2020 MANAGEMENT REPORT AND REPORT MANAGEMENT STATEMENTS FINANCIAL KEEPING UP WITH THE NEW REALITY 20 20 TBC Bank1 is the largest banking group in Georgia, serving around 92% of the country’s adult population. CONTENTS MANAGEMENT REPORT FINANCIAL STATEMENTS Overview Independent auditors’ report 134 At a glance 4 Consolidated statement of financial position 140 2020 highlights 6 Consolidated statement of profit or loss and other comprehensive income 141 CEO letter 8 Consolidated statement of changes in equity 142 Strategy & Performance Consolidated statement of cash flows 143 Separate statement of financial position 144 Georgia 12 Separate statement of profit or loss and Business model and strategy 16 other comprehensive income 145 Key performance indicators 22 Separate statement of changes in equity 146 Divisional overview 26 Separate statement of cash flows 147 Doing business responsibly 58 Notes to the financial statements 148 Material existing and emerging risks 82 Risk management 93 ADDITIONAL INFORMATION Financial review 110 Glossary 274 Abbreviations 275 GOVERNANCE Corporate governance 124 Supervisory Board biographies 126 The Bank’s Management Board biographies 130 For more information visit our website www.tbcbankgroup.com 1 TBC Bank refers to JSC TBC Bank (the Bank) and its subsidi- aries (together Group) TBC BANK MANAGEMENT REPORT 2020 3 AT A GLANCE WHO WE ARE ? We are a leading universal financial group in Georgia with market shares1 of 39.0% and 37.2% in total loans and deposits respectively. We have a strong presence across all our major business segments – retail banking, micro, small and medium enterprises (MSMEs) and corporate banking. We also offer a wide range of traditional financial services paired with innovative digital solutions, creating a seamless customer experience. FULL SUITE OF TRADITIONAL FINANCIAL SERVICES BEST-IN-CLASS DIGITAL CHANNELS THE LEADING PROVIDER OF PAYMENT SOLUTIONS HOW WE ARE DIFFERENT ? CUSTOMER - MARKET LEADING CENTRIC DIGITAL APPROACH EXPERIENCE 1 Based on data published by the National Bank of Georgia as of 31 December 2020 4 TBC BANK MANAGEMENT REPORT 2020 Overview MANAGEMENT REPORT MANAGEMENT OUR MISSION is to make life easier This approach defines everything we do and how we do it: Strategy & Performance Strategy all our products and offerings are created with this idea in REPORT MANAGEMENT mind and we strive to combine excellence with simplicity. Commercial banking; Leasing; Brokerage and investment banking. Award-winning internet and mobile banking applications; The innovative and scalable fully digital bank, Space. Our payments ecosystem includes both traditional payment channels such as e-commerce, POS and self-service terminals as well as innovative payment methods comprising Apple Pay, QR payments and e-wallet. ADVANCED COLLABORATIVE STRONG DATA ANALYTICAL AND DYNAMIC AND HIGHLY CAPABILITIES CORPORATE TRUSTED CULTURE BRAND TBC BANK MANAGEMENT REPORT 2020 5 AT A GLANCE CONTINUED RESILIENT FINANCIAL PERFORMANCE SOLID CAPITAL AND LIQUIDITY BEST-IN-CLASS DIGITAL CHANNELS1 OUTSTANDING CUSTOMER EXPERIENCE HIGH EMPLOYEE SATISFACTION LEVELS STRONG BRAND5 1 Including Space transactions 2 Based on a survey of the retail segment conducted by IPM, an independent research company in December 2020 3 Employee Net Promoter Score was measured in October 2020 by an independent consultant for the Bank’s employees 4 Employee Happiness Index was assessed internally based on comprehensive survey prepared with the assistance of the world’s leading consulting firm and measures whether employees feel happy and satisfied with their job. The index was measured in July 2020 for the Bank’s employees 5 Based on survey conducted by the independent research company, ACT in December 2020 6 TBC BANK MANAGEMENT REPORT 2020 ₾ 337.3 mln 12.9% 26.4% - 38.2% YoY - 11.4pp YoY - 2.0pp YoY NET PROFIT RETURN ON EQUITY RETURN ON EQUITY BEFORE EXPECTED CREDIT LOSS ALLOWANCES 1.7% ₾ 15,200.5 mln ₾ 12,634.3 mln - 1.6pp YoY + 20.0% YoY + 24.9% YoY RETURN ON ASSETS TOTAL LOANS TOTAL DEPOSITS 10.4% 17.1% 134.2% - 1.6pp YoY - 2.0pp YoY + 24.1pp YoY CET 1 CAR TOTAL CAR LIQUIDITY COVERAGE RATIO MIN. REQUIREMENT 7.4% MIN. REQUIREMENT 13.7% MIN. REQUIREMENT 100% 95% 50% + 2pp YoY + 2pp YoY RETAIL OFFLOADING RATIO INTERNET AND MOBILE BANKING PENETRATION BEST SERVICE COMPANY IN GEORGIA2 68% 85% ENPS3 EMPLOYEE HAPPINESS INDEX4 95% 46% AIDED BRAND AWARENESS TOP OF MIND IN BANKING SECTOR AMONG GEORGIAN POPULATION TBC BANK MANAGEMENT REPORT 2020 7 CEO LETTER Dear Shareholders, I am delighted to report that the Group delivered resilient financial performance during the year and achieved remarkable operating results in an extremely challenging external environment. SUMMARY OF THE YEAR Looking back at 2020, three words come to my mind: support, agility and digitalization. From the very early days of pandemic outbreak in March, we promptly mobilized all our efforts to support our em- ployees and customers and stood firmly by their side throughout the year. We were one of the first Georgian com- panies to implement remote working practices for our back-office employees and equip our front offices with all the necessary protective measures to ensure the full safety for our customers and employees. In addition, senior management conducted regular online meetings with our colleagues in order to address any concerns that em- ployees might have and to provide assurance about our financial stability. We also made the commitment to retain all our staff during 2020 despite the slowdown in business activities. We pride ourselves on having maintained high employee motivation and engagement levels during the year, with our Employee Net Promoter score amounting to 68%1 and our Engagement Index reaching as high as 91%2. In addition, this year we measured the Employee Happi- ness Index for the whole organization for the first time, which yielded a very satisfying result: 85%3 of our employees felt happy and satisfied with their jobs. Equally important was extending support to our customers and demonstrating through our actions what customer centricity actually means to us. First and foremost, we offered eligible customers two major three-month grace pe- riods, conducted loan restructurings where appropriate, continued to provide funding and actively participated in various government support programmes. Conducting business as usual and serving our customers without any disruption via our distribution network was an- other priority for us. Our market-leading digital channels proved to be essential, enabling our customers to conduct most of their banking transactions remotely. Moreover, our call center worked with increased capacity during the early days of the pandemic in order to address our customers’ concerns in a timely manner. We are delighted that our efforts were acknowledged by our customers and TBC was once again regarded as the best service provider in the country in 2020, based on a customer satisfaction survey conducted by IPM, an independent research company, in December. MACROECONOMIC OVERVIEW Following a 5.6% drop in the third quarter, real GDP decreased by 6.5% year-on-year in the last quarter of 2020 due to the reintroduction of a partial lockdown in late November. For the full year 2020, the drop in GDP was 6.1%. Since the beginning of the pandemic, tourism inflows have remained close to zero, although non-tourism inflows have dis- played resilience. During the year, exports decreased by 12.0% in US$ terms (or increased by 3.5% without re-exports), while imports dropped by 15.9% over the same period. As a result, the trade balance improved by around one billion US$, or by 18.8%, compared to 2019. In addition, remittance inflows increased by 8.8%4 in 2020, including a strong 15.7% year-on-year growth in the fourth quarter. 8 TBC BANK MANAGEMENT REPORT 2020 Overview MANAGEMENT REPORT MANAGEMENT Alongside fiscal stimulus, credit also supported economic activity. During the year, the total banking loan portfolio expanded by 9.1%, excluding the exchange rate effect, mainly driven by the retail segment on the back of the state mortgage subsidy programme. The two major three-month long loan repayment grace periods introduced during the year also contributed to the increase in loan balances. Based on TBC Capital’s latest estimates, the economy is expected to recover by 4.2% in 2021. According to the World Bank’s latest projections5, the Georgian economy will grow by 4.0% and 6.0% in 2021 and 2022, respectively. Strategy & Performance Strategy MANAGEMENT REPORT MANAGEMENT RESILIENT FINANCIAL PERFORMANCE In 2020, our operating income amounted to GEL 1,115 million, up by 2.0% year-on-year basis driven by an increase in net interest income. Over the same period, our income generation was supported by effective cost management. During the year, we also recorded a net modification loss of financial instruments in the amount of GEL 41.0 million to reflect the decrease in the present value of cash flows resulting from the loan repayment grace periods granted to borrowers. As a result, our ROE before expected credit loss allowances amounted to 26.4% compared to 28.4% a year ago. For the full year 2020, our net interest margin was 4.7%, while the cost to income ratio for the group amounted to 35.1%, an improvement of 2.6pp year-on-year, and 32.8% for the standalone bank. In 2020, our provision charges increased significantly to cover the potential impact of the COVID-19 pandemic on our borrowers, which resulted in a total cost of risk for the full year of 2.4% compared to 0.7% in 2019. As a result, we recorded a consolidated net profit of GEL 337.3 million for 2020, while our return on equity and return on assets stood at 12.9% and 1.7%, respectively. Our loan book increased by 8.7% year-on-year in constant currency terms, which translated into a 39.0% market share.