on [indiscernible] but exit.

Thank you so much to you both, once again, for updating investors this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of TBC Bank Group plc, I'd like to thank you for attending today's presentation. That now concludes today's session, and may I wish you all a very pleasant afternoon.