TBC Bank Invests in Smart, Digital Solutions Offering Customers the Most Innovative Services
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TBC Bank invests in smart, digital solutions offering customers the most innovative services. MANAGEMENT REPORT AND FINANCIAL STATEMENTS 2018 TBC BANK Overview REPORT MANAGEMENT TBC Bank1 is the largest banking group in Georgia - serving around 83% of the country’s adult population. Strategy & performance Strategy REPORT MANAGEMENT CONTENTS MANAGEMENT REPORT FINANCIAL STATEMENTS GOVERNANCE Overview Independent auditors’ report 96 Group highlights 2018 2 Consolidated and separate statements At a glance 4 of financial position 98 CEO letter 6 Consolidated and separate statements of profit or loss and other comprehensive income 100 Consolidated and separate statements Strategy & performance of changes in equity 102 Georgia 10 Consolidated and separate statements STATEMENTS FINANCIAL Business model and strategy 12 of cash flows 104 Divisional review 22 Notes to the consolidated financial statements 106 Principal risks and uncertainties 44 Risk management 51 Doing business responsibly 64 Financial review 82 GOVERNANCE Corporate governance 87 Supervisory Board biographies 88 Management Board biographies 92 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 2018 1 GROUP HIGHLIGHTS 2018 ROBUST PROFITABILITY AND STRONG EFFICIENCY LEVELS 433.3 mln 22.7% + 19.4% YoY + 1.3pp YoY NET PROFIT RETURN ON AVERAGE EQUITY 3.2% 37.1% 0.0pp YoY - 3.7pp YoY RETURN ON AVERAGE ASSETS COST TO INCOME RATIO STRONG GROWTH AND SOUND ASSET QUALITY 10,372.6 mln 9,444.7 mln 3.1% + 21.3% YoY + 20.5% YoY - 0.2pp YoY TOTAL LOANS (BEFORE IMPAIREMENT) TOTAL DEPOSITS NON-PERFORMING LOANS SOLID CAPITAL AND LIQUIDITY LEVELS 12.8% 17.9% 89.1% - 0.6pp YoY + 0.4pp YoY - 3.1pp YoY TIER I CAPITAL TOTAL CAPITAL NET LOANS TO DEPOSITS PLUS IFI FUNDING BEST-IN-CLASS DIGITAL CHANNELS 90.6% 37.0% 43.7% + 2.3pp YoY + 5.6pp YoY + 3.3pp YoY OFFLOADING RATIO MOBILE BANKING PENETRATION MOBILE AND INTERNET BANKING PENETRATION HIGH EMPLOYEE SATISFACTION LEVEL 66% 87% + 11pp YoY - 4pp YoY ENPS ENGAGEMENT INDEX 2 TBC BANK annual report and accounts 2018 Overview REPORT MANAGEMENT THE BEST SERVICE PROVIDER & performance Strategy REPORT MANAGEMENT IN GEORGIA1 SUPERIOR CUSTOMER EXPERIENCE GOVERNANCE FINANCIAL STATEMENTS FINANCIAL 89.1% - 3.1pp YoY NET LOANS TO DEPOSITS PLUS IFI FUNDING 1 Based on survey conducted by independent research company IPM among retail segment in December 2018 TBC BANK management report 2018 3 AT A GLANCE TBC Bank is the established leader in the Georgian banking sector. We are known for our strong financial performance, commitment to excellence and constant pursuit of innovation. We pride ourselves on having the best digital capabilities, unrivalled customer experience and the country’s most recognised brand. WHO WE ARE NUMBER ONE MARKET 1 We are the largest banking group in Georgia by all key POSITION BY ALL KEY METRICS metrics, leading the market in terms of total assets, total gross loans (total loans) and total deposits. We also hold Total a dominant position in all of our key segments - retail 38.8% banking, micro, small and medium enterprises (MSME) loans and corporate banking. In addition, we provide a wide range Total of other financial services including leasing, investment 41.2% banking and brokerage services through our subsidiaries. deposits Loans to Through our advanced omni–channel distribution 40.0% platform, which encompasses the best-in-class digital individuals channels and a vast network of branches, we are able to Loans to serve a customer base comprising of approximately 83% 37.4% legal entities of Georgia’s adult population. Deposits to 41.2% individuals KEY OPERATING DATA Deposits to 41.2% legal entities Number of customers: c.2,400,000 Retail : c.2,300,000 MSME: c.130,000 OUR CORE VALUES Corporate: c.2,800 > Build a happy and success-oriented team > Create a client-centric culture > Build a straightforward business model and honest relationships Number of branches: 149 > Pursue innovative approaches > Deliver strong, sustainable financial results > Make a positive impact in the community Number of employees: c.7,100 1 Based on data published by National Bank of Georgia as of 31 December 2018 4 TBC BANK management report 2018 Overview REPORT MANAGEMENT Strategy & performance Strategy REPORT MANAGEMENT GOVERNANCE HOW WE ARE DIFFERENT Best-in-class digital channels Focus on financial services As we operate in the digital world, we are continuously We have a clear business model focused on financial investing in technology and upgrading our operations services. We primarily engage in banking and related in order to be able to provide our customers the most activities as well as other services that enhance, support STATEMENTS FINANCIAL innovative solutions on the market. We are proud to have and generate synergies with our core business. Such a world-class internet and mobile banking applications and dedicated approach helps us to concentrate all our efforts to be the pioneers in the country with the first Georgian- on what we do best and constantly seek for new ways to speaking chat bot and voice biometric recognition system fine-tune our value proposition. As a result, we have built in call center. Our most significant achievement this year strong expertise and a significant competitive advantage, was the launch of ‘Space’, the first digital only bank in which will help us to bring the company to the next level. Georgia. Superior customer experience Our strategy leverages on our key Impeccable customer service is part of our DNA and we are committed to delivering the best customer experience strengths and aspires to create maximum across all our channels. We invest significant time and effort value to our customers by developing the to understand the evolving needs of our customers and fine-tuning our solutions according to their preferences. most innovative solutions to satisfy their We have scored2 the highest customer satisfaction in the daily needs. banking sector for many years in a row and hold a leading position among other service providers across the country. Find out more about our strategy on pages 12 to 21 Strong brand TBC Bank is a highly admired brand in Georgia. It is renowned for its credibility, excellence, innovation and community service. We act with integrity and transparency in all our undertakings and strive to create value for all our stakeholders including shareholders, customers, partners, employees and the community at large. TBC Bank has also received many country, regional and global awards, including “Best Bank in Georgia”, by respected international magazines such as The Banker, EMEA Finance, Euromoney and Global Finance. 2 According to the surveys conducted by the independent research companies ACT and IPM. TBC BANK management report 2018 5 CEO LETTER FINANCIAL PERFORMANCE Our consolidated net profit reached GEL 433.3 million, up by 19.4% compared to 2017. Our return on equity was 22.7% while the return on assets stood at 3.2%. Our robust profitability was driven by strong income generation, improved cost efficiency and prudent risk management. We also maintained a solid net interest margin, at 6.8%, up by 0.4 pp year-on-year and managed to achieve a strong increase in net fee and commission income, up by 25.4% year-on-year. Over the same period, our cost to income ratio decreased by 3.7 pp and stood at 37.1%, while cost of risk stood at 1.6% or 1.5% without currency effect. In terms of balance sheet growth, our loan book expanded by 21.3% year-on-year, supported by increase across all business segments which resulted in a market share of 38.8%1, up by 0.6 pp year-on-year. Our asset quality remained sound with non-performing ratio standing low at 3.1%. Over the same period, deposits increased by 20.5%, thus bringing our deposit market share to 41.2%1, up by 1.4 pp year-on-year. Our capital and liquidity ratios continued to remain solid. As of 31 December 2018, our tier 1 and total capital adequacy ratios (CAR) per Basel III guidelines were 12.8% and 17.9% respectively, compared to the corresponding minimum regulatory requirements of 11.8% and 16.7%. At the same time, our net loans to deposits + IFI funding ratio stood at 89.1% and the net stable funding ratio (NSFR) was 126.9%. STRATEGIC PROGRESS AND NEW PRIORITIES We continue to make strong progress in delivering on our digital transformation. In the fourth quarter, our offloading ratio reached 90.6%, up by 2.3 pp year-on-year, mainly driven by the increased number of transactions in mobile banking. Over the same period, our mobile banking penetration grew by 5.6 pp and amounted to 37.0%. Sales conducted through digital channels also demonstrated a strong growth, and amounted to 45.3%2 of total sales in December 2018. I am also extremely proud of Georgia’s Dear shareholders, first fully-digital bank, Space, which we launched in 2018 was a remarkable year, May 2018. Space is a cutting-edge mobile application for managing daily finances offering a unique customer marked by a strong operating experience through simple procedures and products and an intuitive design. Space is becoming increasingly popular and financial performance. and is helping us to attract new customers as well as re- We have significantly improved activate the existing ones. As we establish ourselves as digital innovators, we need to our efficiency levels and we have react quickly to a fast-changing market environment and maintain best-in-class operating cost levels. Therefore, in also made significant progress in 2018 we launched a company-wide agile transformation our digitalization strategy and project which aims to create a more flexible and effective organisational structure.