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Management Report and Financial Statements 2019

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Management Report and Financial Statements 2019 Make Life Easier MANAGEMENT REPORT AND FINANCIAL STATEMENTS 2019 20 19 TBC BANK1 is the largest banking group in Georgia – serving around 90% of the country’s adult population. TBCTBC BANK BANK ANNUAL MANAGEMENT REPORT REPORT AND ACCOUNTS 2019 2019 Overview MANAGEMENT REPORT MANAGEMENT Strategy & performance Strategy CONTENTS REPORT MANAGEMENT MANAGEMENT REPORT FINANCIAL STATEMENT Overview Independent auditors’ report 104 At a glance 2 Consolidated and separate 2019 highlights 3 statements of financial position 109 CEO letter 4 Consolidated and separate statements of Implications of COVID-19 6 profit or loss andother comprehensive income 111 Consolidated and separate statements of changes in equity 113 Strategy & performance Consolidated and separate Georgia 8 statements of cash flows 115 Business model and strategy 10 Notes to the financial statements 117 Key Performance Indicators 14 Divisional overview 16 Doing business responsibly 34 Material existing and emerging risks 58 Risk management 66 Financial review 82 GOVERNANCE Corporate governance 94 Supervisory Board biographies 96 The Bank’s Management Board biographies 99 For more information visit our website www.tbcbank.ge 1 TBC Bank refers to JSC TBC Bank (the Bank) and its subsidiaries (together Group) TBC BANK MANAGEMENT REPORT 2019 1 AT A GLANCE WHO WE ARE ? We are the leading universal financial group in Georgia, holding 39.5% and 39.0% market shares1 in total loans and total deposits respectively. We hold a dominant position in all our major business lines comprised of retail, corporate and micro, small and medium enterprises (MSME). Our fully- fledged financial services include traditional banking offerings as well as the industry’s cutting-edge solutions. We are pioneers in the region2 in launching the first fully digital bank, Space and creating a whole new world of opportunities for our customers. COMPLETE SUIT OF TRADITIONAL FINANCIAL SERVICES For more information please refer to 16-29, 32-33 pages FULLY DIGITAL BANK For more information please refer to 30-31 pages OUR MISSION > Make Life Easier TBC CULTURE IS BASED ON OUR VISION OUR TEAM, WHICH IS We are TBC, a technology driven company, that ` Winner by nature; exists for its users, knows them and cares for them. ` Happy; We have the best team, which is innovative and is ` Curious; not afraid of mistakes. ` Goal-oriented; ` Open for new opportunities; TBC is an important part of people’s daily lives and ` Honest; serves them digitally. ` And always delivers on its promises. 1 Based on data published by National Bank of Georgia as of 31 December 2019 2 Region in this context comprises: Armenia, Azerbaijan and Georgia 2 TBC BANK MANAGEMENT REPORT 2019 2019 HIGHLIGHTS Overview MANAGEMENT REPORT MANAGEMENT STRONG FINANCIAL PERFORMANCE 545.7 mln 10,112.0 mln Strategy & performance Strategy + 25.9% YoY + 7.1% YoY REPORT MANAGEMENT NET PROFIT TOTAL DEPOSITS 23.8% 12,662.0mln + 1.1pp YoY + 22.1% YoY RETURN ON AVERAGE TOTAL LOANS EQUITY BEST-IN-CLASS DIGITAL CAPABILITIES ` World’s best in mobile banking 20191 ` 93% retail offloading ratio SUPERIOR CUSTOMER EXPERIENCE ` Best service company in Georgia2 HIGH EMPLOYEE SATISFACTION LEVELS ` 1.76 Employee happiness index3 STRONG BRAND 4 ` 100% Aided brand awareness among Georgian population 4 ` 41% Top of mind in banking sector 1 Named by Global Finance Magazine 2 Based on survey conducted by independent research company IPM among the retail segment in December 2019 3 The index is measured on a scale from -3 to +3 (with +3 meaning very happy) based on internal survey, created in collaboration with the world’s leading consulting firm, conducted among employees who are part of the agile structure in December 2019 4 Based on survey conducted by the independent research company, TNS in October 2019 TBC BANK MANAGEMENT REPORT 2019 3 CEO LETTER STRATEGIC PROGRESS We continue to move into a new era by delivering best- in-class digital solutions, harnessing our advanced data analytical capabilities and providing implacable customer experience across our multichannel: ` Our offloading ratio stood as high as 92.7% as of the end of 2019 up by 2.1 pp year-on-year. This was mainly driven by increased number of mobile banking transactions. We are also proud to be named World’s Best in Mobile Banking 2019 by Global Finance Magazine in additon to winning multilple regional and country awards in various digital categories. ` In November 2019, our neobank, Space, has signed a partnership agreement with Visa, a world’s leader in digital payments, to jointly develop innovative banking services. Space, is quickly gaining popularity on a Georgian market with the number of total registered customers reaching around 181,000. Total loans outstanding to Space customers amounted to GEL 27.0 million as of 31 December 2019. In December 2019, we have also launched saving pots in Space, which is a modern alternative to traditional saving and deposit products. ` As we aspire to transform into data driven organization, we implemented various industry leading analytical projects across the bank, designed with the help of world’s leading consultants. Furthermore we have Dear shareholders, developed strong in-house data analytical capabilities I am delighted to report that we have had another by recruiting and training the best talent. successful year in 2019. Our disciplined approach and ` We maintain the highest customer satistaction scores relentless efforts have translated into strong financial and not only among the banking industry in Georgia, but operating results. also among the leading retail providers in the country2. ` In the fast-changing environment we have to quickly react to markets, therefore agile transformation will help us achieve more efficient cross-company FINANCIAL PERFORMANCE collaboration and strengthen our status of digital Our net profit amounted to GEL 545.7 million, up by innovators. by the end of 2018, we started agile 26.0% year-on-year, reflecting the growth in net fee and company-wide transformation. During 2019, it has commissio income and interest income. The growth in been implemented successfully in the retail, MSME net profit was also strongly supported by a decrease and IT departments and we plan to roll it out to other in credit loss allowance, which was driven by improved deparments in 2020 as well. performance across all segments as well as by a change in the product mix. We continue to maintain a close focus on cost efficiency and strictly control operating expenses CHANGES IN THE MANAGEMENT BOARD across the Group. Consequently, our cost-to-income In 2019, we had certain changes to the composition of the ratio stood at 37.7%. Over the same period, the Bank’s Management Board. David Chkonia, our Chief Risk Officer, standalone cost-to-income ratio remained broadly stable left the Bank at the end of his contractual term in order 1 year-on-year at 35.9%. As a result, our return on equity to pursue other career opportunities. Consequently, Nino stood at 23.8% and our return on assets stood at 3.3%. Masurashvili, deputy CEO, who was previously in charge of retail banking development, has been appointed as the In terms of balance sheet growth, we maintain a leadership new Chief Risk Officer and Tornike Gogichaishvili, Deputy position in loan and deposit market shares, holding 39.5% CEO and Chief Operations Officer (COO) of the Bank has and 39.0% respectively as of 31.12.2019. Our capital been appointed to lead the retail banking business. The position and liquidity levels continue to be strong. As of functions that were previously carried out by the COO have 31 December 2019, our regulatory CET 1, tier 1 and total been re-allocated to be the responsibility of the CFO and capital adequacy ratios per Basel III guidelines stood at the Deputy CEO, SME & Micro Banking. 12.0%, 14.6% and 19.1% respectively, while minimum requirements amounted to 10.4%, 12.5% and 17.5% I would like to thank David Chkonia for his significant respectively. Our regulatory liquidity coverage ratio stood contribution to enhancing our risk management system at 110% compared to the minimum requirement of 100%, and to wish him success in his future career. Also, I would while the regulatory net stable funding ratio (NSFR) per like to wish Nino Masurashvili and Tornike Gogichaishvili Basel III guidelines stood at 127%, above the minimum success in their new roles. requirement of 100%. 4 TBC BANK MANAGEMENT REPORT 2019 TBC BANK MANAGEMENT REPORT 2019 5 Overview MANAGEMENT REPORT MANAGEMENT MACROECONOMIC OVERVIEW In order to support our customers during the coming difficult months, we have introduced a three-month Structural reforms and diversified sources of inflows once grace period on principal and interest payments for all again paid off in 2019. Alongside its high growth potential, our individual and MSME customers as well as those resilience has become another hallmark of the Georgian corporate customers whose business is the most exposed economy in recent years, as reflected in continuous in the current situation. upgrades to the country’s sovereign credit ratings. In 2019, Strategy & performance Strategy exports of goods, tourism and remittances inflows in US$ The NBG has implemented counter-cyclical measures to REPORT MANAGEMENT terms increased by 12.4%, 1.4% and 9.7% year-on-year support the financial stability of the banking system and to respectively, while import of goods declined slightly by 0.8% ensure the provision of financial support to sectors of the year-on-year. Despite the Russian flight ban imposed in June economy affected by the current turmoil. The measures and subsequent weak growth of tourism inflows, the current include a significant reduction in capital adequacy account deficit improved and stood at 5.1% of GDP in 2019 requirements and standby liquidity support incentives.
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