TBC Bank Group PLC

Good afternoon and welcome to the TPC Bank Group PLC H1 Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen. Simply click Q&A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company reviewed all questions submitted today and will publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the executive management team of TBC Bank Group PLC. Good afternoon. Good afternoon.

Thank you all. Thank you for joining our call. And I would like to start today's call with the announcement of an interim dividend of 2.5 larit per share payable in October in accordance with our updated dividend policy to pay semiannual payments as announced last year. I'd also like to inform you that the Board of Directors has approved a share buyback program of up to 75 million larit out of which 50 million will be cancelled and the rest will be transferred to the Employee Benefit Trust in due course. We believe this is a good decision at the current price levels. Now turning to our second quarter results, let me highlight our key achievements during the quarter. We continue to be the market leader in Georgia with robust profitability and strong growth supported by solid capital. We also continue strong progress, leveraging our international growth potential. In the second quarter, the group generated a return of equity of 24.1%, while our set one ratio stood at 15%, which is above the minimum required level by 2.9 percentage points. And we remain the best capitalized systemic bank in Georgia. Our portfolio growth in the quarter was 23%, which strongly outperformed our normalized growth of 15%. In the second quarter, we continued to deliver impressive business growth in Uzbekistan. As a result, our retail loan book reached 180 million lari, while retail deposits exceeded 230 million lari. I am also delighted to report that on the group's level, the number of digital daily active users reached 1 million in June, while the number of monthly active users amounted to 3 million for the same period. Now I'd like to review the recent macro developments briefly on the slide number five. In the first half of this year, GDP growth in Georgia reached 10.5% despite adverse impacts of the war in Ukraine. We expect the growth to stay at around the same level during the second half of the year, resulting in an estimated GDP growth of about 10% for the full year. Also, on a positive side, the larry continued to strengthen again the dollar. The next slide shows the drivers behind the strong GDP growth. Recovery in tourism further strengthened during the second quarter and even exceeded 2019 levels in July, supported by the immigration impact. Exports also remained strong on the back of countries other than Russia and Ukraine. Importantly, in terms of trade, measured at export prices over the import prices remained stable, indicating the reasonably balanced net effect of the highly volatile commodity prices. So inflation remained elevated and stood at 12.8% in June, and it is expected to moderate on the back of the stronger Larry and decline the commodity prices. Now let's move to the slide eight here. I'd like to reiterate the group's positioning and highlight our first growth potential. First of all, we are the market leader in Georgia with diversified business across all market segments. Second, we consistently deliver robust profitability and steady growth backed by strong capital. Third, we stand out with advanced omnichannel distribution with best-in-class digital customer proposition and largest ecosystem network. In addition, we have the fast-growing payment business in Georgia and Uzbekistan. And finally, our Uzbek operations give us a strategic advantage to deliver long-term growth and profitability. In line with our group's strong market position and growth strategy, we continue to increase the number of our customers every year, and at the end of June, we had 3.7 million active users in two geographies. Moving on to slide 9, we show our leading position in Georgia. As you can see from this slide, we hold leading positions across all segments. We study growth levels. These leading positions indicate resilience and diversity of our business model and allow us to extract significant cross-segment synergies and efficiency. On the next slide, I'd like to summarize our key financial results for the second quarter. As already mentioned, we generated strong results in the second quarter, with the return of equity standing at 24.1%, while the return of assets amounted to 3.7%. The year-on-year decrease in net profit was related to high base a year ago due to provision recoveries and one-off gain from the disposal of invested property. As expected, our cost of risk started to normalize and amounted to an annualized 0.9% in the second quarter. Over the same period, our cost-to-income ratio slightly improved and stood at 35.3%. On the slide 11, I'd like to share with you an update on our digital ecosystems. We have the largest digital ecosystem in Georgia that consists of four digital verticals, lifestyle, housing, auto, and e-commerce. We have 1.75 million unique visitors across all verticals, which is around 40% of the internet traffic among the Georgian websites. Our ecosystems allow us to leverage our large customer base and to data hub capabilities to first generate a net fee and commission income. Second, create leads for loans. Third, strengthen customer loyalty and locking. And finally, increase customer engagement. The following slide gives more details on the results of our digital ecosystems. Total gross merchandise volume is growing rapidly and as our users are becoming more engaged. Our main sales performance indicated GMV and GMV per user have increased by more than three times year-on-year. At the same time, number of lead generation has more than doubled year-on-year and a loan conversion rate grew to 8%. As a result, the loan disbursements reached to 22 million lari, accounting for 6% of our total retail loans disbursed during the quarter. Let's move to slide 13, which illustrates a strong growth of our Georgian payment business. In the second quarter, the volume of POS transactions and transactions conducted by TBC cards grew by around 30% year-on-year. 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. As already mentioned, we have up to 3 million active digital users every month, while daily digital users exceeded 1 million in June of this year. Most importantly, our transaction offloading continues to be high at 99%. In consumer lending, we issue 60% of loans digitally, while 70% of our deposits are issued outside the branches. Now I'd like to update you about our continued progress in Uzbek Bank operations in more detail, starting on the slide 15. By the end of June, the number of downloads of our EBC UZ application increased to 2.4 million, while the number of registered users was 1.8 million. At the same time, we reached 236 million Lari in deposits and 181 million Lari in loans. As the business is growing successfully, we invested additional capital in TBCU's bank in the amount of $21 million, while our partners IFC and DBRD injected $7 million each to support our expansion plans. Finally, on the slide 16, I'd like to highlight the strong performance of our payment subsidiary PayMe, which is the second largest payment provider in Uzbekistan. In the second quarter, PayMe continued its rapid growth in all major metrics. The number of monthly active users doubled year on year and reached 2 million at the end of June, while the total payments volume increased by more than 50% year on year. Over the same period, the revenue and net profit continued impressive growth and reached 12 million lari and 7.1 million respectively. Now, I'd like to hand over to Georgi.

Thanks, Vakhtang. And as usual, I'll go over the financial performance, starting from the slide 18. And as Vakhtang mentioned, it shows very strong offset financial results. In Q2, our net profit is up by 5%, quarter on quarter, on the back of the very strong income generation, And our ROE stood, as I mentioned, 24.1% and ROA was 3.7%. On annual basis, our net profit decrease is due to high base a year ago, mainly actually related to the provisional recoveries and gain from disposal of a real estate property. Now turning to slide 19 that shows our growing and diversified revenue streams. Our NIM continued a very positive trend in Q2 and amounted to 5.8%, up by 20 basis points on quarter basis and by remarkable 80 basis points year-on-year basis. The strong growth in NIM was mainly driven by loan composition and loan yield effects. We also recorded 17% growth in non-interest income year on year and 29% increase on quarterly basis, which was mainly driven by strong FX gains and net fee and commission income. Now, as you can see from slide 20, we maintained our high efficiency levels. The cost growth in absolute terms was 29 million or around 21%, out of which circa 30% was due to our Uzbekistan expansion. However, we continued our positive cost-to-income job trend, and our cost-to-income ratio decreased both year-on-year and quarter-on-quarter basis, and stood at 35.3%. Now, slide 21, where I would like to present our strong asset quality. Our MPL decreased both on year-on-year on quarterly basis and stood at 2.3%. MPLs improved significantly on year-on-year basis due to resumed repayment of restructured loans in retail and MSME. Also, our total NPL coverage ratio remained very strong at 168%, comprised of 100% provision coverage and 68% collateral coverage. In Q2, the cost of risk started to normalize after the recoveries in 21, amounting to 90 basis points. The largest increase is coming from the retail due to the acceleration of consumer loans. Now going to slide 22 that provides a brief overview of our loan and deposit portfolio growth. We maintained our leadership position in both areas. Our loan book grew by 23% year-on-year on constant currency basis, while our deposit portfolio increased by 30% year-on-year without currency effect. Slide 23 shows our solid capital positions. CET1 ratio stood at 15% at the end of Q2, 2.9 percentage points above the minimum regulatory requirement. All other tiers were also comfortably above all regulatory requirements. One thing I would like to highlight here that you probably this audience not aware, these ratios on a local basis, and if you translate them on Basel III basis, they are around 250 to 300 basis, but it's more. Therefore, when I'm saying like 15%, it's more like 70 to 80% on the Basel basis. And based on these strong capital positions, we are happy to distribute interim dividend of 2.5 Lari per share and declare share buyback, as Vakhtang already mentioned. Now moving to slide 24, where I will conclude my presentation with funding and liquidity summary. As you can see on this slide, we have a well-balanced funding structure with high customer funding share of around 72%. Also, our NSFR and LCR ratios, we are comfortably above the minimum reg limit of 100%. Here also, those ratios are on local basis. Our LCR ratio on a Basel basis is around 223%. Now, I would like to hand back to Vakhtang, who will update you about our medium-term targets and future outlook. Now, up to you, Vakhtang.

Thank you, Georgi. And I'd like to reiterate our medium-term guidance and compare our performance in the second quarter against these targets. Our logbook grew by 23% against our medium-term target of 10% to 15%. Our return of equity was 24.1%, as we mentioned already, meaningfully above our medium-term target of 20% plus. Our cost-to-income ratio was 35.3%, getting closer to our medium-term target of below 35%. And finally, I'd like to reiterate the board decision to declare an interim dividend of 2.5 lari per share, payable in October, which will be supplemented by the buyback program of up to 75 million lari. And I'd like to finish today's presentation by recapping our strategic priorities going forward, which are maintain robust profitability backed by solid capital, diversify and increase our fee and commission income streams, continue steady growth in Georgia, harness high growth potential of the Uzbek market, and continue to leverage our advanced digital capabilities to achieve high efficiency. Finally, I'd like to inform you that we are planning to hold the Capital Markets Day in Uzbekistan on November 10th and would be glad to see you all there. Invitations will be sent out in the near future. With that, I'd like to invite you to ask the questions.

Fantastic. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated just on the right-hand corner of your screen. Just want the company to take a few moments to review those questions submitted today. I'd like to remind you the recording of the presentation, along with a copy of the slides in the published Q&A, can be accessed via your investor dashboard. As you can see, we've had a number of questions come through through today's presentation. And perhaps if I may, I will start with the first one. It reads as follows. The digital client base and active users is very impressive. What opportunities do you have to cross sell into this digital user base to drive margins?

We need to think in terms of the two countries, Georgia and Uzbekistan. If we start from Georgia, here actually we are market leaders and we have a universal banking model and our customers have access to all the banking. But key point, as Vakhtang mentioned, we now have a very strong focus on T-Net. It's our ecosystem that provides very, I would say, strong cross-selling or cross-functional opportunity to our customers. where they can get product in one space our target at some point probably somewhere like this year end of next year is to kind of also look at something like the super app that will help us to kind of support our customers and cross-selling opportunities but that's kind of one of the key options in georgia and the data shows that it's a growing opportunity and growing business in uzbekistan we have two businesses here it is uh the bank and the payment business There also, it's a new startup business. We just started our bank last year. It's growing. And in payment business, we at the moment have the minority shareholders there who own 49%. We own 51%. We have an option there to acquire the minority shareholders next year that we are kind of probably are going to take. That also will open additional Farsha Cross opportunities between those two businesses. And we think there's a lot of upside.

Just to add, if you go to the slide number 11. Next slide. Just as we see on the lower right hand side, it's very important to mention here that just we began, as Georgi said already, that we are beginning our journey through our network and through our ecosystems. And only in the second quarter, we generated 6%. of our disbursement of the loans in the retail business by our ecosystem. So this is the beginning of our journey, and we believe that at the medium term, this will grow up. And this is, we have already done in Georgia, but as Georgi is saying, just We began our business in Uzbekistan. This is a startup business. We began from the greenfield, our banking operations, but probably it will take years. So in one year, in two years, we will see the huge results because in PayMe, we have already more than 7 million registered customers. And in the bank, as we are reporting today, we have more than 2 million registered customers. As we already mentioned, we are inviting all of you to Uzbekistan on Investors Day and you will see on a place in Tashkent what we are doing there. Fantastic. Thank you very much indeed.

The next question we've got here, with the increase in loan book on 23%, the 39% market share, how do you manage bad debts with such a large share of the market?

From the number, we can say we manage it very well. But now going how we do it, it's kind of our normalized range is around 80 to 100 basis points. And it's a product of portfolio structure because we are incorporated. We have quite a low cost of risk. We have a very high quality portfolio working with customers on a kind of one-to-one individual basis. In MSM, it's the same rate. In retail, one thing that you need to keep in mind in Georgia, even in consumer lending, the bank can't lend to the subprime market because of the regulation. And this audience, again, may not be aware of this. In 2019, there have been quite a strict regulation coming into place, very high PTI, for example, that are in place or other kind of, let's say, eligibility of the customers that allows us only access to the more high quality customers. And we have a very strong underwriting standards. We have a different committee, large loans going even up to board level. Therefore, I think as a product of this, our kind of cost of risk range is around 80 to 100 basis points that we expect.

That's fantastic. And really just following on from that, you just touched on the regulation. We've got a question here. Do you have a consumer finance offering like Klarna, the buy now pay later provider for online purchases? I think you just said, obviously, there are regulations around the lenders that you can lend to. But is that something that you've been looking at?

Yeah, we are in a process in Georgia, so we are now operating in two geographies in Georgia and Uzbekistan. So in Georgia, we are launching that project in the first quarter and same, we already have such a project in Uzbekistan, just only regulations in Georgia and Uzbekistan where we have caps on the interest rates, for example. In Georgia, the cap on the interest rate, we have 50%. So this is the only regulations and other type of the ratios we are using. In Georgia, it's a PTI and the same normal retail consumer lending ratios, which our regulators are asking in Georgia.

I think a question here that you have touched on, but the Uzbek business, it's been fantastic. You said that you've grown it from a green field. How replicable is that? What are the barriers to entry to take that into different geographic markets? You've got such a strong presence already and so quickly, but can you replicate this and I guess the barriers to entry of doing so?

Thank you for this question. So we believe that this is our first geography, but we believe that as our business we are doing in Uzbekistan, our mobile bank, which we developed internally in TBC. So same products afterwards we want to develop in other geographies in other countries. So this is a very simple product. So this is a mobile application and all the products and everything is done through our application. So loans, deposits and payments and all kinds of the operations are done only through our mobile apps. So we have net branches, we have net cash in terminals, we have the ATMs, POSs, so everything, our business in Uzbekistan, everything is in digital. And we want to copy and duplicate that business to other countries also.

That's fantastic. Thank you very much indeed. You have covered off all the questions that we've received from investors. And of course, any further questions that do come through, the company will be able to review those and we'll publish responses where appropriate to do so on the InvestorMeet company platform. Vokta, before we redirect investors to provide you with their feedback, which I know is particularly important to you and the team, may I just ask for a few closing comments, please?

Yeah, thank you once more. As we have already mentioned, we have very good results in the second quarter and probably it will be continued in the medium term. But once more, as we are doing very well and majority of our investors have visited Georgia. They know us already 30 years in the country. We have a new venture in Uzbekistan, but as we are showing last 18 months, we are having very high growth and very interesting and high growth business in Uzbekistan. So on the 10th of November, we'll have investors day in Tashkent, in the capital Uzbekistan. And we are inviting all investors to our investors' day. So we promise that it will be very interesting to all the people who will be participating on the investors' day.

Thank you very much. That's fantastic. Thank you both indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I know it's greatly valued by the company. On behalf of the management team of TBC Group PLC, we'd like to thank you very much indeed for attending today's presentation.

Thank you very much.

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