INVESTING IN
OPPORTUNITY
ANNUAL REPORT 2015
www.tbcbank.ge/IR
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
TBC BANK IS A LEADING UNIVERSAL BANK IN
GEORGIA, OFFERING A BROAD RANGE OF PRODUCTS
AND SERVICES THROUGH ITS EXTENSIVELY
DEVELOPED RETAIL, CORPORATE, SME AND MICRO
BANKING BUSINESS LINES.
TBC BANK (TBCB: LI) HAS BEEN LISTED
ON THE LONDON STOCK EXCHANGE
SINCE JUNE 2014.
Proof:
Date:
00
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NO 12 BOUTIQUE HOTEL
No 12 Boutique Hotel in Tbilisi opened just 5 years ago and has
already become one of the highest rated tourist destinations with a
8.7 rating and the sought-after “most booked” status on Booking.
com. The owners of the Boutique Hotel started this innovative idea as
a way to invest their savings – and the promising tourism sector was
the obvious choice. Their tireless attention to detail, exquisite old
Tbilisi designs and the modern quality of service make the Hotel
unforgettable and the business – extremely successful. With TBC
Bank’s support, the No 12 Boutique has branched out into additional
locations, including an Apart Hotel. Lida Vardania, the founder and
co-owner of No 12 Boutique Hotel, credits TBC Bank for the
opportunity to implement their latest idea as well: “Our success is
based on innovation – we took advantage of an opportunity to create
a boutique hotel, which was unexplored territory on the Georgian
hospitality market. Importantly, we have a partner that helps us
finance our new ideas. Our new niche initiative is g.Vino, a wine bar.
With TBC’s support, we are excited to get g.Vino off the ground and
offer our guests new ways to experience Georgian culture and
history.”
See pages 00-00 for our business model to see how we help with
tourism
TBC BANK GROUP ANNUAL REPORT AND ACCOUNTS 2015
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LEVAN KILADZE, STATUS
CLIENT
TBC Bank continues to set market standards in the affluent banking
industry. The Bank is the most trusted retail bank in the country with
the unchallenged leadership in retail deposits. TBC was recognized
as the best private bank in Georgia (2014, 2015) by The Banker and
the Private Wealth Management magazines, part of
the Financial Times family.
Our Status service, TBC Bank’s affluent banking offering, is proud to
work with some of the most prominent Georgian entrepreneurs.
Levan Kiladze, founder and CEO of Lemondo, the most successful
and fastest growing games and app development IT company in
Georgia, is a long-time client and a fan of TBC Bank’s forward
thinking e-banking offerings: “I especially appreciate TBC’s internet
and mobile banking apps that are beautifully simple, fast, and
intuitive. This year, the Bank started its fully remote sales and
transactions service via Status banking that allows me to take care
of my everyday finances with the help of my status banker, without
visiting a branch. TBC Bank is also a favorite bank for our team
- when our employees need a banking product, they know that TBC
will deliver the best, in the most comfortable way.”
Established in 2010, Lemondo broke many firsts – the company
partners with
Apple Store, Google Play, and Amazon and has already generated
over 100 million downloads worldwide. Recently, Lemondo entered
the console market by partnering with Sony Entertainment and
Nintendo. According to Tamar Shonia, TBC Status private banker,
“our advanced banking technology allows us to place the highest
emphasis
on our client’s needs, freeing up their time to do what they do best in
their own fields of expertise.”
See pages 00-00 for our business model to see how we help
entrepreneurs
LARSI HPP
The Georgian Energy sector is one of the most attractive investment
opportunities in the country. With its water-rich natural resources,
Georgia currently produces an average of approximately 10 TWh of
energy per year, while potential production is estimated at an annual
capacity of 15,000 MW. Both local and regional markets provide
significant consumption and export opportunities for the electricity
produced in the country. Construction of over 20 Hydro Power plants
(HPP) is currently ongoing and more than 70 are in the development
stage. According to the Ministry of Energy, approximately 80 HPP
projects are available for further investment.
TBC Bank, with a total exposure of GEL 218 million to the Energy
sector by the end of 2015, is a leading financial partner for Georgian
HPP developers. TBC offers its clients a full range of financial
products, including advance trade and project financing
opportunities, and market-leading supporting and value-added
services, such as leasing, insurance, brokerage and research. TBC
Bank is proud to work with one of the prominent players in the
energy sector, PERI LLC, on several of its important projects.
According to their long-term corporate banker, Irakli Diasamidze,
“During the last 12 years, PERI LLC successfully implemented the
construction of 5 different sized HPPs with total capacity of 36.4 MW.
They are currently developing a vital 109 MW Dariali HPP, set to start
operations in Q2 2016. Their total investment in the sector has
reached USD 255 million, which is an outstanding achievement.” One
of the latest HPPs TBC Bank financed for Peri, is the Larsi Plant
located in the scenic Kazbegi municipality, near the country’s
northern border. The Plant is one of the biggest HPPs constructed in
the country during the past two decades and generated 68 million
KWh of electricity in 2015.
See pages 00-00 for our business model to see how we help the
energy sector
See pages 12-13
See pages 28-29
See pages 34-35
12
TBC BANK GROUP ANNUAL REPORT AND ACCOUNTS 2015
TBC BANK GROUP ANNUAL REPORT AND ACCOUNTS 2015
13
28
TBC BANK GROUP ANNUAL REPORT AND ACCOUNTS 2015
TBC BANK GROUP ANNUAL REPORT AND ACCOUNTS 2015
29
28
TBC BANK GROUP ANNUAL REPORT AND ACCOUNTS 2015
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CONTENTS
BUSINESS REVIEW
1
2
3
6
8
10 Chief executive’s statement
Financial highlights FY 2015
Selected operating data
At a glance
Chairman’s statement
Company history and year in review
STRATEGIC REPORT
14 Operating environment
20 Business model
22 Strategy
24 Key strengths
26 Distribution channels
30 Operating review
40 Principal risks
52
70 People
73 Corporate responsibility review
Financial review
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GOVERNANCE
78 Chairman’s corporate governance statement
79 Directors’ report
86 Supervisory board committees
87 Audit committee report
91 Remuneration committee report
92 Corporate governance and Nomination
committee report
93 Risks, ethics and compliance committee report
94 Management board
97 Management board committees
RISK MANAGEMENT
99 Risk management
Independent auditor’s report
FINANCIAL STATEMENTS
113
114 Consolidated statements of financial position
199 Additional information
TBC Bank standalone statements according to the
National Bank of Georgia reporting standards are
available on the Bank’s Investor Relations website at
www.tbcbank.ge/IR
INVESTING INENTREPRENEURSTOURISMINVESTING INENERGY INVESTING IN
FINANCIAL HIGHLIGHTS FY 2015
(IN MILLIONS GEL)
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
TOTAL OPERATING INCOME
OPERATING EXPENSES
PROFIT BEFORE TAX
577.0
FY 2014: 458.3
Change +25.9%
253.1
FY 2014: 226.3
Change +11.9%
PROFIT FOR THE PERIOD
TOTAL ASSETS
218.7
FY 2014: 158.5
Change +38.0%
6,935.0
13 Dec 2014: 5,423.5
Change +27.9%
CUSTOMER DEPOSITS
ROAE
4,177.9
13 Dec 2014: 3,322.4
Change +25.7%
PRE-PROVISION ROAE
27.1%
FY 2014: 24.2%
Change 2.9%
NPL TO GROSS LOANS
4.8%
FY 2014: 3.1%
Change 1.7%
20.1%
FY 2014: 18.4%
Change 1.7%
COST TO INCOME
43.9%
FY 2014: 49.4%
Change -5.5%
BASEL I CAR
31.0%
FY 2014: 30.4%
Change 0.6%
247.9
FY 2014: 182.9
Change +35.5%
GROSS LOANS
4,639.0
13 Dec 2014: 3,706.3
Change +25.2%
ROAA
3.4%
FY 2014: 3.3%
Change 0.1%
COST OF RISK
1.7%
FY 2014: 1.6%
Change 0.1%
BASEL II/III TOTAL CAR
16.0%
FY 2014: 15.0%
Change 1.0%
1
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
SELECTED OPERATING DATA
REMOTE CHANNEL
TRANSACTIONS / TOTAL
NON-CASH TRANSACTIONS
84%
FY 2014: 82.0%
EMPLOYEES
5,262
FY 2014: 5,117
POS TERMINALS
8,800
FY 2014: 4,820
CASH-IN TERMINALS
(TBC PAY)
2,395
FY 2014: 2,112
BRANCHES
128
FY 2014: 125
ATMS
358
FY 2014: 352
MID-TERM TARGETS
Please find all ratio explanations on page 69.
Loan book growth (gross)1
25.2% p.a.
c.20% p.a.
Current performance
Mid-term targets
ROE2
Cost income ratio3
Equity Tier 1 capital ratio4 (Based II/III)
Divided payout ratio5
20.1%
43.9%
12.8%
25%
20%
<40%
c.10.5%
25%
1. 12-month growth as of YE 2015, on TBC consolidated IFRS basis
2. TBC consolidated IFRS basis (YE 2015)
3. Cost income ratio calculated as ratio of operating expenses to operating income (excl. loan impairment
expense); TBC consolidated IFRS basis (YE 2015)
4. Based on the relevant Basel II/III methodology prevailing at current time; subject to capital targets and
dividend payouts (YE 2015)
5. Dividends under “Current performance” shows TBC Bank payout ratio in 2015 based on 2014 performance;
under “Mid-term targets” – on TBC consolidated IFRS basis; dividend target was approved on shareholder
meeting in May 2015
2
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
AT A GLANCE
WE CREATE NEW OPPORTUNITIES
FOR THE SUCCESS OF PEOPLE AND
BUSINESSES.
TBC Bank is a leading universal banking group in Georgia
with an unmatched market share of retail deposits at
34.3%1, and a number two position in total loans and
deposits with 28.7% and 29.0% market share, respectively.
We service over 1.6 million clients through a diversified
multichannel platform that comprises 135 branches
(including TBC Kredit branches), one of the largest
networks of ATMs and POS terminals in Georgia, global
award-winning internet banking, market-leading mobile,
iPad and iPhone banking, a call centre, and TBC Pay
terminals and kiosks.
We employ over 5,3002 people across our operations,
more than half of whom have been with TBC for four or
more years.
1 All market share data is quoted according to the figures published
by the NBG.
Including employees of all TBC Bank subsidiaries.
2
Tbilisi
56
Tbilisi
Apkhazeti
Zemo Svaneti
Samegrelo
10
Ratcha-lechkhumi
Kvemo Svaneti
Guria
2
1
Imereti
6
Shida-Kartli
2
Mtskheta-Mtianeti
7
Adjara
Kvemo-
Kartli
12
Kakheti
6
Samtskhe-Javakheti
TBC Bank: Number of branches in the region
Location of branches
Our Multichannel Distribution Platform
TBC Bank’s globally recognised multichannel distribution platform
complements our full service model perfectly. While our branches are
carefully designed with a primary focus on customer satisfaction, our
leading multichannel distribution platform allows us to offload routine
transactions from branches to e-channels. As a result, TBC has achieved
a market-leading portfolio of gross loans per branch of GEL 36 million3.
Over the past year, our multichannel capabilities have been recognised
as best in the country and in the wider region, as well as being acclaimed
globally.
In 2016, TBC launched an entirely new concept of branch design with a
particular focus on customer experience. The new design reflects TBC
Bank’s welcoming, user-friendly and transparent approach to banking and
has been created in partnership with Allen International, a strategic design
consultancy focused on financial services.
The redesigned branches leverage TBC Bank’s strength in multichannel
banking and feature cutting-edge e-banking tools and technology.
The new concept was developed specifically for TBC Bank as a result of a
comprehensive tailored study of the Bank’s existing branches and its
clients’ needs and aspirations.
Customer Experience
TBC Bank has one of the best known and most trusted brands in Georgia.
As a result of the Bank’s tireless focus on customer-centric service and
continued investment in introducing the most advanced banking
technologies on the market, TBC Bank has built a strong reputation and
long-standing relationships with its customers. According to internal and
external research, TBC Bank maintained market leading positions in
customer experience in 2015 with the highest Customer Satisfaction
(CSAT)4 and Net Promoter (NPS)5 scores in the country’s banking industry.
TBC Bank Brand
TBC Bank has one of the best known and most trusted brands in Georgia.
This is largely due to our high quality customer experience, strong
reputation, long-standing relationships with customers, traditional focus
on social responsibility, and targeted marketing campaigns.
Over the years, we have received a number of prestigious industry awards,
including being named as “Best Bank in Georgia” seven times by Global
Finance magazine and The Banker and three times by EMEA Finance
and Euromoney.
Products and Services
TBC Bank offers a wide range of banking products and services to its retail,
corporate, SME and micro clients with the majority of our business
concentrated in Georgia, which accounted for 99% of TBC’s total assets and
100% of its net income as at and for the year ended 31 December 2015.
3 Gross loan portfolio according to NBG accounting standards for comparison purposes.
4 CSAT Score is derived from Survey conducted by ACT (independent research company)
and is based on different measures. Survey type - face to face interviews, Sample size
- 2000 respondents per bank
5 The NPS is derived from the survey conducted by 2 separate research companies: ACT
and IPM and measures the likelihood that a customer would recommend TBC to a
friend. Final score is an average of scores from those separate surveys. IPM survey is
phone based, Sample size 2,000 respondents per bank.
3
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
AT A GLANCE
CONTINUED
SEGMENT REVIEWS
CORPORATE*
MICRO*
RETAIL*
SME*
Customer loans
Customer loans
Customer loans
Customer loans
32%
11%
44%
13%
(FY 2015, % of total,
gross)
GEL 1,500m
(FY 2015, % of total,
gross)
GEL 493m
(FY 2015, % of total,
gross)
GEL 2,020m
(FY 2015, % of total,
gross)
GEL 626m
Customer deposits
Customer deposits
Customer deposits
Customer deposits
24%
2%
59%
15%
(FY 2015, % of total)
GEL 1,001m
(FY 2015, % of total)
GEL 74m
(FY 2015, % of total)
GEL 2,470m
(FY 2015, % of total)
GEL 633m
Number of customers**
Number of customers**
Number of customers**
Number of customers**
c.1.7k
c.479k
c.1.1m
c.67k
See page 32
See page 36
See page 31
See page 33
Source: Company reports
Note: Customer classification criteria is converted to GEL with the exchange rate of 1 USD = 2.39 GEL.
* Corporate segment includes business customers that have annual revenue of GEL 8.0 million or more or less have been granted a loan in a n amount equivalent to
USD 1.5 million or more. Some other business customers may also be assigned to the Corporate segment on a discretionary basis.
* Micro segment business customers with loans below USD 70K, as well as pawn loans, credit cards and cash cover loans granted in TBC Bank Constanta branches,
and deposits up to USD 20K in urban areas and up to USD 100K in rural areas of the customers of TBC Bank Constanta branches. Some other customers may be
assigned to the Micro segment on a discretionary basis.
* Retail segment includes individuals that are not included in the other categories.
* SME segment includes business customers that are not included in either Corporate or Micro segments; Some other legal entity customers may also be assigned to
the SME segment on a discretionary basis.
** Number of registered customers as at 31 December 2015.
Retail Banking
TBC Bank is a market leader in retail loans and retail deposits as at
31 December 2015. The retail segment represents 59.1% of the total
deposit portfolio and 43.5% of the total loan portfolio, making it the
Group’s largest segment in terms of both deposits and loans. We
offer a full range of products to our retail customers, account and
deposit products through our cutting-edge multichannel platform
and a comprehensive distribution network, with special products
and services offered to affluent and high net worth clients. We serve
more than one million retail customers.
By 31 December 2015, the Group’s retail loan portfolio reached
GEL 2,020 million with the market share for individuals at 31.6%.
At the same time, our market share in deposits of individuals
stood at 34.3%.
Corporate Banking
Corporate Banking is a traditionally strong area of the Bank
representing 32.3% of TBC’s total loan portfolio and 24.0% of the
total deposits portfolio. We serve more than 1,400 corporate clients
in Georgia, offering diverse lending, card and deposit products
(including syndicated lending), foreign exchange operations,
hedging, trade and project finance products (including factoring),
escrow services, cash collection, insurance packages (through GPI
Holding, a partner insurance company), leasing (through TBC
Leasing) and brokerage and research services (through its
brokerage and corporate advisory arm, TBC Capital).
As at 31 December 2015, we held the second largest market share
for legal entity loans and deposits of 26.2% and 23.4%, respectively.
4
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
LOCAL OPERATIONS
SHAREHOLDERS
96.97%
1.38%
Corporate Banking
Retail Banking
SME Banking
Micro Banking
Leasing Service
Other
0.02%
0.50%
Real Estate
Management
FOREIGN OPERATIONS
1.12%
0.003%
Non-Banking
Credit Institution
(Azerbaijan)
Non Resident
Deposits Attraction
(Israel)
SME Banking
SME banking accounted for 13.5% and 15.2% of TBC’s total loans and total
deposits portfolios, respectively. TBC offers a diverse range of products and
services to its SME segment customers, including trade finance, project
finance, asset finance and working capital loans. We serve approximately 67,000
clients. TBC Bank remains the only bank to offer important education and
value-added services to SME businesses through its Business Support
Programme (see page 33 for additional information).
Micro Banking
TBC Bank completed the merger with Bank Constanta in January 2015. The
micro banking segment is the smallest but the fastest growing segment of the
Group, accounting for 10.6% and 1.8% of total loans and total deposits,
respectively. This segment offers various types of loan and deposit products
tailored to client needs. As at 31 December 2015, we served approximately
479,000 micro banking customers in Georgia.
Subsidiaries
In addition to its core banking business that TBC conducts within its retail,
corporate, SME and micro segments through TBC Bank and TBC Kredit, TBC
conducts supplementary operations through its other subsidiaries. These
operations represented 1.9% of our total assets and 2.1% of our consolidated net
income for the year ended 31 December 2015.For a more detailed overview of our
subsidiaries, please see Operating and Financial Review on pages 30 and 52.
Ratings
TBC Bank is rated by Fitch Rating Agency and Moody’s Investor Services. The
Bank’s current ratings are BB- (Long Term IDR)/ B (Short Term IDR) assigned
by Fitch and B1 (FC)/ Ba3 (LC) assigned by Moody’s.
5
TBC BANK ANNUAL REPORT AND ACCOUNTS 201570.6%3.5%0.4%3.3%22.2%LSE ListedFoundersTop ManagementMiddle ManagementOther BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
CHAIRMAN’S STATEMENT
AT TBC BANK, WE
HAVE BUILT A
COMPANY THAT IS A
PARTNER OF CHOICE
FOR OUR CLIENTS,
SUPPORTING THE
ENGINE OF
ENTREPRENEURSHIP
AND BUSINESS IN
GEORGIA.
MAMUKA KHAZARADZE
CHAIRMAN
We have been able to achieve this success through a
consistent focus on forming a highly experienced and
talented team with an in-depth knowledge of the local
market. As an important development in 2015, the
Bank announced its plans to move to the Premium
Segment of the London Stock Exchange.
Georgia has embarked on an exciting journey toward becoming an
economic, transit, tourism and financial hub in the region. The
country is actively moving toward implementing its Association
Agreement with the EU and advancing several investment projects
with its partners in strategic sectors, including energy, hospitality,
agriculture and communications. Throughout this Report, we have
featured the work of some of our customers from these key areas,
who work tirelessly toward advancing their business and the
country’s economy. In our Strategic Report, we also provide a
comprehensive review of the macroeconomic conditions in Georgia
and the country’s outlook for investment.
I am pleased to report that TBC Bank has completed another
successful year and has comfortably overcome the temporary
economic turbulence stemming from regional developments. We
have strengthened our market positions across all business
segments and delivered the targeted level of profitability for our
shareholders. The Bank’s management team is effectively
implementing our well-designed strategy for business development,
while maintaining a particular focus on the financial health and
stability of our customers within this macroeconomic environment.
Key Investment Opportunity in Georgia
We believe that our shareholders appreciate our clear focus on
consistently delivering strong performance. In 2015, we
outperformed our competition in terms of business growth, while
maintaining solid profitability and strong portfolio quality. The Bank
closed the year with a record net income of GEL 218.7 million and a
Return on Average Equity (ROAE) of 20.1%. As announced, the
Bank’s Supervisory Board plans to distribute the targeted 25% of
the 2015 consolidated net income as dividends, pending approval at
the Annual General Meeting of shareholders.
The Leading Team in Georgia
We owe our success to the deeply experienced team of talented
individuals, who invest their significant resources for the benefit of
our clients, the Bank and our country. Throughout this Report, we
have featured those employees who work with our clients on a daily
basis to ensure their business objectives are met with appropriate
financial and transactional support.
I am delighted that since its founding, TBC Bank has been privileged
to work with the leading professionals in Georgia. Our employee
base is young and dedicated with 88% of the workforce aged
between 20 and 39 and 34% of all employees staying with the Bank
for 4-10 years. Importantly, we are proud to have women
representing up to 70% of total employees and 40% of middle
management.
TBC Bank has created a unique workplace that nurtures talent and
provides the right development opportunities for our market-
6
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
leading workforce. We have created a fund that supports academic
aspirations for the members of middle management and provides
them with financing for continued education and professional
qualification. Additionally, an innovative in-house project – TBC
Academy – offers bespoke training courses that help all of the
Bank’s employees develop their skills and expertise in various
areas of banking.
Georgian National Rugby Team
Georgia has a deeply rooted tradition of excellence in sports. The
Georgian rugby team has achieved outstanding success and
spotlighted the talent of our athletes in an international arena.
Through our new exclusive partnership with the National Rugby
team we will support their aspirations and ambitious goals for years
to come.
Georgian National Ballet and Opera Theatre
TBC Bank has a tradition of supporting Georgian arts. This year, we
started a partnership with the Georgian National Ballet and Opera
Theatre in order to work toward developing this exquisite art form in
our country and promoting their talent to international audiences.
Our full CSR program includes these and other vital projects that
continued in 2015, and is presented in our Strategic Report.
Thank you
As Chairman, I am honoured to work with exceptional professionals
on the Supervisory Board of the Bank. I would like to express my
gratitude for their contribution to the success of our company.
Moreover, I would like to thank the Bank’s strong management team
and our employees, who support TBC Bank and its customers
through both success and challenges every day. With their support,
we are well positioned to continue creating value for our
shareholders and other stakeholders by achieving the set
performance targets.
Going forward, we intend to remain concentrated on classic banking
activities in Georgia, a strategic differentiator for TBC Bank. We
invest in the development of the local businesses and support their
growth through products designed with innovative banking
technologies and thorough knowledge of the market. Our plan to
move to the Premium Listing segment of the London Stock
Exchange will provide the opportunity of investing in this Georgian
success story to a broader investor base.
MAMUKA KHAZARADZE
CHAIRMAN
A detailed review of these and other employee benefits is provided
on page 70 of this Report.
Key Financial Partner in Georgia
We are proud of the unique business model we have created in
Georgia. Our Bank started its business by working with some of the
most entrepreneurial and innovative companies and clients in
Georgia. These companies now play an integral part in the country’s
economy. By enhancing our services to a level that supports their
growth and responds to their current and potential requirements,
we are proud to act as the front of mind financial services partner in
Georgia.
In this spirit, we started a ground-breaking value-added service,
TBC Business Support program that has further enriched its
offering during 2015. I am proud to see that, with our business and
market expertise, we have been able to train leaders from over
5,000 small and medium sized companies (SMEs) in essential areas,
such as budgeting, tax, and business expansion. Our free
educational portal, www.tbcbusiness.ge provides consultation
opportunities with leading firms, attracting more than 800,000
visitors since the project launch in 2014. More information about the
program is provided on page 33 of the Report.
Moreover, I am honored to report that in 2015, we continued to
maintain the largest retail deposit base in Georgia as TBC remains
the most trusted bank for Georgian customers. This is due to our
long-standing focus on creating customer-centric services, strong
brand and high customer experience. This year, we introduced a
new approach to retail banking through our breakthrough branch
design, developed in partnership with a leading design consultant,
Allen International. This new design concept will further enhance
our position on the retail banking market. Additional information on
the new branch design is provided on page 51.
Culture of Giving Back
TBC Bank continues to work tirelessly on identifying the most
effective and important means of giving back to our community and
our employees. We act through a well-developed and
comprehensive corporate social responsibility strategy to focus on
traditional, as well as innovative projects that benefit culture, arts,
sports and the wider society.
This year, I would like to highlight two important projects that help
us promote Georgian culture and the achievements of our people
beyond local borders.
7
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
COMPANY HISTORY AND
YEAR IN REVIEW
TBC BANK WAS FOUNDED IN
DECEMBER 1992 BY MAMUKA
KHAZARADZE AND BADRI JAPARIDZE,
WHO CURRENTLY HOLD 22% OF THE
BANK’S SHARES. TBC BANK LISTED ITS
SHARES THROUGH GDRS ON THE MAIN
MARKET OF THE LONDON STOCK
EXCHANGE IN JUNE 2014 IN WHAT WAS
THE LARGEST, INTERNATIONAL OFF-
INDEX IPO FROM THE EMEA REGION.
TBC Bank launched its leading retail business line
in 2006. In May 2011, we acquired an 80% stake in the
fastest-growing microfinance bank in Georgia, the former
Bank Constanta, and completed the full merger in January
2015. In 2015, TBC Bank confirmed its plans to move to the
Premium Listing segment of the London Stock Exchange in
the second half of 2016.
1992
TBC Bank is established with USD 500 initial capital.
The bank is focused on the corporate segment with
emphasis on smes.
1998
TBC Bank enters export/import financing operations segment.
2000
IFC and DEG acquire a combined 20% of TBC’s share
capital and become the Bank’s first IFI shareholders.
TBC Bank becomes the first Georgian company to obtain
an international rating.
2001
TBC Bank launches its first internet banking service.
2002
The Banker Magazine, a Financial Times Group publication,
names TBC Bank as ‘Bank of the Year 2002 in Georgia,’ the
first such international recognition for the Bank.
8
2004
Non-banking operations, through TBC Leasing, are
launched by the Bank (which later becomes market
leader with 61% market share in 2013).
2006
EBRD acquires 10% shareholding in TBC Leasing.
CITI Bank provides a USD 35 million unsecured loan to
TBC Bank. At this time, this is the largest line of credit
ever provided by a foreign commercial bank to a
Georgian bank.
TBC Bank launches its retail banking offering, with a
retail product development and marketing strategy
implemented with support from BBDO (marketing) and
SENTEO (consulting).
2007
TBC’s total assets exceed USD 1 billion.
2008
TBC acquires 75% shareholding in TBC Kredit (formerly
SOA Kredit), a non-banking credit institution in
Azerbaijan.
2009
TBC Bank broadens its shareholder base with EBRD,
FMO, JP Morgan and Ashmore becoming shareholders
in TBC Bank, and IFC and DEG contributing
additional capital.
2011
TBC Invest establishes a representative office in Israel
that acts as an intermediary between potential future
clients and the Bank.
TBC acquires 80% shareholding in Bank Constanta,
which specialises in microfinance.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
2012
TBC Bank celebrates five years of market leadership
in Retail Deposits with a 35% market share at the end
of the year.
TBC Bank raises GEL 192 million in new financing
through various equity and debt transactions,
attracting new investors to Georgia and to its portfolio.
TBC Bank launches a number of key strategic
initiatives:
• Multichannel distribution systems and now globally
recognised services: new Internet & Mobile banking
(iPhone, iPad, Android, Blackberry applications,
PDA mobile banking);
• “Lean Banking” project to increase efficiency
throughout the distribution network;
• CRM implementation project with industry-leading
Oracle Siebel; and
• Basel II/III implementation project with support
from Ernst & Young.
2013
TBC Bank submits its ICAAP report to the NBG.
TBC Bank launches its SME Business Support
Programme, with support from IFC and ADB.
2014
TBC Bank completes its listing on the Main Market of
the London Stock Exchange.
TBC Bank acquires EBRD share in TBC Leasing.
2015
TBC Bank completes a full merger with the former
Bank Constanta, rebranding the microfinance
institution’s branches as TBC Bank Constanta.
TBC Broker is rebranded as TBC Capital offering
Corporate Advisory, Research and Brokerage
solutions in Georgia.
TBC Bank’s brokerage subsidiary, TBC Capital, acts
as the sole arranger of the largest GEL-denominated
bond issuance on the Georgian market by the Asian
Development Bank. This transaction followed another
milestone bond placement by the EBRD in 2014, where
TBC Capital also acted as the co-arranger.
TBC Bank confirms its plans to seek a
Premium Listing on the London Stock
Exchange.
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
2016
TBC Bank launches its breakthrough concept of branch design
developed in partnership with Allen International.
TBC Bank becomes the official, exclusive sponsor of the
Georgian National Rugby Team, aiming to promote rugby and
rugby values in Georgian society, and to make rugby an
inseparable part of Georgian culture.
RECENT AWARDS
1.
4.
7.
2.
5.
8.
3.
6.
1. Global Finance Best Bank in Georgia 2012-2016
2. EMEA Finance Best Bank in Georgia 2011-2015
3. Euromoney Best Bank in Georgia 2011-2012 and 2014-2015
4. EBRD Deal of the Year award 2014
5. Global Finance Best FX provider 2013-2016
6. Global Finance Best Corporate and Consumer Internet Bank
in Georgia 2012-2015 and Central and Eastern Europe
sub-category awards for 2013-2015
7. The Banker and Private Wealth Management Magazine Best
Private Bank in Georgia 2014-2015
8. Best Project Finance Deals 2014 in Central and Eastern
Europe: Best Water Deal and Best Infrastructure
Development Deal
Visit the IR Website for more information on the Bank’s awards.
9
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
CHIEF EXECUTIVE’S STATEMENT
WE HAVE A CLEAR FOCUS ON
The Georgian market and pure-play banking
operations.
BY LEVERAGING OUR KEY STRENGTHS IN
• Strong and growing positions across all
business segments;,
• award-winning multichannel capabilities,
• market-best customer experience, and
• strong brand
...WE DEFINED A CLEAR STRATEGY
to be the number one commercial bank in the
country across all segments.
VAKHTANG BUTSKHRIKIDZE
CHIEF EXECUTIVE OFFICER
IN 2015, TBC BANK CONTINUED TO
DELIVER ON ITS MEDIUM-TERM
TARGETS SET OUT AT THE TIME OF
OUR IPO. WE MAINTAINED STRONG
PROFITABILITY AND OUTPERFORMED
MARKET GROWTH, WHILE SUSTAINING
ROBUST BALANCE SHEET QUALITY.
In 2015 the Georgian economy showed another year of resilience. We went
through the challenges related to currency headwinds and pressures
resulting from developments in the regional countries’ economies. Georgia
responded adequately, kept a free floating currency rate, focused on
inflation management and continued implementing responsible monetary
and fiscal policies. As a result, the economy maintained its competitiveness
while both the trade and current account deficits improved and the
economy posted an annual growth of 2.8% in 2015, above the initial
estimates of both International Financial Institutions and the Georgian
government.
WE ARE ALSO ON TRACK TO DELIVER
ON OUR PLANS TO MOVE TO THE
PREMIUM LISTING SEGMENT OF THE
LSE IN 2016, WHICH IS A NATURAL
PROGRESSION FROM OUR
SUCCESSFUL IPO AND THE NEXT
LOGICAL STEP IN THE DEVELOPMENT
OF THE COMPANY.
In the context of this environment, we managed to deliver robust
profitability and maintain sound asset quality as a result of our proactive
approach and prudent management policies. In 2015, the Bank achieved a
record GEL 219 million in net income with return on average equity (ROAE)
of 20.1% and return on average assets (ROAA) of 3.4%. The principal
drivers of our increased profitability were our solid net interest margin
(NIM), growing non-interest income and decreasing cost to income ratio –
in line with our strategy. In 2015, TBC Bank’s total lending grew by 25.2%
YoY, or by 8.1% on a constant currency basis, compared to 23.1% and 5.5%,
respectively, for the overall Georgian banking sector. We also increased
our total loans market share by 1.1pp YoY to 28.7%. Our total deposits grew
by 25.7% YoY (6.5% on a constant currency basis). We maintained our
long-standing leadership position in retail deposits with a market share of
34.3%, up 0.6pp YoY.
I am particularly pleased to see that we have realised the planned
synergies from our merger with Bank Constanta, which, along with other
relevant initiatives, has helped us to deliver a cost to income ratio (CIR) of
43.9%, outperforming our medium-term target of <45%.
10
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
Another important strategic initiative in 2015 was a structural and
functional review of our risk function. This established a three-year
development plan which aims to promote sustainable growth and
resilient performance through prudent risk management. We see
risk management as an enabler of the Bank’s strategy and a key
competitive advantage. In the final quarter of 2015, we announced
an updated NPL reporting and provisioning methodology according
to international best practice. As per the updated methodology, our
NPLs stood at 4.8% as of 31 December 2015, a 1.7pp increase YoY.
At year-end our updated NPL coverage ratio stood at 87% or 210%
with collateral.
We remain committed to a conservative approach to our capital
base and retain capital adequacy ratios that are well above the
minimum requirements. As of 31 December 2015, the Bank’s total
capital adequacy ratio (CAR) per Basel II/III regulation stood at
16.0%, against the minimum requirement of 10.5%. We continue to
operate with solid liquidity positions with the net loans to
deposits+IFI funding standing at 95% and the Net Stable Funding
Ratio (NSFR) at 116%.
We have also made considerable progress toward further
enhancing our superior customer experience. In January 2016 we
announced the launch of a redesigned branch concept, achieving
another breakthrough in our customer experience offering. The new
design reflects TBC Bank’s welcoming, user-friendly and
transparent approach to banking and we intend to gradually adapt
all of our new branches to the new concept (please see Distribution
Channels on page 26 for additional information).
We also continue to deliver impressive growth through our
award-winning multichannel platform. TBC Bank has the leading
internet (IB) and mobile banking (MB) services in the country with
the highest number of active users at 230,000 and 110,000 for IB and
MB respectively, by the end of 2015. In the same year, 84% of all
transactions were completed through remote channels and our IB
and MB accumulated an average of approximately 1.7 million visits
per month.
In other significant developments, I am pleased to report that in
2015 we acted as the lead arranger for two important bond
issuances in the local currency with a total sum of GEL 148 million.
Local currency funding is vital for the Georgian financial sector and
is aimed at supporting the trend of de-dollarising the Georgian
economy over the long term.
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FY 2015 ROAE
20.1%
Mid-term Targets
Finally, I would like to update our shareholders on the progress we
have made in 2015 against our medium-term targets set out during
the Bank’s IPO:
• despite an expected temporary slowdown in the short term, our
medium-term target for loan growth remains at 20%.
• as we continue to deliver on our promises and gain more comfort
on our profitability targets, we upgraded our medium term ROAE
target to 20%.
• our cost to income ratio already surpassed our initial 45% target
and therefore, we also updated this target to below 40% in the
medium term.
• we intend to maintain a solid capital buffer with a targeted 10.5%
equity Tier 1 capital ratio, and
• we reiterate our target dividend payout ratio of 25%.
Outlook
We are working toward completing our move to the Premium Listing
segment of the LSE in the second half of 2016. We believe that this
gives our story wider exposure and a higher profile and will help us
expand our investor base.
As it currently stands, we are well positioned to benefit from the
growth opportunities that are unfolding in Georgia. We are
committed to our pure-play banking strategy in Georgia and, as
demonstrated in the past year, we remain resilient to changing
market conditions and are delivering against our strategic targets. I
am confident that we are on the right track to sustain this progress
and continue to create value for our shareholders through our focus
on profitability, growth and robust balance sheet quality.
VAKHTANG BUTSKHRIKIDZE
CHIEF EXECUTIVE OFFICER
11
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
12
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015INVESTING INENTREPRENEURS
LEVAN KILADZE,
STATUS CLIENT
TBC Bank continues to set market standards in the affluent banking
industry. The Bank is the most trusted retail bank in the country with
unchallenged leadership in retail deposits. TBC was recognised as
the Best Private Bank in Georgia (2014, 2015) by The Banker and the
Private Wealth Management Magazine, part of the Financial Times
family.
Our Status service, TBC Bank’s affluent banking offering, is proud to
work with some of the most prominent Georgian entrepreneurs.
Levan Kiladze, founder and CEO of Lemondo, the most successful
and fastest growing games and app development IT company in
Georgia, is a long-time client and fan of TBC Bank’s forward thinking
e-banking offerings: “I especially appreciate TBC’s internet and
mobile banking apps that are beautifully simple, fast, and intuitive.
This year, the Bank started its fully remote sales and transactions
service via Status banking that allows me to take care of my everyday
finances with the help of my Status banker, without visiting a branch.
TBC Bank is also a favorite bank for our team - when our employees
need a banking product, they know that TBC will deliver the best, in
the most comfortable way.”
Established in 2010, Lemondo broke many firsts – the company
partners with Apple Store, Google Play, and Amazon and has already
generated over 100 million downloads worldwide. Recently,
Lemondo entered the console market by partnering with Sony
Entertainment and Nintendo. According to Tamar Shonia, TBC Status
personal banker, “our advanced banking technology allows us to
place the highest emphasis on our client’s needs, freeing up their
time to do what they do best in their own fields of expertise.”
See pages 30 – 37 for our Operating Review to read more about
our Retail Banking services.
TAMAR SHONIA
TBC STATUS PERSONAL BANKER
13
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015INVESTING INENTREPRENEURS BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
OPERATING ENVIRONMENT
TBC BANK’S OPERATIONS ARE
FOCUSED ON THE GEORGIAN BANKING
MARKET WITH 99% OF ITS TOTAL
ASSETS BASED IN GEORGIA.
Georgia is situated at the strategically important
crossroads where Europe meets Asia. The country has a
long track record of resilient economic performance and a
well-diversified economy. Despite a volatile regional
environment, and the wider global challenges of 2015, the
Georgian economy grew at a better-than-expected rate of
2.8% YoY, one of the highest in Central and Eastern Europe.
Georgia also made important progress towards
integration into the European Union and maintained its
position as the world’s number 24th easiest economy to do
business in according to the World Bank’s Doing
Business Report 2016.
Economic Environment
GDP growth in 2015 was supported by growing investment and public and
private consumption. Net exports contributed negatively to growth due to
the unfavourable regional environment. However, given the well diversified
structure of GDP, Georgia went through the regional crises relatively
unscathed and maintained one of the highest growth rates among the CEE
countries.
Construction, transport and communications, and real estate contributed
most to GDP growth in 2015, while manufacturing and the trade and repairs
sectors were hit the hardest by the economic slowdown in the region and
depreciation of the Georgian Lari (GEL). In 2015, the construction sector
posted impressive growth (up by 15.2% YoY), real estate and renting
activities increased by 6.9% YoY, transport and communications increased
by 3.6% YoY, all in real terms. Conversely, growth was negative (-0.3%) in
the trade and repairs sector, while the manufacturing sector contracted by
1.8% YoY in 2015.
Annual Real GDP growth %
Source: Geostat
GDP growth in 2015 in CEE countries %
Source: Eurostat, statistical offices of respective countries, initial estimates
14
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015%01234567 8201020112012201320142015Source: Geostat6.27.26.43.44.62.8Source: Eurostat, statistical offices of respective countries, initial estimates-10-8.0-6.0-4.0-2.00.02.04.0UkraineRussiaEstoniaAzerbaijanLithuaniaCroatiaBulgariaLatviaHungaryGeorgiaTurkeyArmenia-9.0-3.70.91.11.61.82.22.72.72.83.03.1%
Structure of GDP (YE 2015) (%)
Source: Geostat
YoY real growth (YE 2015) (%)
Source: Geostat
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Contribution to different countries to growth of remittances
Source: NBG
Contribution of different regions to growth of exports
Source: Geostat
Contribution of different product groups to growth of imports
Source: Geostat, TBC internal estimates
Number of incoming visitors (1,000 persons)
Source: GNTA
As a result of declining foreign currency inflows, the national
currency underwent a necessary depreciation. In 2015, the Georgian
Lari (GEL) depreciated by 29% YoY against the USD, while the nominal
effective exchange rate (NEER)1 of GEL depreciated by 4% YoY over the
same period. The depreciation of the national currency against USD
curbed the influence of external factors on the real sector of the
economy and accelerated the import adjustment process, necessary
to restore the Georgian current account balance.
Remittances fell by 25% in 2015, with lower remittances from
Russia playing a major role in the decline. Contraction in export and
remittances inflows was fully offset by lower imports and a robust
growth in tourism revenues. Import of goods2 declined by 15.3% in
2015 or by 1.3 billion USD, mostly resulting from the decline in the
consumer goods category (-22.3% YoY) while capital goods and
intermediate goods fell at a lower rate, maintaining the healthy
structure of imports.
In 2015, foreign inflows via export and remittances to Georgia
dropped by approximately 1 billion USD mostly due to the declined
exports and remittances inflows from CIS countries. Exports to the
EU increased by 4% YoY, while exports to other countries declined by
7% over the same period.
As a result of the decline in imports, the trade balance improved by
663 million USD YoY in 2015 or by 11.6%.
1. NEER represents weighted average exchange rate of GEL against the
currencies of trading partners of Georgia.
2. Excluding one-off imports of medicaments related to the Government’s
hepatitis C program, which was granted to Georgia for free.
15
TBC BANK ANNUAL REPORT AND ACCOUNTS 20152.93.32.915.29.47.46.93.63.03.72.22.92.42.0-0.3-1.8ServicesIndustryAgricultureConstructionFinancial intermediationHotels and restaurantsReal estate, renting and business activitiesTransport and communicationsElectricity, gas and water supplyOther servicesEducationAgricultureHealth care servicesPublic administrationTrade and repair servicesManufacturing2010Russia20112012201320142015-20%-10%0%10%20%30%-30%GreeceOther2010Capital goods20112012201320142015-10%0%20%10%30%40%-20%Intermediate groupsConsumer goodsOther2010EU20112012201320142015-20%0%20%40%60%-40%CISOther02004006008001,000Jan20112012201320142015FebMarAprMayJunJulAugSepOctNovDecTrade and repairsManufacturingTransport and communicationsAgricultureGovernment servicesConstructionUtilitiesHotels and restaurantsOther servicesOther17131199823325 BUSINESS REVIEW
STRATEGIC REPORT
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FINANCIAL STATEMENTS
OPERATING ENVIRONMENT
CONTINUED
Current account components as a % of GDP
Source: NBG
Tourism inflows continue to positively influence Georgia’s current
account deficit and remains one of the most stable sources of hard
currency income into the country. The number of international
visitors increased by 7% YoY in 2015 and tourism inflows reached
1.94 billion USD, up by 150 million USD compared to the previous
year. The positive trend in tourism inflows has continued in 2016, in
the first quarter of 2016 the number of incoming visitors increased
by 15% YoY indicating another year of solid growth in tourism
revenues for Georgia.
The CA deficit as a % of GDP stood at 11.8% in 2015, up by 1.2 PP
compared to the previous year. Traditionally, deficit of trade in goods
remains the biggest negative component of Georgia’s CA balance.
Positive contribution of trade in services balance is consistently
increasing and, in 2015, trade in services balance accounted for
10.4% of GDP, up by 2.5 PP compared to the previous year.
The current account deficit was mostly covered by FDI inflows. Net
FDI accounted for 8.7% of GDP in 2015 up from 8.1% in 2014. The
rest of the CA deficit was financed by public and private borrowing
as well as by the international reserves of the NBG.
By the end of 2015, the decline in imports had already fully offset the
negative impact of falling exports and remittances and the pressure
on the GEL exchange rate.
Fiscal and monetary policies remain well-calibrated and effective in
the current economic environment. Responding to higher inflation
expectations, the NBG tightened its monetary policy and increased
its key rate gradually from 4% in the beginning of 2015 to 8% by the
end of the year. As a result, inflation stood at 4.9% in December
2015, within the NBG’s target of 5%. Consumer prices continued to
moderate in 2016 and, as of March 2016, annual CPI inflation was
recorded at 4.1%.
Budgetary spending remained disciplined and the fiscal deficit
amounted to c. 3% of GDP. In 2015, deficit spending has been more
equally distributed across the year, which helped to avoid additional
pressure on the GEL by the end of the year. Public debt increased
slightly due to the depreciation of the national currency but remains
within a sustainable level at 42% of GDP as of 2015.
16
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015-10.3-12.8-11.7-5.8-10.6-11.80%-10%10%20%30%40%-20%-30%-40%201020112012201320142015Current transfersTrade in servicesTrade in goodsIncomeCurrent account
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Financial Sector
The financial sector, dominated by the banks, continues to grow
under a prudent regulatory framework. In 2015 total assets of the
banking sector increased by 22.1% and amounted to 25.2 billion USD
or 79.4% of GDP.
In 2015 the total loan portfolio increased by 23.5% YoY and reached
50.4% of GDP, however in real terms (excl. FX effect) growth of the
loan portfolio was 5.8%, loans in national currency increased by
11.7% while foreign currency denominated loans increased by 2%
(excludes FX effect). The share of foreign currency denominated
loans in the total loan portfolio increased by 3.7 PP YoY in 2015 from
60.8 to 64.6, excluding the effect of the national currency
depreciation, dollar loans declined by 2.2pp to 58.7% reflecting the
unwillingness of borrowers to take loans in foreign currency given
the sizeable depreciation of the GEL. On the other hand, depreciation
resulted in increased dollarisation of deposits.
Excluding the FX effect, the dollarisation of deposits increased by
4.5pp from 60.2% to 64.6%. In the longer run, the financial sector
continues to exhibit the trend of de-dollarisation of loans as well as
deposits. Incidences of depreciation only result in a one-time
increase in the dollarisation rate, while in the longer run overall
macroeconomic stability, stable inflation as well as prudent
macroeconomic policies work towards increasing confidence in the
national currency and de-dollarisation of the financial sector.
The quality of the credit portfolio for the financial sector remains
healthy, by the end of 2015 the share of non-performing loans in the
total loan portfolio stood at 2.7% according to the IMF methodology,
0.3pp below the same indicator a year ago. As a result of the
depreciation, NPL’s increased slightly in the first half of 2015,
however by the end of 2015 NPLs stabilised to pre-depreciation
levels and currently there are no reasons to expect a further surge
in non-performing loans.
Banking sector assets to GDP (%)
Source: NBG
Loans and deposits to GDP (%)
Source: NBG
Dollarisation of loans and deposits
(excludes fx effect) (%)
Source: NBG
Sector NPLs
Source: NBG
17
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015201020092011201220132014201546.150.952.154.964.370.779.420102009201120122013201420152930263228332939364440504522Loans/GDPDeposits/GDP2010200920112012201320142015Loan dollarisationDeposit dollarisation76.968.874.067.068.959.267.663.862.560.260.860.258.764.62013Q12013Q22013Q32013Q42014Q12014Q22014Q32014Q42015Q12015Q22015Q32015Q44.54.33.93.03.23.53.63.03.33.32.92.7 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
OPERATING ENVIRONMENT
CONTINUED
Regional Context
The Georgian economy is well positioned to recover from the
economic slowdown, due to free trade agreements with all of the
major countries in the region which enable Georgia to maintain and
further diversify its export portfolio.
The free trade agreement with the EU (DCFTA), signed on June
2014, represents a significant step forward in this regard. This
agreement removes all tariff and non-tariff barriers for goods
produced in Georgia to access the largest single market in the
world. In the summer of 2016 Georgia is set to receive visa free
travel with Schengen countries, thus removing travel barriers which
will further enhance Georgia’s economic integration with EU
countries and promote exports to the EU.
In addition, Georgia signed a free trade agreement with EFTA states
and FTA negotiations with china are underway with significant
progress made to date. The dependence of Georgian exports on
traditional markets in the CIS is gradually declining in favour of a
more balanced geographical profile of exports that will further
enhance the resilience of the Georgian economy toward any new
global and regional shocks. Export dependence on the CIS market
declined from 8.9% of GDP in 2014 to 6% of GDP in 2015, which
reduces the sensitivity of the domestic economy to the
developments in the CIS in the future.
A generally favourable business environment remains the main
factor supporting the long-term sustainable growth in the Georgian
economy. The current government continues reforms aimed at
improving the investment environment in the country. In 2016, the
Georgian government announced amendments to the tax code,
which will abolish reinvestment tax in the economy and abolish duty
on imports of investment machinery. These changes are meant to
increase investment in the economy and uplift economic activity
over the coming period. The new tax code is expected to enter into
force in 2017.
According to consensus among international organisations,
Georgian economic growth is expected to remain among the top
performers in the CEE region. According to the IMF, the Georgian
economy is expected to expand by 2.5% in 2016 and get back to the
potential growth rate of 5-6% in 2017.
Exports by region as a % of GDP
Source: Geostat
GDP growth forecast for 2016 (%)
Source: IMF, WEO, April 2016 update
18
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015CISEUOther2014201524681005.16.08.93.84.64.7RussiaBulgariaUkraineEstoniaCroatiaHungaryAzerbaijanArmeniaTurkeyLithuaniaGeorgiaLatvia-3.0-1.81.51.91.92.22.32.32.52.73.23.8
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Sector Developments
Transport and Communications
One of the key competitive advantages of Georgia is its role as a
transit hub for oil and gas produced in the Caspian Sea to reach
Europe without going via Russia. Logistics accounted for around
10.4% of GDP and 3% of employment in 2014. Reforms and
investment in infrastructure have improved the country’s regional
role in transporting oil and gas, as well as other commodities. Some
of the major projects in this sector are reviewed below.
Tbilisi-Baku-Kars Railway
Georgia’s role as a regional hub for transport and communications
will be further strengthened by the Tbilisi-Baku-Kars railway, which
is announced to become operational by the end of 2016. The new
railway will connect regional countries to the European market and
is expected to increase passenger and cargo traffic through
Georgia.
Energy
Power generation is one of the main high growth potential sectors of
the Georgian economy. It accounts for 3% of GDP and approximately
1% of employment, and is of high strategic importance to Georgia.
The sector attracted high FDIs in 2013, 2014 and 2015- 244 million,
190 million and 89 million respectively (which was around 26%,11%
and 7% of total FDIs) - as Georgia has the potential to supply
hydropower to neighbouring countries. One of the priorities for the
Government is to promote the development of Georgia’s power
generation capacity, which will enhance Georgia’s energy self-
sufficiency and the availability of affordable energy. Neskra HPP is a
large scale project with total estimated investment of USD 1 billion,
the project is financed by EBRD, ADB, Export-Import Bank of Korea
in cooperation with the Georgian Partnership Fund and is planned to
be completed by 2019. Once completed, Nenskra HPP is expected to
fill the gap between the supply and demand of electricity in Georgia
and reduce dependence on imported energy sources, especially
during winter.
BP Shah Deniz II
BP expects that the investment in the Shah Deniz II gas pipeline
project will be USD 2 billion until 2018, and c. 20% of the investment
will be spent via local contractors; in 2014-2015 about USD 700
million was already invested in Georgia.
Anaklia Deep Sea Port
A deep-Sea Port will be constructed in Anaklia, which will further
facilitate the transit and logistical potential of Georgia. The project
is expected to start in 2016 and the first stage project investment
will amount to c. USD 500-700 million in the coming four years.
Tourism
According to its strategy, the Georgian Government will actively
support tourist infrastructure, new tourist product offerings, and an
increase in service quality levels. Apart from leisure tourism, the
government also aims to increase MICE tourism and expect around
8 million international arrivals by 2019, hence the need for new
infrastructure projects.
As of 2015, Georgia had 8.7 beds per 1,000 visitors (down from 16.0
in 2010), far below the 42.6 average (2014) in Eastern European
peers. The reason why Georgia is far behind its EE peer country’s
average is that growth of visitors far outpaced hospitality
infrastructure growth. Since 2010 the number of beds in the
hospitality sector increased by 59% to 51.4 thousand, while the
number of visitors almost doubled to reach 5.9 million in 2015.Over
the next five years, the construction of new international and local
upscale hotels will add more than 4,000 hotel rooms in Tbilisi and
Batumi. 68% of the planned hotel projects are international medium
and upscale brand hotels. By 2020 international chains like
Millennium, Intercontinental, Park Inn by Radisson, and Crowne
Plaza are expected to launch operations in Georgia.
19
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
BUSINESS MODEL
TBC Bank has a clear focus on the
Georgian market and pure-play banking
operations. By leveraging clearly
differentiated strengths in strong and
growing positions across all business
segments, award-winning multichannel
capabilities, leading customer
experience, and a well-established brand
we have defined a clear strategy to be the
number one commercial bank in the
country across all segments.
MISSION
TO CREATE NEW OPPORTUNITIES
FOR THE SUCCESS OF PEOPLE
AND BUSINESSES
VISION
TO BE THE LARGEST
COMMERCIAL BANK
IN GEORGIA
BUSINESS MODEL
OUR BUSINESS MODEL IS
FOCUSED ON CORE BANKING
ACTIVITIES IN GEORGIA
TBC Bank primarily operates on the Georgian
market and concentrates on pure commercial
banking activities, investing in subsidiaries
that support or further grow our core business.
This business structure clearly differentiates us
and enables us to remain focused on providing
traditional financial services to our clients on the
local market where we enjoy a leading presence.
In addition, TBC maintains one of the best
funding structures among local banks and a
straightforward and resilient balance sheet.
20
SOURCES OF INCOME
As a pure-play bank, the main sources of income for TBC Bank
are Interest Income and Fee and Commission Income
generated by core banking or related activities. In both areas,
we have delivered strong growth in profitability and expanded
our products offerings for our customers.
INVESTMENT CASE
WE DIFFERENTIATE OURSELVES
FROM COMPETITORS ACROSS
VARIOUS CRITERIA
1. Leading positions in an
attractive market
2. Strong track record of growth
5. The leading multichannel
distribution platform
6. Resilient and high quality
and profitability
balance sheet
3. Business Model focused
on core banking activities
in Georgia
4. Strong brand, superior
customer experience and an
award-winning franchise
7. Experienced management
team and high quality
corporate governance
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
TARGET CUSTOMERS
As one of the largest banks in Georgia, we
provide financial services to over one million
retail customers and businesses covering the
entire market.
• The Retail segment provides high quality
services to mass retail, high net worth
individuals and affluent customers.
• The Micro segment provides loans to micro
customers, which also includes loans to small
farmers and other rural businesses.
• The SME segment provides financial services
and support to small and medium-sized
companies, which are considered the largest
drivers of economic growth.
• The Corporate segment provides services and
advice to large mature companies operating on
the Georgian market. TBC Bank is considered
one of the core corporate banks in the country.
Furthermore, we differentiate ourselves through
one of the highest levels of customer experience,
outstanding multichannel capabilities proven
through a number of awards, a strong brand and
a highly professional workforce.
21
R G I A
T I N C O M E AND FEE A
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WE A
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
STRATEGY
TBC BANK’S OVERALL STRATEGY IS
TO DELIVER STRONG, SUSTAINABLE
GROWTH AND PROFITABILITY
WITHOUT COMPROMISING ASSET
QUALITY. IN 2015, WITHIN THE
CONTEXT OF AN ECONOMIC
SLOWDOWN, THE BANK PLACED AN
EMPHASIS ON PROACTIVE PORTFOLIO
MANAGEMENT, WHILE ACHIEVING ITS
TARGETED PROFITABILITY AND COST
CONTROL.
Continue Sustainable Growth in Each Market Segment
In 2015, the Bank significantly expanded its geographic coverage with the
integration into TBC Bank of the branches of the former Bank Constanta in
January 2015, which was rebranded under the TBC brand and included an
upgraded suite of products and services. TBC Bank will continue delivering
sustainable growth across all four segments. For this purpose, each
segment has a separate strategy.
Further Leverage TBC’S Award-Winning
Multi channel Platform and Increase Digitalisation
TBC aims to further develop its multi channel distribution platform,
significantly improve efficiency by influencing TBC’s entire operations and
end-to-end processes and move toward an agile project management
methodology adoption aiming to transform the way TBC’s information
technology and business function.
The Bank’s strategy for the next years is laid out below.
To sustain TBC’s growth and profitability within its risk
parameters, the Bank will expand market shares mostly in
the attractive retail, SME and micro (MSME) segments,
which are characterised by high margins and rapid
growth.
TBC Bank will continue strengthening its competitive
advantages of a strong brand, outstanding customer
experience, and award-winning multichannel capabilities,
while sustaining a strong focus on operational efficiency
and cost management, as well as further developing the
Bank’s high-class risk management function.
TBC Bank’s multichannel capabilities are one of its main distinguishing
characteristics, as evidenced by the multiple awards TBC has received from
Global Finance magazine, strong offloading results and a high percentage
of transactions completed through remote channels. Strength in this area
has also largely contributed to the Bank’s achievement of becoming a
leading retail bank in the country.
In addition, TBC Bank plans to further strengthen all of its remote
banking channels, including ATM, POS, TBC Pay, and cash-in terminals that
currently account for a significant percentage of TBC’s total banking
transactions. Further enhancement of the Bank’s multichannel capabilities
facilitates TBC’s ability to serve more customers without the need to
significantly increase the number of TBC branches, allowing staff more
time to focus on sales and advisory services and enhancing customer
experience, whilst reducing overall transactional costs.
Focus on Continuous Operational Efficiency and
Cost Management
In 2015, TBC Bank completed the back and front office merger of Bank
Constanta and realised synergies through integrating main back office
functions such as IT, operations and finance. Increased automation and
productivity is another key efficiency factor. These further improvements
follow the Bank’s “Lean Banking” initiative and the multichannel project,
implemented in 2012 that have both contributed to the advancements in
operational efficiency. Furthermore, IT capabilities represent one of the
core areas of focus for TBC Bank. The Bank’s IT strategy is to develop IT
capabilities and cutting edge technologies that support its robust, long-
term development, including by developing automated services
and operations to standardise TBC Bank’s customer services and back
office processes.
22
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Further Increase Leading Position in Customer Experience
Customer experience is key to TBC’s competitiveness in the market
and its long-term profitability. Customer experience is considered a
strength of TBC, supported by a number of internal and external
market research reports that show TBC’s outstanding performance
in the market, with TBC maintaining a significant gap in NPS scores
and other measures as compared to its competitors. TBC’s ability to
generate loyalty amongst its clients is critical to its strategy to
maintain and grow its share of the Georgian banking market, and is
a significant factor in TBC’s ability to improve profitability.
We continued multichannel improvements during 2015, and
increased the integration of the Oracle Siebel CRM with our internal
front-end solutions in order to further improve customer
experience, better manage customer relationships, shorten the
decision-making process and design tailored services.
Additionally, the Bank will reinforce the value of customer centricity
in corporate culture, continue investing in staff competencies,
further refine user experience in digital channels and introduce
simpler, uniform designs and navigation and new and improved
processes for managing customer experience across every channel
and segment. To this end, TBC Bank worked with Peppers and
Rogers group, a leading public relations consultant, to develop a
roadmap for further improvements in customer experience
Finally, in order to develop aspirational targets and leverage
cross-industry expertise and knowledge, we have already started
comparing our customer experience with those of the best-in-class
service providers in Georgia and abroad.
Implement Strategic HR Management Initiatives
TBC Bank has launched a “Strategic HR Management” initiative to
build a more effective organisational structure, design, culture and
employee value proposition. In early 2016, the Bank hired Mercer,
a leading consulting firm, to assist in the Strategic HR Management
initiative and provide a detailed roadmap of the planned
transformation.
Continued focus on risk management capabilities
enhancement
Having a strong risk management function in place has enabled
TBC Bank to deliver strong and sustainable risk adjusted returns
while remaining within the desired risk appetite. The risk
management team proved its prudence and flexibility in 2015
throughout the currency depreciation and relative macroeconomic
slowdown as demonstrated by robust risk results including
moderate cost of risk expense.
The Bank continues to place strong emphasis on further
enhancements of its risk management practice to enable it to
represent a competitive advantage on the market. It invests
continuously in people, further upgrading its policies and
procedures, advancing its analytical and modeling capabilities and
implementing software solutions for process automation and
efficiency enhancements. All of this promotes resiliency and
sustainability of TBC Bank’s business model in which risk
management is one of the key strategic enablers.
23
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
KEY STRENGTHS
TBC BANK IS A MARKET LEADER IN
THE RETAIL, SME, MICRO AND
LEASING SEGMENTS, AND THE
SECOND LARGEST BANK IN THE
CORPORATE SEGMENT.
The Bank is focused on the Georgian market with a small
international footprint in Azerbaijan and Israel. TBC Bank
Management has identified the following key strengths
that will enable it to maintain and strengthen its position
as one of the leading Georgian banks.
1. Volumes according to IFRS consolidated statements; market shares
according to NBG.
24
Leading Positions in an Attractive Market
TBC Bank has the second largest asset base on the market amounting to
GEL 6,935million, or 26.7% of the market, as at 31 December 2015, more
than four times the assets of the next largest bank in Georgia (the two
largest banks together hold 60.8% and 62.0% of all loans and deposits in
Georgia, respectively, as at the same period). Additionally, TBC Bank was
the largest retail bank in Georgia by value of deposits of individuals with a
34.3% market share, and was the second largest bank in Georgia in terms
of loans to individuals and loans to legal entities. As of 31 December 2015,
the Bank held 28.7% and 29.0% market share in the total banking loans and
deposits, respectively, which translate into a total loans portfolio of GEL
4,639 million and the total deposits portfolio of GEL 4,178 million1.
Strong Track Record of Growth and Profitability
TBC Bank has shown another year of strong performance in 2015 even
within the context of subdued economic growth.
Past three years, the Bank achieved a CAGR of the total loan portfolio of
22.3% and a CAGR of its total deposits of 18.9% while delivering a profit
CAGR of 30.8% over the same period and maintaining a high ROAE of 20.1%
as at 31 December 2015. TBC Bank also maintained strong margins,
recording NIM of 7.8% in 2015. TBC’s strong performance was further
reinforced by continuous improvement in cost efficiency, which was
reflected in the declining cost to income ratio of 43.9% by the end of the
year, below the Bank’s mid-term target level of 40%.
Business Model Focused on Core Banking Activities in Georgia
TBC Bank primarily operates in the Georgian market and concentrates on
pure commercial banking activities, investing in subsidiaries that support
or further grow our core business. This business structure clearly
differentiates and enables the Bank to build on its knowledge of and
position in the Georgian market and to remain focused on providing
traditional financial services to our clients in the local market. This enables
TBC to maintain a resilient balance sheet and a stable, customer-focused
source of funding.
Strong Brand, Superior Customer Experience
and an Award-winning Franchise
TBC Bank is one of the most well-known and trusted brands in Georgia
driven by the consistently high level of customer service, strong reputation,
longstanding relationships with customers, focus on social responsibility
and targeted marketing campaigns. This perception is supported by a
number of internal and external research that shows the Bank’s
outstanding performance on the market in terms of NPS scores and
customer satisfaction indices achieved. TBC has received a number of
prestigious awards, including being named as “Best Bank in Georgia” seven
times by Global Finance magazine and The Banker and four times by EMEA
Finance and Euromoney.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
As a result of its prudent risk management policies, TBC maintains
a high quality loan portfolio. Even after the recent depreciation of
the Lari against the US Dollar, TBC’s loan portfolio demonstrated
resilience which was largely attributable to TBC’s prudent
underwriting and monitoring procedures. This demonstrates TBC’s
proactive approach towards potential client payment vulnerabilities.
Furthermore, in line with the Bank’s strategy to continuously
improve risk management policies, a structural and functional
review was undertaken with the support of a leading consultancy
firm in this area. Consequently, TBC Bank introduced an updated
methodology for identifying non-performing loans (NPLs), which
stood at 4.8% as at 31 December 2015, compared to 3.1% for the
same period in 2014. TBC Bank maintained one of the highest
coverage ratios in the country and in the broader region at 87% for
YE 2015, compared in 131% in 2014.
TBC has a strong capital base with a tier 1 capital adequacy ratio of
24.7% and a total capital adequacy ratio of 31.0% as at 31 December
2015 in accordance with BIS Guidelines. TBC Bank’s capital ratios
are also higher than the Basel II/III minimum requirements, as
adopted by the NBG under a stricter local methodology, with a tier 1
capital adequacy ratio of 12.8% and a total regulatory capital
adequacy ratio of 16.0% as at 31 December 2015.
Experienced Management Team and High Quality
Corporate Governance
TBC Bank has an experienced management team with a proven
track record of leading the Bank’s operations and significant
expertise in the finance industry, with an average of ten (and some
more than 20) years of banking practice and/or international
professional experience at global banks. Vakhtang Butskhrikidze,
CEO, has also been named “Best Businessman of the Year” by
Georgian Times Magazine, “Best Banker 2011” by the GUAM
Organization for Democracy and Economic Development and “CEO
of the Year 2014 “ by EMEA Finance Magazine. Due to the historical
presence of our IFI shareholders, we have always been
differentiated by strong corporate governance, which was further
improved during Basel II/III implementation and the June 2014 IPO
of the Bank on the London Stock Exchange (LSE), as well as the
Bank’s preparation for the Premium Listing segment of the LSE in
the second half of 2016.
Additionally, superior customer experience is one of the key
differentiators for the Bank. TBC Bank conducts regular loyalty
surveys measuring customer satisfaction score (“CSAT”) and net
promoters score (“NPS”). The most recent surveys re-confirmed
that TBC Bank has the highest CSAT and NPS scores in the Georgian
banking sector.
The Leading Multi channel Distribution Platform
One of TBC Bank’s main competitive advantages is our advanced
multi channel distribution platform, that includes branches, internet
banking, ATM network, POS/cash in terminals, call centre, and
mobile banking. Our leadership in this area has been proven
through the multiple awards TBC Bank has won over consecutive
years for corporate and consumer internet banking in Georgia,
Central & Eastern Europe and even globally; strong offloading
results and a high percentage of transactions completed through
remote channels. Since the introduction of its breakthrough internet
and mobile banking, TBC Bank has received two global awards for
its consumer internet banking from the Global Finance magazine in
2013 and seven regional awards for its consumer and corporate
internet banking from 2012 to 2015. TBC Bank continues to
implement new ways of delivering its products and services without
unnecessary expense or branch network expansion, particularly
through its effective utilisation of internet and mobile banking. The
Bank’s e-banking penetration ratio (calculated as the number of
active users divided by the total number of active retail clients) was
33.2% for internet banking users and 17.1% for mobile banking
users by the end of the year.
As part of the continuous improvement process of TBC Bank’s
branch network, we created a new strategic design concept in
partnership with Allen International, a leading strategic branding
and retail design firm. The innovative design reflects TBC Bank’s
welcoming, friendly and open approach to banking and allows the
Bank to achieve another breakthrough in customer service,
maximising both the efficiency and effectiveness of its branches.
The first pilot branch was launched in December 2015, which was
followed by the opening of several new branches in 2016.
Resilient and High Quality Balance Sheet
Deposits are the main source of funding for the Bank, accounting for
73.1% of total funding as a percentage of total liabilities and 60.2%
as a percentage of liabilities and capital as of 31 December 2015. As
of the same date, the Bank’s net loans to deposits and IFI funding
ratio was 95%, of which retail deposits contributed 59.1% within total
deposits.
TBC has a well-diversified loan portfolio split across its segments,
with retail, corporate, SME and micro loans accounting for 43.5%,
32.3%, 13.5% and 10.6% of total gross loans, respectively. The Bank
operates across all regions through its branch network and major
economic and industry sectors in Georgia.
25
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
DISTRIBUTION CHANNELS
TBC BANK HAS DEVELOPED A
LEADING MULTI CHANNEL
DISTRIBUTION PLATFORM THAT
ALLOWS IT TO SERVICE ITS
CUSTOMERS THROUGH A
COMBINATION OF A PHYSICAL
BRANCH NETWORK AND A VARIETY OF
AWARD-WINNING REMOTE CHANNELS.
THESE REMOTE CHANNELS INCLUDE
TECHNOLOGICALLY STATE-OF-THE-
ART OPTIONS (SUCH AS INTERNET
AND MOBILE PHONE BANKING) AS
WELL AS MORE TRADITIONAL OPTIONS
(SUCH AS ATMS, CASH-IN TERMINALS
AND A CALL CENTRE).
Our distribution platform comprises 135 branches
(including those of TBC Kredit in Azerbaijan), 358 ATMs
and 8,800 POS terminals (8,490 of which have contactless
payment capabilities), 2,395 cash-in terminals (TBC Pay),
internet banking, call centre, and mobile banking. TBC
Bank has continued to differentiate itself through
customer-friendly and high quality branch design,
providing superior customer experience to the Bank’s
customers. Following Bank Constanta’s merger into TBC
Bank, TBC rebranded all existing Bank Constanta
branches under a TBC brand and upgraded the suite of
products offered at those branches, which significantly
increased the geographic scope of TBC’s retail banking
offerings. TBC Bank’s branch Network Map is available
on page 3.
TBC Bank continues to enhance its innovative
multichannel capabilities, a clear competitive advantages
for the Bank as proven by our multiple awards throughout
past years. In 2015, TBC Bank received awards in several
categories for the Best Consumer & Corporate Internet
Bank in Georgia in Central & Eastern Europe from Global
Finance magazine.
26
Branch efficiency
We have been constantly working on optimising our branch network and
increasing efficiency in branches through high quality service and
customer-centric branch design. We maintain one of the best branch
productivity indicators among peers in the market by standardising our
services, monitoring customer relations and evaluating their quality, and
making constant improvements to satisfy and retain our large client base.
In 2015, TBC launched a redesigned branch concept to further improve its
customer experience offering. The new design, which reflects TBC’s
welcoming, user-friendly and transparent approach to banking, was
developed in partnership with Allen International, a strategic design
consultant focused on financial services.
The re-designed branches leverage TBC’s strength in multichannel banking
and feature the Bank’s popular advance e-banking tools and technology.
The design is intended to minimise physical and psychological barriers
between TBC Bank and its customers, thus creating a unique, customer-
centric layout. The new concept was developed specifically for TBC as a
result of comprehensive tailored studies of the TBC’s existing branches and
its clients’ needs and aspirations.
E-Banking
In order to further enhance customer experience, TBC’s aims to transform
the branch-based, traditional banking experience into a modern,
automated, omni-channel, 24/7 banking service and offer a new wave of
digital banking services in Georgia. Currently, TBC Bank has been leading
the market in internet and mobile banking for several years. Our
multichannel platform allows our customers to complete a majority of
banking transactions from remote channels in the fastest and the most
convenient way possible. TBC Bank’s internet and mobile banking provide a
wide range of advanced features that are in line with global trends, leading
the Georgian market in banking innovation. All banking services are
integrated into the multichannel platform, giving customers the 360 degree
view of their accounts, with the functionality to manage their money easily
anytime, from anywhere and with any device with a single log-in The Bank’s
multichannel platform is based on the following strategic pillars:
• Creating superior user experience through state-of-the-art, simple and
intuitive designs that help to increase the value and comfort of TBC’s
e-banking services.
• Using Mobile First implementation model to cater to TBC’s niche
mobile-centric customer segment.
• Aiming to continually develop service offerings that generate solutions to
TBC’s customer needs. TBC was the first organisation in Georgia to
introduce fully native iPhone, iPad and BlackBerry banking applications
and person-to-person transfers through mobile and internet banking
using client mobile numbers as identifiers instead of IBAN.
• Focusing on security and stability to preserve TBC’s trustworthiness and
reliability.
• Integrating the Bank’s market-first advance CRM to customise and tailor
digital offerings and services to customers. In 2015, TBC introduced a
pre-approved loan feature in internet banking that allows certain
customers to receive loans online in a matter of minutes.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
Since 2013, TBC Bank has succeeded in migrating its existing
customers and attracting new customers and transactions to
internet banking. In 2015, 84% of the Bank’s total transactions were
conducted through remote channels. Additionally, TBC sold 15% of
all pre-approved loans, 16% of all credit cards and limit increases
and 39% of all deposits in internet banking.
The quality of the TBC’s digital experience has also been reinforced
by highly positive user feedback, such as the five-star ratings that
TBC’s iPhone & Android mobile banking applications maintain on
App Store and Google Play. By the end of 2015, the number of active
Internet Bank users1 only reached 212,560 and the number of active
Mobile Banking users reached 109,391, which is the largest digital
banking customer base in Georgia.
In 2015, TBC also received its fourth consecutive Best Consumer
and Corporate Digital Bank in Georgia award by Global Finance
magazine. TBC’s consumer digital banking was also recognised as
having the Best SMS Banking 2015 in the Central & Eastern
European (CEE) region as well as Best Integrated Corporate
Banking Site in the CEE 2015. TBC was also shortlisted for
“Omnichannel FS Provider of the Year” by FStech Awards.
Number of active Internet
Banking or Mobile Banking
users
Number of active Mobile
Banking users2
2015
2014
2013
228,788
161,548
130,923
109,391
62,435
26,979
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Other Channels
Apart from branches and digital channels, TBC bank operates one
of the largest networks of ATMs, POS terminals, call centre and
cash-in terminals (TBC Pay). TBC Pay Mini Branches (cash-in
terminals) are located within TBC Bank branches, at shopping
centres, retail chains and other locations throughout Georgia.
Cash-in terminals allow clients to perform various transactions
remotely, such as paying loans, utility bills, car parking fees and
parking fines, mobile and internet bills through these terminals.
TBC has recently introduced payments by cards through these
terminals. TBC Pay terminals help further increase retail
penetration, as the Bank is able to serve clients at their preferred
locations while offloading day-today transactions from traditional
branches.
At the beginning of 2016, TBC introduced a new mobile payment
service (mPOS) for Georgian merchants, which was primarily
created for merchants lacking access to the relevant
infrastructure, or sufficient revenue, to use traditional point of sale
(POS) services. This new mobile payment service allows a greater
number of merchants to accept digital payments, and is intended to
improve the consumer’s shopping experience, as paying with mPOS
is faster than paying in cash and waiting for change. The consumer
can simply tap their contactless card in front of a secure reader to
make quick and low value purchases.
1. We changed the definition of active IB users in 2013. Currently, clients who have
accessed internet banking at least once over the last three months are counted
as active users, in line with the number used in our latest Annual Report
2. The number includes active Mobile Banking users, who may also visit Internet
Banking
27
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
28
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015ENERGY INVESTING IN
LARSI HPP
The Georgian Energy sector is one of the most attractive investment
opportunities in the country. With its water-rich natural resources,
Georgia currently produces an average of approximately 10 TWh of
energy per year, while potential production is estimated at an annual
capacity of 15,000 MW. Both local and regional markets provide
significant consumption and export opportunities for the electricity
produced in the country. Construction of over 20 Hydro Power plants
(HPP) is currently ongoing and more than 70 are in the development
stage. According to the Ministry of Energy, approximately 80 HPP
projects are available for further investment.
TBC Bank is a leading financial partner for Georgian HPP developers
with a total exposure of GEL 218 million to the Energy sector by the
end of 2015 . TBC offers its clients a full range of financial products,
including advance trade and project financing opportunities, and
market-leading supporting and value-added services, such as
leasing, insurance, brokerage and research. TBC Bank is proud to
work with one of the prominent players in the energy sector, PERI
LLC, on several of its important projects. According to their
long-term corporate banker, Irakli Diasamidze, “During the last 12
years, PERI LLC successfully implemented the construction of 5
different sized HPPs with total capacity of 36.4 MW. They are
currently developing a vital 109 MW Dariali HPP, set to start
operations in Q2 2016. Their total investment in the sector has
reached USD 255 million, which is an outstanding achievement.” One
of the latest HPPs TBC Bank financed for Peri, is the Larsi Plant
located in the scenic Kazbegi municipality, near the country’s
northern border. The Plant is one of the biggest HPPs constructed in
the country during the past two decades and generated 68 million
KWh of electricity in 2015.
See pages 30 –37 for our Operating Review to read more about our
Corporate Banking services.
IRAKLI DIASAMIDZE
SENIOR CORPORATE BANKER
29
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015ENERGY INVESTING IN BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
OPERATING REVIEW
MAIN ACHIEVEMENTS IN 2015
Merger with Bank Constanta
In 2015, TBC Bank completed its full merger with the former Bank Constanta. As a result, TBC
achieved significant synergies in cost savings, over-delivering on the announced target, expanded
its presence to the rural regions of the country and started offering the full selection of its products
and services through the newly rebranded TBC Bank Constanta branches.
Breakthrough Branch Design Concept
In 2015, TBC Bank launched a redesigned branch concept, created in partnership with Allen
International, a strategic design consultancy focused on financial services. With this, the Bank aims
to achieve another breakthrough in its customer experience offering. The new design reflects TBC
Bank’s welcoming, user-friendly, and transparent approach to banking and leverages the Bank’s
strength in multichannel banking, cutting-edge e-banking tools and technology. The innovative
design minimises physical and psychological barriers between the Bank and its customers, thus
creating a unique, customer-centric layout. The new design aims to enhance the Bank’s
longstanding leadership in customer experience and satisfaction, as proven by internal and
external research. For more information on customer experience, see page 24 of this Report.
Managing Landmark Bonds Issuances from ADB and BSTDB
In 2015, TBC Bank and TBC Capital, the Bank’s brokerage subsidiary, completed two separate local
currency bond issuances by the Asian Development Bank (ADB) and the Black Sea Trade and
Development Bank (BSTDB) for a total of GEL 148 million. The ADB bond issuance in the amount of
GEL 100 million was the largest ever GEL-denominated transaction of its kind arranged on the
Georgian market. In combination with the milestone bond issuance by the EBRD in 2014, where TBC
Capital also acted as a co-arranger, these transactions carry special importance for the Georgian
economy as they provide much needed GEL financing that helps hedge currency-induced risks and
supports the country’s long-term trend towards de-dollarisation.
Customer Relationship Management
TBC Bank was one of the first banks in Georgia to develop advanced CRM capabilities. TBC is
partnering with Oracle by implementing Siebel CRM solution, a market leader in the financial
sector and the world’s most complete CRM product. In 2015, the Bank completed a full integration
of CRM capabilities in all of its business lines, including through remote banking channels enabling
the Bank to better customise product offerings to its customers.
Multichannel Results
TBC Bank has a globally recognised multichannel distribution platform that continued to
successfully offload routine transactions from branches to e-channels, while minimising cost and
unnecessary branch network expansion throughout 2015. By the end of 2015, the number of our
active clients for internet and mobile banking reached c. 230,000 and 110,000, respectively – the
highest number of active internet banking users in the country. The share of remote channel
transactions in total number of transactions (possible to transfer to remote channels) reached
84%. Due to the effectiveness of our remote banking initiatives, we also maintained the most
efficient and productive branch network in the country. As at YE 2015, the Bank’s gross loan-per-
branch stood at GEL 36 million – more than any other Georgian bank.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
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FINANCIAL STATEMENTS
Awards
TBC Bank was honoured to be recognised for its leadership in a number of
key business lines, as well as for its overall performance as the best bank
in Georgia 2015 by three major publications, including Global Finance and
EMEA Finance magazines for the fourth consecutive year and by
Euromoney for the second consecutive year. TBC was once again named as
the Best Private Bank in Georgia 2015 by The Banker and Professional
Wealth Management Magazine, an FT publication. This competition was
extended to Georgia for the first time in 2014. TBC continued to achieve
outstanding results for its internet banking, which was named as the best
consumer and corporate internet bank in Georgia by Global Finance
Magazine, also for the fourth consecutive year, and was once again
recognised on the regional scale in two categories in Central and Eastern
Europe. A comprehensive list of our awards is available on the IR website.
RETAIL SEGMENT OVERVIEW
IN 2015, TBC BANK MAINTAINED ITS
POSITION AS THE LARGEST BANK IN
THE COUNTRY IN TERMS OF RETAIL
DEPOSITS AND THE SECOND LARGEST
BANK BY RETAIL LOANS, ACCOUNTING
FOR 34.3% AND 31.6% OF THE MARKET,
RESPECTIVELY, AS AT YE. THE RETAIL
BUSINESS DELIVERED CAGR OF 28.4%
AND 20.9% IN LOANS AND DEPOSITS,
RESPECTIVELY, OVER THE LAST THREE
YEARS.
The segment serves c. 1 million clients, of which c. 8,500
are affluent banking and c. 1,400 are private banking
customers with a wide range of loan, account, card,
deposit, insurance and operational products through the
Bank’s 128 branches and the refined multi channel
platform.
TBC Bank is an established innovator in payment
technologies. In 2013, TBC Bank introduced contactless
card technology on all cards with Visa Paywave, which has
been extremely popular among the Bank’s customers. By
the end of 2015, 72% of all transactions were contactless.
The retail loan book composition as of YE 2015 consists of
consumer loans at 43.2%, mortgage loans at 44.8%, and
gold pawn loans at 12.0%.
As at YE 2015, retail loans stood at GEL 2,020 million, up
28.5% YoY and retail deposits reached GEL 2,470 million,
up 28.5% YoY. In 2015, retail loan yields and deposit rates
stood at 14.9% and 4.2% respectively and the segment’s
cost of risk was 1.6% during the same period.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 Awards
TBC Bank’s corporate banking was recognised as one of the best in Central
and Eastern Europe and the CIS in 2014 (awarded in 2015). The Bank won
two prestigious awards from EMEA Finance Magazine for achievements in
project finance as the Best Transport and Infrastructure Deal for East West
Highway and the Best Water Deal for the Dariali HPP.
Additionally, TBC maintained its title as the Best FX Provider in Georgia,
awarded by the Global Finance Magazine, for the fourth consecutive year,
having won the award annually from 2013-2016.
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OPERATING REVIEW
CONTINUED
CORPORATE SEGMENT OVERVIEW
TBC BANK BEGAN ITS OPERATIONS BY
FOCUSING ON CORPORATE CLIENTS
AND HAS HISTORICALLY HAD A
STRONG CORPORATE BANKING
PRESENCE BASED ON ITS WELL-
DEVELOPED RELATIONSHIPS WITH
MANY LEADING GEORGIAN
BUSINESSES WHICH, WITH TBC’S
FINANCIAL AND ADVISORY SUPPORT,
HAVE GROWN WITH THE BANK OVER
THE YEARS.
TBC provides tailored financial solutions across all key
corporate business sectors, with a particularly strong
footprint in the energy, trade and services, oil and gas,
healthcare, and food and agriculture sectors. As at YE
2015, TBC Bank was the second largest bank in terms of
legal entity loans and deposits in the Georgian banking
sector, accounting for 26.2% and 23.4% respectively. The
legal entities market share comprises all legal entity loans
and deposits, including those in the Corporate, SME and
Micro segments. The Corporate segment has delivered
CAGR of 9.5% and 7.8% for corporate loans and deposits
respectively over the past three years.
The segment serves approximately 1,700 customers and
offers a wide range of products, including lending
products, accounts and term deposits, corporate cards,
foreign exchange operations, hedging, trade, factoring and
project finance products, payroll projects, escrow
services, cash collection, insurance packages (through
GPI Holding, a partner insurance company), leasing
(through TBC Leasing) and brokerage services (through its
brokerage and corporate advisory arm, TBC Capital).
The broad product offering and client relationships provide
an opportunity to deliver diverse loan/credit exposure to
customers in services of 22%, energy - 14%, consumer
goods and automobile trading - 11%, real estate - 10%, oil
and gas - 7%, communication - 8%, food industry - 9% and
other industries - 19%.
As at YE 2015, corporate loans stood at GEL 1,500 million,
up 21.8% YoY and deposits reached GEL 1,001 million, up
19.1% YoY. In 2015, corporate loan yields and deposit rates
stood at 9.6% and 3.3% respectively and the segment’s
cost of risk was 1.1% during the same period.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
SME SEGMENT OVERVIEW
TBC IS ONE OF THE STRONGEST
BANKS ON THE MARKET IN THE SME
SEGMENT AND THE BANK BELIEVES IT
HAS THE LARGEST LOAN BOOK ON
THE GEORGIAN SME MARKET.
TBC Bank considers the SME business as core to the
country’s economic development. The Bank thus focuses
on offering a diversified product range with outstanding
multichannel capabilities, an efficient relationship model,
and a high level of customer experience and offers. The
SME segment has delivered strong growth in loans and
deposits at CAGR of 28.6% and 30.5%, respectively, over
the past three years. TBC classifies SME businesses as
customers that are not included either in the corporate or
micro segments. TBC’s SME business has a strong
presence in various industries, including the services, real
estate, construction, food and consumer goods and
automobile trading industries.
TBC Bank serves approximately 67,000 SME clients and
offers a wide variety of loan products including a full range
of deposit products, short-to medium-term loans to
finance working capital seasonal needs, sales growth,
acquisitions, construction and expansion of production, as
well as for other purposes. As at YE 2015, SME loans
increased to GEL 626 million, up 16.7% YoY, and SME
deposits reached GEL 633 million, up 26.4% YoY. In 2015,
SME loan yields and deposit rates stood at 11.6% and 1.6%,
respectively, and the segment’s cost of risk was 2.0% for
the same period.
Business Support Program
The SME Business Support Programme offers seven
solutions custom-tailored to client needs, including
training, conferences, consultations, a special Online
Business Platform, and multichannel banking (mobile,
SMS and internet). Through the Business Support
Programme TBC Bank is able to reach its SME clients at
every possible channel and leverages these capabilities to
provide diversified and targeted solutions for its clients.
The Business Support Programme encompasses seven
different types of non-financial services offered to the SME
clients. Services currently available through the Business
Support Programme include:
BUSINESS REVIEW
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FINANCIAL STATEMENTS
1. Free training sessions financed by ADB with more than 5,000 clients
trained in three cities.
2. The first educational web portal in the region, SME Toolkit Georgia, or
www.tbcbusiness.ge (financed by IFC and in partnership with IBM).
The portal also includes the innovative TBC Academy feature,
discussed below.
3. Upgraded Internet Bank for legal entities.
4. Completely new Mobile Bank for legal entities.
5. SMS Banking services for legal entities.
6. Conferences and Events.
7. Expert Consultations.
In 2015, TBC Bank launched another innovative component of the SME
Toolkit – TBC Academy. This sub-platform serves as a virtual training
centre with educational and interactive animated video publications.
Academy is integrated with Facebook, which means that registered users
can get scores, certificates, and medals and share them on their Facebook
page.
TBC Bank continued to offer its SME clients other innovative value-added
services through its educational platform www.tbcbusiness.ge – The SME
Toolkit. This pioneering project has received significant recognition,
including the Marketing Brilliance Award for the “Best Product Launch” in
October 2014 which recognises the most innovative marketing and public
relations achievements across different industries in Georgia.
The SME Toolkit or the www.tbcbusiness.ge portal has been steadily
gaining its popularity since its launch and reached the following milestones
by YE 2015:
• c.822 thousand visitors attracted to our www.tbcbusiness.ge website
since launch
• 27% all visitors become returning visitors
• 396,983 views for the educational videos on our YouTube and MyVideo1
channels
One of the most important components of the Programme are the business
training sessions aimed at improving SMEs’ business management skills
and promoting communication among them through informal networking
opportunities. These training sessions are exclusively for TBC Bank’s SME
clients and cover important topics such as cost-volume-profit (CVP)
analysis, budgeting, tax Issues, social media marketing, and strategic
management. Training has been delivered either in the capital, or in the
other main cities of Georgia, with the number of participants reaching 5,000
legal entities by the end of 2015. The average customer satisfaction score is
9.5 out of 10 based on internal surveys.
SME Conferences are designed to provide a unique platform for client SMEs
to receive comprehensive information regarding the general business
environment, the most current business topics and relevant development
opportunities in Georgia. Conferences are held in three main cities in the
country with the total number of attendees in 2015 reaching 1,000.
1. MyVideo is the local alternative to YouTube. Our lectures are extremely popular on both
channels.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
34
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015TOURISMINVESTING IN
NO 12 BOUTIQUE HOTEL
No 12 Boutique Hotel in Tbilisi opened just five years ago and has
already become one of the highest rated tourist destinations
with an 8.7 rating and the sought-after “most booked” status on
Booking.com.
The owners of the Boutique Hotel started this innovative idea as a
way to invest their savings – and the promising tourism sector was
the obvious choice. Their tireless attention to detail, exquisite old
Tbilisi designs and the modern quality of service make the No 12
Boutique Hotel unforgettable and the business – extremely
successful. With TBC Bank’s support, the hotel has branched out
into additional locations, including an Apart Hotel. Lida Vardania, the
founder and co-owner of No 12 Boutique Hotel, credits TBC Bank for
the opportunity to also implement their latest idea: “Our success is
based on innovation – we took advantage of an opportunity to create
a boutique hotel, which was unexplored territory on the Georgian
hospitality market. Importantly, we have a partner that helps us
finance our new ideas. Our new niche initiative is g.Vino, a wine bar.
With TBC’s support, we are excited to get g.Vino off the ground and
offer our guests new ways to experience Georgian culture and
history.”
See pages 30 – 37 for our Operating Review to read more about the
SME Banking services.
TAMAR JAKELI,
SME CREDIT EXPERT
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015TOURISMINVESTING IN BUSINESS REVIEW
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OPERATING REVIEW
CONTINUED
MICRO FINANCE
MICROFINANCE IS ANOTHER KEY AREA FOR TBC
AS THE SEGMENT OFFERS HIGH MARGINS AND
LARGE GROWTH POTENTIAL. THE FULL MERGER
WITH BANK CONSTANTA AT THE BEGINNING OF
2015 PROVIDED AN OPPORTUNITY TO EXTEND THE
BANK’S FULL PRODUCT OFFERING TO MICRO
CLIENTS AND ENHANCE TBC'S COVERAGE TO THE
MORE RURAL REGIONS OF THE COUNTRY.
TBC Bank Constanta is one of the market leaders in the microfinance
segment and delivered the highest loan book growth of CAGR 50.1% over the
past three years. TBC Bank serves over 479 thousand micro clients.
TBC’s micro client base is primarily composed of farmers and individual
entrepreneurs. The Bank offers a range of tailored credit products, deposit
products and other services, such as money transfers. The micro segment
also introduced several innovative products in 2015, including a tablet loan
issue product where all mini loans (defined as less than GEL 6,000) are
issued and disbursed on site using tablets and pre-printed nameless debit
cards, without having to bring the client into a branch. If the loan is
approved, the client receives the debit card with the approved amount. The
whole process takes around 60 minutes from application to approval and
disbursement.
As at YE 2015, micro loans increased to GEL 493 million, up 34.4% YoY, and
micro deposits reached GEL 74 million, up 24% YoY. In 2015, micro loan
yields and deposit rates stood at 23.3% and 3.3% respectively and the
segment’s cost of risk was 3.6% during the same period.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
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SUBSIDIARIES
TBC Leasing
TBC Bank offers leasing services in Georgia through its majority-owned subsidiary, TBC Leasing. These
include finance leasing, leaseback, residual lease, and service leases. Leasing arrangements are
primarily entered into with customers in the construction, medical, agriculture, transportation and
service sectors.
TBC Leasing is the market leader with 72.7% market share of the Georgian leasing financial services
market by YE 2015. TBC Leasing’s diversified customer base provides significant cross-selling
opportunities and growth potential.
TBC Capital
During 2015, TBC Bank enhanced the function and scope of its brokerage subsidiary and rebranded the
Company into TBC Capital. The Company now represents an advisory arm of TBC Bank offering
corporate advisory, research and brokerage solutions in Georgia. TBC Capital is committed to playing an
active role in the development of capital markets in Georgia. TBC Capital supports both institutional and
strategic investors in exploring investment opportunities in Georgia while at the same time giving access
to additional forms of financing to domestic companies. During 2014 and 2015, TBC Capital participated
in the landmark bond issuances of EBRD and ADB – the first and the largest such issuances by any IFI in
Georgia, respectively - as well as the most recent issuance by BSTDB.
TBC Capital was also strengthened by leading professionals in the field. The company appointed two
new Managing Directors with significant international experience in asset management and
international capital markets, trading and derivatives from Jefferies Asset Management in the UK and
Silverhorn Investment Advisors, Lehman Brothers, Nomura, and JP Morgan in Hong Kong.
International Operations
Although the vast majority of TBC’s operations (representing 99% of our assets) are conducted in
Georgia, TBC Bank also operates in Azerbaijan and Israel through its subsidiaries – TBC Kredit and
TBC Invest.
TBC Kredit is a non-banking credit organisation focused on SME and retail customers, offering SME and
retail loans, consumer loans and mortgages. TBC currently holds a 75% equity interest in TBC Kredit.
With headquarters in Baku, TBC Kredit operates seven additional branches throughout Azerbaijan.
TBC Kredit has extensive experience in dealing with MSME finance, consumer and mortgage loans.
As of 31 December 2015, TBC Kredit had a total loan portfolio of USD 30 million. SME lending accounted
for 55% of TBC Kredit’s loan portfolio, while consumer and mortgage loans accounted for 30% and
15%, respectively.
TBC Invest is a wholly-owned subsidiary established by TBC Bank in 2011 to act as an intermediary,
providing Israeli clients with information and access to the Georgian banking system. It offers
information to individuals and companies in Israel (Israeli businesses connected with Georgia and family
offices) about TBC Bank’s products and services, fees and interest rates.
Other Subsidiaries
TBC Group comprises five more companies operating in related industries in order to support TBC’s
main activities:
• JSC United Financial Corporation and TBC Pay LLC process card payments and supply payment
collection services to providers of self-service machines and POS, WAP and Windows terminals.
• JSC Real Estate Management Fund and Mali LLC, which manage property we have repossessed for
future sale.
• Banking Systems Service Company (BSSC) LLC provides technical services and software support for
electronic banking systems (such as POS and cash machines).
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
38
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015AGRICULTUREINVESTING IN
BADAGI
Georgia is famous for its culinary wonders, and the traditional,
specialty sweets made from grape juice and walnuts are especially
popular.
Badagi is a Georgian micro business that started producing
traditional Georgian gourmet sweets approximately 15 years ago
with a staff of 3 people. As the leading bank in the micro segment,
TBC supported Badagi to its current position of eight signature
stores and 70 employees. Today, the company offers a wider
selection of delectable fruit desserts and wines and partners with
large retailers that carry their products.
Micro businesses often have to work around the seasonality of their
sales and income. Through its acquisition (2011) and merger (2015)
with the former Bank Constanta, the leading micro finance
institution in Georgia, TBC has acquired extensive expertise in the
micro segment. By the end of 2015, up to 40% of the Bank’s micro
portfolio is dedicated to agro financing. According to the Micro Credit
Expert working with Badagi, Keti Ghirsiashvili, “by combining micro
segment expertise with the full selection of TBC Bank’s product
offerings, we are able to provide well-tailored financing options to
businesses like Badagi, allowing them to create success stories that
inspire entrepreneurship and creativity.”
See pages 30 – 37 for our Operating Review to read more about our
Micro Banking services.
KETI GHIRSIASHVILI
MICRO CREDIT EXPERT
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015AGRICULTUREINVESTING IN BUSINESS REVIEW
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PRINCIPAL RISKS
Risk
Why we think this is important
Risks relating to TBC’s business
TBC’s business and financial
performance has been and
will continue to be affected
by general economic
conditions in Georgia and
elsewhere, and any adverse
developments in Georgia or
global economic conditions
could cause its earnings and
profitability to decline.
Because TBC operates primarily in, and sources nearly all of its revenue from, Georgia, its business,
financial condition and results of operations are, and will continue to be, highly dependent on general
economic conditions in Georgia. TBC is directly and indirectly subject to the inherent risks arising from
general economic conditions in Georgia, other economies which impact the Georgian economy and the
state of the global economic conditions both generally and as they specifically affect financial institutions.
Georgia faced the most recent economic slowdown in the end of 2014, stemming from regional conflicts
and falling oil prices. Economic turmoil in Russia, Ukraine and other regional countries affected
demand for Georgian exports and remittance inflows declined, resulting in a significant deterioration of
the current account balance. Highly uncertain regional/global environment, as well as domestic risk
factors, continue to represent a risk factor constraining healthy growth opportunities.
Lari depreciated against the US Dollar by more than 40% since November 2014. Although the Lari
remained more stable against other regional currencies and the currencies of key Georgian trading
partners, its depreciation against the US Dollar was particularly significant because the Georgian
economy is highly dollarised. Although in recent years the dollarisation rate (defined as foreign
currency deposits as a share of total deposits across the sector) had been declining, with foreign
currency deposits accounting for approximately 60% of all deposits as at 31 December 2013 and 2014,
following the recent regional crises and sharp depreciation of the Lari against the US Dollar, the
dollarisation rate increased again to 70% as at 31 December 2015.
A further material depreciation of the Lari relative to the US Dollar or the Euro, changes in monetary
policy, inflation, market instability, a financial crisis, a reduction in consumer purchasing power and
erosion of consumer confidence, whether as a result of adverse conditions and development in Georgia
or in the global economy, could each lead to a deterioration in the performance of Georgia’s economy,
which could, in turn, have a material effect on TBC’s business, financial condition, results of operations
and/or prospects, as well as the trading price of the shares.
TBC Bank performs regular analysis of macroeconomic environment and runs stress tests
based on various scenarios to proactively introduce mitigating actions stemming from potential
adverse developments.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
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Risk
Why we think this is important
Recent depreciation of the
Lari against the US Dollar
has had and may continue
to have negative effects
on TBC’s asset quality
and overall financial
performance.
A significant percentage of TBC’s loans (and of loans in Georgia generally) are denominated in
currencies other than Lari, particularly US Dollars. While the income of a number of Georgians are paid
in US Dollars via remittances from abroad and some customers hedge their exposure to some extent
through the maintenance of savings in US Dollars, customers may not be protected against significant
fluctuations of the exchange rates of the Lari against the currency of the loan, such as the recent
depreciation of the Lari against the US Dollar. For Lari-denominated loans, the significant depreciation
to date as well as any further depreciation of the Lari against the US Dollar or other foreign currency in
which TBC’s loans to customers are denominated may result in difficulties related to the repayment of
such loans, which, in turn, may lead to a decrease in the quality of TBC’s loan portfolio and an increase
in impairment provisions for loans extended to TBC’s customers.
TBC may not be able to
maintain the quality of its
loan portfolio.
Any decline in TBC’s net
interest income or net
interest margin could lead
to a reduction in
profitability.
Further depreciation of the Lari could also potentially threaten TBC’s plans for portfolio growth due to
the shrinkage of client credit limits.
TBC takes steps to mitigate the risk of depreciation of the Lari against foreign currencies by, inter alia,
strict management of open currency positions and by holding higher capital for foreign currency loans.
Additional buffers for currency depreciation is applied to clients’ during loan applications, as well as
more conservative approach to lending to certain industries which tend to be more vulnerable to
currency devaluations is adopted.
The quality of TBC’s loan portfolio is affected by changes in the creditworthiness of its customers, their
ability to repay their loans on time, TBC’s ability to enforce its security interests on customers’
collateral, should such customers fail to repay their loans, and whether the value of such collateral is
sufficient to cover the full amounts of those loans, especially on the back of the recent depreciation of
the Lari, which caused a general decline in asset values. In addition, the quality of TBC’s loan portfolio
may deteriorate due to other reasons, such as any negative developments in Georgia’s economy
resulting in the financial distress or bankruptcy of TBC’s customers, further depreciation of the Lari or
the unavailability or limited availability of credit information concerning certain customers. Further,
TBC’s risk management procedures may not be sufficient to maintain the quality of its loan portfolio,
particularly as it expands.
Sound NPL identification and management, adequate loan loss provisioning, solid NPL coverage ratio
as well as comfortable capital against unexpected losses help mitigate further losses that a bank could
suffer on its non-performing as well as performing portfolio.
TBC derives the majority of its total income from net interest income. Consequently, TBC’s results of
operations are affected by fluctuations in its net interest margin, which is its net interest income divided
by its average interest-earning assets. Factors that result in fluctuations in TBC’s net interest margin
include underlying interest rates, competition for loans and deposits, customer demand and costs of
funding. These are in turn influenced by such factors as global and local economic conditions, the
resources of TBC’s competitors and business and consumer confidence. Moreover, interest rates and
TBC’s cost of funding are highly sensitive to many factors including monetary policies and domestic and
international economic and political conditions, currency exchange rates, the dollarisation level in the
banking sector (to the extent that fluctuations drive the increase in foreign currency loans and assets
with lower interest rates) and the reserve policies of the National Bank of Georgia (the “NBG”). Any
decrease in interest rates on TBC’s loans to its customers, alone or in combination with increases in
rates payable on deposits or other interest-bearing liabilities, or smaller decreases in such rates
compared to the rates on loans, could have a material adverse effect on TBC’s future net interest
income, net interest margin and, accordingly, its future profitability.
High levels of current margins and continuous efforts in cost optimisation represent a safeguard
against margin declines posing profitability concerns for the Bank.
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PRINCIPAL RISKS
CONTINUED
Risk
Why we think this is important
TBC’s business and financial
performance are linked to
interest rate levels
and volatility.
Interest rate levels and volatility may have an adverse effect on TBC’s results, profitability and returns
in a variety of different ways across its lending and deposit products. Interest rates are driven by
factors outside of TBC’s control, including the Georgian government’s fiscal policies and the NBG’s
monetary policy, as well as regional and global economic and political conditions. A higher interest rate
environment could reduce demand for TBC’s primary lending products, mortgages and credit cards,
and other lending products generally, as individuals are less likely or less able to borrow when interest
rates are high. Higher interest rates would also lead to higher interest costs for existing borrowers,
which would affect their ability to repay their borrowings and may lead to an increased rate of default.
TBC may not be successful
in implementing its
strategic plans.
TBC faces significant
competition, which may
increase in the future and
have an adverse impact on
its business.
Collateral values may
decline, which could
adversely affect TBC’s asset
quality.
TBC is pursuing several strategic initiatives intended to further leverage on what it believes to be its
competitive strengths. These plans include continued sustainable growth in each of its market
segments; increasing digitalisation in its multi channel platform; developing further enhancements to
its customer experience; improving operational and cost efficiency; implementing strategic HR
initiatives amongst its employees; and creating an enhanced, adaptable risk management function.
TBC’s ability to implement these strategies is subject to a number of risks and challenges and there can
be no assurance that any of these strategic initiatives will improve profitability to the extent that TBC
desires or at all. Any of the foregoing may have a negative impact on TBC’s ability to meet its future
growth plans, as well as on its business, results of operations and/or prospects.
In response to the exposure of strategic risk, TBC bank undertakes comprehensive budgeting process
that incorporates scenarios and action plans under different circumstances.
The Georgian banking sector is very competitive, and TBC is subject to competition from both domestic
and foreign-owned banks. According to the NBG, as at 31 March 2016 there were [19] commercial banks
operating in Georgia. TBC competes with a number of these banks, including Bank of Georgia, Liberty
Bank, ProCredit Bank, Bank Republic and VTB Georgia.
Increased competition may have a negative impact on TBC’s market share in deposits and loans to
customers, as well as its ability to grow its deposit and loan portfolios in the future. Although the
Directors believe that TBC is well-positioned to compete in the Georgian banking sector, TBC’s market
position may suffer if competitors deploy greater financial resources, have access to lower-cost funding
(particularly subsidiaries of foreign banks) or are able to offer a broader suite of products than TBC.
Increased competition may also have a negative impact on TBC’s ability to sustain its net interest
margin and fee and commission levels. Any of these events could have an adverse effect on TBC’s
business, financial condition, and results of operations and/or prospects.
Bank’s strategic planning efforts are directed towards mitigating the above-mentioned risk factors.
TBC monitors market developments and performs regular SWOT analysis to ensure that its competitive
position is maintained and strengthened continuously.
The main forms of collateral taken by TBC in its lending to business entities are charges over real
estate, equipment and inventory. The main form of collateral taken by TBC in its lending to individuals is
a mortgage over residential property. Declining or unstable prices of collateral in Georgia may make it
difficult for TBC to accurately value collateral held by it. The value of any collateral ultimately realised
by TBC will depend on the value of that collateral TBC is able to realise upon foreclosure, which may be
different from the current or estimated value. If the value of the collateral held by TBC declines
significantly in the future, TBC could be required to record additional provisions and could experience
lower than expected recovery levels on collateralised loans that are more than 90 days past due and on
the amounts realised upon foreclosure. Further, changes to laws or regulations that make it more
difficult to enforce or repossess collateral may impair the value of such collateral.
In order to mitigate the risk, TBC generally imposes conservative loan to value ratio of (not higher than
70% at the time the loan is advanced), although the ratio may be higher for clients with a very good
risk profile.
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Risk
Why we think this is important
TBC’s loan portfolio
concentration in Georgia
may subject it to risks of
default by its largest
borrowers and exposure to
particular sectors of the
Georgian economy.
TBC’s guidelines and
policies for risk
management, systems and
processes may not be
effective in protecting it
against all the risks faced
by its business and any
failure to manage properly
the risks which it faces
could cause harm to TBC
and its business prospects.
Liquidity risk is inherent in
TBC’s operations.
Exposures to largest borrowers or cyclical sectors magnify credit risk bank is exposed to. In order to
mitigate the risk, TBC Bank imposes limits on both name and sector concentrations and maintains
them at acceptable level. This way, sensitivity to downturns in the Georgian economy deterioration of
loan quality of largest borrowers is reduced and stands at rather comfortable levels compared to peer
Banks.
Although TBC invests substantial time and effort in the development, implementation and monitoring of
its risk management strategies and techniques, it may nevertheless be vulnerable to unanticipated
risks. TBC employs various tools and metrics for managing risk, most of which are based on observed
historical market behaviour. These tools and metrics may fail to predict future risk exposures,
especially in periods of increased volatility or in periods in which there is a rapid expansion of TBC’s
loan portfolio.
Many businesses in Georgia have limited experience operating in competitive market conditions as
compared to businesses in developed countries. Accordingly, the financial performance of Georgian
businesses is generally more volatile, and the credit quality of Georgian businesses on average is less
predictable, than that of similar companies doing business in more mature markets and economies.
Some of TBC’s corporate customers may not have extensive credit histories, and their accounts may not
be audited by a reputable external auditor resulting in less accurate estimations of future financial
conditions.
Furthermore, lending to SME, micro and retail customers may carry with it greater risks than expected.
SME and micro customers typically have less formalised financial statements than large companies
and there is often less credit history available for such clients. The financial condition of some business
borrowers and private individuals transacting business with TBC is difficult to assess and predict, as
some of these borrowers have no or very limited credit history. In addition, the retail and micro lending
sector is more susceptible to fraud than TBC’s business lending segments.
In order to mitigate the risk, TBC bank performs comprehensive transaction-level analysis for loan
sanctioning incorporating four eyes principle, performs active portfolio monitoring and invests in
continuous enhancement of its risk management systems and processes.
While the TBC PLC Directors believe TBC currently has sufficient liquidity to meet its obligations,
liquidity risk is inherent in banking operations and can be heightened by a number of factors, including
an overreliance on, or an inability to access, a particular source of funding, changes in credit ratings or
market-wide phenomena, such as, for example, the global financial crisis that commenced in 2007.
Since that time credit markets worldwide have experienced, and may continue to experience, a
reduction in liquidity and term-funding as a result of global economic and financial factors. The
availability of credit to companies in emerging markets in particular is significantly influenced by the
level of investor confidence and, as such, any factors that affect investor confidence (for example, a
downgrade in credit ratings, central bank or state interventions or debt restructurings in a relevant
industry) could affect the price or availability of funding for companies operating in any of
these markets.
In order to mitigate the risk, TBC Bank holds solid liquidity position. Bank performs outflow scenario
analysis for both normal and stress circumstances to make sure that they can be met by bank’s liquid
assets and cash inflows. Bank as well maintains diversified funding structure to manage funding
liquidity risk. The Directors believe that TBC has adequate liquidity to withstand significant withdrawals
of customer deposits, but the unexpected and rapid withdrawal of a substantial amount of deposits
could have a material adverse effect on TBC’s business, financial condition, and results of operations
and/or prospects.
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Why we think this is important
TBC relies heavily on information systems to conduct its business. TBC’s information technology
systems and the ability of those systems to keep pace with the expansion of TBC’s business operations
are crucial for TBC to meet its strategic objectives of digitalisation, which entails further development
of its multi channel distribution platform, a continued shift towards more universal digitalised channels
and an agile project management system, and is heavily influenced by the proper functioning and
development of information technology systems. TBC’s award-winning multi channel distribution
platform, which the Directors believe is one of TBC’s distinguishing characteristics in the market,
depends heavily on information systems, particularly its remote access channels such as internet
banking and mobile banking. This platform represents a significant investment by TBC and is key to
TBC’s strategies of optimising costs and strengthening its brand name in the market. TBC is
increasingly reliant on remote distribution channels, and in 2015, 91% of TBC’s non-cash transactions
were conducted through remote channels (2014: 90%). Any significant or sustained disruption to TBC’s
information technology systems that impacts these remote distribution channels may affect TBC’s
reputation with banking customers, which could damage TBC’s brand and position in the Georgian
banking market.
TBC’s banking operations in Georgia use the local Georgian core banking system, heavily
complemented by in-house developed solutions. All of TBC’s information systems are centralised,
focused on customer needs and highly customised to TBC’s business requirements.
Like many other companies, TBC is exposed to operational risk resulting from inadequacy or failure of
internal processes or systems or from external events. This includes the risk of loss due to employees’
lack of knowledge or wilful violation of laws, rules and regulations or other misconduct. Misconduct by
employees happens in the financial services industry and could involve, among other things, the
improper use or disclosure of confidential information, violation of laws and regulations concerning
financial abuse and money laundering, or embezzlement and fraud, any of which could result in
regulatory sanctions or fines as well as serious reputational or financial harm. Misconduct by
employees, including violation of TBC’s own internal risk management policies, could also include
binding TBC to transactions that exceed authorised limits or present unacceptable risks, or hiding
unauthorised or unsuccessful activities, which, in either case, may result in unknown and unmanaged
risks and losses. Furthermore, any failure or interruption in, or breach of security of, TBC’s information
technology systems could result in failures or interruptions in TBC’s risk management, deposit
servicing or loan origination systems or errors in its accounting books and records.
TBC maintains a system of controls, developed with external consultants and based on Basel II/III
requirements, that is designed to monitor and control operational risk, and Management regularly
reviews and updates its operational risk processes and procedures. TBC has taken appropriate
measures to prevent recurrence of common types of fraud. Bank has back-up systems in place,
including central databases, core files and registry settings and central data storages.
Most loans entered into between TBC, EBRD, FMO and IFC (together, “IFI Investors”) are subject to the
financial covenants set forth in the Common Terms Agreement and TBC is also party to other loan
agreements that also contain financial covenants. The financial covenants in the Common Terms
Agreement require TBC, in certain instances, to meet higher thresholds than are required under
applicable Georgian banking regulations or to comply with additional financial metrics, such as loan to
deposit ratios, net stable funding ratios and other ratios governing overdue and non-performing loans.
Whilst TBC has otherwise remained in compliance with all applicable financial covenants in the
Common Terms Agreement and its other loan agreements, a failure by TBC to comply with these
covenants in the longer term may constitute a default under the relevant agreements and could cause
cross-defaults under, and potential acceleration of, certain of TBC’s other indebtedness which could, in
turn, materially adversely affect TBC’s business, financial condition, results of operations
and/or prospects.
TBC has in place comprehensive system of covenant compliance reporting which is monitored by both
senior management and Supervisory Board.
TBC’s operations and
strategic plans could be
impaired by a failure of its
information systems.
TBC is subject to
operational risk inherent to
its business activities.
TBC is subject to financial
covenants in its debt
agreements, the breach of
which may cause TBC to be
in default under those
agreements.
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Why we think this is important
Capital adequacy and
regulatory ratios may
constrain TBC’s profitability
and/or growth.
TBC is required by the NBG, and the terms of various of its funding and other arrangements, to comply
with certain capital adequacy ratios and other ratios. TBC’s capital adequacy levels could be affected by
a number of factors, including:
• an increase of TBC’s risk-weighted assets;
• TBC’s ability to raise capital;
• losses resulting from a deterioration in TBC’s asset quality, a reduction in income levels, an increase
in expenses or a combination of all of the above;
• a decline in the values of TBC’s securities portfolio;
• changes in accounting rules or in the guidelines regarding the calculation of the capital adequacy
ratios; and
• increases in minimum capital adequacy ratios imposed by the NBG.
Although the Directors believe that TBC currently has adequate capital, TBC may need to raise
additional capital in the future. TBC’s ability to raise capital may be limited by numerous factors,
including general economic and financial conditions, the availability of funding in the capital markets,
investor confidence, sentiment towards the Georgian economy and the credit rating and financial
condition, performance and/or prospects of TBC. There can be no assurance that it will be able to
obtain such capital on favourable terms, in a timely manner. In addition, NBG has the right to impose a
capital buffer on banks. Should the NBG impose additional capital buffers or other requirements, there
is no assurance that TBC would be able to maintain the same level of return on equity.
In order to be able to meet unexpected losses TBC has comfortable level of capital adequacy.
Additionally, bank performs forward-looking capital management that incorporates both current and
planned risk profile as well as planned growth strategy. TBC maintains solid track record of
performance and risk management in order to ease its access to capital.
TBC’s businesses are
subject to substantial
regulation and oversight
and future changes in
regulation, fiscal or other
policies are difficult to
predict.
TBC’s banking operations in Georgia are required to comply with Georgian banking regulations. In
addition to mandatory capital adequacy ratios, the NBG sets lending limits and other economic ratios
for banks in Georgia. Under Georgian banking regulations, TBC Bank is required to, among other
things, comply with minimum reserve requirements and mandatory financial ratios and regularly file
periodic reports. In addition to its banking operations, TBC also provides other regulated financial
services and offers financing products, including leasing products and brokerage services, which are
subject to governmental supervision. Furthermore, if regulations change or if TBC expands its
businesses, TBC may become subject to additional rules and regulations at a national, international or
supranational level, which may impact TBC’s operations.
On 3 September 2015, a new set of amendments were introduced to the Georgian banking legislation,
including to the NBG Law and Banking Law, which transferred the banking and non-banking
supervision from the NBG to the Financial Supervisory Agency (“FSA”). The amendments were
criticised, including by Georgian commercial banks, and they were also claimed to be unconstitutional
and violating the EU Association Agreement. The parliament of Georgia overturned the Presidential
veto on the bill, but on 12 October 2015 the Constitutional Court of Georgia accepted the claim on
constitutionality of the bill and suspended its applicability. While the Constitutional Court is hearing the
case, the relevant laws remain in force as they were before the introduction of the Financial
Supervisory Agency and the NBG remains responsible for supervision and monitoring of the financial
sector. The regulatory regime of the banking sector may undergo various changes if the Constitutional
Court decides that the amendments comply with the Constitution of Georgia. Any such changes may
have a disruptive effect on the effectiveness of current regulations, which could have an adverse effect
on TBC’s business, financial condition, results of operations and/or prospects.
TBC actively monitors regulatory developments in order to avoid any potential incompliance.
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Why we think this is important
Breaches of the terms of
TBC’s banking licences may
inhibit or prevent TBC’s
ability to conduct its
banking operations.
All banking operations and some ancillary financial services in Georgia require licences from or
registration with the NBG (or in the case of TBC Kredit, TBC Bank’s subsidiary in Azerbaijan, the Central
Bank of Azerbaijan). Although TBC’s entities have such licences, there is no assurance that TBC’s
entities will be able to maintain such licences or obtain new licences if necessary in the future. Licensed
entities in Georgia are subject to the NBG’s supervision and are required to comply with mandatory
requirements. Non-compliance with mandatory requirements may lead to revocation of licences.
TBC actively manages its compliance risk and maintains constructive relations with regulator which is
based on healthy dialogue principle. Bank strives to run full compliance policy to avoid any potential
breaches of regulatory requirements.
Given the high level of interdependence between financial institutions, TBC is and will continue to be
subject to the risk of deterioration of the commercial and financial soundness, or perceived soundness,
of other financial services institutions. Within the financial services industry, the default of any one
institution could lead to defaults by other institutions. Concerns about, or a default by, one institution
could lead to significant liquidity problems, losses or defaults by other financial institutions and
intermediaries, as was the case after the bankruptcy of Lehman Brothers in 2008, given the credit,
trading, clearing and other relationships and interactions. Even the perceived lack of creditworthiness
of, or questions about, a counterparty could lead to market-wide liquidity problems and losses or
defaults by TBC or by other institutions. This risk is sometimes referred to as “systemic risk” or
“contagion”. Systemic risk could have a material adverse effect on TBC’s ability to raise new funding
and on its business, financial condition, results of operations, liquidity and/or prospects.
A default by, or even concerns about the creditworthiness of, one or more financial services institutions
could therefore lead to further significant systemic liquidity problems, or losses or defaults by other
financial institutions and could have a material adverse effect on TBC’s business, financial condition,
results of operations and/or prospects.
In order to mitigate the risk, TBC actively manages its reputational risk. TBC’s business model is built
on public trust and therefore aims to ensure that no activities are undertaken which may result in an
adverse reputational impact. Management believes that one of TBC’s key strengths is its well-known
and trusted brand, and is consequently very protective of the strong reputation that TBC has developed
on the market. Hence the maintenance of a strong reputation is considered to be a goal of highest
priority and importance and reputation risk awareness and management is embedded throughout the
Bank including all business units and responsibility levels.
TBC is subject to laws regarding money laundering and the financing of terrorism, as well as laws that
prohibit TBC and its employees from making improper payments or offers of payment to foreign
governments and their officials and political parties for the purpose of obtaining or retaining business,
including the UK Bribery Act 2010. Monitoring compliance with anti-money laundering and anti-bribery
rules can put a significant financial burden on banks and other financial institutions and requires
significant technical capabilities. TBC may not be able to predict the nature, scope or effect of future
regulatory requirements to which it might be subject or the manner in which existing laws might be
administered or interpreted.
Directors believe that TBC’s current policies and procedures are sufficient to comply with applicable
anti-money laundering, anti-bribery and sanctions rules and regulations. No TBC Group Company has
been accused, named or cited in connection with any occurrences of money laundering, financing of
terrorist activity, fraud, or other corrupt or illegal purpose transactions or breaches of Georgian laws
prohibiting such activities. Improvements in AML management are undergone continuously. For
instance, TBC Bank has in recent years introduced new software, updated its internal processes,
regulations and staff training relating to anti-money laundering compliance intended to prevent the
recurrence of such reporting violations in the future.
TBC could be negatively
affected by a deterioration
in the soundness or a
perceived deterioration in
the soundness of other
financial institutions and
counterparties.
TBC’s measures to prevent
money laundering may not
be effective in all
material respects.
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Why we think this is important
TBC’s success depends on
its ability to recruit and
retain key personnel.
To meet business challenges and retain the effectiveness of its operations, TBC must continue to
recruit and retain appropriately skilled personnel. TBC’s ability to continue to retain, motivate and
attract qualified and experienced banking and management personnel is vital to TBC’s business. This
may require TBC to increase salaries and other employee benefits, which would increase TBC’s staff
costs and expenses and decrease profitability.
TBC’s insurance policies
may not cover, or fully
cover, certain types of
losses.
Directors believe that TBC is one of the most attractive employers in the market based on high
employee satisfaction and engagement results. TBC’s current senior management team includes a
number of persons that the Directors believe contribute significant experience and expertise in banking
and ancillary financial services in Georgia, and TBC relies on these persons for the implementation of
its strategy and the operation of its day-to-day activities.
TBC generally maintains insurance policies covering its assets, operations and certain employees in
line with general business practices in Georgia, with policy specifications and insured limits, which the
Directors believe are adequate. Risks that Group entities are insured against generally include
employee dishonesty, electronic crime, natural disasters, theft, vandalism and third-party liability. TBC
also maintains bankers’ blanket bond and Directors’ and officers’ insurance. However, there can be no
assurance that all types of potential losses are insured or that policy limits would be adequate to cover
them. Furthermore, the scope of insurance policies maintained by and available to TBC may vary from
that of insurance policies typically maintained by financial institutions in more developed economies.
Any uninsured loss or a loss in excess of insured limits could adversely affect TBC’s existing
operations, which could, in turn, have a material adverse effect on TBC’s business, financial condition,
and results of operations and/or prospects.
In order to mitigate the risk, insurance policies are reviewed regularly and updated when required so.
TBC and Georgia may not
be able to maintain their
credit ratings.
There can be no assurance that TBC Bank or Georgia will be able to maintain these credit ratings, and
any deterioration in the general economic environment or TBC’s financial condition could cause
downgrades which could adversely affect TBC’s liquidity and competitive position, undermine
confidence in TBC, increase its borrowing costs and limit its access to capital markets, any of which
could have a material adverse effect on TBC’s business, financial condition, results of operations and/
or prospects.
In order to mitigate the risk, TBC bank places significant importance on operating with standards that
do not compromise its current rating but on contrary advances its practices towards higher grade of
credit rating. Various stakeholder perspectives are incorporated into benchmarking exercises
throughout forming of Bank’s strategic and risk targets.
TBC is reliant on its brand
and therefore there are
reputational risks which
could cause harm to TBC
and its business prospects.
The success of TBC’s strategy relies significantly on the strength and appeal of TBC’s brand and
reputation with customers in the markets in which it operates. Any circumstance that causes real or
perceived damage to the TBC brand could have a material adverse effect on TBC’s ability to retain
customers and attract new customers. An inability by TBC to manage the risks to the TBC brand could
have a material adverse effect on TBC’s business, financial condition, results of operations and/or
prospects. However, the Directors believe that TBC’s brand provides it with a key competitive advantage
and continuously invests in maintenance of its strong reputation.
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Why we think this is important
Changes in TBC’s accounting
policies or in accounting
standards could materially
affect how it reports its
financial condition and
results of operations.
From time to time, the International Accounting Standards Board (the “IASB”) and/or the European
Union change the IFRS that govern the preparation of TBC’s financial statements. These changes can
be difficult to predict and could materially affect how TBC records and reports its financial condition
and results of operations. In some cases, TBC could be required to apply a new or revised standard
retrospectively, resulting in restating prior period financial statements. For example, changes to IFRS
9, Financial Instruments: Recognition and Measurement are expected to impact TBC and are expected
to have a material effect on TBC’s financial statements, but this effect has not yet been quantified as
revisions to the standard are still being proposed and no mandatory effective date has been set. The
IASB may make other changes to financial accounting and reporting standards that govern the
preparation of TBC’s financial statements, which TBC may adopt prior to the date on which such
changes become mandatory if determined to be appropriate, or which TBC may be required to adopt.
Any such change in TBC’s accounting policies or accounting standards could materially affect its
reported financial condition and results of operations.
TBC Bank tries to conduct quantitative impact study of new standards at early stage in order to ensure
full compliance at the time of their enforcement. All major changes are communicated with the market
in details with adequate reasoning to ensure full transparency and delivery of clear communication of
future expectations.
Risks Relating to Georgia
Emerging markets such as
Georgia are generally
subject to greater risks
than more developed
markets.
Investing in securities involving emerging markets, such as Georgia, involves a higher degree of risk
than investments in securities of issuers whose businesses are in more developed markets. These
higher risks include, but are not limited to, higher volatility, limited liquidity, a narrow export base,
current account and budget deficits, currency volatility and changes in the political, economic, social,
legal and regulatory environment. Emerging economies, such as the Georgian economy, are subject to
rapid change and are vulnerable to market conditions and economic downturns elsewhere in the world.
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Why we think this is important
Disruptions in Georgia’s
neighbouring markets have
had, and may continue to
have, a material adverse
effect on emerging markets
and on Georgia.
The economy of Georgia is dependent on the economies of other countries within the region. Any
economic disruptions or crises in Georgia’s neighbouring markets, such as the recent conflict between
Russia and Ukraine resulting in the deterioration of these countries’ economies, may have a material
adverse effect on Georgia’s economy. Any changes in the ability of Georgian manufacturers to access
world export markets or any significant deterioration in relations between Azerbaijan and Armenia may
have a negative effect on the economic stability of Georgia, which, in turn, could have a material
adverse effect on TBC’s business, financial condition, results of operations and/or prospects.
Regional tensions could
have a material adverse
effect on the Georgian
economy.
Although Georgia is not an oil producing country, the country historically received large foreign
currency inflows from its oil producing neighbouring countries as Russia, Azerbaijan and Kazakhstan,
mainly through money transfers, exports, tourism and foreign direct investment. Further declines in oil
prices that weaken oil driven economies in the region could have a material adverse effect on Georgia
and consequently on TBC’s business, financial condition, results of operations and/or prospects.
Since the restoration of its independence in 1991, Georgia has had ongoing disputes in the Abkhazia and
the Tskhinvali Region/South Ossetia regions, and with Russia. These disputes have led to sporadic
violence and breaches of peace-keeping operations. Russia began imposing economic sanctions on
Georgia beginning in early 2006, and these tensions escalated during the August 2008 conflict in the
Tskhinvali Region/South Ossetia region between Georgian troops and local militias and Russian forces
that crossed the international border. Georgia’s economy was negatively affected by this conflict. Since
the conflict in 2008, Russia has had no diplomatic relations with Georgia and tensions between the
countries remain.
Geopolitical tensions between Ukraine and Russia may also have an adverse impact on the Georgian
economy. Tensions have also recently increased between Russia and Turkey, both of which share a
border with Georgia. This significantly damaged Russo-Turkish relations and resulted in the imposition
by Russia of economic sanctions on Turkey, further raising tensions in the region.
Any worsening of relations between Ukraine and Russia or between Russia and Turkey, any future
deterioration or worsening of Georgia’s relationship with Russia, including as a result of major changes
in Georgia’s relations with Western governments and institutions (particularly regarding national
security), changes in Georgia’s importance to Western energy supplies, changes in the amount of aid
granted to Georgia or the ability of Georgian manufacturers to access world export markets, may have
a negative effect on the political or economic stability of Georgia, which could, in turn, have a material
adverse effect on TBC’s business, financial condition, results of operations and/or prospects, as well as
the trading price of the shares.
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The risk of political
instability in Georgia could
have a material adverse
effect on TBC’s business.
Weaknesses relating to the
Georgian legal system may
create an uncertain
environment for investment
and business activity in
Georgia.
Since the restoration of its independence in 1991, Georgia has undergone a substantial political
transformation from a constituent republic in a federal socialist state to an independent sovereign
democracy. Although the current government under Prime Minister Giorgi Kvirikashvili is generally
seen to be business and investor friendly and to date has remained committed in principle to major
economic and fiscal policies designed to liberalise the Georgian economy, various legislative initiatives
discussed in the Georgian parliament have been subject to criticism by the business community.
Government initiatives intended to promote a free market economy and freedom of the private sector
under effective and transparent government include a recently established competition agency, the
development of arbitration and a public-private partnership in the economy in order to increase the role
of the private sector and effective management of the resources of the public sector. No assurance can
be given that the Government plans will be implemented as announced. Furthermore, implementation
of Government strategy may result in various changes in the regulatory environment of TBC, which may
have negative effect on TBC’s business, financial condition and/or prospects.
There can be no assurance that the Government will be able to maintain political and civil stability or
that reform and economic growth will not be hindered as a result of any such events. Any of the events
referred to above could have negative effects on the economy in Georgia, which could, in turn, have a
material adverse effect on TBC’s business, financial condition, results of operations and/or prospects,
as well as the trading price of the shares.
Georgia is continuously developing an adequate legal framework required for the proper functioning of
a market economy. Several fundamental Georgian civil, criminal, tax, administrative and commercial
laws are frequently amended as per the legislative standards of continental Europe. Moreover, as a
result of the conclusion of the EU-Georgia Deep and Comprehensive Free Trade Agreement (“DCFTA”),
Georgia’s laws and enforcement standards will have to be fully harmonised with the EU standards. As a
result of changes in recent years, Georgian laws became especially investor-friendly, particularly in
terms of starting a business, registering property, paying taxes and enforcing contracts. Georgia is
highly ranked with regards to factors such as absence of corruption in the public sector and judiciary,
order and security, regulatory enforcement and civil justice. Despite these favourable features of the
Georgian judicial system, judges and courts in Georgia are generally less experienced in the area of
business and corporate law than judges and courts in certain other countries, particularly the United
States and EU countries. Georgia’s future attempts on harmonisation towards the EU standards may be
unsuccessful and may create further uncertainties in the Georgian judicial system, which could have a
negative effect on overall economic conditions in Georgia and in turn, have a material adverse effect on
TBC’s business, financial condition, results of operations and/or prospects, as well as on the trading
price of the Shares.
The uncertainties of the
Georgian tax system could
have a material adverse
effect of TBC’s business.
In Georgia, tax laws have not been in force for significant periods of time compared to more developed
market economies, and often result in unclear or non-existent implementing regulations. Moreover,
such tax laws are subject to frequent changes and amendments, which can result in unusual
complexities for TBC and its business generally.
In addition, Georgia faces difficulties in ensuring the impartiality of its court system with respect to tax
claims, especially when large amounts are being contested by tax payers. The inability of the Georgian
court system to constrain properly the tax authorities in connection with certain tax matters has been
notorious over the past several years, especially prior to the change in the Government in 2012.
Although certain steps are being taken to remedy the current situation, there can be no assurance that
such practices will not continue in the future, which could have a material adverse effect on TBC’s
business, financial condition, results of operations and/or prospects, as well as the trading price of
the shares.
50
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
51
BREAKTHROUGH BRANCH DESIGN CONCEPT
In 2015, TBC Bank launched a redesigned branch
concept, created in partnership with Allen
International, a strategic design consultancy
focused on financial services. The new design
reflects TBC Bank’s welcoming, user-friendly,
and transparent approach to banking and
leverages the Bank’s strength in multichannel
banking, cutting-edge e-banking tools and
technology. The innovative design minimises
physical and psychological barriers between the
Bank and its customers, thus creating a unique,
customer-centric layout.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
FINANCIAL HIGHLIGHTS
FY 2015 P&L Highlights
• Profit up by 38.0% YoY to GEL 218.7 million
• TBC Bank delivered a return on average equity (ROAE) of 20.1% and a
return of average assets (ROAA) of 3.4%
• Total operating income up by 25.9% YoY to GEL 577.0 million
• Cost to income ratio improved to 43.9%, compared to 49.4% in 2014
• Cost of risk on loans stood at 1.7%, up by 0.1pp YoY
• Net interest margin (NIM) at 7.8% in 2015, compared to 8.5% in 2014
Balance Sheet Highlights 31 December 2015
• Total assets reached GEL 6,935.0 million up by 27.9% YoY
• Gross loans and advances to customers increased to GEL 4,639.0 million,
up by 25.2% YoY (8.1% at constant currency)
• Net loans to deposits + IFI funding stood at 95%
• Net Stable Funding Ratio (NSFR) at 116%
• NPLs1 stood at 4.8%, up 1.7pp YoY and down 0.2pp QoQ
• NPLs coverage stood at 87.4%, (209.9% with collateral), compared to
130.5% as of YE 2014
• Total customer deposits stood at GEL 4,177.9 million up by 25.7% YoY (by
6.5% w/o currency exchange rate effect)
• Tier 1 and Total Capital Adequacy Ratios per Basel II/III stood at 12.8%
and 16.0% respectively
• Tier 1 and Total Capital Adequacy Ratios per Basel I stood at 24.7% and
31.0% respectively
MARKET SHARES, 31 DECEMBER 20152
• Total Assets: 26.7%, up by 0.4pp YoY
• Total Loans: 28.7%, up by 1.1pp YoY
• Loans to Individuals: 31.6%, up by 1.8pp YoY
• Loans to Legal Entities: 26.2%, up by 0.4pp YoY
• Total Deposits: 29.0%, up by 0.6pp YoY
• Deposits of Individuals: 34.3%, up by 0.6pp YoY and maintaining
longstanding leadership on the market
• Deposits of Legal Entities: 23.4%, up by 0.4pp YoY. The Bank uses
deposits of legal entities mainly for liquidity management purposes
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
FY 2015 Return on Average Equity (ROAE)
20.1%
FY 2015 Return on Average Assets (ROAA)
3.4%
FY 2015 Cost to income ratio
43.9%
FY 2015 Net Interest Margin (NIM)
7.8%
Tier 1 Capital Adequacy Ratio (CAR)
12.8%
per Basel II/III
1. For the definition of and additional information on NPLs see page 60.
2. Market shares’ figures are based on data from the National Bank of
Georgia (NBG) reporting standards.
52
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
RESULTS OVERVIEW FY 2015 AND Q4 2015
Income Statement Highlights
In thousands of GEL
31-Dec-15
31-Dec-14
Change in %
Q4'15
Q3'15
Q4'14
Change YoY
Change QoQ
Net interest income
Net fee and commission income
Other operating non-interest income
Provisioning charges
Operating income after provisions for
impairment
Operating expenses
Profit before tax
Income tax expense
Profit for the period
412,173
72,291
92,528
(75,991)
338,648
58,682
61,004
(49,104)
501,002
(253,130)
247,872
409,229
(226,310)
182,919
(29,176)
(24,468)
218,697
158,451
21.7%
23.2%
51.7%
54.8%
22.4%
11.9%
35.5%
19.2%
38.0%
106,519
19,807
30,636
(5,318)
107,419
17,644
18,269
(23,415)
92,276
17,620
22,416
(18,652)
151,644
(77,394)
74,251
119,917
(62,085)
57,831
113,659
(67,694)
45,965
(7,331)
(7,226)
(5,940)
66,920
50,605
40,026
15.4%
12.4%
36.7%
-71.5%
33.4%
14.3%
61.5%
23.4%
67.2%
Balance Sheet and Capital Highlights
-0.8%
12.3%
67.7%
-77.3%
26.5%
24.7%
28.4%
1.4%
32.2%
Change
YoY
27.9%
25.2%
25.7%
19.5%
19.6%
19.7%
21.7%
18.7%
31-Dec-15
30-Sep-15
GEL
USD
GEL
USD
6,935.0
4,639.0
4,177.9
1,218.4
1,157.0
4,679.8
953.4
7,476.5
2,899.1
1,937.0
1,744.5
508.8
483.1
1,958.8
398.1
3,121.8
6,936.4
4,560.0
4,286.2
1,131.9
1,085.1
4,630.2
879.1
7,305.8
2,912.5
1,914.7
1,799.7
475.3
455.6
1,944.2
369.1
3,067.6
Change
QoQ
0.0%
1.7%
-2.5%
7.6%
6.6%
1.1%
8.4%
2.3%
31-Dec-14
GEL
USD
5,423.5
3,706.3
3,322.4
1,019.5
967.5
3,910.8
783.4
6,296.7
2,910.2
1,988.8
1,782.8
547.0
519.2
2,098.5
420.3
3,378.8
31-Dec-15
31-Dec-14
Change YoY
Q4'15
Q3'15
Q4'14
Change YoY
Change QoQ
20.1%
3.4%
27.1%
43.9%
1.7%
1.0%
31.0%
16.0%
5.7
18.4%
3.3%
24.2%
49.4%
1.6%
0.5%
30.4%
15.0%
5.3
1.7%
0.1%
2.9%
-5.5%
0.1%
0.5%
0.5%
1.0%
0.4
23.1%
3.9%
24.9%
49.3%
0.2%
1.0%
31.0%
16.0%
5.7
18.2%
3.1%
26.7%
43.3%
2.0%
1.2%
28.6%
14.8%
6.1
16.0%
3.1%
23.5%
51.2%
1.9%
0.5%
30.4%
15.0%
5.3
7.1%
0.8%
1.5%
-1.9%
-1.7%
0.5%
0.5%
1.0%
0.4
4.9%
0.8%
-1.8%
6.0%
-1.8%
-0.2%
2.3%
1.2%
(0.4)
53
In millions
Total assets
Gross loans
Customer deposits
Total equity
Basel I Tier 1 Capital
Basel I Risk weighted assets
Basel II/III Tier 1 Capital
Basel II/III Risk weighted assets
Key Ratios
ROAE
ROAA
Pre-provision ROAE
Cost to Income
Cost of Risk
PAR 90 to Gross Loans
Basel I Total CAR
Basel II/III Total CAR
Leverage (times)
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
INCOME STATEMENT DISCUSSION
Net Interest Income
In thousands of GEL
31-Dec-15
31-Dec-14
Change YoY
Q4'15
Q3'15
Q4'14
Change YoY
Change QoQ
Loans and advances to customers
Investment securities available for sale
Due from other banks
Bonds carried at amortised cost*
Investments in leases
582,327
20,927
7,639
22,950
15,217
465,520
30,361
6,211
0
10,265
25.1%
-31.1%
23.0%
NMF
48.2%
155,292
5,862
1,425
7,803
3,791
150,634
3,905
1,395
7,779
4,298
124,022
7,676
1,949
0
3,133
25.2%
-23.6%
-26.9%
NMF
21.0%
Interest income
649,059
512,357
26.7%
174,172
168,011
136,780
27.3%
Customer accounts
Due to credit institutions
Subordinated debt
Debt Securities in issue
Other
Interest expense
Net interest income
137,489
70,834
26,363
2,105
94
110,041
43,384
19,069
928
287
24.9%
63.3%
38.2%
126.8%
-67.1%
36,156
23,482
7,438
550
28
34,854
18,472
6,737
529
0
28,075
10,771
5,136
436
86
236,885
173,709
36.4%
67,654
60,592
44,505
412,173
338,648
21.7%
106,519
107,419
92,276
28.8%
118.0%
44.8%
26.0%
-67.4%
52.0%
15.4%
3.1%
50.1%
2.1%
0.3%
-11.8%
3.7%
3.7%
27.1%
10.4%
4.1%
NMF
11.7%
-0.8%
Net interest margin
7.8%
8.5%
-0.7%
7.4%
7.9%
8.5%
-1.1%
-0.5%
*
Investment securities which the Group intends to hold for an indefinite period and which may be sold in response to needs for liquidity or changes in interest rates,
exchange rates or equity prices have been classified as available for sale investments in the financial statements for the year ended 31 December 2014. In 2015 the
Group has reassessed its intention with regard to some of the securities under this category and has identified certain investments that the Group has both the
intention and ability to hold to maturity and has reclassified them into bonds carried at amortised cost due to the fact that transactions for such securities do not take
place with sufficient frequency and volume to provide pricing information on an ongoing basis. Such bonds are carried at amortised cost.
Performance Commentary
2015 compared to 2014
In 2015, net interest income grew by 21.7% YoY to GEL 412.2 million, resulting from the 26.7% higher interest income and 36.4% higher
interest expense.
The 26.7% YoY increase in interest income to GEL 649.1 million was mainly driven by the increase in interest income from loans to
customers, primarily related to the gross loan portfolio increase by 25.2% YoY, or by 8.1% at constant currency. The increase in interest
income related to the loan portfolio growth more than offset the decline in loan yields over the same period to 13.6%, from 14.9%, due to
the declining interest rates in the country (despite the increased rates on GEL refinancing rate linked loans) and the currency depreciation.
The increase in interest income was also supported by the increase in interest income from investment securities (comprising both
investment securities available for sale and bonds carried at amortised cost) by GEL 13.5 million, or 44.5% YoY. This was primarily due to
the increase in yields on such securities mainly related to the gradual increase of the refinancing rate in the country from 4.0% to 8.0%
during 2015. The decline in loan yields led to the decrease in yields on average interest earning assets to 12.3%, compared to 12.8% in 2014.
In the reporting period, the interest expense increased by 36.4% YoY to GEL 236.9 million, mainly due to higher interest expense on
customer accounts and other borrowed funds. The increase in interest expense on customer accounts was primarily driven by the 25.7%
increase in the respective portfolio, or 6.5% at constant currency, which more than offset the decrease in cost of client deposits of 0.2pp to
3.5% in 2015. The increase in interest expense on other borrowed funds was primarily due to the increased amount of the respective
portfolio and the increased rates on Lari-denominated borrowings mainly related to the refinancing rate increase during the period, which
in turn more than offset the decreased rates on USD denominated borrowings by 0.7pp. As a result, the Bank’s cost of funding ratio
remained unchanged on a year-on-year basis at 4.6% in 2015.
Consequently, NIM was 7.8% in 2015, compared to 8.5% in 2014. Overall, the currency depreciation effects mentioned above had 0.3pp
decrease effect on NIM. The negative effect on NIM due to excess liquidity was 0.4%.
Q4 2015 compared to Q4 2014
In Q4 2015, net interest income increased by GEL 14.2 million, or 15.4% YoY to GEL 106.5 million, as a result of a GEL 37.4 million, or 27.3%,
increase in interest income and a GEL 23.1 million, or 52.0%, increase in interest expense, compared to Q4 2014.
54
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
The GEL 37.4 million growth in interest income mainly resulted from a GEL 31.3 million increase, or 25.2%, in interest income from loans,
which in turn was due to the increase in the loan portfolio. The increase in interest income related to the loan portfolio growth was partially
offset by the decrease in loan yields to 13.6%, from 14.3%, resulting from the currency depreciation and the declining loan yields in the
country (despite the increased rates on GEL refinancing rate linked loans). The increase in interest income was also driven by the increase
in interest income from investment securities by GEL 6.0 million, mainly driven by the increased yields on such securities, as described
above. As a result, yields on average interest earning assets decreased to 12.1%, compared to 12.6% in Q4 2014.
The YoY increase in interest expense by GEL 23.1 million, or 52.0%, was primarily attributable to the increased interest expense on other
borrowed funds and customer deposits by GEL 12.1 million and GEL 8.1 million, respectively. The increase in interest expense on other
borrowed funds was due to the increased interest expense on other borrowed funds primarily related to the increased GEL borrowings and
the higher cost of GEL-denominated borrowings, mainly resulting from the refinance rate increase. The increase in interest expense on
customer deposits was primarily due to the increase in the respective portfolio, which was partially offset by the decrease in deposits rates
of 0.1pp YoY to 3.4%.
As a result, NIM decreased to 7.4% in Q4 2015, compared to 8.5% in the same quarter in 2014. Overall, the currency depreciation effects
mentioned above had 0.4pp a decrease effect on NIM. The negative effect on NIM due to excess liquidity was 0.3%.
Q4 2015 compared to Q3 2015
On a QoQ basis, net interest income decreased by GEL 0.9 million, or 0.8%, as a result of a 6.2 million, or 3.7%, higher interest income and
GEL 7.1 million, or 11.7%, higher interest expense.
The GEL 6.2 million QoQ increase in interest income mainly resulted from the increase in interest income on loans by GEL 4.7 million,
which in turn was due to the 1.7% increase in the loan portfolio. The increase in interest income was also driven by an increase in interest
income from investment securities by GEL 2.0 million, mainly driven by the increase in its yields by 1.1pp to 8.5%.
The GEL 7.1 million, or 11.7% QoQ, increase in interest expense was primarily due to the increase in interest expense on other borrowed
funds by GEL 4.6 million, or 26.7%, resulting from the increased GEL borrowings in the total borrowings and the higher cost of GEL-
denominated borrowings, mainly related to the refinance rate increase as well as the early prepayment fees of FMO loans. The slight QoQ
increase in interest expense on customer deposits was mainly due to the increase in the respective average portfolio.
Consequently, on a QoQ basis, NIM declined by 0.5pp to 7.4%.
Fee and Commission Income
In thousands of GEL
31-Dec-15
31-Dec-14
Change in %
Q4'15
Q3'15
Q4'14
Change YoY
Change QoQ
Card operations
Settlement transactions
Guarantees issued
Issuance of letters of credit
Cash transactions
Foreign exchange operations
Other
49,424
31,218
8,949
5,859
10,930
1,410
6,048
35,247
23,893
9,140
6,889
6,507
1,169
5,359
40.2%
30.7%
-2.1%
-15.0%
68.0%
20.6%
12.9%
13,964
9,225
2,611
1,396
3,122
306
1,944
12,821
7,968
2,037
1,321
2,810
277
1,512
10,723
6,653
2,665
1,954
2,121
308
1,773
30.2%
38.7%
-2.0%
-28.6%
47.2%
-0.5%
9.6%
Fee and commission income
113,837
88,204
29.1%
32,567
28,745
26,198
24.3%
Card operations
Guarantees received
Cash transactions
Settlement transactions
Foreign exchange operations
Letters of credit
Other
Fee and commission expense
Net fee and commission income
27,169
957
2,707
3,904
5
2,208
4,597
16,053
1,173
2,592
2,594
62
2,988
4,061
41,546
29,523
72,291
58,682
69.2%
-18.4%
4.4%
50.5%
-92.0%
-26.1%
13.2%
40.7%
23.2%
8,778
187
561
1,273
1
532
1,427
12,760
19,807
6,990
366
858
1,123
1
593
1,169
5,151
287
635
877
16
663
949
11,101
8,578
17,644
17,620
70.4%
-34.9%
-11.6%
45.2%
-95.3%
-19.8%
50.3%
48.7%
12.4%
8.9%
15.8%
28.2%
5.7%
11.1%
10.4%
28.6%
13.3%
25.6%
-49.0%
-34.6%
13.3%
-24.1%
-10.3%
22.1%
14.9%
12.3%
55
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
2015 compared to 2014
In 2015, net fee and commission income amounted to GEL 72.3 million, up by GEL 13.6 million, or by 23.2%, compared to 2014. This increase
resulted mainly from a GEL 6.0 increase in net fee and commission income from settlement transactions, a GEL 4.3 million from cash
transactions and a GEL 3.1 million from card operations, mainly driven by the increased scale of operations. The increase in net fee and
commission income was also affected by the currency devaluation. Nominal growth in net fee and commission income also reflects the
fact that that fee income is less linked to foreign currency linked than the fee expense. Without the exchange rate effect, net fee and
commission income would have increased by GEL 7.0 million, or 11.7% YoY.
Q4 2015 compared to Q4 2014
In Q4 2015, net fee and commission income reached GEL 19.8 million, up by GEL 2.2 million, or 12.4%, compared to Q4 2014. This resulted
mainly from an increase in net fee and commission income from settlement transactions by GEL 2.2 million, and cash transaction by GEL
1.1 million. These increases were partially offset by the drop in net fee and commission income from issuance of letters of credit and card
operations, each by GEL 0.4 million. The increase in net fee and commission income was also affected by the devaluation; without the
exchange rate effect, net fee and commission income would have increased by GEL 0.1 million, or by 0.3% YoY. Nominal growth in net fee
and commission income also reflects the fact that that fee income is less linked to foreign currency than the fee expense.
Q4 2015 compared to Q3 2015
On a QoQ basis, net fee and commission income increased by GEL 2.2 million, or 12.3%, compared to Q3 2015, primarily driven by
the increased net fee and commission income from settlement transactions, guarantees and issuance of letters of credit, and cash
transactions. These increases were partially offset by the decrease in net fee and commission income from card operations by
GEL 0.6 million due to reclassification of loyalty programme points, from administrative expenses to fee expenses which more than offset
the increase in fee income (without the reclassification effect, the net fee and commission income from card operations would have
increased by GEL 0.5 million).
Other Operating Non-interest Income
In thousands of GEL
31-Dec-15
31-Dec-14
Change in %
Q4'15
Q3'15
Q4'14
Change YoY
Change QoQ
Gains less losses from trading in foreign
currencies and foreign exchange
translations
Gains less losses/(losses less gains)
from derivative financial instruments
Revenues from cash-in terminal services
Revenues from operational leasing
Gain from sale of investment properties
Gain from sale of inventories of
repossessed collateral
Administrative fee income from
international financial institutions
Revenues from non-credit related fines
Gain from sale of financial option
Gain on disposal of premises and
equipment
Other
Other operating income
Other operating non-interest income
67,221
42,090
59.7%
18,447
13,712
15,782
16.9%
34.5%
(575)
777
8,539
4,896
(683)
851
6,997
5,795
-15.8%
-8.6%
22.0%
-15.5%
1,836
1,644
11.6%
708
286
4,692
118
4,031
25,883
92,528
982
236
0
126
2,966
19,598
61,004
-27.9%
21.2%
NMF
-7.0%
35.9%
32.1%
51.7%
276
237
1,590
4,516
371
158
218
4,692
19
112
11,912
(362)
173
2,349
194
530
216
14
0
75
(299)
239
1,957
2,699
-192.3%
-0.7%
-18.8%
67.3%
-176.3%
37.0%
-32.3%
NMF
550
-32.7%
-30.1%
252
183
0
-37.3%
-26.9%
19.4%
NMF
NMF
NMF
41
-53.7%
-74.8%
1,367
4,919
1,012
6,934
-88.9%
71.8%
-91.8%
142.2%
30,636
18,269
22,416
36.7%
67.7%
2015 compared to 2014
Total other operating non-interest income increased by GEL 31.5 million, or by 51.7% YoY, to GEL 92.5 million in 2015. This increase was
mainly driven by a GEL 25.1 million increase in gains from trading in foreign currencies and foreign exchange translations related to
increased volumes and higher gains from relatively higher volatility of the currency exchange rate in 2015. This increase was also driven by
a gain of GEL 4.7 million from the sale of the financial option related to one corporate client, which resulted from the previous restructuring
of the loan, and the increased revenues from operational leasing.
Q4 2015 compared to Q4 2014
Total other operating non-interest income increased by GEL 8.2 million, or by 36.7% YoY, to GEL 30.6 million in Q4 2015. The is increase was
mainly driven by the gain of GEL 4.7 million from the sale of the financial option related to one corporate client mentioned above, as well as
the increased gains from trading in foreign currencies and foreign exchange translations related to relatively higher volumes and higher
gains from relatively higher volatility of the currency exchange rate in 2015.
56
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Q4 2015 compared to Q4 2015
On a QoQ basis, other operating non-interest income increased by GEL 12.4 million, or by 67.7%, primarily reflecting the GEL 4.7 million
gains from the sale of the financial option and the increase in gains from the sale of earlier foreclosed asset classified as investment
property by GEL 4.3 million. The increase in other operating non-interest income was also supported by the increased revenues from
currency exchange rate operations due to seasonally high volumes in Q4 trading in foreign currencies and foreign exchange translations.
Provision for Impairment
In thousands of GEL
Provision for loan impairment
Provision for impairment of investments in
31-Dec-15
31-Dec-14
Change in %
72,791
48,672
49.6%
Q4'15
2,055
Q3'15
Q4'14
Change YoY
Change QoQ
22,012
16,198
-87.3%
-90.7%
finance lease
967
77
NMF
344
260
-89
-484.9%
32.1%
Provision for/ (recovery of provision)
performance guarantees and credit
related commitments
Provision for impairment of other financial
assets
Impairment of investment securities
available for sale
-1,117
-902
23.9%
1,945
-3
1,875
3.7%
NMF
3,351
1,236
171.1%
974
1,145
669
45.6%
-15.0%
0
22
NMF
0
0
0
NMF
NMF
Total provision charges for impairment
75,991
49,104
54.8%
5,318
23,415
18,652
-71.5%
-77.3%
Operating income after provisions for
impairment
501,002
409,229
22.4%
151,644
119,917
113,659
33.4%
26.5%
Cost of risk
1.7%
1.6%
0.1%
0.2%
2.0%
1.9%
-1.7%
-1.8%
As of year-end (YE) 2015 the Bank introduced a revised methodology for the purpose of loan loss provisioning . The updated methodology
enables the Bank to assess impairment allowances in a more accurate manner, due to more granular segmentation of the portfolio and
introduction various risk parameters, such as cure rate, survival rate and credit conversion factor. Furthermore the Bank enhanced its
methodology for the probability of default and recovery rates estimation purposes. Probabilities of defaults are calculated based on migration
matrices for different overdue buckets within the portfolio; in the case of recovery rates, the impaired portfolio is segmented based on months
in defaults, and amounts to be recovered are estimated respectively.
The Bank has also enhanced the individually significant borrowers’ assessment methodology, with the introduction of a scenario analysis. This
approach enables the Bank to consider various probable scenarios of cash and/or collateral recoveries leading to a more precise estimation of
impairment allowance for these borrowers.
2015 compared to 2014
In 2015, total provision charges increased by GEL 26.9 million to GEL 76.0 million (or by GEL 32.5 million to GEL 81.6 million per old IFRS
methodology), compared to 2014, mainly driven by the increased charges on loans by GEL 24.1 million. This was mainly driven by the technical
increase in provisions related to the local currency devaluation. Without the devaluation effect, loan provision charges would have decreased by
GEL 7.5 million following a number of factors such as: the update of the provisioning methodology (which led to the loan provisions recovery in
the amount of GEL 7.7 million); recoveries of large corporate borrowers; and overall lower net write offs compared to the previous year.
In 2015, the cost of risk on loans was 1.7% (1.1% w/o the currency rate devaluation effect and 1.3% w/o the currency rate devaluation and IFRS
methodology change effect), compared to 1.6% in the same period of the previous year.
Q4 2015 compared to Q4 2014
In Q4 2015, total provision charges amounted to GEL 5.3 million (GEL 10.9 million per old IFRS methodology), compared to GEL 18.7 million in Q4
2014. Along with the update of the methodology, which led to recoveries of provisions mainly in retail and micro segments, the decrease was
also driven by the loan loss provision recovery of several large corporate borrowers related to either decrease of exposure, or improvement of
financial conditions. In addition, provision charges for retail segment were lower in Q4 2015 compared to that of Q4 2014, due to the better
performance of the portfolio.
In Q4 2015, the cost of risk on loans was 0.2% (0.9% per old IFRS methodology), compared to 1.9% in the same quarter of 2014.
57
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
Q4 2015 compared to Q3 2015
On a QoQ basis, total provision charges decreased by GEL 18.1 million (by GEL 12.5 million per old IFRS methodology), primarily resulting from a
GEL 20.0 million decrease (GEL 12.3 million decrease per old IFRS methodology) in loan provision charges related to the overall improvement of
portfolio credit quality compared to the previous quarter and recoveries in corporate segment related to either decrease of exposure, or
improvement of borrowers’ financial conditions.
The decrease in loan provision charges was slightly offset by the increased provision charges on performance guarantees and credit related
commitments by GEL 2.1 million resulting from the updated provisioning methodology. Consequently, cost of risk on loans decreased by 1.8pp
QoQ, or by 1.1pp per old IFRS methodology.
Further details on asset quality can be found on page 60.
Operating Expenses
In thousands of GEL
31-Dec-15
31-Dec-14
Change in %
Q4'15
Q3'15
Q4'14
Change YoY
Change QoQ
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Professional services
Advertising and marketing services
Rent
Utility services
Intangible asset enhancement
Taxes other than on income
Communications and supply
Stationery and other office expenses
Insurance
Security services
Premises and equipment maintenance
Business trip expenses
Transportation and vehicles maintenance
Charity
Personnel training and recruitment
Write-down of current assets to fair value
less costs to sell
Loss on disposal of Inventory
Loss on disposal of investment properties
Loss on disposal of premises and
equipment
Impairment of intangible assets
Other
142,777
26,286
1,102
8,418
11,451
16,468
4,501
6,062
4,598
3,433
3,471
2,301
1,622
2,959
1,589
1,328
928
1,230
-178
86
3
34
4,982
7,679
122,835
24,427
5,500
11,969
14,121
11,943
3,680
4,371
3,899
3,455
2,632
1,898
1,578
1,893
1,610
1,216
898
919
190
208
0
18
0
7,047
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Cost to income ratio
ROAE
ROAA
253,130
226,310
247,872
182,919
29,176
24,468
218,697
158,451
43.9%
20.1%
3.4%
49.4%
18.4%
3.3%
16.2%
7.6%
-80.0%
-29.7%
-18.9%
37.9%
22.3%
38.7%
17.9%
-0.7%
31.9%
21.2%
2.8%
56.3%
-1.3%
9.2%
3.4%
33.8%
-193.6%
-58.9%
NMF
86.7%
NMF
9.0%
11.9%
35.5%
19.2%
38.0%
-5.5%
1.7%
0.1%
42,445
7,347
1,102
3,464
3,627
4,319
1,262
1,886
1,204
839
1,176
382
414
973
417
359
139
462
297
22
0
34
2,862
2,361
77,394
74,251
7,331
35,025
6,638
0
1,137
2,991
4,276
1,145
1,436
1,013
801
809
600
411
628
464
362
248
282
-24
50
0
0
1,794
2,000
62,085
57,831
7,226
37,260
8,194
720
3,519
4,701
3,143
942
1,025
979
994
805
433
424
694
539
330
141
405
13.9%
-10.3%
53.1%
-1.6%
-22.8%
37.4%
34.0%
84.0%
22.9%
-15.6%
46.0%
-11.8%
-2.2%
40.3%
-22.6%
8.8%
-1.2%
14.0%
21.2%
10.7%
NMF
204.7%
21.3%
1.0%
10.2%
31.3%
18.8%
4.8%
45.3%
-36.3%
0.8%
55.1%
-10.1%
-0.8%
-43.9%
64.1%
-48
7
0
-716.4% -1324.7%
-56.5%
236.4%
NMF
NMF
5
0
2,484
67,694
45,965
5,940
NMF
NMF
-4.9%
14.3%
61.5%
23.4%
67.2%
-1.9%
7.1%
0.8%
NMF
-259.5%
18.1%
24.7%
28.4%
1.4%
32.2%
6.0%
4.9%
0.8%
66,920
50,605
40,026
49.3%
23.1%
3.9%
43.3%
18.2%
3.1%
51.2%
16.0%
3.1%
2015 compared to 2014
In 2015, total operating expenses amounted to GEL 253.1 million, up by GEL 26.8 million, or by 11.9% YoY. The increase was primarily due to
the increase in staff costs by GEL 19.9 million, or 16.2% YoY. Staff costs grew primarily due to the implementation of a new management
compensation system, a general increase in salaries, bonuses and various HR management-related costs at TBC Group level related to the
overall increase in the scale of the business. The increase in operating expenses also resulted from the one-off impairment of intangible
assets and the increase in rent expenses mainly due to the currency depreciation.
As a result, the cost to income ratio was 43.9% in 2015, compared to 49.4% in 2014.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Q4 2015 compared to Q4 2014
In Q4 2015, total operating expenses increased to GEL 77.4 million, up by GEL 9.7 million, or by 14.3% YoY. The increase was primarily driven
by the increase in staff costs by GEL 5.2 million, or 13.9% YoY. This rise was primarily due to the implementation of a new management
compensation system, a general increase in salaries, bonuses and various HR management-related costs at TBC Group level related to the
growing scale of the business. The increase in operating expenses was also due to the one-off impairment of intangible assets and rent
expenses by GEL 2.9 million and GEL 1.2 million, respectively.
As a result, the cost to income ratio stood at 49.3% in Q4 2015, compared to 51.2% in Q4 2014.
Q4 2015 compared to Q3 2015
On a QoQ basis, operating expenses increased by GEL 15.3 million, or 24.7%, compared to Q3 2015. The increase was mainly due to the
seasonally high operating cost in staff and administrative expenses in the fourth quarter.
As a result, the cost to income ratio was up by 6.0pp QoQ.
BALANCE SHEET DISCUSSION
In thousands of GEL
31-Dec-15
31-Dec-14
31-Dec-14
Change YoY
Change QoQ
Cash, due from banks and mandatory cash balances with NBG
Loans and advances to customers (Net)
Financial securities
Fixed and intangible assets & investment property
Other assets
Total assets
Due to credit institutions
Customer accounts
Debt Securities in issue
Subordinated Debt
Other liabilities
Total Liabilities
Total equity
1,202.9
4,444.9
679.4
349.7
258.1
1,396.7
4,350.7
629.5
331.3
228.2
901.9
3,556.5
466.5
322.7
175.9
6,935.0
6,936.4
5,423.5
1,113.6
4,177.9
21.7
283.6
119.7
1,123.9
4,286.2
23.9
250.6
119.9
749.3
3,322.4
20.4
188.0
123.8
5,716.5
5,804.5
4,404.0
1,218.4
1,131.9
1,019.5
-13.3%
2.2%
7.9%
5.6%
13.1%
0.0%
-0.9%
-2.5%
-9.3%
13.2%
-0.2%
-1.5%
7.6%
34.3%
25.0%
45.6%
8.4%
46.7%
27.9%
48.6%
25.7%
6.3%
50.9%
-3.4%
29.8%
19.5%
Assets
As of 31 December 2015, TBC Bank’s total assets amounted to GEL 6,935.0 million, up by GEL 1,515.5 million, or by 27.9% YoY. This increase
in total assets was mainly due to the increase in net loans to customers by GEL 888.4 million, or by 25.0% YoY. The YoY increase in total
assets also resulted from a GEL 519.6 million, or 37.6%, increase in liquid assets (comprising cash and cash equivalents, amounts due from
other banks, mandatory cash balances and investment securities, less corporate shares), compared to 31 December 2014.
On a QoQ basis, total assets were broadly stable. The increases in net loans to customers by GEL 94.2 million or 2.2%, and in premises and
equipment by GEL 32.1 million, or 14.9% due to the revaluation, was offset by the decrease in liquid assets by GEL 103.4 million during the
period.
The liquid assets to liability ratio stood at 32.7%, compared to 30.8% as of 31 December 2014 and 34.0% as of 30 September 2015.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
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FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
As of 31 December 2015, the gross loan portfolio amounted to GEL 4,639.0 million, up by 25.2% YoY and by 1.7% QoQ. Gross loans
denominated in foreign currency accounted for 64.9% of total gross loans, compared to 63.2% as of 31 December 2014 and 65.4% as of 30
September 2015, reflecting the local currency devaluation in 2015. The loans overdue more than 90 days over gross loan portfolio stood at
1.0%, compared to 0.5% and 1.2% as of 31 December 2014 and 30 September 2015, respectively. The NPLs+Restructured ratio stood at
5.8%, compared to 3.7% as of 31 December 2014 and 5.5% as of 30 September 2015, and the NPLs+Restructured loans coverage ratio stood
at 72.7% (169.8% including the collateral), compared to 109.4% as of 31 December 2014 and 84.2% as of 30 September 2015. As of 31
December 2015, NPLs per updated methodology stood at 4.8%, compared to 3.1% and 4.9% as of 31 December 2014 and 30 September
2015, respectively. The NPLs coverage ratio stood at 87.4% (209.9% including the collateral), compared to 130.5% as of 31 December 2014
and 93.0% as of 30 September 2015.
Asset Quality
PAR 30 by Segments and Currencies
Par 30
Corporate
Retail
SME
Micro
Total
31-Dec-15
30-Sep-15
31-Dec-14*
GEL
0.1%
2.1%
1.8%
2.7%
1.8%
FC
1.1%
2.5%
3.8%
5.6%
2.3%
Total
0.9%
2.3%
3.5%
3.5%
2.1%
GEL
0.2%
2.7%
1.8%
2.1%
2.0%
FC
2.8%
2.8%
3.8%
4.8%
3.1%
Total
2.2%
2.8%
3.4%
2.9%
2.7%
GEL
0.3%
1.9%
0.4%
1.3%
1.3%
FC
0.7%
1.1%
2.1%
1.8%
1.2%
Total
0.6%
1.5%
1.8%
1.4%
1.2%
* December 2014 segmental data is based on Bank Constanta segment definition, which was amended after the Bank’s merger with Constanta in Q1 2015.
Total
The QoQ decrease in PAR 30 by 0.6pp was mainly driven by lower share of PAR 30 loans in corporate and retail segments by year-end. The
YoY increase of 0.9pp in PAR 30 was attributable to the increase across all segments from very low level of PAR 30 loans in the beginning of
the period.
Retail Segment
Retail segment PAR 30 decreased by 0.5pp QoQ due to the overall improvement of retail portfolio credit quality compared to the previous
quarter. The YoY increase of 0.8pp primarily resulted from the growth in FC-denominated overdue loans in mortgage and consumer loans
portfolios.
Corporate
The QoQ decrease of 1.3pp in PAR 30 resulted from repayments and recoveries. The YoY increase in PAR 30 by 0.3pp was mainly due to two
corporate borrowers.
SME
The SME segment PAR 30 increased marginally by 0.1pp QoQ, but grew by 1.7pp on a YoY basis, mainly driven by the increase in TBC
Kredit’s portfolio.
Micro
Micro segment PAR 30 increased by 0.7pp QoQ and by 2.2pp YoY, mainly driven by the FC-denominated micro business loans.
Updated NPLs
Updated NPLs*
Corporate
Retail
SME
Micro
Total
31-Dec-15
30-Sep-15
31-Dec-14*
GEL
0.6%
1.8%
5.0%
2.5%
1.9%
FC
10.2%
3.3%
4.4%
8.5%
6.4%
Total
7.9%
2.7%
4.5%
4.2%
4.8%
GEL
0.3%
1.9%
5.0%
2.3%
1.8%
FC
10.2%
3.4%
4.9%
7.4%
6.6%
Total
7.9%
2.8%
4.9%
3.8%
4.9%
GEL
0.8%
1.7%
0.3%
1.3%
1.3%
FC
7.9%
2.1%
1.4%
3.3%
4.1%
Total
5.7%
1.9%
1.2%
2.0%
3.1%
* The Bank updated its NPL reporting and provisioning methodology according to international best practices. The updated methodology allows for a more granular
analysis of the loan portfolio and a better assessment of provisioning requirements.
60
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Updated Methodology for calculating NPLs
Starting from Q4 2015, the Bank has updated provisioning methodology and introduced a new NPL reporting standard to ensure increased
accuracy of the provision assessment and consistency with the established market practice.
Total
NPLs calculated per updated methodology over gross loans stood at 4.8%, down by 0.2pp QoQ and up by 1.7pp YoY. The YoY increase in
updated NPLs in all segments was mainly driven by the local currency devaluation.
Retail
Updated NPL ratio in retail segment was 2.7% as of 31 December 2015, down by 0.1pp QoQ and up by 0.8pp YoY. The YoY growth in NPLs was
mainly driven by FC-denominated mortgage and consumer portfolios. NPLs of LC-denominated loans are stable due to the good
performance of unsecured retail loans throughout 2015.
Corporate
NPL ratio decreased by 0.1pp QoQ. On a YoY basis, NPL ratio increased by 2.2pp YoY, mainly driven by FC-denominated portfolio due to
several large borrowers.
SME
The YoY increase in NPL loans ratio is driven by the local currency devaluation and increased NPLs in TBC Kredit’s portfolio.
Micro
The share of FC loans in total micro portfolio represented 28.5% of the total. The increase in Micro segment NPL loans ratio was mainly
driven by FC-denominated micro business loans.
PAR 90+Restructured Loans to Gross Loans by Segments and Currencies
PAR 90+Restructured loans
Corporate
Retail
SME
Micro
Total
31-Dec-15
30-Sep-15
31-Dec-14*
GEL
1.4%
2.3%
5.0%
2.7%
2.4%
FC
12.2%
4.0%
5.0%
10.3%
7.6%
Total
9.6%
3.3%
5.0%
4.9%
5.8%
GEL
5.5%
2.5%
5.1%
2.7%
3.4%
FC
8.8%
4.2%
5.5%
9.6%
6.5%
Total
8.0%
3.6%
5.5%
4.7%
5.5%
GEL
0.6%
1.9%
0.4%
1.5%
1.4%
FC
9.7%
2.2%
1.9%
5.0%
5.0%
Total
6.9%
2.1%
1.6%
2.8%
3.7%
* December 2014 segmental data is based on Bank Constant’s segment definition, which was amended after the Bank’s merger with Constanta in Q1 2015.
Total
PAR 90+ restructured loans ratio increased by 0.3pp QoQ and by 2.1pp YoY. The latter was mainly driven by the devaluation and the
consequent increase in restructured loans.
Retail
PAR 90+restructured loans ratio decreased by 0.3pp QoQ and grew by 1.2pp YoY. The YoY growth is mainly driven by increased
restructurings in mortgage and consumer loans portfolio.
Corporate
PAR 90+ restructured loans ratio increased by 1.6pp QoQ and by 2.6pp YoY, mainly due to the restructuring of a few large corporate
borrowers.
SME
The YoY Increase of 3.4pp in PAR 90+ restructured loans ratio was mainly due to the increase restructurings of TBC Kredit portfolio.
Micro
The share of FC loans in total micro portfolio was 28.5%. The YoY increase in Micro segment PAR 90+ restructured loans ratio was mainly
driven by FC-denominated micro business loans.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
PAR 90+Restructured Loans and NPLs Coverage
PAR 90+Restructured loans coverage
Corporate
Retail
SME
Micro
Total
31-Dec-15
30-Sep-15
31-Dec-14*
excl.
collateral
incl.
collateral
excl.
collateral
incl.
collateral
excl.
collateral
incl.
collateral
74.7%
83.3%
39.7%
74.9%
72.7%
157.4%
190.0%
178.3%
177.0%
169.8%
89.8%
100.8%
31.7%
79.4%
179.9%
206.2%
168.6%
179.6%
106.2%
131.9%
60.5%
99.5%
84.2%
185.6%
109.4%
n/a
n/a
n/a
n/a
n/a
* December 2014 segmental data is based on Bank Constanta’s segment definition, which was amended after the Bank’s merger with Constanta in Q1 2015.
Updated NPLs coverage
Corporate
Retail
SME
Micro
Total
31-Dec-15
30-Sep-15
31-Dec-14*
excl.
collateral
incl.
collateral
excl.
collateral
incl.
collateral
excl.
collateral
incl.
collateral
91.3%
101.5%
44.1%
87.5%
222.3%
199.5%
193.7%
188.8%
90.9%
127.0%
35.5%
98.8%
87.4%
209.9%
93.0%
n/a
n/a
n/a
n/a
n/a
129.7%
140.7%
82.2%
137.8%
130.5%
n/a
n/a
n/a
n/a
n/a
PAR 90+Restructured loans coverage remained strong at 72.7%, or 169.8% with the discounted value of collateral compared to 84.2% and
185.6% respectively as of September 2015. The 11.5pp QoQ drop mainly reflected the increased portion of restructured loans into the NPL
and restructured loans ratio due to the reasons described above. The NPLs coverage ratio based on the updated NPL definition stood at
87.4%, or at 209.9% with collateral.
Liabilities
As of 31 December 2015, TBC Bank’s total liabilities amounted to GEL 5,716.5 million, up by 29.8% YoY and down by 1.5% QoQ. The YoY
growth, by GEL 1,312.6 million, was primarily due to the GEL 855.5 million, or 25.7%, increase in customer deposits. This was mainly driven
by the increase in retail deposits. The rise was also determined by the increase in other borrowed funds, by GEL 377.0 million or 56.8%,
mainly resulting from the borrowings attracted from International Financial Institutions (IFIs) as well as increased short-term GEL
borrowing from NBG consistence with the liquidity management policy.
On a QoQ basis, total liabilities decreased by GEL 88.0 million, or by 1.5%, primarily due to the reduced legal entity deposits, which in turns
resulted from liquidity management needs during the period.
Liquidity
The Bank’s liquidity ratio, as defined by the NBG, stood at 34.4% as of 31 December 2015, compared to 31.1% and 33.6% as of 31 December
2014 and 30 September 2015, respectively.
Total Equity
As of 31 December 2015, TBC’s total equity amounted to GEL 1,218.4 million, up from GEL 1,019.5 million as of 31 December 2014 and GEL
1,131.9 million as of 30 September 2015. The growth was primarily driven by the net income attributable to the Bank’s owners.
Regulatory Capital
As of 31 December 2015, the Bank’s Basel II/III tier 1 and total capital adequacy ratios (CAR) stood at 12.8% and 16.0%, respectively,
compared to 12.4% and 15.0% as of 31 December 2014, and 12.0% and 14.8% as of 30 September 2015. The minimum capital requirements
set by the NBG for Basel II/III tier 1 and total capital ratios are 8.5% and 10.5%, respectively. The Bank’s Basel II/III tier 1 capital amounted
to GEL 953.4 million, compared to GEL 783.4 million as of 31 December 2014 and GEL 879.1 million as of 30 September 2015. Risk weighted
assets were GEL 7,476.5 million as of 31 December 2015, up by GEL 1,179.8 million YoY and up by GEL 170.6 million QoQ.
The Bank’s Basel I tier 1 capital ratio was 24.7%, broadly stable YoY and up by 1.3pp QoQ. Tier 1 capital reached GEL 1,157.0 million,
compared to 967.5 Million and 1,085.1 million as of 31 December 2014 and 30 September 2015, respectively. Risk weighted assets were GEL
4,679.8 million as of 31 December 2015, up by GEL 769.0 million YoY and up by GEL 49.6 million QoQ.
1. Starting from June 2014 the National Bank of Georgia enforced Basel II/III regulation.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
RESULTS BY SEGMENTS AND SUBSIDIARIES
Following the merger with Bank Constanta in January 2015, the Bank revised the segment definitions as per below:
• Corporate segment includes business customers that have annual revenue of GEL 8.0 million or more or have been granted a loan in an
amount equivalent to USD 1.5 million or more. Some other business customers may also be assigned to the Corporate segment on a
discretionary basis;
• Micro segment business customers with loans below USD 70K, as well as pawn loans, credit cards and cash cover loans granted in TBC
Bank Constanta branches, and deposits up to USD 20K in urban areas and up to USD 100K in rural areas of the customers of TBC Bank
Constanta branches. Some other customers may also be assigned to the Micro segment on a discretionary basis;
• SME segment includes business customers that are not included in either Corporate or Micro segments; some other legal entity
customers may also be assigned to the SME segment on a discretionary basis;
• Retail segment includes individuals that are not included in the other categories; and
• Corporate Centers and Other Operations comprise the Treasury, other support and back office functions, and non-banking subsidiaries
of the Group.
As a result, loans amounting to GEL 93.3 million were reclassified from the retail to the micro segment and GEL 2.0 million was
reclassified from the retail to the SME segment. As for the deposits, GEL 54.3 million was reclassified from retail to micro deposits, GEL
1.2 million from retail to SME deposits, and GEL 8.1 million from SME to corporate deposits.
The following table sets out the information on the financial results of TBC Bank’s segments for full-year 2015:
In thousands of GEL
FY 2015
Interest income
Interest expense
Net Transfer pricing
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses/(losses less gains)
Net losses from derivative financial instruments
Loss from initial recognition of assets below market
(Losses less gains)/gains less losses from disposal of investment
securities available for sale
Other operating income
Other operating non-interest income
Provision for loan impairment
(Provision)/recovery of provision for liabilities, charges and credit
related commitments
Recovery of provision /(provision) for impairment of investments in
finance lease
(Provision) /recovery of provision for impairment of other financial
Retail
Corporate
SME
Micro
Corporate
Centers
Total
271,082
-94,657
12,828
189,253
72,242
-31,698
135,615
-31,189
-34,855
69,571
18,397
-3,864
40,544
14,533
15,038
0
0
0
0
2,298
17,337
23,647
0
0
0
0
13,808
37,455
68,303
-9,376
-2,455
56,473
11,739
-3,917
7,822
21,488
0
0
0
0
1,089
107,326
-2,268
-26,788
66,732
-99,396
51,270
649,059
-236,885
0
78,270
18,606
412,173
6,880
-1,242
5,638
1,787
0
0
0
0
95
4,579
113,837
-825
-41,546
3,755
72,291
2,682
2,579
-575
0
0
8,592
64,642
2,579
-575
0
0
25,883
92,528
22,577
1,882
13,277
-29,003
-15,396
-11,628
-16,763
-4,113
4,581
0
0
731
0
-82
0
0
0
-72,791
1,117
-967
-967
assets
-735
-561
-388
-317
-1,349
-3,351
Profit before G&A expenses and income taxes
213,283
110,183
75,586
68,628
33,321
501,002
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the year
-69,497
-15,295
0
-46,437
-16,947
-1,092
0
-4,879
-16,439
-2,138
0
-7,712
-30,470
-6,436
0
-14,531
-9,424
-1,325
-1,102
-9,404
-142,777
-26,286
-1,102
-82,964
-131,230
-22,918
-26,289
-51,437
-21,255
-253,130
82,053
87,266
-11,118
-13,384
70,935
73,881
49,297
-7,719
41,578
17,190
-2,579
14,612
12,066
247,872
5,624
-29,176
17,690
218,697
63
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
The following table sets out the loans and customer deposits portfolios of TBC Bank’s business segments as of 31 December 2015, 30
September 2015 and 31 December 2014.
In thousands of GEL
Loans and Advances to Customers
Consumer
Mortgage
Pawn
Retail
Corporate
SME
Micro
Total loans and advances to customers (gross)
Less: Provision for loan impairment
Total loans and advances to customers (net)
Customer Accounts
Retail
Corporate
SME
Micro
Total customer accounts
31-Dec-15
30-Sep-15
31-Dec-14
871,996
905,274
242,698
2,019,969
1,500,104
625,628
493,327
816,601
879,645
224,648
1,920,894
1,542,511
600,644
495,988
700,430
702,190
169,002
1,571,622
1,231,729
535,899
367,010
4,639,029 4,560,036
3,706,260
-194,143
-209,303
-149,764
4,444,886 4,350,733
3,556,496
2,469,878
1,001,341
633,211
73,501
2,397,898
1,139,476
674,552
74,259
1,921,650
840,645
500,906
59,228
4,177,931
4,286,185 3,322,429
Retail Banking
As of 31 December 2015, retail loans stood at GEL 2,020.0 million, up by 28.5% YoY (12.4% excluding currency rate effect) and up by 5.2% QoQ,
and accounted for 31.6% market share of total individual loans. As of 31 December 2015, foreign currency loans represented 59.7% of the total
retail loan portfolio.
In the same period, retail deposits increased to GEL 2,469.9 million, up by 28.5% YoY (4.8% excluding currency rate effect) and up by 3.0% QoQ,
and accounted for 34.3% market share of total individual deposits. Term deposits accounted for 63.2% of the total retail deposit portfolio as of 31
December 2015. Foreign currency deposits represented 88.6% of the total retail deposit portfolio.
In 2015, retail loan yields and deposit rates stood at 14.9% and 4.2% respectively, and the segment’s cost of risk on loans was 1.6%. The retail
segment contributed for 32.4%, or GEL 70.9 million, to TBC’s total net income in 2015.
Corporate Banking
As of 31 December 2015, corporate loans amounted to GEL 1,500.1 million, up by 21.8% YoY (1.7% excluding currency rate effect) and down by
2.7% QoQ due to one-off repayment by one large borrower. Foreign currency loans accounted for 76.3% of the total corporate loan portfolio.
As of the same date, corporate deposits totalled GEL 1,001.3 million, up by 19.1% YoY (7.4% excluding currency rate effect) and down by 12.1%
QoQ. Foreign currency corporate deposits represented 46.4% of the total corporate deposit portfolio.
In 2015, corporate loan yields and deposit rates stood at 9.6% and 3.3%, respectively. In the same period, the cost of risk on loans was 1.1%. In
terms of profitability, the corporate segment’s net profit reached GEL 73.9 million, or 33.8% of TBCs total net income.
64
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
SME Banking
As of 31 December 2015, SME loans amounted to GEL 625.6 million, up by 16.7% YoY (down by 2.2% excluding currency rate effect) and up by
4.2% QoQ. Foreign currency loans accounted for 83.1% of the total SME portfolio.
As of the same date, SME deposits stood at GEL 633.2 million, up by 26.4% YoY (11.4% excluding currency rate effect) and down by 6.1% QoQ.
Foreign currency SME deposits represented 61.0% of the total SME deposit portfolio.
In 2015, SME loan yields and deposit rates stood at 11.6% and 1.6%, respectively while the cost of risk on loans was 2.0%. In terms of profitability,
net profit for the SME segment amounted to GEL 41.6 million, or 19.0%, of TBC’s total net income.
Micro Banking
As of 31 December 2015 micro loans totalled GEL 493.3 million, up by 34.4% YoY (25.9% excluding currency rate effect) and down 0.5% QoQ due
to reduction in agro loans as a result of termination of government subsidised agro lending programme for loans up to 20,000 GEL. Foreign
currency loans represented 28.5% of the total micro loan portfolio.
As of the same date, micro customer deposits amounted to GEL 73.5 million, up by 24.1% YoY (8.0% excluding currency rate effect) and down by
1.0% QoQ. Foreign currency micro deposits represented 61.1% of the total micro deposit portfolio.
In 2015, micro loan yields and deposit rates stood at 23.3% and 3.3%, respectively. In the same period, the cost of risk on loans was 3.6%. In
terms of profitability, the micro segment’s net profit reached GEL 14.6 million, or 6.7% of TBC’s total net income.
65
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
ANNEXES
Consolidated Balance Sheet
In thousands of GEL
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers (Net)
Investment securities available for sale
Repurchase receivables
Bonds carried at amortised cost
Investments in finance leases
Investment properties
Goodwill
Intangible assets
Premises and equipment
Other financial assets
Deferred income tax asset
Current income tax prepayment
Other assets
TOTAL ASSETS
LIABILITIES
Due to Credit Institutions
Customer accounts
Current income tax liability
Debt Securities in issue
Deferred income tax liability
Provisions for liabilities and charges
Other financial liabilities
Subordinated debt
Other liabilities
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Retained earnings
Share-based payment reserve
Other reserves
TOTAL EQUITY
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
66
31-Dec-15
30-Sep-15
31-Dec-14
720,347
11,041
471,490
903,136
25,944
467,649
4,444,886 4,350,733
220,538
41,527
367,401
67,077
73,742
2,726
41,855
215,689
62,226
434
10,276
85,457
307,310
0
372,092
75,760
57,600
2,726
44,344
247,767
64,317
1,546
9,856
103,914
532,118
33,704
336,075
3,556,496
466,510
0
0
50,907
76,216
2,726
37,756
208,692
43,857
383
251
77,776
6,934,995 6,936,408 5,423,466
1,113,574
4,177,931
912
21,714
29,244
9,461
39,435
283,648
40,627
1,123,858
749,285
4,286,185 3,322,428
12,433
20,423
23,187
11,899
41,346
188,015
34,974
722
23,949
25,478
6,316
55,009
250,612
32,409
5,716,546 5,804,537 4,403,990
19,587
407,474
712,743
12,755
58,701
19,587
406,058
645,180
9,187
44,027
19,576
405,658
532,992
4,624
49,255
1,211,260
1,124,039
1,012,105
7,189
7,832
7,371
1,218,449
1,131,871
1,019,477
6,934,995 6,936,408 5,423,466
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Consolidated Income Statement
In thousands of GEL
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses
Gains less losses/(losses less gains) from derivative financial instruments
Other operating income
Other operating non-interest income
31-Dec-15
31-Dec-14
Q4'15
Q3'15
Q4'14
649,059
512,357
-236,885
-173,709
174,172
-67,654
168,011
-60,592
136,780
-44,505
412,173
338,648
106,519
107,419
92,276
113,837
-41,546
88,204
-29,523
32,567
-12,760
72,291
58,682
19,807
64,642
2,579
-575
25,883
92,528
39,730
2,359
-683
19,598
61,004
17,536
912
276
11,912
30,636
28,745
-11,101
17,644
16,545
-2,833
-362
4,919
18,269
26,198
-8,578
17,620
14,618
1,164
-299
6,934
22,416
Provision for loan impairment
Provision for impairment of investments in finance lease
Provision for/(recovery of provision) performance guarantees and credit
related commitments
Provision for impairment of other financial assets
Impairment of investment securities available for sale
-72,791
-967
-48,672
-77
-2,055
-344
-22,012
-260
-16,198
89
1,117
-3,351
0
902
-1,236
-22
-1,945
-974
0
3
-1,145
0
-1,875
-669
0
Operating income after provisions for impairment
501,002
409,229
151,644
119,917
113,659
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Profit attributable to owners of the bank
-142,777
-26,286
-1,102
-82,964
-122,835
-24,427
-5,500
-73,548
-42,445
-7,347
-1,102
-26,500
-35,025
-6,638
0
-20,423
-37,260
-8,194
-720
-21,520
-253,130
-226,310
-77,394
-62,085
-67,694
247,872
182,919
74,251
-29,176
-24,468
218,697
158,451
218,879
157,451
-7,331
66,920
67,563
57,831
-7,226
50,605
50,317
45,965
-5,940
40,026
39,901
67
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
FINANCIAL REVIEW
CONTINUED
KEY RATIOS
Average Balances
Average balances included in this document are calculated as the average of the relevant monthly balances as of each month end. Balances
have been extracted from TBC’s unaudited and consolidated management accounts prepared from TBC’s accounting records and used by the
Management for monitoring and control purposes.
Ratios (based on monthly averages, where applicable)
Dec-15
Dec-14
Q4'15
Q3'15
Q4'14
ROAE1
ROAA2
Pre-provision ROAE
Pre-provision ROAA
Cost: Income3
Cost of Risk4
NIM5
Loan yields6
Deposit rates7
Yields on interest earning assets8
Cost of Funding9
Spread10
PAR 90 to gross loans11
PAR 90+restructured loans to gross loans12
Updated NPLs to gross loans13
Provision level to gross loans14
PAR 90+Restructured loans coverage ratio15
Updated NPLs coverage16
BIS Tier 117
Total BIS CAR18
NBG Basel II Tier 1 CAR19
NBG Basel II Total CAR20
20.1%
3.4%
27.1%
4.6%
43.9%
1.7%
7.8%
13.6%
3.5%
12.3%
4.6%
7.7%
1.0%
5.8%
4.8%
4.2%
72.7%
87.4%
24.7%
31.0%
12.8%
16.0%
18.4%
3.3%
24.2%
4.4%
49.4%
1.6%
8.5%
14.9%
3.7%
12.8%
4.6%
8.2%
0.5%
3.7%
3.1%
4.0%
109.4%
130.5%
24.7%
30.4%
12.4%
15.0%
23.1%
3.9%
24.9%
4.2%
49.3%
0.2%
7.4%
13.6%
3.4%
12.1%
4.8%
7.3%
1.0%
5.8%
4.8%
4.2%
72.7%
87.4%
24.7%
31.0%
12.8%
16.0%
18.2%
3.1%
26.7%
4.5%
43.3%
2.0%
7.9%
13.6%
3.4%
12.3%
4.5%
7.8%
1.2%
5.5%
4.9%
4.6%
84.2%
93.0%
23.4%
28.6%
12.0%
14.8%
16.0%
3.1%
23.5%
4.5%
51.2%
1.9%
8.5%
14.3%
3.5%
12.6%
4.4%
8.2%
0.5%
3.7%
3.1%
4.0%
109.4%
130.5%
24.7%
30.4%
12.4%
15.0%
68
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
RATIO DEFINITIONS
1. Return on average total equity (ROAE) equals net income attributable to owners
divided by monthly average of total shareholders’ equity attributable to the
Bank’s equity holders for the same period. Pre-provision ROAE excludes all
provision charges. Annualised where applicable.
2. Return on average total assets (ROAA) equals net income of the period divided
by monthly average total assets for the same period. Pre-provision ROAE
excludes all provision charges. Annualised where applicable.
3. Cost to Income ratio equals total operating expenses for the period divided by the
total revenue for the same period. (Revenue represents the sum of net interest
income, net fee and commission income and other non-interest income).
4. Cost of risk equals provision for loan impairment divided by monthly average
gross loans and advances to customers. Annualised where applicable.
5. Net interest margin (NIM) is net interest income divided by monthly average
interest-earning assets. Annualised where applicable.
6. Loan yields equal interest income on loans and advances to customers divided
by monthly average gross loans and advances to customers. Annualised where
applicable.
7. Deposit rates equal interest expense on customer accounts divided by monthly
average total customer deposits. Annualised where applicable.
8. Yields on interest earning assets equals total interest income divided by
monthly average interest earning assets. Annualised where applicable.
9. Cost of funding equals total interest expense divided by monthly average
interest bearing liabilities. Annualised where applicable.
10. Spread equals difference between yields on interest earning assets and cost
of funding.
11. PAR 90 to gross loans ratio equals loans for which principal or interest
repayment is overdue for more than 90 days divided by the gross loan portfolio
for the same period.
12. PAR 90+restructured loans to gross loans equal PAR 90 loans plus those
restructured loans that are overdue by 90 days or less divided by the gross loan
portfolio for the same period.
13. Updated NPLs to gross loans equal loans with 90 days past due on principal or
interest payments, and loans with well-defined weakness, regardless of the
existence of any past-due amount or of the number of days past due divided by
the gross loan portfolio for the same period.
14. Provision Level to Gross Loans equal loan loss provision divided by the gross
loan portfolio for the same period.
15. PAR 90+Restructured loans coverage ratio equal loan loss provision divided by
the sum of PAR 90 loans plus those restructured loans that are overdue by 90
days or less.
16. Updated NPLs coverage ratio equal loan loss provision divided by the NPL loans.
17. BIS Tier 1 capital adequacy ratio Tier 1 capital over total risk weighted assets,
both calculated in accordance with Basel I requirements.
18. Total BIS CAR equals total capital over total risk weighted assets, both
calculated in accordance with Basel I requirements.
19. NBG Basel II Tier 1 CAR equals Tier I Capital divided by total risk weighted
assets, both calculated in accordance with the NBG Basel II requirements.
After adoption of NBG Basel II/III requirements, the Bank also calculates its
capital requirements and risk weighted assets separately for Pillar 1. Detailed
instructions of Pillar 1 calculations are given by NBG. The reporting started
from the end of 2012.
20. NBG Basel II Total CAR equals total capital divided by total risk weighted
assets, both calculated in accordance with the NBG Basel II requirements.
After adoption of NBG Basel II/III requirements, the Bank also calculates its
capital requirements and risk weighted assets separately for Pillar 1. Detailed
instructions of Pillar 1 calculations are given by NBG. The reporting started
from the end of 2012.
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
EXCHANGE RATES
To calculate the Balance Sheet items’ QoQ growth
without currency exchange rate effect, we used
USD/GEL exchange rate of 2.3816 as of 30
September 2015. For calculations of YoY growth
without currency exchange rate effect, we used
USD/GEL exchange rate of 1.8636 as of 31
December 2014. The USD/GEL exchange rate as
of 31 December 2015 equalled 2.3949. For P&L
items growth calculations without currency
effect, we used the average USD/GEL exchange
rate for the following periods: FY 2015 of 2.2702,
FY 2014 of 1.7659, Q4 2015 of 2.3979, Q3 2015 of
2.3241 and Q4 2014 of 1.8059.
69
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
PEOPLE
TBC BANK PLACES SPECIAL
EMPHASIS ON ITS HIGHLY
PROFESSIONAL WORKFORCE, WHICH
IS ONE OF ITS KEY COMPETITIVE
ADVANTAGES. IN 2015, THE BANK
CONTINUED STRENGTHENING ITS
CORPORATE CULTURE, DEVELOPING
THE PEOPLE WHO INVEST THEIR TIME
AND EFFORT IN THE BANK’S SUCCESS,
AND PROVIDING THEM WITH
INTERESTING OPPORTUNITIES TO
GROW WITH
THE COMPANY.
At the end of 2015, TBC Bank, together with its
subsidiaries, employed 5,262 people, 145 or 3% more than
as of the same period in 2014. TBC Bank alone employed
91% of the total workforce. The remaining 9% of our staff
were employed by TBC Kredit, TBC Pay, TBC Leasing and
other smaller subsidiaries.
Employee Breakdown by Subsidiary (%)
90.55
Employee Loyalty (years with TBC)
Leadership at TBC Bank
9.45
Capital 0.04
BSSC 0.68
Fund 0.04
Pay 3.48
Invest 0.08
Leasing 0.70
UFC 1.50
Kredit 2.93
Age Breakdown
TBC Bank
Other
70
TBC BANK ANNUAL REPORT AND ACCOUNTS 20150-1 year1-4 years4-10 years>10 years22%37%34%7%TopManagement88%64%32%13%37%68%MiddleManagementTotalEmployeesMaleFemale<2020-2930-3940-49>5058%30%8%3%0%
Turnover by Department
At 11% in 2015, TBC Bank has one of the lowest turn-over rates in
the country due to TBC’s competitive compensation and benefits
policies, career development opportunities and its strategy of
internal promotions. A relatively high index in 2015 was due to the
merger with the former Bank Constanta. Due to the functional
reorganisation and merger of various head office units saw a
number of Bank Constant employees
take redundancy.
Head office and branches
Finance
Corporate
Retail & SME
Operations
Risks
IT
Micro, Marketing & PR
Branches
2013
2014
2015
7% (153)
5% (2)
13% (6)
8% (8)
4% (12)
9% (7)
12% (14)
0% (0)
7% (89)
7% (185)
14% (6)
8% (5)
11% (31)
3% (13)
7% (6)
8% (10)
0% (0)
7% (103)
11% (568)
30% (14)
9% (5)
12% (38)
12% (54)
8% (15)
20% (31)
56% (33)
15% (361)
Equal Opportunity Employment and Gender Balance
TBC Bank is an equal opportunity employer. As part of our Code of
Conduct we do not discriminate in employment decisions based on
gender, ethnicity, religion, disability or other protected categories.
Gender Breakdown of Employees
TBC Bank
BROKER
BSSC
FUND
PAY
INVEST
LEASING
UFC
KREDIT
Male
Female
1,527 (32%) 3,238 (68%)
1
1
1
30
1
20
37
57
1
35
1
153
3
17
42
97
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Male
Female
32%
68%
88%
62%
86%
12%
38%
14%
TBC Bank Employee Breakdown by Gender
All employees
Leadership in TBC Bank
Top Management
Middle Management
Supervisory Board
Performance Assessment and Remuneration
HR has developed an extensive policy to evaluate the professional
growth and skills of our employees. Branches and other front office
staff have a performance based motivation system (linked to
financial and other operational KPIs) that was developed by external
consultants.
Certain Head Office staff is evaluated against a Management by
Objectives (MBO) system where an employee and the respective
manager agree to the goals and objectives that are closely aligned
with the broad organisational strategic objectives. The process
includes ongoing tracking and biannual feedback on employee
achievements. Performance Assessment and final feedback is
standardised across the Bank and is based on a uniform scoring
system that managers are required to use.
In 2015, TBC Bank adopted a new, three-year compensation system
for members of the senior and middle management, developed in
partnership with EY.
Employee Communication and Survey
Regular communication with employees is an integral part of the
Bank’s corporate culture. TBC ensures that the entire team is up to
date with the latest information on the Bank’s activities via our
executive presentations, TBC magazine, intranet content and
different corporate events organised by the HR Department. Since
2014, the Bank has appointed contact persons to maintain smooth
communication between branches and the head office. Additionally,
a specialised SMS service to the entire staff – TBC Family – also
supplements the HR Department’s traditional communication
channels.
The HR department regularly conducts Employee Satisfaction and
Engagement Surveys in order to assess the attitude of our staff
members and take actions accordingly. In 2015, the survey was
conducted by VU University of Amsterdam, a leading research
university in Europe. The latest survey generated an extremely high
participation rate with 74% of all employees responding to the
questionnaire.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 Employee Benefits Policy
TBC Bank provides various types of non-wage compensation to employees including bonuses, paid annual
leave and sick leave, competitive pension and health benefits and non-monetary benefits. TBC Bank highly
values its staff and recognises that the Bank’s success largely depends on the outstanding performance of
its workforce and thus, TBC offers a market-leading employee benefits package.
Employee Benefits
Benefit
Health Insurance
Pension funds
Social Benefits
Granted
Compensation/award
After 6 months
After 2 years
Monthly co-payment
Monthly co-payment
Marriage
Childbirth
Death of a family member
Paid leave and days off
International & local MBA, training, seminars
After 6 months
After 6 months
After 6 months
After 11 months
After 1 year
By case
By case
By case
By case
Through competition
Employee Training and Leadership Development
TBC Bank’s HR Strategy is to have the best employees on the market with high performance and company
loyalty. Its HR management system is supported by a tailored IT system to manage personnel through
career planning, training and performance evaluations. Since 2013, the Bank implements part of its
mandatory and voluntary training programmes through a distance learning system, which allows
employees to acquire knowledge and skills at their own pace and at lesser cost to the Bank.
In addition to this, TBC Bank provides internal training programmes via TBC Academy, an in-house
educational resource that provides employees an opportunity to acquire knowledge in various banking
disciplines and features lecturers from TBC’s top and middle management. TBC Academy concentrates on
offering learning opportunities in customer service, negotiation skills, conflict resolution, time
management, business communication, team building and banking products. Additionally, certain
mandatory training programmes are provided to employees based on required skills for their respective
departments.
TBC will continue developing new instruments to improve employee qualifications in order to acquire and
maintain the best professionals on the market.
MBA and Qualifications
In addition to in-house training opportunities, TBC Bank provides support to the best employees for
external training, financing internationally acknowledged qualifications such as CFA and ACCA as per the
departments’ requirements.
TBC also operates a scholarship fund, created in 2012, that has already financed 20 middle managers from
the Bank who have had their MBAs co-financed both locally as well as internationally.
BUSINESS REVIEW
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PEOPLE
CONTINUED
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BUSINESS REVIEW
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At TBC Bank, we firmly believe in our responsibility to support the
community, the environment and the wider stakeholders among
which we operate. The Bank organises its CSR Strategy into four
main areas: workplace, market place, environment and community.
Our community sponsorship program is further broken down into
themes of focus that complement our brand and tradition.
Workplace
TBC Bank is dedicated to creating the best workplace experience
for its employees. We offer employees one of the most competitive
benefits packages in the country, as well as advanced professional
education and training opportunities. Projects implemented for TBC
Bank employees include:
• TBC Fund for Employees with Large Families (founded in 2013);
• TBC Academy providing training and workshops in different
areas of business and banking free of charge for TBC Bank
employees (founded in 2011);
• tuition funding for middle management employees for MBA-level
study; and
• full social benefits package, including health insurance, pension
schemes, and fully-paid maternity and paternity leave.
These and other matters concerning employee relations are
covered in greater detail on page 70.
Marketplace
TBC Bank has a traditional commitment to supporting small and
medium size businesses. We have a track record for attracting
dedicated facilities for SME financing – including local currency and
sector specific funds for high-priority industries in the country
(such as agriculture, healthcare and energy).
Additionally, TBC Bank is the first bank in the region to offer
value-added services to its SME clients that include networking,
educational and consulting opportunities provided free of charge.
These services are implemented through the Bank’s pioneering
Business Support Programme launched in 2013 with support from
IFC and ADB and in partnership with IBM, Ernst & Young and BDO.
The achievements of the Business Support Programme are covered
in greater detail on page 33.
Environment
TBC Bank believes it has one of the most advanced Environmental
and Social Risk Management systems in the region. Our ESMS
Policy is aligned with the requirements of all relevant
recommended best practices. The system has been developed in
cooperation with EBRD, IFC, DEG, ADB, and FMO and includes
provisions that are often much stricter than national requirements.
The Bank also ensures that its clients and sub-contractors comply
with international social and environmental standards.
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ESMS Policy
TBC Bank was one of the first banks in the country to develop an
Environmental and Social Risk Management System (ESMS).
The ESMS Policy focuses on the environmental and social issues
associated with commercial lending and investments. The main
provisions of the ESMS policy are as follows:
• Environmental and social (E&S) risks associated with the Bank’s
operations, relying on tools like EBRD’s Environmental and Social
Risk Management Manual, IFC’s web-based ES toolkit, FMOs
Sectoral Guidelines for Environmental and Social Risk Assessment,
IFC’s Sustainability Framework and Performance Standards and
Guidance Notes, UNEP-FI’s Guide to Banking and Sustainability,
and ADB’s ESMS Template for Banks and Funds.
• Protection of human and labour rights, especially those of
vulnerable population groups.
TBC Bank regularly updates the ESMS document, which ensures that
the Bank effectively manages environmental and social risks
associated with its operations in order to minimise its impact on the
environment and its stakeholders.
Full details of TBC Bank’s ESMS policy are available on the Bank’s
Investor Relations website.
Community
TBC Bank differentiates itself through an impactful, long-term and
significant financial commitment to developing culture, art and music
in Georgia, as well as by contributing to the maintenance of the
Georgian national heritage. Our investment and support in the
community has continued with a traditional focus, and took on several
new directions in 2015.
Community projects implemented by TBC Bank in 2015 include:
• a support fund for 13 June victims,
• exclusive sponsorship of the Georgian National Rugby Team,
• exclusive sponsorship of the Georgian National Ballet and Opera
Theatre,
• an exclusive exhibition of Georgian cultural heritage,
• the major Georgian Literary Award Saba,
• the Saba Electronic Bookstore,
• the first digital TV station Artarea, and
• TBC Art Gallery and TBC Gallery for Young Georgian Artists.
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SUPPORT FUND FOR 13 JUNE VICTIMS
In 2015, Tbilisi, the capital city of Georgia, had to
deal with the consequences of serious flood
damage, resulting in an estimated GEL 40 million
in damage. In support of the families that suffered
as a result of the disaster, TBC Bank set up a
special fund and donated GEL 50,000 to mitigate
some of the material damage incurred by Tbilisi
residents. The fund generated the largest public
participation ever recorded in the country – with
the help of its customers, employees, partners and
other stakeholders, the Bank raised over GEL 1
million for the victims of the disaster.
One of the areas most affected by the flood was a
small public park, located in the centre of the city. In
order to further support the rehabilitation of the city
following the 13 June events, TBC Bank donated an
additional GEL 50,000 to build a social café in the
renovated park.
#WriteInGeorgian (
TBC Bank has a well-established track-record as a major sponsor
of Georgian cultural heritage. We continue to support traditional
causes by maintaining, restoring and promoting achievements of
historic value for the country.
)
In 2015, TBC Bank launched a campaign-#WriteinGeorgian-in
order to preserve the unique cultural heritage that is the Georgian
language. The campaign encourages the use of the Georgian
alphabet and Georgian words in everyday and business
communication. Projects launched under this initiative include the
creation of a Georgian alphabet add-in for iPhones, iPads and
Android smartphones, children’s alphabet board games and
educational materials published through the Bank’s innovative
e-book store, SABA. In 2015, TBC also sponsored an international
art festival Fest i Nova 2015 G-15 that featured local and
international modern artists. During the festival, TBC presented a
creative installation dedicated to the Georgian language and
Georgian alphabet.
Discovering Young Artists
The TBC Art Gallery actively presented a number of significant art
events to the public throughout 2015. Several innovative exhibitions
supported young Georgian artists and offered viewers a new take
on contemporary expression. During the year, the TBC Art Gallery
and TBC Galleries hosted up to 80 exhibitions. Among these, the
Kutaisi branch of TBC Gallery featured the multimedia exhibit “URB
EX” by Gio Sumbadze, who explores modern urban cities. The
Tbilisi branch of TBC Gallery hosted an installation “My Home”,
originally created for Vico Vitri Arte, a popular Italian art project.
The exhibition united Georgian and foreign artists who explore
cultural and national identity through their work.
Additionally, TBC continued many of its traditional projects created
to support young Georgian artists through the following initiatives:
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Ballet
TBC Bank is the new exclusive sponsor of the Georgian National
Ballet and Opera Theatre. The main goal of this partnership is to
popularise ballet and implement social and cultural projects. The
Georgian National Ballet is the only professional ballet company in
Georgia and attracts collaboration from the world’s leading artists.
Ancient Georgian Treasures at TBC Galleries
TBC Bank continues to showcase unique artifacts of Georgian
culture. Our projects raise awareness of the importance of
preserving and understanding our unique Georgian heritage.
In 2015, TBC Gallery hosted an exhibition of archeological findings
from an ancient Georgian monastery in Cyprus. The monastery is a
site-museum in Cyprus and has become a popular tourist
destination on the island. The artifacts from the Monastery were
virtually unknown to the wider Georgian public and were featured
at the TBC Gallery for the first time in an exclusive display. The
Bank also continues to support the Oni Local Museum that
preserves a unique collection of ancient Georgian openwork bronze
buckles featured at TBC Art Gallery in 2014.
Artarea - www.artarea.tv
Artarea, the first Georgian TV channel dedicated to art continued to
provide viewers with news on the latest developments and
achievements in culture and arts. Through Artarea, TBC sponsored
33 public lectures on art and music, 22 concerts, and 13 exhibitions.
These events attracted over 5,000 viewers.
Space for Contemporary Artists
TBC Bank continued to operate the first digital space dedicated to
modern video art titled ART WALL. Located at one of the Bank’s
branches in the central part of the capital city, the Wall presents
open air art shows by established and promising Georgian artists.
In 2015, TBC achieved another breakthrough in our customer
experience by introducing an innovative, customer-centric branch
design, created in partnership with Allen International. In addition
to the cutting-edge banking technology, customers are treated to
an exclusive exhibition of young artists within our newly branches.
Please see page 26 for more information on the innovative branch
design developed in partnership with Allen International.
Promotion of Young Photographers
In 2015, TBC continued its traditional project first launched in 2004.
Kolga, a photo competition for young artists, seeks to discover and
promote unknown photographers. The winning pieces were
displayed at the Bank’s head office.
Literary Award Saba and SABA Online Bookstore
TBC continued to support the Saba Literary Awards Programme,
one of the most respected and anticipated literary events in the
country. TBC Bank founded the program in 2003 with 2015 marking
the 14th anniversary of the ceremony. To this date, the Bank has
recognised over 90 authors and awarded c. GEL 445,000 in prizes.
SABA online bookstore, available at www.saba.com.ge, is a
satellite project to the Awards Programme. The project has been
gaining popularity among the local and expatriate communities.
The e-bookstore, which also introduced the first Georgian e-reader
apps for Android and iOS in 2014, promotes Georgian literature
beyond the country’s borders and allows new authors to be
discovered and promoted. In 2015, SABA e-store traveled to
schools around the country, where TBC created small electronic
libraries, equipped with tablets and 600 pre-installed e-books.
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SUPPORTING
GEORGIAN RUGBY
TBC Bank is the new exclusive sponsor of the Georgian rugby
union and has become the main sponsor at all levels of the
game in Georgia. The major goal of this partnership is to
promote rugby and rugby values in Georgian society, to make
rugby an inseparable part of Georgian culture and to increase
the popularity of the sport in Georgia, and the region.
Georgia is currently considered a second tier rugby union
nation and is one of the world’s fastest growing rugby nations in
terms of participation. The Georgian National Rugby team have
won the European Nations Cup eight times, most recently
during the 2015 season. As of 6 April 2015, Georgia is ranked
12th in the world by World Rugby Federation.
See CSR Report for more on our initiatives
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CHAIRMAN’S CORPORATE GOVERNANCE STATEMENT
We have initiated search for an additional Independent Director with
UK PLC experience, with a view of having him join the Board prior to
Premium Listing. This addition will ensure that majority of the
Board consists of independent Non-executive Directors.
The Board also discussed appointment of Senior Independent
Director (SID) who will be able to provide support on all governance
issues and will act as an alternative communication channel
between the Chairman and Directors. The SID will also be available
to shareholders and other Non-executive Directors to address any
concerns or issues. Nikoloz Enukidze will be appointed as the
Senior Independent Director
In this Corporate Governance Report, the Bank has prepared a
comprehensive review of its corporate governance framework,
which includes the Audit Committee Report on page 87, the
Supervisory Board Report and Responsibilities on page 79, and the
Remuneration Report on page 91. A review of the responsibilities
and effectiveness of all committees on the Supervisory Board level
begins on page 86.
TBC takes great pride in the fact that it is one of the best and largest
employers in the Georgian private sector. The Bank looks to create
a working environment where the best people strive to excel in their
fields every day. A detailed report on our employee relations is
available on page 70.
We believe our advanced corporate governance ensures a fully
engaged relationship between our Company and our shareholders
and stakeholders. The Bank’s comprehensive investor
communications programme has allowed its top management to
meet with investors and shareholders on four separate roadshows
during the 2015 financial year. Moreover, our Investor Relations
website offers transparent, accurate and timely information to our
investors. More information on the dialogue between TBC Bank and
its shareholders is provided on page 199.
Finally, in 2014, the Supervisory Board continued to assess its
effectiveness and found that it successfully fulfilled its
responsibilities and operated effectively throughout the year.
The following Supervisory Board Report is approved by the
Supervisory Board of TBC Bank.
MAMUKA KHAZARADZE,
CHAIRMAN OF THE SUPERVISORY BOARD
Dear Shareholders,
In October 2015, TBC Bank confirmed its intention to seek a
Premium Listing on the London Stock Exchange in 2016. As a public
company, we are firmly committed to achieving the standards of
corporate governance, which are in accordance with all applicable
regulatory requirements, best recommended practice, Basel
requirements and the Bank’s future development plans.
The Supervisory Board has the ultimate responsibility for the
Bank’s business, risk strategy and financial soundness, as well as
how the Bank organises and governs itself with the goal of ensuring
the long-term success of the Bank in order to best serve the needs
of shareholders.
In 2015, the Supervisory Board focused on several key issues,
including business strategy, corporate governance and risk
management. These are discussed in greater detail in our Risk
Management Chapter on page 99 and in the Risks, Ethics and
Compliance Committee Report on page 93. The Supervisory Board is
charged with the responsibility of ensuring that the Bank’s
Management achieves its strategic objectives. During the year,
Management reviewed the Bank’s strategy, addressed in greater detail
in the Strategic Report on page 14, and confirmed the updated strategy
for years 2016-2020.
The Supervisory Board carried out a robust assessment of the
principal risks affecting TBC Bank, and these are discussed in greater
detail in the Chapter on Principal Risks and Uncertainties in the
Strategic Report on page 14. The Supervisory Board reviewed and
approved our new Risk Appetite Framework and Risk Appetite
Statement, as well as the updated Operation Risks Framework, and
the new Risk Management Strategic Initiatives.
We reviewed independence status of our Non-executive Directors.
Stefano Marsaglia and Nikoloz Enukidze remain independent. Eric
Rajendra and Nicholas Dominic Haag were originally nominated to
the Supervisory Board by two of the Bank’s shareholder IFIs, IFC
and EBRD respectively. The Board, after assessing their links with
the respective shareholders, the fact that they have been acting
“independent” in letter and spirit on all matters concerning the
bank, and how the Board would expect to assess their
independence under the key benchmarks of the UK Corporate
Governance Code, has deemed them to be independent.
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Supervisory Board Responsibilities
The Bank’s governance structure establishes proper incentives for
the Supervisory and Management Boards to pursue objectives that
are in the interest of the Bank, and effectively manage the
relationship between the Management Board, the Supervisory
Board, shareholders and other stakeholders.
In addition, the Supervisory Board is responsible for the following
specific areas:
• approving purchases or disposals by TBC Bank that exceed 3% of
the Bank’s equity;
• approving the issuance of procura (general power of attorney) by
the management of TBC Bank;
• approving the establishment and liquidation of TBC Bank’s
TBC Bank’s corporate governing bodies are the General Meeting of
Shareholders, the Supervisory Board and the Management Board. A
number of appropriate committees have been established at both
the Supervisory and Management Board levels.
The General Meeting of Shareholders is the supreme governing
body of the Bank, with authority over all key decisions. It elects the
Bank’s Supervisory Board, which is responsible for the supervision
and appointment of members to the Management Board.
The Management Board is responsible for TBC’s day-to-day
management, with the exception of functions reserved to the
General Meeting of Shareholders and the Supervisory Board. The
Supervisory Board appoints the members of the Management Board
for renewable terms of four years and is also in charge of their
dismissal. Banking regulations contain certain limitations as to who
may become a member of the Management Board and criteria that
each Director must fulfil. The scope of authority of each member of
the Management Board is defined by a contract entered into with the
Director upon appointment.
The Supervisory Board plays a key role in the Corporate Governance
of the Bank. It has ultimate responsibility for the Bank’s business,
risk strategy and financial soundness, as well as how the Bank
organises and governs itself. The Supervisory Board appoints and
supervises Management to ensure both the achievement of the Bank’s
strategic objectives and Management’s ongoing response to the risks
inherent in the business activities. The Supervisory Board is also
responsible for the appointment, evaluation and compensation of the
Management Board members.
Supervisory Board Composition
branches;
• authorising any borrowing by TBC Bank if such borrowing
exceeds 20% of the Bank’s equity;
• electing, changing or removing the external auditor;
• approving the listing of TBC Bank’s shares on a stock exchange;
• approving investments by TBC Bank, which exceed an aggregate
total amount of USD 1 million;
• approving any sale, lease, exchange, transfer, pledge,
contribution or other disposition of the assets of TBC Bank and
certain of its subsidiaries exceeding 5% of the book value of TBC
Bank;
• approving disposals of TBC Bank’s assets, which exceed 5% of
the Bank’s equity;
• approving TBC Bank’s financial indicators for the following year,
including its business plan or annual budget; and
• approving the entering into related party transactions above
USD 100,000.
Full responsibilities of the Supervisory Board are detailed in the
Board Regulation, available through the Investor Relations website.
The Supervisory Board consists of seven members elected by the
General Meeting of Shareholders for a term of four years each. The
Chairman and the Deputy Chairman of the Supervisory Board are
elected by a simple majority of votes. The Chairman of the
Supervisory Board may not simultaneously hold the position of
Chief Executive Officer of TBC Bank. The following table provides
details on the Supervisory Board members and their respective
appointment year. The composition of the Board has not changed
during the financial year 2015.
Name
Position
Mamuka Khazaradze
Chairman of the Supervisory Board
Badri Japaridze
Eric J. Rajendra
Irina Schmidt1
Vice-Chairman of the Supervisory Board
Member
Independent Member
Nicholas Dominic Haag
Independent Member
Stefano Marsaglia
Nikoloz Enukidze2
Independent Member
Independent Member
Initial Year of
Appointment
Current Terms
Year of Appointment
Current Terms
Year of Expiration
1992
1992
2010
2012
2013
2014
2013
2013
2013
2014
2012
2013
2014
2013
2017
2017
2018
2016
2017
2018
2017
1. The term for Irina Schmidt expired in June 2016. Ms. Schmidt is being replaced by one more Independent Board member.
2. Supervisory Board has nominated Nikoloz Enukidze to become the Senior Independent Member of the Board.
Biographies for members of the Supervisory Board currently in office can be found on pages 83 – 85. TBC Bank Supervisory Board
includes four independent members in line with the Bank’s commitment to high standards of corporate governance.
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In 2015, the Supervisory Board met 79 times: five in person and on 74 additional occasions to discuss relevant items via email and
teleconference.
Name
Chairman
Mamuka Khazaradze
Deputy Chairman
Badri Japaridze
Non-executive Directors
Eric J. Rajendra
Irina Schmidt
Nicholas Dominic Haag
Independent Members
Nikoloz Enukidze
Stefano Marsaglia
Company Secretary
Irma Dvali
Scheduled Meetings
Eligible To Attend
Scheduled
Meetings Attended
Extraordinary Meeting
Eligible To Participate
Extraordinary
Meeting Participated
5
5
5
5
5
5
5
4
5
5
5
5
5
3
74
74
74
74
74
74
74
74
74
74
74
74
74
74
Application of the Georgian Corporate Governance Code for Commercial Banks
TBC is party to the Corporate Governance Code for Commercial Banks adopted by the Banking Association of Georgia in September 2009,
which was drafted with the guidance of the IFC, one of the Bank’s shareholders, based on internationally recognised principles of good
corporate governance. Compliance with the CG Code for Commercial Banks is not mandatory; however, in February 2014 TBC revised its
internal regulations to ensure compliance with the CG Code and since then, TBC has complied with all relevant provisions set out in the
above Code.
Committee Policy
• approved the corporate governance and nomination training to be
held in March 2016; and
• discussed and approved reappointment of the Management
Board members.
Risk Management
• discussed and Approved new Risk Management Strategic
Initiatives, updated Risk Appetites Statement and Risk Appetite
Statement;
• reviewed feedback from the NBG on the Bank’s ICAAP document
and the NBG annual management board letter;
• approved an updated Policy on Anti-money Laundering and
Anti-corruption Standards;
• reviewed and approved the updated Liquidity policy, FX Risk
Policy and IRR Policy; and
• reviewed and approved the Bank’s Operation Risks
Framework.
Management Compensation
• discussed and approved the “Senior Management Compensation
System 2015-2018” (including its appendix 1), replacing the
existing “Senior Management Compensation System 2013-2015”
of June 2013; and discussed and approved the Middle
Management Long-Term Incentive scheme.
The Board worked on other ongoing matters as prescribed under
its roles and responsibilities
Supervisory Board Performance in 2015
In addition to the regular functions described above, the following
list highlights how the Board spent its time in 2015:
Strategy and Budget
• continued to monitor the Bank’s achievement of strategic
objectives;
• continued to monitor the Banks achievement of its budget;
• discussed and approved the revised budget for 2015 as well as a
high level budget for 2015-2019;
• discussed and approved the updated Strategy of the Bank for the
2016-2020 period;
Premium Listing
• discussed TBC Bank’s plan to move to the premium segment on
the London Stock Exchange, including all the requirements,
estimated costs, timing and the benefits of the move, as well as
current macroeconomic conditions and relevant peer examples;
• approved the plan to move to the premium segment before the
end of 2016;
• discussed and approved financial advisors for the premium
listing;
• approved the engagement of the Bank’s external auditor, PwC,
for the premium listing-related non-audit services;
• closely monitored the progress of the premium listing; and
• discussed presentations and updates of the premium listing;
Corporate Governance
• discussed and approved the changes to the Management
Board Regulation;
• discussed and approved the changes to the Supervisory
Board Charter;
• reviewed and approved amendments to the Audit
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Succession Planning and Appointments
TBC Bank looks to ensure that the Supervisory and Management
Boards consist of highly qualified and skilled members. Policies on
the appointment, Term of Office and Resignation of the Supervisory
Board Members are provided in Article 2 of the Supervisory Board
Regulation. The responsibility to seek and recommend appropriate
candidates for Supervisory and Management Board positions, as
well as to draft and recommend the Succession Planning policy of
the Bank, rests with the Corporate Governance and Nomination
Committee. Succession Planning Policy is provided in the
Nomination Committee performance review on page 81.
Conflicts of Interest
The Charter and The Supervisory Board Regulation incorporate
relevant provisions on conflicts of interest for the Board members
for appropriate disclosures and approvals. These requirements
were fully complied with during 2015.
Principal Activities of the Company
The Bank is a joint stock company limited by shares and was set up
in accordance with Georgian regulations. The Bank’s registered
address and place of business is: 7 Marjanishvili Street, 0102
Tbilisi, Georgia.
Additional information to be considered as part of this Report is
presented in the following sections:
Operating Environment and Market Review 14
Business Model 20
Strategy 22
Principal Risks and Uncertainties 40
Financial Review 52
People 70
Corporate and Social Responsibility 73
Risk Management 98
Audited Consolidated Financial Statements 113
Dividend Pay-out Recommended by the Board
On 19 May 2015, the General Meeting of Shareholders approved a
distribution in the amount of GEL 39,362,724.87 (gross of taxes) to
the shareholders (equivalent to 25% of TBC Bank’s net profit),
which was paid on 2 June 2015. On 26 February 2014, the
Supervisory Board approved a resolution, beginning in 2015, to
annually distribute 25% of TBC’s consolidated net income for the
previous year as a dividend to shareholders, provided that the
financial standing of TBC Bank allows such distribution. The
dividend for this year is set at 25% and is subject to shareholders’
approval.
Indemnity Provision
TBC Bank Directors and Officers are eligible for indemnity provision
that includes liability cover from claims that may arise as a result of
decisions and actions taken within the scope of their regular duties.
The Bank’s insurance policy also contains special excess protection for
Supervisory Board Members, who may not be eligible for the same
indemnities as Management Board Members and other officers.
Political Donations
There were no political donations made during the year 2015.
Risk information on Financial Instruments
Descriptions of all relevant risk management policies are available
in Note 35 to the Audited Consolidated Financial Statements of the
Bank and approved by the Supervisory Board.
Post-Balance Sheet Events
There have been no post-balance sheet events.
Likely Future Developments in the Business
Likely future developments in the business of the Bank are
discussed in the Strategic Report, available on page 14.
Research and Development in the Business
TBC Bank continuously updates, develops and researches new and
existing products and services for all of its business lines as part of
its regular course of operations.
Branches Outside the UK
TBC provides a wide range of banking and financial services
through 128 branches and offices in Georgia and through its
affiliates, including seven in Azerbaijan and an affiliate office in
Israel.
Acquisition of Own Shares
TBC Bank has not conducted an acquisition of its own shares.
Employees
Disability
TBC Bank gives equal opportunity and creates conditions for
employment and career growth to disabled candidates and
employees.
Career development and training opportunities are provided to
disabled employees at an equal level and scope with all necessary
adjustments to fit the special needs of our colleagues.
Employee Involvement
TBC Bank regularly communicates to its employees, providing
information on the Bank and its activities, including in relation to
financial and economic factors affecting the Bank’s performance, and
receiving regular feedback from all staff. The Bank implements
top-down communication from Supervisory Board to the Management
Board and middle management and then to employees using executive
presentations, corporate news magazines, intranet content, and
various employee appreciation and motivation events organised by the
Human Resources department.
In order to accurately assess the attitude and experience of
employees, the HR department conducts regular Employee
Satisfaction and Engagement Surveys each year, which among
other things monitor staff engagement and loyalty. The results are
discussed and appropriate action plans are set by the management
each year.
Apart from the base salary and additional cash incentives, both the
Management Board members and key members of the middle
management enjoy bonuses awarded in the form of the Bank’s
shares under the Long-Term Incentive Plan (LTIP).
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CONTINUED
The Shares are allocated to eligible members on the basis of their
performance and performance of their teams. The number of
shares allocated depends on delivery against relevant KPIs. Shares
are allocated each year, following publication of the audit report.
Appointment and Replacement of Directors
The General Meeting of Shareholders is authorised, by a simple
majority of votes, to amend the articles of the Bank and to appoint
or replace the Directors.
Company’s Capital Structure
As of 31 December 2015, the authorised capital of the Bank is GEL
22,482,611 (twenty two million four hundred eighty two thousand six
hundred and eleven Lari). Equity attributable to the owners of the
Bank is GEL 1,211,260,000 (one billion two hundred and eleven
million two hundred sixty thousand). Total Capital Per Basel III local
regulation is GEL 1.199 billion. There are 56,206,527 shares
authorised and. As of 31 March 2016, 50,054,9191 shares out of the
authorised shares are issued and fully paid.
Shares granted and not vested to the top management and middle
management of the Bank as part of the LTIP described above, do
not have voting rights until vesting conditions are met.
Significant ultimate owners of the shares of the bank are Mamuka
Khazaradze and Badri Japaridze holding 14.8% and 7.4%,
respectively. They hold shares both directly in the capital of the
Bank and through SPVs. For their biographies please see page 94.
The rights attached to shares awarded under the LTIP described
above, are subject to the condition of continuous employment.
Initially, shares are subject to restrictions on sale and transfer to
any party and do not provide for voting rights, but they are eligible
for dividends. After one year of continuous employment from the
date of registration of the shares in the name of the beneficiary,
restrictions are removed with respect to 10% of the shares
awarded, after two years, the restrictions are removed with respect
to another 10% of the shares, and after three years all shares
become free from restrictions.
The LTIP also provides additional provisions governing entitlement
to shares and obligations to return the shares in case of termination
or expiry of service contract or employment contract.
The powers of the Supervisory Board and AGM, including in relation
to the issue or buy back of the Company’s shares, are set out in the
relevant Georgian Law and the Charter of TBC Bank.
Securities Carrying Special Rights
There are no securities carrying special rights with regard to
control of the Company.
Restrictions on Voting Rights
Shares granted and not vested to the top management and middle
management of the Bank as part of the LTIP described above, do
not have voting rights until vesting conditions are met. As of
31 March 2016, these shares represented 2.1%1 of the issued and
paid shares of TBC Bank.
There are no restrictions on voting rights, except that the
employees cannot enjoy the rights on the shares under the
employee share scheme until the shares are vested.
1. The number reflects the grant of bonus shares to a number of senior employees
of TBC Bank, in line with the Bank’s Long-Term Incentive Plan, conducted on 17
March 2016.
82
Change of Control
Contracts with most of the Bank’s lenders usually contain a change
of control clause which usually requires the lenders consent before
the change of control occurs. Contracts with top management
contain a special provision for increased compensation if the loss of
office occurs because of a change of control.
Going Concern Basis
The Directors confirm that they consider it appropriate to adopt the
going concern basis of accounting, and there are no material
uncertainties to the Bank’s ability to continue to do so for the
foreseeable future from the date of approval of the financial
statements.
Risk Management and Internal Control
The Supervisory Board is responsible for the effectiveness of the
risk management and internal control in TBC Bank. TBC Bank has
identified major risks faced by the Bank, has determined the Bank’s
risk appetite and developed a risk strategy. Key risks faced by the
Bank are Credit risk, Operational risk, Market risk, Liquidity risk,
Interest Rate risk on banking book, Strategic and Reputational
Risks.
Management has set up control system in order to ensure that key
risks are properly managed and mitigated. A number of policies are
approved at Supervisory Board level. Key performance metrics are
regularly reported to the Supervisory Board and/or to the Risk,
Ethics and Compliance Committee.
In accordance with Basel II Pillar 2 and 3 requirements, the Bank
performed in depth Internal Capital Adequacy Assessment Process
(ICAAP); the Supervisory Board and Risk, Ethics and Compliance
Committee are actively involved in debating the output document.
The next updated ICAAP document is planned to be submitted to the
National Bank of Georgia for further review during the year 2016.
Further information on the Bank’s risk management is available in
the Risk Management Report on page 99.
Responsibility of the Supervisory Board
The members of the Supervisory Board confirm their engagement
in preparing the annual report and accounts in conformity with the
detailed responsibilities provided in Article 10 of the Georgian
Supervisory Board Regulation, and state that they consider the
report and accounts, taken as a whole, as fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Bank’s performance, business model
and strategy. The Independent Auditor’s Report is available on
page 113.
Each of the members of the Supervisory Board, whose names and
functions are listed on pages 84 – 85, confirm that, to the best of
their knowledge and belief:
b. the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or loss
of TBC Bank and the undertakings included in the consolidation
taken as a whole; and
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c. the management report includes a fair review of the
On behalf of the Supervisory Board,
development and performance of the business and the position
of TBC Bank and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
The members of the Supervisory Board confirm that, so far as they
are aware, there is no relevant audit information of which the
auditors are unaware and the Directors have taken all steps that
they ought to have taken as a member of the Supervisory Board in
order to make themselves aware of any relevant audit information
and to establish that the Company’s auditor is aware of that
information.
MAMUKA KHAZARADZE
CHAIRMAN OF THE SUPERVISORY BOARD
Members of the Supervisory Board
MAMUKA KHAZARADZE
CHAIRMAN OF THE SUPERVISORY BOARD
Mr Khazaradze graduated from the Technical University of Georgia in 1988 and also holds a
diploma from Harvard Business School. Between 1988 and 1989, he worked as an engineer
at the Projecting-Technological Scientific Research Institute in Tbilisi. In 1991 and 1992,
respectively, he founded and became the President of TBC Bank. In 1995 he founded IDS
Borjomi Georgia, Borjomi Beverages Co. N.V., where he held the position of President until
2004, and between 1999 and 2002, he acted as Vice Chairman of the Supervisory Board of
Microfinance Bank of Georgia. In 2004, Mr Khazaradze also founded the Georgian
Reconstruction and Development Company, of which he is still the President. Between 1997
and 2007, he was also Vice President of the Olympic Committee of Georgia. Since 2000 he
has been a partner and the President of NGO New Movement, and since 2010 has served as
the Chairman of the Board of the American Academy in Tbilisi and the Chairman of the
Supervisory Board of Lisi Lake Development. In 2014, Mr Khazaradze was recognised as
Entrepreneur of the Year in Georgia by Ernst & Young, the year this prestigious awards
programme was launched in the country. Mr Khazaradze has been the Chairman of the
Supervisory Board since TBC Bank’s incorporation in 1992.
BADRI JAPARIDZE
DEPUTY CHAIRMAN OF THE SUPERVISORY BOARD
Mr Japaridze graduated from the faculty of psychology of Tbilisi State University in 1982 and
also holds a postgraduate qualification from the Faculty of Psychology of Moscow State
University. In 2001 he also completed an executive course at the London School of
Economics and Political Science. Between 1990 and 1992, Mr Japaridze was a member of
the Parliament of Georgia. In 1992, he was appointed as Head of the Foreign Relations
Department at TBC Bank and was appointed as Vice President of TBC Bank in 1993. In 1996,
he was elected as Chairman of the Board of TBC TV LLC, a position he still retains. Since
1995, he has held the position of Vice President of IDS Borjomi Georgia, a Georgian Branch
of IDS Borjomi Beverages Co.N.V., of which he is a co-founder, and acted as a member of
the Board of that company between 2004 and 2010. In 1995, Mr Japaridze was elected to
TBC Bank’s Supervisory Board and has held the position of Vice Chairman of the
Supervisory Board since 1996. Since 2004, he has also acted as a member of the
Supervisory Board of the American Chamber of Commerce in Georgia and the Georgian
Reconstruction and Development Company, of which he is co-founder. Mr Japaridze was
elected to the Supervisory Board of the EU-Georgian Business Council in 2006 and later
became the Vice Chairman. In 2008, he was elected to the Supervisory Board of Geoplant, a
position he retains today. Mr Japaridze is also the Chairman of the Supervisory Board of
TBC Kredit and the Vice Chairman of the Supervisory Board of TBC Leasing.
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CONTINUED
ERIC J. RAJENDRA
MEMBER OF THE SUPERVISORY BOARD
Mr Rajendra graduated from Brandeis University (BA), earned his MA at the Fletcher
School in 1982 (Tufts University in cooperation with Harvard University) and conducted
postgraduate research at INSEAD Business School in the areas of Financial Markets and
institutions. Mr Rajendra is also a graduate of the Australian Institute of Company Directors
and was formerly an Adjunct Professor of Strategy at INSEAD. During 2005-2014, he held
the position of Senior Advisor to the IFC and has served as a Board Director or Consulting
Advisor on selected emerging markets financial institutions where the World Bank Group
has an equity interest, as well as leading strategic initiatives for the firm. Prior to joining
the IFC, he was a Vice President at Capgemini and a Vice President at Electronic Data
Systems; in both institutions he was a key leader of the financial services practice. From
2010 to 2012 he was a member of the Board of Directors at Orient Express Bank. During
2006-2014 he was a member of the Board of Directors of LOCKO-Bank, where he is also the
Chairman of the Audit and Risk Committee. He started his career as a banker at JP Morgan
Chase Bank in 1982 and later became a partner at McKinsey & Company. Mr Rajendra was
appointed to the Supervisory Board in 2010.
IRINA SCHMIDT
MEMBER OF THE SUPERVISORY BOARD
Ms Schmidt graduated from St. Petersburg State University with a degree in Foreign
Languages and Literature in 1994 and obtained DES from Geneva University in 1999 and an
MBA from Europa-Institut (Saarland University) in 2001. Since 2001, Ms. Schmidt has held a
number of positions in DEG, including Investment Manager and Senior Investment Manager
with Power of Attorney (procura). Since 2007, Ms Schmidt has served as a Vice President of
DEG in Europe/Middle East/Central Asia with responsibility for new business development,
project evaluation and the management of DEG’s portfolio in the Caucasus region. Since
2012 she has been a Board member of Bank Respublika in Azerbaijan. Ms Schmidt
was appointed to the Supervisory Board (as the nominee for DEG) in 2012.
NIKOLOZ ENUKIDZE
INDEPENDENT MEMBER OF THE SUPERVISORY BOARD
Mr Enukidze graduated from Tbilisi State University with a degree in Physics in 1993 and
obtained an MBA from the University of Maryland in 1996. Mr Enukidze has served as
Managing Director of Corporate Finance for Concorde Capital, a leading Ukrainian
investment banking firm; Assistant Director at ABN AMRO Corporate Finance in London for
four years; Senior Manager of Business Development of Global One Communications LLC
based in Reston, Virginia; and three years at ABN AMRO Corporate Finance in Moscow.
After years of experience in the financial services industry, Mr Enukidze served as Vice
Chairman of the Supervisory Board of Bank of Georgia and was one of the key people
leading the bank to a successful IPO on the London Stock Exchange, the first ever IPO in
London for a company from the Caucasus region. In 2008, Mr Enukidze was appointed as
Chairman of the Bank of Georgia Board and he led the bank through the international and
local financial crisis. Prior to joining TBC, Mr Enukidze also served as Chairman of the
Supervisory Board of Galt & Taggart Securities. At present, as founder of Nine Oaks
Advisors, Mr Enukidze acts as financial adviser and investor on projects in Central and
Eastern Europe. Since 2011 he has also served as an independent Director of the
Supervisory Board and member of the Audit Committee of TMM Real Estate Development
PLC, a Ukrainian real estate development company listed on the Deutsche Börse since
2007, and since 2014 as the Chairman of the Supervisory Board of JSC Caucasus Minerals.
Mr Enukidze was born and raised in Tbilisi and is a Georgian and British national. Mr
Enukidze was appointed to the Supervisory Board as an independent member in 2013.
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NICHOLAS DOMINIC HAAG
MEMBER OF THE SUPERVISORY BOARD
Mr Haag earned an MA from the University of Oxford with a degree in Modern Studies in
Geography in 1980. Mr Haag has 32 years of experience working in the financial services
industry, with a significant emphasis on equity capital markets. His experience includes
seven years at Barclays Bank between 1980 and 1987 in various capital markets and project
finance roles, including as the Head of Equity Syndicate, Barclays de Zoete Wedd (BZW); ten
years at Banque Paribas, Paribas Capital Markets between 1989 and 1999, initially as
Deputy Head of Global Equity Capital Markets and later Senior Banker and Head of
European Client Coverage (ex-France); two years at ING Barings between 1999 and 2001 as
Managing Director and Global Head of Technology Banking Group; six years at ABN AMRO
between 2001 and 2007 based in London as the Global Head of Technology Banking,
Member of Global TMT Management Committee, Senior Managing Director and Member of
the Senior Credit Committee; four years with the Royal Bank of Scotland between 2008 and
2012 and RBS Hoare Govett as Managing Director, Head of London Equity Capital Markets
and Member of the Global Equities Origination Management Committee. Since 2012, he has
served as a senior independent adviser to the Chairman of the Management Board and
since 2013 as a member of the Supervisory Board of Credit Bank of Moscow and a financial
consultant specialising in capital raisings and stock exchange flotations. Since 2012 he has
acted as sole Director of his own consulting company, Nicdom Limited. Mr Haag was
appointed to the Supervisory Board in 2013.
STEFANO MARSAGLIA
INDEPENDENT MEMBER OF THE SUPERVISORY BOARD
Mr Marsaglia graduated from Turin University with a degree in Economics and Commerce
in 1978. Mr Marsaglia has 35 years of experience in the financial services industry with
particular expertise in corporate and investment banking in Europe and Latin America. In
1987, he was appointed Deputy Managing Director and Head of Investment Banking for
Southern Europe at UBS and served as Assistant Director at Morgan Grenfell from 1983 to
1987. Mr Masaglia acted as Managing Director, Global Head of Financial Institutions and
Co-Head of Investment Banking for Europe at Rothschild between 1992 and 2010, and as the
Chairman of Global Financial Institutions of the Investment Banking Division at Barclays
Bank, London between 2010 and 2014. Mr Masaglia currently serves as Executive Chairman
of Corporate and Investment Banking at Mediobanca, London. Mr Marsaglia was appointed
to the Supervisory Board in 2014.
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SUPERVISORY BOARD COMMITTEES
In line with international standards of best practice, Basel requirements, and the Bank’s future development plans, TBC Bank has
established several committees; the Risks, Ethics and Compliance Committee, Remuneration Committee, Corporate Governance and
Nomination Committee and Audit Committee.
These Committees assist the Supervisory Board and the Bank in improving the structures and processes in place for managing the Bank,
the relationship between the Management, the Supervisory Board, shareholders, and other stakeholders. Please find the respective
Committee Reports on the following pages:
Audit Committee
Remuneration Audit Committee
Corporate Governance and Nomination Committee
Risks, Ethics and Compliance Committee
The following table sets out Supervisory Board Committee membership:
87
91
92
93
Audit Committee
Remuneration
Committee
Corporate Governance
and Nomination
Committee
Risks, Ethics and
Compliance
Committee
Outside Directors
Badri Japaridze
Eric J. Rajendra
Irina Schmidt
Nicholas Dominic Haag
Nikoloz Enukidze
Stefano Marsaglia
Chairperson
Member
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In relation to Risk, the Bank has a separate Risk Committee (which
Nikoloz Enukidze chairs and of which I am a member) and, while
there are areas of overlap (e.g. in relation to operational risk), the
two committees each have defined responsibilities and cooperate
extensively to minimise duplication and ensure nothing is
overlooked. Under forthcoming accounting rule changes, in
particular IFRS9, the work of the Audit and Risk committees of
banks in general will share many of the same complex issues of
judgement and policy.
The Bank continues to grow with the Georgian economy and is
accumulating market share in certain key areas. Nevertheless, the
Audit Committee is conscious of the “macro” headwinds facing the
global and regional economy which does not leave Georgia
unscathed. Therefore, the Audit Committee remains more vigilant
than ever in seeking, with the help of external and internal auditors
as well as management, to ensure in critical areas, such as the
calculation of loan impairments, the accuracy at particular points in
time of our financial releases and internal records. The more
challenging economic context also potentially raises the
operational risks within the Bank and again these are being closely
monitored. One initiative planned for 2016 is the implementation of
a “whistleblowing” or anonymous hotline for staff or external
entities to alert the Bank to any potentially unsatisfactory practices.
The Committee met formally in person in each quarter of 2015
(March, June, September, December), in accordance with the
Bank’s quarterly financial reporting cycle and the cycle of
Supervisory Board meetings. There were regular interim telephone
meetings, mostly around planned releases of financial data, and
also ad hoc communications between members and with Internal
Audit, external auditors and management.
AUDIT COMMITTEE REPORT
Committee Membership and Qualifications
The Committee continued in 2015 to comprise four Non-executive
Directors of whom two are independent NEDs, Nikoloz Enukidze
and Stefano Marsaglia. Nikoloz has in the past been Chairman of
Bank of Georgia and Stefano is Chairman of investment banking at
Mediobanca. The other two committee members, Eric Rajendra and
myself, were originally nominated to the Supervisory Board by two
of the Bank’s shareholder IFIs, IFC and EBRD respectively. The
Board, after assessing our links with the respective shareholders,
the fact that we have been acting “independent” in letter and spirit
on all matters concerning the Bank, and how the Board would
expect to assess our independence under the key benchmarks of
the UK Corporate Governance Code, has deemed us to be
independent.
All current members of the Committee (see biographies on pages
84 – 85 of the Annual Report) possess a detailed understanding of
the financial sector, with backgrounds primarily in banking, and
most have served on (or chaired) other banks’ audit and also risk
committees. The Committee therefore has sufficient recent and
relevant expertise to operate effectively and calls upon other expert
internal and external resources when required.
The Audit Committee is acutely aware of the even higher standards
expected of the Bank’s disclosure, record-keeping and controls
associated with its intended Premium Listing and will continue to
work to ensure these are fully met and maintained.
Committee Role and Meetings
The Audit Committee, which holds delegated authority from the
Supervisory Board and powers explicitly attributed to it by Law, has
multiple areas of responsibility and focus. Its first priority is to
ensure the integrity (accuracy and full disclosure) of the Bank’s
financial reporting, looking hardest at areas of reporting risk,
supervising the proper interpretation of accounting rules. Second,
the Committee oversees the Bank’s systems of internal control in
relation to financial reporting, fraud and compliance with prevailing
laws and regulations, also evaluating management’s competence in
this task. The Committee relies heavily on Internal Audit to provide
an objective and professionally sceptical view of how the Bank is
handling a number of key reporting and record-keeping tasks. The
Committee also makes recommendations on the appointment and
remuneration of external auditors and seeks to maximise the value
of the external audit relationship.
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CONTINUED
The table below describes the committee composition and formal meeting attendance for 2015:
Audit Committee Composition
Name
Position
Nicholas Dominic Haag
Chairman
Eric J. Rajendra
Nikoloz Enukidze
Stefano Marsaglia
Member
Member
Member
Year of
Appointment
Scheduled
Meetings
Eligible To
Attend
Scheduled
Meetings
Attended
Additional
Meetings
Eligible to
Attend
Additional
Meetings
Attended
2013
2012
2014
2014
4
4
4
4
4
4
4
2
9
9
9
9
9
9
9
8
The Bank’s CEO, CFO and other Management Board members (in
particular the CRO) were on occasion invited to participate in Audit
Committee meetings together routinely with the Head of Internal
Audit. Minuted meetings generally took place on the day prior to
Supervisory Board meetings and the Audit Committee made a
formal report as a separate agenda item in the latter, this also
being minuted.
The Audit Committee Policy of the Bank is set out on TBC’s internet
web site at the IR Website
This Policy document was last reviewed, amended and agreed by
the Committee in February 2014 and approved by the Board in
March 2015.
Assessment of Effectiveness
The Audit Committee Effectiveness Review is conducted every year
by the Board and the individual Committee members in order to
assess the Audit Committee’s performance, as per international
best practice standards.
The review conducted for the year 2015 was completed in March
2016 and concluded that the Committee operates effectively and
carries out all its responsibilities as laid out in its Charter.
Planning and Release of Financial Statements
Since 2014 (and IPO) the Audit Committee assumed the role of
comprehensively pre-vetting all audited and auditor-reviewed
financial releases. Accordingly, the Audit Committee reviewed
during the year the releases of half-year and full-year financial
statements, making recommendations to the Supervisory Board to
approve these. The Committee also had pre-release sight of the
third quarter results and held discussions with management about
each of these releases, typically with a multi-stage drafting, review
and approval process. The Audit Committee has reviewed all data
and narrative comment and concluded that the full year financial
statements are complete, clear, balanced and consistent with the
Committee’s understanding of the facts. Likewise, we considered
and are satisfied with transparency on the Bank’s liquidity and
capital adequacy statements.
The Audit Committee held multiple audit planning meetings with
PwC in 2015, commencing formal audit planning in June. The Audit
Committee had the opportunity, without management present, to
highlight areas it wished the external audit to focus on, flagging
relevant issues and trends. The Committee has evolved towards a
policy of regular quarterly face to face status discussions with PwC
as part of its formal Audit Committee meeting agendas, proactively
and mutually addressing any material audit or control issues. PwC
has started to attend not only Audit Committee but also parts of
Supervisory Board, as well as Management Board, meetings. In
addition, as Chairman of the Audit Committee, I have regular,
candid and free-form private sessions with PwC also between
Committee and Board meetings. In recent meetings with PwC, in
addition to discussion around valuation of fixed assets, impairment
of intangible assets and other topics, we have focused on the Bank’s
new methodology for calculating loan impairments and provisioning
and on the interpretation of, preparedness for and implications of
IFRS 9 on banks in general. The Bank has embarked on a tender to
select an adviser to assist it on preparing for implementation of
IFRS 9 and to ensure that we are in a position as soon as possible to
guide investors and other key constituencies on these important
changes and what they may mean for the Bank.
Other Areas of Audit Committee Focus
We have assessed the reasonableness and appropriateness of
critical accounting policies. The main area of accounting judgment
involved the valuation of loans issued and related impairment
charges and loan loss provisions.
The Bank revised the accounting treatment of its portfolio of
investment securities. These changes are described in detail in the
financial statements. The investments that the Bank intends and
has the ability to hold to maturity are now classified as Bonds
Carried at Amortised Cost in the Consolidated Statement of
Financial Position, some GEL 372 million of such securities being
recorded at year end, the vast majority being Ministry of Finance
Treasury Bills. In accordance with IAS 39, these investments were
moved from the Available for Sale category to Loans and
Receivables category. The Audit Committee discussed this change,
also with PwC, and is satisfied that it meets best practice
disclosure and gives extra clarity on the composition and purpose
of the portfolio.
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The most significant change in the Bank’s accounting estimates over
2015 was the implementation of the Bank’s new provisioning policy
and definition of non-performing loans. The Audit Committee has
worked closely alongside the Risk Committee and members of the
Management Board (in particular the Bank’s Chief Risk Officer) in
designing and implementing the Bank’s enhanced loan loss
provisioning methodology with detailed advice from a specialist
external adviser, Deloitte. The Audit Committee believes that this
policy is now more accurate in assessing impairments of the loan
portfolio, benefiting from more granular segmentation of the portfolio
and comprehensive assessment of risk parameters for different loan
segments, (calculated over three years of historic data). The Audit
Committee notes that loan provisioning has risen from GEL 150
million to GEL 194 million over the course of 2015 and this latter sum
would have been GEL 5.6 million higher under the previous
provisioning methodology. The Audit Committee is satisfied, based on
a review of the new methodology, questions posed to the Finance and
Risk teams and conversations with external auditors, that this
presents a realistic picture of the credit status of the Bank’s loan
portfolio. The Bank has also moved to a revised and more market-
typical definition of non performing loans as loans 90 days+ past due
or loans with underlying well-defined weaknesses regardless of the
existence of any past-due amount or of the number of days past
due. Audit Committee believes that this definition is more meaningful
than the one the Bank previously used. The Audit Committee,
benefiting from work streams led by the Risk Committee, continues to
monitor on a regular basis major individually-assessed loans on the
Bank’s watch list and collectively-assessed loans including those that
are less than 90 days past due (and not yet classified as impaired) to
calibrate any deterioration of credit quality that may feed through
into impairments.
The Audit Committee has also paid close attention to the changes in
the reporting and operational segmentation of the Bank’s different
businesses and clients, an evolution partly designed to reflect the
Bank’s integration of Bank Constanta. Certain borrowers and
depositors have been recategorised from the Retail segment to the
Micro segment. The Audit Committee is satisfied that this presents
a realistic view of the Bank’s different businesses and is supported
by changes to the Bank’s management structures.
In 2015 the Bank carried out a revaluation of its own-use Land,
Premises and Construction in Progress and investment property
(for disclosure purposes) which resulted in some significant
valuation increases. Baker Tilly was involved in this process. The
Audit Committee is satisfied that reported increases in valuation
were validated by a credible external specialist, this being the first
external revaluation of Land, Premises and Construction in
Progress since 2012, and used a process based on the real market
valuation of equivalent assets adjusted for the specifics of our
portfolio versus these benchmarks.
In 2015 Audit Committee undertook for the first time a review of the
Bank’s internal tax department. We interviewed this unit to satisfy
ourselves on the adequacy of their resourcing, governance and
quality of personnel. We investigated the key tax issues, scope for
process automation and real time tax reporting in this area as well
as their ability to forecast tax. We concluded that this unit is fit for
purpose, is not overcomplicated by multiple tax jurisdictions and is
in compliance with the Bank’s tax obligations.
Internal Audit and Control Environment
The Audit Committee meets regularly with the Head of Internal Audit
with no management present, and benefits from the department’s
objective assurance and insights. As Chairman of the Committee, I am
in at least monthly contact with the Head of Internal Audit. The
Committee routinely reviews Internal Audit’s annual and rolling three
year plan, provides feedback on it and authorises any changes to its
scope. We provide targets for and formal assessment of Internal Audit
and ensure that it is effective, suitably embedded in the organisation
and respected by management and of use to them. The head of
Internal Audit now routinely attends monthly Management Board
meetings. Audit Committee solely determines Internal Audit’s budget
and compensation. We are satisfied that Internal Audit has sufficient
resources to perform its role and Audit Committee has where
necessary requested additional funds for Internal Audit to purchase
the training and tools necessary for it to function effectively.
We have extended the remit of Internal Audit. Internal Audit now
undertakes its own assessment of financial and regulatory
reporting to give the Committee (and management) further
assurance on the integrity of our reported numbers. We have also
asked Internal Audit to assess, in the second half of 2016, the
adequacy and effectiveness of the Bank’s revised risk management
framework to ensure that it is being implemented according to plan.
Internal Audit has expanded its role to include the internal audit of
branches previously within Constanta Bank (which used to have its
own internal audit function). Internal Audit played an important role
in 2015 in the investigation of a couple of internal fraud cases. As
soon as these frauds came to light, Internal Audit escalated them to
the Audit Committee (and to Bank management) in accordance with
newly-refined escalation procedures. procedures and the
consequences were calibrated and contained.
Audit Committee has increasingly organised Internal Audit’s plan to be
risk-weighted (i.e. investigate the higher risk priorities more frequently
and in greater depth) and also more flexible, allowing it to conduct
one-off projects where the Supervisory or Management Boards wish it
to undertake special investigations arising from situations where the
Bank may have heightened vulnerability. Internal Audit plans to invest
in specialist software and has down-selected a preferred vendor to
speed up some of its more routine tasks, allowing it to concentrate on
its most added-value missions.
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AUDIT COMMITTEE REPORT
CONTINUED
As usual, we have reviewed the robustness of the Bank’s controls,
working with external auditors and also with Internal Audit to track
closely any identified shortcomings and scrutinising remediation
follow-up with vintage analyses being carefully maintained. KPIs in
respect of the reduction of deficiencies identified by internal audit,
however minor, continue to be cascaded down to branch and
departmental level and also included in KPIs for members of the
Management Board. Audit Committee regularly reviews progress in
this vital discipline and alerts the Chairman of the Management
Board, Divisional heads and the full Supervisory Board where it
occasionally sees intractable problems and insufficient effort at
continuous process improvement. The Audit Committee was
pleased to note that in 2015 there was an improvement in the rate of
remediation of deficiencies identified by internal audit. Audit
Committee has asked Management and Internal Audit to ensure
that the operational standards of previous Constanta Bank
branches, whilst improving, are brought up to the high level existing
in the rest of the Group. We have also asked Internal Audit to
monitor more regularly the control standards in all subsidiaries of
the Group, in particular at TBC Kredit in Azerbaijan given the
deteriorating economy in this country.
In 2015 the Bank undertook a review of the information security
resilience of the Bank, with the help of a specialist external adviser.
This has brought to light a number of areas for improvement. Audit
Committee is very focused on in particular cyber security and
access control within the Bank, these areas being subject to special
ongoing review with the head of the Bank’s IT Division delegated to
lead the improvement process. A specialist IT internal auditor was
hired and has already extensively reported and will continue to do
so. We have also asked our external auditor PwC to probe the
Bank’s information technology systems general controls and fraud
risk assessment procedures to the extent necessary for its annual
financial audit process.
Audit Committee has sought to involve all Management Board
members in contributing to Internal Audit’s 2016 audit plan by
identifying all key processes under individuals’ supervision and
ranking them in a priority-based hierarchy. The intention is to use
this as a double check to ensure that Internal Audit and the Audit
Committee are properly aware of all processes and risk areas
within the Bank and to drive risk-awareness, accountability and
involvement for all members of senior management.
External Auditor Independence and Reappointment
The Audit Committee is responsible for the assessment of the
performance, objectivity and independence of the external auditor
and the delivery of a quality audit. Each year the Audit Committee is
required to consider the re-appointment of the auditors, the
suitability of the lead engagement partner as well as the wider audit
team and the remuneration and terms of engagement for the
chosen auditor. 2015 has been the eighth year in which PwC has
audited the Bank. We remain satisfied that PwC continues to offer
an independent, professional and cost-effective service. We
reached this decision on the basis of their openness to challenge,
our perception of their proper independence from management, the
very low level of prior year financial restatements and PwC’s
proven ability to meet our tight reporting deadlines. It is the
Committee’s current intention, subject to suitable contract terms,
to recommend that we proceed with PwC for the year 2016 audit,
after which we will consider whether it would be appropriate to
conduct an external audit tender.
Audit Committee is rigorous in ensuring that all non-audit
assignments to PwC are vetted by us in order to ensure the proper
independence of judgement of our external auditor. We have hired
PwC for work associated with our Premium Listing as this is
justified by the synergies with their role as our external auditor. The
Audit Committee and management are in agreement that we should
look to other providers for future non-audit services where they
offer an economically and professionally equivalent alternative. The
Audit Committee policy adopted in 2015 formally introduces new
rules on the engagement and remuneration of the Bank’s external
auditor in relation to the performance of non-audit services.
Essentially, we will only use PwC for non-audit services where such
a contract has been pre-cleared with Audit Committee and where
there is either a clear synergy with PwC’s audit role or where PwC
offers superior competence or materially better commercial terms.
As stated, we remain satisfied that PwC demonstrates a sufficient
degree of independence and objectivity in its role as the
Bank’s external auditor.
MR NICHOLAS HAAG
CHAIRMAN OF THE AUDIT COMMITTEE
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REMUNERATION COMMITTEE REPORT
The Remuneration Committee advises the Supervisory Board on the compensation system for the Supervisory and Management Boards,
including reviewing the achievements of and determining compensation for the Supervisory Board and Management Board, the heads of
TBC Bank’s business segments as well as for certain employees of the Bank. The Remuneration Committee is also responsible for
approving members of the long-term management incentive programme and supporting its development, setting the compensation policy
relative to the dismissal of key members of the management, and approving annual reports of remuneration policy and practice.
The Remuneration Committee Policy of the Bank is set out on TBC’s Investor Relations website.
The following describes the Committee composition and meeting attendance in 2015:
Remuneration Committee Composition
Name
Irina Schmidt
Position
Chairman
Year of
Appointment
2012
Eric J. Rajendra
Independent Member
2015
Nicholas Dominic Haag Independent Member
2013
Nikoloz Enukidze
Independent Member
2013
Scheduled
Meetings Eligible
to Attend
Scheduled
Meetings Attended
Additional
Meetings Eligible
to Attend
Additional
Meetings Attended
4
1
4
4
4
1
4
4
4
1
4
4
4
1
4
4
Assessment of Work Completed
In 2015 the Remuneration Committee worked on the following items in line with its responsibilities and obligations:
New Compensation System for 2015-2018
In 2015, the Committee approved the engagement of EY Georgia to provide recommendations on the Bank’s New Compensation System for
2015-2018 for the Supervisory Board, the Management Board and the Middle Management.
The New Compensation System 2015-2018 for the Bank’s Supervisory and Management Board was approved by the Bank’s shareholders at
the AGM on 19 May 2015.
Approval of Management Remuneration and KPI Assessments
The Committee assessed the Management Board performance against KPIs and set remuneration in accordance with the Senior
Management Compensation System adopted in 2015.
Approval of KPIs for 2016
The Committee discussed and updated the 2016 KPIs for the Senior Management of the Bank in accordance with the Management Board
Compensation System adopted in 2015.
Assessment of Effectiveness
The Remuneration Committee Effectiveness Review is conducted every year in order to assess the performance of the Committee. This
assessment is carried out by Committee members themselves and by the Supervisory Board as a whole, in line with international
standards of best practice in corporate governance. The 2015 Remuneration Committee review has found that the Committee effectively
fulfilled all of its responsibilities and obligations.
Remuneration Disclosure
Compensation of the key management personnel and supervisory board members is presented below:
In Thousands of GEL
Saleries and bonuses
Cash settled bonuses related to share-based compensation
Equity-settled share-based compensation
Total
2015
2014
2013
Expense
9,939
4,748
6,864
21,551
Accrued
liability
867
5,254
–
6,121
Expense
10,096
1,463
2,192
13,751
Accrued
liability
3,929
2,012
–
5,941
Expense
8,783
1,692
1,671
12,146
Accrued
liability
3,798
1,692
–
5,490
IRINA SCHMIDT
CHAIRMAN OF THE REMUNERATION COMMITTEE
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CORPORATE GOVERNANCE AND NOMINATION
COMMITTEE REPORT
The Committee is responsible for developing corporate governance
principles and guidelines applicable to TBC Bank, assessing the
alignment of the Bank’s governance practice with international
standards of best practice, selecting and screening individuals
qualified to become candidates for Supervisory Board and
Management Board membership, considering and making
recommendations to the Supervisory Board on the composition of the
Supervisory Board and the Management Board, as well as on the
composition and structure of the Supervisory Board Committees.
four members of the Supervisory Board. Members meet on a
quarterly basis and schedule additional meetings when appropriate.
The committee is chaired by Eric J. Rajendra.
The Corporate Governance and Nomination Committee Policy of the
Bank is set out on TBC’s Investor Relations website.
The following describes the committee composition and meeting
attendance in 2015:
The Corporate Governance and Nomination Committee consists of
Corporate Governance and Nomination Committee Composition
Year of
Appointment
Scheduled
Meetings Eligible
To Attend
Scheduled
Meetings Attended
Additional
Meetings Eligible
to Attend
Additional
Meetings Attended
Name
Position
Eric J. Rajendra
Chairman
Badri Japaridze
Irina Schmidt
Member
Member
2012
2012
2012
Nikoloz Enukidze
Independent Member
2013
4
4
4
4
4
4
4
4
–
–
–
–
–
–
–
–
Assessment of the Work Completed
In 2015 the Corporate Governance and Nomination Committee worked
on the following items in line with its responsibilities and obligations:
New Members of the Supervisory Board
The Committee reviewed and approved the initiative of Board
members to appoint Nikoloz Enukidze as the Senior Independent
Director (SID).
The Board has employed the services of an outside talent selection
agency, Korn Ferry, a leading consultancy in the field in the UK, in
order to recruit a suitable candidate for the position of an independent
Non-executive Directors (INED). The Committee reviewed and
approved the selection of the headhunter and requirements for the
new independent board member. The committee will be actively
involved in the interviews of the short listed candidates and in the
selection of the final candidate.
Succession Planning Policy
The Committee worked on the Succession Planning Framework and
heard and noted the positions of the Management Board members
throughout the year. On 22 September 2015, the Committee
presented and recommended appropriate Succession Planning
frameworks for each of the Deputy CEOs.
Key members of the Management Board and middle management
have been identified for succession planning at the CEO and Deputy
CEO level. The committee has identified strong and weak areas for
each candidate and developed a plan for further professional
development. The recommended succession planning framework
ensures that the Company builds an appropriate internal leadership
pipeline and includes initiatives that cover additional qualification
courses, training opportunities and recommendations on
developing generalist and specialist skills as needed.
Supervisory Board Structure of Subsidiaries
The Committee reviewed the current Supervisory Board structures
for the Bank’s subsidiaries, noting that these are effective and
appropriate for the respective companies.
92
The Committee also noted that relevant training will be provided for
the Subsidiary Board members.
Induction and Training
New Directors of the Supervisory Board receive induction training
shortly after appointment. Further professional development
opportunities are provided based on the work Directors carry out on
different Supervisory Board committees. In 2015, the Corporate
Governance and Nomination Committee was involved in developing a
specialised intranet for the Supervisory Board members. The website
acts as a portal of all materials, minutes and support documents
relevant to the work of the Supervisory Board, making the current and
archived information easily accessible to all Directors.
The Committee has implemented a development programme for
the members of the Supervisory and the Management Boards.
Members of both Boards are required to complete a self-
assessment process at the end of the year, where the members of
the Supervisory Board and the Management Board identify a
relevant development programme. In 2015, the Corporate
Governance and Nomination Committee approved a special training
for the Committee members to be delivered by the Institute of
Directors (IoD), a leading consultancy in this area. The training was
conducted on 17 March 2016.
Assessment of Effectiveness
The Corporate Governance and Nomination Committee
effectiveness review is conducted every year in order to assess the
Committee’s performance. This assessment is carried out by
Committee members themselves and by the Supervisory Board as
a whole, in line with international standards of best practice in
corporate governance. The 2015 Corporate Governance and
Nomination Committee review has found that the Committee
effectively fulfilled all of its responsibilities and obligations.
ERIC J. RAJENDRA
CHAIRMAN OF THE CORPORATE GOVERNANCE AND
NOMINATION COMMITTEE
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
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RISKS, ETHICS AND COMPLIANCE COMMITTEE REPORT
The Risk, Ethics and Compliance Committee (RECC) is responsible
for reviewing, assessing and recommending any actions to be taken
by the Supervisory Board regarding TBC Bank’s risk management
strategy, risk appetite and tolerance, risk management system and
risk policies. In addition, the RECC reviews and approves exposures
to 20 largest borrower groups of and borrowers with aggregate
liability to TBC Bank exceeding 5% of TBC Bank’s Basel capital.
Other main responsibilities of the committee are to supervise TBC
Bank’s commitment to the highest standards of ethical behaviour
and to oversee TBC Bank’s compliance function.
RECC consists of four members of the Supervisory Board and
members meet in person on a quarterly basis. If required, the
Committee holds additional meetings via electronic
communications, including meetings held in accordance with
RECC’s loan approval responsibility. The Committee is chaired by
Nikoloz Enukidze, an Independent Member of the Board.
The Risks, Ethics and Compliance Committee Charter of the Bank is
set out on TBC Bank’s Investor Relations website.
The following describes the committee composition and meeting attendance in 2015:
Risk, Ethics and Compliance Committee Composition
Name
Position
Nikoloz Enukidze
Chairman
Year of
Appointment
2014
Nicholas Dominic Haag Independent Member
2013
Badri Japaridze
Irina Schmidt
Member
Member
2012
2012
Scheduled
Meetings Eligible
To Attend
Scheduled
Meetings Attended
Additional
Meetings Eligible
to Attend
Additional
Meetings Attended
4
4
4
4
4
4
4
4
11
11
11
11
11
11
11
11
RECC views training as important tool in carrying out its duties. In
June, we organised training for our Board members and senior
management on “Strategic Value of Compliance and AML”. Committee
members also visited insider trading and AML training organised by
the Compliance department for the Bank’s employees, in order to
underscore the importance assigned to this training by the Board.
RECC had four formal meetings in each quarter of 2015. RECC
meetings normally last four-five hours and are attended by the
Bank’s CEO, CFO, CRO, Chief Compliance Officer and other senior
members of the management team.
The full Directors’ Statement on Risk Management and Internal
Control is provided on page 99.
Assessment of Effectiveness
The Risks, Ethics and Compliance Committee Effectiveness Review is
conducted every year by the Board and the individual Committee
members in order to assess the RECC performance, as per
international standards of best practice in corporate governance.
During the year 2015, the Committee was effective in overseeing the
Bank’s risk management, compliance activities and ethical standards.
NOKOLOZ ENUKIDZE
CHAIRMAN OF THE RISK, ETHICS AND COMPLIANCE COMMITTEE
Assessment of the Work Completed
2015 was year of significant progress for our Risk Management.
Transformational project started by our CRO George Tkhelidze and
his team at the end of 2014 achieved important milestones. We
made significant senior additions to our risk management team and
increased sophistication and granularity of risk management
processes in line with most recent best practices. We implemented
new more sophisticated Risk Appetite Framework, which is better
aligned with business strategy and with internal planning /
budgeting process, also enabling us to cascade more efficiently
Risk Appetite parameters set by the Board down to every business
unit. New IFRS loan provisioning policy launched at the end of 2015
will help us to measure and manage our portfolio risk better.
The Committee was actively involved in this transformational
project providing support to the management team and closely
monitoring the process. In addition to our four formal meetings of
the Committee, RECC members had many informal meetings and
discussions with our risk management team, our regulators,
consultants and auditors.
RECC had quarterly discussions of bank’s risk management results,
macro-economic environment and its past and forecast impact on the
Bank’s loan portfolio. RECC also heard regular updates on
implementation of the Bank’s compliance programme for 2015.
During the year, RECC reviewed number of important risk
management and compliance policy documents, including updated
Risk Appetite Framework, ICAAP document, revised IFRS
provisioning methodology, Operational Risk Management
Framework, Liquidity Risk Policy, FX Risk Policy, Interest Rate Risk
Policy, Anti-Money Laundering Policy, Liquidity Contingency Plan
and Code of Ethics. In addition to this, in the context of macro
development and local currency devaluation broadly consistent with
the regional and global trends, RECC was actively involved in
Portfolio management activity discussions and in review of
management’s portfolio monitoring results.
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MANAGEMENT BOARD
The Management Board is responsible for TBC’s day-to-day management, with the exception of functions reserved to the General Meeting
of Shareholders and the Supervisory Board. The Supervisory Board appoints the members of the Management Board for renewable terms
of four years and is also in charge of their dismissal. Banking regulations contain certain limitations as to who may become a member of
the Management Board and criteria that each director must fulfil. The scope of authority of each member of the Management Board is
defined by a contract entered into with the director upon appointment.
Members of the Management Board
VAKHTANG BUTSKHRIKIDZE
CEO
Vakhtang joined TBC Bank as a Senior Manager of the Credit Department in 1993 and was
elected as Deputy Chairman of the Management Board in 1994. He became Chairman of the
Management Board in 1996. Since 1998, he has held the position of CEO of TBC Bank and
has headed a number of TBC’s committees. Vakhtang is also a member of the Supervisory
Boards of the Association of Banks of Georgia and is Chairman of the Financial Committee
of the Business Association of Georgia. Since 2011 he has also held the position of member
of the Supervisory Board of the Partnership Fund, Georgia. In 2016, Vakhtang joined the
Visa Central & Eastern Europe, Middle East and Africa (CEMEA) Business Council. In his
earlier career, Vakhtang acted as Junior Specialist at the Institute of Economics, Academy
of Sciences of Georgia, as well as an Assistant to the Minister of Finance of Georgia
between 1992 and 1993. In 2001, Vakhtang was honoured with the “Best Businessman of the
Year” award by Georgian Times Magazine and in 2011, he was recognised as the “Best
Banker 2011” by GUAM – Organization for Democracy and Economic Development award.
Vakhtang was also named as the CEO of the Year 2014 in Central and Eastern Europe and
the CIS by EMEA Finance magazine. Vakhtang obtained an MBA from the European School
of Management in Tbilisi in 2001. He graduated from Tbilisi State University in 1992 with a
degree in Economics and holds post graduate qualifications from the Institute of
Economics, Academy of Sciences of Georgia.
PAATA GADZADZE
FIRST DEPUTY CEO
Paata joined TBC Bank in 1994 as Deputy General Director of TBC Bank and was appointed
to the Management Board in 1996. In 2005, he was also Head of the Credit Department.
Paata has held the position of First Deputy CEO since 1998. Since 2014, he has held the
position of the member of the Supervisory Board of TBC Leasing. Since 2016, Paata serves
as a lecturer at the Free University, Georgia. Between 2000 and 2004, he also served as
CEO of Georgian Pension and Insurance Holding. In his earlier career, Paata was an
Assistant to the Minister of State Property Management between 1992 and 1994. Paata also
held the position of a lecturer at the European School of Management in Tbilisi between
1994 and 2004. Paata graduated from Tbilisi State University in 1992 with a degree in
Economics and holds a postgraduate qualification from the Institute of Economics,
Academy of Sciences of Georgia.
GIORGI SHAGIDZE
DEPUTY CEO, CFO
Giorgi became Deputy CEO and Chief Financial Officer of TBC Bank and was appointed to
the Management Board in 2010. From 2011 until its merger with TBC Bank in 2015, he
served as a member of the Supervisory Board of Bank Constanta. Giorgi also is a Board
Member of the Georgian Stock Exchange. Prior to joining TBC Bank, Giorgi acted as a Global
Operations Executive for Barclays Bank Plc between 2008 and 2010. In his earlier career,
Giorgi worked at the Agro Industrial Bank of Georgia at various positions including as the
Head of the Credit Investment Department and Head of International Payments between
1996 and 2001. Between 2001 and 2005, he worked at Tbiluniversalbank, where he held the
positions of CEO, Deputy CEO, and Head of IT and Branch Manager. In 2005, he became
Director of the Distribution Channels Division at Bank of Georgia before becoming Deputy
CEO of Peoples Bank of Georgia in 2005. Giorgi obtained an MBA degree from the University
of Cambridge Judge Business School in 2008. He graduated from Tbilisi State University in
1997 with a degree in Economics.
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VANO BALIASHVILI
DEPUTY CEO, COO
Vano joined TBC in 1999 as Head of Service, Internal Audit and Control. He became Finance
Division Chief in 2000 and has held the position of Deputy CEO, Chief Operating Officer since
2002. Since 2008, Vano has also held the position of Chairman of the Supervisory Board of
UFC. Between 1993 and 1995, he held the positions of Intern Accountant and Accountant at
Commercial Bank Sandro and Chief Accountant at Commercial Bank Shalen. Between 1995
and 1999, he held the positions of Economist, Foreign Exchange Division, Head of the
Foreign Exchange Department, and Head of the Internal Audit Department at JSC TbilCredit
Bank. Vano graduated from Tbilisi State University in 1992 with a degree in Economics and
obtained an MBA from the European School of Management in Tbilisi. In 2011 he obtained a
Master’s Certificate in Project Management from George Washington University School of
Business.
GEORGE TKHELIDZE
DEPUTY CEO, CHIEF RISK OFFICER
George joined TBC Bank in 2014 from Barclays Investment Bank, where he held the position
of Vice President in the Financial Institutions Group (FIG), EMEA since June 2011. Prior to
this, from September 2009 he was an Associate Director in Barclays Debt Finance and
Restructuring Teams. During his career with Barclays in London, George worked on and
executed multiple M&A, debt and capital markets transactions with European financial
institutions. In his earlier career in Georgia, George held various managerial positions at
ALDAGI insurance company, where he also served as Chief Executive Officer. George
graduated from the London Business School with an MBA degree (2009). He also holds
Master of Laws degree (LL.M) in International Commercial Law from the University of
Nottingham (2002) and Graduate Diploma in Law from Tbilisi State University (2000).
DAVID TSIKLAURI
DEPUTY CEO, CORPORATE BANKING
David joined TBC Bank in 2014 from Deutsche Bank, where he served as the Vice President
of the Capital Markets and Treasury Solutions team since 2011. He has specific expertise in
the origination, structuring and execution of public and private transactions and principal
investment trades in several countries, including the Emerging Markets. Prior to this, David
worked as an Associate in the Debt Capital Markets Department at Deutsche Bank. In his
earlier career, he served as the Head of Investor Relations at TBC Bank during 2005-2006.
David obtained his MBA degree from London Business School in 2008. He also holds MSE and
BSE degrees from the Georgian Technical University.
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CONTINUED
NINO MASURASHVILI
DEPUTY CEO, RETAIL AND SME BANKING
Nino joined TBC in 2000 as a Manager in the Planning and Control Department and became
head of that department in 2002. Between 2004 and 2005, she acted as Head of the Sales
Department and Retail Bank Coordinator. Nino was appointed as Deputy CEO, Retail and
SME Banking in 2006. Between 2006 and 2008, Nino was the Chairman of the Supervisory
Board of UFC. During 2011-2015 she also held a position of a member of the Supervisory
Board of Bank Constanta until its full merger with TBC Bank. Since 2011, Nino has been a
member of the Supervisory Board of TBC Kredit. In her earlier career, she held the
positions of Credit Account Manager, Credit Officer, Financial Analyst (Financial
Department) and Head of the Financial Analysis and Forecasting Department at JSC
TbilCom Bank Between 1995 and 2000. Between 1998 and 2000, she also held the position
of Accountant at the Barents Group. Nino graduated from Tbilisi State University in 1996
with a degree in Economics and obtained an MBA degree from the European School of
Management in Tbilisi.
NIKOLOZ KURDIANI
DEPUTY CEO, MICRO BANKING
Nika has more than ten years of experience in the banking industry which includes five
years at UniCredit Group in Austria, Turkey and Kazakhstan. Immediately before joining
TBC Bank in 2014, Mr. Kurdiani was Managing Director at Kaspi Bank, a leading retail bank
in Kazakhstan. Prior to obtaining his MBA degree in 2007, he served as Head of the Retail
Banking Division of Bank Republic Georgia, Société Générale Group, and also held several
positions at Bank of Georgia between 2003 and 2006. He has expertise in post-acquisition
integration and restructuring, as well as retail and SME banking. Between 2008 and 2010,
Nika held the position of Senior Sales Support Expert at the CEE Retail Division of Bank
Austria, UniCredit Group, responsible for Turkey, Kazakhstan, Ukraine and Serbia. Between
2010 and 2013, he was Head of the Retail Division of ATF Bank, UniCredit Group in
Kazakhstan. Nika obtained his MBA degree from IE Business School in 2007. He also holds
an MSc degree in International Economics from the Georgian Technical University and
completed BBA studies at Ruhr-University Bochum in Germany and the Caucasus School of
Business.
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Other Committees
The Inside Information Committee deals with the identification,
control and disclosure of the inside information and acts as the first
point of contact in cases of leaks of the inside information or
rumours. The Committee is chaired by the CEO with membership
comprised of top and middle managers.
The Customer Experience Management Committee is responsible
for overseeing and ensuring customer satisfaction. The Committee
is chaired by the CEO with membership comprised of top and middle
managers.
The IT Steering Committee is responsible for prioritisation and
approval of IT projects and the IT project portfolio performance
oversight. The Committee is chaired by the CEO with membership
comprised of top and middle managers.
The Information Security Steering Committee supervises and
controls information security and business continuity within the
Bank’s management system. The Committee is chaired by the
Deputy Chief Information Officer with membership comprised of top
and middle managers.
The Change Advisory Board Committee is responsible for the
review and approval of all IT related change requests initiated by
different business units. The Committee is chaired by the Deputy
Chief Information Officer with membership comprised of top and
middle managers.
In order to effectively carry out its daily responsibilities, the
Management Board has established the following committees:
Management Board Risk Committee, Assets and Liabilities
Management Committee (ALCO), Operational Risk Management
Committee, Inside Information Committee, Customer Experience
Management Committee, IT Steering Committee, Information
Security Steering Committee, Change Advisory Board Committee.
Management Board Risk Committee
The Management Board Risk Committee was established to guide
bank-wide risk management activities and monitor major risk
trends to ensure the risk profile complies with TBC’s established
risk appetite. The Management Board Operational Risk Committee
makes decisions related to operational risk governance while the
Assets and Liabilities Management Committee (ALCO) is
responsible for the implementation of asset-liability management
policies.
Assets and Liabilities Management Committee (ALCO)
The ALCO is responsible for overseeing the effective
implementation of TBC Bank’s asset and liability management
policies in order to (I) maximize shareholder value and enhance
profitability, (II) ensure that liquidity, interest rate, foreign
exchange, capital adequacy and interbank counterparty risks are
managed efficiently within the Risk Appetite Statement, and (III)
ensure compliance with existing covenants and limits from the
NBG, IFIs and other third parties.
The functions of the ALCO include setting and monitoring risk
exposure limits based on reports, analysis, forecasts, stress tests
and hypothetical scenarios prepared by TBC’s financial risk
management and other functions, approving risk management
methodologies, making decisions and amendments to TBC’s asset
liability structure, approving risk hedging instruments, and
deciding on corrective actions in case specified limits are breached.
The ALCO is given authority to make a number of decisions
regarding TBC’s assets and liabilities under its governing
documents, although authorisation for certain decisions is reserved
to the Management Board.
Operational Risks Committee
The Operational Risks Committee is responsible for reviewing
operational risks faced by the Bank, overseeing these risks and
making decisions in order to minimise them. The Operational Risks
Committee functions are to review and approve operational risk
management policy; review and approve recommendations related
to the development of the risk management framework; review and
approve the limits of risk insurance; discuss reports on operational
risks; monitor critical risks; and prepare recommendations for the
Management Board on these issues.
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Risk Management Objectives and Principles
Key Risks
Key Focus in 2015
Risk Management Framework
Risk Organisation and Governance
Risk Reporting and Systems
Credit Risk Management
Liquidity Risk Management
Market Risk
Interest Rate Risk Management
Operational Risk Management
Reputational Risk Management
Strategic Risk Management
Compliance and AML Risk Management
Internal Capital Adequacy Assessment Process
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Risk Management Objectives and Principles
TBC Bank operates a strong and independent, business minded risk
management system. Its main objective is to contribute to the
sustainability of risk adjusted returns through implementation of an
efficient risk management system. Four major principles in the
course of risk management have been adopted to enable the
accomplishment of major objectives:
• Govern risks in a transparent manner to obtain understanding
and trust. Consistency and transparency in risk related
processes and policies represent preconditions for gaining trust
from various stakeholders. The communication of risk goals and
strategic priorities to governing bodies and the provision of a
comprehensive follow-up in an accountable manner are key
priorities for risk staff.
• Promote sustainable growth and TBC Bank’s resiliency through
prudent risk management. Risk management represents a
backstop against excessive risk-taking. Capital adequacy
management and strong forward-looking tools and decision-
making ensure TBC Bank’s sustainability and resiliency.
• Ensure that risk management is an enabler of TBC Bank’s
strategy. Risk staff provide assurance on the feasibility of the
achievement of objectives through risk identification and
management. Identification and the adequate pricing of risks, as
well as risk mitigation actions, help generate desired returns and
achieve planned targets.
• Ensure that risk management represents a competitive
advantage for TBC Bank. Comprehensive, transparent and
prudent risk governance facilitates understanding and trust
from multiple stakeholders and ensures the sustainability and
resiliency of the business model and the positioning of risk
management as TBC Bank’s competitive advantage and
strategic enabler.
Key Risks
The key risks faced by TBC Bank include credit risk, liquidity and
market risks (including interest rate risk and foreign currency risk)
and operational risk. Moreover, strategic, reputational and
compliance risks are also recognised.
Credit risk
As a provider of banking services, TBC Bank is exposed to risk of
losses due to the failure of a customer or counterparty to meet its
obligations to settle outstanding amounts in accordance with agreed
terms. Credit risk is the most material risk faced by the Bank as long
as it is engaged mainly in traditional lending activity with a simple
balance sheet. Due to high dollarisation of the economy, currency
induced credit risk is one of the significant components of credit risk,
which relates to risks arising from foreign currency-denominated
loans to un-hedged borrowers in the Bank’s portfolio. Credit risk also
includes concentration risk, which is the risk related to credit portfolio
quality deterioration due to large exposures provided to single
borrowers or groups of connected borrowers, or loan concentration in
certain economic industries.
Liquidity Risk
Liquidity risk is inherent in banking operations. Both funding and
market liquidity risks can emerge from a number of factors which
are beyond TBC’s control. Due to financial market instability,
factors such as a downgrade in credit ratings or other negative
developments can affect the price or ability to access funding
necessary to make payments in respect of the Bank’s future
indebtedness.
Market Risk
TBC Bank does not operate a trading book. Thus, its exposure to
market risk comprises foreign exchange risk and interest rate risk
in the banking book. Accordingly TBC’s only exposure to market risk
is foreign exchange risk in its “structural book”, comprising its
regular commercial banking activities having no trading, arbitrage
or speculative intent. Due to high dollarisation of the economy in
Georgia, movements in foreign exchange rates, can adverse effect
TBC’s financial position.
Interest Rate Risk
Arises from potential changes in market interest rates that can
adversely affect the value of TBC’s financial assets and liabilities.
This risk can arise from maturity mismatches of assets and
liabilities, as well as from the repricing characteristics of such
assets and liabilities.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or
failed processes, people and systems or from external events. It
includes legal risk, but excludes strategic and reputational risk.
Reputational Risk
Reputational risk is the possible loss of the organisation’s
reputational capital resulting in decline of the organisation’s overall
value and/or increased regulatory or other costs. It includes
adverse events related to ethics, safety, security, sustainability,
quality, and innovation.
Strategic Risk
Changes in market conditions, customer behaviour, and technology
may all negatively impact the Bank’s results if adaptability to the
environment is compromised. Respectively the Bank is exposed to
strategic risk.
Compliance Risk
The Bank is exposed to compliance risk given that it is governed by
local regulations as well as creditor covenants.
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Key Focus in 2015
2015 was a significant year for the risk management function of TBC Bank as the economy was affected by adverse external developments.
The currency depreciated by approximately 30% resulting in debt burden appreciation of the largely dollarised customer base. As a result
the Bank’s risk management tools and techniques were utilised at their maximum capacity, managing credit risk in a proactive manner and
helping to minimise the impact of adverse developments on the Bank’s risk profile and profitability. Key focus activities are summarised
below.
Intense Portfolio Monitoring
Proactive Restructuring Offered
to FX Borrowers Weakened by
GEL Depreciation
• In response to local currency devaluation, the Bank undertook scrutinised monitoring of the
loan book both on a transaction and portfolio level. As a result of this monitoring process,
individual borrowers affected by currency devaluation were identified and specific action
plans were outlined; vulnerable products and industries were identified with underwriting
criteria being revised accordingly. This approach enabled the Bank to keep credit risks
within acceptable limits despite an unstable macro environment.
• The Bank offered restructuring to borrowers with foreign currency denominated exposures
which were affected by the currency depreciation. The purpose of this restructuring process
was to enable customers with increased debt burden to meet their credit obligations. Either
loan maturity lengthening or conversion to local currency options was exercised by
borrowers. Restructuring packages were tailor made to individual borrower needs
especially in case of large borrowers.
NPL and LLP Methodology Updates
• The Bank updated its NPL methodology to harmonise it with international best practice so
that it appropriately reflects portfolio quality, also resulting in better comparability of TBC’s
NPL ratio with that of peers. In past years TBC Bank disclosed the share of 90 days past due
and restructured loans in the total portfolio. From December 2015, TBC Bank applied an
updated definition of Non-Performing Loans which incorporates loans with principal or
interest overdue by more than 90 days and those with identified underlying well-defined
weaknesses regardless of the amount or days in arrears. The Management believes that
the updated definition results in a more accurate and sound classification of non-
performing exposures.
• As of 31 December 2015, TBC Bank reports (IFRS) loan loss provisions based on a revised
methodology. The methodology was developed in 2015 with the support of Deloitte. It
increased the sophistication of assessment of impairment allowances resulting in enhanced
accuracy. In particular, more granular segmentation of the portfolio was undertaken and
various sophisticated risk parameters were applied for a more comprehensive assessment
of losses. TBC Bank has also enhanced its assessment methodology for individually
“significant” borrowers through the introduction of a scenario analysis. The updated
provisioning methodology did not result in a material impact on the overall impairment
allowances of the Bank. For more details, please refer to Note 9 of Audited Financial
Statements of TBC Group.
• The Bank is focused on continuous enhancement of its risk management practices in line
with industry best practices adopted internationally. As a result the Bank undertook a
comprehensive structural and functional review of risk management in 2015. The four
month comprehensive review was supported by leading risk management consulting firm
Oliver Wyman.
• The Bank validated its current practice efficiency and established risk strategic priorities
across a three-year time horizon. Implementation of key priorities are aimed at promoting
prudent and informed risk-taking, risk analysis sophistication advancements, modelling
and validation capabilities further development, increasing process automation, etc.
• The Enterprise Risk Management (ERM) team was mandated with the responsibility to
coordinate the implementation of strategic projects.
Structural & Functional Review in 2015
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Updated Organisational Structure
and Team
Further Enhancement of Risk Role in
Strategic Planning
Advancement and Automation of Risk
Management Tools
Subsidiaries Risk Management
Harmonisation within the Group
• All risk management functions were consolidated under a centralised risk management
umbrella. The resulting organisational structure is sufficient to serve the current scale of
Bank activities as well as future strategic developments.
• An ERM function in charge of cross-risk analytics was established, driving the risk appetite
framework as well as accomplishment of the risk strategy.
• Restructuring and collection activities across all workout phases and business segments
were consolidated under one umbrella.
• The collateral management function was enhanced and centralised.
• The financial risk management function joined the risk organisation structure. The team
subordinated to CRO drives the financial risk management strategy, defines methodologies
and sets limits, while the execution function rests with teams subordinated to CFO.
• The Constanta risk team was fully integrated within the risk management team.
• The risk management team was further expanded through internal promotions and
recruitment of new members. The current team is a combination of TBC Bank’s incumbent
team, Bank Constanta team and new external additions. The team is equipped with a wealth
of Georgian and international banking, regulatory and Big Four audit experience (including
at Intesa Sanpaolo, SocGen Group, JPMorgan, and Barclays). This is coupled with world
class MBAs and Master degrees from Insead, London Business School, Oxford, Imperial
College London, Bocconi University, Grenoble and others.
• Risk and business planning processes were further harmonised. A structured planning
process with interactive development of the business and risk plans, increases the
feasibility of achievement of targets and alignment of the two by solving risk-return
trade-offs in the process.
• As part of business as usual improvements, the risk teams focused on improving the
efficiency of the risk analysis process. For that purpose several software tools were
launched that increase the efficiency of the credit granting decision-making process,
collections process and borrowers financial ratio calculations.
• TBC Bank’s risk teams increased their involvement in subsidiary risk management,
especially in the areas of credit and operational risks. Despite the insignificant size of
subsidiaries, the Bank tries to maximise the synergies achievable through Group-wide risk
management and risk planning harmonisation.
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Risk Management Framework
All of the components necessary for comprehensive risk governance are embedded in the risk management framework, which is
comprised of enterprise risk management, credit, financial and non-financial risk management, risk reporting and the supporting IT
infrastructure, cross-risk analytical tools and techniques such as capital adequacy management and stress-testing. The following “figure
1” depicts the risk management framework building blocks.
Enterprise Risk Management
• Risk Appetite
• Risk Strategy
• Business Planning
Credit Risk
Financial Risks
Non-Financial Risks
Corporate
MSME
Retail
Market
Liquidity
Operational
Other
Risk organisation
and governance
Governance
structure
Three lines
of defence
Committees
Policies
Performance
management
Risk
culture
Risk reporting
Risk reporting & analytics
Systems and data
Infrastructure, IT and systems
Risk models,
methodologies,
processes
Cross-risk
analytics
Credit process
Credit risk modelling
ALM and liquidity risk
modelling & processes
Operational risk
modelling & processes
ICAAP, stress tests
Figure 1 TBC Bank’s Risk Management Framework
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Risk Organisation and Governance
TBC conducts its risk management activities within the framework of its unified risk management system. Involvement of all governance
levels in risk management, clear segregation of authorities and effective communications between different structures, facilitates clarity
regarding TBC’s strategic and risk objectives, adherence to TBC’s risk appetite and sound risk management. TBC’s governance structure
ensures adequate oversight and accountability, as well as clear segregation of duties. Figure 2 on Risk Governance Structure depicts the
major risk governance bodies at various levels: Supervisory Board, Management Board, Risk Management Organisation.
The Supervisory Board has the overall responsibility to set the tone at the top and monitor compliance with established objectives, while
the Management Board governs and directs TBC Bank’s daily activities.
Both the Supervisory Board and the Management Board have established dedicated risk committees. The Risk, Ethics and Compliance
Committee of the Supervisory Board supervises the risk profile and risk governance practice within TBC Bank while the Audit Committee is
responsible for the implementation of key accounting policies and the facilitation of internal and external auditor activities. The Management
Board Risk Committee was established to guide bank-wide risk management activities and monitor major risk trends to ensure the risk
profile complies with TBC’s established risk appetite. The Operational Risk Committee makes decisions related to operational risk
governance while the Assets and Liabilities Management Committee (“ALCO”) is responsible for the implementation of asset-liability
management policies.
Risk Governance Structure
Supervisory
Board
Management
Board
Supervisory Board
Risk, Ethics &
Compliance Committee
Audit Committee
Risk
Committee
Operational Risk
Committee
Assets and Liabilities
Management Committee
Risk
Management
Structure
Functions:
ERM
Committees:
Credit
Risk
Restructuring
& Collections
Financial
Risks
Non-financial
risks
Loan approval Committees
Restructuring & Collections Committees
Figure 2 Risk Governance Structure
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The Supervisory Board and the senior management of TBC Bank
govern risk objectives through the Risk Appetite Statement (“RAS"),
which establishes the desired risk profile and risk limits for
different economic environments. RAS also establishes monitoring
and reporting responsibilities, as well as escalation paths for
different trigger events and limit breaches which prompt risk teams
to establish and implement established mitigation actions. In order
to effectively implement TBC’s risk appetite into TBC’s day-to-day
operations, RAS metrics are cascaded into more granular limits at
the business unit level, establishing risk allocation across different
segments and activities. That way all employees play their part in
the achievement of the Group’s risk results. The process of risk
appetite setting and cascading is undertaken in parallel to the
business planning process. The interactive development of
business and risk plans aligns the plans by solving risk-return
trade-offs in the process and increases the feasibility of achieving
the targets.
Board level oversight, coupled with the permanent involvement of
senior management in TBC’s risk management, and the exercise of
top down risk allocation by the enterprise risk management
function, ensures clarity regarding risk objectives, intense
monitoring of the risk profile against the risk appetite, the prompt
escalation of risk-related concerns and the establishment of
remediation actions.
The daily management of individual risks is based on the three lines
of defence principle. While business lines are primary owners of
risks, risk teams assume the function of second line of defence.
This is performed through multiple processes, tools and techniques
for risk identification, analysis, measurement, sanctioning,
monitoring and reporting. Committees established at operational
levels are in charge of making transaction-level decisions as part of
a framework comprised of clear and sophisticated delegations of
authority based on the “four eyes principle”. All new products and
projects pass through risk teams to ensure risks are
comprehensively analysed. These control arrangements are aimed
at making informed decisions that remain within the predefined risk
appetite. Credit, liquidity, market, operational and other non-
financial risks are each managed by dedicated teams.
TBC’s strong and independent risk management structure enables
the fulfilment of all required risk management functions within the
second line of defence by highly skilled professionals, with a
balanced mix of credentials in banking and real sectors, in local and
international markets.
Detailed descriptions of various functions performed within the risk
management function are provided below.
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Enterprise Risk Management
The core areas of the enterprise risk management framework are
risk strategy and risk appetite setting and monitoring facilitation.
The centralised ERM efficiently supports cross-risk activities such
as cross-risk reporting, aggregation and analytics, capital
adequacy and stress-testing. The ERM function also drives the
Bank’s risk culture.
Credit Risk Management
A strong credit risk management function is critical for maintenance of
a balanced loan portfolio and delivering sustainable returns. For that
purpose, a prudent credit risk environment has been established
focusing on maintenance of efficient processes for credit risk
identification, measurement, and monitoring. Credit risk management
by risk teams is performed both on a transaction level and portfolio
level. As part of credit risk management, the underwriting unit is
involved in transaction level analysis and approval, putting in place
checks and controls over borrower analysis performed by business
units. Credit risk management by a separate dedicated team is aimed
at portfolio oversight and quality monitoring, and development and
maintenance of the credit risk management framework including
modelling and collateral valuations.
Restructuring and Collections Management
In order to minimise losses from delinquent and non-performing
loans, the Bank has a centralised restructuring and collections
management framework within the risk organisation. A
comprehensive portfolio supervision system has been set up to
identify weakened credit exposures in a timely manner and take
early remedial actions. Separate dedicated professionals focus on
restructuring, collections and recoveries of large corporates, SME,
micro, unsecured retail and secured retail loans. The teams’ efforts
are based on a comprehensive framework of strategy selection for
borrowers based on their credit quality profile and outlook.
Strategies are tailor made to the type and size of exposure. For
smaller retail and micro loans, a special collection system is in
place to effectively manage overdue loans in a more automated
manner. Efficient management of collections, recoveries and
repossessed assets supports achievement of the desired portfolio
quality and cost parameters.
Financial Risk Management
Liquidity risk, interest rate risk and FX risk are managed through
defining and maintaining policies and procedures, models and
forecasts and conducting stress-tests. Based on the analysis of the
emerging risks, the Bank initiates mitigating actions. The financial
risk management team under the CRO monitors the strategy and
limits compliance which is executed by the Asset-Liability
management team subordinated to the CFO. This distribution of
functions between CRO and CFO was put in place at the end of 2015.
Prior to that, financial risks were managed by a team subordinated
to the CFO.
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Operational Risk Management (ORM)
The main objective of operational risk management is to implement
and enforce an appropriate framework for identification,
assessment, monitoring and reporting of operational risks. ORM
enables TBC Bank to identify and assess operational risk categories
across the Bank’s different processes and operations; to detect
critical risk areas or groups of operations with an increased risk
level, to develop response actions; and suggest restrictions in
critical risk zones to mitigate identified risks. The ORM ensures that
operational risk exposure remains within TBC’s risk appetite.
Additional Layers of Defence
In addition to the risk teams that are subordinate to the CRO, the
Compliance Department is in charge of anti-money laundering
(“AML") and compliance risk management. The Internal Audit
Department as a third line of defence is in charge of providing
independent and objective assurance and recommendations to TBC
Bank and its shareholders to facilitate further improvement of
operations and risk management.
Compliance is managed by a function subordinated directly to the
CEO in charge of improving the entire compliance system. It is
responsible for coordinating the identification, assessment and
documentation of compliance risks associated with TBC’s activities,
including the development of new products and business practices,
establishment of new types of business or customer relationships,
or material changes in the nature of such relationships, and other
related measures. The function administers TBC’s overall
compliance systems, performs compliance-related direction and
supervision, and instructs on corrective actions for branches,
offices, divisions, headquarters, subsidiaries and affiliates, both in
and out of Georgia, upon the occurrence of violations of compliance,
all in an integrated fashion. Anti-money laundering is one of the
Compliance Department’s main functions, established according to
Georgian legislation and recommendations of competent
international organisations.
The independent internal audit function represents a third line of
defence in all areas of the Bank’s risk-taking activities. The Internal
Audit Department discusses the results of all assessments with
management and reports its findings and recommendations to the
Audit Committee.
The soundness of internal controls and risk management practices
are subject to periodic reviews by an external auditor as well as
intense supervision by National Bank of Georgia, effectively
representing additional external layers of defence.
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Risk Reporting and Systems
Sound risk reporting systems and IT infrastructure are important
tools for the efficient risk management of TBC Bank, in particular
for early identification and monitoring of risks and decision-making.
Thus, TBC Bank invests in and places significant emphasis on
constantly driving the development of required software solutions.
In order to ensure availability and fast flow of information, TBC
Bank has established a dedicated risk reporting unit. Risk reporting
enables senior managers to exercise their oversight role. This is
accomplished through delivery of comprehensive information and
analysis with adequate frequency for each recipient such as the
Supervisory Board, Management Board, various risk management
and other units. Risk reports balance a mixture of risk data,
analysis, interpretations and qualitative explanations.
Credit Risk Management
Credit granting is the major income-generating activity of TBC Bank
as well as the major source of risk. Thus, the Bank dedicates
significant resources to its management. Credit risk arises from
lending to large Corporate clients, SME, Micro and Retail
customers. Key significant components of credit risk are currency
induced credit risk due to the high dollarisation level of the
economy, as well as concentration risk. Major objectives of credit
risk management are to put in place sound credit approval
processes for informed risk-taking and procedures for effective
risk identification, monitoring and measurement. The Bank adopts
segment and product specific approaches for prudent and efficient
credit risk management.
Credit Approval
TBC Bank strives to ensure a sound credit-granting process by
establishing well-defined credit granting criteria and building up an
efficient process for assessment of a borrower’s risk profile. A
comprehensive credit risk assessment framework is in place with
clear segregation of duties among parties involved in the credit
analysis and approval process.
The credit assessment process differs across segments, being
further differentiated across various product types reflecting
different natures of these asset classes. Corporate, SME and larger
retail and micro loans are assessed on an individual basis with
thorough analysis of the borrower’s creditworthiness and structure
of the loan. The decision making process for smaller retail and
micro loans is largely automated, with borrowers receiving a credit
score that reflects the outcome of the borrower’s risk profile
assessment based on the dedicated scorecard models and credit
bureau grading.
Different Loan Approval Committees are in place for the approval of
credit exposures to Corporate, SME, Retail and Micro
customers. Credit analysts and loan officers from Business Units
are primarily responsible for borrower analysis, structuring credit
facility and suggesting exposure approval to the loan approval
committee. Credit risk managers (as members of Loan Approval
Committees) ensure that the borrower and proposed credit
exposure risks are thoroughly analysed.
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The Bank puts in place sophisticated delegations of authorities for loan
approval that are based on the four eyes principle and require higher
seniority levels of approval authorities with increasing sizes of
exposures. In particular, different tiers of Loan Approval Committees
are responsible to review credit applications and approve exposures
considering the borrower’s aggregated liabilities and risk profile. A
large or higher risk loan would be reviewed by a Loan Approval
Committee with a higher approval level, such as one including the
Chief Executive Officer, Corporate Business Director and Chief Risk
Officer. A loan to the top 20 largest borrowers or exceeding 5% of TBC
Bank’s regulatory capital would require the review and approval of the
Risk, Ethics and Compliance Committee.
Such a structure is a sound platform for risk teams to facilitate
continuous ehancement and sophistication of borrower analysis by
business unit managers, introduce on line controls for risk-taking
and ensure that credit approval decisions are in compliance with
Bank’s established risk appetite.
Currency Induced Credit Risks (CICR)
TBC Bank faces currency-induced credit risk given that a large part
of its exposures are denominated in foreign currency in line with
the dollarisation level of the economy. However, limits are
established within the risk appetite framework to ensure the Bank
continues its efforts toward minimising the portfolio dollarisation
level. Various management tools and techniques are applied to
mitigate the inherent CICR risk in the loan book encompassing all
phases of credit risk management.
The Bank applies more conservative lending standards to unhedged
borrowers with FX denominated exposures in order to ensure that
they can withstand a certain amount of FX depreciation without
credit quality deterioration. Currency fluctuation is one of the
stress scenarios applied throughout analysis of corporate
borrowers’ risk profile in order to assess the potential impact of the
currency depreciation on the borrower’s financial standing and thus
appropriately structure the loan. As a result, FX denominated loans
can withstand certain levels of currency shocks without quality
deterioration.
Apart from the measures in place throughout the underwriting
process, the Bank actively monitors and assesses the quality of FX
denominated loans through stress-testing exercises and holds
sufficient capital buffers against unexpected losses.
In the event of material currency depreciation, the Bank has tools in
place to accelerate its monitoring efforts, identify customers with
potential weaknesses, and introduce prompt mitigation. In
response to GEL devaluation in 2015 by approximately 30%, the
Bank focused on intense portfolio quality monitoring throughout
the year. During the monitoring process, the Bank assessed the
impact of currency depreciation on the overall portfolio as well as
the risk profile, and the estimated outlook for individual exposures.
Based on the monitoring results the Bank undertook proactive
restructuring, adjusted underwriting standards and ran a
continuous follow-up monitoring process limiting potential impact
of the devaluation on the Bank’s risk profile.
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Credit Concentration Risk
TBC Bank is exposed to concentration risk defined as potential
deterioration in portfolio quality due to large exposures or
individual industries. Management tools are established by the
Bank in order to efficiently manage concentration risk. In particular,
name concentration, sectoral concentration and unsecured lending
limits are defined as part of the Bank’s risk appetite framework.
The Bank is subject to single name as well as TOP 20 borrowers’
concentration limits and focuses on optimisation of the structure
and quality of the latter portfolio. Unsecured lending is capped by
the regulatory requirements. In addition, the Bank imposes limits
on individual sectors with more conservative caps applied for
high-risk sectors, which are defined based on comprehensive
analysis of industry cycles and outlook.
Credit concentrations are monitored by Enterprise Risk
Management and Credit Risk Management departments on a
monthly basis. Trends in the risk positions are analysed in details
and corrective actions are recommended should new sources of
risk or positive developments emerge. Throughout the underwriting
process, risk teams analyse the impact of disbursing large
exposures on the Bank’s risk position to make sure that decisions
are compatible with the Bank’s risk appetite.
Along with managing concentration levels in the portfolio, the Bank
estimates unexpected losses and respective economic capital for
single name concentration and sectoral concentration using the
Herfindahl-Hirschman Index (HHI) thus ensuring that sufficient
capital is held against concentration risk.
Collateral Policies
Collateral represents the most significant credit risk mitigation tool for
TBC Bank, thus, effective collateral management is one of the key risk
management components. Collateral on loans extended by TBC may
include, but is not limited to, real estate, cash deposit, vehicles,
equipment, inventory, precious metals, securities and third party
guarantees. The collateral accepted against a loan depends on the
type of credit product and on the credit risk of the borrower. The Bank
has a largely collateralised portfolio on all of its segments with real
estate representing a major share of collateral.
A centralised unit for collateral management is in place governing
the Bank’s view and strategy in relation to collateral management
and ensuring that collateral serves as an adequate mitigating factor
for credit risk management purposes. The collateral management
framework comprises of a sound independent appraisal process,
haircuts system throughout the underwriting process, monitoring
and revaluations.
Throughout the underwriting process provided collateral is
appraised by TBC Bank’s Internal Appraisal Group in accordance
with TBC’s internal policies. In specific instances such as insider
lending and material transactions the Bank uses external
appraisers to validate appraisals. The Internal Appraisal Group is
part of the collateral management unit and is independent from the
loan granting process in order to ensure that adequate appraisals
are obtained and proper appraisal procedures are followed. When
appraising collateral, TBC Bank applies haircuts to the asset’s
market value based on the property type and its location.
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Loan officers and/or appraisers perform on-site visits to check the
quality and condition of the provided collateral. Collateral of
significant value (defined as cases in which the value of both the loan
and the collateral exceeds US$300,000) is re-evaluated annually
through on-site visits by internal appraisers. Statistical methods are
used to monitor the value of collateral of non-significant value.
Collateral may require more frequent re-evaluation as a result of
changes in the borrower’s standing or market fluctuations. In case of
repossession, any collateral is also re-evaluated within three months
prior to repossession. Requirements relating to the frequency of
re-evaluations are determined in accordance with TBC Bank’s
collateral appraisal policy.
Restructuring and Collections
TBC Bank uses a comprehensive portfolio supervision system to
identify weakened credit exposures in a timely manner and take
early remedial actions. Collections and recoveries processes are
invoked when the borrower does not meet the agreed payments or
the borrower’s financial standing is weakened, potentially
jeopardising the repayment of the credit.
Dedicated restructuring and recovery units are in place to manage
weakened borrowers across all business segments, with collection
and recovery strategies tailored for business segments and
individual exposure categories.
Credit Monitoring
TBC Bank’s risk management policies and processes are designed to
identify and analyse risk in a timely manner, and monitor adherence to
predefined limits by means of reliable and timely data. TBC Bank
dedicates considerable resources to gain a clear and accurate
understanding of the credit risk faced across various business
segments. The Bank uses a robust monitoring system to react timely
to macro and micro developments, identify weaknesses in the credit
portfolio and outline solutions to make informed risk management
decisions. Monitoring processes are tailored to the specifics of
individual segments. Monitoring processes encompass individual
credit exposures, overall portfolio performance and external trends
that may impact the portfolio’s risk profile. Early warning signals serve
as an important early alert system for the detection of credit
deteriorations, leading to mitigating actions.
The primary goal of restructuring units is to rehabilitate the
borrower and transfer the exposure back to the performing
category. The sophistication and complexity of the rehabilitation
process differs based on the type and size of the exposure.
Corporate and SME borrowers are transferred to the restructuring
units when there is a deterioration in the borrower’s financial
standing, jeopardising the repayment of the credit. However, the
main source of the repayment remains the borrower’s cash flow. A
restructuring manager assesses the customer relationship
strategy and creates the turnaround plan, which considers the
specifics of the circumstances and may involve a restructuring of
the exposure, a decrease in the borrower’s leverage (by spinning off
part of the borrower’s assets), raising equity, the sale of the
exposures to the third parties, taking control of the borrowers’ cash
flows and limiting its management’s business decisions.
For corporate and SME loans, monitoring is conducted by a credit
analyst (for corporate loans) and loan officer (for SME loans) and is
reviewed by underwriting risk managers/credit sanctioners.
Regular oversight of monitoring and selective reviews are
conducted by the credit risk management team. Debt repayments
are monitored on a daily basis. Retail borrowers are monitored for
timely debt repayment on a daily basis. Statistical techniques are
applied to the monitoring of the overall performance of the
portfolio, with a deeper analysis performed for specific sub-
segments in the event of signs of performance deterioration. Along
with the daily monitoring of debt repayments and a monthly analysis
of the portfolio’s performance, a dedicated unit is in place for
on-site monitoring of micro loans considering the specifics of this
segment and given that it is mostly represented by borrowers
residing in rural areas. The monitoring group undertakes site visits
to the borrower’s business to perform its analysis. This process
enables TBC Bank to promptly identify any inconsistencies with TBC
Bank’s lending policy and undertake corresponding actions.
The Credit Risk Management Department analyses trends of the
portfolio on a regular basis, including total credit portfolio exposure,
portfolio quality, vintage analysis, concentrations, maturities, volumes
and performance of Non-performing Loans, write-offs and recoveries,
and presents its findings to the Management Board Risk Committee.
Furthermore, reports relating to the credit quality of the credit
portfolio are presented to the Supervisory Board’s Risk, Ethics and
Compliance Committee on a quarterly basis. By comparing current
data with historical figures, and by analysing forecasts Management
believes it is able to identify risks and respond to them by amending its
policies in a timely fashion.
Corporate and SME borrowers are transferred to the recovery unit
when there is a strong probability that a material portion of the
principal amount will not be paid and the main stream of recovery is
no longer the borrower’s cash flow. Loan recovery plans consider
all available sources of loan recovery, such as selling the
borrower’s assets, realising collateral or payments under
guarantees. TBC Bank’s goal in the recovery process is to negotiate
with the borrower a loan recovery strategy and secure cash
recoveries to the extent possible or negotiate repayment through
the sale or repossession of collateral.
Collection functions for retail and micro loans provide support to
customers who are experiencing difficulties in meeting their
obligations. Such customers may miss payments, or notify TBC
Bank about their difficulty with loan repayments. A centralised
monitoring team monitors retail and micro borrowers in
delinquency, which coupled with branches’ efforts are aimed at
collection maximisation. Collection strategies are defined
considering the size and type of exposure. Specific strategies are
tailored for different sub-groups of customers, reflecting
respective risk levels, so that greater effort is dedicated to
customers with a higher risk profile.
Retail and micro loans are generally transferred to the recovery unit
at 90 days past due. Collateralised loans are transferred to the
internal recovery unit, whereas TBC Bank collaborates with external
collection agencies for unsecured loans. For recovery of
collateralised loans, the recovery plan is outlined considering
specifics of the individual borrower and may involve loan repayments
under revised schedules or the sale of collateral. Collection agencies
generally negotiate with the borrowers the full repayment of the loan
or loans can be rescheduled and repaid accordingly.
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Once the exposure is transferred to the recovery unit, if TBC Bank
is unable to negotiate acceptable terms with the borrower, the Bank
may initiate collateral repossession, which is usually standard and
quite a fast process with limited legal complications, and may
include court, arbitration or notary procedures. Restructuring and
recovery units are supported by qualified incumbent lawyers for
efficient accomplishment of litigation and repossession processes.
be repaid or survive the one-year quarantine period and become a
performing portfolio. In case there is change in the internal or external
environment and historical data no longer reflects current conditions,
TBC Bank adjusts the risk parameters on the basis of current
observable data to reflect the effects of current conditions that did not
affect past periods, and to remove the effects of past conditions that do
not exist currently.
Provisioning Guidelines
According to TBC Bank’s policy, loan loss reserves must be maintained
at a level that is adequate to absorb all estimated inherent losses in
TBC Bank’s credit portfolio at any given point in time.
The credit portfolio is assessed for impairment on an individual and
collective basis. For provisioning purposes, borrowers or groups of
borrowers are classified as “significant” or “non-significant”.
Borrowers with total liabilities of GEL 2 million or more are
regarded as significant.
To assess impairment with respect to individually “significant”
borrowers, TBC Bank outlines trigger events, which include the
deterioration of the borrower’s financial standing, delinquencies in
loan repayments, bankruptcy proceedings, or other events that may
affect the borrower’s creditworthiness. If there is evidence that an
impairment loss event with respect to a significant credit exposure
has occurred, TBC Bank assesses the borrower on an individual
basis and measures the amount of the loss as the difference
between the asset’s carrying amount and the present value of
estimated future cash flows. TBC Bank estimates future recoveries
by applying a scenario analysis and taking into account all relevant
information available at the reporting date, including adverse
changes in the general macroeconomic environment or the industry
the borrower operates in.
If TBC Bank determines that no objective evidence exists that an
individually assessed financial asset has been impaired, it includes
the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment. For
collective assessment purposes, financial assets are grouped into
homogenous risk pools based on similar credit risk characteristics,
including the type of counterparty (individual or business), the type
of product, the past-due status of the financial asset, the
restructuring status and the type of collateral.
In order to calculate the impairment allowance for collectively
assessed loan pools, TBC Bank estimates certain risk parameters,
which include the probability of default, cure rate, recovery rate,
survival rate and loss given default, based on historical experience.
Probabilities of defaults are calculated based on migration matrices
for different overdue buckets within the portfolio and increase based
on the number of payments missed, thus raising the associated
impairment requirement. For recovery rate estimation purposes, the
impaired portfolio is segmented based on the number of months in
default and the amounts to be recovered are estimated, which
decrease as the number of months in default increase. Cure rates
estimate the extent to which defaulted exposures can be cured by the
borrower repaying the overdue amounts in full. Exposures with a
longer time in default have lower cure rates compared to newly
defaulted exposures. For cured exposures, TBC Bank also estimates
survival rate, which represents the probability that the exposure will
TBC Bank will reverse a previously recognised impairment loss if,
after the impairment was recognised, the amount of the impairment
loss decreases and the decrease is related to an objective event.
The previously recognised impairment loss is reversed by adjusting
the allowance account through profit or loss. In order to reverse
provisions for individually significant borrowers, there should be
objective evidence that the borrower’s financial standing has
improved or there is an improvement in collateral coverage. For
collectively assessed loans, the exposure should survive the
quarantine period to be reclassified as a performing loans pool.
Liquidity Risk Management
Liquidity risk is the risk that TBC either does not have sufficient
financial resources available to meet all of its obligations and
commitments as they fall due, or can access those resources only
at a high cost. Liquidity risk is managed by the Financial Risk
Management and Treasury Departments and is monitored by
the ALCO.
The principal objectives of TBC’s liquidity risk management policy
are to:
(i) ensure the availability of funds in order to meet claims arising
from total liabilities and off-balance sheet commitments, both
actual and contingent, at an economic price;
(ii) recognise any structural mismatch existing within TBC’s
statement of financial position and set monitoring ratios to
manage funding in line with the Bank’s well-balanced growth;
and
(iii) monitor liquidity and funding on an ongoing basis to ensure that
approved business targets are met without compromising
TBC’s risk profile.
The Liquidity risk management Policy is reviewed by the
Management Board prior to approval by the Supervisory Board.
Liquidity risk is categorised into two risk types: funding liquidity
risk and market liquidity risk.
Funding liquidity risk is the risk that TBC will not be able to
efficiently meet both expected and unexpected current and future
cash flow without affecting either its daily operations or its financial
condition under both normal conditions and during a crisis
situation. To manage funding liquidity risk, TBC internally developed
a Liquidity Coverage Ratio (LCR) and a Net Stable Funding Ratio
(NSFR) model both under Basel III liquidity guidelines. In addition,
TBC also applies stress tests and “what-if” scenario analyses, and
monitors NBG minimum liquidity ratio.
LCR (calculated by reference to the sum of qualified liquid assets
and 30-day cash inflows divided by 30-day cash outflows) is used to
help manage short-term liquidity risks. TBC’s liquidity risk
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management framework is designed to comprehensively project
cash flows arising from assets, liabilities and off-balance sheet
items over certain time bands and ensure that liquidity coverage
ratio limits are put in place. TBC also stress tests the results of
liquidity through large shock scenarios set by the NBG. TBC
calculates its internal liquidity coverage ratio and conducts stress
tests on a weekly basis. TBC Bank’s liquidity coverage ratios were
288%, 254% and 344% for the years ended 31 December 2015, 2014
and 2013, respectively.
NSFR (calculated by dividing available stable by required stable
funding) is used for long-term liquidity risk management to promote
resilience over a longer time horizon by creating additional incentives
for TBC to rely on more stable sources of funding on a continuing basis.
Market liquidity risk is the risk that TBC cannot easily offset or
eliminate a position at the then-current market price because of
inadequate market depth or market disruption. To manage market
liquidity risk, TBC follows Basel III guidelines on high-quality
liquidity asset eligibility to ensure that TBC’s high-quality liquid
assets can be sold without causing significant movement in the
price and with minimum loss of value.
In addition, TBC has a liquidity contingency plan, updated annually,
which forms part of TBC’s overall prudential liquidity policy and is
designed to ensure that TBC is able to meet its funding and liquidity
requirements and maintain its core business operations in
deteriorating liquidity conditions that could arise outside the
ordinary course of its business.
Funding and Maturity Analysis
TBC’s principal sources of liquidity include customer deposits and
customer accounts, borrowings from local and international banks
and financial institutions, subordinated loans from IFI Investors,
local inter-bank short-term term deposits and loans, proceeds
from sales of investment securities, principal repayments on loans,
interest income, and fee and commission income.
We believe that a strong and diversified funding structure is one of
TBC’s differentiators. TBC relies on relatively stable deposits from
Georgia as the main source of funding. In order to maintain and
further enhance its liability structure TBC sets targets for retail
deposits in the strategy and sets gross loan to deposit ratio limits.
TBC’s gross loan to deposit ratio (defined as total value of gross
loans divided by total value of deposits) was 111.0%, 111.6% and
102.5% as at 31 December 2015, 2014 and 2013, respectively.
TBC also sets deposit concentration limits for large deposits and
deposits of non-Georgian residents in its deposit portfolio.
We believe that TBC has sufficient liquidity to meet its current on
and off-balance sheet obligations.
For further information on management of liquidity risk, please
refer to Note 35 to the Audited Consolidated Financial Statements.
Market Risk
TBC follows the Basel Committee’s definition of market risk as the
risk of losses in on and off-balance-sheet positions arising from
movements in market prices. These risks are principally (a) risks
pertaining to interest rate related instruments and equities in the
“trading book” (financial instruments or commodities held for
trading purposes); and (b) foreign exchange risk and commodities
risk throughout TBC. TBC’s strategy is not to be involved in trading
financial instruments or investments in commodities. Accordingly,
TBC’s only exposure to market risk is foreign exchange risk in its
“structural book,” comprising its regular commercial banking
activities having no trading, arbitrage or speculative intent.
Foreign Exchange Risk Management
TBC is exposed to currency risk that arises from potential change in
foreign currency exchange rates, which can affect the value of a
financial instrument. This risk stems from the open currency
positions created due to mismatches in foreign currency assets and
liabilities. The NBG requires TBC Bank to monitor both balance
sheet and total aggregate balance (including off-balance sheet)
open currency positions and to maintain the latter within 20% of
TBC Bank’s regulatory capital. For the year ended 31 December
2015, TBC Bank maintained an aggregate balance open currency
position of 1.56%.
In addition, the Supervisory Board sets further limits on open
currency positions. The ALCO has set limits on the level of exposure
by currency and for total aggregate position which are more
conservative than those set by the NBG and the Supervisory Board.
TBC Bank’s compliance with these limits is monitored daily by the
heads of the Treasury and Financial Risk Management Departments
and is reported periodically to the Management Board, the
Supervisory Board and the Risk, Ethics and Compliance Committee.
Open currency positions are used to assess TBC Bank’s minimum
capital requirements under the ICAAP framework on a monthly
basis. In addition, the Financial Risk Management Department
performs stress testing on a monthly basis.
Interest Rate Risk Management
Interest rate risk arises from potential changes in market interest
rates that can adversely affect the value of TBC’s financial assets
and liabilities. This risk can arise from maturity mismatches of
assets and liabilities, as well as from the repricing characteristics
of such assets and liabilities. The deposits and 80% of the loans
offered by TBC are at fixed interest rates, while a portion of TBC’s
borrowing is based on a floating rate of interest. TBC’s floating rate
borrowings are, to a certain extent, hedged as a result of the NBG
paying a floating rate of interest on the minimum reserves that TBC
holds with the NBG. Furthermore, many of TBC’s loans to and
deposits from customers contain a clause allowing TBC to adjust
the interest rate on the loan/deposit in case of adverse interest rate
movements, thereby limiting TBC’s exposure to interest rate risk.
Management also believes that TBC’s interest rate margins provide
a reasonable buffer in order to mitigate the effect of possible
adverse interest rate movement.
TBC Bank employs an advanced framework for the management of
interest rate risk. In order to manage interest rate risk, TBC Bank
establishes appropriate limits, monitors compliance with the limits
and prepares forecasts. Interest rate risk is managed by the
Financial Risk Management Department and is monitored by the
ALCO. The ALCO decides on actions that are necessary for effective
interest rate risk management and follows up on their
implementation. The major aspects of interest rate risk
management development and the respective reporting are
periodically provided to the Management Board, the Supervisory
Board and the Risk, Ethics and Compliance Committee.
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TBC Bank measures four types of interest rate risk based on the
source of the risk: (i) repricing risk, (ii) yield curve risk, (iii) basis
risk and (iv) optionality (embedded option risk).
TBC Bank considers a number of stress scenarios, including
different yield curve shift scenarios and behavioural adjustments to
cash flows (such as deposit withdrawals or loan prepayments), to
calculate the impact on one-year profitability and enterprise value.
Appropriate limits are set by the Supervisory Board and by the ALCO.
Under the ICAAP framework, TBC Bank reserves capital in the
amount of the adverse effect of possible parallel yield curve shift
scenarios on net interest income over a one-year period for Basel II
Pillar 2 capital calculation purposes. As at 31 December 2015 the
impact of the downward parallel shift of a yield curve of (4.8)% in
GEL and a downward parallel shift of 2.4% in USD on net interest
income over a one-year period was equivalent to GEL 35.7 million.
In addition, TBC has developed stress tests in accordance with
Basel II requirements to ensure that the Bank can withstand severe
but probable stress scenarios.
Operational Risk Management
One of the main risks TBC Bank is exposed to is operational risk, which
is the risk of loss resulting from inadequate or failed processes, people
and systems or from external events. It includes legal risk, but
excludes strategic and reputational risk. However, reputational risk
management is also given high importance and priority and is an
integral part of the overall risk culture in the organisation.
In order to oversee and mitigate operational risk, TBC Bank has
established an operational risk management framework that outlines
the general principles for effective operational risk management and
defines the roles and responsibilities of various parties involved in the
process. Policies and procedures enabling effective management of
operational risks are an integral part of the framework.
The Management Board ensures a strong internal control culture
within the Bank where control activities are an integral part of TBC
Bank’s operations. The Supervisory Board sets TBC Bank’s
operational risk appetite and the Operational Risks Committee
oversees compliance with the limits set therein. The Operational Risks
Committee discusses TBC Bank’s operational risk profile and risk
minimisation recommendations on a regular basis.
The Operational Risk Management Department is responsible for the
implementation of appropriate policies and procedures enabling the
Bank to manage operational risks. The ORM department is also
responsible for the day-to-day management of operational risks using
various techniques that include but are not limited to the running of
risk and control self-assessment aimed at detecting possible gaps in
operations and processes with the purpose of suggesting appropriate
corrective actions; internal risk event database formation for further
quantitative and qualitative analysis; performing internal control for
detecting systematic errors in banking operations, internal fraud
events and monitoring key risk indicators; scenario and root cause
110
analysis; business advisory with regard to nonstandard cases as well
as new products and procedures assessment; IT incident occurrence
monitoring and overseeing activities targeted at solving identified
problems; and insurance policies to transfer the risk of losses from
operational risk events. The ORM department reports to the Chief Risk
Officer.
For the purpose of measuring potential (both expected and
unexpected) operational risk losses and appropriate capital, the Bank
uses quantitative tool such as the Advanced Measurement Model
(AMA) that incorporates internal and external loss data as well as a
scenario analysis of possible events.
There are various policies, processes and procedures in place to
control and mitigate material operational risks. These include:
• outsourcing risk management policy which enables TBC Bank to
control outsourcing (vendor) risk arising from adverse events
and risk concentrations due to failures in vendor selection,
insufficient controls and oversight over a vendor and/or services
provided by a vendor and other impacts to the vendor;
• implementation of procedures to analyse system flaws and take
corrective measures to prevent the re-occurrence of significant
losses;
• involvement of the Operational Risk Department in the approval
process of new products and services to minimise risks relating
thereto; and
• development of a special Operational Risk Awareness program
for TBC Bank employees and provision of regular training to
further strengthen TBC’s internal risk culture.
An Information Security Steering Committee has been established
in charge of continuous improvement of information security and
business continuity management processes and minimising
information security risks. The Committee has been formed to
centralise the information security function including physical
security, HR security, data security, IT security and business
continuity. The Bank invests in effective information security risk
management, incident management and awareness programs,
which are enhanced with automated tools that ensure acceptable
levels of information security risk within the organisation.
Whenever preventive controls are not applicable, comprehensive
business continuity and incident response plans ensure TBC Bank’s
ability to operate on an ongoing basis and limit losses in the event of
a severe business disruption.
Reputational Risk Management
TBC’s business model is built on public trust and therefore aims to
ensure that no activities are undertaken which may result in an
adverse reputational impact. Management believes that one of
TBC’s key strengths is its well-known and trusted brand, and is
consequently very protective of the strong reputation that TBC has
developed on the market. Hence the maintenance of a strong
reputation is considered to be a goal of highest priority and
importance and reputation risk awareness and management is
embedded throughout the Bank including all business units and
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
TBC’s reputation risk management efforts include:
• monitoring TBC’s reputation, addressing matters damaging that
reputation and using the feedback from external stakeholders to
gain insights or receive early warning signals of potential
concerns;
• identifying and reporting reputational risk-related matters by
both business units and risk staff in their daily interactions with
clients as well as through the process of project and product
development; and
• restricting activities that may cause reputational damage to TBC
Bank, such as projects and activities having negative
environmental or social impacts.
Strategic Risk Management
Strategic risk is the current or prospective risk to earnings and
capital arising from adverse business decisions, improper
implementation of decisions, or lack of responsiveness to changes
in the business environment, both internal and external. This risk is
a function of the compatibility of TBC’s strategic goals, the business
strategies developed and resources employed to achieve strategic
goals, and the quality of implementation of those goals.
The aim of strategic risk management efforts is to maintain TBC’s
strategic risk at defined levels in accordance with its strategic
objectives. The strategic risk management system consists of the
following main stages: (i) identification, (ii) measurement, (iii)
monitoring and (iv) control and mitigation.
The Management Board has overall responsibility for TBC’s
strategic objectives and key principles of the strategic risk
management framework. The primarily responsibility for strategic
risk assessment, management, monitoring and control lies with the
Strategic Planning and Budgeting Department and TBC’s business
segments.
An analysis of TBC Bank’s actual performance compared to its stated
goals is reported to the Management Board on a regular basis. This
report includes the level of strategic risk for the period and its
dynamic, mitigating actions undertaken to address these risks,
potential strategic risks for future periods and recommendations.
Compliance and AML Risk Management
TBC Bank has established a compliance function that is
represented by a three-level structure consisting of the Compliance
Department, the CEO and the Risk, Ethics and Compliance
Committee. The Compliance Department is responsible for, but not
limited to, assisting with the identification and assessment of
compliance risk in all business activities; advising on compliance
policy, processes, rules and standards; assessing the impact of
new laws, regulations and guidelines; assessing the adequacy of
internal compliance processes; helping with the coordination of
responses to requests from external regulators and ensuring that
TBC follows appropriate procedures including in relation to
anti-money laundering, conflicts of interest, protection of non-
public customer information and insider trading. The Compliance
Department is accountable to the Risk, Ethics and Compliance
Committee and the Supervisory Board, and acts independently
within TBC Bank.
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TBC’s anti-money laundering programme, established in
accordance with Georgian law, is a part of TBC’s compliance
framework. The anti-money laundering unit of the Compliance
Department (AML Unit) is responsible for anti-money laundering
issues. The anti-money laundering policy and complementary
internal standards and procedures include Georgian law
requirements, as well as measures based on recommendations
from international bodies, such as the Financial Action Task Force,
Basel, United Nations and the Office of Foreign Assets Control, and
contain “Know Your Customer” procedures, methods for the
assessment of correspondent banks, processing and retaining
documentation, maintaining and updating client databases,
operational standards, risk-based assessment of customers, due
diligence procedures, and the identification of suspicious
transactions and transactions that are subject to mandatory
reporting to the Financial Monitoring Service of Georgia (FMS). The
anti-money laundering policy (and any amendments thereto) is
approved by the Management and the Supervisory Board. TBC
Bank’s anti-money laundering policy and all related internal
instructions and standards are available to all employees through
TBC Bank’s intranet.
To adhere to anti-money laundering policy requirements, TBC Bank
has implemented automated solutions for (i) client screening
against sanctioned lists during the on-boarding process and
international money transfers, (ii) anti-money laundering risk
assessment of clients, products and services, and (iii) revealing
suspicious behaviour on client’s accounts. An automated process is
performed through Siron products provided by FICO-Tonbeller.
The Compliance Department delivers face-to-face training in
anti-money laundering and compliance topics which are tailored for
different target groups, including new employees. Training in
anti-money laundering and other compliance issues is conducted
annually and is followed by staff testing on an annual basis.
TBC’s anti-money laundering compliance activities are reviewed
annually by its Internal Audit Department. Since the previous
report, TBC Bank and its subsidiaries have not been inspected by
the National Bank of Georgia regarding abidance of the anti-money
laundering law. As of the date of this report, no TBC Group
Company has been accused, named or cited in connection with any
occurrence of money laundering, financing of terrorist activity,
fraud, or other corrupt or illegal purpose transactions or breaches
of Georgian laws prohibiting such activities.
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Internal Capital Adequacy Assessment Process
The level of capital that TBC Bank is choosing to hold is impacted by
the following factors:
• minimum regulatory requirements (Pillar 1);
• ICAPP (Pillar 2);
• regulatory add-ons (Pillar 2, SREP); and
• business expectations.
Currently, TBC must comply with two regulatory capital adequacy
requirements imposed by the NBG in line with the Basel
Committee’s standards. The new Basel II/III framework, introduced
by the NBG in 2013, replaces the previous Basel I based
requirements, which are gradually being phased out and will be
fully removed by the end of 2017. The NBG version of the Basel II/III
requirements is a more conservative version of the original Basel
II/III framework, with the main difference being an additional 75%
risk weight for foreign currency denominated loans.
For Pillar 2 purposes, TBC has implemented an Internal Capital
Adequacy Assessment Process (ICAAP), whereby TBC Bank
assesses all material risks that it faces and reserves capital for
each. TBC Bank’s ICAAP is subject to a Supervisory Review and
Evaluation Process and it engages in active dialogue with the
regulator to demonstrate that the Bank adequately measures its
unexpected losses and holds sufficient capital against it.
The key components of TBC’s ICAAP process include risk
identification and assessment and capital allocation.
The table below summarises the material risks TBC Bank faces
and the approaches used to calculate capital charges for each
identified risk.
Summary of Risks Considered per Basel Pillar 1 and 2
Stress Testing
TBC Bank performs regular stress testing exercises which
represent a significant management decision making component.
The Bank has developed a comprehensive, Enterprise-Wide Stress
Testing (EWST) framework that is actively used for capital
management and risk assessment purposes. The stress
parameters used in EWST are negative trends of GDP, exchange
rates, unemployment, interest rates, CPI levels and real estate
price levels. The results of EWST are expressed as the amount of
capital needed (per risk type) in order to withstand the full potential
losses resulting from the specified stress events.
Two severity levels are considered for performing enterprise-wide
stress tests. A mild stress scenario is considered to be a stress that
might occur during the normal business cycle (once in seven years).
A severe stress scenario is based on the assumption of occurrence
once in 100 years.
The Bank has introduced an internal capital buffer that is equal to
the losses under a mild stress scenario. Additionally the Bank
maintains a level of equity that covers losses under a severe stress
scenario.
Pillar 1
Pillar 2
Standardised
approach
Standardised
approach
NBG assessment
Bank assessment
Standardised
approach
Basic indicator
approach
Standardised
approach
Advanced
measurement
approach
Advanced approach
Benchmarking
Benchmarking
Bank assessment
Key areas
Credit Risk
Currency Induced
Credit Risk (CICR)
Market Risk
Operational Risk
Interest Rate Risk
in the Banking Book
Reputation Risk
Strategic Risk
Concentration Risk
—
—
—
—
112
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
To the Shareholders and Management of JSC TBC Bank:
We have audited the accompanying consolidated financial statements of JSC TBC Bank and its subsidiaries, which comprise the
consolidated statements of financial position as at 31 December 2015, 2014 and 2013 and the consolidated statements of profit or loss and
other comprehensive income, changes in equity and cash flows for the years then ended, and Notes, comprising a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of JSC TBC Bank and its
subsidiaries as at 31 December 2015, 2014 and 2013 and their financial performance and cash flows for the years then ended in accordance
with International Financial Reporting Standards.
18 February 2016
Tbilisi, Georgia
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STRATEGIC REPORT
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FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
In thousands of GEL
ASSETS
Cash and cash equivalents
Due from other banks
Mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Bonds carried at amortised cost
Investments in finance leases
Investment properties
Current income tax prepayment
Deferred income tax asset
Other financial assets
Other assets
Premises and equipment
Intangible assets
Goodwill
TOTAL ASSETS
LIABILITIES
Due to credit institutions
Customer accounts
Other financial liabilities
Current income tax liability
Debt securities in issue
Deferred income tax liability
Provisions for liabilities and charges
Other liabilities
Subordinated debt
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Retained earnings
Share-based payment reserve
Revaluation reserve for premises
Revaluation reserve for available-for-sale securities
Cumulative currency translation reserve
Net assets attributable to owners
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Approved for issue and signed on 18 February 2016.
31 December
2015
31 December
2014
31 December
2013
Notes
720,347
11,042
471,490
532,118
6
33,704
7
8
336,075
9 4,444,886 3,556,496
466,510
10
11
–
50,907
13
76,216
16
251
383
43,857
77,775
208,692
37,756
2,726
307,310
372,092
75,760
57,600
9,856
1,546
64,317
103,912
247,767
44,344
2,726
32
12
14
15
15
390,465
1,708
295,332
2,801,712
500,651
–
35,613
83,383
6,202
–
45,049
65,075
199,668
23,491
2,726
6,934,995 5,423,466 4,451,075
1,113,574
565,806
749,285
4,177,931 3,322,428 2,886,883
24,850
–
4,474
27,814
12,380
31,305
168,274
39,435
912
21,714
29,244
9,461
40,627
283,648
41,346
12,433
20,423
23,187
11,898
34,975
188,015
5,716,546 4,403,990 3,721,786
19,587
407,474
712,743
12,755
59,532
5,759
(6,590)
19,576
405,658
532,992
4,624
35,096
8,675
5,484
16,499
242,624
402,627
2,032
36,735
10,716
3,389
714,622
14,667
1,211,260 1,012,105
7,371
7,189
36
1,218,449
1,019,476
729,289
6,934,995 5,423,466 4,451,075
17
18
21
19
32
20
22
23
24
24
25
VAKHTANG BUTSKHRIKIDZE
CHIEF EXECUTIVE OFFICER
GIORGI SHAGIDZE
CHIEF FINANCIAL OFFICER
The notes set out on pages 118 – 198 form an integral part of these consolidated financial statements.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
In thousands of GEL
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses/(losses less gains)
(Losses less gains)/gains less losses from derivative financial instruments
Other operating income
Other operating non-interest income
Provision for loan impairment
Provision for impairment of investments in finance lease
Recovery of/(Provision for) performance guarantees and credit related commitments
Provision for impairment of other financial assets
Impairment of investment securities available for sale
Operating income after provisions for impairment
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Revaluation of available-for-sale investments
Exchange differences on translation to presentation currency
Income tax recorded directly in other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of premises and equipment
Income tax recorded directly in other comprehensive income
Other comprehensive income for the year
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Profit is attributable to:
– Owners of the Bank
– Non-controlling interest
Profit for the year
Total comprehensive income is attributable to:
– Owners of the Bank
– Non-controlling interest
Total comprehensive income for the year
Earnings per share for profit attributable to the owners of the Bank:
– Basic earnings per share
– Diluted earnings per share
Notes
2015
2014
2013
28
28
29
29
30
9
13
20
12
649,059
(236,885)
512,357
(173,709)
474,796
(192,146)
412,174
338,648
282,650
113,837
(41,546)
88,203
(29,523)
74,361
(24,301)
72,291
58,680
50,060
64,642
2,579
(575)
25,883
39,730
2,359
(683)
19,600
37,894
(5,901)
613
16,136
92,529
61,006
48,742
(72,791)
(967)
1,117
(3,351)
–
(48,672)
(77)
902
(1,236)
(22)
(32,971)
(98)
(6,459)
(2,236)
(1,142)
501,002
409,229
338,546
15,16
20
31
(142,777)
(26,286)
(1,102)
(82,964)
(122,835)
(24,427)
(5,500)
(73,548)
(108,613)
(19,993)
(1,315)
(68,692)
(253,129)
(226,310)
(198,613)
247,873
182,919
139,933
32
(29,176)
(24,468)
(15,663)
218,697
158,451
124,270
10
32
32
(2,436)
(12,075)
(479)
28,755
(4,319)
9,446
(1,849)
2,095
(192)
–
–
54
7,923
1,233
(255)
–
–
8,901
228,143
158,505
133,171
218,879
(182)
157,451
1,000
121,616
2,654
218,697
158,451
124,270
228,325
(182)
157,505
1,000
130,517
2,654
228,143
158,505
133,171
26
26
4.4
4.4
3.4
3.4
3.0
3.0
The notes set out on pages 118 – 198 form an integral part of these consolidated financial statements.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
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FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
In thousands of GEL
Share
capital
Share
premium
Note
Net assets Attributable to owners
Share-
based
payments
reserve
Revaluation
reserve for
Premises
Revaluation
reserve for
Available for
sale
securities
Cumulative
currency
translation
reserve
Retained
earnings
Non-
controlling
interest
Total
Total
equity
Balance at 1 January 2013
16,143 231,501
4,142
36,735
Profit for the year
Other comprehensive income
Total comprehensive income
for 2013
Share issue
Share-based payment
Increase in share capital
arising from share-based
payment
Equity contribution of owners of
non-controlling shareholders
Dividends paid
–
–
–
–
–
–
–
–
–
24
25
240
–
7,097
–
–
2,032
116
4,026
(4,142)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,048
–
7,668
2,156 298,880
592,605
11,419
604,024
– 121,616
–
1,233
121,616
8,901
2,654
–
124,270
8,901
7,668
1,233 121,616
130,517
2,654
133,171
–
–
–
–
–
–
–
–
–
–
–
–
–
7,337
2,032
–
–
–
–
7,337
2,032
–
–
(17,869)
–
(17,869)
594
–
594
(17,869)
Balance at 31 December 2013
16,499 242,624
2,032
36,735
10,716
3,389 402,627
714,622
14,667
729,289
Profit for the year
Other comprehensive income
Total comprehensive income
for 2014
Share issue
Share-based payment
Transaction costs recognised
directly in equity
Purchase of additional interest
from minority shareholders
Dividends paid
Transfer of revaluation surplus
to retained earnings
–
–
–
–
–
–
–
–
–
24
25
3,077 172,493
–
–
–
2,592
–
–
–
–
(9,459)
–
–
–
–
–
–
–
–
–
–
–
–
–
89
–
(1,728)
–
(2,041)
– 157,451
–
2,095
157,451
54
1,000
–
158,451
54
(2,041)
2,095 157,451
157,505
1,000
158,505
–
–
–
–
–
–
–
–
–
–
–
–
175,570
2,592
(9,459)
–
–
–
175,570
2,592
(9,459)
–
(2,627)
– (26,492)
(2,538)
(26,492)
(8,296)
–
(10,834)
(26,492)
–
2,033
305
–
305
Balance at 31 December 2014
19,576 405,658
4,624
35,096
8,675
5,484 532,992 1,012,105
7,371 1,019,476
Profit for the year
Other comprehensive income
Total comprehensive income
for 2015
Share-based payment
Transaction costs recognised
directly in equity
Increase in share capital
arising from share-based
payment
Dividends paid
Treasury shares returned
25
–
–
–
–
–
–
–
–
–
–
–
–
8,559
1,419
–
12
–
(1)
416
–
(19)
(428)
–
–
–
24,436
–
(2,916)
– 218,879
–
(12,074)
218,879
9,446
(182)
–
218,697
9,446
24,436
(2,916)
(12,074) 218,879
228,325
(182)
228,143
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,559
1,419
–
(39,128)
–
–
(39,128)
(20)
–
–
–
–
–
8,559
1,419
–
(39,128)
(20)
Balance at 31 December 2015
19,587 407,474
12,755
59,532
5,759
(6,590) 712,743 1,211,260
7,189 1,218,449
The notes set out on pages 118 – 198 form an integral part of these consolidated financial statements.
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GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands of GEL
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Fees and commissions paid
Income received from trading in foreign currencies
Other operating income received
Staff costs paid
Administrative and other operating expenses paid
Income tax paid
Note
2015
2014
2013
633,093
(235,157)
111,922
(41,569)
64,642
18,006
(133,354)
(79,669)
(48,678)
499,052
(182,572)
95,295
(29,478)
39,730
13,804
(116,481)
(74,703)
(11,555)
462,448
(192,482)
74,823
(24,097)
37,894
10,300
(102,115)
(66,849)
(2,008)
Cash flows from operating activities before changes in operating assets and liabilities
289,236
233,092
197,914
Changes in operating assets and liabilities
Net (increase)/decrease in due from other banks and mandatory cash balances with the
National Bank of Georgia
Net increase in loans and advances to customers
Net increase in investment in finance lease
Net (increase)/decrease in other financial assets
Net decrease in other assets
Net (decrease)/increase in due to other banks
Net increase in customer accounts
Net (decrease)/increase in other financial liabilities
Net increase/(decrease) in other liabilities and provision for liabilities and charges
Net cash from/(used in) operating activities
Cash flows from investing activities
Acquisition of investment securities available for sale
Proceeds from disposal of investment securities available for sale
Proceeds from redemption at maturity of investment securities available for sale
Acquisition of bonds carried at amortised cost
Proceeds from redemption of bonds carried at amortised cost
Acquisition of premises, equipment and intangible assets
Disposal of premises, equipment and intangible assets
Proceeds from disposal of investment property
Net cash (used in)/from investing activities
Cash flows from financing activities
Proceeds from other borrowed funds
Redemption of other borrowed funds
Proceeds from subordinated debt
Redemption of subordinated debt
Proceeds from debt securities in issue
Redemption of debt securities in issue
Dividends paid
Equity contribution of owners of non-controlling shareholders
Issue of ordinary shares
Transaction costs recognised directly in equity
Purchase of additional shares in subsidiaries
Net cash from/(used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
(72,453)
(364,896)
(12,994)
(13,198)
7,159
(17,351)
249,598
(415)
1,341
(61,192)
(686,746)
(11,889)
593
11,056
39,539
336,631
10,919
(5,187)
61,275
(453,686)
(9,334)
(23,048)
22,471
(30,334)
297,393
7,808
5,231
66,027
(133,184)
75,690
10
10
10
15
(475,417)
–
265,107
(183,084)
193,416
(47,815)
1,306
22,166
(845,665)
51,369
843,695
–
–
(48,751)
1,245
15,452
(755,433)
61,626
619,902
–
–
(33,522)
2,470
18,316
(224,321)
17,345
(86,641)
582,198
(310,267)
60,510
(16,763)
–
–
(39,128)
–
–
–
–
370,124
(252,693)
6,000
–
19,334
(4,474)
(26,492)
–
175,570
(9,458)
(10,923)
159,856
(213,057)
45,763
–
4,474
–
(17,869)
594
7,199
–
–
276,550
266,988
(13,040)
69,973
(9,496)
15,869
188,229
532,118
141,653
390,465
(8,122)
398,587
720,347
532,118
390,465
6
6
The notes set out on pages 118 – 198 form an integral part of these consolidated financial statements.
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2015, 2014, 2013
1 Introduction
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards for the year
ended 31 December 2015 for TBC Bank (the “Bank”) and its subsidiaries (together referred to as the “Group” or “TBC Bank Group”).
The Bank was incorporated on 17 December 1992 and is domiciled in Georgia. The Bank is a joint stock company limited by shares and was
set up in accordance with Georgian regulations.
In 2009 the Group issued new shares and since then it does not have an ultimate controlling party. At 31 December 2015, 2014 and 2013
shareholders structure is as follows:
Shareholders
Bank of New York (Nominees), Limited
TBC Holdings LTD
Individuals
Liquid Crystal International N.V. LLC
International Finance Corporation
European Bank for Reconstruction and Development
Deutsche Investitions und Entwicklungsgesellschaft MBH
JPMorgan Chase Bank
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
Ashmore Cayman SPC
Note
25
% of ownership interest held as at
31 December
2015
71%
16%
8%
5%
–
–
–
–
–
–
2014
71%
16%
8%
5%
–
–
–
–
–
–
2013
–
19%
9%
7%
20%
20%
11%
5%
5%
4%
Total
100%
100%
100%
Bank of New York is the nominal holder of the shares that have been listed on the London Stock Exchange following the IPO in June 2014.
As at 31 December 2015, 2014 and 2013, the shareholder structure by beneficiary ownership interest is as follows:
Shareholders
Mamuka Khazaradze
Badri Japaridze
GDR holders - excluding IFIs
GDR holders – IFIs
Other Shareholders
Total
Ownership interest % as at 31 December
2015
2014
2013
14.8%
7.4%
47.6%
23.0%
7.2%
100%
14.9%
7.5%
44.3%
26.7%
6.6%
100%
17.8%
8.9%
–
56.0%
17.3%
100%
GDR holders own their interest through Bank of New York, Limited. Individually the beneficiary owners might have higher ownership
interest than the individuals separately disclosed in the table above. None of the GDR holders own a controlling stake. Based on internal
information, IFIs held 23.0% in 2015 and 26.7% in 2014 through GDRs.
Included in IFIs above are International Financial Institutions IFC, EBRD and FMO. DEG is included in 2013 and 2014.
Other Shareholders include individuals who have beneficiary ownership of less than 2% each (2014: less than 2%; 2013: less than 3%).
Principal activity. The Bank’s principal business activity is universal banking operations that include corporate, small and medium
enterprises (“SME”), retail and micro operations within Georgia. The Bank has operated under a general banking licence issued by the
National Bank of the Georgia (“NBG”) since 20 January 1993.
The Bank has 128 (2014: 59; 2013: 60) branches within Georgia. As at 31 December 2015, the Bank had 4,763 employees (2014: 3,427
employees; 2013: 2,893 employees). The significant increase in the number of branches and employees is due to the merger of the Bank
with its subsidiary JSC Bank Constanta concluded in January 2015.
The Bank is a parent of a group of companies (the “Group”) incorporated in Georgia and Azerbaijan, primary business activities include
providing banking, leasing, brokerage card processing services to corporate and individual customers. The list of companies included in
the Group is provided in Note 2. The Bank is the Group’s main operating unit and accounts for most of the Group’s activities.
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1 Introduction continued
Registered address and place of business. The Bank’s registered address and place of business is: 7 Marjanishvili Street, 0102 Tbilisi,
Georgia.
Presentation currency. These consolidated financial statements are presented in thousands of Georgian Lari (“GEL thousands”), unless
otherwise indicated.
2 Summary of Significant Accounting Policies
Basis for preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) under the historical cost convention, as modified by the revaluation of premises, available-for-sale financial assets, the
initial recognition of financial instruments based on fair value and identifiable assets acquired and liabilities assumed in a business
combination measured at their fair values at the acquisition date and financial instruments categorised as at fair value through profit or
loss. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 3).
Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls because the
Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable
returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s
returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing
whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right
when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee
even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative
to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of
other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not
prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group,
and are deconsolidated from the date on which control ceases.
The consolidated financial statements include the following principal subsidiaries:
Subsidiary
2015
2014
2013
Country
Ownership/voting % as of
31 December
United Financial Corporation JSC
TBC Capital LLC
TBC Leasing JSC
TBC Kredit LLC
Banking System Service Company LLC
TBC Pay LLC
Real Estate Management Fund JSC
TBC Invest LLC
Bank Constanta JSC
Mali LLC
98.67%
100%
99.57%
75%
100%
100%
100%
100%
–
100%
98.67%
100%
99.48%
75%
100%
100%
100%
100%
100%
100%
93.32%
100%
89.53%
Georgia
Georgia
Georgia
75% Azerbaijan
Georgia
Georgia
Georgia
Israel
Georgia
Georgia
100%
100%
100%
100%
84.69%
100%
Year of
incorporation or
acquisition
Industry
Card processing
1997
Brokerage
1999
Leasing
2003
2008 Non-banking credit institution
Information services
2009
2009
Processing
Real estate management
2010
PR and marketing
2011
Financial institution
2011
Real estate management
2011
On 21 January 2015 the Group has completed the legal and operational process of merging JSC Bank Constanta with TBC Bank.
The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent
of any non-controlling interest.
The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share
of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s
proportionate share of net assets of the acquiree. Non-controlling interests that are not present ownership interests are measured at
fair value.
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Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the
amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date.
Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reassesses whether it identified all the assets
acquired and all liabilities and contingent liabilities assumed, and reviews appropriateness of their measurement.
The consideration transferred for the acquire is measured at the fair value of the assets given up, equity instruments issued and liabilities
incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition
related costs such as advisory, legal, valuation and similar professional services.
Transaction costs incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt are
deducted from its carrying amount and all other transaction costs associated with the acquisition are expensed.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses
are also eliminated unless the cost cannot be recovered. The Bank and all of its subsidiaries use uniform accounting policies consistent
with the Group’s policies.
Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned,
directly or indirectly, by the Bank. Non-controlling interest forms a separate component of the Group’s equity.
Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest
in the entity is re-measured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial
carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In
addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are
recycled to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts
previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value, cost, or
amortised cost as described below.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which
transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or
liability and the quantity held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the
quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair
value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (i.e. an
asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly
transaction between market participants at the measurement date. This is applicable for assets carried at fair value on a recurring basis if
the Group: (a) manages the group of financial assets and financial liabilities on the basis of the entity’s net exposure to a particular market
risk (or risks) or to the credit risk of a particular counterparty in accordance with the entity’s documented risk management or investment
strategy; (b) it provides information on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c)
the market risks, including duration of the entity’s exposure to a particular market risk (or risks) arising from the financial assets and
financial liabilities is substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of
financial data of the investees, are used to measure fair value of certain financial instruments for which external market pricing
information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are
measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations
techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from
prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires
significant unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the
reporting period. Refer to Note 39.
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Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its
acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a
quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of
such unquoted equity instruments. Refer to Note 10.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An
incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and
commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies
and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or
internal administrative or holding costs.
Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus
accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of
transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method.
Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees
deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the consolidated
statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a
constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument
or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows
of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread
over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are
amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties
to the contract that are an integral part of the effective interest rate (refer to income and expense recognition policy).
Initial recognition of financial instruments. Trading securities, derivatives and other financial instruments at fair value through profit or loss
are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at
initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference
between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument
or by a valuation technique whose inputs include only data from observable markets.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention
(“regular way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial asset. All
other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.
De-recognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows
from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a
qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii)
neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the
counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose
additional restrictions on the sale.
Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value. Cash and cash equivalents include cash on hand, amounts due from the NBG, excluding
mandatory reserves, and all interbank placements and interbank receivables with original maturities of less than three months. Funds
restricted for a period of more than three months on origination are excluded from cash and cash equivalents. Cash and cash equivalents
are carried at amortised cost.
The payments or receipts presented in the statement of cash flows represent transfers of cash and cash equivalents by the Group,
including amounts charged or credited to current accounts of the Group’s counterparties held with the Group, such as loan interest income
or principal collected by charging the customer’s current account or interest payments or disbursement of loans credited to the customer’s
current account, which represent cash or cash equivalent from the customer’s perspective.
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Mandatory cash balances with the National Bank of Georgia. Mandatory cash balances with the National Bank of Georgia are carried at
amortised cost and represent mandatory reserve deposits which are not available to finance the Group’s day to day operations and hence
are not considered as part of cash and cash equivalents for the purposes of the consolidated statement of cash flows.
Investment securities available for sale. This classification includes investment securities which the Group intends to hold for an indefinite
period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The
Group classifies investments as available for sale at the time of purchase.
Investment securities available for sale are carried at fair value. Interest income on available for sale debt securities is calculated using
the effective interest method and recognised in profit or loss for the year. Dividends on available-for-sale equity instruments are
recognised in profit or loss for the year when the Group’s right to receive payment is established and it is probable that the dividends will be
collected. All other elements of changes in the fair value are recognised in Other Comprehensive Income (“OCI”) until the investment is
derecognised or impaired, at which time the cumulative gain or loss is reclassified from OCI to profit or loss. Impairment losses are
recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of
investment securities available for sale.
A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative
impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that
asset previously recognised in profit or loss – is removed from equity and reclassified from OCI. Impairment losses on equity instruments
are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale
increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the
impairment loss is reversed through current period’s profit or loss for the year.
Sale and repurchase agreements. Sale and repurchase agreements (“repo agreements”), which effectively provide a lender’s return to the
counterparty, are treated as secured financing transactions. Lender provides funds to borrower and receives security as collateral.
Securities sold under such sale and repurchase agreements are not derecognised. The securities are not reclassified in the statement of
financial position unless the transferee has the right by contract or custom to sell or repledge the securities, in which case they are
reclassified as repurchase receivables. The corresponding liability is presented within amounts due to credit institutions. The repurchase
agreements are short term in nature. Available-for-sale securities or bonds carried at amortised cost reclassified to repurchase
receivables continue to be carried at fair value or amortised cost respectively in accordance with accounting policies for these categories
of assets.
Securities purchased under agreements to resell (“reverse repo agreements”), which effectively provide a lender’s return to the Group, are
recorded as due from other banks or loans and advances to customers, as appropriate. The difference between the sale and repurchase
price is treated as interest income and accrued over the life of repo agreements using the effective interest rate method.
Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with original
maturity of more than three months and with no intention of trading the resulting unquoted non-derivative receivable due on fixed or
determinable dates. Amounts due from other banks are carried at amortised cost.
Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or
originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the
receivable. Loans and advances to customers are carried at amortised cost.
When impaired financial assets are renegotiated and the renegotiated terms and conditions differ substantially from the previous terms,
the new asset is initially recognised at its fair value.
Bonds carried at amortised cost. Investment securities which the Group intends to hold for an indefinite period and which may be sold in
response to needs for liquidity or changes in interest rates, exchange rates or equity prices have been classified as available for sale
investments in the financial statements for the year ended 31 December 2014. In 2015 the Group has reassessed its intention with regard to
some of the securities under this category and has identified certain investments that the Group has both the intention and ability to hold to
maturity. Due to the fact that transactions for such securities do not take place with sufficient frequency and volume to provide pricing
information on an ongoing basis the securities are not considered to be quoted in an active market and were reclassified to loan and
receivables rather that held to maturity investments. These securities are presented in the balance sheet under caption bonds carried at
amortised cost.
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When an available-for-sale financial asset with fixed maturity is reclassified to loans and receivables, the fair value of the financial asset
on that date becomes its new amortised cost. Any previous gain or loss on that asset that has been recognised directly in other
comprehensive income is amortised to profit and loss over the investment’s remaining life using the effective interest method.
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one
or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or
timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The Bank
classifies its borrowers as significant and non-significant ones for impairment allowance estimation purposes and assesses for
impairment individually or collectively.
Specific qualitative and quantitative events are outlined for evidence of impairment of individually and collectively assessed borrowers in
order to ensure that loss event is identified as early as possible. The list of events includes but is not limited to the following:
• any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;
• the borrower experiences a significant financial difficulty as evidenced by borrower’s financial information that the Group obtains;
• the borrower considers bankruptcy or a financial reorganisation;
• other events that may impact repayment capability of the borrower.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of
the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms.
If there is evidence that an impairment loss event on significant credit exposures has been incurred, the Bank assess the borrower on an
individual basis and measures the amount of the loss as the difference between the asset’s carrying amount and the present value of
estimated future cash flows discounted by the exposure’s original effective interest rate for fixed rate loans or current effective interest
rate for variable rate loans. The Bank considers two types of sources for recoveries: cash recoveries and/or collateral recovery. For cash
recoveries the estimated recoverable amount is equal to the present value of the estimated future cash flows. Collateral recoveries reflect
the cash flows that may result from collateral foreclosure. The Bank uses its best estimates for assessment of future recoveries, applying
scenario analysis and taking into account all relevant information available at the reporting date including adverse changes in general
macroeconomic environment or the industry the borrower operates in.
If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively
assesses them for impairment. For collective assessment purposes exposures are grouped into a homogenous risk pools based on similar
credit risk characteristics. Common credit risk characteristics of the group include but are not limited to: type of counterparty (individual
vs business), type of product, past-due status of the exposure, restructuring status and type of collateral.
In order to calculate impairment allowance for collectively assessed loans pools, the Bank estimates following risk parameters:
probability of default, cure rate, recovery rate, survival rate and loss give default, based on historical experience. In case there is change in
internal or external environment and historical data no longer reflects current situation, the Bank adjusts risk parameters on the basis of
current observable data to reflect the effects of current conditions that did not affect past periods, and to remove the effects of past
conditions that do not exist currently.
The Bank reverses previously recognised impairment loss if, after the impairment was recognised, the amount of the impairment loss
decreases and the decrease is related to an objective event. The previously recognised impairment loss is reversed by adjusting the
allowance account through profit or loss. In order to reverse provisions for individually significant borrowers there should be objective
evidence that the borrowers’ financial standing has improved or there is improvement in collateral coverage. For collectively assessed
loans the Bank applies the notion of “quarantine period” defined as period necessary for an exposure to satisfy performing loans criteria’s
in order to be reclassified in a performing loans pool.
Repossessed collateral. Repossessed collateral represents non-financial assets acquired by the Group in settlement of overdue loans. The
assets are initially recognised at fair value when acquired and included in premises and equipment, investment property or inventories
within other assets depending on their nature and the Group’s intention in respect of recovery of these assets and are subsequently
re-measured and accounted for in accordance with the accounting policies for these categories of assets. Inventories of repossessed
assets are recorded at the lower of cost or net realisable value.
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Credit related commitments. The Group enters into credit related commitments, including letters of credit and financial guarantees.
Financial guarantees represent irrevocable assurances to make payments in the event that a customer cannot meet its obligations to third
parties and carry the same credit risk as loans. Financial guarantees and commitments to provide a loan are initially recognised at their
fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the
commitment, except for commitments to originate loans if it is probable that the Group will enter into a specific lending arrangement and
does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in the carrying
value of the loan on initial recognition. At the end of each reporting period, the commitments are measured at the higher of (i) the
unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the commitment at the
end of each reporting period.
Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Such contracts
do not transfer credit risk. Performance guarantees are recorded off-balance at initiation. Fee income is recognised as earned over the
lifetime of a respective contract. At the end of each reporting period, the provision for performance guarantee contracts are measured at
the best estimate of expenditure required to settle the contract at the end of each reporting period, discounted to present value if the
discounting effect is material.
The Bank has the contractual right to revert to its customer for recovering amounts paid to settle the performance guarantee contracts.
Such amounts are recognised as loans and receivables.
Goodwill. Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually
and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of
cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or group of units represent
the lowest level at which the Group monitors goodwill, and are not larger than an operating segment. Gains or losses on disposal of an
operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the
disposed operation, generally measured on the basis of the relative values of the disposed operation and the portion of the cash-generating
unit which is retained.
Premises and equipment. Premises and equipment, except for land, buildings and construction in progress, are stated at cost, less
accumulated depreciation and provision for impairment, where required. Cost of premises and equipment of acquired subsidiaries is the
estimated fair value at the date of acquisition.
Following initial recognition, land, buildings and construction in progress are carried at revalued amount, being the fair value at the date of
revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed
frequently enough to ensure that the carrying amount does not differ materially from that which would be determined using fair values at
the end of reporting period.
Any revaluation surplus is credited to the revaluation reserve for premises and equipment included in equity, except to the extent that it
reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit
or loss to the extent of the decrease previously charged. A revaluation deficit is recognised in profit or loss, except that a deficit directly
offsetting a previous surplus on the same asset is recognised in other comprehensive income and reduces revaluation reserve for
premises and equipment cumulated in equity.
Depreciation on revalued buildings is charged to profit or loss. Upon disposal of revalued property, any revaluation reserve relating to the
particular asset being sold or retired is transferred to retained earnings.
Costs of minor repairs and maintenance are expensed when incurred. Cost of replacing major parts or components of premises and
equipment items are capitalised and the replaced part is retired.
If impaired, premises and equipment are written down to the higher of their value in use and fair value less costs to sell. The decrease in
carrying amount is charged to profit or loss to the extent it exceeds the previous revaluation surplus in equity. An impairment loss
recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s value in use or
fair value less costs to sell.
Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss.
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Depreciation. Land and construction in progress are not depreciated. Depreciation on other items of premises and equipment is
calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful
lives as follows:
Premises
Furniture and fixtures
Computers and office equipment
Motor vehicles
Other equipment
Leasehold improvements
30 – 100 years;
5 – 8 years;
3 – 8 years;
4 – 5 years;
2 – 10 years; and
shorter of 7 years or the term of the underlying lease
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated
costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The residual value of an
asset is nil if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at the end of each reporting period.
Investment property. Investment property is property held by the Group to earn rental income or for capital appreciation, or both and which
is not occupied by the Group.
Investment property is stated at cost less accumulated depreciation and provision for impairment, where required. Investment property is
amortised on a straight-line basis over expected useful lives of thirty to fifty years. If any indication exists that investment properties may
be impaired, the Group estimates the recoverable amount as the higher of value in use and fair value less costs to sell. The carrying
amount of an investment property is written down to its recoverable amount through a charge to profit or loss for the year. An impairment
loss recognised in prior years is reversed if there has been a subsequent change in the estimates used to determine the asset’s
recoverable amount.
Land included in investment property is not depreciated. Depreciation on other items of investment properties is calculated using the
straight-line method to allocate their cost to their residual values over their estimated useful lives of 30 to 50 years. Residual values of
investment properties are estimated to be nil.
Earned rental income is recorded in profit or loss for the year within other operating income.
Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated
with the expenditure will flow to the Group and the cost can be measured reliably. All other repairs and maintenance costs are expensed
when incurred.
Intangible assets. All of the Group’s intangible assets have definite useful life and primarily include capitalised computer software
and licences.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. All
other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Intangible assets are amortised on a
straight-line basis over expected useful lives of two to fifteen years.
Finance lease receivables (Investment in finance lease). Where the Group is a lessor in a lease which transfers substantially all the risks and
rewards incidental to ownership to the lessee, the assets leased out are presented as investments in finance leases and carried at the
present value of the future lease payments. Investments in finance leases are initially recognised at commencement (when the lease term
begins) using a discount rate determined at inception (the earlier of the date of the lease agreement and the date of commitment by the
parties to the principal provisions of the lease).
The difference between the gross receivable and the present value represents unearned finance income. This income is recognised over
the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Incremental costs
directly attributable to negotiating and arranging the lease are included in the initial measurement of the finance lease receivable and
reduce the amount of income recognised over the lease term. Finance income from leases is recorded within interest income in the profit
or loss.
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Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the
initial recognition of investments in leases. The Group uses the same principal criteria to determine that there is objective evidence that an
impairment loss has occurred as for loans carried at amortised costs disclosed earlier in this note. Impairment losses are recognised
through an allowance account to write down the receivables’ net carrying amount to the present value of expected cash flows (which
exclude future credit losses that have not been incurred) discounted at the interest rates implicit in the finance leases. The estimated
future cash flows reflect the cash flows that may result from obtaining and selling the assets subject to the lease.
Receivables from terminated leases. The Company recognises receivables from terminated contracts at the moment of lease contract
termination. These receivables are recognised at amount comprising difference between fair value of repossessed assets and outstanding
balance of net investment in finance lease. Receivables are accounted for at amortised cost less impairment.
Prepayment for purchase of leasing assets. Prepayment for purchase of leasing assets comprise interest bearing advance payments made
to purchase assets for transfer into leases. Such advances are accounted for at amortised cost less impairment. On commencement of the
leases, advances towards lease contracts are transferred into net investment in finance lease.
Due to credit institutions. Amounts due to credit institutions are recorded when money or other assets are advanced to the Group by
counterparty banks. The non-derivative liability is carried at amortised cost. If the Group purchases its own debt, it is removed from the
consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is
included in gains or losses arising from retirement of debt.
Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at
amortised cost.
Subordinated debt. Subordinated debt includes long-term non-derivative liabilities to international financial institutions and is carried at
amortised cost. The repayment of subordinated debt ranks after all other creditors in case of liquidation and is included in “Tier 2 capital”
of the Bank.
Debt securities in issue. Debt securities in issue include promissory notes, bonds, certificates of deposit and debentures issued by the
Group. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue, they are removed from the
consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is
included in gains arising from retirement of debt.
Derivative financial instruments. Derivative financial instruments, including foreign exchange contracts, interest rate futures, forward rate
agreements, currency and interest rate swaps, currency and interest rate options are carried at their fair value. The Group also enters into
offsetting deposits with its counterparty banks to exchange currencies. Such deposits, while legally separate, are aggregated and
accounted for as a single derivative financial instrument (currency swap) on a net basis where (i) the deposits are entered into at the same
time and in contemplation of one another, (ii) they have the same counterparty, (iii) they relate to the same risk and (iv) there is no apparent
business purpose for structuring the transactions separately that could not also have been accomplished in a single transaction.
All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair
value of derivative instruments are included in profit or loss. The Group does not apply hedge accounting.
Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks
and characteristics are not closely related to those of the host contract.
Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with the legislation enacted or
substantively enacted by the end of reporting period in the respective territories that the Bank and its subsidiaries operate. The income tax
charge/credit comprises current tax and deferred tax and is recognised in profit or loss except if it is recognised directly in other
comprehensive income because it relates to transactions that are also recognised, in the same or a different period, directly in other
comprehensive income.
Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the
current and prior periods. Taxable profits or losses are based on estimates if consolidated financial statements are authorised prior to
filing relevant tax returns. Taxes, other than on income, are recorded within administrative and other operating expenses.
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2 Summary of Significant Accounting Policies continued
Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial
recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a
transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit.
Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is
not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of reporting
period which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised.
Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible
temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be
available against which the deductions can be utilised.
Deferred income tax is provided on post-acquisition retained earnings of subsidiaries, except where the Group controls the subsidiary’s
dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.
Uncertain tax positions. The Group’s uncertain tax positions are reassessed by Management at the end of each reporting period. Liabilities
are recorded for income tax positions that are determined by Management as more likely than not to result in additional taxes being levied
if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been
enacted or substantively enacted by the end of reporting period and any known Court or other rulings on such issues. Liabilities for
penalties, interest and taxes other than on income are recognised based on Management’s best estimate of the expenditure required to
settle the obligations at the end of the reporting period.
Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are
accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Share capital. Ordinary shares with discretionary dividends are classified as equity. Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration
received over the par value of shares issued is recorded as share premium in equity.
Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of the reporting
period and before the consolidated financial statements are authorised for issue, are disclosed in the subsequent events note.
Income and expense recognition. Interest income and expense are recorded for all debt instruments on an accrual basis using the effective
interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract
that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a
financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or
collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to
originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific
lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan
commitments as financial liabilities at fair value through profit or loss.
When loans and other debt instruments become doubtful of collection, they are written down to present value of expected cash inflows and
interest income is thereafter recorded for the unwinding of the present value discount based on the asset’s effective interest rate which
was used to measure the impairment loss.
All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of
the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 Summary of Significant Accounting Policies continued
Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition
of loans, shares or other securities or the purchase or sale of businesses, which are earned on execution of the underlying transaction are
recorded on its completion. Portfolio and other management advisory and service fees are recognised based on the applicable service
contracts, usually on a time-proportion basis. Asset management fees related to investment funds are recorded rateably over the period
the service is provided. The same principle is applied for wealth management, financial planning and custody services that are
continuously provided over an extended period of time.
Foreign currency translation. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic
environment in which the entity operates. The Bank’s functional currency and the Group’s presentation currency is the national currency of
Georgia Lari.
Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of respective territories
that the Bank and its subsidiaries operate, at the respective reporting period. Foreign exchange gains and losses resulting from the
settlement of transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end
official exchange rates are recognised in profit or loss. Translation at year-end rates does not apply to non-monetary items, including
equity investments. Effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain
or loss.
The results and financial position of each Group entity (the functional currency of none of which is a currency of a hyperinflationary
economy) are translated into the presentation currency as follows:
(i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the respective
reporting period;
(ii) income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the
transactions);
(iii) components of equity are translated at the historic rate; and
(iv) all resulting exchange differences are recognised in other comprehensive income.
When control over a foreign operation is lost, the exchange differences previously recognised in other comprehensive income are
reclassified to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control,
the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate. At 31 December 2015 the closing rate of exchange used for translating foreign currency balances was
USD 1 = 2.3949 (2014: USD 1 = GEL 1.8636; 2013: USD 1 = GEL 1.7363); EUR 1 = 2.6169 (2014: EUR 1 = GEL 2.2656; 2013: EUR 1 = GEL 2.3891).
Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only
when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to
realise the asset and settle the liability simultaneously.
Staff costs and related contributions. Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits as well as the
cash settled part of the share-based payment schemes are accrued in the year in which the associated services are rendered by the
employees of the Group.
Earnings per share. Earnings per share (“EPS”) are determined by dividing the profit or loss attributable to owners of the Bank by the
weighted average number of participating shares outstanding during the reporting year.
Diluted earnings per share. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential Ordinary Shares. In calculating diluted EPS, non-vested Ordinary Shares are
treated as outstanding on the grant date.
Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s Chief
operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.
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2 Summary of Significant Accounting Policies continued
Share-based payments. Share-based payment arrangement is an agreement between the entity and another party (including an employee)
that entitles the other party to receive cash or other assets of the entity for amounts that are based on the price (or value) of equity
instruments (including shares or share options) of the entity or another group entity, or equity instruments (including shares or share
options) of the entity or another group entity, provided the specified vesting conditions, if any, are met. Under share-based compensation
plan the Group receives services from management as consideration for equity instruments of the Group. The fair value of the employee
services received in exchange for the grant of the equity instruments is recognised as an expense. The total amount to be expensed is
determined by reference to the fair value of the equity instruments granted, excluding the impact of any non-market service and
performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of equity instruments that
are expected to vest. The total amount expensed is recognised over the vesting period, which is the period over which all of the specified
vesting conditions are to be satisfied. At each balance sheet date, the Group revises its estimates of the number of equity instruments that
are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the revision of original estimates, if any, in
profit or loss, with a corresponding adjustment to equity. Increase in equity on accrued shares resulting from the equity settled parts of
both schemes is accounted for under share-based payment reserve. Upon meeting vesting conditions, share-based payment reserve
attributable to the vested shares is transferred to share capital and share premium. When portions of a single grant vest on two or more
dates the entity applies graded vesting for accounting of share-based payment arrangement. Vesting period of each tranche of the grant
ends when the employee owns the shares with no further service restrictions. Under graded vesting scheme the expense for earlier years
is higher than for later years. Each tranche is expensed over its own service period with a credit entry being equity.
Amendments of the consolidated financial statements after issue. The Bank’s shareholders and management have the power to amend the
consolidated financial statements after issue.
Reclassifications. In order to achieve better and more useful presentation, the management has changed the presentation of a number of
financial statement line items in 2015. The following reclassifications were made to 31 December 2014 balances:
Period end
Financial statement line item
As previously
reported
As
reclassified
Description
31 December 2014
Net cash from investing activities
Net cash from financing activities
6,422
277,911
17,345
266,988
Cash outflow on purchase of additional shares in
subsidiaries previously presented under investing
activities is presented under financing activities
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year.
Estimates and judgements are continually evaluated and are based on Management’s experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from
those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the
amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount
of assets and liabilities within the next financial year include:
Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties.
IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions
are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is
pricing for similar types of transactions with unrelated parties and effective interest rate analysis. In management judgment, at 31
December 2015, 2014 and 2013, there were no loans and advances at other than market conditions. Terms and conditions of related party
balances are disclosed in Note 41.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3 Critical Accounting Estimates and Judgements in Applying Accounting Policies continued
Impairment losses on loans and advances and finance lease receivables. The Group regularly reviews its loan portfolio and finance lease
receivables to assess impairment. In determining whether an impairment loss should be recorded in the statement of profit or loss and
other comprehensive income, the Group makes judgments as to whether there is any observable data indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of loans or finance lease receivables before the decrease can be identified
with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the
payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group.
Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of
impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating
both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss
experience. A 5% increase or decrease between actual loss experience and the loss estimates used will result in an additional or lower
charge for loan loss impairment of GEL 9,707 thousand (2014: GEL 7,488 thousand; 2013: GEL 7,843 thousand) and additional charge for
impairment of finance lease receivables of GEL 37 thousand (2014: GEL 10 thousand ; 2013: GEL 9 thousand), respectively.
Impairment provisions for individually significant loans and leases are based on the estimate of discounted future cash flows of the
individual loans and leases taking into account repayments and realisation of any assets held as collateral against the loan or the lease.
A 5% increase or decrease in the actual future discounted cash flows from individually significant loans which could arise from a mixture of
differences in amounts and timing of the cash flows will result in an additional or lower charge for loan loss provision of GEL 3,677
thousand (2014: GEL 2,081 thousand; 2013: GEL 4,215 thousand), respectively. A 5% increase or decrease in the actual future discounted
cash flows from individually significant leases which could arise from a mixture of differences in amounts and timing of the cash flows will
result in an additional or lower charge for provision of GEL 2 thousand (2014: GEL 2 thousand ; 2013: GEL 1 thousand), respectively.
Fair value disclosure of investment properties. Investment properties held by the Group are carried at cost. However, as per the
requirements of IAS 40, the Group also discloses the fair value of investment properties as at the reporting dates. Fair value is determined
by internal appraisers of the Group, who hold a recognised and relevant professional qualification. In determining the fair values of
investment properties, three market comparatives are identified. As comparatives are usually somewhat different from the appraised
properties, the quoted prices of the comparatives were further adjusted based on the differences in their location, condition, size,
accessibility, age and expected discounts to be achieved through negotiations with the vendors. Comparative prices per square metre so
determined are then multiplied by the area of the valued property to arrive at the appraised value of the investment property. At
31 December 2015, investment properties comprised real estate assets located in Tbilisi and other regions of Georgia with the fair value
amounting to GEL 105,972 thousand (2014: GEL 79,056 thousand; 2013: GEL 86,480 thousand).
Tax legislation. Georgian and Azerbaijani tax, currency and customs legislation is subject to varying interpretations. Refer to Note 32.
4 Adoption of New or Revised Standards and Interpretations
The following amended standards became effective for the Group from 1 January 2015, but did not have any material impact on the Group:
• Amendments to IAS 19 – “Defined benefit plans: Employee contributions” (issued in November 2013 and effective for annual periods
beginning 1 July 2014).
• Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014).
• Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014).
5 New Accounting Pronouncements
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after
1 January 2016 or later, and which the Group has not early adopted.
IFRS 9 “Financial Instruments: Classification and Measurement” (amended in July 2014 and effective for annual periods beginning on or after 1
January 2018). Key features of the new standard are:
• Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost,
those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently
at fair value through profit or loss (FVPL).
• Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the
contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried
at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio
where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain
cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from
financial assets but will be included in assessing the SPPI condition.
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5 New Accounting Pronouncements continued
• Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to
present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is
held for trading, changes in fair value are presented in profit or loss.
• Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9.
The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at
fair value through profit or loss in other comprehensive income.
• IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a “three
stage” approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules
mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not
credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is
measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables.
• Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities
with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all
hedges because the standard currently does not address accounting for macro hedging.
The Group is currently assessing the impact of the new standard on its financial statements.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018).
The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the
customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or
rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason,
minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers
have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is currently assessing the
impact of the new standard on its financial statements.
The following other new pronouncements are not expected to have any material impact on the Group when adopted:
• IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016).
• Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods
beginning on or after 1 January 2016).
• Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and
effective for the periods beginning on or after 1 January 2016).
• Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning
1 January 2016).
• Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods
beginning 1 January 2016).
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on
11 September 2014 and effective for annual periods beginning on or after 1 January 2016).
• Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after
1 January 2016).
• Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016).
• Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and
effective for annual periods on or after 1 January 2016).
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated
financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6 Cash and Cash Equivalents
In thousands of GEL
2015
2014
2013
Cash on hand
Cash balances with the National Bank of Georgia (other than mandatory reserve deposits)
Correspondent accounts and overnight placements with other banks
Placements with and receivables from other banks with original maturities of less than three months
320,363
121,494
219,275
59,215
202,384
138,396
100,305
91,033
165,385
61,407
79,643
84,030
Total cash and cash equivalents
720,347
532,118
390,465
91% of correspondent accounts and overnight placements with other banks are placed with OECD banking institutions (31 December 2014:
92%; 31 December 2013: 93%).
As at 31 December 2015 GEL 59,215 thousand was placed on interbank term deposits with five non-OECD banks (31 December 2014: 91,033
thousand with four non-OECD banks; 31 December 2013: 84,030 thousand with eight non-OECD banks).
Interest rate analysis of cash and cash equivalents is disclosed in Note 33.
Credit rating of correspondent accounts and overnight placements with other banks is as follows:
In thousands of GEL
A+
A
A-
BBB+
BBB
BBB-
BB+
BB-
B
B-
Not rated
Total
2015
2014
2013
13,245
1
152,044
30,304
3,039
2,656
–
11,671
164
–
6,151
48,873
42,452
–
–
329
–
401
4,151
168
–
3,931
58,192
14,904
–
–
1,844
–
–
262
570
1,170
2,701
219,275
100,305
79,643
Credit rating of placements with and receivables from other banks with original maturities of less than three months is as follows:
In thousands of GEL
BB+
BB
BB-
B
Not rated
Total
2015
2014
2013
–
–
–
23,769
35,446
59,215
–
89,165
1,868
–
–
70,042
–
–
–
13,988
91,033
84,030
The table contains ratings of Standard & Poor’s and Fitch Ratings international agencies. When different credit ratings are designated by
the agencies, the highest designated rating for this asset is used.
As of 31 December 2015 GEL 50,200 thousand (2014: GEL nil; 2013: GEL nil) of investment securities for placements with other banks under
repo agreements was held as collateral.
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7 Due from Other Banks
Amounts due from other banks include placements with original maturities of more than three months that are not collateralised and
represent neither past due nor impaired amounts at the end of 2015, 2014 and 2013.
Credit rating of placements with other banks with original maturities of more than three months is as follows:
In thousands of GEL
A
BBB+
BB+
BB-
B
Not rated
Total
2015
2014
2013
7,975
72
–
1,507
1,268
220
3,839
56
15,924
–
5,970
7,915
11,042
33,704
–
–
–
–
–
1,708
1,708
At 31 December 2015 the Group had placements with original maturities of more than three months with three counterparty banks with
aggregated amounts above GEL 5,000 thousand (2014: 3; 2013: nil). The total aggregate amount of these placements was GEL 16,551
thousand (2014: 29,179 thousand; 2013: nil) or 87% of the total amount due from other banks (2014: 87%; 2013: nil).
As of 31 December 2015 GEL 8,711 thousand, (2014: GEL 4,525 thousand; 2013: GEL 1,615 thousand) were kept on deposits as restricted
cash under an arrangement with a credit card company or credit card related services with other banks. Refer to Note 39 for the estimated
fair value of amounts due from other banks. Interest rate analysis of due from other banks is disclosed in Note 33.
8 Mandatory cash balances with the National Bank of Georgia
Mandatory cash balances with the National Bank of Georgia (“NBG”) represent amounts deposited with the NBG. Resident financial
institutions are required to maintain an interest-earning obligatory reserve with the NBG, the amount of which depends on the level of
funds attracted by the financial institutions. The Group earned up to 4% annual interest on the mandatory reserve with the NBG in 2015,
2014 and 2013.
In 2015, Fitch Ratings re-affirmed government of Georgia’s short term sovereign credit rating of “B” and long-term credit rating of “BB-“.
9 Loans and Advances to Customers
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to small and medium enterprises
Micro loans
Others
Total loans and advances to customers (before impairment)
Less: Provision for loan impairment
2015
2014
2013
1,500,104
871,996
905,274
625,628
493,328
242,699
1,231,729
781,043
716,868
533,919
273,699
169,002
1,157,334
603,434
499,428
392,446
201,287
104,652
4,639,029 3,706,260 2,958,581
(156,869)
(194,143)
(149,764)
Total loans and advances to customers
4,444,886 3,556,496 2,801,712
Included in the consumer loans are consumer loans, card loans, overdrafts, express and fast loans and other loans.
At 31 December 2015 loans and advances to customers carried at GEL 34,012 thousand have been pledged to local banks or other financial
institutions as collateral with respect to other borrowed funds (2014: GEL 46,182 thousand; 2013: nil).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
9 Loans and Advances to Customers continued
Movements in the provision for loan impairment during 2015 are as follows:
In thousands of GEL
Provision for loan impairment at 1 January 2015
Post-merger reclassification effect
Total provision for impairment during the year:
Provision for impairment charged to income
statement during the year
Recoveries of loans previously written off
Amounts written off during the year as uncollectible
Effect of translation to presentation currency
Corporate
loans
Consumer
loans
Mortgage
loans
91,226
–
22,890
15,396
7,494
(6,066)
–
36,753
(2,373)
29,221
22,286
6,935
(22,937)
(256)
8,889
(245)
7,481
4,693
2,788
(2,714)
(276)
Small and
medium
enterprises
5,288
25
13,834
11,628
2,206
(5,383)
(1,258)
Micro loans
7,608
2,593
20,169
16,763
3,406
(12,351)
–
Other
–
–
2,025
2,025
–
–
–
Total
149,764
–
95,620
72,791
22,829
(49,451)
(1,790)
Provision for loan impairment at 31 December 2015
108,050
40,408
13,135
12,506
18,019
2,025
194,143
Loans and advances to customers written off in 2015 included loans to customers in the gross amount of GEL 7,134 thousand issued during
2015, a previously issued performance guarantee of GEL 1,720 thousand which was transformed into loan in 2015 and GEL 40,597 thousand
issued in prior years.
As of YE 2015 the Bank introduced the revised methodology for loan loss provisioning purposes. The updated methodology enables the
Bank to assess impairment allowances in more accurate manner, due to more granular segmentation of the portfolio and introduction
various risk parameters, such as cure rate, survival rate and credit conversion factor. Furthermore the Bank enhanced methodology for
probability of default and recovery rates estimation purposes. Probabilities of defaults are calculated based on migration matrices for
different overdue buckets within the portfolio; as for recovery rates, the impaired portfolio is segmented based on months in defaults and
amounts to be recovered are estimated respectively.
The Bank has also enhanced individually significant borrowers’ assessment methodology, with introduction of scenario analysis. This
approach enables the Bank to consider various probable scenarios of cash and/or collateral recoveries leading to more precise estimation
of impairment allowance for these borrowers.
As of 31 December 2015 the Groups’s allowance for loan impairment under the updated methodology amounts to GEL 194,143 thousand,
with difference of GEL 7,711 thousand compared to the allowance for loan impairment if calculated based on the previous methodology
(allowance under previous methodology would have been GEL 201,854 thousand). The release was mostly attributable to retail and micro
segments. After 31 December 2015 the Bank continues to estimate the allowance for loan impairment under the updated methodology.
Following the merger of Constanta Bank with TBC Bank, the Group has reassessed definition of segments as disclosed in Note 27. Some of
the clients were reallocated to different segments and relevant changes in provision groups are presented in the table above under caption
Post-merger reclassification effect.
Movements in the provision for loan impairment during 2014 are as follows:
In thousands of GEL
Corporate
loans
Consumer
loans
Mortgage
loans
Provision for loan impairment at 1 January 2014
Total provision for impairment during the year:
Provision for impairment charged to income
statement during the year
Recoveries of loans previously written off
Amounts written off during the year as uncollectible
107,666
29,461
31,704
26,886
18,995
10,466
(45,901)
20,362
6,524
(21,837)
Provision for loan impairment at 31 December 2014
91,226
36,753
8,292
3,323
1,666
1,657
(2,726)
8,889
Small and
medium
enterprises
4,315
4,173
1,625
2,548
(3,200)
5,288
Micro loans
Other
Total
4,892
8,263
6,006
2,257
(5,547)
7,608
–
36
18
18
(36)
156,869
72,142
48,672
23,470
(79,247)
–
149,764
134
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
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9 Loans and Advances to Customers continued
Loans and advances to customers written off in 2014 included loans to customers in the gross amount of GEL 7,142 thousand issued during
2014, a previously issued performance guarantee of GEL 4,823 thousand which was transformed into loan in 2014 and GEL 67,282 thousand
issued in prior years.
Included in the amounts written off during the period as uncollectible is the provision of GEL 20,154 thousand for a corporate loan part of
which was recovered in June 2014 through repossession of financial instruments amounting to GEL 3,014 thousand which are accounted
for under investment securities available for sale.
Movements in the provision for loan impairment during 2013 are as follows:
In thousands of GEL
Provision for loan impairment at 1 January 2013
Total provision for/(recovery of) impairment during the year:
Provision for/(recovery of) impairment charged to income
statement during the year
Recoveries of loans previously written off
Amounts written off during the year as uncollectible
Corporate
loans
Consumer
loans
Mortgage
loans
112,975
21,203
31,156
22,789
17,035
4,168
(26,512)
18,029
4,760
(22,241)
13,186
(2,316)
(4,652)
2,336
(2,578)
Small and
medium
enterprises
4,820
1,846
88
1,758
(2,351)
Micro loans
Total
4,361
4,234
166,498
47,756
2,471
1,763
(3,703)
32,971
14,785
(57,385)
Provision for loan impairment at 31 December 2013
107,666
31,704
8,292
4,315
4,892
156,869
Loans and advances to customers written off in 2013 included loans to customers in the gross amount of GEL 7,387 thousand issued during
2013 and GEL 49,998 thousand issued in prior years.
For terms of loans and advances to related parties, impairment provisions made against those loans and amounts written off during the
year refer to Note 41.
Economic sector risk concentrations within the customer loan portfolio are as follows:
In thousands of GEL
Individual
Service
Agriculture
Pawn shop
Consumer goods and automobile trading
Real estate
Energy
Food industry
Oil and gas
Communication
Construction
Transportation
Mining
Manufacturing
Other
2015
2014
2013
Amount
%
Amount
%
Amount
1,792,403
740,351
342,760
260,373
231,061
222,862
217,601
202,373
115,634
113,905
104,330
72,022
49,141
37,152
137,061
39% 1,497,911
15%
575,525
7%
265,562
6%
169,002
5%
175,681
5%
165,937
5%
216,500
4%
141,283
3%
102,912
2%
94,309
2%
95,111
2%
64,720
1%
29,952
1%
42,086
3%
69,769
40% 1,102,862
15%
539,825
7% 164,441
5% 104,652
5%
130,152
4% 132,321
6% 106,083
4% 158,865
3%
121,921
2% 102,547
101,879
3%
67,223
2%
40,346
1%
33,609
1%
51,855
2%
%
37%
18%
6%
4%
4%
5%
4%
5%
4%
4%
3%
2%
1%
1%
2%
Total loans and advances to customers (before impairment)
4,639,029
100% 3,706,260
100% 2,958,581
100%
Service sector contains loans disbursed to consumer service, healthcare, media and financial service industries.
At 31 December 2015 the Group had 84 borrowers (2014: 71 borrower; 2013: 62 borrowers) with aggregated loan amounts above GEL
5,000 thousand. The total aggregate amount of these loans was GEL 1,378,892 thousand (2014: GEL 1,031,720 thousand; 2013:
GEL 910,248 thousand) or 29,7% of the gross loan portfolio (2014: 27.8%; 2013: 30.8%).
135
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
9 Loans and Advances to Customers continued
Analysis by credit quality of loans outstanding at 31 December 2015 is as follows:
In thousands of GEL
Neither past due nor impaired
– Borrowers with credit history over two years
– New borrowers
Corporate
loans
Consumer
loans
Mortgage
loans
Small and
medium
enterprises
Micro loans
Others
Total
888,642
399,615
532,152
290,060
626,293
246,968
315,062
250,921
171,222
291,916
190,261 2,723,632
48,305 1,527,785
Total neither past due nor impaired
1,288,257
822,212
873,261
565,983
463,138
238,566 4,251,417
Past due but not impaired
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
66
3,718
2,829
–
–
15,916
9,487
14
16
3
5,077
9,803
–
–
–
22,636
8,682
–
–
–
11,829
8,991
33
19
1
1,217
1,397
38
18
18
56,741
42,078
2,914
53
22
Total past due but not impaired
6,613
25,436
14,880
31,318
20,873
2,688
101,808
Individually assessed impaired loans (gross)
– Not overdue
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
Total individually assessed impaired loans
Collectively assessed impaired loans (gross)
– Not overdue
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
187,802
10,491
5,109
940
214
350
204,906
–
–
–
–
–
–
–
228
100
–
–
–
–
5,613
725
1,792
9,683
5,150
1,385
–
–
–
–
–
–
–
9,524
858
1,078
2,901
2,692
80
2,747
5,203
–
–
–
–
7,950
3,635
3,532
1,806
4,409
6,555
440
Total collectively assessed impaired loans
328
24,348
17,133
20,377
–
–
–
–
–
–
–
738
118
365
6,262
1,833
1
9,317
–
–
–
–
–
–
–
–
–
–
951
409
85
190,549
15,694
5,109
940
214
350
212,856
19,738
5,333
5,041
24,206
16,639
1,991
1,445
72,948
Total loans and advances to customers
(before impairment)
Total provision
1,500,104
(108,050)
871,996
(40,408)
905,274
(13,135)
625,628
(12,506)
493,328
(18,019)
242,699 4,639,029
(194,143)
(2,025)
Total loans and advances to customers
1,392,054
831,588
892,139
613,122
475,309
240,674 4,444,886
136
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9 Loans and Advances to Customers continued
Analysis by credit quality of loans outstanding at 31 December 2014 is as follows:
In thousands of GEL
Neither past due nor impaired
– Borrowers with credit history over two years
– New borrowers
Corporate
loans
Consumer
loans
Mortgage
loans
Small and
medium
enterprises
Micro loans
Others
Total
784,212
290,596
415,328
323,911
470,873
235,411
248,251
267,137
106,930
154,407
110,731 2,136,325
56,316 1,327,778
Total neither past due nor impaired
1,074,808
739,239
706,284
515,388
261,337
167,047 3,464,103
Past due but not impaired
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
229
2,377
–
–
–
13,281
201
3
8
6
3,165
40
–
–
–
5,156
288
–
–
–
Total past due but not impaired
2,606
13,499
3,205
5,444
Individually assessed impaired loans (gross)
– Not overdue
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
Total individually assessed impaired loans
Collectively assessed impaired loans (gross)
– Not overdue
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
Total collectively assessed impaired loans
Total loans and advances to customers
(before impairment)
Total provision
124,483
18,270
4,227
325
147,305
6,783
4
207
16
–
–
7,010
–
–
–
–
–
9,267
1,020
7,445
7,641
2,189
743
28,305
–
–
–
–
–
2,089
113
2,912
2,022
243
–
7,379
2,506
–
–
–
2,506
1,119
68
4,942
2,771
1,309
372
10,581
1,231,729
(91,226)
781,043
(36,753)
716,868
(8,889)
533,919
(5,288)
273,699
(7,608)
169,002 3,706,260
(149,764)
–
Total loans and advances to customers
1,140,503
744,290
707,979
528,631
266,091
169,002 3,556,496
137
3,345
151
56
–
–
3,552
–
–
–
–
–
3,383
1,670
1,861
1,625
268
3
8,810
1,151
503
107
88
106
26,327
3,560
166
96
112
1,955
30,261
–
–
–
–
–
–
–
–
–
–
–
–
126,989
18,270
4,227
325
149,811
22,641
2,875
17,367
14,075
4,009
1,118
62,085
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
9 Loans and Advances to Customers continued
Analysis by credit quality of loans outstanding at 31 December 2013 is as follows:
In thousands of GEL
Neither past due nor impaired
– Borrowers with credit history over two years
– New borrowers
Corporate
loans
Consumer
loans
Mortgage
loans
Small and
medium
enterprises
Micro loans
Others
Total
619,783
342,499
285,199
284,794
335,855
152,859
179,036
198,371
70,208
124,258
9,509 1,499,590
92,141 1,194,922
Total neither past due nor impaired
962,282
569,993
488,714
377,407
194,466
101,650 2,694,512
Past due but not impaired
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
Total past due but not impaired
Individually assessed impaired loans (gross)
– Not overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
Total individually assessed impaired loans
Collectively assessed impaired loans (gross)
– Not overdue
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
1,012
409
2,786
–
–
11,973
58
13
–
–
4,207
12,044
3,735
11
–
–
–
3,746
175,635
357
4,303
6,040
186,335
2,727
–
–
295
1,488
–
–
–
–
–
–
2,145
776
8,794
7,014
2,259
409
–
–
–
–
–
2,191
485
2,624
1,234
434
–
6,968
5,287
635
–
–
–
5,922
2,335
–
–
–
2,335
2,075
131
1,184
1,702
1,529
161
6,782
1,827
–
–
–
–
1,827
1,440
1,136
77
78
271
25,274
2,249
2,876
78
271
3,002
30,748
–
–
–
–
–
1,349
454
1,669
1,328
14
180
4,994
–
–
–
–
–
–
–
–
–
–
–
–
177,970
357
4,303
6,040
188,670
10,487
1,846
14,271
11,573
5,724
750
44,651
Total collectively assessed impaired loans
4,510
21,397
Total loans and advances to customers (before
impairment)
Total provision
1,157,334
(107,666)
603,434
(31,704)
499,428
(8,292)
392,446
(4,315)
201,287
(4,892)
104,652 2,958,581
(156,869)
–
Total loans and advances to customers
1,049,668
571,730
491,136
388,131
196,395
104,652 2,801,712
The retail segment in Note 27 includes the following classes from above tables: consumer, mortgage and other. Included in other are
primarily pawn shop loans secured with precious metals.
The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement, and
created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by
the end of reporting period.
The tables above show analysis of loan portfolio based on credit quality. The Group’s policy for credit risk management purposes is to
classify each loan as “neither past due nor impaired”, “past due but not impaired”, “individually assessed impaired loans” and “collectively
assessed impaired loans”. The pool of “neither past due nor impaired loans” includes exposures which are not in overdue and are not
classified as impaired. “Past due but not impaired” loans include performing loans which are in overdue however no objective evidence of
impairment was identified; and loans which were triggered but are not impaired considering that present value of expected cash and
collateral recoveries are sufficient for fully repayment of exposure. “Individually assessed impaired loans” include exposures which were
assessed for impairment on an individual basis and corresponding impairment allowance was created. “Collectively assessed impaired
loans” include exposures for which objective evidence of impairment was identified and respective collective impairment allowance was
created. The Group conducts collective assessment of the borrowers on a monthly basis. As for the individual assessment, it is
performed quarterly.
138
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9 Loans and Advances to Customers continued
The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. The main types of collateral
obtained are the following:
• Real estate.
• Movable property including fixed assets, inventory and precious metals.
• Financial assets including deposits, stocks, and third party guarantees.
The financial effect of collateral is presented by disclosing collateral values separately for (i) those assets where collateral and other credit
enhancements are equal to or exceed carrying value of the asset (“over-collateralised assets”) and (ii) those assets where collateral and
other credit enhancements are less than the carrying value of the asset (“under-collateralised assets”).
The effect of collateral at 31 December 2015:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to small and medium enterprises
Micro loans
Others
Total
The effect of collateral at 31 December 2014:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to small and medium enterprises
Micro loans
Others
Total
The effect of collateral at 31 December 2013:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to small and medium enterprises
Micro loans
Others
Total
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
Value of
collateral
Carrying
value of the
assets
1,312,561
2,810,880
550,890 1,355,264
2,241,109
891,639
1,773,481
620,094
915,594
458,372
196,058
159,081
187,543
321,106
13,635
5,534
34,956
83,618
Value of
collateral
64,905
19,108
3,935
2,644
8,176
83,257
3,992,637 9,292,386
646,392
182,025
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
1,093,300
554,470
706,979
526,499
271,045
139,350
Value of
collateral
2,515,867
1,187,516
1,699,839
1,519,665
400,910
165,452
Carrying
value of the
assets
138,429
226,573
9,889
7,420
2,654
29,652
3,291,643 7,489,249
414,617
Value of
collateral
44,528
15,505
3,789
1,036
1,307
29,351
95,516
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
Value of
collateral
Carrying
value of the
assets
2,111,706
1,031,716
1,001,543
450,391
495,153 1,200,829
1,114,849
379,065
294,962
199,440
85,905
70,141
125,618
153,043
4,275
13,381
1,847
34,511
Value of
collateral
95,188
5,374
2,055
921
1,538
34,063
2,625,906 5,809,794
332,675
139,139
139
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
9 Loans and Advances to Customers continued
The effect of collateral is determined by comparison of fair value of collateral to gross loans and advances outstanding at the
reporting date.
The centralised unit for collateral management is in place in order to have central view and strategy on collateral management and ensure
that collaterals serve as an adequate mitigation for credit risk management purposes. Collateral provided in respect of loans is appraised,
in accordance with TBC Bank’s internal policies, by the Internal Appraisal Group (other than loans to related parties, for which external
appraisers are used). The Internal Appraisal Group belongs to collateral management unit and is independent from the loan granting
process in order to ensure that adequate appraisals are obtained and proper appraisal procedures are followed. Real estate collateral of
significant value is re-evaluated annually by internal appraisers. Statistical methods are used to monitor the value of real estate collateral
that are of non-significant value and other types of collaterals such as movable assets and precious metals.
Included in the value of collateral are contractual value of third party guarantees, which are capped at carrying value of loan due to their
nature. The value of third party guarantees in the tables above amount to GEL 358,907 thousand, GEL 307,491 thousand and GEL 222,329
thousand for the years ended 31 December 2015,2014 and 2013 respectively. These third party guarantees are not taken into consideration
when assessing the impairment allowance.
Refer to Note 39 for the estimated fair value of each class of loans and advances to customers. Interest rate analysis of loans and advances
to customers is disclosed in Note 33. Information on related party balances is disclosed in Note 41.
10 Investment Securities Available for Sale
In thousands of GEL
Corporate bonds
Certificates of Deposit of the National Bank of Georgia
Ministry of Finance of Georgia Treasury Bills
Georgian Government notes
Total debt securities
Corporate shares – quoted (VISA Inc.)
Corporate shares – unquoted
Total investment securities available for sale
2015
2014
2013
174,916
84,849
33,445
998
25,034
198,233
476
232,934
–
321,140
–
173,974
294,208
456,677
495,114
9,335
3,767
6,140
3,693
4,858
679
307,310
466,510
500,651
All debt securities except for corporate bonds are issued by Government of Georgia and National Bank of Georgia. Country rating of
Georgia as assigned by international rating agency is BB- with stable outlook (affirmed in October 2015). 72% of corporate bonds are issued
by triple A rated international financial institutions, whereas 28% is issued by A- rated IFI. Management could not reliably estimate the fair
value of the Group’s investment in shares of its unquoted equity investment securities available for sale. Therefore, these investments are
carried at cost of GEL 3,765 thousand (2014: GEL 3,693 thousand; 2013: GEL 679 thousand). The investees have not published recent
financial information about their operations, their shares are not quoted and recent trade prices are not publicly accessible.
At 31 December 2015 investment securities available for sale carried at GEL 208,467 thousand have been pledged to local banks or
financial institutions as collateral with respect to other borrowed funds (2014: GEL 173,239 thousand; 2013: GEL 84,086 thousand). Refer
to Note 17.
None of the debt securities available for sale are overdue or impaired.
140
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
10 Investment Securities Available for Sale continued
At 31 December 2015 the principal equity investment securities available for sale are:
Name
Nature of business
Country of registration
Visa Inc.
LTD Caucasus Online
JSC GRDC
Other
Total
Card Processing
Telecommunication
Property development
USA
Georgia
Netherlands Antilles
The movements in investment securities available for sale are as follows:
In thousands of GEL
Carrying amount at 1 January
Purchases
Disposals
Reclassified to Bonds carried at amortised cost
Redemption at maturity
Revaluation
Interest income accrued
Interest income received
Impairment related to investment in equity security
Carrying amount at 31 December
11 Bonds Carried at Amortised Cost
In thousands of GEL
Ministry of Finance Treasury Bills
Certificates of Deposit of the National Bank of Georgia
Georgian Government notes
Total Bonds carried at amortised cost
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Carrying value at 31 December
2015
2014
2013
9,335
3,014
365
388
6,140
3,014
365
314
13,102
9,833
4,858
–
365
314
5,537
Note
2015
2014
2013
466,510
475,417
–
(372,063)
(265,107)
(2,436)
20,927
(15,938)
–
500,651
848,679
(51,369)
–
(843,695)
(1,849)
30,361
(16,246)
(22)
407,733
755,433
(61,626)
–
(619,902)
7,923
30,442
(18,210)
(1,142)
307,310
466,510
500,651
28
2015
2014
2013
316,822
39,870
15,400
372,092
–
–
–
–
–
–
–
–
All debt securities except for corporate bonds are issued by Government of Georgia and National Bank of Georgia. Country rating of
Georgia as assigned by international rating agency is BB- with stable outlook (affirmed in October 2015).
The movements in investment securities available for sale are as follows:
In thousands of GEL
Gross amount at 1 January
Reclassified from available-for-sale securities
Purchases
Redemption at maturity
Interest income accrual
Interest income received
Disposal
Gross amount at 31 December
Note
2015
2014
2013
10
–
372,063
183,084
(193,416)
22,950
(12,589)
–
372,092
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
141
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
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RISK MANAGEMENT
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
11 Bonds Carried at Amortised Cost continued
Refer to Note 39 for the disclosure of the fair value of bonds carried at amortised cost. Interest rate analysis of bonds carried at amortised
cost is disclosed in Note 33.
At 31 December 2015 bonds carried at amortised cost at GEL 136,472 thousand have been pledged to local banks or financial institutions as
collateral with respect to other borrowed funds (2014: GEL nil thousand; 2013: GEL nil). Refer to Note 17.
None of the bonds carried at amortised cost as at 31 December 2015 are overdue or impaired.
12 Other Financial Assets
In thousands of GEL
Receivables on guarantees
Receivables on credit card services and money transfers
Prepayments for purchase of leasing assets
Bank assurance income receivable
Receivable on terminated leases
Rental income receivables
Factored receivables
Other
Less: Provision for impairment
Total other financial assets
Movements in the provision for impairment of other financial assets during 2015 are as follows:
In thousands of GEL
Provision for impairment at 1 January 2015
Provision for impairment during the year
Amounts written off during the year as uncollectible
Recovery of amounts previously written off
Provision for impairment at 31 December 2015
Movements in the provision for impairment of other financial assets during 2014 are as follows:
In thousands of GEL
Provision for impairment at 1 January 2014
Provision for impairment during the year
Amounts written off during the year as uncollectible
Recovery of amounts previously written off
Provision for impairment at 31 December 2014
2015
2014
2013
16,435
15,072
9,390
4,450
4,404
4,309
2,859
13,290
(5,892)
11,728
9,440
13,032
1,548
3,323
2,056
–
6,960
(4,230)
11,660
6,557
13,516
705
2,249
1,588
–
11,854
(3,080)
64,317
43,857
45,049
Receivables
on
terminated
leases
2,573
988
–
–
3,561
Receivables
on
terminated
leases
2,054
533
(14)
–
2,573
Other
Total
1,657
2,363
(1,721)
32
2,331
4,230
3,351
(1,721)
32
5,892
Other
Total
1,026
703
(409)
337
1,657
3,080
1,236
(423)
337
4,230
142
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
12 Other Financial Assets continued
Movements in the provision for impairment of other financial assets during 2013 are as follows:
In thousands of GEL
Provision for impairment at 1 January 2013
Provision for impairment during the year
Amounts written off during the year as uncollectible
Recovery of amounts previously written off
Provision for impairment at 31 December 2013
Analysis by credit quality of other financial receivables is as follows:
In thousands of GEL
Neither past due nor impairment
– Receivables on credit card services and money transfers
– Prepayments for purchase of leasing assets
– Bank assurance income receivable
– Factored receivables
– Receivables on guarantees
– Rental income receivables
– Other
Total neither past due nor impaired
Past due but not impaired
– Receivables on guarantees
– more than 90 days overdue
Total past due but not impaired
Receivables individually determined to be impaired (gross)
– Receivables on terminated leases
– less than 90 days overdue
– more than 90 days overdue
– Other receivables
– less than 90 days overdue
– more than 90 days overdue
Total individually impaired (gross)
Less impairment provision
Total other financial assets
Credit rating of other financial assets neither past due nor impaired is as follows:
In thousands of GEL
A+
A
BBB+
B+
B
Not rated
Total
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Receivables
on
terminated
leases
Other
Total
3,887
236
(2,069)
–
2,998
2,000
(4,022)
50
6,885
2,236
(6,091)
50
2,054
1,026
3,080
2015
2014
2013
15,072
9,390
4,450
2,859
939
4,309
10,823
9,440
13,032
1,548
–
836
2,056
5,159
6,557
13,516
705
–
880
1,588
9,537
47,842
32,071
32,783
15,496
10,892
15,496
10,892
10,780
10,780
4,404
–
4,404
2,467
–
2,467
6,871
3,323
–
3,323
1,801
–
1,801
5,124
2,249
–
2,249
2,317
504
1,813
4,566
(5,892)
(4,230)
(3,080)
64,317
43,857
45,049
2015
2014
2013
2,018
8,700
286
322
2,281
34,235
47,842
483
5,910
400
59
897
24,322
953
3,875
214
–
310
27,431
32,071
32,783
143
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
12 Other Financial Assets continued
Receivables individually determined to be impaired include receivables on terminated leases and other receivables for which impairment
provision was assessed individually. The primary factors by which the Group considers a receivable as impaired is overdue status.
Receivables on terminated leases are under-collateralised, estimated fair value of collateral on these equals GEL 1,253 thousand (2014:
GEL 808 thousand; 2013: GEL 95 thousand). The remaining assets are not collateralised.
13 Investments in Finance Lease
Investments in finance lease of GEL 75,760 thousand (2014: GEL 50,907 thousand; 2013: GEL 35,613 thousand) are represented by leases
of equipment.
Finance lease payments receivable (gross investment in the leases) and their present values are as follows:
In thousands of GEL
Finance lease payments receivable at 31 December 2015
Unearned finance income
Impairment loss provision
Present value of lease payments receivable at 31 December 2015
Finance lease payments receivable at 31 December 2014
Unearned finance income
Impairment loss provision
Present value of lease payments receivable at 31 December 2014
Finance lease payments receivable at 31 December 2013
Unearned finance income
Impairment loss provision
Present value of lease payments receivable at 31 December 2013
Due in 1 year
Due between
2 and 5 years
54,546
(13,147)
(459)
43,091
(7,992)
(279)
Total
97,637
(21,139)
(738)
40,940
34,820
75,760
36,414
(8,380)
(126)
27,662
(4,594)
(69)
64,076
(12,974)
(195)
27,908
22,999
50,907
24,775
(5,941)
(110)
20,592
(3,636)
(67)
45,367
(9,577)
(177)
18,724
16,889
35,613
At 31 December 2015 the estimated fair value of financial lease receivables was GEL 75,760 thousand (2014: GEL 50,907 thousand; 2013:
GEL 35,613 thousand). Refer to Note 39.
Movements in the provision for impairment of net investment in finance lease are as follows:
In thousands of GEL
Provision for impairment at the beginning of the year
Provision for impairment during the year
Amounts written off during the year as uncollectible
Provision for impairment at the end of the year
31 December
2015
31 December
2014
31 December
2013
195
967
(424)
738
177
77
(59)
195
114
98
(35)
177
144
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
13 Investments in Finance Lease continued
Analysis by credit quality of net investment in finance lease is as follows:
In thousands of GEL
Neither past due nor impaired
– Customers with more than two year experience
– New customers
Total neither past due nor impaired
Past due but not impaired
– Less than 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 180 days to 360 days overdue
Total past due but not impaired
Individually impaired
– Not overdue
– 1 to 30 days overdue
– 31 days to 90 days overdue
– From 91 to 180 days
– From 181 to 360 days
– More than 360 days
Individually impaired gross
Total investment in finance lease- gross
Impairment loss provision
Total net investment in finance lease
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
31 December
2015
31 December
2014
31 December
2013
20,612
46,431
67,043
9,570
30,442
40,012
8,750
19,854
28,604
4,285
1,694
–
–
5,979
1,639
332
33
950
522
–
6,213
1,479
424
67
8,183
1,926
568
75
197
–
141
3,261
–
–
–
3,261
2,419
603
59
583
251
10
3,476
76,498
2,907
51,102
3,925
35,790
(738)
(195)
(177)
75,760
50,907
35,613
The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement, and
created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual lease by
the reporting date. The Group’s policy is to classify each lease as “neither past due nor impaired” until specific objective evidence of
impairment of the lease is identified. The primary factors that the Group considers whether a lease is impaired are deterioration of
financial position of lessee, its overdue status and realisability of the leased asset.
The Group normally structures its finance lease contracts so that the lessee makes a minimum prepayment of 20% of the equipment
purchase price at the inception of the lease term. The Group holds title to the leased assets during the lease term. The title to the asset
under finance lease contract is transferred to the lessees at the end of the contracts terms, including full repayment of lease payments.
Generally the lease terms are up to five years.
The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. The main types of collateral
obtained are the following:
• Leased assets (inventory and equipment).
• Down payment.
• Real estate properties.
• Third party guarantees.
The financial effect of collateral is presented by disclosing collateral values separately for (i) those assets where collateral and other credit
enhancements are equal to or exceed carrying value of the asset (“over-collateralised assets”) and (ii) those assets where collateral and
other credit enhancements are less than the carrying value of the asset (“under-collateralised assets”).
145
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
13 Investments in Finance Lease continued
The effect of collateral at 31 December 2015:
In thousands of GEL
Investment in leases
Total
The effect of collateral at 31 December 2014:
In thousands of GEL
Investment in leases
Total
The effect of collateral at 31 December 2013:
In thousands of GEL
Investment in leases
Total
14 Other Assets
In thousands of GEL
Current other assets
Inventories of repossessed collateral
Other inventories
Prepayments for other assets
Prepaid taxes other than income tax
Total current other assets
Non-current other assets
Assets repossessed from terminated leases
Prepayments for construction in progress
Assets purchased for leasing purposes
Prepaid insurance of leasing assets
Other
Total non-current other assets
Total other assets
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
Fair value of
collateral
Carrying
value of the
assets
Fair value of
collateral
69,048
103,416
69,048
103,416
7,450
7,450
5,532
5,532
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
45,608
45,608
Fair value of
collateral
79,134
79,134
Carrying
value of the
assets
Fair value of
collateral
5,494
5,494
3,616
3,616
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
Fair value of
collateral
Carrying
value of the
assets
Fair value of
collateral
32,280
62,169
32,280
62,169
3,510
3,510
3,229
3,229
2015
2014
2013
85,216
3,666
3,134
2,659
94,675
4,543
2,578
865
739
512
9,237
60,480
2,961
3,724
1,718
68,883
3,797
2,078
545
609
1,863
8,892
49,920
3,130
3,006
402
56,458
1,752
5,016
–
482
1,367
8,617
103,912
77,775
65,075
Inventories of repossessed collateral represents real estate assets and equipment acquired by the Group in settlement of impaired loans,
other than those classified as investment property or premises and equipment. The Group expects to dispose of the assets in the
foreseeable future. Such assets are initially recognised at fair value and subsequently measured at lower of cost and net realisable value.
In 2015, collateral repossessed for settlement of impaired loans amounted to GEL 34 million (2014: GEL 26 million, 2013: GEL 50 million).
With respect to certain inventories of repossessed collaterals, the Group has granted the previous owners a right to repurchase the
inventories at prices equal to or higher than the carrying value of the loan at the date of repossession. This right is usually effective for a
period of 6 to 12 months from the date of repossession during which the Group obliges not to dispose of the repossessed collateral to third
parties. As of 31 December 2015, the carrying value of the inventories of repossessed collateral which were subject to the repurchase
agreement was GEL 23,639 thousand (2014: GEL 33,283 thousand, 2013: GEL 19,840 thousand).
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
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FINANCIAL STATEMENTS
15 Premises, Equipment and Intangible Assets
In thousands of GEL
Cost or valuation at 1 January 2013
Accumulated depreciation/amortisation Including
accumulated impairment loss
Carrying amount at 1 January 2013
Additions
Transfers
Transfers from/(to) Investment Property, net
Disposals at cost
Impairment charge to profit and loss
Depreciation/amortisation charge
Elimination of accumulated depreciation/amortisation
on disposals
Note
16
Land,
premises
and
leasehold
improve-
ments
Office and
computer
equipment
Construction
in progress
Total
premises
and
equipment
Computer
software
licences
Total
138,744
97,732
36,010
272,486
27,003
299,489
(20,724)
(59,206)
–
(79,930)
(8,186)
(88,116)
118,020
38,526
36,010
192,556
18,817
211,373
3,458
1,383
244
(1,146)
–
(3,607)
18,136
201
–
(2,577)
(219)
(11,390)
3,199
(1,584)
(345)
(1,665)
4
–
24,793
–
(101)
(5,388)
(215)
(14,997)
8,729
–
–
(51)
–
(4,038)
33,522
–
(101)
(5,439)
(215)
(19,035)
653
2,367
–
3,020
34
3,054
Carrying amount at 31 December 2013
119,005
45,044
35,619
199,668
23,491
223,159
Cost or valuation at 31 December 2013
Accumulated depreciation/amortisation including
accumulated impairment loss
142,683
113,273
35,619
291,575
35,681
327,256
(23,678)
(68,229)
–
(91,907)
(12,190)
(104,097)
Carrying amount at 31 December 2013
119,005
45,044
35,619
199,668
23,491
223,159
Additions
Transfers
Transfers from/(to) Investment Property, net
Disposals at cost
Impairment charge to profit and loss
Depreciation/amortisation charge
Elimination of accumulated depreciation/amortisation
on disposals
16
800
1,396
(646)
(1,509)
–
(3,214)
26,684
161
–
(9,355)
(220)
(14,267)
1,383
(1,557)
–
(178)
–
–
28,867
–
(646)
(11,042)
(220)
(17,481)
19,884
–
–
(334)
–
(5,493)
48,751
–
(646)
(11,376)
(220)
(22,974)
270
9,276
–
9,546
208
9,754
Carrying amount at 31 December 2014
116,102
57,323
35,267
208,692
37,756
246,448
Cost or valuation at 31 December 2014
Accumulated depreciation/amortisation including
accumulated impairment loss
142,724
130,543
35,267
308,534
55,231
363,765
(26,622)
(73,220)
–
(99,842)
(17,475)
(117,317)
Carrying amount at 31 December 2014
116,102
57,323
35,267
208,692
37,756
246,448
Additions
Transfers
Transfers from/(to) Investment Property, net
Disposals at cost
Revaluation
Effect of translation to presentation currency Cost
Impairment charge to profit and loss
Depreciation/amortisation charge
Elimination of accumulated depreciation/amortisation
on disposals
Effect of translation to presentation currency
Accumulated depreciation
16
2,470
1,717
646
(324)
15,249
(374)
18
(3,502)
217
362
24,167
(0)
–
(1,201)
–
(536)
(311)
(15,632)
952
391
3,841
(1,717)
–
(864)
13,506
–
–
–
–
–
30,478
(0)
646
(2,389)
28,755
(910)
(293)
(19,134)
1,169
753
17,337
–
–
(199)
–
(43)
(4,982)
(5,758)
47,815
(0)
646
(2,588)
28,755
(953)
(5,275)
(24,892)
197
36
1,366
789
Carrying amount at 31 December 2015
132,581
65,153
50,033
247,767
44,344
292,111
Cost or valuation at 31 December 2015
Accumulated depreciation/amortisation including
accumulated impairment loss
162,126
152,662
50,033
364,821
67,344
432,165
(29,545)
(87,509)
–
(117,054)
(23,000)
(140,054)
Carrying amount at 31 December 2015
132,581
65,153
50,033
247,767
44,344
292,111
147
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
15 Premises, Equipment and Intangible Assets continued
Depreciation and amortisation charge presented on the face of the statement of profit or loss and other comprehensive income include
depreciation and amortisation charge of premises and equipment, investment properties and intangible assets.
Construction in progress consists of construction and refurbishment of branch premises and a new headquarter of the Bank. Upon
completion, assets are transferred to premises.
Premises were revalued to market value on 30 September 2015. The valuation was carried out by an independent firm of valuators which
holds a recognised and relevant professional qualification and who have recent experience in valuation of assets of similar location and
category. In the process of comparison, they have used three comparative analogues (registered sale and/or offer for sale), in which prices
were applied adjustments based on the difference between subject assets and analogues. Most of the assets have been estimated by using
the market approach/method due to the market situation, namely by existence of a sufficient number of registered sales and proposals by
the date of valuation.
Management considers that the fair value has not changed significantly between 30 September and 31 December 2015.
In thousands of GEL
(except for range of inputs)
Carrying
value at
31 December
2013
Carrying
value at
31 December
2014
Carrying
value at
31 December
2015
Fair value as of
30 September
2015 (valuation
date)
Valuation
technique
Other key
information
Unobservable
inputs
Office buildings
56,502
56,468
51,115
51,115 Sales
Land
comparison
approach
Buildings
Price per
square metres
Range of unobservable
inputs (weighted
average)
472 – 1643 (666)
601 – 4,357 (1,300)
Branches
82,437
75,878
124,069
124,069 Sales
Land
comparison
approach
Buildings
Price per
square metres
2 – 1,994 (196)
374 – 11,514 (2,387)
At 31 December 2015 the carrying amount of premises would have been GEL 79,952 thousand (2014: GEL 86,039 thousand; 2013: GEL
88,942 thousand) had the assets been carried at cost less depreciation and impairment losses. At 31 December 2015 the carrying amount
of construction in progress would have been GEL 27,284 thousand (2014: GEL 20,000 thousand; 2013: GEL 20,345 thousand) had the assets
been carried at cost less impairment losses.
16 Investment Properties
In thousands of GEL
Gross book value at 1 January
Accumulated depreciation at 1 January
Carrying amount at 1 January
Transfer from/to property, plant and equipment
Transfer from inventories of repossessed collateral
Addition from foreclosure
Disposals at cost
Elimination of depreciation on disposal
Transfer to property, plant and equipment
Depreciation charge
Effect of translation to presentation currency
Gross book value at 1 January
Accumulated depreciation at 1 January
Carrying amount at 31 December
Note
2015
2014
2013
15
15
78,699
(2,483)
76,216
–
778
–
(18,101)
829
(646)
(1,394)
(82)
60,648
(3,048)
84,879
(1,496)
83,383
646
2,059
772
(9,657)
466
–
(1,453)
–
78,699
(2,483)
34,973
(668)
34,305
345
23,648
38,638
(12,481)
130
(244)
(958)
–
84,879
(1,496)
57,600
76,216
83,383
At 31 December 2015, investment properties comprised of 8 lots (2014: 9 lots; 2013:12 lots) of land and 59 buildings (2014: 57 buildings;
2013: 58 buildings) located in Tbilisi and other regions of Georgia with the fair value amounting to GEL 105,972 thousand (2014: GEL 79,056
thousand; 2013: GEL 86,480 thousand).
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16 Investment Properties continued
For disclosure purposes fair valuation exercise was carried out for Investment Properties as of 30 September 2015. The valuation was
carried out by an independent firm of valuators which holds a recognised and relevant professional qualification and who have recent
experience in valuation of assets of similar location and category. In the process of comparison, they have used three comparative
analogues (registered sale and/or offer for sale), in which prices were applied adjustments based on the difference between subject assets
and analogues. Most of the assets have been estimated by using the market approach/method due to the market situation, namely by
existence of a sufficient number of registered sales and proposals by the date of valuation. For details behind valuation refer to Note 3.
In thousands of GEL
(except for range of inputs)
Carrying value at
31 December 2015
Land
Buildings
18,632
38,968
Fair value as of
30 September 2015
(valuation date) Valuation technique
Unobservable inputs
37,017 Sales comparison
approach
Price per square
metres
68,955 Sales comparison
approach
Price per square
metres
Range of unobservable
inputs (weighted average)
23 – 918 (196)
186 – 5,243 (956)
Where the Group is the lessor, the future minimum lease payments receivable under non-cancellable operating leases, are as follows:
In thousands of GEL
Not later than 1 year
Later than 1 year and not later than 5 years
Total operating lease payments receivable
17 Due to Credit Institutions
In thousands of GEL
Due to other banks
Correspondent accounts and overnight placements
Deposits from banks
Short term loans from banks
Total due to other banks
Other borrowed funds
Borrowings from foreign banks and financial institutions
Borrowings from local banks and financial institutions
Borrowings from Ministry of Finance
Total other borrowed funds
Total amounts due to credit institutions
2015
186
–
186
2014
107
1,008
2013
163
1,736
1,115
1,899
2015
2014
2013
47,342
25,936
–
73,278
37,247
47,802
934
85,983
4,894
42,358
–
47,252
678,946
355,664
5,686
1,040,296
452,469
204,475
6,358
663,302
417,504
92,987
8,063
518,554
1,113,574
749,285
565,806
As at 31 December 2015, TBC Kredit had breached certain covenants under loan agreements with a number of foreign financial institution
lenders. The carrying amount of the affected loans as at 31 December 2015 was GEL 39,047 thousand. As at 31 December 2015, TBC Kredit
had obtained the waiver for the borrowings with carrying amount of GEL 3,660 thousand. The waivers for borrowings with carrying
amounts of GEL 18,899 thousand and 16,488 thousand were obtained in January 2016 and February 2016 respectively. These breaches have
been waived till 31 December 2015, 31 January 2016 and 29 February 2016 for the borrowings with carrying amounts of GEL 26,474
thousand, GEL 10,165 thousand and GEL 2,408 thousand respectively.
As at 31 December 2015 for the purposes of maturity analysis of financial liabilities (Note 33) the above-mentioned loans are included
within the amounts for which repayment is expected within 3 months.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
18 Customer Accounts
In thousands of GEL
State and public organisations
– Current/settlement accounts
– Term deposits
Other legal entities
– Current/settlement accounts
– Term deposits
Individuals
– Current/demand accounts
– Term deposits
Total customer accounts
2015
2014
2013
152,438
86,828
130,008
47,084
134,518
72,463
1,276,141
126,042
1,042,559
125,605
935,083
134,143
944,215
1,592,267
684,521
1,292,651
621,211
989,465
4,177,931 3,322,428 2,886,883
State and public organisations include government owned profit orientated businesses.
Economic sector concentrations within customer accounts are as follows:
In thousands of GEL
Individual
Trade and Service
Consumer Goods and Automobile Trading
Transportation
Construction
Energy
Real Estate
Oil and Gas
Food Industry
Communication
Agriculture
Manufacturing
Mining
Other
2015
2014
2013
Amount
%
Amount
%
Amount
2,536,482
531,020
162,026
135,356
133,623
97,926
66,551
54,711
41,142
33,933
22,127
15,800
13,380
333,854
61% 1,977,172
435,414
13%
86,729
4%
101,939
3%
136,429
3%
48,094
2%
72,843
2%
75,562
1%
62,149
1%
57,677
1%
17,755
1%
18,869
0%
0%
7,541
224,255
8%
60% 1,610,676
13% 344,803
72,739
3%
129,096
3%
131,427
4%
57,179
1%
57,798
2%
147,005
2%
97,421
2%
28,909
2%
23,772
1%
21,013
1%
0%
21,746
6% 143,299
%
56%
12%
2%
4%
5%
2%
2%
5%
3%
1%
1%
1%
1%
5%
Total customer accounts
4,177,931
100% 3,322,428
100% 2,886,883
100%
At 31 December 2015 the Group had 140 customers (2014: 125 customers; 2013: 97 customers) with balances above GEL 3,000 thousand.
The aggregate balance of these customers was GEL 1,432,724 thousand (2014: GEL 1,111,385 thousand; 2013: GEL 915,407 thousand) or
34% of total customer accounts (2014: 33%; 2013: 32%).
At 31 December 2015 included in customer accounts are deposits of GEL 999 thousand and GEL 77,304 thousand (2014: GEL 636 thousand
and GEL 71,902 thousand; 2013: 9,652 thousand and GEL 38,973 thousand) held as collateral for irrevocable commitments under letters of
credit and guarantees issued, respectively. Refer to Note 35.
Refer to Note 39 for the disclosure of the fair value of each class of customer accounts. Information on related party balances is disclosed
in Note 41.
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Currency
USD
USD
AZN
Currency
USD
AZN
USD
Currency
AZN
Carrying amount
in GEL as at
31 December 2015
12,220
4,798
4,696
21,714
Carrying amount
in GEL as at
31 December 2014
9,469
7,236
3,718
20,423
Maturity date Coupon rate
Effective
interest rate
21-Jul-16
3-Sep -17
16-Apr-16
9.0%
8.4%
9.0%
9.7%
9.2%
9.7%
Maturity date Coupon rate
Effective
interest rate
21-Jul-16
16-Apr-16
3-Sep-17
9.0%
9.0%
8.4%
9.7%
9.7%
9.2%
Carrying amount
in GEL as at
31 December 2013
Maturity Date Coupon rate
Effective
interest rate
4,474
1-Jan-14
7.0%
8.4%
4,474
19 Debt Securities in Issue
In thousands of GEL
Bonds issued on Georgian market
Bonds issued on Georgian market
Bonds issued on Azerbaijani market
Total debt securities in issue
In thousands of GEL
Bonds issued on Georgian market
Bonds issued on Azerbaijani market
Bonds issued on Georgian market
Total debt securities in issue
In thousands of GEL
Bonds issued on Azerbaijani market
Total debt securities in issue
Refer to Note 39 for the disclosure of the fair value of debt securities in issue.
20 Provisions for Performance Guarantees, Credit Related Commitments and Liabilities and Charges
Movements in provisions for performance guarantees, credit related commitment and liabilities and charges are as follows:
In thousands of GEL
Carrying amount at 1 January 2013
Additions less releases recorded in profit or loss
Utilisation of provision
Carrying amount at 31 December 2013
Additions less releases recorded in profit or loss
Utilisation of provision
Carrying amount at 31 December 2014
Additions less releases recorded in profit or loss
Utilisation of provision
Carrying amount at 31 December 2015
Performance
guarantees
Credit related
commitments
2,332
2,374
(553)
4,153
759
–
4,912
(3,440)
–
1,472
842
4,085
–
4,927
(1,661)
–
3,266
2,323
–
5,589
Other
3,000
1,315
(1,015)
3,300
5,500
(5,080)
3,720
1,102
(2,422)
2,400
Total
6,174
7,774
(1,568)
12,380
4,598
(5,080)
11,898
(15)
(2,422)
9,461
Credit related commitments and performance guarantees: Provision was created against losses incurred on financial and performance
guarantees and commitments to extend credit to borrowers whose financial conditions deteriorated.
Impairment allowance estimation methods differ for (i) letter of credits and guarantees and (ii) undrawn credit lines.
For letter of credits and guarantees allowance estimation purposes the Bank classifies borrowers as significant and non-significant ones.
Triggered significant guarantees and letter of credits are assessed for impairment on an individual basis, whereas for not triggered
significant and all non-significant ones the Bank estimates allowances applying statistical risk parameters, such as credit conversion
factor and loss given default.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
20 Provisions for Performance Guarantees, Credit Related Commitments and Liabilities and Charges continued
Undrawn credit lines are classified as committed and uncommitted exposures, with impairment allowance created for committed ones.
The undrawn part of the credit lines is multiplied by the respective credit conversion factor and provisioned in the similar manner as
corresponding on balance sheet exposures.
Provisions for liabilities, charges, performance guarantees and credit related commitments are primarily expected to be utilised within
twelve months after the year end.
21 Other Financial Liabilities
Other financial liabilities comprise the following:
In thousands of GEL
Debit or credit card payables
Trade payables
Security deposits for finance lease
Derivative financial liabilities
Other accrued liabilities
Total other financial liabilities
Refer to Note 39 for disclosure of the fair value of other financial liabilities.
22 Other Liabilities
Other liabilities comprise the following:
In thousands of GEL
Accrued employee benefit costs
Taxes payable other than on income
Advances received
Other
Total other liabilities
Note
2015
2014
2013
38
12,478
10,264
6,022
2,411
8,260
39,435
8,710
9,835
6,915
5,639
10,247
41,346
2,488
8,129
6,098
4,405
3,730
24,850
2015
2014
2013
22,385
11,584
4,764
1,894
21,502
10,232
977
2,264
17,740
9,705
1,297
2,563
40,627
34,975
31,305
All of the above liabilities are expected to be settled within twelve months after the year end.
23 Subordinated Debt
At 31 December 2015, subordinated debt comprised:
In thousands of GEL
Grant Date
Maturity date
Currency
23-Apr-09
European Bank for Reconstruction and Development
19-Feb-08
Deutsche Investitions und Entwicklungsgesellschaft MBH
23-Apr-09
International Financial Corporation
26-Jun-13
Deutsche Investitions und Entwicklungsgesellschaft MBH
18-Dec-15
Green for Growth Fund
European Fund for Southeast Europe
18-Dec-15
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. 19-Dec-13
10-Jun-14
Kreditanstalt für Wiederaufbau Bankengruppe
4-May-15
Kreditanstalt für Wiederaufbau Bankengruppe
12-Nov-18
15-Jul-18
12-Nov-18
15-Jun-20
18-Dec-25
18-Dec-25
15-Apr-23
8-May-21
8-May-21
USD
USD
USD
USD
USD
USD
USD
GEL
GEL
Total subordinated debt
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
18,729
10,427
18,716
7,466
14,892
7,448
35,373
6,162
6,739
44,855
24,971
44,823
17,880
35,666
17,837
84,715
6,162
6,739
283,648
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
23 Subordinated Debt continued
At 31 December 2014, subordinated debt comprised:
In thousands of GEL
Grant date
Maturity date
Currency
BUSINESS REVIEW
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RISK MANAGEMENT
FINANCIAL STATEMENTS
Outstanding
amount in
original
currency
Outstanding
amount in GEL
Nederlandse Financierings-Maatschappij Voor
Ontwikkelingslanden N.V.
International Financial Corporation
European Bank for Reconstruction and Development
Nederlandse Financierings-Maatschappij Voor
Ontwikkelingslanden N.V.
Deutsche Investitions und Entwicklungsgesellschaft MBH
Deutsche Investitions und Entwicklungsgesellschaft MBH
Kreditanstalt für Wiederaufbau Bankengruppe
Total subordinated debt
At 31 December 2013, subordinated debt comprised:
19-Dec-13
23-Apr-09
23-Apr-09
15-Apr-23
12-Nov-18
12-Nov-18
23-Apr-09
19-Feb-08
26-Jun-13
10-Jun-14
12-Nov-18
15-Jul-18
15-Jun-20
8-May-21
USD
USD
USD
USD
USD
USD
GEL
35,299
18,655
18,676
7,067
10,410
7,453
6,204
65,782
34,766
34,804
13,169
19,400
13,890
6,204
188,015
In thousands of GEL
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
International Financial Corporation
European Bank for Reconstruction and Development
Deutsche Investitions und Entwicklungsgesellschaft MBH
Deutsche Investitions und Entwicklungsgesellschaft MBH
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
Total subordinated debt
The debt ranks after all other creditors in case of liquidation.
Grant date
Maturity date
19-Dec-13
23-Apr-09
23-Apr-09
19-Feb-08
26-Jun-13
23-Apr-09
15-Apr-23
12-Nov-18
12-Nov-18
15-Jul-18
15-Jun-20
12-Nov-18
Outstanding
amount in
original
currency USD
Outstanding
amount in GEL
34,905
18,558
18,585
10,394
7,441
7,032
60,605
32,222
32,269
18,048
12,920
12,210
96,915
168,274
Refer to Note 39 for the disclosure of the fair value of subordinated debt. Information on related party balances is disclosed in Note 41.
24 Share Capital
In thousands of GEL except for number of shares
At 1 January 2013
Shares issued
Increase in share capital arising from share-based payment
At 31 December 2013
Share split
Shares issued
Transaction costs recognised directly in equity
At 31 December 2014
Increase in share capital arising from share-based payment
Treasury shares returned
Transaction costs recognised directly in equity
Number of
vested
shares
161,419
2,411
1,157
164,987
41,081,763
7,692,308
–
48,939,058
30,710
(1,405)
–
Share capital Share premium
Total
16,143
240
116
16,499
–
3,077
–
19,576
12
(1)
–
231,501
7,097
4,026
242,624
–
172,493
(9,459)
405,658
416
(19)
1,419
247,644
7,337
4,142
259,123
–
175,570
(9,459)
425,234
428
(20)
1,419
At 31 December 2015
48,968,363
19,587
407,474
427,061
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
24 Share Capital continued
On 4 March 2014, shareholders of the Bank approved the spilt of the ordinary shares 250-for-1 and authorised for issue additional
10,445,387 shares. Following this decision, the total authorised number of ordinary shares as at 31 December 2015 is 56,206,527 shares
(31 December 2014: 53,090,637 shares; 31 December 2013: 170,581 shares), with a nominal value of GEL 0.4 per share after the split (31
December 2014: GEL 0.4 per share; 31 December 2013: GEL 100 per share). All issued Ordinary shares are fully paid.
In accordance with Georgian legislation, the number of issued Ordinary Shares and relevant amounts of share capital and share premium
differ from presentation above due to accounting for share-based payment transactions described in note 25.
In thousands of GEL except for number of shares
At 1 January 2013
Shares issued
Increase in share capital arising from share-based payment
At 31 December 2013
Registering shares in the name of employees under share-based
payment arrangement
Share split
Shares issued
Transaction costs recognised directly in equity
At 31 December 2014
Registering shares in the name of employees under share
based payment arrangement
Treasury shares returned
At 31 December 2015
Number of
outstanding
shares Share capital
161,419
2,411
1,157
16,143
240
116
Share
premium
231,501
7,097
4,026
Total
247,644
7,337
4,142
164,987
16,499
242,624
259,123
1,229
41,387,784
7,692,308
–
123
–
3,077
–
4,156
–
172,493
(9,459)
4,279
–
175,570
(9,459)
49,246,308
19,699
409,814
429,513
284,560
(1,405)
113
(1)
3,850
(19)
3,963
(20)
49,529,463
19,811
413,645
433,456
All ordinary shares rank equally except for 561,100 unvested shares that were registered in the name of the management under
share-based payment arrangement and which do not have voting rights before service conditions are met (see Note 25). These unvested
shares are still included in number of outstanding shares per NBG accounting rules. All other shares carry one vote.
In June 2014, 19,684,322 shares of the Bank were sold in the form of Global Depositary Receipts (“GDRs”) on London Stock Exchange (the
“LSE”) pursuant to an initial public offering to institutional investors. 7,692,308 shares in the form of GDRs were sold by the Bank while the
balance was sold by the selling shareholders. Bank of New York (“BNY”) acts as a depositary of these shares. Each GDR represents
1 ordinary share of the Bank.
At the reporting date the Bank has 3,115,890 authorised shares reserved for issuance under share-based payment arrangement
(31 December 2014: 1,037,500 shares; 31 December 2013: 1,037,500 shares). For description of share-based payment scheme refer to Note
25. Per management’s estimate, the total number of shares that the Bank will eventually issue under the share-based payment
arrangement schemes for years 2013 – 2018 approximates 2,787,313 (31 December 2014: 803,336; 31 December 2013: 699,250).
Transaction costs, that is, incremental costs, are costs directly attributable to the equity transaction that otherwise would have been
avoided had the equity instruments not been issued. Transaction costs of an equity transaction are accounted for as a deduction from
equity, net of any related income tax benefit. GEL 1,419 thousand in 2015 relates to income tax benefit on transaction costs of GEL 9,459
incurred in 2014. The Bank recorded tax benefit on the uncertain position only after receiving formal approval from the Revenue Service
of Georgia.
Included in transaction costs are fees paid to investment bankers, lawyers, underwriters and other professional advisers involved in the
initial public offering.
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25 Share-based Payments
June 2013 arrangement:
In June 2013, Supervisory Board of the Bank approved a new management compensation scheme for the years 2013–2015 and authorised
4,150 new shares as a maximum estimated number of new shares to be issued in accordance with the scheme. Authorised numbers of new
shares have increased to 1,037,500 new shares in order to reflect the share split 250-for-1 approved by the Shareholders on 4 March 2014.
According to the scheme, each year, subject to predefined performance conditions, certain number of the shares will be awarded to the top
management and some of the middle managers of the Group. The performance conditions are divided into (i) team goals and (ii) individual
performance indicators. The total number of the shares to be awarded depends on meeting the team goals and the book value per share
according to the audited IFRS consolidated financial statements of the Group for the year preceding the date of the award. The team goals
primarily relate to achieving growth, profitability and portfolio quality metrics set by the Supervisory Board as well as compliance with
certain regulatory requirements. The total number of shares in the bonus pool depends on achievement of team goals. Individual
performance indicators are defined separately for each participant and are used to calculate the number of shares to be awarded to them
out of the total bonus pool. After awards, these shares carry service conditions and before those conditions are met the shares are eligible
to dividends but do not have voting rights and cannot be sold or transferred to third parties. Service conditions assume continuous
employment until the gradual transfer of the full title to the scheme participants is complete. Shares of each of 2013, 2014 and 2015 tranche
vest gradually on the second, third and fourth year following the performance appraisal. Eighty percent of the shares vest in the fourth year
after the award. Under this compensation system the total vesting period extends to June 2019.
The shareholders and Supervisory Board have granted put options on the shares to be awarded under the new management compensation
scheme. In addition, the shareholders and the Supervisory Board have granted put options on all bonus shares awarded under the previous
share-based payment arrangements. All of the put options became null and void upon the listing of the Bank’s shares on LSE in June 2014.
At no point of the operation of the share-based payment scheme did the management expect the put options to be exercised. Consequently,
the scheme was accounted for as equity-settled scheme and no obligation was recognised for the put options.
The Group considers 20 June 2013 as the grant date. Based on management’s estimate of expected achievement of performance and
service conditions 732,000 shares have been granted that will be gradually awarded to the members of the scheme as described above.
The fair value of the share at the grant date, as adjusted for the effect of 250-for-1 share split, is evaluated at GEL 13,93 per share and the
valuation was carried out by an external valuator. The valuation was performed by applying the income and market approaches. The
market approach involved estimating market capitalisation to book value of equity multiple and deal price to book value of equity multiple
for comparable banks. When selecting comparable banks, the appraiser chose banks that operated in the Black Sea region and Central
and Eastern Europe and had similar portfolio mix and growth priorities as TBC Bank. Income approach involved discounting free cash
flows to equity estimated over 10-year horizon. When developing the projections, the following major assumptions were made:
• Over 2013-2023 period, the compound annual growth rate was assumed at 15.2% for loans and at 15.1% for customer accounts.
• The spread on the bank’s customer business was assumed to gradually decline from estimated 10.2% in 2013 till it would stabilise at
5.8% in 2021.
• Over 2013-2023 period, non-interest income was forecast to average 1.8% of customer volume (i.e. gross loans and deposits).
• Year-on-year growth in various components of employee compensation was assumed at 37.6%-56.0% in 2014, 2.4%-9.8% in 2015 and
was then assumed to gradually decline to 2.1%-3.6% in 2023. Year-on-year growth in administrative expenses was assumed at 38.3% in
2014, 10.4% in 2015 and was then assumed to gradually decline to 3.3% in 2023.
• The Bank’s terminal value was estimated using Gordon growth model, applying US long-term inflation forecast (2.1%) as the Bank’s
terminal cash flows growth rate.
• Bank’s cost of equity was estimated at 15.10%.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
25 Share-based Payments continued
The final valuation was based on income approach, with market approach serving as a reasonableness check on the result obtained by the
income approach. The value of Bank’s equity so calculated was then divided by the number of Ordinary Shares issued as of valuation date
and further reduced with the discount for lack of control.
June 2015 arrangement:
In June 2015, Supervisory Board of the Bank approved new management compensation for top and middle management and authorised
3,115,890 new shares as a maximum estimated number of new shares to be issued in accordance with the scheme. The new system will be
used for the years 2015 through 2018 and it will replace the system introduced in June 2013 meaning that performance evaluation as well
as respective compensation for 2015 year-end results will be paid under the new system. According to the scheme, each year, subject to
predefined performance conditions, certain number of the shares will be awarded to the top management and most of the middle
managers of the Group. The performance conditions are divided into (i) corporate and (ii) individual key performance indicators (KPIs). The
corporate KPIs are mainly related to achieving profitability, efficiency and portfolio quality metrics set by the Supervisory Board as well as
non-financial indicators in respect of customer experience and employee engagement. Individual performance indicators are defined
separately for each participant and are used to calculate the number of shares to be awarded to them. According to the scheme, members
of top management will also receive the fixed number of shares. After awards, all the shares carry service conditions and before those
conditions are met the shares are eligible to dividends but do not have voting rights and cannot be sold or transferred to third parties.
Service conditions assume continuous employment until the gradual transfer of the full title to the scheme participants is complete.
Shares of each of 2015, 2016, 2017 and 2018 tranche vest gradually on the second, third and fourth year following the performance
appraisal. Eighty percent of the shares vest in the fourth year after the award. Under this compensation system the total vesting period
extends to March 2022.
The Group considers 17 June 2015 as the grant date. As of 31 December 2015 based on management’s best estimate of achievement of
targets 1,908,960 shares have been granted that will be gradually awarded to the members of the scheme as described above. The fair
value of the share at the grant date equalled to GEL 24.64 per share as quoted on London Stock Exchange.
The Bank also pays personal income tax on behalf of equity settled scheme beneficiaries, which is accounted as cash settled part. Tabular
information on both of the schemes is given below:
In GEL except for number of shares
Number of unvested shares at the beginning of the period
Number of shares granted
Increase in the number of unvested shares due to 250-for-1 split
Change in estimate of number of shares expected to vest based on performance conditions
Number of shares vested
Number of unvested shares at the end of the period
Value at grant date per share (GEL) old remuneration system
Value at grant date per share (GEL) new remuneration system
Expense on equity-settled part (GEL thousand)
Expense on cash-settled part (GEL thousand)
Expense recognised as staff cost during the period (GEL thousand)
31 December
2015
31 December
2014
803,336
1,908,963
–
75,016
(30,710)
2,756,605
13.93
24.64
8,559
5,967
14,526
2,797
–
696,453
104,086
–
803,336
13.93
–
2,592
1,710
4,302
31 December
2013
(not adjusted
for the share
split)
1,157
2,797
–
–
(1,157)
2,797
3,482
–
2,032
2,055
4,087
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25 Share-based Payments continued
Liability in respect of the cash-settled part of the award amounted to GEL 6,560 thousand as of 31 December 2015 (2014: GEL 1,710
thousand; 2013: GEL 2,055 thousand).
Staff costs related to equity settled part of the share-based payment schemes are recognised in the income statement on a straight-line
basis over the vesting period of each relevant tranche and corresponding entry is credited to share-based payment reserve in equity.
On 31 December 2015 based on level of achievement of key performance indicators management has reassessed the number of shares
that will have to be issued to the participants of share-based payment system and increased estimated number of shares to vest by 75,016
(31 December 2014: 104,086, 31 December 2013: nil).
26 Earnings per Share
Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the Bank by the weighted average number of
ordinary shares in issue during the year.
In thousands of GEL except for number of shares
2015
2014
2013
Profit for the period attributable to the owners of the Bank (excluding the profit attributable
to the shares encumbered under the share-based payment scheme – refer to Note 25)
216,400
156,469
121,616
Weighted average number of ordinary shares in issue
48,962,112
45,524,938
40,978,000
Basic earnings per Ordinary Share attributable to the owners of the Bank (expressed in
GEL per share)
4.4
3.4
3.0
Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the Bank by the weighted average number
of ordinary shares adjusted for the effects of all dilutive potential ordinary shares during the year:
In thousands of GEL except for number of shares
2015
2014
2013
Profit for the period attributable to the owners of the Bank (excluding the profit attributable
to the shares encumbered under the share-based payment scheme – refer to Note 25)
218,227
157,071
121,616
Weighted average number of ordinary shares in issue adjusted for the effects of all dilutive
potential ordinary shares during the period
49,607,204
45,968,817
41,055,500
Diluted earnings per Ordinary Share attributable to the owners of the Bank (expressed in
GEL per share)
4.4
3.4
3.0
Weighted average number of ordinary shares in issue as at 31 December 2013 has been adjusted for the 250-for-1 share split that took
place in March 2014.
157
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
27 Segment Analysis
The chief operating decision maker which is the Management Board reviews the Group’s internal reporting in order to assess
performance and allocate resources. In 2014, the Board has changed the way it analyses certain information in order to enhance the
control and monitoring of the Group’s performance. This has resulted in the creation of a new segment “Corporate Centres and Other
Operations” and a change in the presentation of segment information. In 2015, following the merger of Bank Constanta the Board has
revised the definition of segments in order to further enhance the control and monitoring of the Group’s performance. This has resulted in
a transfer of certain customers between segments. Comparative information as at 31 December 2014 and 31 December 2013 has not been
updated due to impracticability.
The operating segments were determined as at 31 December 2014 and 31 December 2013 as follows:
• Corporate – business customers which have annual revenue of GEL 8.0 million or more or have been granted a loan in an amount
equivalent to USD 1.5 million or more. Some other significant legal entity customers may also be assigned the status of being a
corporate customer, on a discretionary basis; for example, if they are regarded by the Group as having strong growth potential.
• SME – business customers that are not included either in the corporate or micro segments.
• Micro – all business customers of Bank Constanta, that have been granted loans by and/or have deposits with Bank Constanta, the
amount of which in neither case exceeds USD 150 thousand.
• Retail – all individual customers of the Group as well as customers that have been granted gold-pawn loans.
• Corporate Centres and Other Operations – comprise the Treasury, other support and back office functions, and non-banking subsidiaries
of the Group.
The operating segments according to the new definition are now determined as follows:
• Corporate – all business customers that have annual revenue of GEL 8.0 million or more or have been granted a loan in an amount
equivalent to USD 1.5 million or more. Some other business customers may also be assigned to the Corporate segment on a
discretionary basis.
• SME – all business customers that are not included in either Corporate or Micro segments; Some other legal entity customers may also
be assigned to the SME segment on a discretionary basis.
• Micro – all business customers with loans below USD 70K, as well as pawn loans, credit cards and cash cover loans granted in TBC Bank
Constanta branches, and/or have deposits up to USD 20 in urban areas and up to USD 100 in rural areas of the customers of TBC Bank
Constanta branches. Some other customers may also be assigned to the Micro segment on a discretionary basis.
• Retail – all individual customers that are not included in the other categories.
• Corporate Centres and Other Operations – comprise the Treasury, other support and back office functions, and non-banking subsidiaries
of the Group.
The Board of Directors assesses the performance of the operating segments based on a measure of adjusted profit before income tax.
The reportable segments are the same as the operating segments.
The vast majority of the entity’s revenues are attributable to Georgia. A geographic analysis of origination of the Group’s assets and
liabilities is given in Note 33.
158
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
27 Segment Analysis continued
Segment information for the reportable segments of the Group for the years ended 31 December 2015, 2014 and 2013 is set out below:
In thousands of GEL
Corporate
Retail
SME
Micro
Corporate
centre and
other
operations
Total
31 December 2015
– Interest income
– interest expense
– Inter-segment interest income/(expense)
– Net interest income
– Fee and commission income
– Fee and commission expense
– Net Fee and commission income
– Gains less losses from trading in foreign currencies
– Foreign exchange translation losses less gains
– Net gain from derivative financial instruments
– Other operating income
135,615
(31,189)
(34,855)
271,083
(94,656)
12,828
68,303
(9,376)
(2,455)
107,326
(2,268)
(26,788)
66,732
(99,396)
51,270
649,059
(236,885)
–
69,571
189,255
56,472
78,270
18,606
412,174
18,397
(3,864)
72,242
(31,698)
14,533
40,544
23,647
–
–
13,808
15,038
–
–
2,299
11,739
(3,917)
7,822
21,488
–
–
1,089
6,880
(1,242)
5,638
1,787
–
–
95
4,579
(825)
113,837
(41,546)
3,754
72,291
2,682
2,579
(575)
8,592
64,642
2,579
(575)
25,883
– Other operating non-interest income
37,455
17,337
22,577
1,882
13,278
92,529
– Provision for loan impairment
– Provision for performance guarantees and credit related
commitments
– Provision for impairment of investments in finance lease
– Provision for impairment of other financial assets
– Profit before administrative and other expenses and income
(15,396)
(29,004)
(11,628)
(16,763)
–
(72,791)
4,581
–
(561)
(4,113)
–
(735)
731
–
(388)
(82)
–
(317)
–
(967)
(1,350)
1,117
(967)
(3,351)
taxes
110,183
213,284
75,586
68,628
33,321
501,002
– Staff costs
– Depreciation and amortisation
– Provision for liabilities and charges
– Administrative and other operating expenses
– Operating expenses
– Profit before tax
– Income tax expense
– Profit for the year
(16,947)
(1,092)
–
(4,879)
(22,918)
87,265
(13,384)
73,881
(69,497)
(15,295)
–
(46,438)
(131,230)
82,054
(11,119)
70,935
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
1,500,104
1,001,341
446,380
2,019,969
2,469,878
130,402
(16,439)
(2,138)
–
(7,712)
(26,289)
49,297
(7,719)
41,578
625,628
633,211
77,781
(30,470)
(6,436)
–
(14,531)
(51,437)
17,191
(2,578)
14,613
493,328
73,501
4,412
(9,424)
(1,325)
(1,102)
(9,404)
(21,255)
12,066
5,624
17,690
(142,777)
(26,286)
(1,102)
(82,964)
(253,129)
247,873
(29,176)
218,697
– 4,639,029
4,177,931
–
658,975
–
159
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
27 Segment Analysis continued
In thousands of GEL
Corporate
Retail
SME
Micro
Corporate
centre and
other
operations
Total
– Net Fee and commission income
16,781
20,138
31 December 2014
– Interest income
– interest expense
– Inter-segment interest income/(expense)
– Net interest income
– Fee and commission income
– Fee and commission expense
– Gains less losses from trading in foreign currencies
– Foreign exchange translation losses less gains
– Net gain from derivative financial instruments
– Other operating income
– Other operating non-interest income
– Provision for loan impairment
– Provision for performance guarantees and credit related
commitments
– Provision for impairment of investments in finance lease
– Provision for impairment of other financial assets
– Impairment of investment securities available for sale
116,404
(21,845)
(42,246)
237,804
(80,808)
7,499
53,739
(7,196)
(3,640)
57,573
(192)
(18,468)
46,837
(63,668)
56,855
512,357
(173,709)
–
52,313
164,495
42,903
38,913
40,024
338,648
18,093
(1,312)
46,368
(26,230)
9,268
(906)
12,456
–
–
–
12,456
9,932
–
–
–
9,932
8,362
13,286
–
–
–
13,286
3,498
(911)
2,587
1,820
–
–
–
1,820
10,976
(164)
88,203
(29,523)
10,812
58,680
2,236
2,359
(683)
19,600
39,730
2,359
(683)
19,600
23,512
61,006
(18,995)
(22,046)
(1,625)
(6,006)
–
(48,672)
885
–
–
–
–
–
–
–
17
–
–
–
–
–
–
–
–
(77)
(1,236)
(22)
902
(77)
(1,236)
(22)
– Profit before administrative and other expenses and income
taxes
63,440
172,519
62,943
37,314
73,013
409,229
– Staff costs
– Depreciation and amortisation
– Provision for liabilities and charges
– Administrative and other operating expenses
– Operating expenses
– Profit before tax
– Income tax expense
– Profit for the year
(11,826)
(780)
–
(4,432)
(17,038)
46,402
(6,207)
40,195
(55,427)
(13,132)
–
(36,026)
(104,585)
67,934
(9,087)
58,847
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
1,231,729
832,555
515,026
1,666,913
1,977,172
125,250
(10,755)
(1,915)
–
(4,981)
(17,651)
45,292
(6,059)
39,233
533,919
507,816
62,578
(15,808)
(3,579)
–
(9,600)
(28,987)
8,327
(1,114)
7,213
273,699
4,885
2,598
(29,019)
(5,021)
(5,500)
(18,509)
(58,049)
14,964
(2,001)
12,963
(122,835)
(24,427)
(5,500)
(73,548)
(226,310)
182,919
(24,468)
158,451
– 3,706,260
– 3,322,428
705,452
–
160
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
27 Segment Analysis continued
In thousands of GEL
Corporate
Retail
SME
Micro
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Corporate
centre and
other
operations
Total
31 December 2013
– Interest income
– interest expense
– Inter-segment interest income/(expense)
– Net interest income
– Fee and commission income
– Fee and commission expense
– Net Fee and commission income
– Gains less losses from trading in foreign currencies
– Foreign exchange translation losses less gains
– Net gain from derivative financial instruments
– Other operating income
– Other operating non-interest income
– Provision for loan impairment
– Provision for performance guarantees and credit related
commitments
– Provision for impairment of investments in finance lease
– Provision for impairment of other financial assets
– Impairment of investment securities available for sale
131,385
(35,721)
(50,675)
207,028
(96,144)
24,157
44,370
(7,622)
(3,679)
51,185
(426)
(15,045)
40,828
(52,233)
45,242
474,796
(192,146)
–
44,989
135,041
33,069
35,714
33,837
282,650
15,881
(4,688)
11,193
12,522
–
–
–
12,522
40,823
(17,627)
23,196
8,614
–
–
–
8,614
7,349
(1,089)
6,260
9,244
–
–
–
9,244
2,444
(620)
1,824
1,513
–
–
–
1,513
7,864
(277)
74,361
(24,301)
7,587
50,060
6,001
(5,901)
613
16,136
37,894
(5,901)
613
16,136
16,849
48,742
(17,035)
(13,377)
(88)
(2,471)
–
(32,971)
(6,124)
–
–
–
–
–
–
–
(335)
–
–
–
–
–
–
–
–
(98)
(2,236)
(1,142)
(6,459)
(98)
(2,236)
(1,142)
– Profit before administrative and other expenses and income
taxes
45,545
153,474
48,150
36,580
54,797
338,546
– Staff costs
– Depreciation and amortisation
– Provision for liabilities and charges
– Administrative and other operating expenses
– Operating expenses
– Profit before tax
– Income tax expense
– Profit for the year
(8,329)
(753)
–
(3,175)
(12,257)
33,288
(3,726)
29,562
(49,949)
(11,862)
–
(32,693)
(94,504)
58,970
(6,602)
52,368
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
1,157,334
819,779
397,575
1,207,514
1,610,676
117,260
(9,909)
(1,904)
–
(4,135)
(15,948)
32,202
(3,604)
28,598
392,446
451,985
71,056
(14,138)
(2,061)
–
(10,130)
(26,329)
10,251
(1,147)
9,104
201,287
4,443
1,979
(26,288)
(3,413)
(1,315)
(18,559)
(49,575)
5,222
(584)
4,638
(108,613)
(19,993)
(1,315)
(68,692)
(198,613)
139,933
(15,663)
124,270
– 2,958,581
– 2,886,883
587,870
–
161
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
27 Segment Analysis continued
Reportable segments’ assets are reconciled to total assets as follows:
In thousands of GEL
Total segment assets (gross loans and advances to customers)
Provision for loan impairment
Cash and cash equivalents
Mandatory cash balances with National Bank of Georgia
Due from other banks
Investment securities available for sale
Bonds carried at amortised cost
Current income tax prepayment
Deferred income tax asset
Other financial assets
Investments in finance leases
Other assets
Premises and equipment
Intangible assets
Investment properties
Goodwill
Total assets per statement of financial position
Reportable segments’ liabilities are reconciled to total liabilities as follows:
In thousands of GEL
Total segment liabilities (customer accounts)
Due to Credit institutions
Debt securities in issue
Current income tax liability
Deferred income tax liability
Provisions for liabilities and charges
Other financial liabilities
Other liabilities
Subordinated debt
Total liabilities per statement of financial position
31 December
2015
31 December
2014
31 December
2013
4,639,029
(194,143)
720,347
471,490
11,042
307,310
372,092
9,856
1,546
64,317
75,760
103,912
247,767
44,344
57,600
2,726
3,706,260
(149,764)
532,118
336,075
33,704
466,510
–
251
383
43,857
50,907
77,775
208,692
37,756
76,216
2,726
2,958,581
(156,869)
390,465
295,332
1,708
500,651
–
6,202
–
45,049
35,613
65,075
199,668
23,491
83,383
2,726
6,934,995 5,423,466 4,451,075
31 December
2015
31 December
2014
31 December
2013
4,177,931 3,322,428 2,886,883
565,806
749,285
1,113,574
4,474
20,423
21,714
–
12,433
912
27,814
23,187
29,244
12,380
11,898
9,461
24,850
41,346
39,435
31,305
34,975
40,627
168,274
188,015
283,648
5,716,546 4,403,990 3,721,786
162
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
28 Interest Income and Expense
In thousands of GEL
Interest income
Loans and advances to customers
Bonds carried at amortised cost
Investment securities available for sale (Note10)
Investments in leases
Due from other banks
Total interest income
Interest expense
Customer accounts
Due to credit institutions
Subordinated debt
Debt securities in issue
Other
Total interest expense
Net interest income
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
2015
2014
2013
582,327
22,950
20,927
15,217
7,638
465,520
–
30,361
10,265
6,211
433,968
–
30,442
7,356
3,030
649,059
512,357
474,796
137,489
70,834
26,363
2,105
94
110,041
43,384
19,069
928
287
139,913
38,645
13,182
237
169
236,885
173,709
192,146
412,174
338,648
282,650
During the year ended 31 December 2015 the interest accrued on impaired loans was GEL 25,756 thousand (2014: 18,134 thousand,
2013: 38,871 thousand).
29 Fee and Commission Income and Expense
In thousands of GEL
2015
2014
2013
Fee and commission income
Fee and commission income in respect of financial instruments not at fair value through profit or loss:
– Card operations
– Settlement transactions
– Cash transactions
– Guarantees issued
– Issuance of letters of credit
– Foreign exchange operations
– Other
Total fee and commission income
Fee and commission expense
Fee and commission expense in respect of financial instruments not at fair value through profit or loss:
– Card operations
– Settlement transactions
– Guarantees received
– Cash transactions
– Foreign exchange operations
– Other
Total fee and commission expense
Net fee and commission income
49,424
31,218
10,930
8,949
5,859
1,410
6,047
35,247
23,892
6,507
9,140
6,889
1,169
5,359
33,012
18,543
5,040
6,271
6,769
1,550
3,176
113,837
88,203
74,361
27,169
3,904
3,165
2,707
5
4,596
16,053
2,594
4,161
2,592
62
4,061
13,143
2,157
4,048
1,544
70
3,339
41,546
29,523
24,301
72,291
58,680
50,060
163
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015 BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
30 Other Operating Income
In thousands of GEL
Revenues from operational leasing
Gain from sale of investment properties
Gain on sale of financial asset
Gain from sale of inventories of repossessed collateral
Revenues from sale of cash-in terminals
Administrative fee income from international financial institutions
Revenues from non-credit related fines
Gain on disposal of premises and equipment
Other
2015
8,539
4,896
4,692
1,836
777
708
286
118
4,031
2014
6,997
5,795
–
1,644
852
982
236
126
2,968
2013
2,980
5,835
–
1,519
760
1,268
339
37
3,398
Total other operating income
25,883
19,600
16,136
Revenues from operational leasing is wholly attributable to investment properties. Carrying value of inventories of repossessed collateral
disposed of during year ended 31 December 2015 was GEL 9,777 thousand (2014: GEL 13,721 thousand; 2013: GEL 19,558 thousand).
31 Administrative and Other Operating Expenses
In thousands of GEL
2015
2014
2013
Rent
Advertising and marketing services
Professional services
Intangible asset enhancement
Impairment of intangible assets
Taxes other than on income
Utility services
Stationery and other office expenses
Communications and supply
Insurance
Premises and equipment maintenance
Security services
Business trip expenses
Transportation and vehicle maintenance
Personnel training and recruitment
Charity
Loss on disposal of inventories
Loss on disposal of premises and equipment
Loss on disposal of investment properties
Write-down of current assets to fair value less costs to sell
Other
Total administrative and other operating expenses
16,468
11,451
8,418
6,062
4,982
4,598
4,501
3,471
3,433
2,301
2,959
1,622
1,589
1,328
1,230
928
86
34
3
(178)
7,678
11,943
14,121
11,969
4,371
–
3,900
3,681
2,632
3,455
1,899
1,893
1,578
1,610
1,216
919
898
208
18
–
190
7,047
10,809
13,211
6,247
3,767
–
3,043
3,369
2,360
3,103
1,496
2,484
1,597
1,230
1,215
902
905
221
54
76
6,178
6,425
82,964
73,548
68,692
164
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
32 Income Taxes
Income tax expense comprises the following:
In thousands of GEL
Current tax charge
Deferred tax (credit)/charge
Income tax expense for the year
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
2015
2014
29,697
(521)
29,365
(4,897)
2013
8,247
7,416
29,176
24,468
15,663
The income tax rate applicable to the majority of the Group’s income is 15% (2014: 15%; 2013: 15%). The income tax rate applicable to the
majority of subsidiaries income ranges from 15% to 20% (2014: 15% – 20%; 2013: 15% – 20%).
Reconciliation between the expected and the actual taxation charge is provided below.
In thousands of GEL
Profit before tax
Theoretical tax charge at statutory rate (2015: 15%; 2014: 15%; 2013: 15%)
Tax effect of items which are not deductible or assessable for taxation purposes:
– Income which is exempt from taxation
– Non-deductible expenses and other differences
– Recognition of previously unrecognised deferred tax assets
Income tax expense for the year
2015
2014
2013
247,873
182,919
139,933
37,181
27,438
20,990
(7,281)
(724)
–
(4,678)
1,708
–
(4,865)
1,758
(2,220)
29,176
24,468
15,663
The Group has not recorded a deferred tax liability in respect of temporary differences of GEL 1,405 thousand (2014: GEL 6.141 thousand;
2013: GEL 3,653 thousand) associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those
temporary differences, and does not intend to reverse them in the foreseeable future.
Differences between IFRS and statutory taxation regulations in Georgia and Azerbaijan give rise to temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these
temporary differences is detailed below and is recorded at the rate of 15% (2014: 15%; 2013: 15%) for Georgia and 20% for Azerbaijan
(2014: 20%; 2015: 20%).
In thousands of GEL
Tax effect of deductible/(taxable) temporary differences
and tax loss carry forwards
Premises and equipment
Loan impairment provision
Fair valuation of investment securities available for sale
Other financial assets
Other assets
Investment in leases
Investment property
Due to credit institutions
Subordinated debt
Other financial liabilities
Other liabilities
Share-based payment
Net deferred tax asset/(liability)
Recognised deferred tax asset
Recognised deferred tax liability
Net deferred tax asset/(liability)
31 December
2014
(Charged)/
credited to
profit or loss
(Charged)/
credited directly
to other
comprehensive
income
31 December
2015
(20,040)
(4,718)
(1,224)
4,483
4,164
29
(6,436)
(292)
(259)
1,817
(380)
52
(22,804)
383
(23,187)
(22,804)
(1,393)
(3,858)
108
1,469
2,211
(585)
2,189
(183)
(68)
(1,757)
1,697
689
519
1,163
(644)
519
(4,369)
(591)
(479)
–
32
–
–
–
–
–
(6)
–
(25,802)
(9,167)
(1,595)
5,952
6,407
(556)
(4,247)
(475)
(327)
60
1,311
741
(5,413)
(27,698)
–
(5,413)
1,546
(29,244)
(5,413)
(27,698)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
32 Income Taxes continued
In thousands of GEL
Tax effect of deductible/(taxable) temporary differences and
tax loss carry forwards
Premises and equipment
Loan impairment provision
Fair valuation of investment securities available for sale
Other financial assets
Other assets
Investment in leases
Investment property
Due to credit institutions
Subordinated debt
Other Financial liabilities
Other Liabilities
Share-based payment
31 December
2013
(Charged)/
credited to
profit or loss
Charged directly
to other
comprehensive
income
31 December
2014
(18,306)
(5,666)
(557)
191
1,741
(13)
(7,012)
464
(289)
1,027
301
305
(2,039)
948
(475)
4,292
2,423
42
576
(756)
30
790
(681)
(253)
305
–
(192)
–
–
–
–
–
–
–
–
–
(20,040)
(4,718)
(1,224)
4,483
4,164
29
(6,436)
(292)
(259)
1,817
(380)
52
Net deferred tax asset/(liability)
(27,814)
4,897
113
(22,804)
In thousands of GEL
Tax effect of deductible/(taxable) temporary differences
and tax loss carry forwards
Premises and equipment
Loan impairment provision
Fair valuation of investment securities available for sale
Tax loss carry forwards
Other financial assets
Other assets
Investment in leases
Investment property
Due to credit institutions
Subordinated debt
Other Financial liabilities
Other Liabilities
Share-based payment
1 January
2013
(Charged)/
credited to
profit or loss
Charged directly
to other
comprehensive
income
31 December
2013
(16,961)
(834)
(473)
678
1,320
865
(197)
(2,576)
(433)
(219)
–
(1,313)
–
(1,345)
(4,832)
171
(678)
(1,129)
876
184
(4,436)
897
(70)
1,027
1,614
305
–
–
(255)
–
–
–
–
–
–
–
–
–
–
(18,306)
(5,666)
(557)
–
191
1,741
(13)
(7,012)
464
(289)
1,027
301
305
Net deferred tax asset/(liability)
(20,143)
(7,416)
(255)
(27,814)
In the context of the Group’s current structure and Georgian tax legislation, tax losses and current tax assets of different Group Companies
may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even
where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable
entity and the same taxation authority.
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33 Financial and Other Risk Management
TBC Bank Group operates a prudent approach to risk management through its strong and independent risk function managing credit,
financial and non-financial risks. All components necessary for comprehensive risk governance are embedded into risk organisation
structure: enterprise risk management; credit, financial and non-financial risks management; risk reporting & supporting IT
infrastructure; cross-risk analytical tools and techniques such as capital adequacy management and stress-testing. Comprehensive,
transparent and prudent risk governance facilitates understanding and trust from multiple stakeholders, ensures sustainability and
resiliency of the business model and positioning of risk management as Bank’s competitive advantage and strategic enabler.
TBC Bank Group governance structure ensures adequate oversight and accountabilities as well as clear segregation of duties. Supervisory
Board has the overall responsibility to set the tone at the top and monitor compliance with established objectives. At the same time,
Management Board governs and directs Groups’s daily activities.
Both the Supervisory Board and the Management Board have established dedicated risk committees. Risk, Ethics and Compliance
Committee of Supervisory Board approves Group’s Risk Appetite, supervises risk profile and risk governance practice within the Bank
while Audit Committee is responsible for implementation of key accounting policies and facilitation of activities of internal and external
auditors. Management Board Risk Committee is established to guide Group-wide risk management activities and monitor major risk
trends to make sure risk profile complies with the established Risk Appetite of the Group. Operational Risk Committee makes decisions
related to operational risk governance while Asset-Liability Management Committee (“ALCO”) is responsible for implementation of
ALM policies.
TBC Bank Supervisory Board and Senior Management govern risk objectives through Risk Appetite Statement (“RAS”) which is approved
by the Supervisory Board and establishes desired risk profile and risk limits for different economic environments. Risk Appetite (“RA”)
establishes monitoring and reporting responsibilities as well as escalation paths for different trigger events and limit breaches which as
well prompt risk teams to establish and implement agreed mitigation actions. In order to effectively implement Risk Appetite in day-to-day
operations of the Group, RA metrics are cascaded into more granular business unit level limits. That way risk allocation is established
across different segments and activities. The Board level oversight coupled with the permanent involvement of the Senior Management in
TBC Group risk management ensures clarity regarding risk objectives, intense monitoring of risk profile against risk appetite, prompt
escalation of risk-related concerns and establishment of remediation actions.
Daily management of individual risks is based on the three lines of defence principle. While business lines are primary owners of risks, risk
teams assume the function of second line defence. This is performed through sanctioning transactions as well as tools and techniques for
risk identification, analysis, measurement, monitoring and reporting. Committees are established at operational levels in charge of
making transaction-level decisions comprising component of clear and sophisticated delegations of authority framework based on
“four-eye-principle”. All new products/projects pass through risk teams to assure the risks are analysed comprehensively. Such control
arrangements guarantee that Bank makes informed risk-taking decisions that are adequately priced and that risks exceeding established
targets of the Group are not taken. Credit, liquidity, market, operational and other non-financial risk management is performed by
following teams within Risk Organisation:
• Enterprise Risk Management (ERM).
• Credit Risk Management.
• Underwriting (Credit sanctioning).
• Restructuring and Collections.
• Financial Risk Management.
• Operational Risk Management.
Strong and independent structure enables fulfilment of all required risk management functions within the second line of defence by highly
skilled professionals with a balanced mix of credentials in banking and real sectors both on local and international markets.
In addition to the above-mentioned risk teams, Compliance Department (reporting directly to CEO), is specifically in charge of AML and
compliance risk management. Internal Audit Department as a third line of defence is in charge of provision of independent and objective
assurance and recommendations to Group that facilitates further improvement of operations and risk management.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
33 Financial and Other Risk Management continued
For the management of each significant risk, the Bank puts in place policies and procedures, governance tools and techniques,
methodologies for risk identification, assessment and quantification. Sound risk reporting systems and IT infrastructure are important
tools for efficient risk management of TBC Bank. Thus, significant emphasis and investments are made by the Bank to constantly drive the
development of required solutions. Comprehensive reporting framework is in place for the Management Board and the Supervisory Board
that enables intense oversight over risk developments and taking early remedial actions upon necessity.
Beyond the risk governance components described above, compensation system comprises one of the most significant tools for
introducing incentives for staff that are aligned with the Bank’s long-term interests to generate sustainable risk-adjusted returns. Risk Key
Performance Indicators (“KPIs”) are incorporated into both business line and risk staff remunerations. Performance management
framework differentiates risk staff incentives to safeguard the independence from business areas that they supervise and at the same time
enable attraction and maintenance of qualified professionals. For that purpose, the Bank overweighs risk KPIs for risk and control staff
and caps the share of variable remuneration.
Credit risk. The Group is exposed to credit risk, which is the risk that a customer or counterparty will be unable to meet its obligation to
settle outstanding amounts. The Group’s exposure to credit risk arises as a result of its lending operations and other transactions with
counterparties giving rise to financial assets. Maximum exposure to credit risk of on-balance sheet items is equal to their carrying values.
For maximum exposure on off-balance sheet commitments refer to Note 35.
Credit risks include:
• Risks arising from transactions with individual counterparties, concentration risk, currency-induced credit risks and residual risks.
• Risks arising from transactions with individual counterparties is the loss risk related to default or non-fulfillment of contracts due to
deterioration in the counterparty’s credit quality.
• Concentration risk is the risk related to the quality deterioration due to large exposures provided to single borrowers or group of
connected borrowers, or loan concentration in certain economic industries.
• Currency-induced credit risks relate to risks arising from foreign currency-denominated loans in the Group’s portfolio.
• Residual risks result from applying credit risk-mitigation techniques, which could not satisfy expectation in relation to
received collateral.
Comprehensive risk management methods and processes are established as part of the Group’s risk management framework to manage
credit risk effectively. The main principles for Group’s credit risk management are: establish a prudent credit risk environment; operate
under a sound credit-granting process; and maintain efficient processes for credit risk identification, measurement, control and
monitoring. Respective policies and procedures establish a framework for lending decisions reflecting the Group’s tolerance for credit
risk. This framework includes detailed and formalised credit evaluation and collateral appraisal processes, administration and
documentation, credit approval authorities at various levels, counterparty and industry concentration limits, and clearly defined roles and
responsibilities of entities and staff involved in the origination, monitoring and management of credit. During 2015 Risk Appetite framework
has been further enhanced and respective metrics have been embedded in the Bank’s strategic planning process, thus taking informed
decision when defining the Bank’s growth strategy.
Credit Approval: TBC Bank strives to ensure a sound credit-granting process by establishing well-defined credit granting Criteria and building
up an efficient process for the comprehensive assessment of a borrower’s risk profile. The concept of three lines of defense is embedded in
the credit risk assessment framework, with clear segregation of duties among parties involved in the credit assessment process.
The credit assessment process differs across segments, being further differentiated across various product types reflecting different
natures of these asset classes. Corporate, SME and larger retail and micro loans are assessed on an individual basis with thorough
analysis of the borrower’s creditworthiness and structure of the loan; whereas smaller retail and micro loans are mostly assessed in an
automated way applying respective scoring models for loan approval. Business borrowers lending guidelines have been tailored for
individual economic sectors, outlining key lending criteria and target ratios within each industry.
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33 Financial and Other Risk Management continued
Loan Approval Committees are responsible to review credit applications and approve credit products. Different Loan Approval Committees
with clearly defined delegation authority are in place for the approval of credit exposures to Corporate, SME, Retail and Micro customers
(except those products which are assessed applying scorecards). The composition of a Loan Approval Committee depends on aggregated
liabilities of the borrower and the borrower’s risk profile. Credit risk managers (as members of respective Loan Approval Committees)
ensure that the borrower and proposed credit exposure risks are thoroughly analysed. A loan to the Bank’s top 20 borrowers requires the
review and approval of Supervisory Board’s Risk, Ethics and Compliance Committee. This committee also approves transactions with
related parties that result in exposures to individuals and legal entities exceeding GEL 150 and 200 thousand, respectively.
Credit Risk Monitoring: The Group dedicates considerable resources to gain a clear and accurate understanding of the credit risk the Bank
faces across various business segments. In order to minimise credit risk, the Group continuously monitors its credit portfolio, both at the
level of individual transaction and at overall credit portfolio level. The Group’s risk management policies and processes are designed to
identify and analyse risk in a timely manner, and to monitor the risks and adherence to predefined limits by means of reliable and timely
data. Regular reports regarding quality trends of the portfolio are generated and presented to the Management Board Risk Committee on a
monthly basis and to Risk Ethics and Compliance Committee on a quarterly basis. Report includes but is not limited to: total credit portfolio
exposure, concentrations, maturities, volumes and performance of non-performing loans, write-offs and recoveries, TBC Bank’s related
and connected party exposures and compliance with risk appetite limits.
In response to local currency devaluation, the Group undertook scrutinised monitoring of the loan book both on a transaction and portfolio
level. As a result of monitoring process individual borrowers affected by currency devaluation were identified and specific action plans
were outlined; list of vulnerable products and industries were identified with underwriting criteria being revised accordingly. This
approach enabled the Group to keep credit risks within acceptable limits during not stable macro environment.
Credit Risk Mitigation: Credit decisions are based primarily on the borrower’s repayment capacity and creditworthiness; in addition, TBC
Bank uses credit risk mitigation tools such as collateral and guarantees to reduce the credit risk. The reliance that can be placed on these
mitigants is carefully assessed for legal certainty and enforceability, market valuation of collateral and counterparty risk of the guarantor.
The centralised collateral management unit has been established in order to have central view and strategy on collateral management and
ensure that all processes are efficiently followed.
Credit Risk Restructuring and Collection: The Group has in place a comprehensive portfolio supervision system to identify weakened or
problem credit exposures in a timely manner and take early remedial actions. Dedicated restructuring units are in place to manage
weakened borrowers across all business segments. The primary goal of restructuring units is to rehabilitate the borrower and return to
the performing category. The sophistication and complexity of rehabilitation process differs based on the type and size of exposure.
For smaller retail and micro loans a special collection system is in place to effectively manage overdue loans, the system based on
predefined strategies generates list of borrowers which should be contacted via phone call, generates letter reminders to overdue
borrowers, records borrowers’ promises to pay and other updates for further actions.
For management of loans with higher risk profile dedicated recovery units are in place. Corporate and SME borrowers are transferred to
recovery unit in case there is a strong probability that a material portion of the principal amount will not be paid and main stream of
recovery is no longer the borrower’s cash flow. Retail and micro loans are generally transferred to the recovery unit or external collection
agencies (in the case of unsecured loans) when 90 days overdue, although may be transferred earlier if it is evident that the borrower is
unable to repay the loan.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
33 Financial and Other Risk Management continued
Geographical risk concentrations. Assets, liabilities, credit-related commitments and performance guarantees have generally been
attributed to geographic regions based on the country in which the counterparty is located. Balances legally outstanding to/from off-shore
companies which are closely related to Georgian counterparties are allocated to the caption “Georgia”. Cash on hand and premises and
equipment have been allocated based on the country in which they are physically held.
The geographical concentration of the Group’s assets and liabilities at 31 December 2015 is set out below:
In thousands of GEL
Georgia
OECD
Non-OECD
Total
Assets
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Bonds carried at amortised cost
Investments in leases
Other financial assets
509,000
2,976
471,490
4,192,155
297,975
372,092
75,760
64,302
199,383
8,066
–
123,643
9,335
–
–
15
11,964
–
–
720,347
11,042
471,490
129,088 4,444,886
307,310
372,092
75,760
64,317
–
–
–
–
5,985,750
340,442
141,052 6,467,244
465,094
39
2,618
467,751
6,450,844
340,481
143,670 6,934,995
408,475
3,378,566
4,798
36,772
–
637,367
462,400
–
2,591
283,648
67,732
336,965
16,916
72
–
1,113,574
4,177,931
21,714
39,435
283,648
3,828,611 1,386,006
421,685 5,636,302
78,624
834
786
80,244
3,907,235 1,386,840
422,471 5,716,546
2,543,609 (1,046,359)
(278,801) 1,218,449
234,695
401,590
1,786
13,199
6,702
1,003
243,183
415,792
Total financial assets
Non-financial assets
Total assets
Liabilities
Due to credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Non-financial liabilities
Total liabilities
Net balance sheet position
Performance guarantees
Credit-related commitments
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33 Financial and Other Risk Management continued
The geographical concentration of the Group’s assets and liabilities at 31 December 2014 is set out below:
In thousands of GEL
Georgia
OECD
Non-OECD
Total
Assets
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Investments in leases
Other financial assets
348,237
615
336,075
3,397,855
460,370
50,907
43,802
91,896
3,910
–
71,971
6,140
–
55
91,985
29,179
–
532,118
33,704
336,075
86,670 3,556,496
466,510
50,907
43,857
–
–
–
Total financial assets
Non-financial assets
Total assets
Liabilities
Due to credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Non-financial liabilities
Total liabilities
Net balance sheet position
Performance guarantees
Credit-related commitments
4,637,861
173,972
207,834 5,019,667
401,744
22
2,033
403,799
5,039,605
173,994
209,867 5,423,466
279,445
2,931,114
3,718
37,677
6,204
411,605
312,470
–
3,454
181,811
749,285
58,235
78,844 3,322,428
20,423
16,705
41,346
215
188,015
–
3,258,158
909,340
153,999 4,321,497
81,365
178
950
82,493
3,339,523
909,518
154,949 4,403,990
1,700,082
(735,524)
54,918
1,019,476
183,528
513,746
–
–
–
–
183,528
513,746
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
33 Financial and Other Risk Management continued
The geographical concentration of the Group’s assets and liabilities at 31 December 2013 is set out below:
In thousands of GEL
Georgia
OECD
Non-OECD
Total
Assets
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Investments in leases
Other financial assets
Total financial assets
Non-financial assets
Total assets
Liabilities
Due to credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Non-financial liabilities
Total liabilities
Net balance sheet position
Performance guarantees
Credit-related commitments
242,264
–
295,332
2,639,915
495,793
35,613
44,990
74,279
1,630
–
91,492
4,858
–
59
73,922
78
–
70,305
–
–
–
390,465
1,708
295,332
2,801,712
500,651
35,613
45,049
3,753,907
172,318
144,305
4,070,530
379,248
28
1,269
380,545
4,133,155
172,346
145,574
4,451,075
115,519
2,513,794
–
19,638
–
403,179
347,410
–
5,164
168,274
565,806
47,108
25,679 2,886,883
4,474
24,850
168,274
4,474
48
–
2,648,951
924,027
77,309
3,650,287
70,160
92
1,247
71,499
2,719,111
924,119
78,556
3,721,786
1,414,044
(751,773)
67,018
729,289
156,551
422,239
–
–
–
–
156,551
422,239
Market risk. The Bank follows the Basel Committee’s definition of market risk as the risk of losses in on and off-balance sheet positions
arising from movements in market prices. This risk is principally made up of (a) risks pertaining to interest rate instruments and equities in
the trading book and (b) foreign exchange rate risk (or currency risk) and commodities risk throughout the Bank. The Bank’s strategy is not
to be involved in trading book activity or investments in commodities. Accordingly, the Bank’s exposure to market risk is primarily limited
to foreign exchange rate risk in the structural book.
Currency risk. Foreign exchange rate risk arises from the potential change in foreign currency exchange rates, which can affect the value
of a financial instrument. This risk stems from the open currency positions created due to mismatches in foreign currency assets and
liabilities. The NBG requires the Bank to monitor both balance-sheet and total aggregate (including off-balance sheet) open currency
positions and to maintain the later one within 20% of the Bank’s regulatory capital. As at 31 December 2015, the Bank maintained an
aggregate open currency position of 1.6% of regulatory capital (2014: 3.1%; 2013: 0.79%). The Asset-Liability Management Committee
(“ALCO”) has set limits on the level of exposure by currency as well as on aggregate exposure positions which are more conservative than
those set by the NBG. The Bank’s compliance with such limits is monitored daily by the heads of the Treasury and Financial Risk
Management Departments.
The Bank has in place Market Risk Management Policy, market risk management procedure and relevant methodologies which are
updated annually in order to further increase effectiveness of currency risk management.
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33 Financial and Other Risk Management continued
The table below summarises the Group’s exposure to foreign currency exchange rate risk at the balance sheet date. While managing open
currency position the Group considers all provisions to be denominated in the local currency. Gross amount of currency swap deposits is
included in Derivatives. Therefore total financial assets and liabilities below are not traceable with either balance sheet or liquidity risk
management tables, where net amount of gross currency swaps is presented:
In thousands of GEL
Georgian Lari
US Dollars
Euros
Other
Total
In thousands of GEL
Georgian Lari
US Dollars
Euros
Other
Total
At 31 December 2015
Monetary
financial
assets
Monetary
financial
liabilities
Derivatives
Net balance
sheet
position
2,442,850 1,646,864
3,428,146
3,507,494
499,702
466,450
61,531
50,436
3,430
(71,933)
32,715
36,285
799,416
7,415
(537)
25,190
6,467,230 5,636,243
497
831,484
At 31 December 2014
At 31 December 2013
Monetary
financial
assets
Monetary
financial
liabilities
Derivatives
Net balance
sheet
position
Monetary
financial
assets
Monetary
financial
liabilities
Derivatives
Net balance
sheet
position
1,979,583
2,704,810
262,113
72,543
1,336,626
2,573,475
376,934
34,414
55,335
(193,200)
117,668
18,313
698,292 1,438,492
994,150
(61,865) 2,374,574 2,333,144
294,734
217,267
28,259
38,917
2,847
56,442
(31,569)
(60,192)
76,450
16,532
412,773
(18,762)
(1,017)
27,190
5,019,049 4,321,449
(1,884)
695,716 4,069,250 3,650,287
1,221
420,184
To assess currency risk the Bank performs value-at-risk (“VAR”) sensitivity analysis on a quarterly basis. The analysis calculates the
effect on the income of the Group of possible worst movement of currency rates against Georgian Lari, with all other variables held
constant. To identify maximum expected losses associated with currency fluctuations, 99% confidence level is defined based on monthly
changes in exchange rates over the 3 years look-back period. During the years ended 31 December 2015, 2014 and 2013, sensitivity analysis
did not reveal any significant potential effect on the Group’s equity:
In thousands of GEL
Maximum loss (VAR, 99% confidence level)
Maximum loss (VAR,95% confidence level)
As at
31 December
2015
As at
31 December
2014
As at
31 December
2013
(449)
(285)
(2,572)
(1,886)
(589)
(413)
Interest rate risk. Interest rate risk arises from potential changes in market interest rates that can adversely affect the fair value or future
cash flows of the financial instrument. This risk can arise from maturity mismatches of assets and liabilities, as well as from the re-pricing
characteristics of such assets and liabilities.
The deposits and the largest part of loans offered by the Bank are at fixed interest rates, while a portion of the Bank’s borrowings is based
on a floating rate of interest. The Bank’s floating rate borrowings are, to a certain extent, hedged by the NBG paying a floating rate on the
minimum reserves that the Bank holds with the NBG. The Bank has also entered into interest rate swap agreements in order to mitigate
interest rate risk. Furthermore, many of the Bank’s loans to customers contain a clause allowing it to adjust the interest rate on the loan in
case of adverse interest rate movements, thereby limiting the Bank’s exposure to interest rate risk. Management also believes that the
Bank’s interest rate margins provide a reasonable buffer in order to mitigate the effect of possible adverse interest rate movement.
The table below summarises the Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s
financial assets and liabilities at amounts monitored by the management, categorised by the earlier of contractual interest re-pricing or
maturity dates. Currency and interest rate swaps are not netted when assessing the Group’s exposure to interest rate risks. Therefore,
total financial assets and liabilities below are not traceable with either balance sheet or other financial risk management tables. The tables
consider both reserves placed with NBG and Interest bearing Nostro accounts. Income on NBG reserves and Nostros are calculated as
benchmark minus margin whereby for benchmark Federal funds rate and ECB rates are considered in case of USD and EUR respectively.
Therefore, they have impact on the TBC’s NII in case of upward movement and do not affect NII in case of downward shift of interest rates.
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33 Financial and Other Risk Management continued
In thousands of GEL
31 December 2015
Total financial assets
Total financial liabilities
Net interest sensitivity gap at 31 December 2015
31 December 2014
Total financial assets
Total financial liabilities
Net interest sensitivity gap at 31 December 2014
31 December 2013
Total financial assets
Total financial liabilities
Net interest sensitivity gap at 31 December 2013
Less than
1 year
More than
1 year
Total
3,634,967
3,747,595
2,847,165 6,482,132
1,903,627 5,651,222
(112,628)
943,538
830,910
2,566,552 2,480,230 5,046,782
2,763,543 1,584,484 4,348,027
(196,991)
895,746
698,755
2,108,957
2,364,190
1,994,728 4,103,685
1,317,960 3,682,150
(255,233)
676,768
421,535
At 31 December 2015, if interest rates at that date had been 100 basis points lower with all other variables held constant, profit for the year
would have been GEL 6,748 thousand (2014: GEL 4,932 thousand; 2013 GEL 4,400 thousand) higher, mainly as a result of lower interest
expense on variable interest liabilities. Other comprehensive income would have been GEL 927 thousand (2014: GEL 5,482 thousand,
2013: GEL 5,093 thousand) higher, as a result of an increase in the fair value of fixed rate financial assets classified as available for sale and
repurchase receivables.
If interest rates had been 100 basis points higher, with all other variables held constant, profit would have been GEL 777 thousand
(2014: GEL 1,329 thousand 2013: GEL 1,284 thousand) lower, mainly as a result of higher interest expense on variable interest liabilities.
Other comprehensive income would have been GEL 911 thousand (2014: GEL 5,278 thousand, 2013: GEL 4,786 thousand) lower, as a result
of decrease in the fair value of fixed rate financial assets classified as available for sale.
For the management of interest rate risk on a standalone basis, the Bank has introduced an advanced model developed with the assistance
of Ernst & Young LLC. The interest rate risk analysis is performed by Financial Risk Management Department monthly.
The Bank calculates impact of changes in interest rates using both Net Interest Income and Economic Value sensitivity. Net Interest
Income sensitivity measures the impact of a change of interest rates along the various maturities on the yield curve on the net interest
revenue for the nearest year. Economic Value measures the impact of a change of interest rates along the various maturities on the yield
curve on the present value of the Group’s assets, liabilities and off-balance sheet instruments. When performing Net Interest Income and
Economic Value sensitivity analysis, the Bank uses parallel shifts in interest rates as well as number of different scenarios.
In order to manage Interest Rate risk the Bank establishes appropriate limits. The Bank monitors compliance with the limits and prepares
forecasts. ALCO decides on actions that are necessary for effective interest rate risk management and follows up on the implementation.
Periodic reporting is done to Management Board and Supervisory Board Risk, Ethics and Compliance Committee.
Liquidity Risk. Liquidity risk is the risk that TBC either does not have sufficient financial resources available to meet all of its obligations
and commitments as they fall due, or can access those resources only at a high cost. Liquidity risk is managed by the Financial Risk
Management and Treasury Departments and is monitored by the ALCO.
The principal objectives of the TBC Bank’s liquidity risk management policy are to: (i) ensure the availability of funds in order to meet
claims arising from total liabilities and off-balance sheet commitments, both actual and contingent, at an economic price; (ii) recognise any
structural mismatch existing within TBC Bank’s statement of financial position and set monitoring ratios to manage funding in line with
well-balanced growth; and (iii) monitor liquidity and funding on an ongoing basis to ensure that approved business targets are met without
compromising the risk profile of the Bank.
Liquidity risk is categorised into two risk types: funding liquidity risk and market liquidity risk.
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33 Financial and Other Risk Management continued
Funding liquidity risk is the risk that TBC will not be able to efficiently meet both expected and unexpected current and future cash flow and
collateral needs without affecting either its daily operations or its financial condition. To manage funding liquidity risk TBC Bank uses
Liquidity Coverage ratio and Net Stable Funding ratio set forth under Basel III, as well as minimum liquidity ratio defined by the NBG. In
addition the Bank performs stress tests, what if and scenarios analysis.
The Liquidity Coverage ratio is used to help manage short term liquidity risks. The Bank’s liquidity risk management framework is designed
to comprehensively project cash flows arising from assets, liabilities and off-balance sheet items over certain time bands and ensure that
liquidity coverage ratio limits are put in place. TBC Bank also stress tests the results of liquidity through large shock scenarios set by the
NBG. TBC Bank calculates its internal liquidity coverage ratio and conducts stress tests on a weekly basis.
The Net Stable Funding ratio is used for long-term liquidity risk management to promote resilience over a longer time horizon by creating
additional incentives for TBC to rely on more stable sources of funding on a continuing basis. TBC Bank also sets deposit concentration
limits for large deposits and deposits of non-Georgian residents in its deposit portfolio.
Net Stable Funding ratio is calculated based on the IFRS consolidated financial statements. In addition, for internal purposes TBC Bank
calculates NSFR ratio on the basis of standalone financial statements prepared in accordance with the NBG accounting rules.
Calculation of the NSFR as at 31 December 2015, 2014 and 2013 is summarised in the table below.
Net Stable Funding Ratio
In thousands of GEL
Available stable funding
Capital: Tier 1 & Tier 2 Capital Instruments
Tier 1
Tier 2
Long-term Funding (year >= 1)
Long-term borrowings (›=1 year)
Subordinated debt not included in Tier 2
Other funding (›=1 year)
Other Funding
Total corporate deposits
Total SME deposits
Total retail deposits
Short term borrowings with remaining maturity (‹1year)
Subordinated debt (‹1 year)
Required amount of stable funding
Long-term Assets with remaining maturity >=1 year
Certificate of deposits & Tbill’s (›1year)
Reserves in NGB (Stable part)
Loans (›=1 year)
Fixed and intangible assets(›=1 year)
Other assets (›=1 year)
Financial lease receivables (›1 year)
Short term assets with remaining maturity <1 year
Loans (‹= 1 year)
Financial lease receivables (‹=1 year)
Undrawn amount of committed credit and liquidity facilities
Unused credit lines and undisbursed amounts from loans
Guarantees
As at 31 December
2015
2014
2013
116.3%
114.6%
118.6%
Factor
Amount
5,219,116 4,135,922 3,410,696
1,449,145
100% 1,157,022
292,123
100%
1,188,187
967,495
220,692
100%
100%
100%
600,268
490,833
75,651
33,784
489,933
388,378
62,043
39,512
898,278
675,723
222,555
387,814
319,244
34,314
34,256
3,169,703 2,457,802 2,124,604
409,769
416,277
365,335
410,160
1,581,739 1,288,541
59,635
1,324
500,671
50%
80%
565,369
80% 1,975,902
110,588
50%
17,173
50%
47,674
1,952
4,489,467 3,610,370 2,874,587
8,624
411,585
–
332,363
3,593,696 2,892,927 2,293,969
–
5%
273,267
100%
100% 2,819,307 2,268,629 1,775,280
223,159
100%
22,263
100%
–
100%
246,448
22,506
22,981
292,111
27,308
34,761
863,175
842,675
20,500
32,596
12,358
20,238
682,580
668,617
13,963
34,863
14,214
20,649
551,225
551,225
–
29,393
9,890
19,503
50%
50%
5%
5%
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33 Financial and Other Risk Management continued
Management believes that strong and diversified funding structure is one of TBC’s differentiators. TBC relies on relatively stable deposits
from Georgia as the main source of funding. In order to maintain and further enhance liability structure TBC sets the targets for retail
deposits in its strategy and sets the loan to deposit ratio limits.
Loan to deposit ratio was at 111.0%, 111.6% and 102.5%, at the 31 December 2015, 2014 and 2013 respectively.
Market liquidity risk is the risk that TBC cannot easily offset or eliminate a position at the then-current market price because of inadequate
market depth or market disruption. To manage market liquidity risk, TBC Bank follows Basel III guidelines on high-quality liquidity asset
eligibility to ensure that the Bank’s high-quality liquid assets can be sold without causing a significant movement in the price and with
minimum loss of value.
In addition, TBC Bank has a liquidity contingency plan, which forms part of the TBC’s overall prudential liquidity policy and is designed to
ensure that TBC is able to meet its funding and liquidity requirements and maintain its core business operations in deteriorating liquidity
conditions that could arise outside the ordinary course of its business. The plan is updated once a year. Last time it was updated in
February 2015.
The Bank calculates liquidity ratio on a daily basis in accordance with the requirements of the NBG. The limit is defined by the NBG for
average liquidity ratio, which is calculated as the ratio of average liquid assets to average liabilities for the respective month, including
borrowings from financial institutions and part of off-balance sheet liabilities with residual maturity up to 6 months. As at 31 December the
ratios were well above the prudential limit set by the NBG as follows:
Average Liquidity Ratio
2015
2014
2013
34.4%
31.1%
34.0%
According to daily cash flow forecasts, and the surplus in liquidity standing, Treasury Department places funds in short term liquid assets,
largely made up of short term risk-free securities, interbank deposits and other inter-bank facilities, to ensure that sufficient liquidity is
maintained within the Group as a whole.
Maturity analysis. The table below summarises the maturity analysis of the Group’s financial liabilities as at 31 December 2015 based on
remaining undiscounted contractual obligations. Repayments which are subject to notice are treated as if notice were to be given
immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be required
to pay and the table does not reflect the expected cash flows indicated by the Group’s deposit retention history.
The maturity analysis of financial liabilities at 31 December 2015 is as follows:
In thousands of GEL
Liabilities
Due to Credit institutions
Customer accounts – individuals
Customer accounts – other
Other financial liabilities
Subordinated debt
Debt securities in issue
Gross settled forwards
Performance guarantees
Financial guarantees
Other credit-related commitments
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
Over 5 years
Total
518,915
1,346,154
1,419,830
36,099
2,284
480
94,368
16,023
75,707
247,159
148,380
889,799
119,695
1,196
54,214
17,996
1,967
88,666
65,959
–
520,673
348,627
98,836
2,140
215,062
5,061
–
137,944
26,836
–
1,212,149
24,181
23,859 2,608,439
23,739 1,662,100
39,435
404,196
23,537
96,335
243,183
168,633
247,159
–
132,636
–
–
550
131
–
Total potential future payments for financial obligations
3,757,019 1,387,872 1,355,179
205,096 6,705,166
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33 Financial and Other Risk Management continued
The maturity analysis of financial liabilities at 31 December 2014 is as follows:
In thousands of GEL
Liabilities
Due to Credit institutions
Customer accounts – individuals
Customer accounts – other
Other financial liabilities
Subordinated debt
Debt securities in issue
Gross settled forwards
Performance guarantees
Financial guarantees
Other credit-related commitments
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
Over 5 years
Total
287,557
1,027,688
1,115,065
39,934
1,176
78
190,644
27,214
119,510
284,284
102,151
737,972
98,241
1,300
19,430
236
60,213
53,553
91,717
–
377,385
250,916
113,422
112
178,206
22,008
–
114,531
28,024
–
811,695
44,602
24,333 2,040,909
35,865 1,362,593
41,346
269,607
22,322
250,857
195,815
239,251
284,284
–
70,795
–
–
517
–
–
Total potential future payments for financial obligations
3,093,150 1,164,813 1,084,604
176,112 5,518,679
The maturity analysis of financial liabilities at 31 December 2013 is as follows:
In thousands of GEL
Liabilities
Due to Credit institutions
Customer accounts – individuals
Customer accounts – other
Other financial liabilities
Subordinated debt
Gross settled forwards
Performance guarantees
Financial guarantees
Other credit-related commitments
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
Over 5 years
Total
158,525
917,166
988,285
23,717
906
123,799
33,582
115,453
197,801
103,522
595,740
171,952
1,133
15,418
298
73,558
97,122
–
313,213
129,487
37,431
–
160,948
–
54,986
21,702
–
617,975
42,715
13,071 1,655,464
1,283,919
86,251
24,850
–
253,317
76,045
124,097
–
163,867
1,741
234,277
–
197,801
–
Total potential future payments for financial obligations
2,559,234 1,058,743
717,767
219,823
4,555,567
The undiscounted financial liability analysis gap does not reflect the historical stability of current accounts. Their liquidation has
historically taken place over a longer period than indicated in the tables above. These balances are included in amounts due in less than
three months in the tables above.
Term Deposits included in customer accounts are classified based on remaining contractual maturities, although, in accordance with the
Georgian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they partially or fully forfeit their right to accrued
interest and the Group is obliged to repay such deposits upon demand of a depositor. Based on Bank’s deposit retention history, the
Management does not expect that many customers will require repayment on the earliest possible date; accordingly, the table does not
reflect Management’s expectations as to actual cash outflows.
The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group monitors liquidity gap analysis
based on the expected maturities. In particular, the customers’ deposits are distributed in the given maturity gaps following their
behavioural analysis.
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33 Financial and Other Risk Management continued
The expected gap may be summarised as follows at 31 December 2015:
In thousands of GEL
Assets
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Bonds carried at amortised cost
Finance lease receivables
Other financial assets
Total financial assets
Liabilities
Due to Credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Credit-related commitments and performance guarantees
Performance guarantees
Financial guarantees
Other credit-related commitments
Credit-related commitments and performance guarantees
Net liquidity gap at 31 December 2015
Cumulative gap at 31 December 2015
Less than
3 months
From 3 to
12 months
From 1 to
5 Years
Over 5 years
Total
720,347
1,290
471,490
697,228
307,310
86,357
16,555
41,544
–
1,059
–
950,170
–
113,248
24,444
5,704
–
–
–
1,907,830
–
145,720
34,761
17,069
–
8,693
–
720,347
11,042
471,490
889,658 4,444,886
307,310
372,092
75,760
64,317
–
26,767
–
–
2,342,121 1,094,625 2,105,380
925,118 6,467,244
513,415
346,674
32
36,099
1,303
114,093
27,885
16,916
1,196
33,042
462,636
4,766
2,140
145,566
23,430
– 3,803,372
–
–
103,737
1,113,574
4,177,931
21,714
39,435
283,648
897,523
193,132
615,108 3,930,539 5,636,302
1,472
5,589
36,982
44,043
–
–
–
–
–
–
–
–
–
–
–
–
1,472
5,589
36,982
44,043
1,400,555
901,493 1,490,272 (3,005,421)
786,899
1,400,555 2,302,048 3,792,320
786,899
Management believes that the Group has sufficient liquidity to meet its current on and off-balance sheet obligations.
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33 Financial and Other Risk Management continued
The analysis by expected maturities may be summarised as follows at 31 December 2014:
In thousands of GEL
Assets
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Investment in finance leases
Other financial assets
Total financial assets
Liabilities
Due to Credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Credit-related commitments and performance guarantees
Performance guarantees
Financial guarantees
Other credit-related commitments
Credit-related commitments and performance guarantees
Net liquidity gap at 31 December 2014
Cumulative gap at 31 December 2014
Less than
3 months
From 3 to
12 months
From 1 to
5 Years
Over 5 years
Total
532,118
14
336,075
534,371
466,510
10,300
20,280
–
29,179
–
–
–
–
770,034 1,560,670
–
22,980
17,612
–
17,627
5,965
–
4,511
–
532,118
33,704
336,075
691,421 3,556,496
466,510
50,907
43,857
–
–
–
1,899,668
822,805 1,601,262
695,932 5,019,667
285,677
279,084
–
39,934
1,098
82,439
–
–
1,300
2,805
338,609
42,560
749,285
– 3,043,344 3,322,428
20,423
–
41,346
–
188,015
60,952
20,423
112
123,160
605,793
86,544
482,304
3,146,856 4,321,497
4,912
3,266
36,644
44,822
–
–
–
–
–
–
–
–
–
–
–
–
4,912
3,266
36,644
44,822
1,249,053
736,261 1,118,958 (2,450,924)
653,348
1,249,053 1,985,314 3,104,272
653,348
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
33 Financial and Other Risk Management continued
The analysis by expected maturities may be summarised as follows at 31 December 2013:
In thousands of GEL
Assets
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Finance lease receivables
Other financial assets
Total financial assets
Liabilities
Due to Credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Credit-related commitments and performance guarantees
Performance guarantees
Financial guarantees
Other credit-related commitments
Credit-related commitments and performance guarantees
Net liquidity gap at 31 December 2013
Cumulative gap at 31 December 2013
Less than
3 months
From 3 to
12 months
From
1 to 5 Years
Over
5 years
Total
390,465
93
295,332
445,069
500,651
7,148
22,103
–
–
–
623,376
–
11,593
5,024
–
–
–
1,214,084
–
16,872
17,922
–
1,615
–
519,183
–
–
–
390,465
1,708
295,332
2,801,712
500,651
35,613
45,049
1,660,861
639,993
1,248,878
520,798
4,070,530
156,545
261,546
–
23,717
833
90,018
–
4,474
1,133
1,814
278,644
–
–
–
103,605
40,599
565,806
2,625,337 2,886,883
4,474
24,850
168,274
–
–
62,022
442,641
97,439
382,249
2,727,958 3,650,287
4,153
4,927
34,962
44,042
–
–
–
–
–
–
–
–
–
–
–
–
4,153
4,927
34,962
44,042
1,174,178
542,554
866,629 (2,207,160)
376,201
1,174,178 1,716,732 2,583,361
376,201
In order to assess the possible outflow of the bank’s customer accounts management applied value-at-risk analysis. The statistical data
was used on the basis of a holding period of one month for a look-back period of five years with a confidence level of 99%. The value at risk
analysis was performed for the following maturity gaps: (0-3 months) and (0-12 months), based on which the maximum percentage of
deposits’ outflow was calculated.
Management believes that in spite of a substantial portion of customers’ accounts being on demand, diversification of these deposits by
number and type of depositors, and the past experience of the Group would indicate that these customer accounts provide a long-term and
stable source of funding for the Group. Moreover, the Group’s liquidity risk management includes estimation of maturities for its current
deposits. The estimation is based on statistical methods applied to historic information on fluctuations of customer account balances.
Operating environment. Most of the Group’s business in concentrated in Georgia. Emerging economies, such as the Georgian economy,
are subject to rapid change and are vulnerable to market conditions and economic downturns elsewhere in the world. As a consequence,
operations in Georgia may be exposed to certain risks that are not typically associated with those in developed markets. Nevertheless, over
the last few years the Georgian government has changed number of civil, criminal, tax, administrative and commercial laws that have
positively affected the overall investment climate of the country. Georgia has an international reputation as a country with a favourable
investment environment. For example, in the report published by the IFC and the World Bank “Doing Business 2015: Understanding
Regulations for Small and Medium-Size Enterprises”, Georgia was ranked as the fifteenth (out of 189) easiest country in the world in which
to do business, ahead of all its neighbouring countries and many EU Member States. Moreover, according to the same survey, Georgia was
ranked as the number one in the world in terms of registering property. Georgia is also acknowledged to have low corruption levels as
demonstrated by the Transparency International 2013 Global Corruption Barometer.
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33 Financial and Other Risk Management continued
By the end of 2015 Georgian Lari depreciated against the US Dollar by 29% year-over-year. Over the same period GEL lost 15% of its
value against EUR. Despite the sharp depreciation against USD, nominal effective exchange rate of GEL depreciated by 4% year-over-year
in 2015, showing that GEL behaved in line with the developments in major trading partners of Georgia and helped to maintain external
competitiveness of the country. As broadly expected, the first wave of the currency crisis was passed in the first nine months of 2015.
In the fourth quarter of 2015, the pressure on the currency rate has been relatively eased, with the USD/GEL exchange rate down by
1% quarter-over-quarter and EUR/GEL up by 2% quarter-over-quarter.
Responding to increased inflation expectations, NBG tightened monetary policy, over 2015 monetary policy rate increased gradually from
4% in the beginning of 2015 to 8%. As a result, inflation ended up at 4.9% in December 2015, right about the NBG’s target of 5%.
Budgetary spending was also maintained within the sustainable levels, initial estimate of fiscal deficit amounted to 3% of GDP, deficit
spending has been more equally distributed across the year, unlike the practice in previous years, which helped to avoid additional
pressure on GEL by the end of the year.
In 11 months of 2015 the Georgian economy grew moderately by 3%, per initial estimates. Decreased exports and remittances have put a
pressure on the current account, but this has been largely offset by the reduced imports as a consequence of the National Bank’s prudent
strategy to maintain the free float of the Georgian currency. Imports were also positively affected by the decrease in oil prices.
Furthermore, country observed a continued positive trend in tourism. Number of international arrivals increased by 7% year-over-year in
2015 and represented significant positive factor for the improvement of Current Account deficit.
34 Management of Capital
The Group’s objectives when managing capital are (i) to comply with the capital requirements set by the NBG (ii) to safeguard the Group’s
ability to continue as a going concern and (iii) to comply with Basel Capital Accord 1988 capital adequacy ratios as stipulated by borrowing
agreements. Compliance with capital adequacy ratios set by the NBG is monitored monthly with reports outlining their calculation
reviewed and signed by the Bank’s CFO and Deputy CFO.
Bank and the Group complied with all its internally and externally imposed capital requirements throughout 2013, 2014 and 2015.
NBG Capital adequacy ratio
Under the current capital requirements set by NBG throughout 2015 banks have to maintain a ratio of regulatory capital to risk weighted
assets (“statutory capital ratio”) above the set 11.4% minimum level and a ratio of Tier 1 capital to risk weighted assets above the set 7.6%
minimum level. No additional add-ons are in place. In the middle of 2015, previously established 3% capital add-on was removed by NBG.
Regulatory capital is based on the Bank’s standalone reports prepared in accordance with the NBG accounting rules:
In thousands of GEL
Share capital
Retained earnings and other disclosed reserves
General loan loss provisions (up to 1.25% of risk – weighted assets)
Less intangible assets
Less Investments into subsidiary companies and capital of other banks
Subordinated debt (included in regulatory capital)
Total regulatory capital
Risk-weighted Exposures
Credit risk weighted assets (including off-balance obligations)
Currency Induced Credit Risk
minus general and special reserves
Risk-weighted assets
Tier 1 Capital adequacy ratio
Total Capital adequacy ratio
2015
2014
2013
443,987
568,604
87,037
(41,080)
(50,840)
173,652
433,521
402,793
64,627
(26,123)
(117,962)
116,068
261,045
290,585
51,038
(18,197)
(59,129)
131,312
1,181,360
872,924
656,654
3,340,518
5,304,184
4,125,740
1,321,561
2,056,062 1,525,435
(205,131)
(166,377)
(155,192)
7,155,115 5,495,983 4,495,702
10.6%
14.6%
12.2%
15.9%
11.0%
16.5%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
34 Management of Capital continued
The breakdown of the Bank’s assets into the carrying amounts based on NBG accounting rules and relevant risk-weighted exposures as of
the end of 2015, 2014, 2013 are given in the tables below:
2015
Carrying
Value
RW amount
44,253
306,368
177,111
1,794,873
85,733
4,671,693 6,445,027
44,253
265,288
151,073
6,994,298 6,991,374
368,872
(205,131)
696,260
(205,131)
7,485,427
7,155,115
2014
Carrying
Value
RW amount
67,381
201,721
198,146
1,426,453
257,522
3,353,985 4,668,750
67,381
175,598
112,829
5,247,686 5,282,080
369,095
(155,192)
868,270
(155,192)
5,960,764 5,495,983
2013
Carrying
Value
RW amount
1,170,286
2,713,271
69,143
202,902
143,487
158,730
3,829,318
69,143
184,705
92,255
4,299,089 4,334,151
327,928
(166,377)
615,670
(166,377)
4,748,382 4,495,702
In thousands of GEL
Risk-weighted Exposures
Cash, cash equivalents, Interbank Deposits and Securities
Gross Loans and accrued interests
Repossessed Assets
Fixed Assets and intangible assets
Other assets
Total
Total Off-balance
minus general and special reserves
Total Amount
In thousands of GEL
Risk-weighted Exposures
Cash, cash equivalents, Interbank Deposits and Securities
Gross Loans and accrued interests
Repossessed Assets
Fixed Assets and intangible assets
Other assets
Total
Total Off-balance
minus general and special reserves
Total Amount
In thousands of GEL
Risk-weighted Exposures
Cash, cash equivalents, Interbank Deposits and Securities
Gross Loans and accrued interests
Repossessed Assets
Fixed Assets and intangible assets
Other assets
Total
Total Off-balance
minus general and special reserves
Total Amount
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34 Management of Capital continued
NBG Basel II Capital adequacy ratio
After adoption of NBG Basel II/III requirements the Bank in addition to above capital ratios calculates its capital requirements and risk
weighted assets separately for Pillar 1. Detailed instructions of Pillar 1 calculations are given by NBG. The reporting started from the end
of 2013. The composition of the Bank’s capital calculated in accordance with Basel II (Pillar I) is as follows:
In thousands of GEL
Tier 1 Capital
Tier 2 Capital
Regulatory capital
Risk-weighted exposures
Credit-risk weighted exposures
Risk-weighted exposures for market Risk
Risk-weighted exposures for operational Risk
Total Risk-weighted exposures
Minimum Tier 1 ratio
Tier 1 Capital adequacy ratio
Minimum total capital adequacy ratio
Total Capital adequacy ratio
2015
2014
2013
953,403
245,705
783,360
163,505
526,224
177,950
1,199,108
946,865
704,174
7,005,711
18,651
452,089
5,879,120
27,186
390,378
4,553,155
3,946
343,892
7,476,451 6,296,684
4,900,993
8.5%
12.8%
10.5%
16.0%
8.5%
12.4%
10.5%
15.0%
8.5%
10.7%
10.5%
14.4%
The breakdown of the Bank’s assets into the carrying amounts based on NBG accounting rules and relevant risk-weighted exposures as of
the 31 December 2015, 2014 and 2013 are given in the tables below:
In thousands of GEL
Cash, cash equivalents, Interbank exposures and securities
Gross loans and accrued interests,
Repossessed assets
Fixed assets and intangible assets
Other assets
minus general provision, penalty and interest provision
Total
Total off-balance
Market risk
Operational risk
Total amount
In thousands of GEL
Cash, cash equivalents, Interbank exposures and securities
Gross loans and accrued interests, excluding loans to JSC Bank Constanta
Repossessed assets
Fixed Assets and intangible assets
Other assets
minus general provision, penalty and interest provision
Total
Total off-balance
Market risk
Operational risk
2015
Carrying
Value
RW amount
44,253
306,368
179,535
(36,630)
1,857,283
570,748
4,442,340 5,555,538
44,253
334,472
219,572
(36,630)
6,793,149 6,687,953
317,758
18,651
452,089
789,224
18,651
316,462
7,917,486 7,476,451
2014
Carrying
Value
RW amount
67,381
201,721
199,439
(48,030)
1,524,235
682,162
3,254,912 4,330,991
67,381
187,918
307,609
(48,030)
5,199,658 5,528,031
351,089
27,186
390,378
934,174
27,186
273,265
Total amount
6,434,283 6,296,684
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
34 Management of Capital continued
In thousands of GEL
Cash, cash equivalents, Interbank Exposures and Securities
Gross loans and accrued interests, excluding loans to JSC Bank Constanta
Repossessed Assets
Fixed Assets and intangible assets
Other assets
minus general provision, penalty and interest provision
Total
Total Off-balance
Market Risk
Operational Risk
2013
Carrying
Value
RW amount
69,143
202,902
153,663
(41,837)
1,253,675
467,647
2,619,707 3,321,301
69,143
203,833
214,198
(41,837)
4,257,253 4,234,285
318,870
3,946
343,892
678,453
5,180
240,724
Total Amount
5,181,610 4,900,993
Capital adequacy ratio under Basel Capital Accord 1988
The Group and the Bank are also subject to minimum capital requirements established by covenants stated in loan agreements, including
capital adequacy levels calculated in accordance with the requirements of the Basel Accord, as defined in the International Convergence of
Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market risks
(updated November 2005), commonly known as Basel I. The composition of the Group’s capital calculated in accordance with Basel Accord
is as follows:
In thousands of GEL
Tier 1 capital
Share capital
Retained earnings and disclosed reserves
Less: Goodwill
Non-controlling interest
Total tier 1 capital
Tier 2 capital
Revaluation reserves
General reserve
Subordinated debt (included in tier 2 capital)
Total tier 2 capital
Total capital
Credit-risk weighted assets (including off-balance obligations)
Less: General reserve
Market risk
Total risk-weighted assets
Minimum Tier 1 ratio
Tier 1 Capital adequacy ratio
Minimum total capital adequacy ratio
Total capital adequacy ratio
2015
2014
2013
427,061
725,498
(2,726)
7,189
1,157,022
58,701
59,770
173,652
292,123
425,234
537,616
(2,726)
7,371
967,495
49,255
49,367
122,070
220,692
259,123
404,659
(2,726)
14,667
675,723
50,840
40,403
131,312
222,555
1,449,145
1,188,187
898,278
4,781,605
(134,373)
32,605
3,949,360 3,232,229
(116,466)
(100,397)
19,779
61,864
4,679,837 3,910,827 3,135,542
4.0%
21.6%
8.0%
28.6%
4.0%
24.7%
8.0%
30.4%
4.0%
24.7%
8.0%
31.0%
Following Basel I guidelines General Reserve is defined by the management as the minimum among the following:
a. IFRS provisions created on loans without impairment trigger event.
b. 2% of loans without impairment trigger event.
c. 1.25% of total RWA (Risk Weighted Assets).
184
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34 Management of Capital continued
The breakdown of the Group’s assets into the carrying amounts and relevant risk-weighted exposures as of the end of 2015, 2014, 2013 are
given in the tables below:
In thousands of GEL
Risk-weighted Exposures
2015
Carrying
Value
RW amount
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other banks, investment
securities available for sale
Gross loans and accrued interests
Repossessed assets
Fixed assets and intangible assets
Other assets
Total
Total off-balance
Less: Loan loss provision minus General Reserve
Market risk
Total amount
In thousands of GEL
Risk-weighted Exposures
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other banks, investment
securities available for sale
Gross loans and accrued interests
Repossessed assets
Fixed assets and intangible assets
Other assets
Total
Total Off-balance
Less: Loan loss provision minus General Reserve
Market risk
Total amount
In thousands of GEL
Risk-weighted Exposures
Cash and other cash equivalents, mandatory cash balances with the NBG, due from other banks, investment
securities available for sale
Gross loans and accrued interests
Repossessed assets
Fixed assets and intangible assets
Other assets
Total
Total off-balance
Less: Loan loss provision minus General Reserve
Market risk
Total amount
1,882,281
4,639,029
85,216
294,837
227,775
103,406
3,757,464
85,216
292,111
227,775
7,129,138 4,465,972
315,633
(134,373)
32,605
849,295
(134,373)
32,605
7,876,665 4,679,837
2014
Carrying
Value
RW amount
1,368,407
3,706,260
60,480
249,174
188,909
63,462
3,035,718
60,480
246,448
188,909
5,573,230 3,595,017
354,343
1,028,774
(100,397)
(100,397)
61,864
61,864
6,563,471 3,910,827
2013
Carrying
Value
RW amount
1,188,156
2,958,581
49,920
225,885
185,402
38,613
2,419,822
49,920
223,159
185,402
4,607,944 2,916,916
315,313
(116,466)
19,779
656,386
(116,466)
19,779
5,167,643 3,135,542
185
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
35 Contingencies and Commitments
Legal proceedings. The Bank is a defendant in a number of legal claims. When determining the level of provision to be set up in respect of
such claims, management uses both internal and external professional advice. The management believes that the provision recorded in
these financial statements is adequate.
Tax legislation. Georgian and Azerbaijani tax and customs legislation is subject to varying interpretations, and changes, which can occur
frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by
the relevant authorities. Fiscal periods remain open to review by the authorities in respect of taxes for five calendar years preceding the
period of review. To respond to the risks, the Group has engaged external tax specialists who are performing periodic reviews of Group’s
taxation policies and tax filings. The Group’s management believes that its interpretation of the relevant legislation is appropriate and the
Group’s tax and customs positions will be sustained. Accordingly, as at 31 December 2015, 2014 and 2013 no provision for potential tax
liabilities has been recorded.
Operating lease commitments. Where the Group is the lessee, as at 31 December 2015, the future minimum lease payments under
non-cancellable operating leases over the next year amount to GEL 4,891 thousand (31 December 2014: 4,766 thousand, 31 December
2013: 4,063 thousand).
Compliance with covenants. The Group is subject to certain covenants related primarily to its borrowings. Non-compliance with such
covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. As
disclosed in Note 17, as at 31 December 2015, TBC Kredit had breached certain borrowing covenants agreed with foreign financial
institution lenders. The major reason for the breach was drastic devaluation of Azerbaijani Manat in February and December 2015.
The Group was in compliance with all other covenants as at 31 December 2015 and with all covenants as at 31 December 2014 and
31 December 2013.
Credit-related commitments and financial guarantees. The primary purpose of these instruments is to ensure that funds are available to a
customer as required. Financial guarantees and standby letters of credit, which represent irrevocable assurances that the Group will
make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary
and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw
drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods
to which they relate or cash deposits and therefore carry less risk than a direct borrowing.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of
credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total
unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend
credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit-related
commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual
obligation. Such contracts do not transfer credit risk. The risk under performance guarantee contracts is the possibility that the insured
event (i.e. the failure to perform the contractual obligation by another party) occurs. The key risks the Group faces are significant
fluctuations in the frequency and severity of payments incurred on such contracts relative to expectations.
Outstanding credit-related commitments and performance guarantees are as follows:
In thousands of GEL
Performance guarantees issued
Financial guarantees issued
Undrawn credit lines
Letters of credit
Total credit-related commitments and performance guarantees (before provision)
Provision for performance guarantees
Provision for credit-related commitments and financial guarantees
Total credit-related commitments and performance guarantees
2015
2014
2013
243,183
71,999
247,159
96,634
658,975
(1,472)
(5,589)
188,440
86,770
284,284
145,958
705,452
(4,912)
(3,266)
160,704
95,762
197,801
133,603
587,870
(4,153)
(4,927)
651,914
697,274
578,790
186
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35 Contingencies and Commitments continued
The total outstanding contractual amount of undrawn credit lines, letters of credit, and guarantees does not necessarily represent future
cash requirements, as these financial instruments may expire or terminate without being funded. Non-cancellable commitments as at
31 December 2015 composed GEL 136,867 thousand (2014: GEL 138,296 thousand; 2013: GEL 131,342 thousand).
Fair value of credit-related commitments and financial guarantees were GEL 5,205 thousand at 31 December 2015 2014:
GEL 3,266 thousand; 2013: GEL 4,927 thousand). Total credit-related commitments and performance guarantees are denominated
in currencies as follows:
In thousands of GEL
Georgian Lari
US Dollars
Euro
Other
Total
2015
2014
2013
259,749
319,941
44,874
34,411
254,554
377,964
46,057
26,877
218,553
299,190
42,388
27,739
658,975
705,452
587,870
Capital expenditure commitments. At 31 December 2015, the Group has contractual capital expenditure commitments amounting to GEL
6,771 thousand (2014: 511 thousand; 2013: 2,365).
36 Non-Controlling Interest
The following table provides information about each subsidiary that had non-controlling interest as at 31 December 2015:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Total
Place of business
(and country of
incorporation if
different)
Proportion of
non-
controlling
interest
Proportion of
non-
controlling
interest’s
voting rights
held
Profit
attributable
to non-
controlling
interest
Accumulated
non-controlling
interest in the
subsidiary
Georgia
Azerbaijan
Georgia
0.43%
25%
1.33%
0.43%
25%
1.33%
8
(250)
60
(182)
47
6,756
386
7,189
Dividends
paid to
non-
controlling
interest
during the
year
–
–
–
–
The summarised financial information of these subsidiaries was as follows at 31 December 2015:
In thousands of GEL
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Revenue
Profit
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
69,642
41,703
5,453
36,323
36,053
6,470
29,607
57,773
675
65,378
1,509
73
9,511
15,319
12,512
Total
116,798
78,846
88,055
66,960
37,342
1,960
(1,002)
4,476
5,434
Total
comprehensive
income
1,960
(1,002)
4,476
Cash
flows
8,769
7,290
1,908
5,434
17,967
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
36 Non-Controlling Interest continued
The following table provides information about each subsidiary that had non-controlling interest as at 31 December 2014:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Total
Place of business
(and country
of incorporation if
different)
Proportion of
non-
controlling
interest
Proportion of
non-
controlling
interest’s
voting rights
held
Profit
attributable
to non-
controlling
interest
Accumulated
non-
controlling
interest in
the
subsidiary
Georgia
Azerbaijan
Georgia
0.52%
25%
1.33%
0.52%
25%
1.33%
6
970
24
1,000
38
7,006
327
7,371
Dividends
paid to
non-
controlling
interest
during the
year
–
–
–
–
The summarised financial information of these subsidiaries was as follows at 31 December 2014:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Total
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
43,541
45,238
2,846
91,625
29,236
45,927
4,772
20,625
11,949
431
44,710
47,743
487
Revenue
6,130
12,881
9,212
79,935
33,005
92,940
28,223
Total
comprehensive
income
1,204
3,880
1,792
6,876
Profit
1,204
3,880
1,792
6,876
Cash
flows
(2,745)
590
432
(1,723)
The following table provides information about each subsidiary that had non-controlling interest as at 31 December 2013:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Bank Constanta JSC
Total
Place of business
(and country of
incorporation if
different)
Proportion of
non-
controlling
interest
Proportion of
non-
controlling
interest’s
voting rights
held
Profit
attributable
to
non-
controlling
interest
Accumulated
non-controlling
interest in the
subsidiary
Georgia
Azerbaijan
Georgia
Georgia
10.47%
25.00%
6.68%
16.15%
10.47%
25.00%
6.68%
16.15%
60
833
35
1,726
2,654
624
6,036
303
7,704
14,667
Dividends
paid to
non-
controlling
interest
during the
year
–
–
–
–
–
The summarised financial information of these subsidiaries was as follows at 31 December 2013:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Bank Constanta JSC
Current
assets
33,570
41,867
1,529
195,077
Non-
current
assets
24,212
31,814
4,712
150,631
Current
liabilities
27,160
26,024
1,046
134,591
Non-
current
liabilities
24,664
22,150
286
160,989
Revenue
Profit
3,767
11,291
6,758
55,972
573
3,334
522
11,271
Total
272,043
211,369
188,821
208,089
77,788
15,700
Total
comprehensive
income
573
3,334
522
11,271
15,700
Cash
flows
996
1,120
71
2,362
4,549
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FINANCIAL STATEMENTS
37 Offsetting Financial Assets and Financial Liabilities
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2015:
Gross
amounts
before
offsetting in
the
statement of
financial
position
(a)
Gross
amounts set
off in the
statement of
financial
position
(b)
Net amount
after
offsetting in
the
statement of
financial
position
(c) = (a) - (b)
Amounts subject to master
netting and similar
arrangements not set off in
the statement of financial
position
Financial
instruments
(d)
Cash
collateral
received
(e)
Net amount
of exposure
(c) - (d) - (e)
In thousands of GEL
ASSETS
Cash and cash equivalents
– Reverse repo
Other financial assets:
– Receivables on credit card services and money transfers
47,768
–
47,768
47,768
17,821
2,749
15,072
–
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
65,589
2,749
62,840
47,768
LIABILITIES
Other financial liabilities:
– Payables on credit card services and money transfers
42,184
2,749
39,435
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
42,184
2,749
39,435
–
–
–
–
–
–
–
–
15,072
15,072
39,435
39,435
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2014:
Gross
amounts
before
offsetting in
the
statement of
financial
position
(a)
Gross
amounts set
off in the
statement of
financial
position
(b)
Net amount
after
offsetting in
the
statement of
financial
position
(c) = (a) - (b)
Amounts subject to master
netting and similar
arrangements not set off in
the statement of financial
position
Financial
instruments
(d)
Cash
collateral
received
(e)
Net amount
of exposure
(c) - (d) - (e)
In thousands of GEL
ASSETS
Other financial assets:
– Receivables on credit card services and money transfers
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING
11,399
1,959
9,440
AND SIMILAR ARRANGEMENT
11,399
1,959
9,440
LIABILITIES
Other financial liabilities:
– Payables on credit card services and money transfers
43,305
1,959
41,346
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
43,305
1,959
41,346
–
–
–
–
–
–
–
–
9,440
9,440
41,346
41,346
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
37 Offsetting Financial Assets and Financial Liabilities continued
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2013:
Gross
amounts
before
offsetting in
the
statement of
financial
position
(a)
Gross
amounts set
off in the
statement of
financial
position
(b)
Net amount
after
offsetting in
the
statement of
financial
position
(c) = (a) - (b)
Amounts subject to master
netting and similar
arrangements not set off in
the statement of financial
position
Financial
instruments
(d)
Cash
collateral
received
(e)
Net amount
of exposure
(c) - (d) - (e)
In thousands of GEL
ASSETS
Other financial assets:
– Receivables on credit card services and money transfers
7,481
924
6,557
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
7,481
924
6,557
LIABILITIES
Other financial liabilities:
– Payables on credit card services and money transfers
25,774
924
24,850
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
25,774
924
24,850
–
–
–
–
–
–
–
–
6,557
6,557
24,850
24,850
The amount set off in the statement of financial position reported in column (b) is the lower of (i) the gross amount before offsetting
reported in column (a) and (ii) the amount of the related instrument that is eligible for offsetting. Similarly, the amounts in columns (d) and
(e) are limited to the exposure reported in column (c) for each individual instrument in order not to understate the ultimate net exposure.
Deposits placed with other banks and deposits received from other banks as part of gross settled currency swap arrangement have been
netted-off in these financial statements and the instrument has been presented as either asset or a liability at fair value.
The disclosure does not apply to loans and advances to customers and related customer deposits unless they are netted-off in the
statement of financial position.
38 Derivative Financial Instruments
In the normal course of business, the Group enters into various derivative financial instruments, to manage currency, liquidity and interest
rate risks and for trading purposes.
In thousands of GEL
Fair value of gross settled currency swaps, included in other financial assets or due from banks
Fair value of foreign exchange forwards and gross settled currency swaps, included in other financial
liabilities
Fair value of Interest rate swaps, included in other financial liabilities
Total
2015
605
2014
618
2013
1,221
(108)
(2,303)
(2,502)
(3,137)
–
(4,405)
(1,806)
(5,021)
(3,184)
Foreign Exchange Forwards and gross settled currency swaps. Foreign exchange derivative financial instruments entered into by the Group
are generally traded in an over-the-counter market with professional market counterparties on standardised contractual terms and
conditions. Derivatives have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market
interest rates, foreign exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and
liabilities can fluctuate significantly from time to time.
The table below sets out fair values, at the balance sheet date, of currencies receivable or payable under foreign exchange forwards
contracts and gross settled currency swaps entered into by the Group. The table reflects gross positions before the netting of any
counterparty positions (and payments) and covers the contracts with settlement dates after the respective balance sheet date. The
contracts are short term in nature.
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38 Derivative Financial Instruments continued
In thousands of GEL
Foreign exchange forwards and gross settled currency swaps:
fair values, at the balance sheet date, of
– USD payable on settlement (-)
– USD receivable on settlement (+)
– GEL payable on settlement (-)
– GEL receivable on settlement (+)
– EUR payable on settlement (-)
– EUR receivable on settlement (+)
– Other payable on settlement (-)
– Other receivable on settlement (+)
2015
2014
2013
Contracts
with positive
fair value
Contracts
with negative
fair value
Contracts
with positive
fair value
Contracts
with negative
fair value
Contracts
with positive
fair value
Contracts
with negative
fair value
–
13,821
–
13,857
–
34,024
–
38,248
(85,754)
–
(10,427)
–
(1,309)
–
(1,963)
–
–
29,031
–
81,865
–
118,272
–
19,792
(222,231)
–
(26,530)
–
(604)
–
(1,479)
–
–
31,398
–
–
–
76,450
–
17,169
(91,590)
–
–
(31,569)
–
–
(637)
–
Fair value of foreign exchange forwards and gross settled
currency swaps
99,950
(99,453)
248,960
(250,844)
125,017
(123,796)
Net fair value of foreign exchange forwards and gross settled
currency swaps
497
–
–
(1,884)
1,221
–
Interest rate swaps. In March 2010 TBC Bank entered into interest rate swap agreement, to hedge floating interest rate on its subordinated
debt. The hedge covers payment of floating rate interest payments with the notional principal of USD 44,000 thousand. The swap expires in
November 2018. At the reporting date fair value of interest rate swaps was estimated to be negative GEL 2,303 thousand (2014: negative
GEL 3,137 thousand; 2013: negative GEL 4,405 thousand).
Information on related party balances is disclosed in Note 41.
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
39 Fair Value Disclosures
(a) Recurring fair value measurements
Recurring fair value measurements are those that the accounting standards require or permit in the statement of financial position at the
end of each reporting period. The level in the fair value hierarchy into which the recurring fair value measurements are categorised are
as follows:
In thousands of GEL
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31 December 2015
31 December 2014
31 December 2013
ASSETS AT FAIR VALUE
FINANCIAL ASSETS
Investment securities
available for sale
– Government notes
– Certificates of
Deposits of National
Bank of Georgia
– Corporate bonds
– Ministry of Finance
Treasury Bills
– Corporate shares
(Visa Inc.)
Foreign exchange
forwards and gross
settled currency
swaps, included in
other financial assets
or due from banks
NON-FINANCIAL
ASSETS
– Premises and
leasehold
improvements
TOTAL ASSETS
RECURRING FAIR
VALUE
MEASUREMENTS
LIABILITIES CARRIED
AT FAIR VALUE
FINANCIAL LIABILITIES
– Interest rate swaps
included in other
financial liabilities
Foreign exchange
forwards and gross
settled currency
swaps, included in
other financial
liabilities
TOTAL LIABILITIES
RECURRING FAIR
VALUE
MEASUREMENTS
–
998
–
998
– 232,934
– 232,934
– 173,974
– 173,974
–
84,849
– 174,916
–
33,445
9,335
–
84,849
–
– 174,916
– 198,233
25,034
–
– 198,233
25,034
–
– 321,140
–
–
–
–
33,445
–
476
9,335
6,140
–
–
–
476
–
6,140
4,858
–
–
– 321,140
–
–
–
–
–
4,858
–
604
–
604
–
– 175,184 175,184
–
–
618
–
618
–
1,221
–
1,221
– 132,346 132,346
–
– 138,939 138,939
9,335 294,812 175,184 479,331
6,140 457,295 132,346 595,781
4,858 496,335 138,939 640,132
–
2,303
–
2,303
–
3,137
–
3,137
–
4,405
–
4,405
–
108
–
108
–
2,502
–
2,502
–
–
–
–
–
2,411
–
2,411
–
5,639
–
5,639
–
4,405
–
4,405
There were no transfers between levels 1 and 2 during the year ended 31 December 2015 (2014: none, 2013: none).
192
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39 Fair Value Disclosures continued
The description of valuation technique and description of inputs used in the fair value measurement for level 2 measurements:
In thousands of GEL
2015
2014
2013
Valuation technique
Inputs used
Fair value at 31 December
ASSETS AT FAIR VALUE
FINANCIAL ASSETS
Certificates of Deposits of NBG, Ministry of
Finance Treasury Bills, Government notes,
Corporate bonds
Foreign exchange forwards and gross settled
currency swaps, included in due from banks
TOTAL ASSETS RECURRING FAIR VALUE
Discounted cash flows
(“DCF”)
Government bonds yield
curve
294,208
456,677
495,114
604
618
1,221
Forward pricing using
present value calculations
Official exchange rate,
risk-free rate
MEASUREMENTS
294,812
457,295
496,335
LIABILITIES CARRIED AT FAIR VALUE
FINANCIAL LIABILITIES
Other financial liabilities
– Interest rate swaps included in other financial
liabilities
2,303
3,137
4,405
– Foreign exchange forwards included in other
financial liabilities
108
2,502
–
TOTAL RECURRING FAIR VALUE
MEASUREMENTS AT LEVEL 2
2,411
5,639
4,405
Swap model using present
value calculations
Forward pricing using
present value calculations
Observable yield curves
Official exchange rate,
risk-free rate
There were no changes in valuation technique for level 2 and level 3 recurring fair value measurements during the year ended
31 December 2015 (2014: none; 2013: none).
For description of the techniques and inputs used for Level 3 recurring fair value measurement of (as well as reconciliation of movements
in) premises refer to Note 15. The unobservable input to which the fair value estimate for premises is most sensitive is price per square
metre: the higher the price per square metre, the higher the fair value.
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
39 Fair Value Disclosures continued
(b) Assets and liabilities not measured at fair value but for which fair value is disclosed
Fair values analysed by level in the fair value hierarchy and carrying value of assets not measured at fair value are as follows:
In thousands of
GEL
FINANCIAL
ASSETS
Cash and cash
equivalents
Due from other
banks
Mandatory
cash balances
with the NBG
Loans and
advances to
customers:
– Corporate
loans
– Consumer
loans
– Mortgage
loans
– Small and
micro loans
– Micro
– Others
Bonds carried
at amortised
cost
Investments in
leases
Other financial
assets
NON-
FINANCIAL
ASSETS
Investment
properties, at
cost
31 December 2015
31 December 2014
31 December 2013
Level 1
Level 2
Level 3
Carrying
Value
Level 1
Level 2
Level 3
Carrying
Value
Level 1
Level 2
Level 3
Carrying
Value
720,347
11,042
–
–
–
–
720,347
532,118
11,042
33,704
–
–
–
–
532,118
390,465
33,704
1,708
–
–
–
–
390,465
1,708
–
471,490
–
471,490
–
336,075
–
336,075
–
295,332
–
295,332
–
–
–
–
–
–
–
–
–
–
–
– 1,504,360 1,392,054
–
–
–
–
–
870,285
831,588
906,240
892,139
616,803
493,125
241,733
613,122
475,309
240,674
350,167
–
372,092
80,018
75,760
63,713
63,713
–
–
–
–
105,972
57,600
–
–
–
–
–
–
–
–
–
–
–
– 1,221,155 1,140,503
–
–
–
–
–
–
–
–
–
–
780,259
744,290
729,013
707,979
533,527
264,303
168,231
528,631
266,091
169,002
–
–
50,907
50,907
43,239
43,239
79,057
76,216
–
–
–
–
–
–
–
–
–
–
– 1,172,503 1,049,668
–
–
–
–
–
–
–
–
607,940
571,730
519,180
491,136
397,229
193,784
103,896
388,131
196,395
104,652
–
–
35,613
35,613
43,828
43,828
–
86,480
83,383
TOTAL ASSETS
731,389
821,657 4,882,249 6,216,930
565,822
336,075 3,869,691 4,628,755
392,173
295,332 3,160,453 3,652,041
FINANCIAL
LIABILITIES
Due to credit
institutions
Customer
accounts
Debt securities
in issue
Other financial
liabilities
Subordinated
debt
TOTAL
– 1,113,666
– 1,113,574
–
749,285
–
749,285
–
565,806
–
565,806
– 2,372,794 1,812,575 4,177,931
– 1,857,089 1,483,891 3,322,428
– 1,690,812 1,206,300 2,886,883
–
–
–
21,714
37,024
284,985
–
–
–
21,714
37,024
283,648
–
–
–
20,423
35,707
188,015
–
–
–
20,423
35,707
188,015
–
–
–
4,474
20,445
168,274
–
–
–
4,474
20,445
168,274
LIABILITIES
– 3,830,183 1,812,575 5,633,891
– 2,850,519 1,483,891 4,315,858
– 2,449,811 1,206,300 3,645,882
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FINANCIAL STATEMENTS
39 Fair Value Disclosures continued
The fair values in level 2 and level 3 of fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair
value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted
at current interest rates for new instruments with similar credit risk and remaining maturity. The fair value of investment properties was
estimated using market comparatives (refer to Note 3).
Amounts due to credit institutions were discounted at the Group’s own incremental borrowing rate. Liabilities due on demand were
discounted from the first date that the amount could be required to be paid by the Group.
There were no changes in valuation technique for level 2 and level 3 measurements of assets and liabilities not measured at fair values
during the year ended 31 December 2015 (2014: none; 2013: none).
40 Presentation of Financial Instruments by Measurement Category
For the purposes of measurement, IAS 39, Financial Instruments: Recognition of Measurement, classifies financial assets into the following
categories: (a) loans and receivables; (b) available for sale financial assets; (c) financial assets held to maturity and (d) financial assets at
fair value through profit or loss (“FVTPL”). Financial assets at fair value through profit or loss have two subcategories: (i) assets designated
as such upon initial recognition, and (ii) those classified as held for trading. The following table provides a reconciliation of classes of
financial assets with these measurement categories as of 31 December 2015:
In thousands of GEL
ASSETS
Cash and cash equivalents
Due from other banks
Mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Bonds carried at amortised cost
Investments in leases
Other financial assets:
– Other financial receivables
TOTAL FINANCIAL ASSETS
NON-FINANCIAL ASSETS
TOTAL ASSETS
Loans and
receivables
Available for
sale assets
Finance
lease
receivables
Assets
designated
at FVTPL
Total
–
11,042
471,490
4,444,886
–
372,092
–
–
–
–
–
307,310
–
–
–
–
–
–
–
–
75,760
720,347
–
11,042
–
471,490
–
– 4,444,886
307,310
–
372,092
–
75,760
–
64,304
–
–
13
64,317
5,363,814
307,310
75,760
13 6,467,244
–
–
–
–
–
–
–
467,751
– 6,934,995
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2014:
In thousands of GEL
ASSETS
Cash and cash equivalents
Due from other banks
Mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Investments in leases
Other financial assets:
– Other financial receivables
TOTAL FINANCIAL ASSETS
NON-FINANCIAL ASSETS
TOTAL ASSETS
Loans and
receivables
Available for
sale assets
Finance
lease
receivables
Assets
designated
at FVTPL
Total
–
33,704
336,075
3,556,496
–
–
–
–
–
–
466,510
–
–
–
–
–
–
50,907
532,118
–
33,704
–
336,075
–
– 3,556,496
466,510
–
50,907
–
43,239
–
–
618
43,857
3,969,514
466,510
50,907
618 5,019,667
–
–
–
–
–
–
–
403,799
– 5,423,466
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FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
40 Presentation of Financial Instruments by Measurement Category continued
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2013:
In thousands of GEL
ASSETS
Cash and cash equivalents
Due from other banks
Mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Investments in leases
Other financial assets:
– Other financial receivables
TOTAL FINANCIAL ASSETS
NON-FINANCIAL ASSETS
TOTAL ASSETS
Loans and
receivables
Available for
sale assets
Finance
lease
receivables
Assets
designated
at FVTPL
Total
–
1,708
295,332
2,801,712
–
–
–
–
–
–
500,651
–
–
–
–
–
–
35,613
390,465
–
1,708
–
295,332
–
– 2,801,712
500,651
–
35,613
–
43,828
–
–
1,221
45,049
3,142,580
500,651
35,613
1,221 4,070,530
–
–
–
–
–
–
–
380,545
– 4,451,075
As at 31 December 2015, 2014 and 2013, all of the Group’s financial liabilities except for derivatives are carried at amortised cost.
Derivatives belong to the fair value through profit or loss measurement category.
41 Related Party Transactions
Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other
party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible
related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Parties that hold more than
6% of ownership stake in the Bank or have their representatives in the Supervisory Board are considered as Significant Shareholders, as
they are considered to have ability to significantly affect the Bank. Included in key management personnel are members of the Supervisory
Board, the Management Board and close members of the family.
At 31 December 2015, the outstanding balances with related parties were as follows:
In thousands of GEL
Gross amount of loans and advances to customers (contractual interest rate: 7.3 - 20%)
Impairment provisions for loans and advances to customers
Derivative financial liability
Due to credit institutions (contractual interest rate: 5.2 – 11.3%)
Customer accounts (contractual interest rate: 0 – 7.5%)
Subordinated debt (contractual interest rate: –12.6%)
Significant
shareholders
Note
Key
management
personnel
38
3,179
45
2,303
63,810
8,924
132,530
1,963
7
–
–
10,253
–
The income and expense items with related parties except from key management compensation for the year 2015 were as follows:
In thousands of GEL
Interest income
Interest expense
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses
Fee and commission income
Fee and commission expense
Administrative and other operating expenses (excluding staff costs)
Net loss on derivative financial instruments
Significant
shareholders
Note
Key
management
personnel
438
20,747
139
1,160
12
726
48
575
139
537
40
28
16
–
288
–
38
196
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
41 Related Party Transactions continued
Aggregate amounts of loans advanced to and repaid by related parties during 2015 were:
In thousands of GEL
Amounts advanced to related parties during the year
Amounts repaid by related parties during the year
At 31 December 2014, the outstanding balances with related parties were as follows:
In thousands of GEL
Gross amount of loans and advances to customers (contractual interest rate: 7.5 – 23%)
Impairment provisions for loans and advances to customers
Derivative financial liability
Due to credit institutions (contractual interest rate: 0 – 13%)
Customer accounts (contractual interest rate: 0 – 9.5%)
Subordinated debt (contractual interest rate: 9.2 – 12%)
BUSINESS REVIEW
STRATEGIC REPORT
GOVERNANCE
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FINANCIAL STATEMENTS
Significant
shareholders
Key
management
personnel
1,684
(5,486)
2,972
(2,492)
Note
Significant
shareholders
Key
management
personnel
38
5,383
190
3,137
63,542
5,925
102,859
1,315
9
–
–
7,302
–
The income and expense items with related parties except from key management compensation for the year 2014 were as follows:
In thousands of GEL
Interest income
Interest expense
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses
Fee and commission income
Fee and commission expense
Administrative and other operating expenses (excluding staff costs)
Net loss on derivative financial instruments
Aggregate amounts of loans advanced to and repaid by related parties during 2014 were:
In thousands of GEL
Amounts advanced to related parties during the year
Amounts repaid by related parties during the year
At 31 December 2013, the outstanding balances with related parties were as follows:
In thousands of GEL
Gross amount of loans and advances to customers (contractual interest rate: 13 - 26%)
Impairment provisions for loans and advances to customers
Derivative financial liability
Due to credit institutions (contractual interest rate: 0 – 13%)
Customer accounts (contractual interest rate: 0 – 13%)
Subordinated debt (contractual interest rate: 5 – 11%)
Note
Significant
shareholders
Key
management
personnel
551
15,408
56
331
9
926
70
(683)
114
350
26
51
10
–
164
–
38
Significant
shareholders
Key
management
personnel
2,074
(7,501)
3,042
(3,204)
Note
Significant
shareholders
Key
management
personnel
38
9,928
152
4,405
67,894
5,421
95,458
1,312
15
–
–
4,598
–
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STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
41 Related Party Transactions continued
The income and expense items with related parties except from key management compensation for the year 2013 were as follows:
In thousands of GEL
Interest income
Interest expense
Gains less losses from trading in foreign currencies
Foreign exchange translation (losses less gains) / gains less losses
Fee and commission income
Fee and commission expense
Administrative and other operating expenses (excluding staff costs)
Net gain on derivative financial instruments
At 31 December 2013, other rights and obligations with related parties were as follows:
In thousands of GEL
Guarantees issued by the Group at the year end
Aggregate amounts of loans advanced to and repaid by related parties during 2013 were:
In thousands of GEL
Amounts advanced to related parties during the year
Amounts repaid by related parties during the year
Note
Significant
shareholders
Key
management
personnel
1,527
14,596
67
(227)
10
993
67
613
38
159
352
9
50
7
–
205
–
Significant
shareholders
Key
management
personnel
Other related
parties
–
–
5,401
Significant
shareholders
Key
management
personnel
4,246
(8,756)
1,751
(2,218)
Compensation of the key management personnel and Supervisory Board members is presented below:
In thousands of GEL
Salaries and bonuses
Cash-settled bonuses related to share-based compensation
Equity-settled share-based compensation
Total
2015
2014
2013
Expense
9,939
4,748
6,864
21,551
Accrued
liability
867
5,254
–
6,121
Expense
10,096
1,463
2,192
13,751
Accrued
liability
3,929
2,012
–
5,941
Expense
8,783
1,692
1,671
12,146
Accrued
liability
3,798
1,692
–
5,490
198
TBC BANK ANNUAL REPORT AND ACCOUNTS 2015
ADDITIONAL INFORMATION
Shareholders’ Meetings
According to the Charter, regular General Meetings of Shareholders
must be convened annually not later than three months from the
day of preparation of the annual balance sheet. Extraordinary
General Meetings of Shareholders must be convened within 20 days
from submission of the written request of the Management Board,
Supervisory Board or shareholders holding at least 5% of the
Shares of TBC Bank. Shareholders may request the convening of a
General Meeting of Shareholders only if at least one month has
elapsed since the date of the prior General Meeting of
Shareholders. If shareholder(s) holding at least 5% of the shares
request that an Extraordinary General Meeting of Shareholders is
convened and the only item on the agenda is the dismissal of
Management Board member(s), the Supervisory Board must call
the meeting within 20 days, otherwise the shareholders themselves
may convene the meeting.
The time, place and the agenda of the General Meeting of
Shareholders shall be published in printed media at least 20 days
prior to the date of such General Meeting of Shareholders.
Shareholders holding at least 1% of the shares should also be
notified about the General Meeting of Shareholders via registered
mail. The Supervisory Board shall set a reporting date which
cannot be earlier than 45 days before the scheduled General
Meeting of Shareholders. Only those shareholders who were
shareholders of record as of the reporting date set by the
Supervisory Board may participate in the General Meeting of
Shareholders.
Any shareholder holding an ordinary share may attend and vote at
the meeting personally or through proxy, and the quorum of the
General Meeting of Shareholders is satisfied if the holders of more
than 50% of all votes are present or represented at the General
Meeting of Shareholders. If the General Meeting of Shareholders is
not quorate, the Supervisory Board must convene a new General
Meeting of Shareholders with the same agenda, which will be
quorate if the holders of more than 25% of all votes are present or
represented. If the General Meeting of Shareholders convened for
the second time is not quorate, the Supervisory Board must
convene a further General Meeting of Shareholders with the same
agenda, which will be quorate irrespective of the number of
shareholders present or represented at the General Meeting of
Shareholders.
General Meetings of Shareholders are presided over by the
Chairman of the Supervisory Board or, in his absence, by the Deputy
Chairman of the Supervisory Board. In the event that the latter is
also absent, the meeting is presided over by one of the other
Directors.
The Company's 2016 Annual General Meeting will be held on 25
April 2016 at 10.00 am (Tbilisi time) at 7 Marjanishvili Street, Tbilisi,
Georgia.
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All related documentation is available to view on the Company's IR
website. A copy of the Notice of Meeting has been submitted to the
National Storage Mechanism at www.morningstar.co.uk/uk/nsm.
The Supervisory Board of the Company also announced its intention
to recommend a dividend for the year ended 31 December 2015 in
the amount of GEL 1.09 (gross of taxes) per share. This annual
dividend is subject to approval by the shareholders at the
Company's Annual General Meeting.
If the annual dividend is approved at the Annual General Meeting,
the Company envisions the following timetable:
• Dividend Record Date: 3 May 2016
• Dividend Payment Date: 11 May 2016
Dialogue with Shareholders
Per usual practice, the Chairman and the Deputy Chairman of the
Supervisory Board discuss the Bank’s governance and strategy
with major shareholders and ensure that the views of shareholders
are communicated to the Board as a whole. Among other things,
these meetings include the Chairman’s participation in the non-deal
roadshows post-listing. Non-executive Directors together with the
Executive Directors have the opportunity to attend scheduled
meetings with the major shareholders to gain a balanced
understanding of their issues and concerns.
Dividend Policy
On 8 April 2009 the Management Board adopted, and the
Supervisory Board approved, the Capital Management and Dividend
Planning Policy of TBC Bank in order to ensure current capital
adequacy, to plan for future capital needs and project efficient
dividend payouts. The general objective of the Dividend Policy is to
manage the capital position with the regular dividend payouts in the
amount that will not only ensure compliance with internal
regulations but also ensure capital adequacy for TBC's future
expansion.
On 26 February 2014, the Supervisory Board approved a resolution,
beginning in 2015, to annually distribute 25% of TBC's consolidated
net income for the previous year as a dividend to shareholders,
provided that the financial standing of TBC Bank allows such
distribution.
TBC's dividend strategy is based on two major priorities: (i)
maintaining adequate capital for TBC Bank; and (ii) ensuring
consistency of dividend payment to shareholders in sufficient
amounts. Excessive dividends will not be paid out if it jeopardises
TBC's current capital adequacy or future growth opportunities.
Dividend payments are made only when: (a) the dividends are in
compliance with TBC Bank's approved capital plan; (b) the dividend
amounts are in accordance with all regulatory requirements and
internal regulations of TBC Bank, thus not putting in jeopardy future
expansion; and (c) the dividend payments do not adversely impact
TBC's capital structure and related regulatory capital ratio
requirements.
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STRATEGIC REPORT
GOVERNANCE
RISK MANAGEMENT
FINANCIAL STATEMENTS
Disclaimer
By reading this Report, you acknowledge and agree to be bound by
the following:
None of the future projections, expectations, estimates or
prospects in this Report 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 have been prepared are
correct or exhaustive or, in the case of the assumptions, fully stated
in the Report. These forward-looking statements speak only as at
the date as of which they are made, and the Bank expressly
disclaims any obligation or undertaking to disseminate any updates
or revisions to any forward-looking statements contained in the
Report to reflect actual results, changes in assumptions or changes
in factors affecting these statements.
The information and opinions contained in this Report are provided
as at the date of the Report, are based on general information
gathered at such date and are subject to change without notice. The
Bank relies on information obtained from sources believed to be
reliable but does not guarantee its accuracy or completeness.
Neither the Bank, nor any of its respective agents, employees or
advisers intends or has any duty or obligation to provide the
recipient with access to any additional information, to amend,
update or revise this Report or any information contained in the
Report.
This Report is provided for information purposes only and does not
constitute an offer to sell or the solicitation of an offer to buy
securities. No part of this Report, nor the fact of its publication,
should form the basis of or be relied on in connection with any
contract or commitment or investment decision.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2015