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On Your Side On your side 4 BUSINESS REVIEW 4 Performance Highlights 6 Letter from the Chairman 8 TBC At a Glance 12 History 14 Letter from the Chief Executive Officer 16 Operating Environment and Market Overview 17 Key Strengths 20 Strategy 22 Distribution Channels 25 People 30 FINANCIAL REVIEW 30 Key Performance Indicators 31 Income Statement Discussion 36 Market Position 37 Balance Sheet Discussion 38 Analysis of Results by Segments and Subsidiaries 48 CORPORATE GOVERNANCE 48 Supervisory Board Report 54 Supervisory Board Committees 63 Management Board 67 Management Board Committees 70 RISK MANAGEMENT 77 Credit Risk Management 78 Funding and Liquidity Risk Management 81 Operating Risk Management 84 CORPORATE SOCIAL RESPONSIBILITY 85 Community 87 Workplace 87 Market Place 89 Environment 93 CONSOLIDATED FINANCIAL STATEMENTS 93 Independent Auditor’s Report 94 Consolidated Financial Statements of TBC Group 98 Notes to the Financial Statements 186 ADDITIONAL INFORMATION 186 Shareholders’ Meetings 186 Dividend Policy 187 Disclaimer 187 Contact Information 188 Ratios Explanation 189 Glossary of Terms BUSINESS REVIEW BUSINESS REVIEW BUSINESS REVIEW In 2013 we continued on our path to sustainable growth increased by 27.1%, amounting to GEL 124.3 million and with a clear strategic focus on core banking. We worked leading to a return on average equity of 18.7%. Our portfolio hard to reach significant milestones in developing the Bank’s remains well-diversified across customer segments, with financial strength, operational capabilities and brand a broad range of retail, corporate, SME and micro-finance value. Our achievements are explored in greater detail loans across all regions and major industries in Georgia. throughout this Annual Report. As a result of prudent risk management policies, TBC PERFORMANCE HIGHLIGHTSa maintains a high quality loan portfolio with a ratio of non-performing loans (NPLs)b to total gross loans of 1.1% Bank has delivered another year of robust fi- and an NPL plus restructured loans coverage ratio of TBCnancial performance in 2013. Total assets 111%. TBC maintains robust capital and liquidity positions. grew by 14.1%, reaching GEL 4,451.1 million, total loans At the end of 2013, the Bank had a BIS Tier 1 capital adequacy increased by 16.6% to GEL 2,958.6 million, and total op- ratio of 22% and a total capital adequacy ratio of 29%. Our erating income for the year reached GEL 381.5 million, a Basel III liquidity coverage ratio stood at 344%c and net 16.7% increase on the previous year. Profit for FY 2013 stable funding ratio at 119%. FINANCIAL HIGHLIGHTS | In millions GEL Total Operating Income Operating Expences Profit Before Tax Profit for the Period 381.5 198.6 139.9 124.3 2012: 326.8 2012: 185.5 2012: 112.3 2012: 97.8 Change 16.7% Change 7.1% Change 24.6% Change 27.1% Total Assets Gross Loans Customer Deposits 4,451.1 2,958.6 2,886.9 2012: 3,899.7 2012: 2,536.7 2012: 2,486.9 Change 14.1% Change 16.6% Change 6.1% a All figures are consolidated audited IFRS statements; all operational data includes Bank Constanta. b Non-performing loans are defined as 90 days or more overdue. c Liquidity coverage ratio calculated on a standalone basis per National Bank of Georgia (NBG) accounting standards. 4 TBC BANK ANNUAL REPORT 2013 ADDITIONAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS CORPORATE SOCIAL RESPONSIBILITY RISK MANAGEMENT CORPORATE GOVERNANCE FINANCIAL REVIEW BUSINESS REVIEW BUSINESS REVIEW ROAE ROAA Pre-provision ROAE Cost to Income 18.7% 3.1% 25.2% 52.1% 2012: 18.6% 2012: 2.7% 2012: 24.1% 2012: 56.8% Change 0.1% Change 0.4% Change 1.1% Change -4.7% Cost of Risk NPL to Gross Loans BIS Tier 1 CAR BIS Total CAR 1.3%a 1.1% 21.6% 28.6% 2012: 1.0% 2012: 1.0% 2012: 20.1% 2012: 26.4% Change 0.3% Change 0.03% Change 1.5% Change 2.2% SELECTED OPERATING DATA Remote Channel Cash-in Terminals Transactions/Total Branches (TBC Pay) Employees ATMs POS Terminals Non-cash Transactions 114 2,566 4,471 332 2,779 81% 2013 2013 2013 2013 2013 2013 105 1,944 4,137 274 2,226 76% 2012 2012 2012 2012 2012 2012 CREDIT RATINGS FITCH MOODY’S Long-Term IDR Short-Term IDR Bank Deposits FC Bank Deposits DC BB- B B1 Ba3 2013 2013 2013 2013 a Cost of risk equals provision for loan impairment divided by monthly average loans and advances to customers (before provision for loan impairment). TBC BANK ANNUAL REPORT 2013 5 ADDITIONAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS CORPORATE SOCIAL RESPONSIBILITY RISK MANAGEMENT CORPORATE GOVERNANCE FINANCIAL REVIEW BUSINESS REVIEW BUSINESS REVIEW Strong Financial Performance The year 2013 was another year of strong performance with solid growth in profits and revenues, all the while maintaining a resilient and prudent balance sheet. Our growth rate reached 17% and our profit for the year increased by 27% to GEL 124.3 million. Our return on average equity to the Bank’s shareholders was strong at 18.7%a. As a result, the Bank distributed dividends equivalent to 25% of TBC’s net profit. TBC maintained its unmatched leadership in retail deposits, while achieving sustainable growth across all segments. Our market share in total loans and total deposits reached 27.2% and 29.5%, respectively. Operating Achievements LETTER FROM THE CHAIRMAN We also have substantial achievements in our non-financial commitments crucial for our strategy execution. I would Favorable Operating Environment like to highlight three of them. We have initiated numerous projects with our partners aimed at further enhancing Bank operates in the fast growing, stable, and customer experience and strengthening our brand, the two TBC investor-friendly Georgian economy. Between competitive advantages that have always differentiated our 2003 and 2012, the country enjoyed robust economic Bank. We have accomplished considerable progress in growth at an average (CAGR) of 6.1% annually. In 2013, the multichannel capability development, achieving substantial country witnessed a peaceful handover of political power growth in the number of active internet banking users. between two major parties through democratic parliamen- Our outstanding internet banking platform received seven tary and presidential elections. The transition was exem- prestigious awards from Global Finance magazine, of which plary throughout the region, although it resulted in a two were global category awards for our consumer internet temporary economic slowdown which ended in the final banking, making TBC Bank the first and only Georgian bank quarter of 2013. As a result, the growth rate in Q4 2013 honored with this world-wide recognition. TBC Bank also achieved a strong, single-digit rebound with 3.2% real GDP introduced the SME Business Support Program, the first of growth for the year. According to the International Mone- its kind in the region, helping our SME customers gain access tary Fund (IMF), the economy is expected to achieve a to necessary business knowledge and experience free of charge. growth rate of 5% in 2014. These and other important projects implemented in 2013 are covered in greater detail throughout this Annual Report. Georgia has also continued to build upon its liberal economic reforms, and was once again acknowledged as the world’s #2 Leadership and Governance Reformer and #8 for Ease of Doing Business according to the World Bank and IFC Doing Business Report 2014. Georgia I would also like to highlight our accomplishments with was also recognized as one of the least corrupt countries respect to corporate governance. TBC Bank has traditionally in the world by the Transparency International 2013 report. had high standards of corporate governance due to, among other reasons, our unique shareholding structure with a TBC Bank operates in a liberal, but strictly regulated banking majority of shares held by four prominent international environment. Conservative requirements established by financial institutions (IFIs). Our Supervisory Board has the National Bank of Georgia (the NBG) ensure the stability also been majority-composed of directors nominated by and transparency of the financial system, and foster our IFIs shareholders, who have contributed significantly sustainable economic growth. to the Bank’s success over the past years. a ROAE based on consolidated IFRS data. 6 TBC BANK ANNUAL REPORT 2013 ADDITIONAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS CORPORATE SOCIAL RESPONSIBILITY RISK MANAGEMENT CORPORATE GOVERNANCE FINANCIAL REVIEW BUSINESS REVIEW BUSINESS REVIEW 2013 was the first year following the implementation of milestone toward further enhancing our team-centric and Basel-related corporate governance practices aimed at further customer-oriented corporate culture. strengthening our already high standards. As a result, three new Supervisory Board committees – the Remuneration Social Responsibility Committee, the Risks, Ethics, and Compliance Committee, and the Corporate Governance and Nomination Committee – Corporate Social Responsibility is one of the areas in which were fully functional throughout the year. TBC Bank has led the way in Georgia. In this regard, 2013 was no exception. We continued focusing on the community, In 2013, we also welcomed two new members to the Board – workplace, marketplace and the environment. Our current Mr. Nikoloz Enukidze, an independent board member who projects include a number of cause and case-based initiatives, replaced David Khazaradze, and Mr. Nicholas Dominic Haag, of which I would like to highlight the following: an EBRD nominee board member who replaced Mike Hesketh, following the expiry of the previous members’ terms. Both Social Projects: we provide annual financial support to new members have years of experience in the financial First Step Georgia, one of the biggest psychological aid services industry and joined our Bank after serving at such centers in the country, which offers unique services to institutions as Barclays, ABN Amro, RBS, Banque Paribas, children with disabilities, most of whom are in need of and Concorde Capital.
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