TBC Bank Group PLC

Good afternoon and welcome to the TBC Bank Group PLC third quarter 2022 results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. If questions are encouraged, you can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen. Simply click on 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 will review all questions submitted today where published responses are appropriate to do so on the InvestorMeet company platform. Before we begin, we'd like to submit the following poll. I'd now like to hand over to the executive management team of TBC Bank Group, PLC. Good afternoon.

Good afternoon. Dear all, thank you very much for joining our call. I'd like to start today's presentation with a highlight of our key achievements during this third quarter. We continue with the market leader in Georgia with robust profitability and strong growth supported by solid capital. We also continue strong progress in exploiting our international growth potential. In the third quarter, the group generated the exceptional return of equity of 71.1%, while our set one ratio stood at 15.3%, which is above the minimum required level by 3.5 percentage points. We remind the best capitalized system is back in Georgia. Our loan book portfolio growth was 19%, while our deposit portfolio grew by 29% on a constant currency basis. In the third quarter, we continued to expand our position in the Uzbek market, and our loan book reached up to 300 million lari and deposits around 300 million lari. I'm also delighted to report that on the group's level, the number of digital daily activity users reached 1.1 million in September, while the number of digital monthly active users amounted to 3.2 million for the same period. On the next slide, I am pleased to announce that we are adding two new medium-term targets. Uzbek operations to account for 10 to 15% of the group's net profit and to achieve 7 million monthly active users on the group's level. Now I'd like to review recent macro developments briefly on the slide number five. In the first nine months of this year, GDP growth in Georgia reached 10.2% despite adverse impacts of the war in Ukraine. We expect the growth to stay at around the same level during the remaining three months, resulting in an estimated GDP growth of about 10% for the full year. Also on a positive side, the Lari continued to align with its strong term trend against the dollar. The next slide shows the drivers behind the strong GDP growth. The current geopolitical crisis has once again proved the resilience of the Georgian economy. Exports have remained strong on the back of countries other than Russia and Ukraine. And the recovery in tourism flows, partially supported by the immigration impact, contributed With strong exports, remittances, as well as recovering FDI inflows, supports about 10% GDP growth for the whole 2022 year. Also, inflation remains elevated and stood at 11.5% in September, and it is expected to gradually moderate. Now, let's move to the next slide. Here, I'd like to reiterate the group's positioning and highlight our huge fast growth potential. First of all, we are the market leader in Georgia, which diversifies business across all market segments. Secondly, we have the consistently delivered robust profitability and steady growth backed by the strong capital. Third, we stand out with the advanced omnichannel distribution network with the best-in-class digital consumer proposition and the 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 strong market position and growth strategy, we continue to increase the number of our customers every year. And at the end of September, we had 3.9 million monthly active users in two geographies. Moving on to slide number nine, we show our leading position in Georgia. As you can see from this slide, we hold 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 efficiency. On the next slide, I'd like to summarize our key financial results for the third quarter. On a year-on-year basis, our net profit increased by an exceptional 55% and stood at 321 million lari. This growth was related to the strong income generation across the board with substantial contribution from non-interest income. Our return of equity in the quarter reached 31.1%, while return of assets amounted to 4.8%. As expected, our cost of risk started to normalize and amounted to an annualized 1% in the third quarter. Over the same period, our cost-to-income ratio strongly improved to 5.5 percentage points and stood at a little bit less than 30%. And our capital position remained strong. We set one ratio at 15.3%, as mentioned above. On the slide 11, I'd like to share with you an update on our digital ecosystem T-Net. We have the largest digital ecosystem in Georgia that consists of four digital verticals, lifestyle, housing, automobile, and e-commerce. We have 1.8 million unique annual visitors across all verticals, which is around 40% of the internet traffic among the Georgian websites. Our ecosystem allows us to leverage our large customer base on a data hub capabilities. First, to generate net fee and commission income. Second, create leads for loss. Third, strengthen our customer loyalty. And finally, increase our customer engagement. The following slide gives more details on the results of our digital ecosystem. Total gross merchandise volume is growing rapidly as our users are becoming more engaged. And at the same time, the number of leads generated increased four times year on year, and the loan conversion rate grew by 9%. As a result, loan disbursed reached 26 million lari, accounting around 8% of our total retail loan disbursed during the quarter. Now let's move to the slide 17, which illustrates the solid growth of our Georgian payment business. In the third quarter, the number of POS transactions and transactions with TBC cards increased by 28% and 30%, respectively, year on year. And also, it's important to highlight that our payment business is a significant contributor of our fee and commission income. On slide 14, you can see our digitalization metrics, both in Georgia and on the group's level. We have made strong progress in expanding our digital footprint on the group's level. As already mentioned, we have up to 3.2 million digital active users every month, while digital daily active users stood at 1.1 million in September. Importantly, our transaction of floating continues to be high at 99%, and our consumer lending and deposit sales of floating ratio also remains high at 70% in this third quarter. Now I'd like to update you more details about continued progress and rapid growth on our Uzbek banking operations. By the end of quarter, the number of downloads of our TBC use application increased to 2.8 million, while the number of registered users was 2.1 million. At the same time, as mentioned already, we reached up to 300 million lari in retail deposits and up to 270 million lari in our retail loan portfolio. 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 third quarter, PayMe continued its rapid growth in all major metrics. The number of monthly active users increased by 62% year-on-year and reached 2.1 million at the end of September. And total payments volume increased by around 64%. And over the same period, both revenues and the net profit continued their impressive growth and reached 12 million lari and 7.5 million lari, respectively. Now I'd like to hand over Gheorghi Gheorghi, please.

Thanks, Wachtank. Really great, Korta. great financials and results. And I'll start with slide 19 that shows kind of our, I would say, outstanding financials and results. So, in Q3, our net profit, as Wachtank already mentioned, increased by actually impressive 55% year-on-year, and that's driven by continuation of our strong revenue trend that we have been delivering since the banks started. And as I mentioned, substation contribution was from our non-interest income that I'm going to touch a bit later. So as a result, we are looking at an ROI of 31.1% for the quarter, probably one of the best that we have seen so far. So, and I'll now go to slide two, where I will deep dive a bit more into our profitability drivers. As I mentioned, both actually interest and non-interest income streams performed extremely well. And NIM, our NIM continued upward journey and increased post year on year. It's 100 basis points and quarter on quarter basis and landed at 6.3%. Name increase is mainly driven by loan composition and loan yield effects. On non-interest side, the contribution is twofold. The first one is the strong ethics growth due to high volume of transactions, wider spreads, but also new treasury products. Net fee and commission income actually increased by higher payment. Transactions as well as our new business as a product that we put in place. So all that actually resulted in a very robust and strong non-interest growth. So I would like to move now to slide 21. to review our operating expenses. So in Q3, the increase was 34% year-on-year, and that was mainly driven by we expand our business both locally, let's say, into Uzbekistan, that also resulted in higher staff and admin costs. We actually put money into technology. We continue to invest into our business to ensure its ongoing strength and growth. In addition, staff costs also increased due to performance costs driven by higher income. However, the key point is that consistent with the previous periods, our income grew at much faster rate and our cost to income ratio decreased in Q3 to 29.9%. It's not only below our target of 35%, but I think it's the first time it is below 30%. Now, I would like to go to slide 22 that shows a very strong book quality. As of 30th of September 22, MPL remained stable quarter and quarter at very healthy 2.3%. Year-on-year trend actually is mainly driven by resumed payments from loans in retail and MSME segments. That was still like COVID tail last year and since NSVC customers start paying and our MPL is at 2.3%. Total provision coverage was very robust, 164%. And in Q3, cost of effects actually continued to, I would say, within our normalized range that we anticipated and landed at 1%. So I would like now to go to slide 23, as it shows performance of our low and funding portfolios. Year on year, the loan book growth was very high at 90%, that's actually above our guidance, 10 to 15% on a constant currency basis. And that was mainly driven by our MSME I would say retail segments. However, on quarter-on-quarter basis, our loan portfolio remained more or less stable, up by 2%, and the driver was actually the repayment from one CIB client. That is also the reason why CIB portfolio actually decreased a bit. As for the customer funding side, the growth was more prominent. We actually outpaced the market and that resulted in actually to increase our customer funding share. I will touch that point later on in one of the following slides. Now, I would like to move to slide 24, where you can see our very solid capital position. Our capital ratios remain at very strong levels at quarter end, and all of them are well above the minimum regulatory requirements. And key point to mention here is that the ratios increased despite paying a generous dividend in September, and the majority of growth was delivered by our net profit. And that also was supported by sex legal law. Now I would like to move on slide 25 that shows our very strong liquidity and funding base. This year of customer funding in total liabilities, as I already mentioned, increased and reached 73%. It is up by two percentage points on a year-on-year basis. I-5 funding that includes both senior and sub-laws is around 1.9 billion, that is 8% of total liabilities. And our liquidity ratios, both LCR and NSFR, continue to be valuable, the regulatory requirements, Here, I also would like to highlight that our LCR on Basel basis is 351%. And I would like to conclude with slide 26, with our promised and long awaited financials of our Uzbekistan business. To start with, I'm very pleased to announce that our Uzbekistan business consisting of our fully digital consumer banking and payment subsidiaries, TBC, Uz and PayMe, turned profitable in Q3 2022. In addition, I also would like to highlight that we expect Uzbekistan bank itself to be profitable for 2023 and throughout the year. For the third quarter, TBC bank's TBC use name was 60.2% and cost of risk was 7.4%. That provides us very healthy risk actuality, risk-based name. And here I would like also to announce the mid-term targets of our Uzbekistan business. First, it's 30% plus ROE. Second, 5 million MAU. And third, 10 to 50% share in groups that profit. So that concludes my part. Thank you. And I would like to hand back now to Vakhtang. Vakhtang, please.

Yes. Thank you, Georgi. And Now, I'd like to finish today's presentation by reiterating our new and existing medium-term targets and comparing our performance in this quarter against those targets on the slide number 27. Our monthly active users to that 3.9 million compared to our 7 million new targets. Our Uzbek banking and payment business generated positive results, as Georgi mentioned, in this quarter, and we plan to grow to 10% to 15% of the total gross profit in the medium term. Our loan book grew by 19% year-on-year on a constant currency basis against our target of 10% to 15%. Our return of equity was 31%, meaningfully above our medium-term target of 20% plus. Also, our cost-to-income ratio was 29.9%, meaningfully lower than our medium-term target of below 35%. And finally, our dividend payout ratio was 25% in 2021, and we paid the interim dividend of 2.5 lari per share in 2022, compared to our target of 25% to 35%. With that, I'd like to invite 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 in the right-hand corner of your screen. Just while the team take a few moments to review those questions submitted today, I'd like to remind you that recording the presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we've had a number of questions come through throughout today's presentation. If I may, I'll just start off with reading the first one out. What risks do you face with such a large market share in Georgia? How do you manage this and any potentially bad debt risk?

Maybe I will try to answer this question. So, by the way, this year we have a 30 years anniversary in Georgia as a TBC bank. and we have a brand we have a very strong brand so everybody knows tbc in georgia and we built it our brand and the market shares in every segment year over year so already for 30 years and for example in the retail as i have already mentioned we have a very we have a very strong brand we have a very um customer oriented products we are doing very well in the technologies in the digital products if you go to the corporate sme businesses we are trying to be long-term partners to our medium-sized businesses to our corporate customers so in every segment we have a special strategies and we are implementing in the long term and as a result as the we've seen a question so we have market shares in the different ways so from 35 to 40 percent

And maybe I will cover on bad debt risk, Wachtank. That was the second part of the question. And one thing to add is what Wachtank said, Georgia market is a bit specific because two banks own 80% of the market and the third bank only has 6% share. Therefore, from market actual risk perspective, given the market structure, we don't foresee any change in future. And that may be Georgia market specifics. So on bad debt risk side, we have very strong underwriting standards. We are quite like a strong risk appetite and we monitor our customers very carefully. Even during COVID era, when we were very prudent and very conservative, the cost of risk was around 2% like cost of risk. However, once COVID ended, that showed the resilience and strength of our portfolio. Customers actually paid the loans and we had quite a large, I would say, recoveries last year and therefore given our portfolio structure our like credit characteristics that's why we say that for the bank cost of risk is around a let's say 100 basis points that we are we are now and we don't expect any material change from that level fantastic thank you george next question we've got here is how sustainable are the growth rates obviously you mentioned 55 percent here which is is fantastic but how sustainable are they Okay, thanks. That's a very good question. Probably this quarter and maybe next few weeks will be something like headwinds, like let's say supporting from FX income because Georgia market has some volatility both on wholesale side and retail side. That also helped us and 55% might be difficult. However, despite that, we have very strong growth projections. As I mentioned, our targets are 10% to 15% long growth. probably in near future at higher and even higher. And we mentioned 20% plus ROA. That would say that it will be probably 20% few plus ROA that what we are going to target. And that will be supported by our strong NIEM and non-interest income. Because on NIEM side, we landed 6.3%. In like near to medium term future, we don't anticipate that to change much. We target to remain at least at 6% less handle. for a foreseeable future and non-interest income we expect to continue at least 20 to 25 percent growth to continue i already mentioned the cost of risk around kind of one percent and plus our uzbekistan business is also growing going to fuel the growth so as i mentioned next year the bank itself will also become a profitable business uzbekistan is also profitable and that will support our growth and let's say profitability even faster

very much indeed um we touched on the digital bank obviously it's been a huge success question here saying it's been a huge success how do you replicate this in other other countries other jurisdictions um the same applies for pay me what's really driving that growth

You see, first of all, the country, because Uzbekistan is very interesting for us. If you take only this population, the growth of the population, 2% every year, and the market is under-penetrated. So the first driver is the under-penetrated market with the growth potential there. And also, same as in TBC, it's a very well-known brand in Georgia, Payme has a history in the Uzbek market as a payment provider. The PayMe is very well known on Uzbek market. We have a very strong brand here and we are bringing new products. And we are trying to be very customer oriented here. And by these new products, we are trying to grow. And as we already made presentations here, it showed that euro here we have a very high growth first in the number of the customers and also in the number of the transactions.

And one of the points I would like to add here is that we had our CMD last week. Hopefully, if you did not dial in all the materials on our website, that shows actually our detailed strategy, how we are going to succeed in Uzbekistan, including pay me. What plans do we have actually that includes super app? So I'm not going to worry, let's say, details here. But if you have a look at our website, that provides our detailed strategy breakdown.

That's great. Thank you. We've got a question here from Tom, which is three questions, I think one of which we just covered off, asking, is this growth sustainable? The second part of that is, will you make increase in dividend payments? And the third part, how are you actually growing those active users so quickly?

Maybe I'll start. If you think from our capital allocation perspective, we have three major pillars. One, to support our growth in Georgia. That will be probably more or less with nominal GDP growth, but it will be about 10%, 10% of that level. So we need to support that, and we have sufficient capital to support. Second point, we need to support our Uzbekistan business growth. And here are two aspects. First, we need to support our Uzbekistan bank growth, that we have a kind of, I would say, very... High plans for them. And second point for Uzbekistan is that at the moment in pay me, we have minority shareholders, all 49%. We have an option next year that we are going to exercise. And for that, and it will happen not in a distant future, probably in Q2 next year. And for that we need capital and we have capital. And third, we of course need to pay our shareholders back. And we also have more than sufficient capital for that. And to guide you how we are thinking about this. Currently, our dividend payout ratio is 25 to 35%. Last year, we paid 25%. However, if you compare our interim dividend in September, that was materially higher than last year's interim dividend. That probably is illogical about the direction of the travel that our dividend payout ratio most probably is actually intended to go above 25%. That was last year. we need to see but from interim dividend that what kind of the direction and like I would say that with that range probably in the middle of the range that would result in a very healthy, like even with the current share price up to 9 to 10% dividend yields. So as the banks grow through, as we support our growth plans into Uzbekistan, of course, we will look at our DPR, how it will evolve. But nowadays, I would say that we will pay very healthy dividends to our shareholders. It's like, again, 9 to 10% yield. And we will grow not only in Georgia, but in other, let's say, countries and markets.

Fantastic. Thank you very much indeed. That actually concludes all the questions that we've had through. So thank you for that. And of course, there only are further questions that do come through from investors today. The company will have the opportunity to review those questions and we'll publish responses where appropriate to do so on the InvestorMeet company platform. Vartan, before redirecting investors to provide you with their feedback, which I know is particularly important to you and the team, if I could just ask you for some closing comments, please.

Yeah, so from our side, so thank you very much for participating. And as Georgi already mentioned, so we have a very robust result in the third quarter and we will continue to deliver it. And as we already mentioned in our presentation today and on SCMD, we updated our medium-term target. So now we have more ambition plans to increase number of the monthly users. So we have to do much more in Georgia. We have to do much more in Uzbekistan. And I think as a management, we are ready to deliver much more.

Fantastic. Thank you again for updating InvestorStake. I please ask investors not to close the session. It should be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete and I know it's greatly valued by the company. On behalf of the management team of TBC Bank Group PLC, we would like to thank you for attending today's presentation. Thank you and good afternoon to you all.