1st Quarter Results

TBC BANK GROUP PLC ("TBC Bank")

1Q 2020 UNAUDITED CONSOLIDATED FINANCIAL RESULTS  

Forward-Looking Statements

This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or the "Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others, the achievement of anticipated levels of profitability, growth, cost and recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Georgian economic, impact of COVID-19, political and legal environment, financial risk management and the impact of general business and global economic conditions.

None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects are based are accurate or exhaustive or, in the case of the assumptions, entirely covered in the document. These forward-looking statements speak only as of the date they are made, and subject to compliance with applicable law and regulation the Bank expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in the document to reflect actual results, changes in assumptions or changes in factors affecting those statements.

Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management's accounts and financial statements. The areas in which the management's accounts might differ from the International Financial Reporting Standards and/or U.S. generally accepted accounting principles could be significant; you should consult your own professional advisors and/or conduct your own due diligence for a complete and detailed understanding of such differences and any implications they might have on the relevant financial information contained in this presentation. Some numerical figures included in this report have been subjected to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.

First Quarter 2020 Unaudited Consolidated Financial Results

TBC Bank Group PLC ("TBC PLC") will release its first quarter 2020 unaudited consolidated financial results on Wednesday, 20 May 2020 at 7.00 am BST (10.00 am GET), while the results call will be held at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT).

The detailed agenda of the call is given below:

Agenda

14.00 - 14.15 Government and NBG response to COVID-19 - Papuna Lezhava, Vice Governor of the National Bank of Georgia

14.15 - 14.25 Macro overview - Otar Nadaraia, Chief Economist

14.25 - 14.35 Strategic and operating review - Vakhtang Butskhrikidze, CEO

14.35 - 14.45 Financial review - Giorgi Shagidze, Deputy CEO, CFO

14.45 - 14.55 Risk management - Nino Masurashvili, Deputy CEO, CRO

14.55 - 15.30 Q&A

Please click the link below to join the webinar:

 https://tbc.zoom.us/j/94292196126?pwd=cjBNZ1hhQmdVdyt4L2lVc1NmblRqQT09

Meeting ID: 942 9219 6126

Password: 848124

Or use the following dial-ins:

o Georgia: +995 3224 73988 or +995 7067 77954 or 800 100 293 (Toll Free)

o Russian Federation: 8800 100 6938 (Toll Free) or 8800 301 7427 (Toll Free)

o United Kingdom: 0 800 031 5717 (Toll Free) or 0 800 260 5801 (Toll Free) or 0 800 358 2817 (Toll Free)

o US: 877 853 5257 (Toll Free) or 888 475 4499 (Toll Free) or 833 548 0276 (Toll Free) or 833 548 0282 (Toll Free)

Webinar ID: 942 9219 6126#, please dial the ID number slowly

Other international numbers available at: https://tbc.zoom.us/u/acsM3n7M8Q

The call will be held in two parts. The first part will be comprised of presentations and during the second part of the call, you will have the opportunity to ask questions. All participants will be muted throughout the webinar.

Webinar Instructions:

For those participants who will be joining through the webinar, In order to ask questions, please use "hand icon" which you will see at the bottom of the screen. The host will unmute those participants one after another who have raised hands. After the questions is asked, participant will be muted again.

Call Instructions

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Contacts

Table of Contents

1Q 2020 Results Announcement

TBC Bank - Background

1Q 2020 Highlights

Letter from the Chief Executive Officer

Operating Overview

Georgia is fighting the virus more effectively

Our employee and customer support

COVID-19 related charges

Our focus to withstand COVID-19 impact

TBC Uzbekistan

Our mid-term targets

Economic Overview

Unaudited Consolidated Financial Results Overview for 1Q 2020

Additional Disclosures

1) Subsidiaries of TBC Bank Group PLC

2) Our Ecosystems

3) Reconciliation of reported IFRS consolidated figures with the numbers without COVID-19 impact

4) Net gains from currency swaps

5) TBC Insurance

6) Main terms of shareholders' agreement with Yelo Bank

7) Loan book breakdown by stages according IFRS 9

TBC Bank Group PLC ("TBC Bank")

1Q 2020 Consolidated Financial Results:

Profit for the period without COVID-19 impact[1] for 1Q 2020 up by 14.3% YoY to GEL 152.4 million

 European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.

TBC Bank - Background

TBC Bank is the largest banking group in Georgia, where 99.6% of its business is concentrated, with a 38.4% market share by total assets. It offers retail, corporate, and MSME banking nationwide.

These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the European Union. TBC Bank successfully listed on the London Stock Exchange's premium listing segment on 10 August 2016.

TBC Bank Group PLC's financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group separately classifies and discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure (APM) and the reconciliation of the profit and loss items without COVID-19 impact with the reported profit and loss items and the respective ratios are given under Annex 3 section on pages 31-32.

1Q 2020 Highlights

Due to the COVID-19 pandemic, the following non-recurring charges were made to the profit and loss statement:

o Modifications, in the amount of GEL 30.6 million, related to losses incurred on loans and advances to customers and investments in leases to reflect the decrease in the present value of cash-flows resulting from to the three-months grace period granted to borrowers. The grace periods were granted due to COVID-19 pandemic.

o Front-loaded, extra сredit loss allowance was created, in the amount of GEL 215.7 million (or GEL 210.9 million for loan сredit loss allowance), to prepare for the potential impact of the COVID-19 pandemic on the Georgian economy, resulting in an additional 1.7% cost of risk for the first quarter.

1Q 2020 P&L Highlights [2]

o Profit for the period without COVID-19 impact amounted to GEL 152.4 million (1Q 2019: GEL 133.3 million)

o Reported profit/(loss) for the period amounted to GEL (57.0) million (1Q 2019: GEL 133.3 million)

o Return on average equity (ROE) without COVID-19 impact stood at 22.4% (1Q 2019: 23.8%)

o Return on average assets (ROA) without COVID-19 impact stood at 3 .3% (1Q 2019: 3.6%)

o Pre-provision ROE stood at 28.7% (1Q 2019: 29.7%)

o Cost to income of TBC Bank Group PLC stood at 36.5% (1Q 2019: 37.7%)

o Standalone cost to income ratio of the Bank[3] was 31.5% (1Q 2019: 34.8%) 

o Cost of risk without the COVID-19 impact stood at 0.9% (1Q 2019: 1.4%)

o COVID-19 related cost of risk stood at 1.7% (not annualized)  

o Net interest margin (NIM) stood at 5.1% (1Q 2019: 6.2%)

o Risk adjusted net interest margin[4] (NIM) stood at 4.2% (1Q 2019: 4.8%)

Balance Sheet Highlights as of 31 March 2020

o Total assets amounted to GEL 20,030.6 million as of 31 March 2020, up by 32.0% YoY

o Gross loans and advances to customers stood at GEL 13,929.6 million as of 31 March 2020, up by 34.4% YoY or at 19.6% on a constant currency basis

o Net loans to deposits + IFI[5] funding stood at 101.8%, up by 11.3 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR), effective from 30 September 2019, stood at 128.2%

o NPLs were 2.9%, down by 0.4 pp YoY

o NPLs coverage ratios stood at 133.8%, or 107.2% with collateral, on 31 March 2020 compared to 100.1% or 110.5% with collateral, as of 31 March 2019

o Total customer deposits amounted to GEL 11,209.1 million as of 31 March 2020, up by 22.3% YoY or at 7.8% on constant currency basis

o As of 31 March 2020, the Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood at 9.1%, 12.0% and 16.7% respectively, while minimum eased regulatory requirements amounted to of 6.9%, 8.8%, and 13.3%. respectively 

Market Share[6]

o Market share by total assets reached 38.4% as of 31 March 2020, up by 1.0 pp YoY

o Market share by total loans was 39.4% as of 31 March 2020, up by 1.0 pp YoY

o Market share of total deposits reached 39.8% as of 31 March 2020, down by 0.6 pp YoY

1Q 2020 operating highlights

o The number of affluent customers reached 90.0 thousand as of 31 March 2020, up by 108% YoY

o 94% of all transactions were conducted through digital channels (1Q 2019: 92%)

o The number of digital transactions amounted to 21.0 million, up by 19.0% YoY, while the number of branch transactions stood at 1.4 million, up by 13.8% YoY 

o The penetration ratio for internet or mobile banking[7] stood at 48% for 1Q 2020 (1Q 2019: 44%)

o The penetration ratio for mobile banking[8] stood at 44% for 1Q 2020 (1Q 2019: 39%)

*Without COVID-19 related credit loss allowances and losses from modifications

* Ratios without COVID-19 related credit loss allowances and losses from modifications.

** Risk adjusted NIM for 1Q 2020 equals NIM adjusted with cost of risk without COVID-19 effect.

Letter from the Chief Executive Officer

I would like to update you on the measures that we have taken to adjust to the new environment and withstand the challenges caused by COVID-19, as well as present our financial and operating results for the first quarter 2020. I would also like briefly to discuss Georgia's macroeconomic outlook and the government's actions to mitigate the negative impacts of the pandemic.

Georgia has been fighting COVID-19 quite effectively by imposing strict shut-down measures in a timely manner, starting from mid-March. As a result, the number of COVID-19 cases has been relatively low compared to other countries. As the peak is believed to have passed, starting from the beginning of May, the country is gradually opening up and it is expected that most business activities will be resumed by mid-summer.

On the back of this development, monthly estimates of GDP growth demonstrate a gradual deterioration in economic activity in Georgia since the beginning of 2020. In 1Q 2020, real GDP increased 1.5% YoY, while the March growth estimate was negative 2.7% YoY. After solid 17.6% YoY growth in January, tourism inflows decreased by 5.2% YoY in February and dropped sharply by around 70% in March. In the same month, exports of goods and remittance inflows also took a hit, though much more moderately with 22.1% and 9.0% YoY declines respectively. Imports of goods also adjusted by 13.4% YoY. As the containment measures became more stringent in April 2020, growth is expected to turn even more negative in second quarter 2020 before it starts to turn positive. 

Alongside the relatively successful containment of the COVID-19 outbreak, the government also managed to secure the necessary resources to cushion the shock on the economy and the exchange rate. Given the announcement of around USD 1.6 bn in additional funding for the Ministry of Finance and the National Bank of Georgia ("NBG"), the fiscal sector is expected to be strongly expansionary, partly offsetting the negative impact on growth. Furthermore, the government announced a substantial international package of support to the private sector. Meanwhile, the NBG has introduced a more active FX intervention policy to increase the FX supply to the economy during this period of distress. Overall, based on the latest IMF projections, the Georgian economy is expected to contract by 4.0% for the full year 2020 before recovering to a growth of 4.0% in 2021. Our own macro projections indicate a 4.5-5.5% slowdown in 2019 and 4.0-5.0% growth in 2021.

The NBG has implemented counter-cyclical measures to support the financial stability of the banking system and to ensure the provision of financial support to sectors of the economy affected by the current turmoil. The measures include a significant reduction in capital adequacy requirements and standby liquidity support incentives. In addition, the NBG coordinated the creation of loan loss provisions across the banking system.

In terms of our operating results, we have managed to change our operating model swiftly and continue with our daily operations with minimum disruption, while maintaining the health, safety and well-being of our staff and customers as the number one priority. We have introduced a number of additional security and infection prevention measures in our branch network. We have also introduced remote working practices for most of our head office and back office units. As a result, today, 95% of our head office and back office staff (including those in our call center) are working from home, while our market-leading digital banking platform allows our customers to continue with almost all of their banking transactions from the safety of their own homes. Overall, the total number of digital transactions grew by 19% year-on-year, mainly driven by increased number of transactions conducted in mobile banking. As a result, the off-loading ratio amounted to 94%, while mobile banking penetration ratios stood at 44%, up by 5.1 pp year-on-year in the first quarter 2020. In order to support our customers during this difficult period, in March we introduced a three-month grace period on principal and interest payments for all our individual and MSME customers as well as those corporate customers whose business is most exposed in the current situation.

Due to the COVID-19 pandemic, we have accounted for the following non-recurring charges to our profit and loss statement in the first quarter 2020, leading to a net loss of GEL 57.0 million:

o a net modification loss, in the amount of GEL 30.6 million, to reflect the decrease in the present value of cash-flows resulting from the three-month grace period granted to borrowers; and

o An extra, front-loaded credit loss allowances, in the amount of GEL 215.7 million (or GEL 210.9 million for loans), to prepare for the potential impact of the COVID-19 pandemic on the Georgian economy, resulting in an additional 1.7% cost of risk for the first quarter. Excluding this additional provision, the annualized cost of risk stood at 0.9%.

Without COVID-19 impact, we recorded an operating income of GEL 290.3 million, up by 6.7% year-on-year, mainly driven by growth in net interest income and FX income. Over the same period, our net interest margin stood at 5.1%, down by 0.2 pp compared with the previous quarter, primarily due to pressure on FC loan yields driven by the decrease in the libor rate, the increase in GEL cost of funding, as well as currency depreciation. At the same time, our operating expenses remained broadly stable YoY, leading to a cost-to-income ratio of 36.5%, down by 1.2% pp year-on-year. Consequently, our net profit without COVID-19 impact stood at GEL 152.4 million in the first quarter 2020, which resulted in return of equity without COVID-19 impact and return on assets without COVID-19 impact of 22.4% and 3.3% respectively.

In constant currency terms, our loan book remained broadly stable on a quarter-on-quarter basis, growing by 3.2%, while our deposits increased by 2.3%. As a result, our market share in total loans and total deposits stood at 39.4% and 39.8% respectively as of 31 March 2020.

Our liquidity and capital positions remain strong. As of 30 March 2020, our net stable funding (NSFR) and liquidity coverage ratios (LCR) stood at 124.7% (128.7% April 2020) and 107.6% (117.3% April 2020) respectively. After the impact of the currency depreciation and additional provisions related to the potential impact of COVID-19, our CET1, Tier 1 and Total CAR stood at 9.1%, 12.0% and 16.7% respectively as of 31 March 2020, above the corresponding eased minimum regulatory requirements of 6.9%, 8.8% and 13.3%. As already announced, with the aim of preserving capital, our Board of Directors has decided not to recommend the payment of dividends at the upcoming annual general meeting.

In a significant development, in April 2020 we obtained our banking licence in Uzbekistan, which will allow us to start our operations in June 2020. Our strategy is to establish a greenfield, next-generation banking ecosystem for retail and MSME customers in Uzbekistan with a primary focus on digital and partnership-driven channels. Given the current operating environment and the impact of COVID-19, we have further optimised our business model with enhanced emphasis on asset-light and cost-efficient operations.

We have already invested USD 12.6 million into the charter capital of our Uzbek bank and expect to invest an additional USD 9.4 million by the end of 2020. Potential new shareholders, including the European Bank for Reconstruction and Development, the International Finance Corporation and the Uzbek-Oman Investment Company, have also expressed their interest in participating in an additional capital increase by our Uzbek bank later this year, subject to their internal approvals. We will remain the majority shareholder with 51% interest.

Our Uzbek payments subsidiary, Payme, continued to grow rapidly in the first quarter of 2020. Its revenue increased by 47% YoY, while its EBITDA increased by 21%. The number of customers reached 2 million as of 31 March 2020.

Going forward

In light of the COVID-19 pandemic, we have reviewed our strategic priorities given increased pressure on capital and people as well as emerging new opportunities. We have refreshed our strategic priorities for the next 3 years. While the main themes have not changed, we have prioritized digital channels, customer centricity, data analytics and international expansion.

At the same time we will be concentrating on prudent management of our capital and liquidity positions, leveraging our robust risk management system to closely monitor and proactively manage asset quality. In parallel, we will be focusing on cost optimization with the aim of keeping the Bank's cost to income flat for 2020 compared to 2019, despite the pressure on revenues and the currency depreciation. In this regard, management has decided to forgo their entire bonuses for 2020 and LTIP grants for the 2020 cycle.

The crisis has provided a strong validation of our digital strategy and has also revealed a number of opportunities that we will be exploring to further enhance our operational model. I feel confident that we are well positioned to achieve sustainable growth and to deliver superior results to our shareholders in the medium-term, despite the short-term challenges caused by COVID-19. Therefore, I would like to reiterate our medium-term targets: ROE of above 20%, cost to income ratio below 35%, dividend pay-out ratio of 25-35% and loan book growth of around 10-15%.

Operating Overview

Georgia is fighting the virus more effectively

Georgian economy is opening up from the lock-down

o From May 11, all kinds of production have been re-opened as well as retail and whole-sale stores that do not sell clothes or shoes.

o From May 18, the beauty salons have been re-opened as well.

o All businesses regardless of category will have to abide by hygiene standards set by the Ministry of Health, including maintaining social distancing measures, wearing a mask in closed commercial and other spaces.

o Also, all restrictions on entry and exit to Tbilisi have been lifted from May 11.

o The gathering of more than 3 people has been allowed starting from May 18.

o State of Emergency will be lifted on May 22.

o Georgia's domestic tourism is expected to re-open from June 15 and from July 1 the country will start receiving international tourists.

Our employee and customer support

Our employee

o We have introduced additional security and infection prevention measures in our branch network including glass barriers for customer facing employees and antiseptic solutions for the employees and customers.

o Operational model change has been implemented very swiftly, with about 2,200 people, i.e. 95% of head and back offices (as well as call center) already working from home.

o No loss of productivity or even increased productivity in some cases.

Our customers

o We have granted a 3-month grace period on principal and interest payments for individual and MSME customers as well as those corporate customers who are most affected by the current situation. The take-up rate per segments is as follows: 32%-corporate, 59%-MSME and 77%-retail.

o We have provided additional incentives to our customers to use our market-leading digital banking platform such as a temporary waiver of fees on money transfers and utilities payments in internet and mobile banking.

COVID-19 related charges

Due to the COVID-19 pandemic, the following non-recurring charges were made to our profit and loss statement:

Net modification losses, in the amount of GEL 30.6 million

o These modifications are related to losses incurred on loans and advances to customers and investments in leases to reflect the decrease in the present value of cash-flows resulting to the three-months grace period granted to borrowers.

o The grace periods were granted due to COVID-19 pandemic and are not expected to recur once business returns to normal.

Front-loaded, extra credit loss allowance, in accordance with IFRS 9 in the amount of GEL 215.7 million (or GEL 210.9 million for loans)

o These provisions were created to prepare for the potential impact of the COVID-19 pandemic on the Georgian economy, resulting in additional 1.7% cost of risk for the first quarter.

o For the purpose of collective assessment, the provisions were created based on assessment of macro parameters in baseline and downside scenarios, while in corporate segment, the Bank performed individual assessment for the majority of potentially vulnerable borrowers and assigned individual provisions

Due to the COVID-19 pandemic, the following non-recurring charges were made to our regulatory capital:

o According to local standards, the additional credit loss allowance stood at 3.1% of the loan book. As a result, our CET1 ratio decreased by 2.19% as of 31 March 2020.

Our focus to withstand COVID-19 impact

Liquidity

Attracted a number of new borrowings with a total amount of USD 153.6 million in April 2020 and have built a strong funding pipeline for the end of the year for total amount of USD 450 million.

As of 30 April 2020, LCR amounted to 117.3%, while NSFR stood at 128.3%.

Ratios as of 31 March 2020

Capital

The Board has decided not to recommend dividends at the upcoming AGM to support capital positions.

Ratios as of 31 March 2020

Asset quality

Closely monitor and proactively manage asset quality

Ratios as of 31 March 2020

Profitability & cost control

Working on cost optimization program including forgoing entire top management annual bonuses for 2020 and LTIP grants for the 2020 cycle. Our target is to maintain flat cost to income ratio for the bank in 2020 compared to 2019 (35.9%) and achieve comfortable profitability level.

Ratios as of 31 March 2020

TBC Uzbekistan

Our strategy is to establish a greenfield, next-generation banking ecosystem for retail and MSME customers in Uzbekistan with a primary focus on digital and partnership-driven channels. Given the current operating environment and impact from COVID-19, we have further optimised our business model with the enhanced emphasis on asset-light and cost-efficient operations.

Product offerings:

o Current and savings accounts;

o Cash loans, salary backed loans and car loans;

o Cards, mobile application and transactional capabilities;

o Point-of-sale consumer finance operations;

o Close cooperation with Payme, our Uzbek payments subsidiary.

Funding:

o TBC PLC has already invested USD 12.6 million into the charter capital of the Bank and expects to invest an additional USD 9.4 million by the end of 2020.

o We have already secured interest from our potential partners: EBRD, IFC and the Uzbek-Oman Investment Company.

o Additional capital increase is planned later this year from our partners.

o Our plans foresee a minimum 51% shareholding.

Financial targets:

Run-rate break-even is planned by the end of 2022 and our medium-term targets are:

o ROE-in the range of TBC Group's target

o Loan book up to USD 700 million

The team:

o The Bank will be run by an experienced management board headed by Chief Executive Officer Sandro Rtveladze, who previously held the role of Group Head of Retail Banking at Bayport Financial Services and prior to that was Deputy CEO at Liberty Bank in Georgia.

Our mid-term targets

o In the light of COVID-19 pandemic, we have reviewed our strategic priorities given increased pressure on capital and people as well as emerging new opportunities.

o We have refreshed our strategic priorities for the next 3 years. While the main themes have not changed, we have prioritized digital channels, customer centricity, data analytics and international expansion.

o We believe our strategy of digital enabled growth and customer centricity will make TBC even more distinctive, given the acceleration of trends we see.

Our mid-term targets remain unchanged

* Growth at constant currency

** The Board has decided not to recommend dividends at the upcoming AGM to support capital positions

Additional Information Disclosure

The following materials in connection with TBC PLC's financial results are disclosed on our Investor Relations website at http://tbcbankgroup.com/ under the Results Announcement section. 

Economic Overview

Economic growth and external sector

The rapid spread of COVID-19 globally has taken its toll on the domestic economy, with its first impact apparent in February 2020. While the strong growth registered in 2019 (+5.1% YoY) carried over in January 2020 (+5.1% YoY), estimated GDP growth moderated to 2.2% YoY in February and slipped to negative 2.7% YoY in March, as a state of emergency was announced on 21st of March with a number of restrictions on domestic and international economic activity. According to initial estimates, almost all sectors declined in March 2020 with the exception of construction and ICT. Estimated GDP growth in 1Q 2020 remained at positive 1.5% YoY.

The tourism industry, which is one of the major pillars of the Georgian economy, has been hit hardest. Following the exceptional performance of tourism inflows in January, which grew 17.6% YoY in USD terms, inflows receded by 5.2% YoY in February and fell by an estimated 70% YoY in March. Exports of goods showed a similar tendency, although the drop in March was relatively soft at 22.1% YoY. Reflecting increased uncertainties, a sharp deterioration in business and consumer sentiments and record low oil prices, imports also fell by 13.4% YoY in March 2020, which meant that the trade balance improved by 6.8% over the same period. As far as the existing evidence suggests, remittance inflows proved more resilient and declined only by 9.0% YoY in March 2020, despite being affected both by lower oil prices and RUB depreciation, and by stringent measures introduced in some key remitting countries such as Italy and Spain.

Inflation, monetary policy and exchange rate

Since the beginning of the year, as the USD/Gel exchange rate strengthened and the high base effect came into play, inflation retreated to 6.1% YoY as of March 2020, compared to 7.0% YoY by the end of 2019. However, following the sharp depreciation of the GEL by the end of March, compounded by supply side constraints, inflation increased to 6.9% YoY in April 2020, mostly driven by higher food prices, while non-food inflation retreated on the back of lower fuel prices as well as weak domestic demand. At the peak of its depreciation, the GEL nominal effective exchange rate weakened by 11.6% compared to the end 2019, before regaining some of its value. In response to sharp exchange rate fluctuations, the NBG sold USD 100 mln in March and an additional USD 20 mln by the end of April. On top of the traditional interventions mechanism, the central bank introduced a facility to intervene daily on the FX market to smooth out the excess volatility of the currency without resisting the underlying trend of the exchange rate.

Despite the depreciated exchange rate and somewhat higher inflation in April 2020, the central bank started a gradual exit from its tight monetary stance in response to expected downward pressures on inflation once the short-term supply side shock fades. The policy rate was reduced by 0.5 pp by the end of April 2020 and the central bank pledged to continue to exit gradually from its tight monetary stance, with the pace of movement depending on changes in terms of inflation expectations. According to the central bank, inflation will remain elevated over the next several months and it will start to decline by the second half of the year, before reaching the target of 3% in the first half of 2021.

Fiscal policy

In response to the deteriorating economic outlook, the Ministry of Finance started to mobilize external financing to scale up social as well as business support initiatives to mitigate the potential damage from the COVID-19 outbreak and ensure macroeconomic stability. The existing program with the IMF enabled the country to tap donor financing in a timely manner. The total amount of secured external financing for the government and the central bank amounted to USD 1.6 bn, which should be sufficient for the country to finance its spending needs as well as to fill the gap in the balance of payments through central bank interventions. According to the IMF, the budget deficit is expected to come in at 8.5% - an indication of a highly expansionary fiscal stance. With these additional borrowings, the government is expected to launch an unemployment support scheme for those who lost their jobs during the COVID-19 outbreak as well as different social support schemes. In addition, tax breaks, a credit guarantee fund and specific sectoral programs are expected to be put in place to steer the economy through these uncharted waters. In addition, the government announced around USD 1.5 bn in direct international support to the private sector.

Going forward

The unprecedented economic difficulties stemming from the COVID-19 pandemic have created enormous challenges for the Georgian economy. The first signs regarding the size of the fallout from the virus outbreak were already visible in March 2020. A somewhat steeper decline is expected in April-May 2020 before the state of emergency is lifted gradually, when different sectors will likely start to recover. Overall, per latest projections of the IMF, GDP is likely to fall by 4% YoY in 2020 before recovering by 4.0% YoY in 2021. Azerbaijan is also expected to face a 2.2% contraction in 2020 and to recover only modestly by 0.7% YoY in 2021. At the same time, Uzbekistan stands out in the broader region as one of a very few countries which will maintain growth at a positive 1.8% in 2020 before expanding strongly by 7.0% in 2021.

Unaudited Consolidated Financial Results Overview for 1Q 2020

This statement provides a summary of the unaudited business and financial trends for 1Q 2020 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

TBC Bank Group PLC financial results are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the Companies Act 2006 applicable to companies reporting under IFRS. The Group separately classifies and discloses certain incomes and expenses, which are non-recurring by nature and are caused by extraordinary events, in order to provide a consistent view and enable better analysis of the financial performance of the Group. Adjusted performance is an alternative performance measure (APM) and the reconciliation of the profit and loss items without COVID-19 impact with the reported profit and loss items and the respective ratios are given in Annex 3 on pages 31-32. Please note, that there might be slight differences in previous periods' figures due to rounding.

Net Interest Income

In 1Q 2020, net interest income amounted to GEL 208.0 million, up by 3.4% YoY and down by 0.6% on a QoQ basis.

The YoY increase in interest income was primarily related to an increase in interest income from loans, which was related to an increase in the gross loan portfolio by GEL 3,562.7 million, or 34.4%, as well as currency depreciation. This effect was partially offset by a 1.2 pp drop in loan yields across all segments in line with the overall market trend as well the responsible lending regulation that was effective from 1 January 2019, limiting the Bank's ability to disburse loans to higher yield retail customers.

Over the same period, interest expense increased by GEL 54.4 million, or 38.6%, which was mainly related to interest expense from bonds issued in summer 2019, as well as an increase in the NBG loan. Another driver was increased interest expense from deposits, which was related to both the growth in the respective portfolio by 22.3% YoY and an increase in deposit cost by 0.2 pp over the same period, driven by an increase in GEL deposits cost related to currency devaluation.

The QoQ increase in interest income was mainly due to an increase in the loan portfolio by GEL 1,267.7 million, or 10.0%, this effect was partially offset by a 0.6 pp drop in loan yield, related to an increase in FC loan yields driven by a rise in libor rate. Over the same period, interest expense increased by GEL 3.5 million, or 1.8%, mainly related to the growth in the respective portfolio by 11.5%, as well as increased in GEL cost of fund by 0.4 pp.st

Since 4Q 2019, we re-classified net gains from currency swaps from other operating income to net interest income. In 1Q 2020, our net gains from currency swaps decreased by 5.5% QoQ driven by decline in the interest rate spread on the international markeSts. More information about re-classification is given in annex 4 on page 32.

Thus, our NIM was 5.1%, down by 1.1 pp YoY and 0.2 pp on a QoQ basis, while our risk adjusted NIM for the period amounted to 4.2%, down by 0.6 pp YoY and 1.2 pp QoQ.

* Risk adjusted NIM for 1Q 2020 equals NIM adjusted with cost of risk without COVID-19 effect

Net fee and commission income

In 1Q 2020, net fee and commission income totalled GEL 43.6 million, up by 4.2% YoY and down by 20.6% QoQ.

The YoY rise was mainly driven by an increase in net fee and commission income from settlement transactions, and guarantees and letters of credit issued. The former increase was mainly driven by the increase in the number of TBC Status's clients (our affluent retail sub-segment),up by 108% YoY to 90.0 thousands, while the latter increase was related to an increase in the respective portfolio by GEL 747.5 million, or 57.5% YoY.

On a QoQ basis, the decrease was spread across all categories, related to seasonality and the overall slow-down of business operations due to the COVID-19 outbreak.

Other Non-Interest Income

Total other non-interest income increased by 33.6% YoY and decreased by 3.3% QoQ, amounting to GEL 38.7 million in 1Q 2020.

The YoY increase was mainly attributable to strong growth in net income from foreign currency operations, which was driven by an increase in the number and volume of FX transactions across all segments as well as increased spread due to the higher volatility of the local currency in 1Q 2020.

The slight decrease QoQ was related to the decrease in other operating income and net insurance premium earned after claims and acquisition costs due to seasonality. This decrease was partially offset by the increase in net income from foreign currency operations, due to the higher volatility of the local currency, as mentioned above.

Net insurance premium earned after claims and acquisition costs increased by 28.7% YoY, mainly related to the overall increase of the insurance business. More information about TBC insurance can be found in Annex 5 on page 33.

Credit Loss Allowance

Credit loss allowance for loans in 1Q 2020 amounted to GEL 241.0 million, out of which GEL 210.9 million was COVID-19 related, which translated into additional 1.7% cost of risk. The largest impact comes from the retail segment, followed by the MSME.

Other credit loss allowance amounted to GEL 6.7 million, out of which GEL 4.8 million was COVID-19 related.

*COVID-19 impact is related to the credit loss allowances

NMF - no meaningful figures

Operating Expenses

In 1Q 2020, total operating expenses increased by 3.2% YoY and decreased by 16.8% QoQ, amounting to GEL 105.8 million.

On a QoQ basis, the decrease in staff cost was driven by a decline in share base payment expense, due to the fact that management waived their right to receive 2020 annual bonus and LTIP for the 2020-2022 performance period as well as seasonality. Administrative & other expenses also decreased QoQ due to seasonality. At the same time, the increase in depreciation was caused by a high base in 4Q 2019, due to amendments in the depreciation period of certain assets.

As a result, in 1Q 2020, our cost to income ratio stood at 36.5%, down by 1.2 pp YoY and 5.3 pp QoQ.

NMF - no meaningful figures

Net Income

Due to the COVID-19 pandemic, the Group incurred a losses from modifications related to COVID-19, in the amount of GEL 30.6 million, to reflect the decrease in the present value of cash-flows resulting from a three-month grace period granted to borrowers. The modifications are related to losses incurred on loans and advances to customers and investments in leases due to the COVID-19 events and are not expected to recur again in normal course of the business.

In 1Q 2020, we recorded a net loss of GEL 57.0 million due to the following COVID-19 related charges: a net modification loss of GEL 30.6 million and COVID-19 related total credit loss allowance in the amount of GEL 215.7 million.

Our net income without COVID-19 impact for the first quarter amounted to GEL 152.4 million, up by 14.3%, YoY and down by 4.8% QoQ. The increase was mainly due to growth in net interest income and FX income.

Income tax expense without COVID-19 impact is calculated as follows: the reported income tax is reduced by the COVID-19 related tax expense, in the amount of GEL 37.0 million, which is 15% of COVID-19 losses from modification and credit loss allowances of GEL 30.6 million and GEL 215.7 million, respectively.

As a result, our ROE without COVID-19 impact stood at 22.4%, down by 1.4 pp YoY and 2.3 pp QoQ, while ROA without COVID-19 impact stood at 3.3%, down by 0.3 pp YoY and 0.2 pp QoQ.

*COVID-19 impact is related to the credit loss allowances and losses from modifications

Funding and Liquidity

As of 30 April 2020, the total liquidity coverage ratio, as defined by the NBG, was 117.3%, above the 100% limit, while the LCR in GEL and FC stood at 113.6% and 119.0% respectively, above the respective limits of 75% and 100%.

As of 30 April 2020, NSFR stood at 128.3%, compared to regulatory limit of 100%, effective from September 2019.

*Based on internal estimates

Regulatory Capital

Due to the COVID-19 pandemic, the NBG is implementing countercyclical measures to support the financial stability of the banking system and to ensure provision of financial support to sectors of the economy affected by the current turmoil. In relation to capital adequacy requirements, the following measures have been taken:

o Postponing the phasing in of additional capital requirements planned in March 2020, with a 0.44 pp effect on TBC's CET 1;

o Allowing banks to use the conservation buffer (currently at 2.5pp on CET1) and 2/3 of CICR buffer resulted in the release of 1.0-2.0% of capital across our CET1, Tier 1 and Total CAR;

o Leaving open the possibility of releasing all pillar 2 buffers (remaining 1/3 CICR, HHI and Net Grape buffers) in the range of 1.0-4.0% of capital across our CET1, Tier 1 and Total CAR.

As of 31 March 20, the Bank's CET 1, Tier 1 and Total Capital adequacy ratios stood at 9.1%, 12.0% and 16.7%, respectively, above the respective eased minimum requirements of 6.9%, 8.8% and 13.3%.

Total capital, Tier 1 capital and CET 1 capital decreased by 18.9%, 12.9% and 6.9% on a QoQ basis, respectively. The main reason for this decrease was additional provision charges created according to local standards in relation to the COVID 19 pandemic, in the amount of 3.1% of the loan book. The QoQ growth in risk-weighted assets was mainly related to the currency depreciation.

Loan Portfolio

As of 31 March 2020, the gross loan portfolio reached GEL 13,929.6 million, up by 34.4% YoY and 10.0% QoQ, or by 19.6% YoY and 3.2% QoQ at a constant currency basis.

The YoY increase was spread across all segments, with the largest contribution from the corporate segment. The latter was driven by the acquisition of both large and mid-corporate clients, as well as by the re-segmentation of certain clients from the MSME segment in 1Q 2020 in the amount of GEL 88.7 million. The proportion of gross loans denominated in foreign currency increased by 2.8 pp YoY and 3.7 pp QoQ and accounted for 62.4 % of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency increased by 1.2 pp QoQ and stood at 59.9%.

As of 31 March 2020, our market share in total loans stood at 39.4% up by 1.0 pp YoY and down by 0.1 pp QoQ. While our loan market share in legal entities was 38.5%, up by 1.1 pp and down by 0.4 pp QoQ, and our loan market share in individuals stood at 40.0%, up by 1.0 pp YoY and 0.3 pp QoQ.

Loan Portfolio Quality

Without COVID-19 impact, total PAR 30 was up by 0.6 pp QoQ or down by 0.1 pp YoY, and stood at 2.3% as of 31 March 2020. The QoQ increase was driven by all segments.

Over the same period, NPL ratio improved by 0.4pp YoY before COVID-19 effect, due to overall improved performance of the book as well as portfolio growth and remained broadly stable QoQ. The COVID-19 impact is not yet realized partially due to payment holidays offered to our customers.

On a QoQ basis, NPL coverage ratio increased due to COVID-19 related credit loss allowance and currently stable NPL level.

Cost of risk 

The total cost of risk without COVID-19 effect for 1Q 2020 stood at 0.9%, down by 0.5 pp YoY and up by 1.1 pp QoQ. The QoQ decrease was due to unusually low impairment charges in 4Q 2019 across all segments, while YoY decrease is driven by retail and MSME segments.

* Not annualized

Deposit Portfolio

The total deposits portfolio increased by 22.3% YoY and 11.5% QoQ and amounted to GEL 11,209.2 million, while on a constant currency basis the total deposit portfolio was up by 7.8% YoY and 2.3% QoQ. The proportion of deposits denominated in foreign currency increased by 3.1pp YoY or 0.4 pp on a QoQ basis and accounted for 66.3% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency decreased by 2.7 pp QoQ and stood at 63.2%.

As of 31 March 2020, our market share in deposits amounted to 39.8%, down by 0.6 pp and up by 0.8 pp QoQ and our market share in deposits to legal entities stood at 42.1%, up by 0.8 pp YoY and 1.5 pp QoQ. Our market share in deposits to individuals stood at 37.9%, down by 1.6% YoY, and remained the same QoQ.

Segment definition and PL

Business Segments

The segment definitions are as follows:

· Corporate - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which have been granted facilities with more than GEL 5.0 million. Some other business customers may also be assigned to the corporate segment or transferred to the MSME segment on a discretionary basis;

· Retail - non-business individual customers; all individual customers are included in retail deposits;

· MSME - business customers who are not included in the corporate segment; or legal entities which have been granted a pawn shop loan; or individual customers of the fully-digital bank, Space; and

· Corporate centre and other operations - comprises the Treasury, other support and back office functions, and non-banking subsidiaries of the Group.

Business customers are all legal entities or individuals who have been granted a loan for business purposes.

Income Statement by Segments

Income Statement without COVID-19 impact[16] by Segments

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Statement of Profit or Loss and Other Comprehensive Income