TBC Bank Group PLC

Good afternoon, ladies and gentlemen, and welcome to the TBC Bank Group PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to the executive management team from TBC Bank Group PLC. Vaktan, good afternoon, sir.

Good afternoon and thank you. Dear all, thank you for joining our call to review our fourth quarter and 2022 full year results. Despite regional challenges, it has been an exceptionally successful year for our group and I'd like to walk you through our main achievements. I'll start the presentation from the slide number three, which summarizes our key achievements for the year. Last year, the group generated an excellent return of equity of 26.5%, despite a high of tech charge in the fourth quarter related to changes in the tax model. Without the one-off charge, our return of equity would be 30%. Our set-water ratio also remained very strong at 15.2%, which is our 3.5 percentage point above the minimum required level. We also continued with the most well-capitalized system in Banking Georgia. At the same time, our balance sheet growth was impressive, with loans increasing by 16% and deposit rising 31%, both on a constant currency basis. I'm also delighted with the performance of our Uzbek operations. We generated positive returns on the back of the high growth. Their net profit amounted 8 million lari last year. It is important to highlight that return of equity for our Uzbek operations reached 27% in the seasonally strong fourth quarter, while it stood at 6.5% for a full year 2022. For this year, we expect it to be around 20%, which would make great year-on-year progress. Also, share of 3BC UZ loans in our total retail non-mortgage loan book already reached 12%. This gives us a great platform to build from this year and beyond. Meanwhile, our digital user space continues to grow, with digital daily active users reaching 1.4 million by the end and digital monthly active users 3.8 million. Before I review our performance in more details, let me provide you with a brief update on the recent macro developments in Georgia. Last year, GDP growth reached double digits in Georgia, despite the adverse effects of the war in Ukraine. Also, inflation started moderating in the second half of the year, dropping below 10% by year-end. At the same time, the larry appreciated by almost 15%, again the dollar making it one of the world's best performing currencies throughout the last year. And finally, last year we saw an accumulation of central bank reserves and improved fiscal position. On the next slide, Farsa shows Georgia's solid economic fundamentals. In contrast to sluggish growth in the region, the Georgian economy had grown over 10% in 2022, and for this year, we expect the modest slowdown to 5%. It is also important to know that there has been further improvements in the net balance of trading goods, as well as increased inflows from the tourists and remittances. These inflows remain well diversified across different regions, with the European Union being the largest contributor. The next slide shows how Georgia's robust economic performance has been reinforced by easing inflation and growing monetary and fiscal buffers. As already mentioned, inflation ended the year below 10% and we expect it to fall further in this year. Last year, we also see a strengthening of our international reserves and positive dynamics in both fiscal deficit and public debt to GDP ratio. The former narrowed to 2.8% in 2022, while public debt to GDP ratio fell to 40%.

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Now let's move to the next slide. And I'm proud to reiterate our leading position in Georgia and once again to emphasize our huge growth potential. Our strong market position in Georgian financial service sector gives us a solid base of a steady growth and solid profitability. At the same time, our digital ecosystem T-Net is helping us build customer loyalty and engagement. Finally, we see huge potential in expanding our Usbek operations through our banking and payment subsidiaries. By the end of the year, the number of our registered users in both geographies reached a sizable 13.6 million, out of which 4.4 million were monthly active users. Moving on to the next slide, you can see our leadership positioning across all major segments in Georgia. The main point here is that in 2022, our loan book growth was mainly driven by retail and MSME loans, while deposits grew across all segments. On the next slide, I'd like to briefly summarize our first quarter and full-year financial results. In the first quarter, our net profit increased by 5% year-on-year, while the full-year earnings grew by 22%. This earnings growth was driven by strong income and generation across the board and with the large contribution from our non-interest income. Our return of equity in the quarter stood at For example, our tax-adjusted return of equity was more than 33%. On the slide 11, I'd like to highlight some of the positive developments in our digital ecosystem, T-Net. As already mentioned, we have the largest digital ecosystem in Georgia, consisting of four verticals, lifestyle, housing, auto, and e-commerce. Last year, we had 1.2%. 1.9 million unique annual visitors across all verticals, equivalent to 67% of the adult population of the country, which accounted for around 40% of the internet traffic among the Georgian websites. Next slide dives into a bit more detail on our digital ecosystem. Last year, all our key operating metrics grew very nicely. Total gross merchandise volume increased four times, reaching 103 million lari. At the same time, the synergies with our core financial services are growing. The number of leads more than doubled to over 300,000 and 5% of the TBC's retail loan disbursement last year were generated from T-Net leads, a result we are very pleased with. As our ecosystem business continues to grow, we expect it to generate an increasingly meaningful contribution to our fee and commission income, as well as supporting our loan book growth. Next slide highlights the excellent growth of our payment business in Georgia, which is a significant driver of our net fee and commission income. The number of POS transactions and transactions with TBC card increased by around 30%. According to the latest update from the VisaNet, Georgia ranks number one in contactless payment penetration globally, and we are proud of our substantial contribution to these outstanding achievements. Next slide highlights the increasing digital engagement of our customers. Last year, our group's digital daily active users grew 61% year-on-year to 1.4 million, while the number of monthly active users rose by 50% to 3.8 million. Our transactions offloading ratio of 99% mean that only 1% of all transactions are conducted in branches. In addition, the share of consumer loans and deposits sold remotely remains high and stood at around 70% by the end of the year. Now it's my pleasure to provide some more color on the rapid growth and significant milestones achieved in our Uzbek banking operations. By the end of December, the number of registered users for our TBC Usbank application reached 2.4 million, while monthly active users were 400,000, both substantially up compared to previous year. Our retail loan and deposit booths continue to grow strongly, accounting for 1.4 and 2.2 market shares at year-end. And I'd like to draw attention to the top right chart, which for the first time we show the key quarterly financial metrics of TBC Uzbek. And as you can see, revenues are growing well and the business is close to the breaking point. Finally, on the next slide, I'd like to highlight the excellent performance of our payment subsidiary PayMe, which is the second largest payment provider in Uzbekistan. Last year was a great year for PayMe, and these numbers show the number of daily active users and monthly active users grew by 77% and 60%, respectively, with the former hitting 1 million customers. The number of merchants also increased by 22% year-on-year. And I'd like to highlight that in the fourth quarter, the net profit from then doubled year-on-year to almost 17 million lari. And now I'd like to hand over to Georgi. Thank you, Vakhtang.

And now I would like to present our very strong financial performance for Q4 and 22. As Vakhtang already mentioned, I will discuss our performance on an underlying basis adjusted for one of tax charge. And I will start with slide 18. First of all, I would like to say that we are very proud of our results for this year. It has been yet another very successful one for us. Our ROE remained stable quarter over quarter at very solid 43.6%. And net profit was up by around 337 million lari. For the full year, 22, net profit increased by 38% year-on-year to a record high, just over 1.1 billion lari. We are fully ROE-student. almost 30%, 29.9%. On slide 19, I would like to discuss the main drivers of our profitability. In Q4, both NII and non-interest income have continued to perform extremely well. Our NIMS stayed stable on quarter over quarter at very robust 6.3% in Q4, but was up by 95 basis points year-on-year. This strong growth was mainly driven by loan yields, compositions, and disciplined balance sheet management. And now we see that TBC Uzbekistan contributed to 20 basis points, and we are very much pleased to see that. Our non-interest income was broadly stable on quarterly basis, while net fee and commission income was up by 11%. Non-interest income more than doubled year-on-year, with 118% growth. Key drivers being strong ethics gains and strong 34% increase in net fee and commission income, driven by growth of our very strong payment business. Now, I will move to slide 20 for a review of our costs. In Q4... Our cost went up by 40% on quarterly basis due to general seasonality that we see for the last few years, while year-on-year increase was related to the overall expansion of our business as we remain in growth mode in a number of areas. However, the key point is that our income continued to grow at a much faster rate, resulting... Building your online business?

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For the full year 22, our cost-to-income ratio stood at 33.4%, an improvement of 4.2 percentage points year-on-year. Now I'd like to move to slide 21 that underlines our strong asset quality. Our MPL ratio decreased both quarter on quarter and year on year across all segments and stood at 2.2% at year end. Total provision coverage also was very strong at 156%. In Q4, cost of risk decreased to 0.6%, mainly driven by improvement in macro and the strong performance of the portfolio. Consequently, for the full year 22, our cost of risk was 0.7%. Very strong, let's say, result, I would say. On the following slide 22, I would like to show you the performance of our portfolios. Our loan book grew by 16% year on year on constant currency basis and what I've already mentioned was mainly driven by retail and MSME. Over the same period, our deposits grew by 31% spread across the businesses. Now, moving to slide 23, where you can see our solid capital position. Our capital ratios remained at very prudent levels as of December 22, well above the minimum regulatory requirements for all tiers and ct1 ratio increased by zero two point percentage points quarter on quarter driven by net profit generation now to continue the capital topic on the slide 24 i would like to talk about the transition to the ifrst based compliance starting from 1st of january 23 per mbg's new guideline the banks need to comply with ifrst based capital The technical details are given on the slide, so I won't go into the details. However, it's important to highlight that the transition was broadly capital neutral. Positive for CET1 and TI1 capital while slightly reducing our total capital. But on the positive side, going forward also, and as a positive is that going forward, we won't need to explain the differences for our capital ratios between local and IFRS regulatory basis. While this will clearly show our capital strengths on a comparable basis with other banks globally. As you can see on IFRS basis as well, we are well above all the regulatory requirements. For example, CT1 is 18% plus. Now slide 25 that shows our liquidity and funding position. The share of customer funding in total liabilities stood at 72%, more or less stable for the last two quarters, while IFI funding, including senior and sub-loans, was 8% of total liabilities. Our liquidity ratios, both LCR and NSFR, continue to be well above the regulatory requirements. Now, slide 26, I would like to highlight the financial performance of our Uzbek business. I'm delighted to reiterate that our Uzbek operations is profitable for full year 22, generating 8 million lari in net profit, while ROI reached 27% in Q4. The quarter was a bit less elevated by, let's say, seasonality. However, we expect to generate around 20% ROE this year, meaning we are well on track to hit our 30% plus target sooner rather than later. As Vakhtang already mentioned, our Ustbank approached break-even in Q4, but moreover, I'm very pleased to confirm that it actually was already profitable in January. In terms of financial measures of TBC Uzbek, NIM stood at 17.2% for Q4 and cost of risk was 7.6%. As Uzbekistan Bank was in startup mode in H1-22, Q4 numbers are a better guideline of what we can expect going forward for NIM and cost of risk. And both have some upside potential. I would also like to reiterate the medium-term target for our Uzbek business, 30% ROA, actually probably will be few pluses rather than one, 5 million monthly active users, and 10% to 15% share in our KruxNet income. Now, that concludes my part. Thank you, and I would like to hand over back to Wachtank.

And I'd like to wrap up today's presentation by reiterating our new and existing medium-term targets and comparing our performance last year against those targets. Our monthly active users, as we mentioned, stood at 4.4 million compared to our 7 million target. Our Uzbek banking and payment business generated positive results last year, and we plan to grow it to 10% to 15% of the total gross profit in the medium term. Our loan book grew by 16% year on year on constant currency basis against our target of 10 to 15%. Our return of equity was 29.9%, meaningfully above our medium term target of 20% plus. And our cost-to-income ratio was 33.4%, lower than our medium-term target of below 35%. And finally, our dividend payout ratio target is 25% to 35%. And last year, we already paid an interim dividend of 2.5 lari per share and launched a share buyback program with a value of 50 million lari to be cancelled. With that, I'd like to invite you to ask the questions.

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Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would 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 dashboard. Guys, as you can see there in the Q&A tab, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. And perhaps if we just dive straight into it, guys, the first question that we have here reads as follows. What were the key drivers behind the significant increase in digital monthly users? And do you see this momentum continuing?

Maybe I'll try to answer the audience if you can add. So there are two drivers. So as we already mentioned in our presentation, we are operating in two countries. And last year we had a very high growth in Uzbekistan. And as you know, we have two businesses in Uzbekistan. First is PayMe. We have a very high growth and monthly number of the customers are growing very fast. And on the other hand, In 2021, it was just beginning of our journey in Uzbek Bank, but in 2022, last year, we grow our business. So in deposits, in loans, and also in the transactional business. So all of that helped us to increase number of the customers in Uzbek operations. On the other hand, we managed to increase number of the customers in Georgia and These both markets just showed results and we are very proud just to have 4.4 million active monthly users in both Georgia and Uzbekistan.

That's great. Thank you very much for that. The next question that we have here reads as follows. Are there any plans of acquisitions to diversify the customer offering into new products or services?

So, you see, in Georgia, you know that we are not the only bank. So, as if we are financial provider, the product is sent, we are offering, we have our insurance business, we have our leasing business, we have our brokerage company, investment banking operations. So, we have a full range of the financial products. But as we mentioned in our presentation already, we have a largest technology company in the group. And we are offering different kinds of the digital product to our customers, beginning from the entertainment and editing by the auto and the housing products. So this allows us to have around 1.5 million active monthly users in our different ecosystems. And if you take the reality of the Georgia busy population around closer, a little bit less than 3.5 million, it means that around closer to half, 50% of the population of Georgia are users of our different kind of ecosystems in Georgia. So that, to answer your question, that allows us in Georgia to offer to our customers not only financial products, but also to offer different kinds of digital products. This is in Georgia. But in Uzbekistan now, as we mentioned, we have payment business and

uh banking products uh today we have retail business and in the medium term also we want to develop also sm micro and the semi business that's great thank you very much for that and just a follow-on question from michael michael thank you for your questions um the second question he has um says what do you see is the greatest risk to your position in the market

So firstly, I can say that there are two. First of all, if you look on the Georgia operation, so the geography. So key risk, we see this is geopolitics and the region we are operating in Georgia. This is the first. And second, the dollarization of the total banking sector. By that, I mean that Less than 50% of the portfolio in Georgian operations we have in FX loans. We have a very good trend. So I remember that a few years ago our dollarization of the portfolio in Georgia was more than 70%. Year by year we are decreasing that dollarization of our portfolio. If you ask the main systemic risk, not as a TBC, but all the Georgian banking sector has is the dollarization of the total banking sector. But a lot of steps was taken by the government, by the local regulator, by the National Bank of Georgia. And as a commercial banks, as a TBC, we have a lot of programs and dollarization is going down. And we believe that in the medium term, we know what to do. And that systemic risk will go down.

Thank you very much for that as well. Just turning on to a question regarding your Uzbek operations. The question reads, good to see the progress in the Uzbek operations, but what percentage of revenue do you see this contributing to in the long term?

Do you want to answer this question? Yeah, so as you've seen, our medium-term target, it's three to five years, it's 10 to 15% as we disclosed during our targets. And after the medium term, we will see.

Perfect, guys. Thank you very much for that. And perhaps one final question I can see here. Are you affected by regional instability? Why do you do business in Uzbekistan as opposed to other countries?

I remember why we made the decision. It was a few years ago and why we made the decision. So there are a few reasons. So first is that the population of the country. The population of Uzbekistan is around 35 million. Second, the average age of the population. The average age of the population in Uzbekistan is very young population. In Uzbekistan, it's around 25 years old. Next is the growth of the population. Every year, the growth of the population is about half million. Next is the penetration of the banking sector in Uzbekistan. We see there the huge potential for the growth. I will give just only one example. If you take retail and MSME penetration to GDP, it turns less than, as I remember, 12% to 15%. So it means that for next three to five years, there will be huge potential for the growth in these segments where we are operating in this country, retail and MSME businesses. And finally, we believe that the products, especially in the retail and MSME, which we have now, we have know-how and we can export to this very interesting market. And just for you to remember, in Georgia, we have history and we have a legacy and we are operating, we have all kinds of, we are covering all the segments, but In Uzbekistan, we are more technologically driven company. So we have mobile application and all kinds of the businesses are done through our mobile application. I mean, the transactional business deposits and the loans are dispersed through our mobile application. So we have not a cash business. We have not ATMs or cash in terminals. But as we presented today to you, you have seen that successfully we are developing our Uzbekistan.

That's great. Vaktang, Georgi, thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation just to review and then add any additional responses where it's appropriate to do so. Vakhtang, just perhaps before redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

Yeah, thank you first of all for the interest to our company Just to wrap up, so 2022 was very successful year for TBC, for the profitability, for the growth and also to expand our business in Uzbekistan. And we will continue our business in that range. So we believe that in the medium term, as we see on our slide here, just we will continue to be very profitable. We will continue to pay dividends and All time what we are saying, I don't remember any year that we don't perform what we are telling to our investors and we believe that we will perform very well also in 2023.

Bhaktan, that's great. And thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity 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'm sure will be 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. That now concludes today's session. So good afternoon to you all.