TBC Bank Group PLC

Welcome everyone to the TBC first quarter 2024 results call webinar. My name is Emily and I'll be your coordinator today. If you wish to ask a question during the webinar, please use the raise hand button if you have joined the call via Zoom. Alternatively, you can type your questions into the Q&A chat box at the bottom of your Zoom screen. If you have joined us on the telephone lines, please press start followed by the number one on your telephone keypad if you would like to ask a question. 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, Bhaktan Utsavikidze, and our CFO, Yogi Meghalishvili. 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 Vaktan.

Thank you. 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, there have been protests 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. Turning to our results, I am delighted that we can share with you another successful start to the year with almost 300 million LARIC groups net profit and more than 25% return of 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. It is almost 40% here. Meanwhile, in Uzbekistan, our business goes from strength to strength, with gross loans more than doubling and net income contributing 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 great progress in the decade since. You can see we have stayed very focused on consistent delivery from growth and profitability for our shareholders. Our track record speaks for itself, an average return of equity of around 22%, 25% annual growth in net profit with a consistent 25% to 35% dividend payout ratio. We have also expanded our active customer base to nearly 6 million by strengthening our presence in Georgia and by building digital financial services in Uzbekistan's growing market. The next slide presents a high-level overview of the first quarter performance. Net profit reached nearly 300 million laria by 16%. Our growth maintained an excellent return on equity, 25.1%. And at the same time, our gross long portfolio grew by 21%, reaching 22.5 billion dollars. 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. Economy 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% each point 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 authentic services on a monthly basis. Additional TBC insurance dominates the non-health insurance market with over 75% market share, and TBC account for almost 90% of the losing market. Now let's go to the next slide. This slide shows that our growing customer base is becoming more and more digitally engaged. Out of 1.6 million active monthly customers, almost 60% are digitally active. And as you see on this slide, more and more of our products are being issued online. The share of consumer loss 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, T-NEX, which consists of a wide range of products and services across four verticals. In the first quarter, GMV increased by approximately 20%, reaching $36 million, out of which 55% comes from the lifestyle led by the ticketing. Over the same period, the number of the transactions also grew by 20% and reached more than $4 million. Now, moving to the Uzbekistan business, I'd like to provide you with a brief update on Uzbek economy. The 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 billion in 2030, with alongside 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 five years, and I'd like to stress 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 allow the travel services, while now our POS installment loan platform, PayMe Nasir, will enhance our BMPO 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 mass-led to 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 seven quarters, and we earned $7 million in net profits and $38 million in total operating income in 2034. 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 fast consumer loans, 8% in the retail deposit portfolio, 12% in the total operating income, and 6% in the net profits. And this number should 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 player 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 the interview to you.

Thank you, Raktan, 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 Rahman already mentioned, in Q1, our net profits stood at nearly 300 million lari 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. Since slide 18, both net interest and non-interest income have continued to grow strongly. Net interest income was up by an excellent 21% year-on-year, driven by solid long 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 ethics, 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 need 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 costs while simultaneously supporting business growth and 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 decreasing cost was due to seasonality. Now I will move to slide 21, which highlights our healthy asset quality, and you can see our NPL ratios Although it's slightly up on quota, 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 solution 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 lows up at a very respectable 21% on a constant currency basis, and over the same period, total customer funding are up by 18%, also on the 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 benchmark 300 million ATR1. The bonds were priced around 50 basis points below our current ATR1 that is callable in October this year. The issuance has a pro forma positive impact of 3.3 percentage points on our TR1 and total capital ratios in Georgia. And as you can see from this slide, We continue to operate with strong capital positions, well above the minimum regulatory requirement 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 $28 million in total operating income and $7 million in net profit. That is 12% and 6% of the group Stockholm, respectively. Over the same period, return of equity of Uzbek operations was 23.7%, great 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 stock underwriting as reflected in our cost of risk 5.5%. On this note, I would like to thank you and hand it back to Wachtan for some final remarks.

Thank you. And before turning to our 2025 targets, I am pleased to report that the Board has approved the buyback program of up to 75 million lari. Out of each, 25 million would be used for our Employees Benefit Trust, and 15 million would be canceled. And finally, I'd like to reiterate the targets that we have set ourselves through the end of 2025. We are confident that we are heading 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, Vatang and Gyorgy. So,

you're welcome to ask um questions um we have first question is from uh from robert at peel hunt uh robert please go ahead uh your line is open yes thanks very much for taking my questions um i've got two the first one relates to the share buyback that i think was unexpected certainly 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 forwards on that? The second one is entirely different and it's really looking at the capital ratios in the 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 or should it be below Georgia and or where should we be aiming for? Could you answer both questions?

Of course. Thanks, Robert. 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 our own business growth. In this particular circumstances, we felt that it would be good use of the capital, and it will be beneficial for the group, and that also shows very strong capital position of the bank, because we can continue paying the dividends, what we promised to the market, we can continue growth in Uzbekistan, and meanwhile, when the opportunity, when there is a good use of the capital, we can do the buyback. That's kind of as simple as that. And for Uzbekistan capital ratios, First of all, what I would like to highlight, it has a different capital requirement, different capital regime. In Georgia, for example, you can see that C2 and minimum regular payment 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, both in our partners' eyes, the business grows, and when they need it, we inject more capital. So what I can assure you is that When Uzbekistan needs capital, we have capital, and we will put it, whether it will be Q2 or Q3. But as a guide to the market for the next two 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 required. It's probably around the current level for now. more or less safe place to assume, but we will kind of update as we would say if our thinking changes. I think I covered all your questions, Robert.

Thank you. Thanks very much, Robert. Next up, we've got Jan from Wood. Jan, please go ahead. Your line's open. Thank you. Thank you, Anil.

And thank you, Wassan, and thank you for the presentation. So, I wanted to ask you about the people. It seems to have slowed down to 13% levels from last year. Obviously, we didn't expect 40% to be recurring, and we didn't expect them from last year. Sorry, can I complete the other question? Sorry, can you hear me now? Yeah, okay. So, I... So the question is, so can you explain the slowdown or about the performance, how it went from 40% last year to 13% in the first four to six years in two years?

So the question, if I understood correctly, is the slowdown in fees compared to the year-on-year basis. That's true.

Yeah.

It's usually we have a guide around 20% that we are going to get, but there are certain time differences, particularly with Visa and MasterCard cash. For example, sometimes we have different quotas. So last year it was in Q2. This year it's probably in Q1. Yes, it's in Q2. So that's like the key driver.

Okay. If you're hearing me well, I'd like to ask you another question. So on the effects side of things, you mentioned that the funding costs have increased, which made an impact on the margin, an excellent part of the decline in the margin. But it seems that the effects of the costs didn't really increase in the 40s. So was it more wholesale driven, or does it have something to do with the ATL issuance, maybe direct sign of it as well?

For ATL, it was issued at a kind of low price in our current ATL, and it was also issued just recently. So there are the two key drivers. One is the rate of decrease for the new compression. We went from 11% to 8.25%, as you know. And on ethics costs, we also see increase in terms of deposit rates, not huge, but given our base, it's still like prices and also on the let's say on the let's say whole sales and it also obviously increased because for example when we had funding that cheaper costs uh maybe drove down a few years ago now it's a different price and another driver was also last year at the end of the last year we raised quite a substantial new subject tier two as you remember when the mdg regulation changed and you know twice it really started c to one ratio However, we needed to compensate with tier two at a total, like to ensure the total capital distribution at each stock. So therefore what we did, we used CC1 and we financed tier two stock with subject and subject was a bit more expensive side. That was the driver for the ethics costs.

Okay, thank you very much. Thanks very much, John.

We do have a question on the telephone lines, which comes from Rahim Karim within Vestec. Rahim, please go ahead. Your line is now open.

Hi. Good afternoon. I hope you can hear me. Two questions, if I may. The first was just with respect to the Uzbek business clearly firing very well. And as you've talked about, you know, significant growth opportunities ahead. Could you just help us frame the key priorities for that business over the next 12 months? Obviously, lots of investment going in there, but from the outside, what is it that we should be looking for to measure success other than, obviously, the financial performance? And then, secondly, with respect to cost of risk, continue to track ahead of your medium-term in Georgia and I think particularly low in Uzbekistan in the period. Could you help us with some thoughts of how we should see that evolving over the course of the rest of the year? Thank you.

I will try to answer the first question and you will answer the second question. So on the Uzbek operations for the next 24 months, as I have already mentioned in my part of the presentation, We are doing quite well today, but what we are targeting to increase our portfolio and our target annual growth has to be minimum 80%. We are bringing new products such as debit cards into the new foreign market. We are bringing credit cards also. And we want to begin before the end of this year, thank you for SME. So this is a new type of decoders which will be generated during this year. But to measure the success in this package task, once more, it's a portfolio growth, meaning 80% growth of the local deposits, increase of the monthly active users, and profitability. So as you have seen already, last two quarters, our profitability was around 23%, 26%. So, in the medium term, our target will be just to create, to increase our profitability and the profits.

Okay. And I'll take the second part. I'll start with Georgia. As you know, we guide the market at normal life. So, the cycle cost of 1% and that's to our view. So, the cycle, it should remain, but For the last two quarters, we are below that, that we will buy strong portfolio quality, very strong macro. And to be realistic, this year, we would expect to be below our full cycle, but over the medium term, that's 1% is probably the safe place to assume. And on Uzbekistan, it's actually the same situation because Uzbekistan business is very high growth, high risk, but high risk business. And we do understand that very well. So managing the risk and actually the underwriting is our key focus. So we have one of the best in class collection services, underwriting services scoring our past at a low level. And at the moment, we have the luxury also to go to the very good segment. As the business evolves, generally we will come with some other segments to some experiments. But anyway, the seventh step that we guide to the market is the level we expect. At the moment, we are a bit below our normalized level, we think. But I would say around 7% is safe to assume over time through the cycle cost of risk.

Thank you very, very much.

Thanks very much, Rahim. We don't have any more questions on the Zoom. Do we have any further ones on the phone lines?

We do not currently have any further questions registered on the phone lines either.

OK. I'll give it a few more seconds. Yeah, OK. Doesn't look like we have any further questions today. So thank you, everybody, for joining the first quarter call. Please keep in touch. And we look forward to speaking to you again on the second quarter call in August. Thanks very much. Goodbye.

Thank you, everyone, for joining us today. This concludes today's webinar and you may now disconnect.

Goodbye.