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

Welcome, everyone, to the TBC First Quarter 2024 Results Call Webinar. My name is Emily, and I'll be your coordinator today. [Operator Instructions] I will now hand over to Andrew Keeley, Director of Investor Relations, to begin. Please go ahead.

Thanks very much for the introduction, Emily, and thank you, everyone, for joining today's first quarter results call. I'm joined on the call by our CEO, Vakhtang Butskhrikidze and our CFO, Giorgi Megrelishvili. As usual, we'll start with a presentation, and then we'll move on to Q&A. And with that, I'll hand over to Vakhtang. Thank you.

Yes. Thank you, Andrew, and dear all. Thank you for joining our first quarter financial results conference call. Before I discuss our first quarter results, I'd like to make a few brief comments about the current situation in Georgia. As many of you have seen in media reports over the past few weeks, they have been protesting in response to the planned legislation relating to the disclosure of revenues from the foreign sources by companies and organizations. And we are, of course, monitoring this situation closely and very much hope a resolution can be found. In the meantime, I'd like to reassure our shareholders and interest investors that our bank is continuing its normal daily functions for our customers, and we have not seen any disruption to services. On a broader impact on our operating environment. I'm happy to answer any further questions during our Q&A session. During our -- turning to our results, I am delighted that we can share with you another successful start to the year with almost GEL 300 million group's net profit and more than 25% return on equity for the first quarter. Additionally, our digital monthly active users have grown by 1.2 million and reached 5.6 million. Our business in Georgia continues to grow strongly with loans up by 18%, and we are the market leaders in both loans and deposits with almost 40% share. Meanwhile, in Uzbekistan, our business goes from strengths to strengths with gross loans more than doubling and net income contributed 6% of the group's total income. Slide 4 shows our journey over the past 10 years as a public company. We conducted our IPO in June 2014, and I think we have made a great progress in the decade since. You can see we have stayed very focused on consistently delivered through growth and profitability for our shareholders. Our track record speaks for itself an average return on equity of around 22%, 25% annual growth in net profit with a consistent 25% to 35% dividend payout ratio. We will also expanded our active customer base to nearly 6 million by strengthening our presence in Georgia and by building digital financial services in Uzbekistan growing market. The next slide presents a high level overview of the first quarter performance. Net profit reached nearly GEL 300 million, up by 16%. Our growth maintained an excellent return on equity 25.1%. And at the same time, our gross loan portfolio grew by 21%, reaching GEL 22.5 billion. And importantly, our digital user base keeps growing with 5.6 million digital monthly active users across the group. Moving to the Georgia business slide, I'd like to provide you with a brief update on the Georgian economy. Economic growth remains very strong in Georgia with first quarter growth coming up at 7.8%, and we now expect 6.4% real GDP growth in 2024. Meanwhile, the inflation remains low, which has enabled the National Bank of Georgia to cut interest rates with the refinance rate now at 8.25%, down by 1.25 percentage points year-to-date. The next slide shows how we are the dominant financial services provider of the Georgian market. As you can see, TBC Bank is the leading bank in Georgia by all key metrics with approximately 40% of market share in total loans, deposits and assets. We have more than 1.6 million customers who are using our banking services on a monthly basis. Additional TBC Insurance dominated the retail non-health insurance market with over 35% market share, and TBC Leasing accounts for almost 90% of the leasing market. Now let's move to the next slide. This slide shows that our growing customer base is becoming more and more digital engaged. Out of 1.6 million active monthly customers, almost 60% are digitally active. And as we see on this slide, more and more of our products are being issued online. The share of consumer loans issued by fully digitally has increased by almost 20% over the past year to nearly 70%. The next slide introduces our leading digital lifestyle ecosystem TNET, which consists wide range of products and services across 4 verticals. In the first quarter, GMV increased by approximately 20%, reaching GEL 36 million, out of which 55% comes from the lifestyle led by the TKT. Over the same period, the number of the transactions also grew by 20% and reached more than GEL 4 million. Now moving to the Uzbekistan business, I'd like to provide you with a brief update on Uzbek economy. Real GDP has averaged almost 6% growth per year over the past decade, and we expect 5.6% growth in 2024. The country is opening up, modernizing and attracting more and more investments. And we expect GDP to almost double from $90 billion in 2023 to $160 million in 2030 with [indiscernible] strong growth in financial services and this will bring huge opportunities to us. So next slide outlines the main parts of the digital ecosystem we are building in Uzbekistan. As you know, we have been operating in Uzbekistan for about 5 years. And I'd like to say that all our businesses are profitable. The focus over the 12 to 18 months will be on a new product development and scaling up of our businesses. On the banking side, we plan to launch credit cards later this year as well as daily and MSME banking. In Payme, we will roll out the travel services, while now our POS installment loan platform, Payme Nasiya we will enhance our BNPL capabilities. On the next slide, you can see the performance of our Uzbek businesses. The results are quite impressive. We count around 14.6 million unique registered users out of which 4.7 million are monthly active customers. Our loan book continues to grow at a tremendous pace, more than doubling year-on-year to $345 million, while our deposits stood at around $245 million. In terms of profitability, we have been profitable for the last 7 quarters, and we had $7 million at the net profits and $28 million in total operating income in 2024. And lastly, on the Slide 15, we see that Uzbekistan is becoming more and more material contributor to the group. It already accounts for 42% in the total consumer loans, 8% in the retail deposit portfolio, 12% in the total operating income and 6% in the net profits, and these numbers will only grow. And we are also gaining market share in every quarter. In our core product offerings, ICL lending, we are one of the leading players on the market, and we have already 15.3% market share. In terms of the retail deposits, we have 3.4% market share, and there is much more upside to come here. Now I'd like to hand, Giorgi, over to you.

Thank you, Vakhtang, and thanks all for joining our quarterly call today. I'm going to take you through our first quarter results, and I will start from Slide 17. I'm very pleased to report that we had a very strong start of the year. As Vakhtang already mentioned, in Q1, our net profit stood at nearly GEL 300 million and was up by 16% compared to last year. Our high profitability is translated into a very robust 25.1% return on equity. Now I will go into more details about the main drivers of this profitability, said Slide 18, both net interest and noninterest income have continued to grow strongly. Net interest income was up by an excellent 21% year-on-year driven by solid loan book growth of more than 20% and strong margins. During the same period, our net fee and commission income rose by 13%. The quarterly decrease in fees is mainly related to the seasonally low businesses in the first quarter. Now I'll move to Slide 19, where I will discuss our margins. NIM decreased by about 20 basis points quarter-on-quarter, but still stands at very decent 6.5%. The decrease was driven by higher funding costs, mainly FX and declining refinance rates. Despite quite material rate cuts by the National Bank of Georgia so far this year, we hope we can keep our NIM around this level for the full year. Now I'll turn to the cost slide, Slide 20. And first of all, I would like to highlight that we do remain committed to control the growth of our cost while simultaneously supporting business growth at long-term sustainability. Costs were up by 26% compared to last year due to strong business growth with our Uzbek operations contributing for around 40% of this growth. Consequently, our cost-to-income ratio stood at 37.2% in Q1, and the quarterly decrease in cost was little seasonal. Now I'll move to Slide 21, which highlights our healthy asset quality, and you can see our NPL ratios, although it's slightly up quarter-on-quarter, it remains at a very low 2.2%, the same level as it was Q1 last year. At the same time, total coverage was 140%, while the provision coverage stood at 74%. As you can see, our cost of risk was just 0.8% for Q1, which again confirms the strong credit quality of our book. Meanwhile, our balance sheet continues to grow at a very good pace, as you can see from Slide 22. Gross loans up at a very respective of 21% on a constant currency basis and over the same period, total customer funding are up by 18%, also on this same basis, highlighting strong funding for the bank. Now let's have a look at our solid capital positions across the group, and first, I would like to highlight that in April, TBC Bank successfully placed $300 million AT1. The bonds we are priced around 50 basis points below our current AT1 that is callable in October this year. The issuance has a pro forma positive impact of 3.3 percentage points on our Tier 1 and total capital ratios in Georgia. And as you can hear from this slide, we continue to operate with strong capital position, well above the minimum regulatory requirements in both countries. And finally, Slide 24, I'm very pleased to show the super financial performance of our Uzbek business, which continues to deliver great results. In Q1 '24, Uzbekistan generated USD 28 million in total operating income and USD 7 million in net profit, that is 12% and 6% of the group total, respectively. Over the same period, return on equity of Uzbek operations was 23.7% grade result, and that was supported by NIM of about 23% plus. At the same time, despite very strong credit growth of 128% year-on-year, we remain very focused on strong underwriting as reflected in our cost of risk 5.5%. On this note, I would like to thank you and hand it back to Vakhtang for some final remarks.

Thank you. And before coming to our 2025 targets, I am pleased to report that the Board has approved the buyback program of up to GEL 75 million out of which GEL 25 million would be used for our Employee Benefit Trust and GEL 50 million would be canceled. And finally, I'd like to reiterate the target that we have set ourselves through the end of 2025. We are confident that we are hitting in the right direction to achieve these goals, but we recognize the importance of staying focused on providing the best possible services for our nearly 6 million monthly active customers. On that note, I'd like to thank you for your ongoing support, and we are now ready to answer any questions you may have.

Thanks very much, Vakhtang and Giorgi. So you're welcome to ask questions. We have -- first question is from Robert at Peel Hunt.

I've got 2. The first one relates to the share buyback that I think was unexpected, certainly for me. And I was just sort of wondering whether you could sort of talk through the thought process behind this. What it means in terms of capital allocation? Is it entirely opportunistic given the fall in the share price recently and what we might expect going forward on that? The second one is entirely different. And it's really looking at the capital ratios in Uzbekistan, where there was quite a significant reduction in the quarter, 15.4% down to 12.7%, although still well above the minimum requirement, obviously. So I guess a couple of questions on this. First of all, could I assume there will be a capital injection taking place in the second quarter. And on a longer-term basis, what should we sort of try to be modeling in terms of the Uzbekistan CET1 ratio? Should it be around the same level as the group? Would it be below Georgia? Or where should we be aiming for?

Giorgi, could you answer above the both questions?

Thanks, Robert. Firstly, buyback generally, it's not part of our capital distribution policy. As you know, we have a very clear dividend payout ratio and dividend payout policy, and we also support Uzbekistan growth. In this particular circumstances we felt that it would be a good use of the capital, and it will be beneficial for the group given like and that also shows very strong capital position of the bank because we can continue paying the dividends what we promise to the market, we can continue growth in Uzbekistan. And meanwhile, when is the opportunity and where there are the good use of the capital, we can do the buyback. That's kind of a simple set. And for Uzbekistan capital ratios. First of all, what I would like to highlight, it has a different capital requirements, different capital regime as Georgia. For example, you can see is that CET1 minimum requirement is 8%. We are still at more than 12%. It provides like 4%-plus headroom that is more than sufficient. And how Uzbekistan actually operates is that we inject capital [ based our ] partners with IFC the business grows. And whenever needed, we inject more capital. So what I can assure you is that when Uzbekistan is capital, we have capital and we will put it, whether it will be in Q2 or Q3. But as regarded to the market for the next 2 years, Uzbekistan will require support and we will support. So we have more than enough capital. And you can expect that it will maintain a robust capital headroom, not to go anywhere it's requirements. Probably around the current level for now will be more or less a safe place to assume. But we will kind of update as let's say, if our stake changes. I think I covered all your questions, Robert.

Thanks very much, Robert. Next up, we've got Can from Wood.

So I wanted to ask you about the inflow. It seems to have slowed down to 30% levels from last year's 40% Obviously, we didn't expect 40% to be returning and we [indiscernible].

Sorry, Can. I can't hear your question.

Sorry, can you hear me now?

A little better, yes.

Okay. So I -- so the question is, so can you explain the slowdown or about the [indiscernible] how it decline from 40% last year to 30% in the first quarter of this year in fees.