#1 GEORGIAN BANK
TBC Bank Group PLC (TBC PLC or the Company) is
the UK-incorporated parent company of JSC TBC Bank
(the Bank) and its subsidiaries (together TBC Bank
or the Group), which is the largest banking group in
Georgia and has a clear ambition to be the best digital
financial services company in the region1.
The year 2016 proved to be an extremely successful one for
TBC Bank. We turned our vision of becoming the largest bank
in Georgia into reality, following our own organic growth and the
successful acquisition of Bank Republic. We obtained a premium
listing on the London Stock Exchange (LSE), which has
significantly improved our share liquidity and helped to expand our
investor base. We fulfilled our pledge to innovate, expanding our
multichannel platform to pursue growth and efficiency by rolling
out more digital services to meet our clients’ needs. We also
continued to invest in our people and communities, helping to
build a better future with Georgia’s vibrant young generation.
TBC Bank is Georgia’s number one banking group2
by most key metrics, including:
#1 Total banking assets
#1 Total customer loans and deposits
#1 Loans and deposits to individuals
#1 Loans and deposits to legal entities
Our four core differentiators are:
#1 Focus on core banking activities
#1 Strong brand
#1 Superior customer experience
#1 Leading multichannel capabilities
We are also proud of our:
#1 Long-term, successful partnerships with businesses
#1 Distinguished corporate social responsibility
1 Region in this context comprises Georgia, Azerbaijan and Armenia
2 Based on data published by the National Bank of Georgia as of 31 December 2016 and
including Bank Republic’s market shares
CONTENTS
Strategic Report
2016 highlights
Overview
2
6 Why Georgia?
8 Why TBC Bank?
12 Chairman’s statement
14 Chief Executive’s Q&A
Strategy and performance
16 Market overview
20 Business model
22 Strategy
26 Strategy in action
34 Divisional reviews
42 Principal risks and uncertainties
46 Risk management
56 Our people
60 Corporate social responsibility
66 Financial review
Governance
88 Directors’ governance statement
93 Directors’ report
96 Board biographies
100 The Bank’s Management Board
biographies
104 Corporate governance and nomination
committee report
106 Risk, ethics and compliance committee
report
108 Directors’ remuneration report
124 Audit committee report
Financial statements
133 Independent auditors’ report
139 Separate statement of financial position
140 Separate statement of changes in equity
141 Separate statement of cash flows
142 Consolidated statement of financial
position
143 Consolidated statement of profit or loss
and other comprehensive income
144 Consolidated statement of changes in
equity
145 Consolidated statement of cash flows
146 Notes to the consolidated financial
statements
Additional information
224 Glossary
225 Abbreviations
For more information visit our
website www.tbcbankgroup.com
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 1
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
2016 HIGHLIGHTS
#1 GEORGIAN BANK 2016
FINANCIAL
HIGHLIGHTS
IN GEL
Net profit
Return on average equity
less NCI
Return on average assets
298,3m
FY2015: 218,7m
Change +36.4%
22.4%
FY2015: 20.1%
Change +2.3pp
3.9%
FY2015: 3.4%
Change +0.5pp
Net interest margin
7.8%
FY2015: 7.8%
Change 0.0pp
Net F&C income share
in total income
13.3%
FY2015: 12.5%
Change +0.7pp
Cost to income1
45.8%
FY2015: 43.9%
Change +1.9pp
Total assets
Gross loans
Deposits
10,769m
7,359m
FY2015: 6,935m
Change +55.3%
FY2015: 4,639m
Change +58.6%
6,455m
FY2015: 4,178m
Change +54.5%
Non-performing loans
Non-performing loan coverage
Cost of risk
3.5%
FY2015: 4.8%
Change -1.3pp
88.4%
FY2015: 87.4%
Change +0.9pp
1.0%
FY2015: 1.7%
Change -0.7pp
Net loans to deposits +
IFI funding
Basel II/III
Tier 1 capital ratio
93.4%
FY2015: 94.8%
Change -1.4pp
10.4%
FY2015: 12.8%
Change -2.4pp
Basel II/III
Total capital ratio
14.2%
FY2015: 16.0%
Change -1.8pp
1 42.9% without one-off effects, which are discussed in details on page 67
2 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
OPERATIONAL
HIGHLIGHTS
Customers
Employees
c.2.2m
6,292
(c.1.6m in 2015)
(5,262 in 2015)
Branches
167
(128 in 2015)
ATMs
531
(358 in 2015)
POS terminals
Cash-in terminals
13,220
2,500
(8,800 in 2015)
(2,591 in 2015)
Offloading ratio
84%
of all retail transactions were
conducted through remote
channels (79% in 2015)
Internet and mobile banking
penetration ratio
Mobile banking
penetration ratio
37%
(32% in 2015)
24%
(15% in 2015)
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 3
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
HIGHLIGHTS continued
RETAIL
BANKING1
CORPORATE
BANKING2
TBC Bank has been a pioneer in the corporate
banking segment since its foundation and has
well established business relationships with
many large businesses in Georgia. Today,
we enjoy the leading position and a strong
presence in all major sectors of the economy.
Our dedicated coverage, diversified product
offering, leading trade finance capabilities
and strong expertise in syndicated deals and
energy efficiency programmes make us the
best banking partner for major corporations
in the country.
TBC Bank is the undisputed leader in the
retail banking segment by deposits and loans
in Georgia. We occupy strong positions among
both mass retail and affluent customers
due to our superior customer experience,
longstanding relationships with clients,
best-in-class remote banking platform and
advanced customer relationship management
and analytical capabilities.
We offer the most innovative products and
services on the market and are successfully
moving transactions and sales to remote
channels: in 2016, 84% of all retail transactions
were remote and took place outside branches.
In addition, of all products available through
our remote channels, the share of branch sales
decreased from 81% in December 2014 to 45%
by the end of 2016, as they were diverted to call
centre and digital channels.
c.1.7m
customers
c.2,500
customers
GEL3,763m
GEL2,060m
in loans
51% of total loans
in loans
28% of total loans
GEL3,666m
in deposits
57% of total deposits
GEL1,796m
in deposits
28% of total deposits
1 Retail segment comprises individuals not included
in other segments
4 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2 Corporate segment comprises business customers that
have annual revenues of GEL8 million or more or have
been granted loans equivalent to US$1.5 million or
more. Some other business customers may also be
included on a discretionary basis.
SME3
MICRO4
TBC Bank occupies the leading position in the
small and medium-sized enterprise (SME)
segment, which offers strong long-term
growth potential. Alongside market-leading
primary products and services, we offer
our clients valuable non-financial services
through the Business Support Programme,
which is unique in Georgia. In 2016 alone,
we provided training to representatives of
around 3,000 companies. As a result, 56%
of companies established in Georgia in 2016
opened accounts with us, driving our share
of the total number of firms registered in the
country to 37%.
TBC Bank is the market leader in the
microfinance segment in Georgia, which
has strong growth potential. We have built a
specialised branch network and established
strong coverage of rural areas, which
financial institutions have traditionally served
less than large towns and cities. We have
introduced multiple “touch points”, places
where our customers can be served,
including TBC Bank areas in small shops,
post offices and pharmacies, as well as
appointed village consuls and local sales
agents. We are also offering agricultural
management training to rural clients; in 2016,
we trained around 1,500 people.
c.90,000
customers
c.447,000
customers
GEL858m
in loans
12% in total loans
GEL888m
in deposits
14% in total deposits
GEL678m
in loans
9% of total loans
GEL105m
in deposits
2% of total deposits
3 SME segment comprises business customers that are
not in the corporate or micro segments. Some other
business customers may also be included on a
discretionary basis
4 Microsegment comprises business customers with loans
below US$70,000, as well as pawnshops, credit cards
and cash cover loans granted in TBC Bank Constanta
branches, and deposits up to US$20,000 in urban areas
and up to US$100,000 in rural areas of customers of
TBC Bank Constanta branches. Some other business
customers may also be included on a discretionary basis
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 5
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
WHY GEORGIA?
THE LEADING
ECONOMY IN
CAUCASUS REGION
Growth story
Around 99.6% of TBC Bank’s operations take place in Georgia,
a growing economy with dynamic transport, service and tourism
industries that takes advantage of the country’s central geographic
location, educated population, natural beauty and renowned
hospitality. For more than a decade, successive governments have
pursued market reforms and turned Georgia into a recognised
regional leader in terms of transparency and ease of doing business.
Georgia continues to capitalise on its free trade agreement with
the European Union (EU), and the step-by-step alignment of the
regulatory environment with the EU standards permits a broader
range of its products to enter the EU on favourable terms. In addition,
the citizens of Georgia will be granted visa-free travel to Schengen
countries starting from 28 March 2017, this is another major
milestone in EU-Georgia relations, which should further strengthen
EU-Georgia economic ties.
Georgia’s real GDP expanded by 2.7% in 2016. Growth is expected to
accelerate: the International Monetary Fund (IMF) forecasts 4.0%
growth for 2017, one of the highest in Central Asia and Eastern
Europe. Amid slowdowns in neighbouring countries, the economy
has proved resilient. Expansion in manufacturing, construction, real
estate and hotels and restaurants were drivers of economic growth
last year, overcoming contraction in the transportation sector caused
by lower trade volumes in the wider region.
The outlook for 2017 is positive, with large infrastructure projects
planned and a free trade agreement with China coming into force in
the second half of the year, further diversifying Georgia’s trade flows
and reducing exposure to regional economic volatility. Following the
democratic parliamentary elections in late 2016, the political outlook
appears stable and the government’s liberal reform agenda remains
in place. The abolition of tax on reinvested profit, which comes into
force at the start of 2017, is expected to further boost Georgia’s profile
as an attractive investment destination.
6 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
GEORGIA
TURKEY
AZERBAIJAN
Europe
THE LEADING
ECONOMY IN
CAUCASUS REGION
Georgia is a vibrant and investor-friendly
economy with a strategic location at the gateway
of trade between Europe and Asia.
Key facts
Economy
Population1: 3.7 million
GDP (2016)2: US$14.3 billion
GDP per capita at PPP3 (2016): US$10,100
Average real GDP growth (2011–2016)4: 4.5%
Currency
Currency: lari (GEL)
Exchange rate (at 31 December 2016): GEL2.65 = US$1
KAZAKHSTAN
Recent achievements
4th friendliest tax regime globally5
16th globally for ease of doing business6
8th globally for starting a business7
13th in the Index of Economic Freedom8
TURKMENISTAN
Asia
1 Source: Geostat
2 Source: Geostat
3 Purchasing power parity; source: IMF World Economic Outlook,
October 2016
4 Source: Geostat
5 22nd globally for tax payments; source: World Bank Doing
Business Report 2017
6 Source: World Bank Doing Business Report 2017
7 Source: World Bank Doing Business Report 2017
8 Source: The Heritage Foundation and The Wall Street Journal
9 Hotel services, restaurant services, railway transportation services,
other transportation services including water transports, air
transport services, travel agency and tour operator services
Key competitive advantages
Transport and logistics hub
• There are plans to build a deep-sea port in Anaklia, on
Georgia’s Black Sea coast, along with a free industrial
zone, which will vastly improve the country’s transit and
logistical potential. The project envisages investment
of US$2.5 billion. In addition, to develop railway and
transportation links to the new port, the government
has pledged GEL100 million toward investments.
Regional service hub
• The Georgian financial sector stands out in the region,
with its robust profitability, high asset quality, strong
capital and liquidity levels and transparency. TBC PLC
is one of only two banks from the South Caucasus that
are listed on the LSE and both are Georgian.
• The pharmaceutical and healthcare sector has rapidly
transformed into an internationally competitive industry,
with world-class professionals and efficient business
models.
Attractive tourism destination
• Tourism is one of the fastest growing industries in
Georgia, and related sectors9 accounted for 7.6% of GDP
in 2016.
• Visitor numbers have soared. In 2016, around 6.4 million
travellers visited Georgia, nearly twice the country’s
population, while solid growth continued in first two
months of 2017, when the number of visitors went up
by 10.5% YoY.
In 2016, FDI in the hotel and restaurant segment stood
at US$111 million.
•
Abundant clean energy generation potential
• Georgia’s rich hydropower resources offer significant
potential for expanding energy generation sector.
Increasing electricity consumption and the potential
to export power indicate that the country’s energy
sector represents an attractive, long-term investment
opportunity.
• Several large projects are in the pipeline. These include
the Nenskra hydropower plant, with projected
investment of US$1 billion, to be financed by Korea’s
K-water and other domestic and international investors.
It is scheduled to begin generating electricity in 2019 and
reach full capacity by 2021.
Go to page 16 for more information.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 7
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 7
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
WHY TBC BANK?
#1 IN GEORGIA
TRACK RECORD OF SUCCESS
Over nearly a quarter century, TBC Bank
has transformed itself, starting out
as a vision of its founders and with US$500
in capital to become Georgia’s leading
universal banking group with a strong track
record of growth and profitability. Today,
it is recognised for its superior customer
experience, best-in-class multichannel
capabilities with a focus on digital channels,
and strong brand.
In June 2014, TBC Bank listed global depositary receipts (GDRs) of the Bank
on the main market of the London Stock Exchange (LSE), which was then
the largest international off-index initial public offering (IPO) from the EMEA
region. In 2016, TBC Bank moved to the LSE’s premium segment, expanding
the investor base and boosting share liquidity significantly.
Initially serving corporate customers, TBC Bank launched its retail business
line in 2006 and is the clear market leader in individual deposits and
loans to individuals today. In 2011, we acquired 80% of Bank Constanta,
completing the merger in 2015, making us the dominant name in
microfinance. In 2016, we acquired Bank Republic, a large and profitable
Georgian bank, which made us the undisputed market leader by most key
metrics. Entering 2017, we believe that we have fulfilled the main pledges
made during the IPO: to secure market leadership in key segments and
enhance our multichannel platform.
8 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
1992
TBC Bank is established with founding
capital of just US$500 and focuses on
the corporate segment
1998
TBC Bank enters the export/import
financing operations segment
2000
International financial institutions
IFC and DEG become shareholders in
TBC Bank, which also becomes the
first Georgian company to obtain an
international credit rating
2001
TBC Bank launches its first internet
banking services
2004
TBC Bank enters the non-banking
segment, establishing TBC Leasing
2006
TBC Bank develops a retail banking
offering, and the EBRD acquires a
10% stake in TBC Leasing
2007
Total assets exceed US$1 billion
2008
TBC Bank acquires 75% of TBC
Kredit, a non-banking credit
institution in Azerbaijan
2016
TBC Bank moves to the LSE’s
premium segment via listing the
shares of TBC PLC and acquires 100%
of Bank Republic, making it Georgia’s
number one banking group according
to most key metrics. TBC Bank also
acquires 100% of Kopenbur, an
insurance company that specialises
in retail products, to boost its
consumer offering
2015
The merger with Bank Constanta is
completed, giving TBC Bank clear
leadership in the rapidly growing
microfinance segment
2014
TBC Bank successfully conducts an
IPO, listing GDRs of the Bank on the
main market of the LSE
2013
TBC Bank launches the SME
Business Support Programme,
with support from the IFC and ADB
2012
New and award-winning
multichannel distribution systems
are unveiled
2011
TBC Bank acquires 80% of Bank
Constanta, a specialist in
microfinance, and establishes
a representative office in Israel,
TBC Invest, to act as an intermediary
with potential future clients
2009
The shareholder base expands,
as the EBRD, FMO, JP Morgan
and Ashmore acquire stakes in
TBC Bank and the IFC and DEG
contribute additional capital
Key facts
Awards
Market position
— The leader in the Georgian banking market
— Number one bank by most key metrics,
following the successful acquisition of Bank
Republic, including total banking assets,
total loans and deposits1
• The Banker – Bank of the Year in Georgia
(2002–2005, 2010, 2014 and 2016)
• Global Finance – Best Bank in Georgia
(2004, 2006, 2007 and 2012–2016)
• Global Finance – Best FX Provider
(2004–2006 and 2013–2016)
— Named “Best Bank in Georgia” for 13 of the
• EMEA Finance – Best Bank in Georgia
last 15 years (26 awards in total)
(2011–2015)
Customer base
— Strong operations across all major market
segments in Georgia
— Around 2.2 million customers in the retail,
SME, microfinance and corporate segments
Distribution
— Around 6,300 employees across the entire
distribution network, which featured 167
branches, 531 ATMs, 13,220 POS terminals
and 2,500 cash-in terminals at the end of 2016,
as well as a call centre and internet and mobile
banking applications.
Operations
— 99.6% of assets concentrated in Georgia
— The Bank has small international subsidiaries
in Azerbaijan (TBC Kredit) and in Israel (TBC
Invest). These operations represented 0.4%
of total consolidated assets of the Group as of
31 December 2016.
Go to page 39 for more information
• Euromoney – Best Bank in Georgia
(2011–2012 and 2014–2016)
• Global Finance – Best Consumer Internet
Bank in Georgia (2012–2016)
• Global Finance – Central and Eastern
Europe sub-category awards (2012–2016)
• Global Finance – Best Corporate Internet
Bank in Georgia (2013–2016)
• EBRD – Deal of the Year (2014)
• Best Project Finance Deals in Central and
Eastern Europe – Best Water Deal and Best
Infrastructure Development Deal (2014)
• The Banker and Private Wealth
Management Magazine – Best Private
Bank in Georgia (2014–2016)
• Global Finance – Best Private Bank in
Georgia (2017)
Credit ratings
• Fitch – BB-/stable (foreign-currency
long-term issuer default rating), B
(foreign-currency short-term issuer
default rating) as of 18 May 2016
• Moody’s – B1/not prime (foreign-
currency bank deposits), Ba3/not prime
(domestic-currency bank deposits) as
of 27 October 2016
MARKET SHARES1
Total
assets
Total
loans
Total
deposits
Loans to
individuals
36.7%
38.9%
37.8%
44.2%
Loans to legal
entities
33.6%
Deposits to
individuals
40.8%
Deposits to
legal entities
34.2%
#1
#1
#1
#1
#1
#1
#1
1 Based on data published by the National Bank of Georgia as of 31 December 2016 and including Bank Republic’s
market shares
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 9
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
WHY TBC BANK? continued
We continue to harness our strong multichannel
platform and digital presence to reinforce our
leadership in all key banking segments.
Leadership
With 2.2 million customers, TBC Bank is
Georgia’s number one universal bank by
most key metrics, following the successful
acquisition of Bank Republic. Having
achieved our long-term strategic vision of
becoming Georgia’s largest commercial
bank, entering 2017, we are now committed
to being the best digital financial services
company in the region. We are seeking to
transform banking in Georgia and in the
region. Our objective is to make the banking
sector in Georgia digital, moving into
a new era by offering next-generation
banking services.
Focus on core banking activities
TBC Bank remains focused on core banking
activities in Georgia: banking and leasing
activities account for 99.6% of our total
assets. This pure-play business model
clearly differentiates us in the Georgian
market and allows us to take advantage of
our key capabilities and grow profitably in
a favourable environment.
Exemplary multichannel capabilities
Digital capability represents a key and
growing focus of our multichannel
distribution platform, which consists of our
branches, call centre, payment terminals,
ATMs, internet and mobile banking. As a
result of our long-term focus on alternative
channels, 84% of all retail transactions were
remote in 2016, while the remaining 16%
were conducted in branches.
Certainly, branches are and will remain
an indispensable part of our customer
proposition, as will our specialist offices for
affluent clients. Reflecting this priority, we
launched a new branch design concept in 2016,
developed with international strategic design
consulting firm Allen International. The new
design reflects our brand values – openness
and transparency. While our branches remain
crucial for customer engagement regarding
complex banking products, clients no longer
need to spend time going to a branch to access
the vast majority of our services, such as
opening an account, making a transaction
or paying a bill.
In 2016 we significantly increased the
number of transactions carried out via
internet and mobile banking, building upon
our undisputed market leadership in the
digital segment. In addition, the mobile
banking penetration jumped from 15% in
December 2015 to 24% in December 2016.
We continue to differentiate ourselves
through our user-friendly interface and the
quality of our internet and mobile banking
products, recognised by our 4.9-star rating in
the Google Play store. Our digital channels
have also become the key conduits for selling,
cross-selling and up-selling new products.
Superior customer experience
Present in the market since 1992, TBC Bank
values its longstanding relationships with
customers in every banking segment. As part
of our multichannel approach, we seek to
deliver world-class customer service in our
branches, online or through our call centre.
Whether providing ever more user-friendly
apps for retail customers or free training
in crucial business skills to our SME and
microfinance customers, we use innovation
to stand out from rivals. We are proud to be
the number one bank in Georgia in terms of
customer experience, as demonstrated by the
highest customer satisfaction scores based
on various surveys conducted by external
research agencies, and our aim is to position
ourselves as the number one partner bank
in the minds of Georgian people.
INTERNET AND MOBILE BANKING PENETRATION (%)
SALES CONDUCTED IN DIFFERENT CHANNELS FOR
PRODUCTS OFFERED THROUGH REMOTE CHANNELS (%)
40
35
30
25
20
15
10
32
30
15
32
28
17
34
30
19
34
29
20
37
32
24
23
21
11
26
24
12
Jun 15
Sep 15
Dec 15
Mar 16
Jun 16
Sep 16
Dec 16
100
80
60
40
20
0
81
77
51
28
21
46
32
23
45
29
26
12
11
Jun 15
Dec 15
Jun 16
Dec 16
10
8
Dec 14
IB&MB penetration ratio
IB Penetration Ratio
MB Penetration Ratio
Branches
Call centre
Digital
10 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
In 2016, we launched an initiative to compare
our customer experience to that of not
only other banks, but also other large
service providers in the country, including
food retailers, mobile operators and
pharmaceutical companies. This will enable
us to challenge ourselves more and think
“out of the box”. The recent research
indicates that we have the top net promoter
score (NPS)1 across all major industries in
Georgia, which is a tremendous result.
Strong brand
Thanks to more than two decades of working
with customers and investing in communities,
TBC Bank is one of the best-known and most
trusted brands in Georgia. We have made
our name through providing a high-quality
customer experience, establishing a strong
corporate social responsibility (CSR)
reputation, developing best-in-class
multichannel capabilities, creating
longstanding customer relationships and
conducting innovative marketing campaigns.
Our brand is recognised internationally as
well, having won many industry awards,
including numerous “Best Bank in Georgia”
awards from Global Finance, EMEA Finance,
Euromoney and the Banker magazines.
1 Based on independent survey conducted by IPM
research in December 2016
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 11
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 11
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CHAIRMAN’S STATEMENT
TBC Bank reached the end of 2016 having had one of the
strongest years in its history so far. In 2017, we will maintain
our focus on delivering on our stated strategy and objectives.
Our goal for this coming year is to further improve what we do
best, make the most of the current opportunities, and establish
ourselves as the best digital financial services company in
the region1.
the affluent segment. The acquisition is
value-accretive even in the short term and
there are substantial cost synergies to be
realised after the merger.
In operational terms, I am also pleased
to be able to report a strong set of financial
results. In 2016, TBC Bank earned a record
GEL298.3 million in net profit, with a ROAE
of 22.4% and ROAA of 3.9%. We outperformed
the banking sector in terms of business
growth, while maintaining solid profitability
and strong portfolio quality.
Macro outlook and recent
government initiatives
In October 2016, we witnessed another
transparent and exemplary democratic
parliamentary election process, which
resulted in the ruling party remaining in
power, thus ensuring the continuity of ongoing
reforms. During the year, the government
implemented a number of initiatives
to enhance economic growth, the most
important being a major corporate tax reform.
Beginning from 2017, reinvested profit will
become tax-free for all companies except
for financial services companies, which will
benefit from 2019.
Despite continued challenges in the region,
GDP grew by 2.7% in 2016, supported by the
construction, hotel and restaurant, and real
estate sectors, while a slowdown in regional
trade volumes resulted in some contraction
in the transportation sector. Growth in
remittances and exports turned positive
from the second half of 2016, following
two consecutive years of decline. In 2016,
Georgia finalised discussions on a free trade
agreement with China, which is expected to
come into effect from the second half of 2017.
This will further support the growth and
diversification of Georgia’s export portfolio.
Mamuka Khazaradze
Chairman
Review of 2016
Dear Shareholders,
It is my pleasure to present our 2016
annual report.
TBC Bank had another remarkable year in
2016. One of the year’s major highlights was
the successful listing of TBC PLC’s shares on
the premium segment of the London Stock
Exchange, which will continue to ensure
world-class standards of reporting and
corporate governance. In addition, the move
has helped to significantly improve the
liquidity in our shares, expand our investor
base and gain inclusion into the FTSE
All-Share Index. We firmly believe that the
listing will prove to be a major catalyst for
generating additional shareholder returns.
22.4%
Return on average equity
GEL298,3m
Net profit
Another major milestone in the year was the
completion of the acquisition of JSC Bank
Republic, Georgia’s number-three bank
in terms of total loans. The acquisition
confirmed TBC Bank as the market leader in
Georgia by most key metrics, including total
banking assets, total loans and total deposits;
it also strengthened TBC Bank’s positions in
all segments, especially in retail banking and
The Georgian banking sector remains a beacon
of the national economy. It is conservatively
and prudently regulated by the National Bank
of Georgia and, as a result, displays strong
capital and liquidity levels, as well as sound
asset quality, high profitability and sustainable
growth. Moreover, TBC PLC is one of two
major Georgian banks listed on the premium
segment of the London Stock Exchange.
12 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
TBC Bank’s strategy
Having achieved our goal of becoming
the largest commercial banking group
in Georgia, our strategy henceforth is
straightforward: to be the best digital
financial services company in the region1.
TBC Bank is one of the best-known and most
trusted brands in Georgia, largely due to its
strong reputation and exceptional track record
in corporate social responsibility. We are also
proud to be judged to have the best customer
experience, not only in the banking sector,
but also across all major service industries
in Georgia based on an independent research.
In 2017, we will continue to further enhance
our customer experience in order to
consistently provide a unique and pleasurable
banking experience for our clients.
Another major differentiator for TBC Bank
is our advanced multi-channel distribution
platform and internet and mobile banking
offerings that are considered the best in
the region. We are following the global
trend of mobile-first banking as we seek
to digitalise banking in Georgia by offering
next-generation banking services to our
customers. We are constantly working on
fine-tuning our digital offering, focusing on
creating a superior user experience through
simple and intuitive designs that help to
increase the value and comfort of TBC
Bank’s digital services.
During the year, we enhanced our product
offering by acquiring JSC Insurance
Company Kopenbur, which was mainly
focused on the retail segment in Georgia,
with particular strength in motor insurance.
After the acquisition, Kopenbur will become
TBC Bank’s main bancassurance partner. Its
product portfolio will include motor, travel,
personal accident, credit life, individual and
group life, business property and liability
insurance services.
Corporate governance and
recent changes
I am proud to chair one of the most
experienced Boards in the region1. It consists
of nine members in total: five independent
non-executive Directors, two founders and
two executive members represented by
the CEO and CFO. I would like to highlight
changes to the Board and Supervisory Board
composition that happened during the year.
Originally appointed as a representative of
DEG, Irina Schmidt’s term as a non-executive
Director of the Supervisory Board expired
in September 2016. We would like to thank
Irina for her services and wish her success
in her future endeavours. At the same time,
we welcomed Stephan Wilcke as the new
independent non-executive director of the
Board. Stephan has wide-ranging experience
in the financial services industry, previously
serving as the executive chairman of
One Savings Bank PLC during the bank’s
successful IPO on the London Stock
Exchange. His experience will be a very
valuable asset to TBC Bank.
We consider our Board to be one of the core
strengths of TBC Bank. I am impressed by
the dedication and contributions that my
colleagues bring to their respective roles.
All independent Directors serve on three or
more committees and are heavily involved in
strategic planning. I look forward to continuing
to lead such an enthusiastic and professional
team as we continue to grow in 2017.
Culture of giving back
We are proud to have one of the best-
developed corporate social responsibility
strategies in Georgia. We firmly believe
that it is our responsibility to support the
community, the environment and our wider
stakeholders among which we operate.
We work hard to identify the most effective
means of giving back to our community
through innovative projects that benefit
culture, arts, sports and the wider society.
Rugby
We have a long-term partnership deal with the
Georgian Rugby Union that includes full-scale
support for rugby and its popularisation in the
country. We firmly believe that we can play an
integral role in developing sport in Georgia,
and support our national team in their quest
to be included in the Six Nations. Through our
campaigns, we support various initiatives
aimed at regional development and
popularisation of rugby among young people.
With our strong partnership and devoted
marketing campaigns, we have become true
ambassadors of the most successful sports
team in the country.
Going forward
TBC Bank reached the end of 2016 having
had one of the strongest years in its history
so far. In 2017, we will maintain our focus
on delivering on our stated strategy and
objectives. Our goal for this coming year
is to further improve what we do best,
make the most of current opportunities,
and establish ourselves as the best digital
financial services company in the region1.
The successful integration of Bank Republic
and the full realisation of its potential
synergies are also at the top of the agenda.
Every achievement that we accomplish,
every milestone that we cross is a testament
to our management and staff, and I would
like to thank my colleagues, and everyone
involved, for their hard work and
commitment throughout the year.
Mamuka Khazaradze
Chairman
31 March 2017
1 Region in this context comprises Georgia, Azerbaijan and Armenia
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 13
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CHIEF EXECUTIVE’S Q&A
We sat down with TBC Bank CEO Vakhtang
Butskhrikidze to talk about the acquisition of Bank
Republic, the LSE premium listing and how digital
channels are transforming the business.
Q: TBC Bank delivered a stellar
financial performance in 2016.
How would you evaluate the results?
A: First, I would say that our operational
and financial results in 2016 represent the
fulfilment and even outperformance of our
promises made to investors during the IPO in
2014. We have met or exceeded the medium-
term guidance given for most key metrics,
including loan book growth, return on
average equity, cost-income ratio and
dividend payout ratio. We have also fulfilled
the pledges to increase our MSME and retail
loan market shares and significantly
enhance our multichannel capabilities.
I am proud of our financial performance
in 2016. We posted a record profit of
GEL298.3 million, up 36.4% YoY, while our
profitability ratios also continued to improve,
the return on average equity (ROAE)
reaching 22.4% and return on average
assets (ROAA) 3.9%. The main drivers of this
were strong non-interest income, a solid net
interest margin of 7.8% and efficient cost
control. At the same time, we maintained a
strong balance sheet and high asset quality.
Our non-performing loans (NPL) ratio
totalled 3.5%, while our total Basel II/III
capital adequacy ratio (CAR) stood at 14.2%,
compared with the minimum requirement
of 10.5%.
Q: What would you say about
Georgia as a destination for
international investors?
A: Georgia is undoubtedly a top investment
destination in our region. It is investment-
friendly, reform-minded and diversified,
and it has been demonstrating sound growth
despite recent economic challenges in the
region. For 2017, the International Monetary
Fund forecasts GDP growth for Georgia of
4.0%, one of the highest among countries in
Central and Eastern Europe.
The investment environment is attractive
due to the strong institutional fundamentals
(low corruption, transparent institutions
and efficient public services), low tax rates
and deregulated labour market. The recent
government initiative to make reinvested
profit tax-free enhances Georgia’s appeal
in this respect even further.
Vakhtang Butskhrikidze
Chief Executive Officer
Our new strategic
priority is to become
the best digital
financial services
company in
the region1.
Q: By any measure, last year was a
transformational one for TBC Bank.
In your view, what were the most
important events for the business?
A: Alongside the robust financial results,
I would emphasise three key events that
will strengthen us for years to come. One
is the acquisition of Bank Republic, which
transformed TBC Bank into the largest
non-government owned bank in the region1.
It reinforced our leadership in all banking
segments in Georgia where we are present,
particularly retail and affluent banking.
Another crucial development was the listing
of our shares on the premium segment of the
LSE. It represents an important opportunity to
welcome new shareholders into TBC Bank and
show them what we have to offer. I am pleased
to have seen an increase in our share liquidity
during the final quarter of 2016.
Finally, we expanded our product offering
significantly in 2016 by acquiring the
JSC Insurance Company Kopenbur and
enhancing our investment banking services.
We look forward to becoming an important
player in consumer insurance products,
a fast-growing market segment.
14 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
In addition, the country has a strategic
geographic location and free-trade
agreements with EU, China and other major
economic players in the region. As such,
it is an ideal destination for investors
seeking to expand their operations and
harness the competitive advantages of the
local economy.
Several large-scale projects are under
way, including the construction of the
Anaklia deep-sea port, the Shah Deniz 2
pipeline, and the Namakhvani and Nenskra
hydropower plants. Together, these should
bolster Georgia’s energy independence and
increase its potential as a regional trade,
transport and logistics hub. The government’s
ambitious plan to boost capital spending by
another 1% of GDP over the next four years
will significantly improve infrastructure and
help to enhance tourism and agriculture in
currently harder-to-reach regions.
Q: Today, TBC Bank is Georgia’s
number one bank in terms of most
metrics. Where do you go from here?
A: Having been with the bank since 1992,
I would say that our greatest achievement
has been to turn our long-term vision into
reality and become the market leader.
However, we will not rest on our laurels,
and one new strategic priority is to be the
best digital financial services company in
the region1. While this is a soundbite, it has
a lot of meaning.
Some people say: “Digital service company?
But you’re a bank!” I answer: “Exactly!”
In fact, we have already transformed into
a digital service company in many crucial
respects. Even today, around 84% of all
transactions take place outside a branch.
The number of active users and the
penetration rate for mobile and internet
banking are increasing rapidly.
Overall, thanks to the reforms of the last
15 years, Georgia is an exemplary country
in the Caucasus region.
Q: Can you tell us about the
changes in top management
during the year, please?
A: In 2016, we merged our Corporate and
Investment Banking departments to provide
clients with capital markets products and
advisory services through a fully integrated
franchise. The resulting new CIB unit is
headed by George Tkhelidze, who was
previously Chief Risk Officer (CRO).
I would like to congratulate George on his
appointment and wish him the same success
in this new role as he enjoyed as CRO.
Replacing him is David Chkonia, who was
appointed as a new Deputy CEO and CRO in
January 2017 and brings extensive financial
services and risk management expertise.
I am confident that David will contribute
a great deal to TBC Bank’s further growth
and development.
To continually enhance the online banking
experience for customers, we are investing
substantial resources, and we are the
market leader in terms of customer
satisfaction. We see continued demand for
digital services, as mobile penetration is now
almost universal in Georgia.
Q: As we enter 2017, what is your
key message to stakeholders?
A: Responsibility: we have a keen sense
of responsibility to all of our stakeholders.
We know that our bank is now, more than ever,
systemically important to Georgia’s financial
system, so we must act responsibly
in everything we do. We know that the
development of digital banking services can
transform how payments are made in small,
remote villages, so reliability and security
are absolutely crucial. Finally, we know that
TBC Bank is an ambassador of Georgia in the
international financial markets, so we have to
deliver on our commitments and communicate
proactively with the investor community.
In terms of financial goals, we continue to
pursue our medium-term targets and are
well on track to achieve them in the next
two to three years.
• As a result of strong growth and
profitability in 2016, along with the
cross-selling and cost-saving opportunities
created by the Bank Republic acquisition,
we have upgraded our medium-term
ROAE forecast to 20% plus;
• Our medium-term loan book growth
target is 15–20%;
• Our equity Tier 1 capital ratio (Basel II/III)
•
target is above 10.5%;
In terms of dividend payout, we will
continue to disburse 25% minimum of the
Group’s annual consolidated net income;
• Finally, we maintain our medium-term
cost-to-income guidance at below 40%.
Q: Do you have any final thoughts
for our readers?
A: I would like to thank the readers of our
annual report for their interest in TBC Bank.
I would also like to express my gratitude to
our investors, directors and employees for
their continued commitment and belief in the
TBC Bank story.
Looking ahead, we intend to reinforce
our leading position in the market by
differentiating our business and ensuring
superior customer experience and cutting-
edge multichannel services. On this basis,
I am confident that we are well positioned to
continue to deliver superior results.
Vakhtang Butskhrikidze
Chief Executive Officer
31 March 2017
The Strategic Report as set out on
pages 2 to 87 was approved by the Board,
and signed on behalf of the Board by
Vakhtang Butskhrikidze
Chief Executive Officer
31 March 2017
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1 Region in this context comprises Georgia, Azerbaijan and Armenia
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 15
Economic overview
Georgia’s real GDP grew by an estimated
2.7% in 2016, according to Geostat, giving a
4.5% average growth for 2011-2016. Strong
construction and manufacturing sectors
underpinned GDP growth while other major
contributors were real estate, trade and
repairs, hotels and restaurants sectors.
Amid continued challenges faced by Georgia’s
immediate neighbouring countries, the
Georgian economy has proved resilient, aided
by the country’s stable political and business
environment. The downward trend in exports
and remittances since 2014, driven by these
external factors, reached the lowest point in
H1 2016 and began trending upwards.
In recognition of its continued progress,
Georgia moved up seven steps in the World
Bank’s 2017 Doing Business ranking, from
23rd in 2016 to 16th out of 190 countries
surveyed globally. This placed it third in
Eastern Europe and made it one of the top ten
countries in terms of annual improvement. In
addition, Georgia moved up ten places to 13th
out of 186 countries in the “Index of Economic
Freedom” by Heritage Foundation, leaving
behind countries like the Netherlands,
Germany and all the neighbouring countries.
Developments in external trade and
other currency inflows
The external sector remains in the spotlight,
given continued challenges in the region. In
2016, merchandise imports declined by 0.6%
YoY, while merchandise exports fell by 4.1%
over the same period, resulting in a slight
deterioration in the trade deficit (0.9%). The
picture was mixed during the year. In the first
half, the trade deficit improved noticeably (up
5.0% YoY), driven by lower imports (down 7.2%).
In the second half, despite a recovery in exports
(up 3.7% YoY), the trade balance worsened by
6.3% as a result of increasing imports due to
the higher oil prices and increased import of
consumer and investment goods.
60
MARKET OVERVIEW
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16 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2
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0.6
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a
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2.1
a
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t
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C
10.7
11.2
11.5
7.7
5.8
5.8
2011
2012
2013
2014
2015
2016
60
50
40
30
20
10
0
30
20
10
0
-10
-20
-30
-40
5.0
4.0
3.0
2.0
1.0
0
52.4
51.2
32.8
14.9
38.0
34.9
27.0
21.8
CIS
Other
EU 28
27.0
2012
2014
2016
0
.
3
2
2
.
4
2
.
4
0
.
8
2
.
4
7
.
0
5
.
7
7
.
0
6
.
1
2
.
6
-
3
.
6
1
-
7
.
0
2
-
2
.
4
1
0
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9
1
.
7
1
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1
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6
1
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1
7
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0
.
0
9
.
4
-
7
.
1
1
-
4
.
0
-
8
.
2
1
-
Export
Remittances
Tourism
9
.
2
-
9
.
2
2
-
9
.
7
2
-
5
1
0
2
1
Q
9
.
9
1
-
6
.
2
2
-
2
.
3
2
-
5
.
9
1
-
9
.
0
2
-
8
.
3
3
-
5
1
0
2
3
Q
5
1
0
2
2
Q
4
1
0
2
1
Q
4
1
0
2
2
Q
4
1
0
2
3
Q
4
1
0
2
4
Q
5
1
0
2
4
Q
6
1
0
2
1
Q
6
1
0
2
2
Q
6
1
0
2
3
Q
6
1
0
2
4
Q
2.5
2.5
2.8
2.8
3.0
3.4
3.4
3.5
3.8
4.0
y
r
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U
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R
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a
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i
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1.4
1.1
a
i
s
s
u
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n
a
j
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a
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r
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A
0.6
n
a
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K
2.1
a
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t
a
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C
The worsening economic situation in Turkey,
Armenia and Azerbaijan negatively impacted
exports to those countries. At the same time,
a relatively stable situation in Russia and
Ukraine drove an increase of exports there
(up 26.6% and 22.3%, respectively). Exports to
less traditional markets like China (up 34.8%),
Iran (up 30.1%) and other Gulf countries
increased at higher rates, further diversifying
Georgia’s export profile and reducing its
dependence on any particular country or
region. Overall, export dependence on the CIS
has fallen steadily in recent years, from 52.4%
of total exports in 2012 to 34.9% in 2016.
Exports of the country’s signature wines
(+18.5% YoY) and other alcoholic drinks
(+41.5% YoY) were key drivers of the recovery
in exports by the end of 2016. Beginning
of 2017 marked continuation of positive
export dynamics started by the end of 2016.
In the first two month of 2017 merchandise
exports expanded by 26.6% YoY. Growth of
exports was mostly driven by increasing
exports of Ferro-alloys, wines and other
alcoholic drinks.
Expansion of trade relationships
In 2016 Georgia signed a free trade agreement
with the European Free Trade Area states
(Iceland, Lichtenstein, Norway, Switzerland),
representing a small but important expansion
of its free-trade partnerships. Georgia is
gradually capitalising on the free-trade
agreement with the EU, while a step-by-step
alignment of the Georgian regulatory
environment to that of the EU means that a
broader range of Georgian produced goods
can enter the EU on favourable terms.
In addition, the European parliament
approved visa-free travel to Schengen
countries for Georgian citizens and the
decision will enter into force from 28 March
2017. Visa-free movement will be a valuable
addition to the existing free-trade deals and
enable Georgia to benefit from the significant
export potential offered by the EU.
FOREIGN DIRECT INVESTMENT INFLOWS (% OF GDP)
10.7
11.2
11.5
7.7
5.8
5.8
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
2016
The free trade agreement between China and
Georgia, to come into force in the second half
of 2017, represents a considerable addition
to the existing ones and formalises Georgia’s
role in China’s “Belt and Road” initiative.
Tourism and remittance inflows
Georgia’s dynamic tourism industry
continued to grow in 2016, with visitor
numbers increasing 7.6% YoY to 6.4 million
people, contributing US$2.2 billion to the
economy. In addition, the initial indicators
for 2017 are encouraging: in first two months
of 2017, the number of visitors went up by
10.5% YoY. Remittances, which represent a
significant positive component of Georgia’s
current account balance, also recovered by
6.6% YoY, mainly supported by greater money
transfers from Israel (up 84.7%), the US (up
27.6%), Turkey (up 26.3%), Italy (up 11.2%)
and Greece (up 5.8%). Money transfers from
Russia were also showing the first signs of
recovery by the end of 2016.
Foreign direct investments
Georgia remained attractive destination for
foreign direct investments, FDI stood at 11.5%
of GDP, 0.3 pp above the same figure in 2015.
In absolute terms FDI increased by 5.2% YoY
to US$1.65 billion in 2016. Over the last three
years FDI inflows stayed above 10% of GDP,
reflecting opportunities of growth and
positive sentiment of investors in Georgia in
spite of regional economic difficulties.
From the sectoral perspective, transport
and communications was the major recipient
of FDI mostly reflecting the construction of
Shah Deniz 2 pipeline, this sector accounted
for 39.0% of total FDI in 2016. Energy,
construction, manufacturing and hotels and
restaurants also remained among the top
FDI recipients and their share in FDI stood at
12.3%, 9.9% 9.6% and 6.7% respectively.
6.4m
Number of visitors in 2016
7.6%
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
YoY growth of number of visitors in 2016
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 17
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCESTRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
MARKET OVERVIEW continued
Recent developments of local currency
exchange rate
In 2016 average USD/GEL exchange rate
depreciated by 4.3% YoY while EUR/GEL
exchange rate depreciated by 3.9% YoY.
As of 28 February 2017 the USD/GEL
exchange rate appreciated by 2.4%
compared to 2016 year end supported by
increasing export, remittance and tourist
inflows. Overall, USD/GEL exchange rate
remained consistent with exchange rates of
regional currencies. Real effective exchange
rate of GEL appreciated by 3.4% YoY in 2016,
following 4.6% depreciation in 2015.
Fiscal policy and tax environment
Georgia offers one of the most favourable
taxation regimes in the region. With a total
tax rate of 16.4% , the country has a lower
tax burden than most peers in Central Asia
and Eastern Europe. Starting from 2017,
reinvested profit will become tax-free for
most business sectors, further bolstering
Georgia’s position as the country with most
liberal corporate taxation regime in the
region. Corporate profit tax reform will
apply to financial institutions from 2019.
To cover the temporary gap in revenues
resulting from the profit tax reform, the
government has raised excise taxes on
tobacco, petroleum, gas, alcoholic drinks
and cars. Reshuffling tax incentives should
support growth over the longer term, with
investing and re-investing made more
attractive, while consumption of currently
very cheap tobacco and alcoholic drinks will
be discouraged, which should be positive
for the external trade balance perspective
as well.
The fiscal policy remained pro-growth in
2016, with the fiscal deficit c.3.9% of GDP,
financed mostly by external liabilities.
Despite the fiscal deficit being over 3%,
public debt levels remain adequate, at
around 44.5% of GDP. In line with the
government’s debt management strategy,
the share of domestic debt in total public
debt is gradually increasing – it stood at
21% at the end of 2016 – which reduces
exchange rate risk and strengthens the
sustainability profile of public debt.
In 2017, fiscal deficit is projected at 4.2%
of GDP, mostly driven by increased capital
expenditures. The government’s long-term
reform agenda centres on infrastructure
development in the country to support
long-term economic growth by reducing
transportation costs and better harnessing
the potential of Georgia’s regions. In
addition, better transport infrastructure
should strengthen the country’s position
as the region’s transport and logistics hub.
The immediate effects of increased capital
spending should be lower unemployment
and higher economic growth.
Inflation and monetary policy
In 2016, inflation fell and the National Bank
of Georgia (NBG) began pursuing lower
inflation targets, cutting the refinancing
rate from 8.0% in the beginning of the year
to 6.5% at year-end. This allowed banks to
reduce rates on local currency lending, with
non-commercial lending accelerating from
the third quarter, supporting the de-
dollarisation of the loan portfolio.
An increase in excise taxes and higher
commodity prices by late 2016 triggered
inflation expectations, requiring monetary
policy action. In late January 2017, the NBG
raised the base rate by 0.25 percentage
points from 6.5% to 6.75% and pledged to
do the same in the coming quarter. Given
that the inflation was primarily driven by
one-off factors, the NBG is not expected to
overreact even if inflation goes temporarily
above the target of 4.0% in 2017.
Financial sector
In 2016, the banking sector experienced
healthy growth as a whole, driven by
positive economic growth across the
economy, among other factors.
In 2016, the total loan portfolio increased
by 18.1% YoY (10.7% excluding the FX effect),
reaching 55.7% of GDP. Loans in foreign
currency rose by 19.6% YoY (8.3% excluding
the FX effect), while GEL-denominated
loans grew by 15.2%. The share of foreign
currency-denominated loans decreased
by 1.4 % YoY (excluding the FX effect),
a reflection of falling rates on local
currency loans. The share of total foreign-
currency loans stood at 65.4%, while the
dollarisation of deposits was 72.5% as at
31 December 2016.
The NBG and government introduced new
initiatives to reduce the dollarisation of the
financial system, which represents a key
challenge for the Georgian financial sector.
The programme includes a one-off,
voluntary conversion of certain US Dollar
18 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
60
50
40
30
20
10
0
30
20
10
0
-10
-20
-30
-40
52.4
51.2
32.8
14.9
38.0
34.9
27.0
21.8
CIS
Other
EU 28
27.0
2012
2014
2016
0
.
3
2
2
.
4
2
.
4
0
.
8
2
.
4
7
.
0
5
.
7
7
.
0
6
.
1
2
.
6
-
3
.
6
1
-
7
.
0
2
-
4
1
0
2
1
Q
4
1
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2
2
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4
1
0
2
3
Q
4
1
0
2
4
Q
9
.
2
-
9
.
2
2
-
9
.
7
2
-
5
1
0
2
1
Q
2
.
4
1
0
.
9
1
.
7
1
.
5
1
0
.
2
1
0
.
6
1
1
.
0
1
2
.
5
1
7
.
2
1
5
.
7
0
.
0
9
.
4
-
7
.
1
1
-
4
.
0
-
8
.
2
1
-
Export
Remittances
Tourism
9
.
9
1
-
6
.
2
2
-
2
.
3
2
-
5
.
9
1
-
9
.
0
2
-
8
.
3
3
-
5
1
0
2
3
Q
5
1
0
2
2
Q
5
1
0
2
4
Q
6
1
0
2
1
Q
6
1
0
2
2
Q
6
1
0
2
3
Q
6
1
0
2
4
Q
PROJECTED GDP GROWTH IN PEER COUNTRIES (%)
5.0
4.0
3.0
2.0
1.0
0
1.4
1.1
a
i
s
s
u
R
n
a
j
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a
b
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A
0.6
n
a
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2.1
a
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t
a
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C
2.5
2.5
2.8
2.8
3.0
3.4
3.4
3.5
3.8
4.0
y
r
a
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n
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H
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a
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U
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a
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d
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P
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G
Source: IMF, WEO, October 2016 update
12
Exports, remittances and tourism should
continue to grow, driven by the diversification
of export markets and an improved economic
environment for the main trading partners.
The greater use of benefits offered by the
Deep and Comprehensive Free Trade Area
and the free-trade deal with China also offer
tangible benefits for Georgian exporters.
5.8
5.8
7.7
10
8
6
2
4
Potential developments in the external
sector remain at the centre of both positive
and negative scenarios for the economy.
At the same time, continued reforms,
improvements in institutional quality and
better diversification of the export portfolio
2013
are expected to support Georgia’s economy
to navigate in an uncertain regional and
global environment.
2011
2012
0
10.7
11.2
11.5
2014
2015
2016
18.1%
Loan portfolio growth in 2016
55.7%
Loan portfolio share in GDP in 2016
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 19
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
loans secured by real estate into GEL-
denominated ones at a favourable rate,
and they will be financed by the
government. It also includes measures
to support the de-dollarisation of certain
loans below GEL100,000 by providing
respective funding and implementing
appropriate regulations. The NBG is
providing US Dollar and local-currency
liquidity for banks during this process.
The de-dollarisation of the loan portfolio
should continue over the medium term,
supported by a credible monetary policy
of the NBG and increased availability of
longer-term local-currency funding.
The financial sector continues to operate
in a prudent regulatory framework, with
strong capital, liquidity and asset quality.
Georgia continues to stand out in the region
in terms of credit portfolio quality. At the
end of 2016, non-performing loans (NPLs)
accounted for 3.4% of total loans. The low
level of NPLs reflects the broader stability
in the economy.
TBC Bank’s acquisition of Bank Republic
continued the consolidation of the Georgian
banking sector, which increases general
quality and cost efficiency in the market,
allowing TBC Bank and competitors to
deliver more efficient services to retail,
MSMEs and large corporate clients.
Outlook
The IMF forecasts 4.0% GDP growth for
Georgia in 2017, which would make it one
of the best performers in Central Asia and
Eastern Europe. Political stability and
prudent fiscal and monetary policies are
expected to remain in place.
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCESTRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
BUSINESS MODEL
Having achieved the strategic goal of becoming the
number one player on the Georgian market, we
decided to embark on the next challenge: to change
the way that people bank in Georgia and become the
best digital financial services company in the region1.
Overview
Following the acquisition of Bank Republic in 2016, TBC Bank became the number
one commercial banking group in Georgia, with leading positions in most key metrics2.
Having achieved the strategic goal of becoming the number one player on the market,
we decided to embark on the next challenge: to change the ways people bank in
Georgia and become the best digital financial services company in the region1.
Mission
Our mission is to create new opportunities that will enable people and businesses
to succeed.
Vision
Our vision is to be the best digital financial services company in the region1.
Market
Our business model is primarily focused on core banking activities in Georgia, although
we have two small subsidiaries abroad. We believe that the country’s banking sector
retains considerable long-term growth potential: it remains under-penetrated, is well
capitalised, has some of the highest-quality assets in the region and offers sustainable
growth potential. Mobile and broadband communications are widely available in
Georgia, while mobile application penetration rates continued to grow in 2016,
supporting a growth strategy built on digital business.
What we do
We are the lead partner banking group in Georgia for both retail and business customers,
including large corporates, SMEs and microfinance companies. We offer much more
than just common banking services: we seek to create a unique service experience and
support clients by providing innovative value-added services, including free training
sessions, individual consultations, networking events and educational web portals.
We have also established leasing, brokerage, advisory and insurance subsidiaries with
the aim of providing the full range of financial products for customers.
Sources of income
TBC Bank’s primary sources of income are interest income and fee and commission
income generated by core banking business areas and related activities. We seek
to continuously support our strong organic growth by developing new products and
services. Our digital focus creates new opportunities for customer engagement, new
revenue streams and cost savings. The merger with Bank Republic, due for completion
in the third quarter of 2017, will provide further opportunities for cross-selling and
upselling as well as cost efficiency.
1 Region in this context comprises Armenia, Azerbaijan and Georgia
2 Based on data as of 31 December 2016 published by the National Bank of Georgia
and including Bank Republic’s market shares
See our Strategic review on page 22
20 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
RETAIL
The retail segment provides high-
quality services to mass retail, affluent
and high-net-worth individuals. Our
premium banking offering includes
unique VIP and TBC Status areas,
dedicated multichannel, superior
relationship management and lifestyle
services, the aim being to maximise
the customer experience.
CORPORATE
The corporate segment provides
tailored banking products, brokerage
and advisory services to large
corporations. Our highly experienced
corporate bankers have strong sector
knowledge, helping them to find the
right solutions for businesses.
SME
The SME segment provides financial
and non-financial services, through a
unique Business Support Programme,
to small and medium-sized companies,
which are expected to be the main
drivers of economic growth in the
medium to long term.
MICRO
Another key area for TBC Bank is
microfinance, which offers high margins
and substantial growth potential. The
merger of Bank Constanta, completed
in 2015, provided an opportunity to
extend our full product offering to micro
clients and enhance our coverage in
the more rural regions of the country.
G
O
V
E
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N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
WHAT MAKES US
DIFFERENT?
Leading positions in an attractive
market
Strong track record of growth
and profitability
Resilient and high-quality
balance sheet
Focus on core banking activities
in Georgia
Strong brand and award-winning
franchise
Superior customer experience
Long-term partnership with
businesses
The leading multichannel
distribution platform in Georgia
One of the most advanced
corporate governance structures
in the region1
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 21
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
STRATEGY
Our strategy exploits our unique set of
strengths and opportunities to unlock the
full potential of our business and market.
Overview
TBC Bank’s overall strategy is designed to
deliver sustainable, long-term growth and
profitability without compromising asset
quality. In 2016, following the acquisition of
Bank Republic, our priorities have evolved
in line with our updated vision of being the
best digital financial services company in
the region1. This means taking full advantage
of our strengths and opportunities to fulfil
our strategic goals and achieve a step
change in how we operate and deliver
products and services.
Strengths
The leading position in an attractive
market and a strong track record of
growth and profitability
TBC Bank is Georgia’s largest commercial
banking group by most key metrics. As of
31 December 2016, including Bank Republic,
we accounted for 36.7% of the country’s
banking assets, 38.9% of gross loans and
37.8% of deposits2.
In recent years, we have delivered strong
results in terms of both growth and
profitability. Over 2013–16, the compound
annual growth rate (CAGR) for loans and
deposits was 35.5% and 30.7% respectively,
while the ROAE remained between 18.0%
and 22.5%. We have also maintained strong
margins, recording a net interest margin
of 7.8% in 2016. Such a strong performance
was further reinforced by continuous
improvements in cost efficiency.
Business model focused on core
banking activities in Georgia
TBC Bank focuses overwhelmingly on Georgia,
which accounted for 99.6% of total group
assets in 2016, allowing us to build on our
knowledge and strong position in the market.
We have a streamlined business and a clear
strategic focus on core banking activities, with
most subsidiaries operating in the financial
services industry. This, in turn, enables us
to maintain a straightforward and resilient
balance sheet and a stable, customer-focused
source of funding.
Strong brand, superior customer
experience and award-winning franchise
TBC Bank is one of Georgia’s best known and
most trusted commercial names, with strong
brand equity built up over more than two
decades. As the country’s number one bank,
our reputation is closely tied to our solidity
and trustworthiness as a financial institution,
allowing us to establish immediate trust for
the new products and services that we bring
to the market. At home, the brand is also
associated with high-profile CSR activities
such as investments in literature, art, sports
and education. Internationally, the brand also
has a growing profile among shareholders
and analysts following our admission to the
premium segment of the LSE, enhancing
our attractiveness as an investment. It is
testament to the brand’s success that TBC
Bank has been awarded the title of “Best
Bank in Georgia” for 13 of the last 15 years
and has received 26 such awards in total
from Global Finance, EMEA Finance,
Euromoney and The Banker magazines.
Since its inception, TBC Bank has consistently
sought to build strong client relationships and
continues to work tirelessly to deliver the best
possible customer experience. Our ambition
is to stand out in this respect not only in the
financial sector, but also across all major
service providers, and our undisputable
leadership is confirmed by both internal and
external market research. Customer loyalty
is a vital part of our overall strategy, as it
allows us to retain retail and business clients
and offer them the right solutions appropriate
for their evolving needs. We maintain
high-tech CRM systems to better understand
our customers and work to design products
that match their needs and preferences.
Strong multichannel capabilities
One of TBC Bank’s main competitive
advantages is its advanced multi-channel
distribution platform. It includes one of
the most productive, modern and visually
appealing branch networks in Georgia;
award-winning internet banking; a vast
network of POS, cash-in terminals and
ATMs; a best-in-class call centre; and the
best mobile banking application on the
market, with a customer review score of
4.9 out of 5.0 on Google Play.
We are following the global trend of mobile-
first banking, as we seek to make banking
digital in Georgia by offering next-generation
banking services to our customers. We have
invested accordingly to make the most of this
opportunity. As a result, we have achieved
a comprehensive competitive advantage in
terms of both internet and mobile banking
transactions, as well as overall customer
experience. We have the highest number of
active internet and mobile banking users
and the number of transactions conducted in
these channels is rising rapidly. In addition,
we have gained recognition by receiving
numerous local, regional and global awards
from Global Finance Magazine since the
introduction of our breakthrough internet
and mobile banking.
Leading partner for businesses
in Georgia
We are a leading partner bank for both large
corporates and MSMEs, for which we provide
a full range of convenient and attractive
products and services. Our highly professional
and experienced team works to find the best
possible solutions for businesses and provides
support at every stage of development. We
strive to assist businesses to grow and prosper
not only by providing financial support, but also
by supplying various educational resources
and incentives. For the MSME segment, we
provide important education through our
Business Support Programme, which includes
an educational web portal (www.tbcbusiness.
ge), free training sessions and consultations
as well as networking events, conferences
and masterclasses. This, combined with
personalised customer service, makes us the
most reliable partner bank for any company
that wants to prosper, as we firmly believe that
success is contagious.
Experienced management team and
high-quality corporate governance
As a public company, we are committed to
achieving the highest standards of corporate
governance. We believe that we have one of
the most experienced Boards in the region,
whose members have diverse and unique
backgrounds. The Board consists of nine
members: five independent non-executive
Directors, two founders and two executive
members represented by the CEO and CFO.
22 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
TBC Bank also has a highly experienced
management team of eight people with
significant expertise in the finance industry and
a proven track record of leading its operations.
We have a strong mix of people who have
been with us for more than 15 years and new
members with international experience.
Premium listing on the
London Stock Exchange
One of the year’s major highlights was the
successful listing of TBC PLC’s shares on the
premium segment of the London Stock
Exchange. This allowed us to broaden our
investor base and enhance our public profile
and has resulted in our inclusion in the FTSE
All-Share index. The listing also underlines
TBC Bank’s transparency and adherence to
stringent corporate governance and reporting
standards. We firmly believe that it will prove
to be a major catalyst for generating additional
shareholder returns.
Strategic initiatives
To continue leveraging our strengths
and to realise our mission, the following
strategic initiatives have been devised for
the medium term:
Deepen relationships with customers
Our retail customer base of 1.7 million people
represents around half of the population
of Georgia. We use our strong analytical
capabilities to successfully market products
to them, while developing new services to
respond to client needs. The size and diverse
nature of our customer base also provide a
high degree of stability, as we serve people of
all incomes and companies of all sizes. The
acquisition of Bank Republic has also created
significant new opportunities for cross-selling
and up-selling. As such, our focus will be
exploiting our innovative products, deepening
relationships with new and existing clients and
creating new products and value-added
services, including bancassurance, brokerage
and consulting services.
Our medium term targets here are to
increase the product-to-customer ratio
for the retail segment by more than 15%,
from the current 3.7, and increase total
non-interest income by 15-20%.
In parallel, we will seek to expand our total
loan book at 15-20% annually maintaining
our leadership across all key segments
and products.
Further enhance multichannel
capabilities
Our main strategic initiative in this area will
be to exploit our advanced digital capabilities
and further strengthen sales through all
remote channels, especially mobile banking.
In addition, we aim to introduce new
innovative channels and processes including
Chat Bot technology to complement
traditional chat, a mobile wallet for
contactless payments, and video chat for
TBC Status clients in the mobile banking
application. We will also continue educating
customers to increase internet and mobile
banking penetration further.
Our medium-term targets here are:
• To further offload branch transactions
into remote channels, increasing the
retail transaction offloading ratio to over
90%, up from the current 84%
• To increase the penetration ratio of
internet or mobile banking users among
active clients to over 45%, from the
current level of 37%
• To boost the mobile banking penetration
ratio to over 35%, from the current level
of 24%
• To enhance our product offering through
the mobile banking platform by adding all
major products, including the issuance of
credit cards, debit cards and deposits
Further improve customer experience
According to various surveys conducted by
external research agencies, we lead the
market in terms of customer satisfaction
and loyalty. Our net promoter score (NPS,
a widely used metric for measuring
customer loyalty) is the highest not only
within the banking sector, but also across
other industries. Nevertheless, we are
committed to continually improving our
customer experience to further strengthen
our leading position.
In 2017, we will focus on several
objectives including:
• Streamline processes to make it easier
for customers to do business with us
• Ensure a consistent customer experience
in newly acquired entities (Bank Republic
and TBC Insurance, former Kopenbur)
• Upgrade service skills of front-of-house
employees to enable them to handle
challenging situations more productively
Increase operational efficiency and
automation
In line with our lean Banking model and our
vision of becoming the best digital financial
services company in the region1, we are aiming
to continue modernising and automating
programmes and processes. In 2017, we plan
to enhance key systems to strengthen our
analytical and digital capabilities and also
boost employee productivity by improving
the interoperability and flexibility of certain
components of core banking systems. In
addition, we plan to introduce new tools and
capabilities for businesses in order to achieve
a higher level of automatization and to assist
them with conducting more in-depth analysis
and sophisticated forecasts.
In parallel, we will focus on increasing
straight-through processes for our most
important areas. This initiative will help us
to achieve our cost-related financial targets,
described below.
Updated medium term financial targets
• We will continue to grow our loan book at
15-20% a year
• We will maintain our medium term ROAE
target of 20%+
• We will keep our medium term cost to
income ratio below 40%
• We will continue to maintain a solid capital
buffer, with a targeted equity Tier1 capital
ratio (Basel II/III) of above 10.5%
• Regarding dividends, we will continue to
disburse 25% of consolidated net income
1 Region in this context comprises Armenia, Azerbaijan
and Georgia
2 According to data published by the National Bank
of Georgia
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 23
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
STRATEGY continued
TBC Bank uses a broad range of KPIs to measure how it
is succeeding in implementing its long-term strategy and to
ensure growth that delivers returns on a sustainable basis.
These indicators reflect financial measures, such as return
on investment, efficient cost control, increased collection of
fees and commission income, proper management of risks,
and proper capital management to optimise and maintain
capital adequacy ratios. They also reflect operational
measures, such as internet and mobile banking penetration
ratios and the retail transaction offloading ratio.
In 2016, we delivered improvements across almost all of our KPIs. We made steady improvements
in net profit, ROAE and net fee and commission income growth demonstrating continued solid
profitability. The growth in the loan book and market shares combined with strong asset quality
reflects our steady and sustainable development. In addition, we continue to successfully harness
our remote channels and record improved levels of digitalisation.
Key productivity indicators
1. NET PROFIT (GEL MILLION)
2. RETURN ON AVERAGE EQUITY (ROAE, %)
2016
2015
2014
218.7
158.5
298.3
2016
2015
2014
22.4
20.1
18.4
Net profit increased solidly by 36.4% YoY. Excluding the
Bank Republic acquisition, growth was 31.5%.
Return on average equity reached a record of 22.4%, or
21.6% excluding the Bank Republic acquisition.
3. NET INTEREST MARGIN (NIM, %)
4. NET FEE AND COMMISSION INCOME
2016
2015
2014
GROWTH (%, YOY)
7.8
7.8
8.5
2016
2015
2014
24.9
23.2
17.2
The net interest margin remained stable YoY. Compared
with 2014, it was lower, in line with the overall market
trend of declining loan yields.
Net fees and commissions continue to grow steadily,
rising by 24.9% in 2016. Excluding the Bank Republic
acquisition, the increase was 21.8%.
5. COST-TO-INCOME RATIO (%)
6. COST OF RISK (%)
2016
2015
2014
45.8
43.9
49.4
2016
2015
2014
1.0
1.7
1.6
In 2016, we incurred significant one-off administrative
expenses related to the premium listing of TBC PLC
and Bank Republic acquisition, as well as certain other
one-offs. Excluding all of these, cost-to-income ratio
would have been 42.9%. The one-offs are discussed in
details on page 67.
The cost of risk decreased due to the improved
performance of the loan book, particularly in the
corporate segment.
24 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
7. NON-PERFORMING LOAN RATIO (%)
8. LOAN BOOK MARKET SHARE (%)
3.5
2016
2015
3.1
2014
As of 31 December 2016, the non-performing loan ratio
had decreased to 4.0%, excluding the Bank Republic
acquisition. This was mainly driven by the improved
performance of the corporate portfolio.
4.8
38.9
2016
2015
2014
In 2016, the market share of the loan book, excluding
the Bank Republic acquisition, was 31.1%, up 2.4
percentage points.
28.7
27.7
9. TIER 1 CAPITAL ADEQUACY RATIO (%)
10. NET STABLE FUNDING RATIO (%)
10.4
2016
2015
2014
In 2016, the Tier 1 capital decreased by 2.4 percentage
points due to the Bank Republic acquisition.
12.8
12.4
108.4
2016
2015
2014
Over the last three years, the net stable funding ratio
has remained above the minimum guidance of 100%.
116.3
114.6
11. LOAN TO DEPOSIT PLUS IFI FUNDING
12. LOAN DOLLARISATION (%)
RATIO (%)
2016
2015
2014
Over the last three years, the loan to deposit ratio has
remained broadly stable.
93.4
94.8
98.1
2016
2015
2014
The loan dollarisation level has increased at the
constant currency rate. However, over the last three
years, it has remained stable in nominal terms.
65.9
64.9
63.2
13. PENETRATION RATIO OF INTERNET OR
MOBILE BANKING USERS AMONG RETAIL
ACTIVE CLIENTS (%)
14. PENETRATION RATIO OF MOBILE
BANKING USERS AMONG RETAIL
ACTIVE CLIENTS (%)
37
2016
2015
2014
The penetration ratio of internet or mobile banking
users among retail active clients is growing stably.
32
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2016
2015
2014
The mobile banking penetration ratio soared in 2016.
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15. RETAIL TRANSACTION OFFLOADING
RATIO (%)
84
79
2016
2015
2014
This ratio reflects the increasing migration of
customers from branches to remote channels in line
with our strategy. The ratio decreased in 2015 due to
the Bank Constanta merger, without which it would
have been 83%.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 25
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
STRATEGY IN ACTION
Tegeta Motors and TBC Bank
have enjoyed 16 successful
years of partnership.
Tegeta Motors began life as a small car
service centre back in 1995 and has
expanded substantially since. Today, it is
a leader in Georgia’s automotive industry
and provides a full range of servicing for
passenger and commercial vehicles
nationwide. The company is an official
distributor of more than 300 brands,
including Toyota, Mazda, Porsche, MAN, JCB,
Hyundai, Bridgestone, Michelin, Shell, Motul,
Varta, Bosch, Philips and ZF parts. It sells
both car parts and service and industrial
equipment for factories and manufacturers.
It has 19 branches throughout Georgia.
Tegeta Motors founder and general director,
Temur Kokhodze, said: “TBC Bank has been
our house bank for 16 years and has
supported us with project financing at every
stage of our development. We also have a
revolving credit line for short-term working
capital needs. TBC Bank has a professional
and extremely helpful team with a good
understanding of our business model and has
therefore always offered solutions tailored to
our needs. TBC Bank is our reliable partner
and has played an important role in our
success story, and we are sure that many
more interesting projects lie ahead of us.”
Tegeta Motors employs more than 1,200
people and serves around 10,000 corporate
customers, 180,000 retail loyalty card holders
and more than 2,000 wholesalers. Its clients
are well known local and international names,
as well as companies operating in the
Caucasus, Central Asia, Russia and Turkey.
Over its 20-year history, Tegeta Motors has
become a well-known brand in the region. Its
next plan is to launch franchises and branches
outside Georgia; in Q1 2017, the company
intends to open a branch in Baku.
“Tegeta Motors has been our client from the
day of its incorporation and we have been
reliable partners throughout all these years,”
says Tegeta’s senior corporate banker, Zurab
Gugushvili. “We have helped the company
grow and develop, providing financing for
several large projects, including a dealership
with MAN Truck & Bus, Toyota and Shell. We
also financed the construction of a head office
and main central branch on Agmashenebili
Alley in Tbilisi in 2008.”
TBC Bank continues its close partnership with
Tegeta Motors. This year, we helped the
company to launch a new business line that
envisages providing warranty service and
complete maintenance for Tbilisi’s new fleet of
municipal buses. In total, the city hall plans to
replace 144 old public buses with modern,
environmentally friendly buses from Tegeta
Motors’ German partner, MAN Truck & Bus.
26 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
“ Tegeta Motors has
been our client from
the day of its
incorporation and we
have been reliable
partners throughout
all these years.”
Zurab Gugushvili
Senior Corporate Banker
#1
“ TBC BANK HAS BEEN OUR
HOUSE BANK FOR 16 YEARS
AND HAS SUPPORTED US WITH
PROJECT FINANCING AT EVERY
STAGE OF OUR DEVELOPMENT.”
David Cheishvili
General Manager at Tegeta Truck & Bus
the daughter company of Tegeta Motors
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
STRATEGY IN ACTION continued
Entrée has grown rapidly due to its
commitment to quality and customer service,
values shared by TBC Bank, its partner.
Entrée founder Eugene Pichkhaia said:
“We chose TBC Bank as our partner bank
due to our shared belief in adopting a
customer-centric approach and striving
for excellence. Doing business with TBC
Bank is very convenient because most
services are available through digital
channels. Also, whenever I do have to go
to a branch, employees welcome me
warmly and make me feel at home.”
Entrée is a popular artisan bakery chain
in Tbilisi that offers a wide range of
organic sourdough bread, delicious
pastries, croissants, superfood
sandwiches, soups, salads and
homemade Italian-style ice creams, as
well as aromatic coffees and freshly
squeezed juices. All Entrée products are
prepared under the watchful eye of
French and Italian master chefs. The
Western-style cuisine, friendly staff and
cosy, smoke-free environment make
Entrée a famous lifestyle brand and the
perfect choice for breakfast, lunch, or
just an afternoon coffee to drink in or take
away in smart, recyclable packaging.
Georgian businessman Eugene Pichkhaia
and his French partner, Jean Michel
Charles, founded Entrée in 2008. They
aspired to build a strong, internationally
recognised Georgian brand. Since then,
the company has grown organically to
include 13 cafes in Tbilisi’s best
neighbourhoods. In 2014, Entrée
expanded into Azerbaijan with four
locations that have proven very
successful. Additional international
expansion is also in the pipeline.
Entrée’s credit expert Nino Peradze
commented: “Entrée became our
customer in 2011 and it has been a joy to
watch it grow and prosper over the years.
On our part, we act as a trusted partner
and have always supported the company’s
growth plans. We have provided financing
for its expansion, both on the local
market and in Azerbaijan. We hope that
our partnership will only grow stronger in
the years to come.”
28 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
“ Entrée became our
customer in 2011 and it
has been a joy to watch
it grow and prosper over
the years.”
Nino Peradze
Credit Expert
#1
“ WE CHOSE TBC BANK AS OUR
PARTNER BANK DUE TO OUR
SHARED BELIEF IN ADOPTING A
CUSTOMER-CENTRIC APPROACH
AND STRIVING FOR EXCELLENCE.”
Jean Michel Charles
Business co-founder
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 29
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
STRATEGY IN ACTION continued
For the partners at one of Georgia’s
top law firms, TBC Bank delivers a highly
personalised and efficient service.
“We like and continue working with TBC
Bank because just like us, it is focused on
the success of clients and staff,” add
Archil Lezhava and David Kapanadze.
“This makes doing business with TBC
Bank always enjoyable.”
Levan Nikoladze, Archil Lezhava and David
Kapanadze, the partners at the LPA law
firm, are longstanding TBC Status clients.
They have been with us for many years and
have used the full range of our products,
including consumer loans, mortgages, car
loans and lifestyle services.
The partners highly value TBC Bank’s
mobile and internet banking services,
since they travel extensively as part of
their work, and being able to perform
most transactions online is crucial for
them. They also like the newly introduced
concierge service, which provides them
with special offers for flights and hotels.
In addition, they appreciate TBC Bank’s
efforts to be a major sponsor of social
and cultural activities that contribute to
Georgia’s development.
“TBC Bank has freed up a lot of valuable
time for me for both personal and
professional growth,” Levan Nikoladze
said. “I need to visit the branch rarely
now. Communication with the bank is
both efficient and easy, and I have one
dedicated, qualified banker, who can
resolve any issue. In my case, I am lucky
to have Tamar Shonia as my personal
banker, who is always understanding and
diligent. At LPA, we always recommend
TBC Bank to our clients.”
30 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
“ The partners highly
value TBC Bank’s
mobile and internet
banking services, since
they travel extensively,
and being able
to perform most
transactions online
is crucial for them.”
Tamar Shonia
Personal Banker
#1
“ TBC BANK HAS FREED
UP A LOT OF VALUABLE
TIME FOR ME, FOR
BOTH PERSONAL
AND PROFESSIONAL
GROWTH.”
Levan Nikoladze
Partner, LPA
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
STRATEGY IN ACTION continued
TBC Bank’s microfinance segment
provides crucial support for the
development of agriculture in Georgia.
Badri Gogoladze commented: “I have
been a TBC Bank customer since 2012,
when I was only starting my business.
Over these four years, I have taken
several loans to expand my business.
All products were always offered on the
best terms and with great service. Apart
from me, TBC Bank has also supported
many agricultural businesses in our
region. I am very grateful to TBC Bank for
giving us the opportunity to develop the
agricultural segment and turn our ideas
into successful, profitable businesses.”
Cheese Hut, a cheese factory in the city of
Bolnisi, is an outstanding example of the
successful development of micro business
in Georgia. Its success reflects the vital
role played by our micro segment in
helping Georgian agriculture, a crucial
part of the overall economy, to achieve
its full potential.
Badri Gogoladze, the owner of the company,
started producing cheese as a family
business in his hometown in 2012. In the
beginning, he did not have any specialised
facilities, but he did have a clear vision.
Today, the firm has a small factory that
employs 20 people and it produces
around 625 kg of cheese a day for sale in
the local area. The factory sources fresh
milk from a local dairy farmer.
“Cheese Hut is a very successful business,
it’s developing rapidly and has ambitious
development plans,” said Mari Davitashvili,
the microloan officer. “Beginning next year,
it plans to start exporting its products and
expand its range with cottage cheese and
other dairy goods.”
“ Cheese Hut is a very
successful business,
is developing rapidly
and has ambitious
development plans.”
Mari Davitashvili
Microloan officer
32 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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#1
” I AM VERY GRATEFUL
TO TBC BANK FOR GIVING
US THE OPPORTUNITY TO
DEVELOP THE AGRICULTURAL
SEGMENT AND TURN OUR
IDEAS INTO SUCCESSFUL,
PROFITABLE BUSINESSES.”
Badri Gogoladze
Business founder
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 33
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIVISIONAL REVIEWS
RETAIL
SEGMENT
Overview
In 2016, TBC Bank entrenched its leadership
in Georgia’s retail banking segment, ranking
first in terms of both deposits and loans, with
market shares of 41% and 44%, respectively 1.
Our retail business is differentiated by our
customer service, world-class multichannel
platform, trusted brand, and unmatched
customer-relationship management (CRM)
and analysis. Last year, the acquisition of Bank
Republic expanded our customer base and
market share, giving additional opportunities
to offer new products. At the same time, we
continued to deliver organic growth, exploiting
the key competitive advantages mentioned.
Performance in 20162
Retail banking is our largest segment,
accounting for 51% of loans and 57% of
deposits of the bank. It consists of the VIP,
non-resident wealth management clients,
TBC Status (affluent and mass affluent
customers) and mass retail sub-segments.
In 2016, we served around 1.7 million retail
clients, including over 16,000 affluent banking
and over 2,400 VIP and non-resident wealth
management clients. We have 120 branches
and our industry-leading multichannel
platform includes Georgia’s most advanced
mobile and internet banking, a call centre,
point of sale (POS) terminals and ATMs. By
the end of 2016, 84% of all transactions were
remote and 55% of total sales (for all products
available through our remote channels) were
conducted digitally or through call centre.
In 2016, retail loans increased by 34% YoY
excluding the Bank Republic acquisition,
or 86% YoY including the acquisition, to
GEL 3,763 million. Deposits rose by 35% YoY
excluding the Bank Republic acquisition,
or 48% YoY including the acquisition, to
GEL 3,666 million. Between 2013 and 2016,
the retail loan book grew by a CAGR of 46%
and the deposit portfolio by a CAGR of 32%
including Bank Republic acquisition.
In 2016, retail loan yields averaged 14.1% and
deposit rates 3.6%. NPL ratio stood at 2.3%
at the year-end 2016 compared to 2.7% as of
31 December 2015.
The Bank Republic acquisition reinforced
TBC Bank’s position in consumer and
mortgage lending in particular, as well as
in affluent banking, creating substantial
cross-selling opportunities. The acquisition
adds around 357,000 retail clients, including
some 5,000 affluent customers, as well as
around 72,000 payroll clients to the existing
base of approximately 209,000.
We have a strong presence in both the capital,
Tbilisi, and the regions, with our multichannel
platform allowing us to stay in touch with our
customers anytime and anywhere. Through the
Bank Republic acquisition, we acquired another
24 branches in Tbilisi and 17 in the regions.
We continued to deliver superior customer
service in 2016, as demonstrated by our net
promoter score (NPS)3 score of 60%, the highest
across all major industries in Georgia.
We also remained an innovator in the card
business and supported cashless transactions
through new products and services, including
mobile terminals, a loyalty programme and
P2P payments. In addition, the launch of a
mobile wallet is in the pipeline. The use of
point-of-sale transactions is increasing
rapidly: in 2016, the share of contactless
transactions reached 88%4.
TBC Bank is a pioneer of private banking
services in Georgia and continues to set the
standard in the affluent banking segment.
Our affluent clients strongly value time-saving
initiatives, as they would rather spend time
with family and friends than in a branch. Our
aim is that they can bank with us as they prefer.
34 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
3) Best CRM and analytical capabilities
We have implemented cutting-edge
customer relationship management (CRM)
systems to further enhance the service
experience, retain and gain clients more
efficiently, and increase cross-selling
opportunities. We are able to utilise our vast
database to develop propensity scores, or
probability of purchase, for each customer.
This helps us to effectively offer products
they are more likely to purchase. We also
calculate churn scores, which enable us to
identify reasons for any decisions to leave,
giving us the opportunity to win clients back.
4) Most trusted brand
Having been in the market for more than
two decades, TBC Bank has one of Georgia’s
most trusted and recognised brands. As our
brand represents reliability and stability,
we can use it to promote novel products and
services in Georgia.
1 According to data as of 31 December 2016
published by the National Bank of Georgia and
including Bank Republic’s market shares
2 All operating data refers to JSC TBC Bank
standalone data unless otherwise stated
3 Based on research conducted by an independent
company, IPM Research, in December 2016
4 Number of transactions conducted by contactless
cards divided by the total number of card
transactions
We offer dedicated relationship managers
and a specially tailored multichannel platform
for our affluent customers, TBC Status and
VIP areas for these respective segments,
and non-banking lifestyle and personalised
services. Additionally, we offer exclusive
wealth management products to clients both
within and outside Georgia. Our representative
office in Israel, TBC Invest, allows us to attract
non-resident wealth management clients
more effectively.
Outlook for 2017
Our goals in the retail segment for 2017
include maintaining our number one position
and further increase our superior customer
experience. Leadership in retail depends
on having the right products and services.
As such, we are developing several projects
which aim to achieve significant improvements
in lending process, introduce dedicated
products for different retail sub-segments
and enhance loyalty schemes.
We see significant potential for increasing
the cross-selling ratio to both our and Bank
Republic customers. We also aim to increase
fee and commission income for the next years
through bancassurance, credit cards, payroll
and other fee income generating products.
In affluent banking, our strategic aims for
2017 are designed to reduce the share of
pure-play banking services. We aim to make
our personal bankers less salespeople and
more financial advisers, offering products
with a personal touch. This drive also
includes the expansion of concierge and
other non-banking services for our affluent
banking customers. We will continue to
invest in delivering an unrivalled customer
experience and further improve our
multichannel platform for reaching our
affluent customers.
We are very much focused on differentiating
our strategy to deliver results. The four main
pillars of our retail strategy which ensure
long-term and sustainable success are:
1) Best customer experience
High-quality service helps to retain existing
clients and attract new ones. For us, the
customer experience is all-encompassing,
and we retain our customer-centric
approach in all our initiatives, whether
building a new product or implementing
a new channel.
2) World-class multichannel platform
Banking has changed significantly in recent
years, and customers are demanding new
services across channels. We have rapidly
adopted this global trend and started
investing in our multichannel platform in
2012. Today, we are enjoying the benefits of
being the clear leader in this segment and
the growth of active digital users has been
impressive over the last three years. In 2016,
we observed a new trend of faster growth
in mobile users, and the highest growth rate
is among users that do all types of banking
exclusively through mobile. This has driven
our mobile-first banking strategy.
TBC Bank payment terminals remain a key
channel for our customers. We offer a
diverse range of services through them,
including repaying loans, making utility
payments and topping up mobiles. We have
around 2,500 of these devices around
Georgia. As our local market remains a
primarily cash-based society, and 19% of
all transactions are carried out via cash-in
terminals, we see this as a continuing
complement to our mobile and internet
banking services.
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIVISIONAL REVIEWS continued
CORPORATE
SEGMENT
This year, we continued to expand our product
range for clients through single relationship
contacts. Today, our offering includes:
lending products, accounts and term deposits,
corporate cards, foreign exchange operations,
hedging, trade, factoring and project finance
products, payroll products, escrow services,
insurance products, and leasing (through the
TBC Leasing subsidiary) and brokerage
services (through the TBC Capital subsidiary).
We also maintain dedicated macroeconomic
and sector coverage to stay on top of all trends
and opportunities in the country.
Outlook for 2017
Our goal is to be the number one bank in
Georgia for corporate clients. We aim to
further strengthen our sector expertise to
deliver better, tailor-made solutions for
clients. We plan to strengthen our coverage
in the mid-corporate segment as well as
diversify our product offering. We will also
work further to improve process efficiency
and the customer experience.
Overview
TBC Bank remains a leader in the corporate
segment and continued to increase loans and
deposits in 2016. We have a comprehensive
range of syndicated deals, energy efficiency
programmes and trade finance products,
offered by experienced professionals with
many years of expertise across different
sectors. We are also enhancing our brokerage,
DCM and advisory services within our newly
merged CIB unit. TBC Bank started out
mainly in the corporate segment and has
well established relationships with leading
Georgian companies. Over more than two
decades, we have grown up alongside many
of our clients.
Performance in 2016
The corporate segment accounts for 28% of TBC
Bank’s overall loans and 28% of its deposits.
The segment continued to deliver strong
growth in loans and deposits in 2016. Loans
increased by 19% YoY excluding the Bank
Republic acquisition, or 37% YoY including it,
to GEL 2,060 million. The deposit portfolio
expanded by 47% YoY excluding the Bank
Republic acquisition, or 79% YoY including it,
to GEL 1,796 million. Between 2013 and 2016,
the corporate loan book grew by a CAGR of
21% and the deposit portfolio by a CAGR of
30% including Bank Republic acquisition.
In 2016, corporate loan yields averaged 10.7%
and deposit rates 4.2%. The NPL ratio was 4.6%,
compared with 7.9% in 2015. As of 31 December
2016, the corporate client base stood at around
2,500 customers.
36 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
MICRO, SMALL AND
MEDIUM ENTERPRISE
SEGMENT
SME segment
Overview
TBC Bank is the leader in the SME segment
in Georgia. We are the only bank in the
country to provide a specialised business
support programme for our SME clients,
offering free training in essential business
skills. SME has been one of our fastest
growing segments, and we have emerged as
the bank of choice, with 56% of start-ups and
37% of all registered companies in Georgia
choosing us as their business partner. SME
is one of the powerhouses of the economy,
and we are proud of our role in developing
Georgian business.
Performance in 2016
The SME segment accounts for 12% of TBC
Bank’s overall loans and 14% of its deposits.
In 2016, SME loans increased by 28% YoY
excluding the Bank Republic acquisition,
or 37% YoY including the acquisition, to
GEL 858 million. Deposits rose by 18% YoY
excluding the Bank Republic acquisition,
or 40% YoY including the acquisition, to
GEL 888 million. Between 2013 and 2016,
the SME loan book grew by a CAGR of 30%
and the deposit portfolio by a CAGR of 25%
including Bank Republic acquisition.
In 2016, SME loan yields averaged 10.5% and
deposit rates 1.1%. NPL ratio stood at 5.6%
at the year-end 2016 compared to 4.5% as of
31 December 2015.
In 2016, we continued to grow and gain
market share through clear differentiation
built on relationship banking, business
support, superior products and services, and
innovative customer offers. The number of
SME transactions has risen rapidly, reaching
7 million1 at the end of 2016, while the total
number of SME customers reached around
82,000, or 90,000 including Bank Republic’s
customers. We also have the leading
multichannel platform for business and
73%2 of all transactions were handled
through remote channels by the end of 2016.
TBC Bank remains the only player in Georgia
to offer important education and value-
added services to SME businesses through
businesses. The awards are open to
entrepreneurs from around Georgia and not
limited to our customers.
The event was a clear success: there were
more than 500 participants and winners in
seven nominations, while the project reach
was estimated at 4.5 million views. The final
winners were announced at a gala ceremony
in Tbilisi in November. It received strong
social media support, with around 90,000
people “talking about” our project slogan
#Sharesuccess and the media writing more
than 300 articles about the event.
1 Based on JSC TBC Bank standalone data
2 Based on JSC TBC Bank standalone data
its Business Support Programme. Using
our expertise, we have been able to train
leaders from over 9,000 companies in
essential areas, such as budgeting, tax and
business development. The SME Toolkit
(www.tbcbusiness.ge), an educational web
portal of the programme, has been steadily
gaining in popularity and has attracted
more than 1 million visitors since its launch
in 2014.
Last year, around 3,000 representatives of our
partner SMEs attended training and a further
60 received individual consultations as part of
the programme, which is supported by the
Asian Development Bank. We also sponsor
major conferences and networking events,
where SME representatives gather to gain
and share knowledge and contacts.
In 2016, we launched another high-profile
event that seeks to recognise excellence and
success at micro, small and medium-sized
(MSME) enterprises: the annual Business
Awards Ceremony. Our aim is to motivate
successful MSMEs to achieve more by
benchmarking them against the best,
simultaneously inspiring other Georgian
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIVISIONAL REVIEWS continued
One of the successful initiatives in the micro
segment in 2016 was Booklark. Through it,
anyone could become a sales agent for
TBC Bank by referring products to people
and making commission on successful
transactions. At present, we have 12,000
registered agents, of which 45% are active,
and an overall lead conversion rate of 5%.
Since the start of the project, there have
been 7,000 successful leads.
Outlook for MSME for 2017
We are committed to being the number one
bank for businesses in Georgia. Our strategic
initiatives for 2017 are designed to extend
our leadership and cement our image as the
number one partner bank for MSMEs in the
country. Areas of focus include enhancing
our customer experience, further developing
remote channels, digitising processes and
adding new resources to our education
web portal.
Microfinance segment
Overview
Microfinance (micro) has been one of the
fastest growing segments of TBC Bank’s
core business. The 2015 acquisition of Bank
Constanta made TBC Bank the leader in this
area, a title retained ever since. We have
a specialised branch network that has
established strong coverage of rural
areas through representatives in local
communities. We also use technology that
allows a loan to be issued on site, without a
customer having to go into a branch.
Performance in 2016
The micro segment accounts for 9% of TBC
Bank’s overall loans and 2% of its deposits.
In 2016, the micro loan book grew by 24%
excluding the Bank Republic acquisition,
or 37% YoY including the acquisition, to
GEL 678 million. Deposits increased by 20%
excluding the Bank Republic acquisition,
or 42% YoY including the acquisition, to
GEL 105 million. Between 2013 and 2016,
the micro loan book grew by a CAGR of 50%
including Bank Republic acquisition.
In 2016, micro loan yields averaged 21.4%
and deposit rates at 2.3%. NPL ratio was
3.8% at the year-end 2016 compared to 4.2%
as of 31 December 2015.
In 2016, we implemented several initiatives
to encourage growth in the micro segment.
These included introducing credit limits
for customers with a strong financial
standing and simplifying collateral
requirements for all micro loans. In addition,
we offer low-interest agricultural loans
through the Preferential Agro Credit Project,
which is supported by the Georgian Ministry
of Agriculture.
Our touch points’, at which we serve our
micro customers, include mobile and
internet banking, mobile sales agents,
branches and people in local communities,
such as village consuls. These diverse
channels help us to gain and recruit clients,
as well as cross-sell to our base of around
447,000 active customers.
38 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
SUBSIDIARIES
Key financial data:
Net loans
Total assets
Total deposits
Shareholder’s equity
Net interest income
Net fee and commission income
Other operating non-interest income
Total revenue
Operating expenses
Pre-provision income
Loan-loss provision
Net income
Net interest margin
Cost/income ratio
Cost of risk
ROAE
ROAA
Basel II/III tier 1 capital
Basel II/III total capital
NPLs
NPL coverage ratio
NPL coverage ratio with collateral
Key operating data:
Branches
Employees
ATMs
POS terminals
Bank Republic
Our newly acquired, wholly-owned subsidiary,
Bank Republic, is a large financial institution
that has been historically well managed and
financially strong. It has consistently maintained
a return on average equity of over 18% since
2013 and the figure reached 23% in 2016.
The acquisition’s price-to-book value multiple,
based on the 2016 year-end book value, was
around 1.2 times. The acquisition creates
opportunities for synergies and reinforces our
commitment to offering our clients superior
products and services and generating
maximum value for all shareholders and other
stakeholders. The increased scale of our
operations following the acquisition is also
expected to provide significant opportunities for
cross-selling our products and services. The full
merger is set for completion in Q3 2017.
Key transaction highlights:
• Bank Republic is a large and financially
sound institution, having maintained a
return on average equity of over 18% since
2013 and reaching 23% in 2016
• The acquisition makes TBC Bank the
largest bank in Georgia and an undisputed
leader in retail banking
• Bank Republic reinforces TBC Bank’s
position in key operating segments,
including consumer and mortgage lending
• Attractive synergy potential and earnings
accretion from the first year post closing,
with total expected run-rate synergies post
recurring costs of around GEL20.5 million,
stemming primarily from a personnel
optimisation, reduction in marketing
and consulting costs, streamlining other
operating expenses, as well as the
optimisation of the branch network
• Transaction structure minimises
shareholder dilution, while providing a
potential to increase free float in the
future
• One-off integration costs are estimated
to total GEL 23.3 million
• Price to earnings multiple based on 2016
earnings of around 5.9 times
Bank
Republic
1,426,416
2,058,677
813,826
308,503
112,424
10,164
28,583
151,171
62,995
88,176
19,866
3,210
7.6%
41.7%
1.5%
23.0%
3.5%
10.4%
12.2%
3.1%
112.0%
200.7%
Bank
Republic
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164
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 39
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIVISIONAL REVIEWS continued
TBC Insurance (former JSC Insurance
Company Kopenbur)
TBC Bank acquired 100% stake of JSC
Insurance Company Kopenbur in October
2016, in line with its strategy to enhance the
product offering to customers. Kopenbur
was focused on the retail segment in Georgia
and particularly strong in motor insurance.
It will soon become the main Bancassurance
partner of TBC Bank, providing traditional
insurance services with a focus on retail
insurance products.
TBC Leasing
TBC Leasing, a wholly-owned subsidiary, was
founded in 2003 and is the leading leasing
company in Georgia, with a market share
of over 69%. Its portfolio exceeded GEL102
million at the end of 2016, while over 600
companies were customers and there were
around 1,500 active leasing agreements.
TBC Leasing clients are SMEs from medical,
printing, transportation, food and beverage
production, manufacturing, service, trade,
agriculture, construction and other sectors
across Georgia. The company is also involved
in government projects, such as “Produce in
Georgia” and “Cheap Agro-Leasing” and
others. Since 2015, TBC Leasing has also been
active in automobile financing.
Last year was a busy one for TBC Leasing,
as it launched full-service, operational
leasing. In addition, it obtained financing
from international financial institutions on
attractive terms and issued a US$3 million
private bond. It also launched a new credit
risk analysis department to improve asset
quality and launched new products.
TBC Leasing’s ambition is to be the leading
company on the market, one that offers
top-quality service through multiple
channels and environmentally friendly
solutions (financing electric cars, solar
systems) and tailored services for clients.
Key tasks in 2017 include the launch
of the leasing core software system and
development of digital customer portals.
Plans also include launching a full-service
fleet financing and advisory service.
TBC Capital
TBC Capital is TBC Bank’s wholly-owned
investment banking subsidiary. Its main
lines of business include debt and equity
capital markets, brokerage, and corporate
client advisory.
TBC Capital revamped its operations in 2016,
bringing in two new directors, each with more
than 20 years of industry experience at major
investment banking institutions. During the
year, TBC Capital completed several bond
offerings, won advisory mandates and
introduced an enhanced online platform that
will enable its clients to trade securities
online. The platform offers advanced search
and chart analysis options, as well as portfolio
monitoring functionality. TBC Capital also
started to offer its clients customised
solutions for the mitigation of foreign currency
exposure risks, improving the efficiency of
asset liability matching, as well as portfolio
refinancing optionality.
Looking forward, TBC Capital plans to
increase its footprint in Georgia’s debt and
equity capital markets. It intends to achieve
this by attracting foreign clients and benefiting
from TBC Bank’s access to the large number
of Georgian corporate clients. TBC Capital also
expects to win an increasing number of
advisory mandates from corporates.
In 2017, TBC Capital expects to enrich its
brokerage services through its third-party
operated electronic trading platform. It will
be well positioned for responding to the
increasing demand from Georgian and
international clients who seek this service.
In addition, TBC Capital is seeking to work
with emerging local asset management
companies to create new investment products.
TBC Capital is also a shareholder in the
Georgian Stock Exchange and plays an active
role in the development of its infrastructure.
International operations
Most of TBC Bank’s operations are conducted
in Georgia (99.6% of total assets). However,
we have two international subsidiaries, one in
Azerbaijan and one in Israel.
TBC Invest
TBC Invest is a wholly-owned subsidiary that
acts as an intermediary with Israeli clients, and
offers information regarding products, fees and
interest rates on TBC Bank’s products.
TBC Kredit
TBC Kredit is a non-banking credit organisation
that has been in Azerbaijan since 1999. It
focuses on the SME, consumer and mortgage
lending sectors. TBC Bank has owned 75% of
TBC Kredit since 2008.
TBC Kredit’s total portfolio was US$17.6 million
at 31 December 2016. SME lending accounted
for 49%, while consumer and mortgage loans
accounted for 33% and 18% respectively.
40 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Other local subsidiaries
The Group also includes the following
subsidiaries:
• United Financial Corporation and TBC Pay
process card payments and supply
payment collection services to providers
of self-service machines and POS, WAP
and Windows terminals;
• Real Estate Management Fund and Mali
manage property that TBC Bank has
repossessed for future sale; and
• Banking Systems Service Company
provides technical services and software
support for electronic banking systems
(such as POS and cash machines).
• Merckhali Pirveli is involved in
operating leasing
BREAKDOWN OF TOTAL ASSETS
BREAKDOWN OF NET INCOME
79.20%
93.00%
TBC (the Bank)
TBC (the Bank)
18.90%
3.40%
Bank Republic
Bank Republic
1.10%
0.70%
TBC Leasing
TBC Leasing
0.40%
<0.01%
International Operations
International Operations
0.40%
Other
2.80%
Other
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 41
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
PRINCIPAL RISKS AND UNCERTAINTIES
Principal risks and uncertainties
Risk management is a critical pillar of the Group’s strategy and in order to perform it effectively it is essential to identify emerging risks and
uncertainties. The following table presents the principal risks that could adversely impact the Group’s performance, financial condition and
future prospects. The Group’s performance may be affected by additional risks and uncertainties other than the ones listed below and some
yet unknown risks that emerge in the future. More details regarding risk management practices can be found in the Risk Management
Section on page 46.
The Company’s Board (hereafter the “Board”) has reviewed entirely the principal risks in order to determine whether to adopt the going
concern basis of accounting and during its assessment of the long-term viability of the Group’s operations as set out in the Going Concern and
Viability Statements on pages 94 and 95 respectively.
Principal risk
Risk description
Risk mitigation
The Group faces currency induced credit
risk due to the high dollarisation of the
Group’s portfolio.
The risk of further depreciation of GEL
is one of the most significant risks with
negative impact on the portfolio quality.
This is due to high dollarisation of the
Group’s balance sheet. Unhedged
borrowers could suffer from increased
debt burden when their FX denominated
liabilities are amplified.
Specific attention is paid to currency-induced credit
risk due to the portfolio’s high dollarisation. The
vulnerability towards exchange rate depreciation is
monitored on a frequent basis in order to promptly
implement the action plan in case of need. Ability to
withstand certain FX depreciation is incorporated
into the credit underwriting standards which also
include applying significant currency devaluation
buffers for the uncharged borrowers. In addition,
the Group holds significant capital against currency
induced credit risk. Given the experience and
knowledge built throughout the recent currency
volatility, the Group is in a good position to promptly
mitigate emerging FX depreciation risks.
As a result, the level of the Group’s non-performing
loan portfolio decreased from 4.8% in 2015 to 4.0%
(3.5% with Bank Republic) in 2016 year. The Group
maintains a reserve coverage of 88% with cash
(90% without Bank Republic) and 221% in cash,
plus collateral (217% without Bank Republic).
A significant share of the Group’s loans (and by large
of the total banking sector loans in Georgia) is
denominated in currencies other than GEL, particularly
US Dollar. As of 31 December 2016 the National Bank of
Georgia (hereafrter NBG) reported that, 65.4% of total
banking sector loans were denominated in foreign
currencies. As at the same date, 65.9% (66.3% without
Bank Republic) of the Group’s total gross loans and
advances to customers (before provision for loan
impairment) were denominated in foreign currencies.
The income of a number of customers is directly linked to
US Dollars via remittances, or exports in case of
business borrowers, and some customers hedge their
exposure through savings in US Dollars. Nevertheless,
customers may not be protected against significant
fluctuations of the exchange rates of the GEL against the
currency of the loan.
The GEL exchange rate has been consistent with those of
Georgia’s trading partners. However, it depreciated
against the US Dollar by 28.5% in 2015 and by 10.5% in
2016 (the latter was largely offset by GEL appreciation in
the first quarter of 2017).
The NBG operates effectively under its inflation-targeting
framework. However, GEL remains in free float and is
exposed to many internal and external factors that in
some circumstances could result in devaluation against
the US Dollar.
42 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Principal risk
Risk description
Risk mitigation
The Group’s performance may be
compromised by adverse developments
in the economic environment.
The slowdown of economic growth in
Georgia will have an adverse impact on
the repayment capacity of the borrowers,
and restrain their future investment and
expansion plans. These occurrences
will be reflected in the Group’s portfolio
quality and profitability, and also impede
the portfolio growth rates. Negative
macroeconomic developments can
compromise the Group’s performance
through different parameters such as
higher unemployment rates, increasing
retail sector default rates, falling
property values, worsening loan
collateralisation, lower debt service
capabilities of companies suffering
from decreasing sales.
The political and economic instability
in the neighbouring and main trading
partner countries negatively impacts
the economic outlook of Georgia
through a worsening current account
(e.g. decreasing exports, decreasing
tourism inflows, lower remittances
and foreign direct investments).
The Group encounters the capital risk
of not meeting the minimum regulatory
requirements that may compromise
growth and strategic targets.
The Bank is regulated by the NBG. The
regulations and various terms of its
funding and other arrangements require
compliance with certain capital adequacy
ratio and other ratios. Local regulatory
requirements are more conservative than
the current Basel standards. At the same
time, the local regulator has the right to
impose add-ons on a bank if it perceives
excessive risks and uncertainties in that
lender or in the market.
As the Group 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 the general economic
conditions in the country.
During 2011-2016, the Georgian economy recorded an
average real GDP growth of 4.5%1 per annum.
In 2016, despite challenges in the region and shrinking
GDP growth in most of the regional economies, Georgia’s
economy grew by 2.7%1.
Georgian economy is open, liberal, well diversified, and
reasonably reformed. While it showed resilience during
international or regional crises, it is still exposed to many
internal and external developments. These could result
in lower growth or, in some severe circumstances,
a contraction of the economy.
The NBG sets the minimum regulatory requirement for
total capital adequacy ratio at 10.8% (Basel I) and 10.5%
(Basel II/III). The Bank’s capitalisation stands at 14.1%
and 14.2% respectively as of year-end 2016. In terms of
Tier 1 capital, TBC Bank’s capital adequacy ratio is 10.4%
per Basel II/III and 10.9% per Basel I, versus the minimum
requirements of 8.5% and 7.2% respectively.
The ratios are above the respective regulatory minimums
and additional stress buffers set by the Bank.
The NBG is gradually phasing out the Basel I capital
adequacy standards and the regulations will be fully
replaced by Basel II/III standards by the end of 2017.
To decrease the vulnerability to the economic cycles
and adverse economic developments, the Group
identifies and limits its exposure to cyclical
industries within its risk appetite framework.
The Group has established a macroeconomic
monitoring process. This enables a closely and
recurrent observation of the economic
developments in Georgia, as well as its neighbouring
countries, and to identify early warning signals
indicating imminent economic risks. The given
system allows the Group to timely assess significant
economic and political occurrences and analyse
their implications for the loan portfolio. The
identified implications are duly translated into
specific action plans with regards to reviewing the
underwriting standards, risk appetite metrics or
limits including limits per each of the most
vulnerable industries.
Additionally, the stress testing and scenario analysis
applied during the credit review and portfolio
monitoring processes enable the Group to have an
advance evaluation of the impact of macroeconomic
shocks on the business and the portfolio.
Resilience towards a changing macroeconomic
environment is incorporated into credit underwriting
standards. As such, borrowers are expected to
withstand certain adverse economic developments
through prudent financials, debt-servicing
capabilities and conservative collateral coverage.
The Group undertakes stress-testing and sensitivity
analysis to quantify extra capital consumption under
different scenarios. Based on such analyses, the
Group holds extra capital buffers to steadily meet
the minimum regulatory requirements.
Capital forecasts, as well as the results of the stress
tests and what-if scenarios, are actively monitored
with the involvement of the Bank’s Management
Board (the “Management Board”) and its risk
committee to ensure prudent management and
timely actions when needed.
1 Source: Geostat
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 43
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
PRINCIPAL RISKS AND UNCERTAINTIES continued
Principal risk
Risk description
Risk mitigation
The Group is exposed to
concentration risk.
Banks operating in developing markets are
typically exposed to both single name and
sector concentration risks.
The Group has large individual exposures
to single name borrowers. Their eventual
default will entail increased credit losses
and high impairment charges.
The Group’s portfolio is well diversified
across sectors, resulting in only a
moderate vulnerability to sector
concentration risks. However should
exposure to common risk drivers increase,
the risks are expected to amplify
correspondingly.
Liquidity risk is inherent in the
Group’s operations.
While the Board believes that the Group
currently has sufficient financial resources
available to meet its obligations as they fall
due, liquidity risk is inherent in banking
operations and can be heightened by a
number of factors. These include 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.
Access to credit for companies in emerging
market is significantly influenced by the
level of investor confidence and, as such,
any factors affecting investor confidence
(for example, a downgrade in credit
ratings, central bank or state interventions
or debt restructurings in a relevant
industry) could influence the price or
availability of funding for companies
operating in any of these markets.
Any decline in the Group’s net interest
income or net interest margin could lead
to a reduction in profitability.
The net interest income accounts for the
majority of the Group’s total income.
Consequently, fluctuations in its net
interest margin affect the results of
operations. High competition on the local
banking sector could drive interest rates
down, compromising the Group’s
profitability. At the same time, the cost of
funding is largely exogenous to the Group
and is derived based on both the national
and international markets.
The Group’s loan portfolio is diversified, with maximum
exposure to a single industry (i.e. energy and utility)
standing at 7.3% (8.2% without Bank Republic effect).
Considering the macroeconomic outlook, the figure is
reasonable and demonstrates adequate credit portfolio
diversification.
The share of top 20 borrowers’ exposure (including the
Bank Republic effect) decreased from 15.6% to 11.3% YoY,
being in line with the Bank’s target of alleviating
concentration risk.
Throughout 2016 the Group was in compliance with
Risk Appetite limits, as well as the minimum liquidity
requirements set by the NBG.
As of 31 December 2016, the net loan to deposits plus
IFI funding ratio stood at 93.4%, liquidity coverage ratio
was at 268% and net stable funding Ratio was at 108%.
All of them are comfortably above the NBG’s minimum
requirements or guidance for such ratios.
The Group constantly checks its concentrations
to single counterparties as well as sectors and
common risk drivers, and introduces limits for
risk mitigation.
As part of the Risk Appetite Framework, the Group
limits both name concentration as well as sectorial
concentrations. Any considerable change in the
economic or political environment, in Georgia or
neighbouring countries, will trigger the Group’s
review of the risk appetite criteria in order to
mitigate emerging risk concentrations. Stringent
monitoring tools are in place to ensure the
compliance with the set limits.
In addition, the Bank has dedicated restructuring
teams to manage weakened borrowers. When it is
deemed necessary, clients are transferred to such
teams for a more efficient handling and, ultimately,
to limit resulting credit risk losses.
According to the Basel II Pillar 2 guidelines,
the Group has developed a model to estimate
unexpected losses from single name borrowers
and sector concentration. This model ensures that
the Group remains adequately capitalised towards
concentration risks.
To mitigate the risk, the Group holds a solid liquidity
position. The Group performs an outflow scenario
analysis for both normal and stress circumstances
to make sure that they can be met by the Group’s
liquid assets and cash inflows. The Group maintains
diversified funding structure to manage respective
liquidity risk. The Board believes there is 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 impact on the Group’s
business, financial condition, and results of
operations and/or prospects. As a part of liquidity
risk management framework the Group has a
Liquidity Contingency Plan in place outlining risk
indicators for different stress scenarios and
respective action plans.
The majority of Group’s total income derives from net
interest income. Consequently, the Group’s results of
operations are affected by fluctuations in its net interest
margin (“NIM”).
High level of current margins and continuous efforts
in cost optimisation represents a safeguard against
margin declines posing profitability concerns for
the Group.
In 2016 the NIM stood at 7.8% (including the Bank
Republic effect), which is broadly unchanged from 2015.
The acquisition of Bank Republic had a 0.1pp positive
impact on the Group’s Q4 2016 net interest margin.
The Group tries to close direct exposure to LIBOR and
the local refinancing rates or, where this is not feasible,
price them appropriately. As of 31 December 2016,
GEL 1,916 million in assets (17.8%) and GEL 1,276 million
in liabilities (13.9%) were floating, related to the LIBOR/
FED/ECB (deposit facility) rates. During the same period
GEL 1,114 million of assets (10.3%) and GEL 1,420 million
of liabilities (15.4%) were floating related to the NBG’s
refinancing rate.
Pricing framework and profitability analysis assist
the Group in decision making. In cases where loans
are extended on fixed terms rather than floating,
the interest rate risk is adequately translated into
price premiums, safeguarding against increasing
interest rates.
Nevertheless, the Group expects margins to
decrease in the medium term. The decrease
has been included in the forecast which provides
the basis for the Group’s guidance. In addition,
the Group expects that the decreasing effect will
be compensated in practice by increased fee and
commission income and decreased unit cost spent
per transaction.
44 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Principal risk
Risk description
Risk mitigation
The threat posed by cyber-attacks
has increased in recent years and it
continues to grow.
The risk of potential cyber-attacks, which
have become more sophisticated, may lead
to significant security breaches. Such risks
change rapidly and require continued focus
and investment.
No major cyber-attack attempts have targeted a
Georgian commercial banks in recent years.
Nonetheless, the Group’s increasing dependency on IT
systems increases its exposure to potential cyber-
attacks.
The Group is exposed to
regulatory risk.
The Group’s activities are highly regulated
and thus face regulatory risk. The local
regulator, the National Bank of Georgia,
can increase the prudential requirements
across the whole sector as well as for
specific institutions within it. Therefore,
the Group’s profitability and performance
may be compromised by an increased
regulatory burden, including higher capital
requirements
The Bank is regulated by the NBG. In addition
to mandatory capital adequacy ratios, the NBG sets
lending limits and other economic ratios, including, inter
alia, lending ratios, liquidity ratios and investment ratios.
Under the Georgian banking regulations, the Bank is
required, among other things, to comply with minimum
reserve requirements and mandatory financial ratios and
regularly file periodic reports. The Bank is also regulated
by respective tax code or other relevant laws in Georgia.
Following the Company’s listing on the London Stock
Exchange’s premium segment, the Group became
subject to increased regulations from the UK Listing
Authority.
In addition to its banking operations, the Group also
offers other regulated financial services products,
including leasing, insurance and brokerage services.
The Group’s current operations in Azerbaijan (through
TBC Kredit) are required to comply with the Azerbaijani
regulations.
The Group’s operations remain in full compliance with all
relevant legislation and regulations.
The Group is also subject to financial covenants in its debt
agreements for more information see page 210 in the
Account prepared in accordance with IFRS standards.
The Group actively monitors, detects and prevents
risks arising from cyber-attacks. The Group’s
staff monitors developments on both local and
international markets to increase awareness
of emerging forms of cyber-attacks. Intrusion
Prevention and DDoS protection systems are in
place to protect the Group from external
cyber-threats. Security incident and event
monitoring system in conjunction with respective
processes and procedures are in place to handle
cyber-incidents effectively.
Processes are continuously updated and enhanced
in order to respond to new potential threats. The
Data Recovery Policy is in place to ensure business
continuity in case of serious cyber-attacks.
The Group has established systems and processes
to ensure full regulatory compliance.
The dedicated compliance department, reporting
directly to the Chief Executive Officer is the primary
responsible for the regulatory compliance. However,
the compliance is embedded in all levels of the Bank.
The Group’s Risks, Ethics and Compliance
Committee is responsible for the regulatory
compliance at the Board level.
In terms of banking regulations as well as Georgia’s
taxation system, the Group is closely engaged with
the regulator to ensure that new procedures and
requirements are discussed in detail before their
implementation.
While the decisions made by the regulator
are beyond the Group’s control, significant
regulatory changes are usually preceded
by a consultative period that allows all lenders to
provide feedback and adjust their business practice.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 45
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
RISK MANAGEMENT
Risk management
Overview
Risk management objectives and principles
The Group 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 staff responsible for
risk management.
• Promote sustainable growth and the Group’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 the Group’s
sustainability and resiliency.
• Ensure that risk management is an underpinning to implementation of the Group’s strategy. Staff responsible for risk management
provides assurance on the feasibility of achieving of objectives through risk identification and management. Identification and the
adequate pricing of risks, as well as risk mitigation actions, support generating desired returns and achieving planned targets.
• Ensure that risk management represents a competitive advantage for the Group. Comprehensive, transparent and prudent risk
governance facilitates understanding and trust from multiple stakeholders ensuring the sustainability and resilience of the business
model and the positioning of risk management as the Group’s competitive advantage and strategic enabler.
46 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Risk management framework
All necessary components 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 supporting IT infrastructure, cross-risk
analytical tools and techniques such as capital adequacy management and stress-testing. The following diagram depicts the risk
management framework.
Group risk management framework
Enterprise Risk Management
• Risk appetite
• Risk strategy
• Business planning
Credit risks
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 and 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 and processes
Operational risk
modelling and processes
ICAAP, stress tests
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 47
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
RISK MANAGEMENT continued
Governance
The Group 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 the Group’s strategic and risk objectives, adherence to the Group’s risk appetite and sound risk management.
The Group’s governance structure ensures adequate oversight and accountability, as well as clear segregation of duties. The Board and the
Supervisory Board have joint overall responsibility to set the tone at the top of the Group and monitor compliance with the established
objectives, while the Management Board governs and directs the Group’s daily activities.
Risk governance structure
Company
Board
Company Board
Risk, Ethics and
Compliance Committee
Audit Committee
Supervisory
Board
Supervisory Board
Risk, Ethics and
Compliance Committee
Audit Committee
Management
Board
Risk
Committee
Operational Risk
Committee
ALCO
Functions:
ERM
Credit
risk
Financial
risk
Operational
risk
Risk
Management
Structure
Committees:
Loan Approval Committees
Restructuring and Collections Committees
48 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
All of the Boards, the Board, Supervisory Board and the Management
Board have dedicated risk committees. The Risk, Ethics and
Compliance Committees of the Supervisory Board and the Board
supervise the risk profile and risk governance practice within
the Group, while the Audit Committees are responsible for the
implementation of key accounting policies and the facilitation of
internal and external auditor activities. The Risk Committee of the
Management Board was established to guide the Group-wide risk
management activities and monitor major risk trends to ensure
the risk profile complies with the Group’s established risk appetite.
The Operational Risk Committee of the Management Board 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.
The Board, the Supervisory Board and senior management of the
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 sets monitoring and
reporting responsibilities, as well as escalation paths for different
trigger events and limits breaches which prompt risk teams to
frame and implement established mitigation actions. To effectively
incorporate the Group’s risk appetite into the Group’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. The process of risk appetite setting and
cascading is undertaken in parallel with 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 targets.
The Board level oversight, coupled with the permanent involvement
of senior management in the Group’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 by
sanctioning transactions as well as tools and techniques for risk
identification, analysis, measurement, monitoring and reporting. The
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 guarantee that the Group makes informed decisions
that are adequately priced and that any risks exceeding the Group’s
established targets are not taken. Credit, liquidity, market, operational
and other non-financial risks are each managed by dedicated teams.
The Group’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.
In addition to the risk teams subordinated to the Chief Risk Officer
(“CRO”), the Compliance Department (which reports directly to the
CEO) is specifically 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 the Group to promote
the further improvement of operations and risk management.
Enterprise risk management (“ERM”)
The centralised ERM function established in 2016 ensures effective
development, communication and implementation of risk strategy
and risk appetite across the Group. The ERM function facilitates
cross-risk activities such as aggregation and analytics, cross-risk
reporting and addresses issues that are not specific to a single type
of risk. Accordingly, the ERM function complements the role of
other risk functions to ensure the coverage of key risk activities
and responsibilities and builds capabilities in a centralised team.
Major ERM functions can be summarised as follows:
• Risk appetite development, cascading and monitoring are
•
essential elements of the Group strategy. Risk budget is allocated
to individual business lines in order to ensure achievement of
aggregated metrics.
Internal capital adequacy assessment process is a continuous
process within the Group to ensure adequate calculation of
unexpected losses and prompt respective mitigation actions to
facilitate solvency. Economic capital is assessed for all material
risks of the Group such as credit, financial, operational and
market risks. Additionally, individual economic capital
calculations are supplemented by the Enterprise Wide Stress
Tests (“EWST”). Based on the selected stress scenarios, the
Group calculates losses and projects capital adequacy ratios.
As a result of this exercise, the Group defines the capital buffers
that are to be held in order to meet the regulatory requirements
under predefined stress scenarios.
• Stress-testing exercises are one of the crucial areas for effective
risk identification, measurement and mitigation. In that regard,
the Group continuously advances its stress-testing capabilities
and tools. Both transaction and portfolio level stress tests form
part of the regular risk management activities.
• Consistency of risk management practices within the Group is
also an important task of the ERM. A risk management function
dedicated to promoting consistency ensures that the risks are
identified, measured and governed in an optimal manner within
the Group and reported and understood on a consolidated basis.
The Group-wide approach to risk management was underpinned
and enhanced further due to recent acquisition of two significant
financial institutions.
• Generating adequate return on risk plays a crucial role in
sustainability of the business model. Risk inputs for pricing are
designed in a way to serve as a backdrop against excessive risk
taking and guarantee that Group takes adequately priced risks.
Credit risk management
As a provider of banking services, the Group is exposed to the risk
of loss 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 Group since
it is engaged mainly in traditional lending activity with a simple
balance sheet. Thus, the Group dedicates significant resources to
its management.
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
RISK MANAGEMENT continued
Due to high dollarisation of the economy, currency induced credit
risk is one of the significant components of the credit risk, which
relates to risks arising from foreign currency-denominated loans to
un-hedged borrowers in the Group’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.
Major objectives of credit risk management are to put in place sound
credit approval process for informed risk-taking and procedures for
effective risk identification, monitoring and measurement.
The Group adopts segment and product specific approaches for
prudent and efficient credit risk management. Therefore, corporate,
SME, retail and micro portfolios are managed separately to address
the specifics of individual segments. Corporate and SME borrowers
have larger exposures and are managed on an individual basis,
whereas micro and retail borrowers are managed on a portfolio basis.
Currency induced credit risks (“CIGR”)
The Group faces currency-induced credit risk, given that a large part
of its exposure is denominated in foreign currency in line with the
dollarisation level of the economy. However, limits are established
within the risk appetite framework to ensure that the Group
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 Group applies conservative lending standards to un-hedged
borrowers with FX-denominated exposures to ensure that they can
withstand a certain amount of FX depreciation without credit quality
deterioration.
Apart from the measures in place throughout the underwriting
process, the Group actively monitors and assesses the quality of
FX-denominated loans through stress-testing exercises and holds
sufficient capital buffers against unexpected losses.
Major credit risk functions can be summarised as follows:
Credit approval
The Group 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 is
distinct 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, whereas the decision-making process for smaller
retail and micro loans is largely automated.
Different loan approval committees approve credit exposures to
corporate, SME, retail and micro customers. The Group sets up
sophisticated delegation of authority for loan approval that is based
on the four eyes principle, additionally higher senior level approval
is required for increasing size of exposures. In particular, different
tiers of Loan Approval Committees are responsible for reviewing
credit applications and approving exposures, taking into account 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 authority, 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 the Bank’s
regulatory capital would require review and approval of the Risk,
Ethics and Compliance Committee.
Such a structure is a sound platform for risk teams to facilitate
continuous enhancement and sophistication of borrower analysis by
business unit managers, to introduce on line controls for risk-taking
and to ensure that credit approval decisions are in compliance with
the Group’s established risk appetite.
In the event of material currency depreciation, the Group has tools
in place to accelerate its monitoring efforts, identify customers with
potential weaknesses, and introduce prompt mitigation.
Credit concentration risk
The Group 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 Group
to efficiently manage concentration risk and, in particular,
concentrations of single name borrower and sectors. In addition,
the unsecured lending limits are defined as part of the Group’s risk
appetite framework.
The Group is subject to single name borrower and top 20 borrowers’
concentration limits and it focuses on optimisation of the structure
and quality of the latter portfolio. Unsecured lending is capped by the
regulatory requirements. In addition, the Group 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 on a monthly basis.
Trends in the risk positions are analysed in detail and corrective
actions are recommended should new sources of risk or positive
developments emerge.
Along with managing concentration levels in the portfolio, the Group
estimates unexpected losses and respective economic capital for
concentrations of both single name borrower and sectors using the
Herfindahl-Hirschman Index (“HHI”), thus ensuring that sufficient
capital is held against concentration risk.
50 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Collateral policies
Collateral represents the most significant credit risk mitigation tool
for the Group, thus, effective collateral management is one of the key
risk management components. Collateral on loans extended by the
Group 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 Group has a largely collateralised portfolio in all its
segments with real estate representing a major share of collateral.
A centralised unit for collateral management governs the Group’s
view and strategy in relation to collateral management and ensures
that collateral serves as an adequate mitigating factor for credit risk
management purposes. The collateral management framework
consists of a sound independent appraisal process, haircut system
throughout the underwriting process, monitoring and revaluations.
Throughout the underwriting process, provided collateral is
appraised by the Group’s Internal Appraisal group in accordance with
the Group’s internal policies. In specific instances such as internal
lending and material transactions the Group 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, the Group applies haircuts to the asset’s
market value based on the property type and its location.
Collateral of significant value 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.
Credit monitoring
The Group’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.
The Group dedicates considerable resources to gain a clear and
accurate understanding of the credit risk faced across various
business segments. The Group 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, as well as encompassing 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.
Reports relating to the credit quality of the credit portfolio are
presented to the Board’s Risk, Ethics and Compliance Committee on
a quarterly basis. By comparing current data with historical figures
and analysing forecasts, the management believes that it is capable
of identifying risks and responding to them by amending its policies
in a timely manner.
Restructuring and collections
The Group uses a comprehensive portfolio supervision system to
identify weakened credit exposures promptly taking early remedial
actions when necessary. Collections and recoveries processes
are initiated 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 manage weakened
borrowers across all business segments, with collection and
recovery strategies tailored for business segments and individual
exposure categories. The primary goal of restructuring unit 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
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 may include all available sources of loan recovery, such as
selling the borrower’s assets, realising collateral or payments under
guarantees. The Group’s goal in the recovery process is to negotiate
a loan recovery strategy with the borrower and secure cash
recoveries to the possible extent or negotiate repayment through
the sale or repossession of collateral.
Collection functions for retail and micro loans support customers
who are experiencing difficulties in fulfilling their obligations.
Such customers may miss payments, or notify the Group about
their difficulty with loan repayments. A centralised monitoring
team monitors retail borrowers in delinquency, which coupled with
branches’ efforts, are aimed at maximizing collection. The debt
managed through FICO software is applied for early collection
processes. Collection strategies are defined based on the size
and type of exposure. Specific strategies are tailored to 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 the Group 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 so that the full repayment of
the loan or loans can be rescheduled and repaid accordingly.
Once the exposure is transferred to the recovery unit, if the Group is
unable to negotiate acceptable terms with the borrower, the Group
may initiate collateral repossession, which is usually a standard and
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.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 51
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
RISK MANAGEMENT continued
Provision assessment
In assessing the credit risk and calculating provisions, the Group
takes into account three components: (i) the ‘probability of default’ by
the counterparty on its contractual obligations; (ii) current exposures
to the counterparty and potential utilisation of undrawn credit
liabilities, from which the Group assessed the ‘exposure at default’;
and (iii) the likely loss ratio on the defaulted obligations (the ‘loss
given default’).
According to the Group’s policy, asset and contingent liability loss
reserves must be maintained at an adequate level to absorb all
estimated incurred losses in the Group’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 and assessed individually for impairment. In order to
calculate the impairment allowance for collectively assessed loan
pools, the Group estimates certain risk parameters, based on
various statistical models.
The Group is in the process of implementation provisioning
guidelines in line with IFRS 9 requirements. The project is
undertaken with support from Deloitte and includes methodologies
and model development and software implementation.
Financial risk management
Liquidity risk management
Liquidity risk is the risk that the Group either may not have sufficient
financial resources available to meet all of its obligations and
commitments as they fall due, or could only access those resources
at a high cost.
Both funding and market liquidity risks can emerge from a number of
factors that are beyond the Group’s control. Due to financial market
instability, factors such as a downgrade in credit ratings or other
negative developments may affect the price or ability to access
funding necessary to make payments in respect of the Group’s
future indebtedness.
Liquidity risk is managed by the Financial Risk Management and
Treasury departments and is monitored by the Management Board
Risk Committee (“MBRC”) or Assets and Liabilities Management
Committee (“ALCO”) within their predefined functions.
The principal objectives of the Group’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 the Group’s
statement of financial position and set monitoring ratios to manage
funding in line with the Group’s well balanced growth; and
(iii) monitor liquidity and funding on an on-going basis to ensure that
approved business targets are met without compromising the
Group’ risk profile.
Liquidity risk is categorised into two risk types: funding liquidity risk
and market liquidity risk.
Funding liquidity risk is the risk that the Group 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, the Group internally developed a
Liquidity Coverage Ratio (“LCR”) and a Net Stable Funding Ratio
(“NSFR”) model, both under Basel III liquidity guidelines.
Additionally, the Group also applies stress tests and “what-if”
scenario analyses and monitors the NBG’s 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. NSFR (calculated by dividing
available stable funding 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 the Group
to rely on more stable sources of funding on a continuing basis.
Market liquidity risk is the risk that the Group 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, the Group follows Basel III guidelines on high-quality
liquidity asset eligibility to ensure that the Groups high-quality liquid
assets can be sold without causing significant movement in the price
and with minimum loss of value.
In addition, the Group has a liquidity contingency plan, updated
annually, which forms part of the Group’s overall prudential liquidity
policy and is designed to ensure that the Group 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
The Group’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 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
the Group’s differentiators. The Group relies on relatively stable
deposits from Georgia as the main source of funding. To maintain and
further enhance its liability structure, the Group sets targets for
retail deposits in the strategy and sets loan-to-deposit ratio limits.
The Group also sets deposit concentration limits for large deposits
and deposits of non-Georgian residents in its deposit portfolio.
We believe that the Group 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 of the Audited Consolidated Financial Statements.
52 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Market risk
The Group 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 the Group. The Group’s strategy is not to be involved
in trading financial instruments or investments in commodities.
Accordingly, the Group’s only exposure to market risk is foreign
exchange risk in its “structural book”, comprising its regular
commercial banking activities which have no trading, arbitrage or
speculative intent.
Foreign exchange risk
Due to high dollarisation of the economy in Georgia, movements in
foreign exchange rates can adversely affect the Group’s financial
position. 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 balance (including off-balance sheet) open currency
positions and to maintain the latter within 20% of the Bank’s
regulatory capital. For the year ended 31 December 2016, the Bank
maintained an aggregate balance open currency position of 3.2%.
In addition, the Board (the Supervisory Board where applicable) sets
further limits on open currency positions. The Board has set limits
on exposure levels by currency and for total aggregate position
which are more conservative than those set by the NBG and the
Board. The Group’s compliance with these limits is monitored daily
on both a standalone and consolidated basis in relation to significant
subsidiaries (e.g. Bank Republic) by the heads of the Treasury and
Financial Risk Management Departments and is reported daily to the
Management Board, and periodically to the Board, the Supervisory
Board, and their Risk, Ethics and Compliance Committees. On the
Group-wide level, FX risk is monitored and reported on a monthly
basis. VaR analysis following Basel guidelines is used to assess the
Bank’s minimum capital requirements under the ICAAP framework
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 the Group’s financial
assets and liabilities. 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 most
of the loans offered by the Group are at fixed interest rates, while
a portion of the Group’s borrowing is based on a floating rate of
interest. The Group’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 the Bank holds with the
NBG. Furthermore, many of the Group’s loans to and deposits from
customers contain a clause allowing the Group to adjust the interest
rate on the loan/deposit in case of adverse interest rate movements,
thereby limiting the Group’s exposure to interest rate risk. The
management also believes that the Group’s interest rate margins
provide a reasonable buffer in order to mitigate the effect of a
possible adverse interest rate movement.
The Group employs an advanced framework for the management
of interest rate risk. To manage interest rate risk, the Group
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 Board, the Supervisory Board and
their Risk, Ethics and Compliance committees.
The Group measures four types of interest rate risk based on the
source of the risk: (i) re-pricing risk, (ii) yield curve risk, (iii) basis
risk and (iv) optionality (embedded option risk).
The Group 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 Board (the Supervisory Board where applicable) and by
the MBRC.
Under the ICAAP framework, the Group 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. In addition, the Group has developed stress
tests in accordance with Basel II requirements to ensure that the Bank
can withstand severe but probable stress scenarios.
Non-financial risk management
Operational risk management
One of the main risks that the Group faces is operational risk,
which is the risk of loss resulting from inadequate or failed
processes and systems, human error, fraud 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.
The Group is exposed to many types of operational risk which
include: fraudulent and other internal and external criminal
activities; breakdowns in processes, controls or procedures; and
system failures or cyber-attacks from an external party with an
intention to make the Group’s services or supporting infrastructure
unavailable to its intended users, which in turn may jeopardise
sensitive information and financial transactions of the Group, its
clients, counterparties or customers. Moreover, the Group is subject
to the risks that cause disruption to systems performing critical
functions or business disruption arising from events wholly or
partially beyond the Group’s control, for example, natural disasters,
transport or utility failures, etc., which may result in losses or
reductions in service to customers and/or economic loss to the
Group. The operational risks discussed above are also applicable
where the Group relies on outside suppliers of services. Considering
the fast-changing environment and sophistication of both banking
services and possible fraudsters, the importance of constantly
improving processes, controls, procedures and systems is raised to
ensure risk prevention and reduce the risk of loss to the Group.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 53
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
RISK MANAGEMENT continued
To oversee and mitigate operational risk, the Group has established
an Operational Risk Management Framework (“ORMF”), an
overarching document 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 ORMF.
The Management Board ensures a strong internal control culture
within the Group where control activities are an integral part of the
Group’s operations. The Board sets the Group’s operational risk
appetite and the Operational Risks Committee oversees compliance
with the limits set therein. The Operational Risks Committee
discusses the Group’s operational risk profile and risk minimisation
recommendations on a regular basis.
The Operational Risk Management department (“ORMD”) acts as
second line of defence and is responsible for the implementation
of framework and appropriate policies and procedures enabling
the Group to manage operational risks and monitoring operational
risk events, risk exposures against risk appetite, and material
control issues.
The ORMD 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 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 ORMD reports to the Chief Risk Officer.
For the purpose of measuring potential (both expected and
unexpected) operational risk losses and appropriate capital, the
Group uses quantitative tools such as the Advanced Measurement
Model (“AMA”), which 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 the Group
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 programme
for the Group’s employees and provision of regular training to
further strengthen the Group’s internal risk culture.
54 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
An Information Security Steering Committee (“ISSC”) has been
established and is in charge of continuous improvement of
information security and business continuity management processes
and minimising information security risks. The ISSC has been
formed to centralise the information security function including
physical security, HR security, data security, IT security and business
continuity. The Group invests in effective information security risk
management, incident management and awareness programmes,
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 the Group’s ability to
operate on an ongoing basis and limit losses in the event of a severe
business disruption.
Conduct risk management
Conduct risk is defined as the risk to the delivery of fair outcomes for
customers and other stakeholders.
The Group’s business holds a unique place of trust in the lives of
more than 2.2 million customers throughout Georgia. Therefore,
preserving market confidence through the protection of our
customers’ interests is of utmost importance for the financial
stability of the Group and the attainment of its strategic objectives.
The employees of the Group that undertake and perform their
responsibilities with honesty and integrity are critical to maintaining
trust and confidence in the Group’s operations and to upholding the
important values of trust, loyalty, prudence and care.
Additionally, the management of the Group understands that it bears
responsibility to a diversified group of domestic and international
investors and needs to embrace the rules and mechanisms of
protecting customers and maintaining confidence of the investors
and financial markets. The Group directors establish the “tone from
the top”, which sets out the messages describing and illustrating the
core components of good conduct.
In managing conduct risk, the Group entrusts different departments
and divisions with carrying out the task of managing, mitigating and
eliminating the conduct risk across all Group operations with clients
and other stakeholders. The Compliance and Operational Risk
departments cooperate to create a unified conduct risk management
framework and assist the business lines and departments in:
1. Developing and maintaining policies and procedures that ensure
that the respective departments and individual employees comply
with the provisions set out by the regulatory provisions, the best
practice and the internal handbook of the Group;
2. Maintaining a liaison with the compliance department regarding
the administration of policies and procedures and the
investigation of complaints regarding the conduct of the
department, its manager and/or its employees;
3. Ensuring that product information provided to clients by the
front-line employees is accurate and complete, and is conveyed
(both in written and oral form) in a simple and understandable
way regardless of the level of sophistication of a particular client;
4. Maintaining the records of client conversations and emails that
contain sensitive and sales related information, including
information pertaining to the acquisition of new clients and
making complex product offers to existing and
prospective clients;
5. Delivering timely on-boarding training for new employees with
regard to proper conduct and ensuring that all employees stay up
to date on evolving compliance standards within the Group
through periodic training;
6. Developing an open culture that encourages employees to speak up
without a fear of punishment. Specifically, this means setting up
processes for prevention and detection of conflicts of interest,
creating ethical incentives and bonus formulas, and aligning
incentives and discipline practices to the Group’s risk appetite; and
7. Employing qualified staff and sufficient human and technological
resources to investigate, analyse, implement and monitor sales
and after sales activities.
The above approach ensures that the management of conduct risk is
not limited to risk management units, including the Compliance
department, but is fully embraced by the front-line departments and
the proper conduct is fully integrated into required job skills.
Viability statement
The assessment of principal risks underpins the Viability Statement
in the Directors’ Report for 2016, see page 95 . The process involved
consideration of the Group’s current financial position over three
years of coverage ending 1 January 2020, which is relevant to the
strategic considerations of the Group.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 55
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
OUR PEOPLE
As Georgia’s leading employer, we work hard every day
to reinforce employee loyalty and attract the best talent
Overview
We are committed to being the best employer in the country and
recruiting the best people in order to ensure our long-term leadership.
We work in a highly competitive industry and our human resources (HR)
policy is directed at attracting and retaining top talent. At the end of 2016,
TBC Bank employed 6,292 people, compared with 5,262 people at the
end of 2015. The Bank and Bank Republic accounted for 92% of the
overall workforce.
The tables below show the number of years
that employees have stayed with TBC Bank
and the breakdown of employees by age.
Years with TBC Bank, 2016
0-1 years
1-4 years
4-10 years
>10 years
Breakdown of employees by age, 2016
<20
20-29
30-39
40-49
>50
23%
40%
28%
9%
0.4%
54%
33%
10%
3%
Commitment to equal opportunity
We are an equal opportunity employer.
As part of our Code of Conduct and Code
of Ethics, we do not discriminate in
employment decisions based on gender,
ethnicity, religion or disability. The table
below shows the breakdown of employees
by gender according to seniority and job
function in 2016.
All employees
All employees
Leadership
Male
35%
Female
65%
Male
Female
Board of Directors
Top management
Middle management
100%
88%
65%
0%
12%
35%
Performance assessment and
remuneration
We have developed and implemented
performance assessment and remuneration
systems that we believe are transparent and
fair, giving all employees an opportunity to
achieve their full potential within TBC Bank.
We consider it crucial that our staff are aware
of expectations from them while also having a
chance to provide feedback.
We have a combination of a management-
by-objectives (MBO) and a target-based
systems. For most of the back office, we use
a MBO system, as part of which an employee
and a line manager agree on a set of
objectives and goals that are closely aligned
to the strategic objectives of TBC Bank
as a whole. The progress is measured
every six months through employee
performance reviews.
To ensure that a performance assessment is
fair and accurate, the bank uses an uniform
scoring system. For most of the front office,
we use a target-based system including both
quantitative and qualitative components.
The results evaluation takes place monthly,
quarterly and/or annual basis depending on
the position.
To further enhance the systems, we worked
with one of the most experienced HR
consultancies, Mercer, and are now in the
process of implementing their
recommendations.
In 2016, we also introduced a 360-degree
evaluation system for middle managers to help
them better understand their strengths and
weaknesses and become more effective.
56 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Part of a compensation package for mid-level
managers is TBC PLC shares. This promotes
to align their interests with those of our
shareholders. In total, we aim to pay around
15-20% of total compensation in shares with
a three-year vesting period. In 2016, around
64,000 shares were awarded as bonus shares.
The remuneration system for directors is
described in the Remuneration Report on
page 108.
Employee benefits policy
We understand that non-wage compensation,
in the form of benefits that go above and beyond
statutory requirements, is a crucial tool for
retaining employees and keeping them
motivated. TBC Bank offers the leading benefits
package in the Georgian market, including paid
annual and sick leaves, fully paid six-month
maternity and paternity leaves and attractive
health insurance and pension schemes. We also
provide monetary awards in case of marriage
and childbirth as well as a compensation in case
of serious illness or death. In addition, we offer
special support for large families and grant
GEL10,000 to our employees for the birth of
each child after the third one.
We have also established a special TBC fund,
which is used to finance medical treatment of
employees or their close relatives suffering
from serious health issues. Contributions to
the fund are voluntary and employees can
donate up to 1% of their salary each month.
In 2016, the fund aided more than 100 people.
Training and leadership development
Our HR management system is designed
to meet our strategic need to employ the
best people on the market and to maximise
their performance.
We use a digital, distance-learning system
for many training programmes, allowing
greater flexibility at a lower cost to TBC Bank.
We also run the TBC Academy, an in-house
educational resource that provides employees
an opportunity to gain new banking skills and
attend lectures given by our senior and middle
management. Classes range in
subject and include financial institutions,
capital markets, credit risks, financial
risks, marketing and banking products. The
academy was established in 2011 and we had
more than 250 graduates at the end of 2016.
We also use the academy as a platform to
organise trainings and workshops for our
staff across the country.
In addition to our in-house training options,
we sponsor various training opportunities and
international certifications including CFA,
ACCA and FRM for all employees. We also
give an opportunity to our best and brightest
talents to study MBA at the leading Georgian
and the world’s top 30 universities. In 2016,
17 managers received financial support
for MBA.
We also offer middle managers individual
executive coaching sessions with independent
certified coaches to reveal their full potential,
increase motivation and perform better.
TBC Academy Graduation
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
OUR PEOPLE continued
Our most recent survey, conducted in December 2016, generated a
participation rate of 74% and an engagement index as high as 88%
Employee motivation and engagement
As one of the crucial goals of our HR policy is
to constantly improve employee engagement
and motivation levels, we organise a number
of activities during the year for this purpose.
To improve internal communication and
enhance TBC Bank spirit, we have created
several clubs for employees to support their
interests and pastimes. Clubs include groups
for employees with more than three children;
‘TBC Talents’, for employees talented in
sports, art and other skills; and those for
employees with more than a decade of
experience at TBC Bank. In 2016, we founded
new clubs for photographers, football players
and other interests. These clubs bring together
employees with mutual interests from
different departments and branches, leading
to better communication and an opportunity to
relax together and socialise after a hard day’s
work. To promote healthy lifestyle, the Bank
has special discounts and family offers in
various sport centres. We also offer free
consultations and medical examinations
for employees occasionally. In 2016, around
1,500 employees benefited from this offer.
Furthermore, we care about the youngest
members of TBC family and provide primary
school children Back to School packages.
To boost team spirit, TBC Bank organises
weekend fieldtrips and retreats at all levels.
These fieldtrips reduce stress, improve job
satisfaction and boost efficiency. In 2016,
TBC Bank’s senior management decided to
take all middle managers of the TBC Bank
to Scotland for a friendly match between the
Georgian and Scottish national rugby teams.
Apart from supporting the national team
in a challenging game and getting together
to have fun overseas, these initiatives
bolster the involvement of our employees
with the sport and is in line with our strategy
of becoming the ambassadors for rugby
in Georgia.
TBC Bank organises certain promotions
during the year distributing free tickets for
cinema, ballet and opera plays, and rugby
games on first come first served principle.
Besides, employees receive special
discounts for various popular cultural events.
We also host book fairs where our employees
can buy books at special discount.
We are proud to have the first corporate
online brand shop in Georgia, where
employees can buy different stationary,
clothing, accessories and gift items. We
collaborate with Georgian designers and
create exclusive collections for TBC Bank.
The products in online store are subsidised
by TBC Bank and sold at discount to make
them more affordable for all employees. The
online shop was a great success with more
than 5,000 items sold during 2016, proving
high brand loyalty among the employees.
Regular communication with employees
is an integral part of TBC Bank’s corporate
culture. TBC Bank ensures that the
entire team is informed about the latest
developments of the Group’s activities
including strategy, performance, policies
and procedures, new initiative and key events
via presentations, intranet content, emails,
social network groups, SMS notifications and
different corporate events organised by our
internal communication managers.
Employee feedback and engagement is
very crucial for us. To this end, we started
to monitor staff engagement levels in 2012.
A special survey is conducted annually, in
partnership with the leading international
universities and a research firm, which
provides a clear picture of our strengths and
weaknesses as perceived by our employees.
Our most recent survey, conducted in
December 2016, generated a participation
rate of 74% and an engagement index as
high as 88%. The results of the survey are
analysed thoroughly and the employee
feedback is incorporated into the future
actions taken by the management.
Student internships
Since 2012, the Bank has run an internship
programme, intensive 12-month on-the-job
training schemes for the best third and
fourth-year students from Georgia’s
top universities. After the programme
completion the best trainees receive
permanent job offers from the Bank. This
programme has proven to be very successful
and helped us identify the brightest and most
talented students who are part of our team
today. In recognition of our efforts, we were
named “Best Student Recruiter” in 2016 by
Free University, Georgia’s leading university.
Ethics and conduct
We have adopted a comprehensive range
of policies and systems to ensure that TBC
Bank complies with the highest corporate
governance standards and prudent
management principles, training and
development. We consider it vital to provide
clear guidelines on business ethics and
conduct that apply to each member of TBC
Bank team.
We strictly protect international and
domestic laws of human rights and freedom.
Significant attention is given to detection and
elimination of discrimination revealed in any
form or on any grounds (including gender,
age, physical disability or religious
affiliation), in respect of any employee.
We provide clear anti-bribery and anti-
corruption policy that applies to all
employees’ of TBC Bank irrespective of
location, function or grade. TBC Bank has
zero tolerance of bribery and corruption,
and all employees are required to act
professionally, fairly and with integrity in
all business dealings and relationships.
To support our corporate culture TBC Bank
has implemented a whistleblowing policy,
which is available to all employees. It
identifies the rules and conduct requested
of all individuals working for the Group and
defines employee rights and responsibilities.
58 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
The policy encourages all employees to
report on any suspected violations in an open
manner without fear of retaliation. In addition,
TBC Bank provides channels for anonymous
whistleblowing for anyone who believes
a violation of internal standards or law
requirement has taken place, but refrains
from reporting through normal reporting
lines. Our guidelines seek to ensure that
complaints are recorded and that employees
are safe from any potential retaliation.
The following group policies can be found on
our IR website at www.tbcbankgroup.com
• Code of Ethics
• Code of Conduct
• Whistleblowing Policy
• Anti-Bribery and Anti-Corruption Policy
Internal photo contest – ‘Georgian Alphabet’
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 59
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CORPORATE SOCIAL RESPONSIBILITY
We are committed to being a market leader for our
businesses, our communities and our environment.
Overview
At TBC Bank, we believe that achieving and maintaining leadership
in corporate social responsibility (CSR) is as vital as being number
one in any part of our business, and this remains a core goal. As a
LSE premium-listed company, we have pledged to uphold the highest
international standards in conduct as an employer and corporate citizen,
and we benchmark ourselves against global leaders.
At home, as one of Georgia’s most recognised
companies, we understand the impact of our
actions. Our goal is to provide employees with
a clear understanding of our CSR strategy
and maximise their involvement as corporate
citizens. We want to be perceived internally
and externally as not only a business leader,
but also a responsible group of companies.
As always, we are open and transparent about
our CSR projects.
Communities
Our investments in different communities
are characterised by their long-term nature,
as we concentrate on projects where we can
amplify effect. We focus on supporting four
main areas: business, young generations,
rugby and culture.
Business
We believe that one of our main contributions
to society is to encourage successful
businesses across Georgia. To this end, we
have devised a business support programme,
which allows us to share the expertise of our
people and partners with growing companies.
It provides crucial support for developing
micro, small and medium-sized enterprises
(MSME), which are the backbone of the
national economy. The programme includes an
educational web portal (www.tbcbusiness.ge)
and free training sessions and consultations,
as well as networking events, conferences
and masterclasses.
In 2016, around 4,500 MSME company
representatives attended training sessions
conducted by leading professionals on
different topics, such as internet marketing,
innovation, CVP analysis, budgeting, taxation
and agricultural management.
For our borrowers, we also offer more in-depth
individual consultations with experts in internet
marketing, innovation, finance and taxation.
Last year, 60 MSME company representatives
attended these consultations free of charge.
In addition, we organise other events, such as
annual masterclasses on popular topics and
networking for MSME representatives. Around
1,000 people attended various events in 2016.
Last year, we extended the scope of our
Business Support Programme, launching the
annual Business Awards ceremony. It aims to
encourage success and excellence among
Georgia’s businesspeople and bring innovative
new products and services from around the
country to the public’s attention. The event was
a resounding success, attracting over 500
companies, while the project reach was
estimated at 4.5 million views. The awards
were supported through traditional and social
media, with more than 300 video reports and
articles on the topic.
Young talent
In 2016, we continued to develop projects
aimed at helping talented young people in their
professional development. We backed new
projects supporting young entrepreneurs and
artists. We are particularly proud of Project 12,
which used the work of 12 young Georgian
artists on Visa Pay stickers. We also hosted
the Da Vinci scientific festival, which aims to
promote science and STEM-related fields
among young people by encouraging
schoolchildren to pursue their scientific
interests. We plan to expand the event in 2017.
In addition, we have also financed the
renovation of Tbilisi’s famous Mziuri Park and
opening of the non-profit Mziuri Cafe, which
hosts various literary evenings, exhibitions and
presentations for children and students.
60 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Rugby
We provide full-scale support for rugby in
Georgia as part of a long-term partnership
with the Georgian Rugby Union to promote
the sport. In particular, we support our
national team in its quest to succeed
internationally and ultimately join the Six
Nations. In 2016, we sponsored two major
promotional campaigns across Georgia,
which included a strong digital component
to enable fans to support our players as
much as possible.
To increase awareness about rugby and our
leading players, we have created a short video
about the game in Georgia (with over 600,000
views), its rules and individual bright stars.
We also fund the development of the sport in
the regions, including youth leagues. The youth
rugby competition in Batumi has become a
significant annual event with our continuing
support. In short, TBC Bank is an ambassador
for the sport. We are excited to watch our youth
and adult teams emerging as serious
competitors internationally.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 61
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CORPORATE SOCIAL RESPONSIBILITY continued
Literature
TBC Bank continues to support the Saba
literary prize, one of the most respected
and anticipated literary events in Georgia.
Since founding the programme in 2003,
we have awarded 128 prizes in different
categories totalling around GEL500,000.
The satellite project is the SABA online
platform (www.saba.com.ge). It has been
gaining popularity among the local and
expatriate communities, with more than
4,000 e-books and audio books.
In 2016, we started a new project, “City-
Library”, as part of which we have scattered
over 300 free e-books in public places around
the city, such as parks, green spots and bus
stops. Anyone interested can download them
to smartphones and tablets using QR readers
and read popular literature using the Saba
Reader mobile application.
Engineering
The ancient Georgian alphabet has long faced
a challenge that disappeared many years ago
from the English-speaking world, namely a
lack of sophisticated fonts that work across IT
platforms. In the information age, this has
been an issue for Georgian businesses.
TBC Bank decided to try to tackle this
problem by devising the #Writeingeorgian
project. As part of this, we recruited both
Georgian and foreign designers for a new
role, font engineer.
One related initiative in 2016 was the
“Georgian A” competition to design Georgian
fonts for use in IT. There were 12 winners,
whose fonts have been digitised and will soon
be available to the public.
Translation database
In 2016, we developed a project to create
a Georgian-English parallel translation
database on the Microsoft platform. The aim
is to carry out sentence-by-sentence
translation of various texts for integration
with Microsoft’s machine-learning API. The
ultimate goal is that the API will carry on its
own learning of language forms so that it can
eventually correctly translate any sentence
between Georgian and English. In addition,
Bing translation will be directly integrated
within Microsoft applications like Office,
Skype and Windows.
Mountain resorts
TBC Bank provides ongoing support to
develop mountain resorts in Georgia. This is
in line with our strategy to promote a healthy
lifestyle among young generations and
underscores our commitment to support
businesses and economic development in the
country. Developing the mountain resorts
has a direct, two-fold effect on the economy,
as it helps local businesses to prosper and
encourages tourism.
Art and culture
TBC Bank has traditionally supported
Georgia’s arts through long-term, high-impact
undertakings. We remain the partners of
Georgian ballet, supporting the development
of this exquisite art form and promoting local
talent to international audiences.
Another project is Artarea, which was the
country’s first online TV channel dedicated
specifically to art and culture. Offering online
lectures, exhibitions, concerts and other
programmes, it is gaining popularity and is
already watched in ten countries.
We also continue to support Georgian artists
by showcasing their work in our TBC Bank
galleries in three main cities: Tbilisi, Batumi
and Kutaisi. The aim is to raise awareness
and promote Georgian art. In 2016 we
organised over 80 exhibitions.
62 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 63
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CORPORATE SOCIAL RESPONSIBILITY continued
Environment
TBC Bank understands that even organisations
operating outside the industrial sectors,
such as financial institutions, have an impact
on the environment, and we take our
responsibility to take care of the surrounding
environment seriously. We strive to minimise
our environmental footprint from the most
senior levels of management to the lowest
level of the organisation. We understand that
this stems from both our own direct activities
and indirectly through projects that we
choose to finance. Our responsibility includes
managing the environmental and social risks
associated with our operations to reduce our
environmental impact.
The Bank has adopted the Environmental and
Social Risk Management Policy to ensure
compliance with local environmental legislation
and applicable international guidelines.
It outlines our liabilities in terms of impact
on both the environment and communities.
We apply it to our lending practices with
customers and to our other banking activities.
We believe that we can foster an efficient
management culture by complying with
environmental, health and safety, and labour
regulations, as well as by engaging in
sustainable practices in these fields.
Waste management and
energy conservation
We believe that our most visible environmental
impact can be seen in the waste generated
directly by our activities, such as used paper,
printer cartridges, fluorescent lamps, etc. For
increased accountability, we measured the
waste generated in 2016 and designed a waste
management programme to minimise our
environmental impact with the guidance and
approval of the Ministry of Environment and
Natural Resources Protection of Georgia.
We shred non-hazardous waste paper from
our office activities and exchange it with a
recycling facility in return for books that we
donate to orphanages, vulnerable families and
libraries in remote villages in Georgia’s many
mountainous regions. Hazardous office waste
includes printer cartridges, for which we use
a service that supplies new cartridges and
recycles the used ones to minimise our impact.
To reduce our environmental footprint, lower
our energy costs and further cut our hazardous
waste production, we also eliminated
fluorescent lights throughout our offices and
replaced them with more energy-efficient LED
lighting. We recycled the old fluorescent bulbs
and installed motion-sensitive light switches in
areas where constant lighting is not necessary.
We are already seeing positive results from
these energy efficiency initiatives, as
electricity costs dropped significantly YoY in
the beginning of 2017. We plan to expand our
waste management programme by installing
a waste separation system.
Greenhouse gas emissions
As one of the largest financial institutions
in Georgia and a constituent of the LSE’s
premium segment, TBC Bank has a
commitment to disclose its greenhouse gas
(GHG) emissions; specifically, to calculate and
report GHG emissions from the usage of fuel
and electricity for its direct operations. To this
end, we commissioned the Energy Efficiency
Centre Georgia to prepare a report on GHG
emissions from activities for which TBC Bank
is responsible. This report allowed us to
obtain a more complete picture of our direct
impact in 2016, including by calculating GHG
emissions from TBC Bank’s business
activities in tonnes of carbon dioxide (CO2)
equivalent, based on the GHG protocol’s
concept of “scopes” (Scopes 1, 2 and 3).
Total CO2e emissions data for the FY 2016
Scope 1*
Scope 2
Scope 3
Total emissions
Total emissions per full time
employee
Tonnes
1,804
1,147
268
3,219
0.52
* Scope 1 – 1,209 CO2e emissions in tonnes (from
combustion of fuel (NG) from owned operation and
facilities of TBC Bank);
533 CO2e emissions in tonnes (from owned vehicles
of TBC Bank);
63 CO2e emissions in tonnes (from owned generators
of TBC Bank).
64 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Calculation methodology
This report, which has been prepared by the
Energy Efficiency Centre Georgia (EECG),
describes all emission sources required
under the Companies Act 2006 (Strategic
Report and Directors’ Reports) Regulations
2013 (Scope 1 and 2) and additionally the
emissions under Scope 3 that are applicable
to our business. In preparing the emissions
data, the World Resources Institute (WRI)
“Greenhouse Gas Protocol: A Corporate
Accounting and Reporting Standard (revised
edition)”, emissions factors from the UK
government’s Greenhouse Gas Conversion
Factors for Company Reporting 2016 and
national Provider, Intergovernmental Panel
on Climate Change (IPCC) emission factors
for electricity (tCO2*/MWhe) were used. The
required data was collected and the report
developed for the boundaries of TBC Bank’s
main banking activities, which includes all
service offices and/or retail branches where
it has operational control, as follows:
Scope 1 (combustion of fuel and operation of
facilities) includes emissions from combustion
of natural gas, diesel and/or petrol in
equipment at owned and controlled sites. It
also includes combustion of, among others,
petrol, diesel fuel and natural gas in owned
transportation devices.
Scope 2 (purchased electricity for own use,
i.e. lighting, office appliances, cooling, etc)
includes emissions from used electricity at
owned and controlled sites. To calculate the
emissions, the conversion factor for Non-OECD
Europe and Eurasia (average) conversion
from the UK Government’s Greenhouse Gas
Conversion Factors for Company Reporting
2016 and national IPCC emission factors for
electricity (tCO2*/MWhe) have been used.
Scope 3 includes emissions from air business
travels (short haul, medium haul, long haul
and international haul).
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 65
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW
Overview
These consolidated financial results are presented for TBC Bank
Group PLC, which was incorporated on 26 February 2016 as the
ultimate holding company for JSC TBC Bank. TBC Bank Group PLC
became the parent company of JSC TBC Bank on 10 August 2016,
following a group restructuring. As this was a common ownership
transaction, the results have been presented as if the group existed
at the earliest comparative date as allowable under International
Financial Reporting Standards (“IFRS”) as adopted by the European
Union. TBC Bank Group PLC successfully listed on the London Stock
Exchange on 10 August 2016.
4Q 2016 P&L highlights
• Net profit for 4Q 2016 up by 31.6% YoY to GEL 88.0 million and up
by 24.0% QoQ
• Return on average equity (ROAE) amounted to 24.2% (23.5%
without one-off effects) and return on average assets (ROAA) to
3.7% (3.5% without one-off effects)
• Total operating income in 4Q 2016 up by 39.0% YoY and by 34.9%
QoQ to GEL 218.3 million
• Cost to income ratio stood at 51.2% (47.0% without one-offs),
compared to 49.3% in 4Q 2015 and 40.5% in 3Q 2016
• Cost of risk on loans stood at 0.6%, up by 0.5pp YoY and down by
In Q4 2016, TBC Bank acquired Bank Republic, which is consolidated
into these results for the first time.
• Net interest margin (NIM) stood at 7.9%in 4Q 2016, compared to
8.3% in 3Q 2016 and 7.4% in 4Q 2015
0.5pp QoQ
Results reported below prior to 30 September 2016 relate to the
group previously headed by JSC TBC Bank.
Financial highlights (excluding effect of Bank Republic
acquisition)
Financial highlights
Financial highlights (including effect of Bank Republic
acquisition)
FY 2016 P&L highlights
• Net profit for 2016 up by 36.4% YoY to GEL 298.3 million
• Return on average equity (ROAE) amounted to 22.4% (20.6%
without one-off effects) and return on average assets (ROAA) to
3.9% (3.6% without one-off effects)
• Total operating income for 2016 up by 18.0% YoY to
GEL 681.1 million
• Cost to income ratio stood at 45.8% (42.9% without one-off
effects), compared to 43.9% in 2015
• Cost of risk on loans stood at 1.0%, down by 0.7pp YoY
• Net interest margin (NIM) stood at 7.8% in 2016, unchanged
from 2015
Balance sheet highlights 31 December 2016
• Total assets reached GEL 10,769.0 million as of 31 December 2016,
up by 55.3% YoY and up by 42.0% QoQ
• Gross loans and advances to customers increased to
GEL 7,358.7 million as of 31 December 2016, up by 58.6% YoY
and by 47.1% QoQ
• Net loans to deposits plus IFI funding stood at 93.4% and net
stable funding ratio (NSFR) at 108.4%
FY 2016 P&L highlights
• Net profit for 2016 up by 31.5% YoY to GEL 287.6 million
• Return on average equity (ROAE) amounted to 21.6% (19.7%
without one-off effects) and return on average assets (ROAA)
to 3.9% (3.6% without one-off effects).
• Total operating income for 2016 up by 11.4% YoY to
GEL 643.0 million
• Cost to income ratio stood at 46.1% (43.4% without one-off
effects), compared to 43.9% in 2015.
• Cost of risk on loans stood at 0.8%, down by 0.9pp YoY.
• Net interest margin (NIM) stood at 7.9% in 2016, up by 0.1pp
Balance sheet highlights 31 December 2016
• Total assets reached GEL 9,212.5 million as of 31 December 2016,
up by 32.8% YoY and up by 21.5% QoQ
• Gross loans and advances to customers increased to
GEL 5,911.2 million as of 31 December 2016, up by 27.4% YoY and
by 18.1% QoQ
• Net loans to deposits plus IFI funding stood at 90.7%
• NPLs stood at 4.0%, down by 0.8pp YoY and 0.6pp QoQ
• NPLs coverage stood at 90.5%, (216.8% with collateral),
compared to 84.3% as of 30 September 2016.
• Total customer deposits stood at GEL 5,641.1 million as of
31 December 2016, up by 35.0% YoY and 22.8% QoQ
• NPLs stood at 3.5%, down by 1.3pp YoY and 1.1pp QoQ
• NPLs coverage stood at 88.4%, (221.4% with collateral),
4Q 2016 P&L highlights
• Net profit for 4Q 2016 up by 15.6% YoY and up by 9.0% QoQ to
compared to 84.3% as of 30 September 2016
GEL 77.4 million
• Total customer deposits stood at GEL 6,454.9 million as of
31 December 2016, up by 54.5% YoY and up by 40.5% QoQ
• Tier I and total capital adequacy ratios per Basel II/III stood at
• Return on average equity (ROAE) amounted to 21.4% (20.0%
without one-off effects) and return on average assets (ROAA) to
3.7% (3.4% without one-off effects).
10.4% and 14.2% respectively
• Total operating income in 4Q 2016 up by 14.8% YoY and up by 11.4%
• Tier I and total capital adequacy ratios per Basel I stood at 21.3%
QoQ to GEL 180.2 million
and 28.1% respectively
• Cost to income ratio stood at 53.5% (49.7% without one-offs),
compared to 49.3% in 4Q 2015 and 40.5% in 3Q 2016.
• Cost of risk on loans stood at -0.1%, down by 0.3pp YoY and down
by 1.2pp QoQ.
• Net interest margin (NIM) stood at 7.8%in 4Q 2016, compared to
8.3% in 3Q 2016 and 7.4% in 4Q 2015.
66 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Description of one-off incomes and expenses incurred during 2016
• Recovery of previously written off principal and interest (FY 2016: GEL 35.8 million; Q4: GEL 35.8 million)
• Tax credit (FY 2016: GEL 17.9 million; Q4: GEL 0 million)
• Premium Listing costs (FY 2016: GEL 16.2 million; Q4: GEL 0.3 million)
• Currency effect on provisions (FY 2016: GEL9.6 million; Q4: GEL 16.8 million): or the excluding Bank Republic acquisition
(FY 2016: GEL 8.7 million; Q4: GEL 16.0 million)
• Gain on sale of investment securities (FY 2016: GEL 8.8 million; Q4: GEL 0 million)
• Bank Republic’s acquisition related consulting costs (FY 2016: GEL8.0 million; Q4: GEL 8.0 million)
•
•
• Staff redundancy provision (FY 2016: GEL 2.2 million; Q4: GEL 2.2 million)
•
Interest income related to one large corporate customer (FY 2016: GEL 4.2 million; Q4: GEL 0 million)
Interest expense related to prepayment of subordinated loans (FY 2016: GEL 2.5 million; Q4: GEL 2.5 million)
Impairment of intangible assets of Bank Republic (FY 2016: GEL 2.0 million; Q4: GEL 2.0 million)
Market Shares1
• As of 31 December 2016 TBC Bank’s market share of total assets was 30.0% (36.7% with Bank Republic’s total assets), up by 3.3pp YoY and
1.6pp QoQ
• TBC Bank’s market share of total loans was 31.1% (38.9% with Bank Republic’s total loans) as of 31 December 2016, up by 2.4pp YoY and
•
1.4pp QoQ.
In terms of individual loans, the Bank had a market share of 32.9% (44.2% with Bank Republic’s total individual loans) as of 31 December
2016, up by 1.3pp YoY and 0.6pp QoQ. The market share for legal entity loans was 29.4% (33.6% with Bank Republic’s total legal entity
loans), up by 3.2pp YoY and 2.1pp QoQ.
• TBC Bank’s market share of total deposits stood at 33.0% (37.8% with Bank Republic’s total deposits) as of 31 December 2016, up by 4.0pp
YoY and 2.4pp QoQ.
• The Bank maintains its longstanding leadership in individual deposits with a market share of 37.2% (40.8% with Bank Republic’s total
individual deposits), up by 2.9pp YoY and 1.7pp QoQ. In terms of legal entity deposits, TBC Bank holds a market share of 28.0% (34.2% with
Bank Republic’s legal entity deposits), up by 4.6pp YoY and 2.9pp QoQ.
1 Market share figures are based on data from the National Bank of Georgia (NBG)
Results overview, FY and 4Q 2016
Income statement highlights
Thousands of GEL
FY16 w/o BR
acq.
FY16
FY15
Change in %
4Q16 w/o BR
acq.
4Q16
3Q16
4Q15
Change YoY
%
Change QoQ
%
Net interest income
466,576
490,453
412,174
19.0%
129,811
153,689
120,227
106,519
44.3%
27.8%
Net fee and commission
income
88,076
90,268
72,291
24.9%
26,200
28,392
22,194
19,807
Gross insurance profit
256
256
–
100%
256
256
–
–
43.3%
100%
27.9%
100%
Other operating
non-interest income
88,102
100,085
92,529
8.4%
23,933
35,916
19,398
30,636
18.1%
86.5%
Provisioning charges
-41,597
-53,395
-75,992
-29.7%
2,131
-9,668
-15,059
-5,318
81.8%
-35.8%
Operating income after
provisions for
impairment
601,413
627,667
501,002
25.3% 182,331
208,586
146,759
151,644
Operating expenses
-296,686
-311,988
-253,129
23.3%
-96,483
-111,785
-65,536
-77,394
Profit before tax
304,727
315,679
247,873
27.4%
85,849
96,801
81,223
74,251
37.5%
44.4%
30.4%
42.1%
70.6%
19.2%
Income tax expense
-17,146
-17,421
-29,176
-40.3%
-8,492
-8,767
-10,235
-7,331
19.6%
-14.3%
Profit for the period
287,581
298,258
218,697
36.4%
77,356
88,034
70,988
66,920
31.6%
24.0%
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 67
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
Balance sheet and capital highlights
Dec-16
Sep-16
Change QoQ, %
Dec-15
Change YoY, %
USD w/o BR
acquisition
USD
GEL
USD
Millions of GEL
Total assets
Gross loans
Customer deposits
Total equity
Basel I tier I capital
Basel I risk weighted
assets
Basel II/III tier I capital
Basel II/III risk weighted
assets
GEL w/o BR
acquisition
9,213
5,911
5,641
1,576
–
–
–
–
GEL
10,769
7,359
6,455
1,583
1,486
6,974
1,041
10,022
3,481
2,233
2,131
595
–
–
–
–
4,069
2,780
2,439
598
561
2,635
393
7,584
5,004
4,593
1,389
1,322
5,162
1,125
3,255
2,148
1,972
596
568
2,216
483
42.0%
47.1%
40.5%
14.0%
12.4%
35.1%
-7.4%
GEL
6,935
4,639
4,178
1,218
1,157
4,680
953
USD
2,896
1,937
1,745
509
483
1,954
398
55.3%
58.6%
54.5%
29.9%
28.4%
49.0%
9.2%
3,786
8,428
3,618
18.9%
7,476
3,122
34.0%
Key Ratios
ROAE
ROAA
Pre-provision ROAE
Cost to income
Cost of risk
NPL to gross loans
Basel I total CAR
Basel II/III total CAR
Leverage (times)
FY16 w/o BR
acquisition
FY16
FY15 Change in pp
4Q16 w/o BR
acquisition
4Q16
3Q16
4Q15
Change YoY, pp
Change QoQ, pp
21.6%
3.9%
24.7%
46.1%
0.8%
4.0%
–
–
5.8
22.4%
3.9%
26.4%
45.8%
1.0%
3.5%
28.1%
14.2%
6.8
20.1%
3.4%
27.1%
43.9%
1.7%
4.8%
31.0%
16.0%
5.7
2.3
0.5
-0.7
1.9
-0.7
-1.3
-2.9
-1.8
1.1
21.4%
3.7%
20.8%
53.5%
-0.1%
4.0%
–
–
5.8
24.2%
3.7%
26.8%
51.2%
0.6%
3.5%
28.1%
14.2%
6.8
20.6%
4.0%
25.1%
40.5%
1.1%
4.6%
31.5%
16.2%
5.5
23.1%
3.9%
24.9%
49.3%
0.2%
4.8%
31.0%
16.0%
5.7
1.1
-0.2
1.9
1.9
0.5
-1.3
-2.9
-1.8
1.1
3.6
-0.3
1.7
10.7
-0.5
-1.1
-3.4
-2.1
1.3
Income statement discussion
Net interest income
Thousands of GEL
Loans and advances to
FY16 w/o BR
acquisition
FY16
FY15
Change
4Q16 w/o BR
acquisition
4Q16
3Q16
4Q15
Change YoY
Change QoQ
customers
653,512
688,724 582,327
18.3%
186,904
222,116
164,235
155,292
43.0%
35.2%
Investment securities
available for sale
Due from other banks
Bonds carried at
amortized cost
Investment in leases
Other
23,101
4,604
25,707
4,550
20,927
7,638
22.8%
-40.4%
30,714
16,566
165
30,714
16,566
165
22,950
15,217
–
33.8%
8.9%
NMF
5,241
1,013
7,460
4,895
67
7,847
959
7,460
4,895
67
5,679
1,055
7,039
3,950
98
5,862
1,425
7,803
3,791
–
Interest income
728,663 766,426 649,059
18.1%
205,581 243,344 182,056
174,172
Customer accounts
Due to credit institutions
Subordinated debt
Debt securities in issue
Other
147,270
78,702
34,337
1,778
–
154,840
85,030
34,325
1,778
–
137,489
70,834
26,363
2,105
94
Interest expense
262,087 275,973 236,885
Net interest income
466,576 490,453
412,174
12.6%
20.0%
30.2%
-15.5%
-100.0%
16.5%
19.0%
40,316
23,198
11,774
482
–
47,886
29,526
11,762
482
–
36,501
17,040
7,847
442
–
36,156
23,482
7,438
550
28
75,769
89,655
61,830
67,654
129,811 153,689 120,227 106,519
33.9%
-32.7%
-4.4%
29.1%
NMF
39.7%
32.4%
25.7%
58.1%
-12.5%
-100.0%
32.5%
44.3%
38.2%
-9.1%
6.0%
23.9%
-31.7%
33.7%
31.2%
73.3%
49.9%
9.0%
NMF
45.0%
27.8%
Net interest margin
7.9%
7.8%
7.8%
0.0pp
7.8%
7.9%
8.3%
7.4%
0.5pp
-0.4pp
NMF – Not meaningful figure
68 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2016 to 2015 comparison
Without Bank Republic’s acquisition effect, net interest income
grew by 13.2% YoY to GEL 466.6 million, resulting from 12.3% higher
interest income and 10.6% higher interest expense. The increase
in interest income by GEL 79.6 million was mainly driven by the rise
in interest income from loans to customers by GEL 71.2 million, or
12.2%, which is primarily related to the 27.4% gross loan portfolio
increase, while loan yield declined from 13.6% to 13.5%, due to a
decrease in GEL-denominated loans yield. The rise in interest income
from investment securities was GEL 10.0 million, or 22.7%. This was
primarily due to the increase in yields on such securities from 7.3%
to 8.6% mainly due to the higher average refinancing rate through
2016. The rise in interest income included a one-off interest income
gain of a GEL 9.6 million from the recovery of previously written-off
loan interest from large borrower in 4Q 2016 as well as one-off
interest income related to a corporate customer amounting to
GEL 4.2 million in 3Q 2016. The yield on average interest earning
assets amounted to 12.3%.
Without Bank Republic’s acquisition effect, interest expense
increased by GEL 25.2 million, or 10.6%, mainly due to a GEL 7.9
million, or 11.1% higher interest expense on amounts due to credit
institutions, a GEL 9.8 million, or 7.1% higher expense on amounts
due to customer accounts and a GEL 8.0 million, or 30.3% higher
interest expense on subordinated debt. The rise in interest expense
on amounts due to credit institutions mainly resulted from the
increase in the respective portfolio by GEL 365.7 million, or 32.8%
and the increase of the cost of borrowing from 7.2% to 7.4%. The
increased cost of GEL-denominated borrowings from 8.0% to 9.2%
offset the decrease in the cost of foreign-currency denominated
borrowings from 6.5% to 6.0%. The rise in interest expense on
amounts due to customer accounts resulted from the increase in
the respective average portfolio, despite the decrease in the cost of
deposits from 3.5% to 3.3% YoY. The rise in subordinated debt was
mainly caused by a GEL 2.5 million one-off expense related to the
prepayment of costly subordinated loans.
Bank Republic’s acquisition effect increased net interest income
by GEL 23.9 million, resulting from a GEL 37.8 million, or 5.8%
contribution to interest income and a GEL 13.9 million, or 5.9%
contribution to interest expense. Bank Republic’s interest income
is mainly attributable to a GEL 35.2 million income from loans to
customers. Bank Republic’s increased interest expense resulted
from a GEL 7.6 million, or 5.5% contribution to interest expense on
customer accounts and a GEL 6.3 million, or 8.9%, contribution to
interest expense on amounts due to credit institutions. While Bank
Republic’s acquisition had a significant effect on balance sheet item
growth, its effect on interest income was relatively limited due to
limited number of days of financial result consolidation (72 days in
the full year after 20 October 2016).
Consequently, with Bank Republic’s acquisition effect, net interest
income grew by 19.0% YoY to GEL 490.5 million, resulting from 18.1%
higher interest income and 16.5% higher interest expense. As a
result, the NIM was 7.8% (7.6% without one-offs) in 2016, unchanged
from 2015. Without Bank Republic’s acquisition effect, the NIM was
7.9% (7.7% without one-offs).
4Q 2016 to 4Q 2015 comparison
Without Bank Republic’s acquisition effect, net interest income
increased by GEL 23.3 million, or 21.9% to GEL 129.8 million, as a
result of a GEL 31.4 million, or 18.0% increase in interest income and
a GEL 8.1 million, or 12.0% increase in interest expense, compared
to 4Q 2015. Interest income increased due to a GEL 31.7 million, or
20.4% increase from loans including a one-off interest income of
GEL 9.6 million from the recovery of previously written-off loan of
a large borrower. This effect more than offset the decrease in loan
yields which eventually grew from 13.6% to 13.8%. The yields on
foreign currency-denominated loan yields grew from 10.5% to 11.1%.
However, the yields on GEL-denominated loans decreased from
19.2% to 18.5%.
Without Bank Republic’s acquisition effect, interest expense
increased by GEL 8.1 million, or 12.0%, which is mainly explained
by the increase in interest expense on customer accounts by a
GEL 4.2 million, or 11.5%, and by the increase in interest expense on
subordinated debt by GEL 4.3 million, or 58.3%. The rise in interest
expense on customer deposits resulted from the increase in
customer deposit portfolio by 35.0%, despite the decrease in the cost
of deposit by 0.3%. The rise in interest expense on subordinated debt
increased due to an increase in the respective portfolio by 29.9% and
a GEL 2.5 million one-off expense, which was attributable to the
prepayment of costly subordinated loans.
Bank Republic’s acquisition effect increased net interest income by
GEL 23.9 million in 4Q, resulting from a GEL 37.8 million, or 21.7%
contribution to interest income and a GEL 13.9 million, or 20.5%
contribution to interest expense. Bank Republic’s interest income
was primarily due to the interest income from loans to customers
in the amount GEL 35.2 million. Bank Republic’s acquisition effect
increased interest expense by GEL 13.9 million, or 20.5%, resulting
from a GEL 7.6 million, or 20.9%, contribution to interest expense on
customer accounts and a GEL 6.3 million, or 26.9%, contribution to
interest expense on amounts due to credit institutions.
Consequently, with Bank Republic’s acquisition effect, net interest
income grew by 44.3% to GEL 153.7 million, resulting from 39.7%
higher interest income and 32.5% higher interest expense. The NIM
increased from 7.4% to 7.9% (7.5% without one-offs) on a YoY basis.
Without Bank Republic’s acquisition effect, the NIM stood at 7.8%
(7.4% without one-offs).
4Q 2016 to 3Q 2016 comparison
Without Bank Republic’s acquisition effect, net interest income
increased by GEL 9.6 million, or 8.0%, as a result of GEL 23.5 million,
or 12.9%, in higher interest income and GEL 13.9 million, or 22.5%,
in higher interest expense. Interest income from loans increased by
GEL 22.7 million, or by 13.8%, due to the 18.1% increase in the
respective portfolio and a gain of GEL 9.6 million from the recovery
of previously written-off loan interest from one large borrower.
Interest income from investment securities remained broadly stable,
while yield on securities decreased by 0.9pp to 7.5%, due to the
slightly lower average refinancing rate in 4Q 2016 compared to 3Q
2016. Yields on average interest earning assets amounted to 12.3%.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 69
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
Without Bank Republic’s acquisition effect interest expense increased by GEL 13.9 million, or 22.5%, which is mainly explained by a
GEL 3.8 million, or 10.5% increased expense on customer accounts, by a GEL 6.2 million, or 36.1%. Increased expense on amounts due to
credit institutions and by a GEL 3.9 million, or 50.0% increased expense on subordinated debt. The increase in interest expense on customer
accounts was primarily caused by a GEL 1,047.9 million, or 22.8%, increase in respective portfolio. The effect was partly offset by a 0.2%
lower deposit cost in 4Q 2016. The increase in interest expense on amounts due to credit institutions was mainly caused by an increase in
the respective portfolio by GEL 284.2 million, or 23.8%, and by an increase in yields on amounts due to credit institutions from 6.9% to 7.0%.
The increase in interest expense on subordinated debt was primarily due to a GEL 2.5 million one-off expense related to a prepayment of a
costly subordinated loan and the increase in the respective portfolio by a GEL 84.7 million. As a result, the cost of funding amounted to 4.4%.
Bank Republic’s acquisition effect increased net interest income by GEL 23.9 million in 4Q, resulting from a GEL 37.8 million, or 20.7%,
contribution to interest income and a GEL 13.9 million, or 22.5%, contribution to interest expense. Bank Republic’s interest income was
primarily due to interest income from loans to customers of GEL 35.2 million. Bank Republic’s acquisition effect increased interest expense
by a GEL 13.9 million, or 22.5%, which resulted from a GEL 7.6 million, or 20.7%, contribution to interest expense on customer accounts and
a GEL 6.3 million, or 37.1% contribution to interest expense on amounts due to credit institutions.
Consequently, with Bank Republic’s acquisition effect, net interest income grew by 27.8% to GEL 153.7 million, resulting from 33.7% higher
interest income and 45.0% higher interest expense net. As a result, NIM dropped by 0.4pp to 7.9% (7.5% without one-offs). Without Bank
Republic’s acquisition effect, NIM dropped by 0.5pp to 7.8%.
Fee and commission income
FY16
FY15
Change in %
4Q16 w/o BR
acquisition
4Q16
3Q16
4Q15 Change YoY, % Change QoQ, %
FY16 w/o BR
acquisition
60,081
41,731
10,982
5,999
12,911
61,115
43,434
11,699
6,215
13,013
49,424
31,218
8,949
5,859
10,930
1,227
5,815
1,277
6,047
1,410
6,048
23.7%
39.1%
30.7%
6.1%
19.1%
-9.4%
0.0%
17,799
12,886
2,591
2,093
3,828
434
1,775
18,832
14,590
3,308
15,434
10,730
2,259
13,964
9,225
2,611
2,310
3,930
484
2,006
1,353
3,594
239
1,502
1,396
3,122
306
1,944
34.9%
58.2%
26.7%
65.4%
25.9%
58.1%
3.2%
income
138,746
142,800
113,837
25.4%
41,406
45,460
35,112
32,567
39.6%
33,805
5,667
668
1,624
2,462
146
6,298
34,906
5,795
796
1,624
2,633
190
6,587
27,169
3,904
957
2,208
2,707
5
4,597
28.5%
48.4%
-16.9%
-26.4%
-2.7%
NMF
43.3%
10,039
1,594
192
297
580
79
2,427
11,140
1,722
320
297
751
123
2,717
8,856
1,476
210
424
614
-
1,339
8,778
1,273
187
532
561
1
1,427
26.9%
35.2%
71.2%
-44.2%
33.7%
NMF
90.4%
22.0%
36.0%
46.4%
70.7%
9.4%
102.5%
33.6%
29.5%
25.8%
16.7%
52.4%
-30.0%
22.3%
NMF
102.9%
Thousands of GEL
Card operations
Settlement transactions
Guarantees issued
Issuance of letters of
credit
Cash transactions
Foreign exchange
operations
Other
Fee and commission
Card operations
Settlement transactions
Guarantees received
Letters of credit
Cash transactions
Foreign exchange
operations
Other
Fee and commission
expense
Net fee and commission
50,670
52,532
41,546
26.4%
15,206
17,068
12,918
12,760
33.8%
32.1%
income
88,076
90,268
72,291
24.9%
26,200
28,392
22,194
19,807
43.3%
27.9%
NMF – Not meaningful figure
70 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2016 to 2015 comparison
Without Bank Republic’s acquisition effect, net fee and commission income amounted to GEL 88.1 million, up by a GEL 15.8 million, or 21.8%,
which resulted from a GEL 24.9 million, or 21.9% higher fee and commission income and a GEL 9.1 million, or 22.0%, higher fee and
commission expense. This rise resulted from a GEL 8.8 million, or 32.0% increase in net settlement transactions, which mainly resulted from
the increased scale of operations in the subsidiary TBC Pay; a GEL 4.0 million, or 18.1%, increase in net card operations, a GEL 2.3 million, or
29.1% increase in net guarantees; and a GEL 2.2 million, or 27.1%, increase in net cash transactions.
Bank Republic’s acquisition effect increased net fee and commission income by GEL 2.2 million, or 3.0%, which resulted from a GEL 4.1 million,
or 3.6%, contribution to fee and commission income and a GEL 1.9 million, or 4.5% contribution to fee and commission expense.
As a result, net fee and commission income grew by GEL 18.0 million, or 24.9%. The net fee and commission income represented 13.3% of the
total operating income.
4Q 2016 to 4Q 2015 comparison
Without Bank Republic’s acquisition effect, net fee and commission income amounted to GEL 26.2 million, up by GEL 6.4 million, or 32.3%,
resulting from a GEL 8.8 million, or 27.1%, higher fee and commission income and a GEL 2.4 million, or 19.2%, higher fee and commission
expense. The increase in net fee and commission income resulted from a GEL 3.3 million, or 42.0% rise, in net fee and commission income
from settlement transactions, which was mainly driven by the increased scale of operations in the subsidiary TBC Pay from a GEL 2.6 million,
or 49.7% increase in net card operations and a GEL 0.7 million, or 26.9% increase in net cash transactions.
Bank Republic’s acquisition effect increased net fee and commission income by GEL 2.2 million, or 11.1%, resulting from a GEL 4.1 million,
or 12.4%, contribution to fee and commission income and a GEL 1.9 million, or 14.6%, contribution to fee and commission expense.
As a result, net fee and commission income grew by GEL 8.6 million, or 43.3%.
4Q 2016 to 3Q 2016 comparison
Without Bank Republic’s acquisition effect, net fee and commission increased by GEL 4.0 million, or 18.1%, resulting from a GEL 6.3 million, or 17.9%
higher fee and commission income and a GEL 2.3 million, or 17.7% higher fee and commission expense. The increase in net fee and commission
income was primarily driven by a GEL 2.0 million, or 22.0% increase in net settlement transactions, which resulted from the increased scale of
operations in subsidiary TBC Pay, a GEL 1.2 million, or 18.0% increase in net card operations; and a GEL 0.9 million increase in income from letters
of credit. This increase was slightly offset by a GEL 0.8 million decrease in net other fee and commission income.
Bank Republic’s acquisition effect increased net fee and commission income by a GEL 2.2 million, or 9.9%, resulted from a GEL 4.1 million,
or 11.5%, contribution to fee and commission income and a GEL 1.9 million, or 14.4% contribution to fee and commission expense.
As a result, net fee and commission income grew by GEL 6.2 million, or by 27.9%.
G
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 71
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
Gross insurance profit and other operating non-interest income
Thousands of GEL
FY16 w/o BR
acq.
Gross insurance profit
256
FY16
256
FY15
Change in %
4Q16 w/o BR
acq.
–
100%
256
4Q16
256
3Q16
–
4Q15
–
Change YoY
%
Change QoQ
%
100%
100%
Gains less losses from
trading in foreign
currencies and foreign
exchange translations
Gains less losses/
(losses less gains)
from derivative
financial instruments
Gain less losses from
disposal of investment
securities available
for sale
Revenues from cash-in
terminal services
Recovery from
repayment of
purchased impaired
loans
Revenues from
60,413
67,762
67,221
0.8%
15,604
22,952
16,724
18,447
24.4%
37.2%
-206
-206
-575
-64.2%
94
94
173
276
-66.1%
-45.8%
8,795
9,293
–
NMF
–
1,100
1,100
777
41.5%
300
498
300
–
–
NMF
NMF
292
237
26.3%
2.8%
1,323
4,995
–
100%
1,323
4,995
–
–
100%
100%
operational leasing
5,772
5,772
8,539
-32.4%
1,158
1,158
1,086
1,590
-27.1%
6.6%
Gain from sale of
investment properties
2,470
2,623
4,896
-24.7%
2,239
2,393
0
4,516
-47.0%
NMF
2,382
2,382
1,836
29.8%
991
991
222
371
167.5%
NMF
644
644
708
-9.0%
139
139
147
158
-11.8%
-5.1%
635
658
286
129.9%
188
211
46
218
-3.3%
NMF
208
208
118
77.0%
110
110
-
4,565
-
4,854
4,692
4,031
NMF
118.0%
–
1,787
–
7,070
3
–
706
19
NMF
NMF
4,692
112
NMF
NMF
3.9%
NMF
NMF
NMF
Other operating income
19,099
23,236
25,883
-10.2%
8,235
12,372
2,501
11,912
Other operating
non-interest income
88,357
100,341
92,528
8.4%
24,189
36,172
19,398
30,636
18.1%
86.5%
NMF – not meaningful figure
2016 to 2015 comparison
Without Bank Republic’s acquisition effect, other operating non-interest income decreased by GEL 4.2 million, or by 4.5%, to GEL 88.4 million.
The decline was mainly driven by a GEL 6.8 million, or 10.1%, decline in gains less losses from trading in foreign currencies and foreign
exchange translations. This was mainly caused by elevated income from FX operations in 2015, broadly related to the currency depreciation,
volatility and related increased margins of the currency rate during 2015, as well as due to a one-off FX gain in 1Q 2015 estimated at
GEL 6.7 million. The decline in other operating income was a GEL 6.5 million, or 25.2%. It was partly due to the two one-off incomes in 4Q
2015: one from the sale of financial option related to one corporate client of GEL 4.7 million and the other one from the sale of an earlier
foreclosed asset classified as an investment property of GEL 4.3 million. The further decrease was due to a GEL 2.8 decline in income from
operational leasing. The decrease was largely offset by a one-off gain of a GEL 8.8 million in gains from the disposal of investment securities
available for sale.
72 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Gain from sale of
inventories of
repossessed collateral
Administrative fee
income from
international financial
institutions
Revenues from
non-credit related
fines
Gain on disposal of
premises and
equipment
Gain from sale of
financial option
Other
Bank Republic’s acquisition effect increased other operating non-interest income by a GEL 12.0 million, or 13.0%, resulting from a GEL 7.3 million,
or 10.9% contribution to gains less losses from trading in foreign currencies and foreign exchange translations and a GEL 4.1 million, or
16.0% increase in other operating income.
As a result, net other operating income grew by GEL 7.8 million or 8.4%.
4Q 2016 to 4Q 2015 comparison
Without Bank Republic’s acquisition effect, other non-interest operating income decreased by GEL 6.5 million, or 21.0%, to GEL 24.2 million.
The decline was driven by a GEL 2.8 million, or 15.4% decrease in gains less losses from trading in foreign currencies and foreign exchange
translations, which was driven by the decreased margins for foreign currency translation. The decline in other operating income was a
GEL 3.4 million, or 28.7% which mainly related to the one-off incomes mentioned above.
Bank Republic’s acquisition effect increased other operating non-interest income by GEL 12.0 million, or 39.1%, resulting from a GEL 7.3 million,
or 39.8% contribution to gains less losses from trading in foreign currencies and foreign exchange translations and a GEL 4.1 million, or
34.7% increase in other operating income.
As a result, other operating non-interest income increased by GEL 5.5 million, or 18.1%.
4Q 2016 to 3Q 2016 comparison
Without Bank Republic’s acquisition effect, other operating non-interest income increased by GEL 4.8 million, or 24.7%. The increase was
primarily driven by a GEL 2.2 million increase in gains from the sale of investment properties and a GEL 0.8 million increase in gains from the
sale of inventories of repossessed collateral. This increase was partly offset by a GEL 1.1 million, or 6.7% decrease in gains less losses from
trading in foreign currencies and foreign exchange translations, resulting from a lower FX margin compared to 3Q 2016.
Bank Republic’s acquisition effect increased other operating non-interest income by GEL 12.0 million, or 61.8%, resulting from a GEL 7.3 million,
or 43.9% contribution to gains less losses from trading in foreign currencies and foreign exchange translations and a GEL 4.1 million increase
in other operating income.
As a result, other operating non-interest income increased by GEL 16.8 million, or 86.5%.
Provision for impairment
Thousands of GEL
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
Total provision charges
FY16 w/o BR
acquisition
FY16
FY15
Change
4Q16 w/o BR
acquisition
4Q16
3Q16
4Q15
Change YoY
Change QoQ
-36,997
-49,202
-72,791
-32.4%
1,799
-10,405
-13,518
-2,055
NMF
-23.0%
-558
-558
-967
-42.3%
2,341
-322
-126
-344
-6.4%
156.3%
-1,217
-771
1,117
-169.0%
-322
2,787
-1,481
-1,945
NMF
NMF
-2,814
-2,853
-3,351
-14.8%
-1,686
-1,727
66
-974
77.4%
NMF
-11
-11
-
NMF
-
-
-
-
NMF
NMF
for impairment
-41,597
-53,395
-75,992
-29.7%
2,131
-9,668
-15,059
-5,318
81.8%
-35.8%
Operating income after
provisions for
impairment
601,413
627,667
501,002
25.3% 182,331
208,586
146,759
151,644
37.5%
42.1%
Cost of risk
0.8%
1.0%
1.7% -0.7 pp
-0.1%
0.6%
1.1%
0.2%
0.5 pp
-0.5 pp
NMF – Not meaningful figure
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 73
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
2016 to 2015 comparison
Without Bank Republic’s acquisition effect, total provision charges declined by GEL 34.4 million to a GEL 41.6 million. This decrease was
driven by the decreased charges on loans by a GEL 35.8 million. Decreased charges on loans were mainly driven by the recovery of a provision
expense in the amount of GEL 26.2 million in 4Q 2016 on a previously written-off corporate exposure and the overall improved performance
of the corporate book, which more than offset the negative effect of currency devaluation GEL 8.7 million. The effect was magnified by a
GEL 0.4 million decrease in the provision for impairment of investments in financial leases, more than offsetting a GEL 2.3 million increase
in provision charges on performance guarantees and credit related commitments as a result of the increase in the respective portfolios.
Bank Republic’s acquisition effect increased total provision charges for impairment by GEL 11.8 million, which was mainly caused by the
increase in provision for loan impairment. Consequently, in 2016, total provision charges declined by GEL 22.6 million to GEL 53.4 million,
compared to FY 2015.
As a result, in 2016, the cost of risk stood at 1.0%, compared to 1.7% in 2015. Without Bank Republic’s acquisition effect, the cost of risk stood
at 0.8% down by 0.9pp compared to FY in 2015. The cost of risk without one-off effect and currency effect stood at 1.1% in 2016 or 1.3% without
Bank Republic’s acquisition effect. With Bank Republic but without fair value adjustment required by the IFRS consolidation rules,
the cost of risk without both one-offs would amount to 1.0% in Q4 and 1.2% in FY 2016
4Q 2016 to 4Q 2015 comparison
Without Bank Republic’s acquisition effect, total provision charges decreased by GEL 7.4 million. This decrease was caused by a GEL 3.9 million
decrease in provision for loan impairment and GEL 4.3 million decrease in provision for performance guarantees and credit related
commitments. The decrease in loan provision expenses was driven by a large recovery in the corporate segment, which more than offset
a technical rise in provisions related to the local currency depreciation in the amount of GEL 16.0million.
With Bank Republic’s acquisition effect, in 4Q 2016 total provision charges increased by GEL 4.4 million to a GEL 9.7 million. This increase is
explained by a GEL 8.4 million increase in provision for loan impairment. This effect was partly offset by a GEL 4.8 million decrease in
provision for performance guarantees and credit related commitments.
In 4Q 2016, the cost of risk stood at 0.6%, compared to 0.2% in 4Q 2015. Without the Bank Republic acquisition effect, the cost of risk stood at
-0.1%, down by 0.3pp compared to 4Q 2015. The cost of risk without one-off effect and currency effect stood at 1.2% in 4Q 2016 or 0.6%
without Bank Republic acquisition effect.
4Q 2016 to 3Q 2016 comparison
Without Bank Republic’s acquisition effect, total provision charges decreased by GEL 17.2 million. This decrease was caused by a GEL 15.3 million
decrease in provision for loan impairment, and GEL 3.8 million decrease in provision for performance guarantees and credit related
commitments. Decrease in loan provision expenses was driven by a large recovery in the corporate segment, which more than offset by
technical rise in provisions related to the local currency depreciation as explained above.
With Bank Republic’s acquisition effect, on a QoQ basis, total provision charges decreased by a GEL 5.4 million, or 35.8%. This decrease was
explained by a GEL 4.3 million decrease in provision for performance guarantees and credit related commitments and a GEL 3.1 million
decrease in provision for loan impairment. This effect was partly offset by a GEL 1.8 million increase in provision for impairment of other
financial assets.
The cost of risk on loans stood at 0.6%, compared to 1.1% in 3Q 2016. Without Bank Republic’s acquisition effect, the cost of risk stood at -0.1%
down by 1.2pp compared to 3Q 2016.
Further details on asset quality can be found under balance sheet discussion section.
74 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
FY16 w/o BR
acquisition
effect
FY16
FY15
Change
4Q16 w/o BR
acquisition
effect
4Q16
3Q16
4Q15
Change YoY
Change QoQ
164,604
172,221 142,777
20.6%
54,927
62,544
40,205
42,445
47.4%
Depreciation and amortization
28,141
28,082
26,286
6.8%
7,494
7,435
7,037
7,347
1.2%
Operating expenses
Thousands of GEL
Staff costs
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
Stationary 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
Gains/(losses) on initial
recognition of assets at rates
above/below market
Acquisition costs
Gross change in IBNR
Other
Administrative and other
55.6%
5.7%
NMF
NMF
133.7%
32.5%
21.6%
-3.4%
-13.8%
161.1%
34.7%
7.1%
26.5%
190.6%
86.7%
33.0%
-13.5%
2,210
29,178
13,352
17,308
4,896
7,446
4,440
3,127
3,262
2,635
1,814
2,799
1,823
1,320
884
2,210
1,102
100.6%
2,210
2,210
–
1,102 100.6%
29,926
8,418
NMF
10,227
10,976
2,143
3,464
NMF
13,796
18,294
5,108
7,446
4,699
4,183
3,448
2,687
1,883
3,889
1,880
1,386
884
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
20.5%
11.1%
13.5%
22.8%
2.2%
21.9%
-0.7%
16.8%
16.1%
31.4%
18.3%
4.3%
-4.7%
5,824
4,654
1,261
1,840
763
880
856
681
491
860
597
359
185
439
6,268
5,639
1,474
1,840
1,022
1,937
1,041
733
560
1,949
654
425
185
504
2,682
4,257
1,212
1,905
1,185
742
773
684
442
671
350
319
214
259
3,627
4,319
1,262
1,886
1,204
839
1,176
382
414
72.8%
30.6%
16.8%
-2.5%
-15.1%
130.9%
-11.4%
91.8%
35.1%
973
417
100.2%
56.9%
359
139
18.3%
32.9%
1,207
1,272
1,230
3.4%
462
9.0%
94.2%
-4,424
1,690
-4,424
1,690
-178
86
NMF
NMF
-2,779
1,038
-2,779
1,038
-1,697
115
297
22
NMF
NMF
63.8%
NMF
–
423
19
–
207
–
8,324
61
423
19
3
NMF
34
4,982
NMF
-99.6%
–
90
–
–
207
–
10,718
–
-
–
7,679
NMF
NMF
NMF
39.6%
–
207
–
3,377
61
90
–
–
207
–
5,771
–
259
–
–
–
–
1,776
–
NMF
NMF
34
167.3%
2,862 -100.0%
-65.1%
NMF
–
–
–
2,361
NMF
NMF
NMF
144.4%
NMF
NMF
NMF
NMF
operating expenses
101,731
109,475
82,964
32.0%
31,851
39,595
18,294
26,500
49.4%
116.4%
Operating expenses
296,686
311,988 253,130
23.3%
96,483
111,785
65,536
77,394
44.4%
Profit before tax
304,727
315,679 247,873
27.4%
85,849
96,801
81,223
74,251
30.4%
70.6%
19.2%
Income tax expense
-17,146
-17,421 -29,176
-40.3%
-8,492
-8,767 -10,235
-7,331
19.6%
-14.3%
Profit for the period
287,581
298,258 218,697
36.4%
77,356
88,034
70,988
66,920
31.6%
24.0%
Cost to income
ROAE
ROAA
NMF – Not meaningful figure
46.1%
21.6%
3.9%
45.8% 43.9%
1.9 pp
53.5%
51.2% 40.5% 49.3% 1.9 pp
10.7 pp
22.4% 20.1% 2.3 pp
21.4%
24.2% 20.6%
23.1% 1.1 pp
3.6 pp
3.9%
3.4% 0.5 pp
3.7%
3.7%
4.0%
3.9% -0.2 pp
-0.3 pp
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 75
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
4Q 2016 to 3Q 2016 comparison
Without Bank Republic’s acquisition effect, operating expenses
increased by GEL 30.9 million, or 47.2%, to GEL 96.5 million. The
increase primarily resulted from a GEL 14.7 million, or 36.6%
increase in staff expenses related to the increased scale,
performance of the business and the changing environment and
GEL 13.6 million or 74.1% increase in administrative expenses mainly
due to one-off expenses mentioned above. Further increases in
administrative cost is mostly seasonal. The increase in provision
for liabilities and charges included one-off expense related to staff
redundancy provision related to Bank Republic’s acquisition in the
amount of GEL 2.2 million as mentioned above.
Bank Republic’s acquisition effect increased operating expenses
by GEL 15.3 million, or 23.3%. The increase mainly stemmed
from a GEL 7.6 million, or 18.9% increase in staff cost expenses.
Consequently, total operating expenses grew by a GEL 46.2 million,
or 70.6%.
As a result, the cost to income ratio stood at 51.2% (47.0% without
one-offs) in 4Q 2016, compared to a 40.5% in 3Q 2016. Without Bank
Republic’s acquisition effect, the cost to income ratios was 53.5%
(49.7% without one-offs) in 4Q 2016.
Net income
In 2Q 2016 the Bank re-measured its deferred tax assets/liability per
IFRS in order to reflect the change in Georgian Tax Code in relation
to corporate income tax. The deferred tax assets/liabilities were
re-measured to the amount that will be estimated to be utilised in
the period from 1 July 2016 to 31 December 2016/31 December 2018.
The effect of re-measurement on P&L was GEL 17.9 million.
As a result, in 4Q net income grew by 31.6% to GEL 88.0 million YoY
and up by 24.0% QoQ . ROAE stood at 24.2% (23.5% without one-offs),
up by 1.1pp YoY and up by 3.6pp QoQ. ROAA stood at 3.7% (3.5%
without one-offs), down by 0.2pp YoY and 0.3pp QoQ. Without Bank
Republic’s acquisition effect net income in 4Q increased by 15.6%
to a GEL 77.4 million YoY and up by 9.0% QoQ. ROAE stood at 21.4%
(20.0% without one-offs), down by 1.7pp YoY and up by 0.8pp QoQ.
Net income for 2016 stood at GEL 298.3 million, up by 36.4% YoY.
ROAE stood at 22.4% (20.6% without one-offs), up by 2.3pp YoY.
ROAA stood at 3.9% (3.6% without one-offs), up by 0.5pp YoY.
Without Bank Republic’s acquisition effect, net income for 2016 stood
at GEL 287.6 million, up by 31.5% YoY and ROAA stood at 3.9% up by
0.5pp YoY.
FINANCIAL REVIEW continued
2016 to 2015 comparison
Without Bank Republic’s acquisition effect, total operating expenses
increased to GEL 296.7 million, or 17.2% compared to FY 2015.
This increase primarily resulted from a GEL 21.8 million, or 15.3%
increase in staff costs, related to the increased scale, performance
of the business and the changing environment, and GEL 18.8 million
or 22.6% increase in administrate expenses. The administrate
expensive increased due to one-off expenses related to professional
services out of which a GEL 16.2 million is attributable to Premium
Listing expenses (GEL 0.3 million in 4Q 2016) and a GEL 8.0 million
related to consulting and investment bank fees in connection with
Bank Republic’s acquisition. The increase in provision for liabilities
and charges included one-off expense mainly related to staff
redundancy provision related to Bank Republic’s acquisition in the
amount of GEL 2.2 million above due to upcoming merger. Without
one-off expenses mentioned above, administrative and other
operating expense decreased by 7.8% due to GEL 5.0 million higher
impairment of intangible assets in 2015 and overall increased
efficiency across various units.
Bank Republic’s acquisition effect increased total operating
expenses by GEL 15.3 million, or 6.0%, out of which staff costs
accounted for was GEL 7.6 million, or 5.3%. Consequently, total
operating expenses, grew by a GEL 58.9 million, or 23.3%.
Bank Republic administrate expenses included one-off effect of
impairment of intangible asset in the amount of GEL 2.0 million
related to the upcoming merger.
As a result, the cost to income ratio was 45.8% (42.9% without
one-off effects) in 2016, compared to 43.9% in 2015. Without Bank
Republic’s acquisition effect, the cost to income ratio was 46.1% in
2016 (43.4% without one-off effects).
4Q 2016 to 4Q 2015 comparison
Without Bank Republic’s acquisition effect, total operating expenses
increased to GEL 96.5 million, up by a GEL 19.1 million, or 24.7%.
The increase resulted primarily from a GEL 12.5 million, or 29.4%,
increase in staff costs related to the increased scale and
performance of the business and the changing environment as well
as GEL 5.4 million or 20.2% increase in administrative expenses
mainly due to one-off expenses mentioned above. The increase in
provision for liabilities and charges included one-off expense mainly
related to staff redundancy provision related to Bank Republic’s
acquisition in the amount of GEL 2.2 million mentioned above due
to upcoming merger.
Bank Republic’s acquisition effect increased total operating
expenses by GEL 15.3 million, or 19.8%. The contribution to staff
cost was GEL 7.6 million, or 17.9%. Consequently, total operating
expenses grew by a GEL 34.4 million, or 44.4%. Bank Republic’s
administrate expenses included one-off effect of impairment of
intangible asset in the amount of GEL 2.0 million mentioned above.
As a result, the cost to income ratio stood at 51.2% (47.0% without
one-offs) in 4Q 2016, compared to 49.3% in 4Q 2015. Without Bank
Republic’s acquisition effect, the cost to income ratios was 53.5%
(49.7% without one-offs) in 4Q 2016.
76 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Balance sheet discussion
Millions of GEL
Cash, due from banks and mandatory cash balances with NBG
Loans and advances to customers (net)
Financial securities
Fixed and intangible assets and investment property
Other assets
Total assets
Due to credit institutions
Customer accounts
Debt securities in issue
Subordinated debt
Other liabilities
Total liabilities
Total equity
Dec-16 w/o BR
Acquisition
Dec-16
Sep-16
Dec-15 Change QoQ, % Change YoY, %
1,767
5,697
652
379
717
9,213
1,479
5,641
24
368
125
7,637
1,576
1,961
7,134
803
471
401
1,532
4,810
606
375
261
1,203
4,445
679
350
258
27.9%
48.3%
32.5%
25.5%
53.9%
10,769
7,584
6,935
42.0%
2,198
6,455
24
368
142
9,186
1,195
4,593
24
284
99
6,195
1,114
4,178
22
284
120
83.9%
40.5%
-3.0%
29.9%
43.5%
5,717
48.3%
1,583
1,389
1,218
14.0%
63.0%
60.5%
18.2%
34.6%
55.5%
55.3%
97.3%
54.5%
8.3%
29.9%
18.6%
60.7%
29.9%
Assets
Without Bank Republic’s acquisition effect, the Bank’s total assets amounted GEL 9,212.5 million, up by GEL 2,277.5 million, or 32.8%, YoY.
This hike primarily resulted from a GEL 1,252.4 million, or 28.2%, rise in net loans to customers and a GEL 564.3 million or 46.9% increase
in liquid assets (cash, due from banks and mandatory and mandatory cash balances with NBG).
Bank Republic’s acquisition effect increased total assets by GEL 1,556.5 million, or 22.4%. The increase primarily resulted from a
GEL 1,436 million, or 32.3% increase in net loans to customers. Consequently, with Bank Republic’s acquisition effect, as of 31 December 2016,
TBC Bank’s total assets amounted a GEL 10,769.0 million, up by GEL 3,834.0 million, or 55.3%, YoY.
Without Bank Republic’s acquisition effect, the Bank’s total assets increased by a GEL 1,628.8 million, or 21.5%, on a QoQ basis. The increase
was primarily due to a GEL 887.8 million, or 18.5% increase in net loans and advances to customers.
Bank Republic’s acquisition effect increased total assets by 20.5%, which was explained by a 29.9% increase in net loans to customers.
Consequently, with Bank Republic’s acquisition effect on a QoQ basis, total assets expanded by GEL 3,185.3 million, or 42.0%. The rise was
mainly due to a GEL 2,324.2 million, or 48.3%, hike in net loans to customers and a GEL 428.1 million, or 27.9% increase in liquid assets (cash,
due from banks and mandatory cash balances with NBG).
The liquid assets to liability ratio stood at 30.1%, compared to 32.7% as of 31 December 2015 and 33.5% as of 31 September 2016. Without
Bank Republic’s acquisition effect, the liquid assets to liability ratio stood at 31.7%.
As of 31 December 2016, the gross loan portfolio amounted to GEL 7,358.7 million, up by 58.6% YoY and by 47.1% QoQ. Gross loans
denominated in foreign currency accounted for 65.9% of total gross loans, compared to 64.9% as of 31 December 2015 and 63.4% as of
30 September 2016. Without Bank Republic’s acquisition effect, the gross loan portfolio amounted to GEL 5,911.2 million, up by 27.4% YoY
and by 18.1% QoQ. Gross loans denominated in foreign currency accounted for 66.3% of total gross loans.
As of 31 December 2016, NPLs stood at 3.5%, compared to 4.8% and 4.6% as of 31 December 2015 and 30 September 2016, respectively.
The NPLs provision coverage ratio stood at 88.4% (221.4% including collateral), compared to 87.4% as of 31 December 2015 and 84.3% as
of 30 September 2016. Without Bank Republic’s acquisition effect, NPLs stood at 4.0%. The NPLs provision coverage ratio stood at 90.5%
(216.8% including collateral).
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 77
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
Asset quality
Foreign currency income linked borrowers without Bank Republic effect1
Segments
Retail
Consumer
Mortgage
Pawn
Corporate
SME
Micro
Total loan portfolio
PAR 30 by segments and currencies
31-Dec-16
30-Sep-16
FC linked
income
borrowers
share
32.6%
21.8%
24.9%
95.5%
58.4%2
23.9%
4.0%
FC share
60.5%
26.2%
89.8%
68.4%
78.1%
80.6%
38.6%
66.3%
38.9%
FC linked
income
borrowers
share
32.9%
21.1%
24.4%
93.7%
60.6%3
25.3%
4.0%
39.6%
FC share
58.2%
25.1%
89.5%
66.5%
75.2%
80.8%
33.1%
63.4%
Par 30
Dec-16
Sep-16
Dec-15
GEL wo BR
GEL
FC w/o BR
Corporate
Retail
SME
Micro
Total
0.0%
2.1%
0.6%
4.8%
2.1%
0.0%
1.9%
0.6%
4.6%
1.9%
1.2%
2.6%
4.0%
3.7%
2.4%
FC
1.2%
2.3%
4.2%
3.7%
2.3%
Total w/o
BR
0.9%
2.4%
3.3%
4.4%
2.3%
Total
0.9%
2.2%
3.5%
4.2%
2.2%
GEL
0.1%
2.3%
1.2%
3.7%
2.1%
FC
1.0%
2.8%
3.9%
4.3%
2.4%
Total
0.8%
2.6%
3.4%
3.9%
2.3%
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%
Total
Without Bank Republic’s acquisition effect, PAR 30 stood at 2.3% and remained broadly stable both YoY and QoQ basis. With Bank Republic’s
acquisition effect, PAR 30 stood at 2.2%.
Retail segment
Without Bank Republic’s acquisition effect, PAR 30 stood at 2.4% down by 0.2pp QoQ. The decrease was driven by both GEL and FC
denominated loans. On YoY basis PAR30 remained broadly stable. With Bank Republic’s acquisition effect, PAR 30 stood at 2.2%, down by
0.4pp QoQ and 0.2pp YoY.
Corporate
Without Bank Republic’s acquisition effect, PAR 30 stood at 0.9% increased by 0.2pp QoQ and remained unchanged YoY. With Bank Republic’s
acquisition effect, PAR 30 stood at 0.9% increased by 0.1pp QoQ and remained unchanged YoY.
SME
Without Bank Republic’s acquisition effect, PAR 30 stood at 3.3% down by 0.1pp QoQ and 0.2pp YoY driven by improved performance of SME
standalone portfolio. With Bank Republic’s acquisition effect, PAR 30 stood at 3.5% up by 0.1pp QoQ and remained unchanged YoY.
Micro
Without Bank Republic’s acquisition effect, PAR 30 stood at 4.4% up by 0.5pp QoQ and 0.8 YoY. The increase was mainly due to particular
sub-segment of agro loans for which overdue loans have increased due to one-off event related to animal farming. With Bank Republic’s
acquisition effect, PAR 30 stood at 4.2% increased by 0.3pp QoQ and 0.7pp YoY.
1 Based on TBC Bank’s internal estimates
2 Pure exports account for 12.1% of total Corporate USD denominated loans
3 Pure exports account for 11.0% of total Corporate USD denominated loans
78 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
NPLs by segments and currencies
NPLs
Corporate
Retail
SME
Micro
Total
GEL*
1.0%
1.5%
1.8%
3.5%
1.8%
GEL
0.7%
1.4%
1.7%
3.4%
1.6%
* without BR acquisition effect
Dec-16
FC*
6.4%
3.5%
6.5%
5.0%
5.1%
FC
6.0%
2.8%
6.5%
4.3%
4.4%
Total*
5.2%
2.7%
5.6%
3.5%
4.0%
Total
4.6%
2.3%
5.6%
3.8%
3.5%
GEL
1.1%
1.7%
1.7%
3.0%
1.9%
Sep-16
FC
9.1%
3.6%
6.7%
6.2%
6.2%
Total
7.1%
2.8%
5.7%
4.1%
4.6%
GEL
0.6%
1.8%
5.0%
2.5%
1.9%
Dec-15
FC
10.2%
3.3%
4.4%
8.5%
6.4%
Total
7.9%
2.7%
4.5%
4.2%
4.8%
Total
Without Bank Republic’s acquisition effect, NPL decreased by 0.6pp QoQ and 0.8pp YoY to 4.0%. Decrease in NPLs is mainly driven by improved
performance of the corporate loan book. With Bank Republic’s acquisition effect, NPL stood at 3.5%, down by 1.1pp QoQ and 1.3pp YoY.
Retail segment
Without Bank Republic’s acquisition effect, NPL decreased by 0.1pp QoQ to 2.7% and remained unchanged YoY. With Bank Republic’s
acquisition effect, NPL stood at 2.3%, down by 0.5pp QoQ and 0.4pp YoY.
Corporate
Without Bank Republic’s acquisition effect, NPL stood at 5.2% decreased by 1.9pp QoQ and 2.7pp YoY. Decrease in NPLs is driven by recovery
of several corporate borrowers. With Bank Republic’s acquisition effect NPL stood at 4.6% decreased by 2.5pp QoQ and 3.2pp YoY.
SME
Without Bank Republic’s acquisition effect, NPL decreased by 0.1pp QoQ and increased by 1.1pp YoY. NPLs in GEL denominated loans remain
low at 1.8%, while FC denominated NPL increased by 2.1pp YoY due to local currency depreciation in 2015 and macro developments in
Azerbaijan. With Bank Republic’s acquisition effect, NPL stood at 5.6% decreased by 0.1pp QoQ and increased by 1.1 YoY.
Micro
Without Bank Republic’s acquisition effect, NPL stood at 4.1% unchanged from QoQ and down by 0.1 YoY. With Bank Republic’s acquisition
effect, NPL stood at 3.8% decreased by 0.3pp QoQ and 0.4pp YoY.
NPLs coverage
NPLs coverage
Corporate
Retail
SME
Micro
Total
Exc. Collateral*
Exc. Collateral
Incl. Collateral*
Incl. Collateral
Exc. Collateral
Incl. Collateral
Exc. Collateral
Incl. Collateral
Dec-16
Sep-16
Dec-15
94.5%
103.5%
49.1%
111.7%
90.5%
93.5%
98.4%
48.1%
111.5%
88.4%
252.5%
200.2%
169.7%
216.5%
216.8%
257.5%
202.6%
184.7%
217.7%
221.4%
79.6%
106.2%
47.5%
106.0%
84.3%
223.5%
200.9%
164.3%
200.3%
205.0%
91.3%
101.5%
44.1%
87.5%
87.4%
222.3%
199.5%
193.7%
188.8%
209.9%
* without BR acquisition effect
As of December 2016 the NPLs provision coverage ratio stood at 88.4% (221.4% with collateral), compared to 84.3% as of 30 September 2016 and
87.4% as of 31 December 2015. Without Bank Republic’s acquisition effect NPLs provision coverage ratio stood at 90.5% (216.8% with collateral).
Liabilities
Without Bank Republic’s acquisition effect, the Bank’s total liabilities amounted to GEL 7,636.9 million, up by 33.6% YoY and 23.3% QoQ.
The YoY growth of GEL 1,920.3 million was primarily due to increase in customer accounts in the amount of a GEL 1,463.2 million, or 35.0%.
The QoQ growth of GEL 1,441.8 million, or 23.3% mainly resulted from a GEL 1,047.9, million, or 22.8%, increase in customer deposits.
Bank Republic’s acquisition effect increased the Bank’s total liabilities by GEL 1,550 million, or 25.0% QoQ. The increase resulted from a
GEL 718.3 million, or 60.1% rise in amounts due to credit institutions and by a GEL 813.8 million, or 17.7% rise in customer accounts. Consequently,
with Bank Republic’s acquisition effect, TBC Bank’s total liabilities amounted to GEL 9,186.4 million, up by 60.7% YoY and by 48.3% QoQ.
Without Bank Republic’s acquisition effect, liabilities grew by GEL 1,441.8 million, or 23.3% QoQ. This mainly resulted from a GEL 1,047.9 million
or 22.8% increase in customer deposits.
Bank Republic’s acquisition effect increased the Bank’s total liabilities by a 27.1% YoY, which resulted from an increase in the amounts due to
credit institutions by 64.5% and the increase in customer accounts by 19.5%. Consequently, with Bank Republic’s acquisition effect liabilities
grew by GEL 2,991.3 million, or 48.3%.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 79
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
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Liquidity
The Bank’s average liquidity ratio, as defined by the National Bank of Georgia, stood at 30.8% as of 31 December 2016, compared to 34.4%
and 34.9% as of 31 December 2015 and 30 September 2016 respectively.
Total equity
Without Bank Republic’s acquisition effect, total equity amounted to GEL 1,575.6 million, up by GEL 357.2 million, or 29.3% YoY as of
31 December 2015 and by GEL 187.0 million, or 13.5%, increase as of 30 September 2016, mainly due to the increase in net profits.
As a result, with Bank Republic’s acquisition effect, TBC Bank’s total equity amounted to GEL 1,582.6 million, up by a GEL 364.2 million,
or 29.9% as of 31 December 2015 and GEL 194.0 million, or 14.0% QoQ, as of 30 September 2016.
Regulatory capital
As of 31 December 2016, the Bank’s Basel II/III1 tier 1 and total capital adequacy ratios (CAR) stood at 10.4% and 14.2%, respectively,
compared to 12.8% and 16.0% as of 31 December 2015, and 13.3% and 16.2% as of 30 September 2016. The minimum capital requirements
set by the NBG for Basel II/III Tier 1 and total capital adequacy ratios are 8.5% and 10.5%, respectively.
Tier 1 capital decreased by GEL 83.3 million or by 7.4% QoQ mainly due to investment in Bank Republic, which despite a total investment of
GEL 351.0 million decreases the tier 1 capital only by GEL 266.2 million until the full merger. This decrease was partially offset by increase
in net profit per local accounting standard in the amount of GEL 72.5 million (out of which GEL 27.0 million was related to the dividend income
from subsidiaries), and the increase in the share capital of JSC TBC Bank in the amount of GEL 100.0 million by TBC Bank Group PLC for the
purpose of optimization of the group’s capital structure.
In terms of total capital, in addition to the above, the Bank has drowned down the ADB subordinated loan with the amount of US$50.0 million.
As a result, the increase in tier 2 capital more than offset the decrease in tier 1 capital and eventually total capital grew by GEL 53.3 million or 3.9%.
Risk weighted assets stood at GEL 10,021.5 million as of 31 December 2016, up by GEL 2,545.0 million YoY and up by GEL 1,593.7 million QoQ.
The increase in risk weighted assets was mainly related to the increase in loan portfolio and devaluation of the local currency against US Dollar.
As a result, tier 1 and total capital adequacy ratios (CAR) decreased by 2.9pp and 2.1pp respectively, out of which -2.3pp change in tier 1 and
-1.2pp change in total capital is directly attributable to Bank Republic’s acquisition.
The table below shows the theoretical impact of Bank Republic’s merger on capital ratios if applied to December figures (the actual merger is
planned in 3Q 2017). As a result, tier 1 capital adequacy ratio increased by 0.1pp and total capital adequacy ratio decreases by 0.5.pp.
GEL million
Tier 1 capital
Total capital
Risk weighted assets
Tier 1 capital adequacy ratio
Total capital adequacy ratio
Merger
impact if
applied to
December
1,283
1,664
12,193
10.5%
13.7%
31-Dec-16
1,041
1,422
10,021
10.4%
14.2%
As of 31 December 2016 the Bank’s Basel I consolidated tier 1 capital ratio stood at 21.4% and total consolidated capital ratio stood at 28.2%
compared to 25.6% and 31.5% as of 30 September 2016 and 24.7% and 30.9% as of 31 December 2015.
1 The National Bank of Georgia enforced Basel II/III regulation in June 2014.
80 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Results by segments and subsidiaries
The segment definitions are as per below:
• The corporate segment includes business customers that have annual revenues of GEL 8.0 million or more, or have been granted a loan
in an amount equivalent to US$1.5 million or more. Some other business customers may also be assigned to the corporate segment on a
discretionary basis;
• The micro segment business customers with loans below US$70,000, as well as pawn loans, credit cards and cash cover loans granted
in TBC Bank Constanta branches, and deposits up to US$20,000 in urban areas and up to US$100,000 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;
• The SME segment includes business customers that are not included in either the corporate or micro segments. Some other legal entity
customers may also be assigned to the SME segment on a discretionary basis;
• The retail segment includes individuals that are not included in the other categories.
• Corporate centre and other operations comprise the treasury, other support and back office functions, and non-banking subsidiaries of
the Group.
The following table sets out the information on the financial results of TBC Bank’s segments for 2016
2016 to 2015 comparison
FY16
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
(Losses less gains)/gains less losses from disposal of investment
securities available for sale
Gross insurance profit
Other operating income
Retail
SME
Corporate
Micro Corp. Centre
Total
341,577
-99,664
-29,236
68,693
-7,796
-2,480
162,277
-45,586
-22,186
116,177
-1,794
-39,092
77,702
-121,133
92,994
766,426
-275,973
–
212,677
58,417
94,505
75,291
49,563
490,453
92,989
-40,467
52,522
16,367
–
–
–
–
5,714
15,506
-3,908
11,598
25,845
–
–
–
–
783
23,050
-3,395
19,655
23,945
–
–
–
–
9,837
7,263
-3,763
3,500
1,876
–
–
–
–
351
3,992
-999
2,993
2,236
-2,507
-206
9,293
256
6,551
142,800
-52,532
90,268
70,269
-2,507
-206
9,293
256
23,236
Other operating non-interest income
22,081
26,628
33,782
2,227
15,623
100,341
Provision for loan impairment
(Provision)/recovery of provision for liabilities, charges and credit
-56,835
-15,774
49,548
-26,141
related commitments
-834
456
-388
Recovery of provision/(provision) for impairment of investments in
–
–
-558
-49,202
-771
-558
-5
–
finance lease
(Provision)/recovery of provision for impairment of other financial
assets
Recovery of impairment/(impairment) of investment securities
available for sale
–
-91
–
–
–
-92
-863
-62
-1,745
-2,853
–
–
–
-11
-11
Profit before G&A expenses and income taxes
229,520
81,233
196,239
54,810
65,865
627,667
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
-87,918
-16,941
–
-54,329
-17,591
-2,126
–
-8,673
-23,995
-1,066
–
-6,763
-30,116
-6,053
–
-15,977
-12,601
-1,896
-2,210
-23,733
-172,221
-28,082
-2,210
-109,475
-159,188
-28,390
-31,824
-52,146
-40,440
-311,988
70,332
52,843
164,415
2,664
25,425
315,679
-8,561
-8,707
-25,010
-459
25,316
-17,422
61,771
44,136
139,405
2,205
50,741
298,258
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The following table sets out the information on the financial results of TBC Bank’s segments for 2016 without Bank Republic’s acquisition effect.
FY16
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
(Losses less gains)/gains less losses from disposal of investment
securities available for sale
Gross insurance profit
Other operating income
Retail
SME
Corporate
Micro Corp. Centre
Total
315,158
-97,889
-29,236
67,839
-7,795
-2,480
157,098
-39,793
-22,186
113,417
-1,792
-39,092
75,151
-114,817
92,994
728,663
-262,087
–
188,033
57,564
95,119
72,533
53,328
466,576
92,006
-38,984
53,021
15,650
–
–
–
–
2,771
15,011
-3,853
11,158
24,702
–
–
–
–
602
20,520
-3,155
17,364
21,726
–
–
–
–
9,043
7,260
-3,755
3,505
1,876
–
–
–
–
146
3,949
-922
138,746
-50,670
3,027
88,076
2,236
-5,777
-206
8,795
256
6,537
66,190
-5,777
-206
8,795
256
19,099
Other operating non-interest income
18,421
25,304
30,769
2,022
11,842
88,358
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 assets
Recovery of impairment/(impairment) of investment securities
available for sale
-47,895
-14,708
50,910
-25,304
-833
–
-91
–
10
–
-92
–
-388
–
-863
–
-5
–
-62
–
–
–
-558
-1,706
-36,997
-1,217
-558
-2,814
-11
-11
Profit before G&A expenses and income taxes
210,656
79,236
192,911
52,688
65,922
601,413
Staff costs
Depreciation and amortisation
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the year
-83,530
-16,905
-48,917
-17,381
-2,125
-8,487
-23,063
-1,062
-5,943
-28,184
-6,037
-14,755
-12,446
-2,012
-25,839
-164,604
-28,141
-103,941
-149,353
-27,992
-30,069
-48,976
-40,297
-296,686
61,303
51,243
162,842
-6,839
-8,438
-24,733
54,464
42,805
138,109
3,712
-548
3,165
25,625
304,727
23,413
-17,146
49,038
287,581
The following table sets out the loans and customer deposits’ portfolios of TBC Bank’s business segments as of 31 December 2016,
31 September 2016 and 31 December 2015.
Portfolios by segments
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 deposits
Corporate deposits
SME deposits
Micro deposits
Total customer accounts
82 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Dec 16 w/o BR Acquisition effect
Dec 16
Sep 16
Dec 15
1,025,120
1,152,700 1,663,550
1,015,550
1,811,695
1,272,057
266,889
288,010
288,010
2,712,767 3,763,255 2,307,559
1,471,931
2,060,172
1,789,309
670,248
857,552
799,714
553,827
677,746
609,363
871,996
905,274
242,699
2,019,969
1,500,104
625,628
493,328
5,911,153 7,358,725 5,003,564 4,639,029
-194,143
-213,856
-225,023
-194,035
5,697,296 7,133,702 4,809,530 4,444,886
3,336,914 3,666,385
1,468,771 1,795,503 1,006,739
769,968
888,475
82,397
104,586
2,734,133 2,469,878
1,001,341
633,211
73,501
5,641,123 6,454,949 4,593,237 4,177,931
747,203
88,235
Retail banking
Without Bank Republic’s acquisition effect, retail loans stood at
GEL 2,712.8 million, up by 34.3% YoY and 17.6% QoQ. The YoY increase
was mainly explained by a GEL 366.8 million increase in mortgage
loans and a GEL 280.7 million increase in consumer loans. TBC
Bank’s retail loans accounted for 32.9% market share of total
individual loans. As of 31 December 2016, foreign currency loans
represented 60.5% of the total retail loan portfolio.
Without Bank Republic’s acquisition effect loan yield and deposit
rates stood at 10.8% and 3.9%, respectively. In the same period,
the cost of risk on loans was -3.5%. In terms of profitability, the
corporate segment’s net profit reached GEL 138.1 million, or 48.0%
of the Bank’s total net income. With Bank Republic’s acquisition
effect, corporate loan yields and deposit rates stood at 10.7% and
4.2%, respectively. In the same period, the cost of risk on loans was
-3.3%. In terms of profitability, the corporate segment’s net profit
reached GEL 139.5 million, or 46.8% of the Bank’s total net income.
With Bank Republic’s acquisition effect, as of 31 December 2016,
retail loans stood at GEL 3,763.3 million, up by 86.3% YoY and by
63.1% QoQ. The YoY increase was mainly related to a GEL 791.6 million
increase in consumer loans and a GEL 906.4 million increase in
mortgage loans. TBC Bank’s and Bank Republic’s combined retail
loans accounted for a 44.2% market share of total individual loans.
As of 31 December 2016, foreign currency loans represented 62.0%
of the total retail loan portfolio.
SME banking
Without Bank Republic’s acquisition effect, SME loans amounted to
GEL 799.7 million, up by 27.8% YoY and 19.3% QoQ. Foreign currency
loans accounted for 80.6% of the total SME portfolio. With Bank
Republic’s acquisition effect, SME loans amounted to GEL 857.6
million, up by 37.1% YoY and up by 27.9% QoQ. Foreign currency loans
accounted for 81.3% of the total SME portfolio.
Without Bank Republic’s acquisition effect, retail deposits stood at
GEL 3,336.9 million, up by 35.1% YoY and 22.0% QoQ and accounted for
a 37.2% market share of total individual deposits. The increase in retail
deposits was mainly attributable to the increase in current deposits by
52.3% YoY and 27.5% QoQ. Term deposits accounted for 58.5% of the
total retail deposit portfolio as of 31 December 2016. Foreign deposits
accounted for 87.8% of the total retail deposit portfolio.
Without Bank Republic’s acquisition effect, SME deposits stood at
GEL 747.2 million, up by 18.0% YoY and down by 3.0% QoQ. Foreign
currency SME deposits accounted for 61.2% of the total SME deposit
portfolio. Consequently, with Bank Republic’s acquisition effect SME
deposits stood at GEL 888.5 million, up by 40.3% YoY and 15.4% QoQ.
Foreign currency SME deposits accounted for 58.6% of the total SME
deposit portfolio.
With Bank Republic’s acquisition effect, in the same period, retail
deposits increased to GEL 3,666.4 million, up 48.4% YoY and 34.1%
QoQ and accounted for a 40.8% market share of total individual
deposits. The increase in retail deposits was mainly attributable to
the increase in current deposits by 72.2% YoY and 44.2% QoQ. Term
deposits accounted for 57.3% of the total retail deposit portfolio as of
31 December 2016. Foreign currency deposits accounted for 86.9% of
the total retail deposit portfolio.
Without Bank Republic’s acquisition effect, retail loan yields and deposit
rates stood at 14.3% and 3.7% respectively, and the segment’s cost
of risk on loans was 2.2%. The retail segment contributed 18.9%,
or GEL 54.5 million, to TBC Bank’s total net income in 2016. With Bank
Republic’s acquisition effect, retail loan yields and deposit rates stood
at 14.1% and 3.6% respectively, and the segment’s cost of risk on loans
was 2.3%. The retail segment contributed 20.7%, or GEL 62.0 million,
to TBC Bank’s total net income in 2016.
Corporate banking
Without Bank Republic’s acquisition effect, corporate loans
amounted GEL 1,789.3 million, up by 19.3% YoY and 21.6% QoQ.
Foreign currency loans accounted for 78.1% of the total corporate
loan portfolio. With Bank Republic’s acquisition effect, corporate
loans amounted to GEL 2,060.2 million, up by 37.3% YoY and up by
40.0% QoQ. Foreign currency loans accounted for 74.3% of the total
corporate loan portfolio.
Without Bank Republic’s acquisition effect, corporate deposits
totalled GEL 1,468.8 million, up by 46.7% YoY and 45.9% QoQ.
Foreign currency corporate deposits represented 60.6% of the total
corporate deposit portfolio. With Bank Republic’s acquisition effect
corporate deposits totalled GEL 1,795.5 million, up by 79.3% YoY and
up by 78.3% QoQ. Foreign currency corporate deposits represented
57.9% of the total corporate deposit portfolio.
Without Bank Republic’s acquisition effect SME loan yields and
deposit rates stood at 10.5% and 1.2%, respectively, while the cost
of risk on loans was 2.3%. In terms of profitability, net profit for the
SME segment amounted to GEL 42.8 million, or 14.9%, of TBC Bank’s
total net income. Consequently, SME loan yields and deposit rates
stood at 10.5% and 1.1%, respectively, while the cost of risk on loans
was 2.4%. In terms of profitability, net profit for the SME segment
amounted to GEL 44.1 million, or 14.8% of TBC Bank’s total
net income.
Micro banking
Without Bank Republic’s acquisition effect micro loans totalled
GEL 609.4 million, up by 23.5% YoY and 10.0% QoQ. Foreign currency
loans represented 38.6% of the total micro loan portfolio. Consequently,
with Bank Republic’s acquisition effect micro loans totalled
GEL 677.7 million, up by 37.4% YoY and 22.4% QoQ. Foreign currency
loans represented 42.5% of the total micro loan portfolio.
Without Bank Republic’s acquisition effect micro deposits totalled
GEL 88.2 million, up by 20.0% YoY and 7.1% QoQ. Foreign currency
loans represented 60.7% of the total micro loan portfolio.
Consequently, with Bank Republic’s acquisition effect micro
customer deposits amounted to GEL 104.6 million, up by 42.3% YoY
and 26.9% QoQ. Foreign currency micro deposits represented 59.2%
of the total micro deposit portfolio.
Without Bank Republic’s acquisition effect micro loan yields and
deposit rates stood at 21.4% and 2.4%, respectively. In the same
period, the cost of risk on loans was 4.8%. In terms of profitability,
the micro segment’s net profit reached GEL 3.2 million, or 1.1% of
TBC Bank’s total net income. Consequently, with Bank Republic’s
acquisition effect micro loan yields and deposit rates stood at 21.4%
and 2.3%, respectively. In the same period, the cost of risk on loans
was 4.8%. In terms of profitability, the micro segment’s net profit
reached GEL 2.2 million, or 0.7% of TBC Bank’s total net income.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 83
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
Consolidated financial statements of TBC Bank Group PLC
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
Investment securities held to maturity
Investments in subsidiaries and associates
Investments in finance leases
Investment properties
Goodwill
Intangible assets
Premises and equipment
Other financial assets
Deferred 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
Group reorganisation reserve
Share based payment reserve
Revaluation reserve for premises
Revaluation reserve for available-for-sale securities
Cumulative currency translation reserve
TOTAL EQUITY
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
84 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Dec 16 w/o BR
Acquisition
effect
875,862
31,818
859,508
5,697,296
280,200
-
372,956
351,041
95,031
67,245
4,491
56,283
255,650
90,765
3,511
7,430
163,443
Dec 16
Sep 16
Dec 15
945,180
24,725
990,642
720,347
843,431
11,042
12,284
471,490
676,780
7,133,702 4,809,530 4,444,886
307,310
252,736
-
57,232
372,092
295,901
-
-
75,760
77,496
57,600
71,122
2,726
2,726
44,344
49,663
247,767
254,214
64,317
62,799
1,546
2,181
9,856
9,515
103,912
106,103
430,703
-
372,956
-
95,031
95,615
28,658
60,957
314,032
94,627
3,511
7,430
171,263
9,212,532 10,769,032 7,583,712 6,934,995
1,479,270
1,195,031
2,197,577
5,641,123 6,454,949 4,593,237
551
24,227
1,822
13,908
42,732
283,637
39,917
479
23,508
1,716
14,529
43,900
368,381
63,984
2,577
23,508
5,646
16,026
50,998
368,381
66,739
1,113,574
4,177,931
912
21,714
29,244
9,461
39,435
283,648
40,627
7,636,889 9,186,401 6,195,063 5,716,546
1,581
677,211
944,496
-162,166
23,327
70,038
419
(7,539)
1,581
677,211
955,173
-162,166
23,327
70,460
(3,681)
(7,538)
1,494
572,780
943,629
-162,166
20,398
70,038
2,024
(7,686)
19,587
407,474
712,743
-162,166
12,755
59,532
5,759
(6,590)
1,547,367 1,554,367 1,357,808 1,211,260
28,264
28,264
30,842
7,189
1,575,643 1,582,631 1,388,649 1,218,449
9,212,532 10,769,032 7,583,712 6,934,995
Consolidated statement 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
Net insurance premium earned
Net insurance claims incurred
Gross insurance profit
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses
Gains less losses/(losses less gains) from derivative financial
Y’16 w/o BR
acquisition
effect
Y’16
Y’15
4Q’16 w/o BR
acquisition
effect
4Q’16
3Q’16
4Q’15
728,663
-262,087
766,426
-275,973
649,059
-236,885
205,581
-75,769
243,344
-89,655
182,056
-61,830
174,172
-67,654
466,576
490,453
412,173
129,811
153,689
120,227
106,519
138,746
-50,670
142,800
-52,532
113,837
-41,546
41,406
-15,206
45,460
-17,068
35,112
-12,918
32,567
-12,760
88,076
90,268
72,291
26,200
28,392
22,194
19,807
1,222
-966
256
66,190
-5,777
1,222
-966
256
70,269
-2,507
–
–
–
64,642
2,579
1,222
-966
256
21,392
-5,789
1,222
-966
256
25,472
-2,519
–
–
–
–
–
–
15,713
1,012
17,536
912
instruments
-206
-206
-575
94
94
173
276
(Losses less gains) / gains less losses from disposal of
investment securities available for sale
Other operating income
8,795
19,099
9,293
23,236
–
25,883
–
8,236
498
12,372
–
2,501
–
11,912
Other operating non-interest income
88,102
100,085
92,529
23,933
35,916
19,398
30,636
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
-36,997
-558
-49,202
-558
-72,791
-967
1,799
-322
-10,405
-322
-13,518
-126
-1,217
-2,814
-11
-771
-2,853
-11
1,117
-3,351
–
2,341
-1,686
–
2,787
-1,727
–
-1,481
66
–
-2,055
-344
-1,945
-974
–
Operating income after provisions for impairment
601,413
627,667
501,002
182,331
208,586
146,759
151,644
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
-164,604
-28,141
-2,210
-101,731
-172,221
-28,082
-2,210
-109,475
-142,777
-26,286
-1,102
-82,964
-54,927
-7,494
-2,210
-31,851
-62,544
-7,435
-2,210
-39,595
-40,205
-7,037
–
-18,294
-42,445
-7,347
-1,102
-26,500
-296,686
-311,988
253,129
-96,483
-111,785
-65,536
-77,394
304,727
315,679
247,873
85,849
96,801
81,223
74,251
-17,146
17,421
-29,176
-8,492
-8,767
-10,235
-7,331
287,581
298,258
218,697
77,356
88,034
70,988
66,920
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Revaluation
Gains less losses reclassified to profit or loss upon disposal
Income tax recorded directly in other comprehensive income
Exchange differences on translation to presentation currency
2,122
-8,853
1,401
-948
522
-11,611
1,649
-948
-2,436
–
-479
-12,075
-1,605
–
–
147
Items that will not be reclassified to profit or loss:
Revaluation of premises and equipment
Income tax recorded directly in other comprehensive
income
–
–
28,755
10,506
10,928
-4,319
–
–
-3,196
-2,757
247
147
–
422
Other comprehensive income for the year
4,217
540
9,446
-1,458
-5,136
-197
Total comprehensive income for the year
291,798
298,798
228,143
75,898
82,898
70,791
573
–
–
-770
1,252
–
-149
-10,864
–
–
28,755
-4,319
14,674
81,594
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 85
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
FINANCIAL REVIEW continued
Consolidated statement of profit or loss and other comprehensive income continued
Thousands of GEL
Profit attributable to:
– Owners of the Bank
– Non-controlling interest
Profit for the period
Total comprehensive income is attributable to:
– Owners of the Bank
– Non-controlling interest
Y’16 w/o BR
acquisition
effect
Y’16
Y’15
4Q’16 w/o BR
acquisition
effect
4Q’16
3Q’16
4Q’15
288,631
299,145
218,879
78,845
89,359
69,526
67,563
-1,050
-887
-182
-1,489
-1,326
1,462
-643
287,581
298,258
218,697
77,356
88,034
70,988
66,920
292,848
299,685
228,324
77,387
84,223
69,238
82,237
-1,050
-887
-182
-1,489
-1,326
1,462
-643
Total comprehensive income for the year
291,798
298,798
228,142
75,898
82,898
70,791
81,594
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 Bank’s unaudited and consolidated management accounts prepared from TBC Bank’s accounting records and
used by the management for monitoring and control purposes.
Key ratios
Ratios (based on monthly averages, where applicable)
FY 16 w/o BR
acquisition
effect
FY 16
FY 15
4Q’16 w/o BR
acquisition
effect
4Q’16
3Q’16
4Q’15
21.6%
3.9%
24.7%
4.5%
46.1%
0.8%
7.9%
13.5%
3.3%
12.3%
4.5%
7.8%
1.3%
4.0%
90.5%
216.8%
3.6%
N/A
N/A
N/A
90.7%
N/A
268%
5.8
25.7%
32.0%
10.4%
14.2%
22.4%
3.9%
26.4%
4.6%
45.8%
1.0%
7.8%
13.4%
3.3%
12.2%
4.5%
7.8%
1.3%
3.5%
88.4%
221.4%
3.1%
0.1%
7.6%
11.3%
93.4%
108.4%
268%
6.8
21.3%
28.1%
10.4%
14.2%
ROAE
ROAA
Pre-provision ROAE
Pre-provision ROAA
Cost to income
Cost of risk
NIM
Loan yields
Deposit rates
Yields on interest earning assets
Cost of funding
Spread
PAR 90 to gross loans
NPLs to gross loans
NPLs coverage
NPLs coverage with collateral
Provision level to gross loans
Related party loans to gross loans
Top 10 borrowers to total portfolio
Top 20 borrowers to total portfolio
Net loans to deposits plus IFI funding
Net stable funding ratio
Liquidity coverage ratio
Leverage
BIS Tier 1
Total BIS CAR
NBG Basel II/III Tier 1 CAR
NBG Basel II/III Total CAR
86 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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%
4.8%
87.4%
21.4%
3.7%
20.8%
3.6%
53.5%
-0.1%
7.8%
13.8%
3.1%
12.3%
4.4%
7.9%
1.3%
4.0%
90.5%
209.9% 216.8%
3.6%
N/A
N/A
N/A
90.7%
N/A
268%
5.8
25.7%
32.0%
10.4%
14.2%
4.2%
0.1%
9.9%
15.6%
94.8%
116.3%
288%
5.7
24.7%
31.0%
12.8%
16.0%
20.6%
24.2%
4.0%
3.7%
25.1%
26.8%
4.8%
4.1%
40.5%
51.2%
1.1%
0.6%
8.3%
7.9%
13.5%
13.8%
3.3%
3.3%
12.5%
12.5%
4.3%
4.5%
8.2%
8.0%
1.5%
1.3%
4.6%
3.5%
88.4%
84.3%
221.4% 205.0%
3.9%
0.1%
8.6%
13.4%
93.8%
114.1%
248%
5.5
25.6%
31.5%
13.3%
16.2%
3.1%
0.1%
7.6%
11.3%
93.4%
108.4%
268%
6.8
21.3%
28.1%
10.4%
14.2%
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%
4.8%
87.4%
209.9%
4.2%
0.1%
9.9%
15.6%
94.8%
116.3%
288%
5.7
24.7%
31.0%
12.8%
16.0%
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 PLC’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 equal 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 (including but not limited to yields on loans, securities and due from
banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).
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. NPLs to gross loans equals 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.
13. NPLs coverage ratio equals total loan loss provision divided by the NPL loans.
14. NPLs coverage with collateral ratio equals loan loss provision plus total collateral amount of NPL loans (excluding third party guarantees)
discounted at 30-50% depending on segment type divided by the NPL loans.
15. Provision level to gross loans equals loan loss provision divided by the gross loan portfolio for the same period.
16. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
17. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.
18. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.
19. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international
financial institutions.
20. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III.
21. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined in Basel III (calculated
according to NBG standards).
22. Leverage equals total assets to total equity.
23. BIS tier 1 capital adequacy ratio equals tier 1 capital over total risk weighted assets, both calculated in accordance with
Basel I requirements.
24. Total BIS CAR equals total capital over total risk weighted assets, both calculated in accordance with Basel I requirements.
25. NBG Basel II/III tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the pillar 1
requirements of NBG Basel II/III standards. The reporting started from the end of 2012.
26. NBG Basel II/III total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the pillar 1
requirements of NBG Basel II/III standards. The reporting started from the end of 2012.
Exchange rates
To calculate the balance sheet items’ QoQ growth without currency exchange rate effect, we used USD/GEL exchange rate of 2.3297 as of
30 September 2016. For calculations of YoY growth without currency exchange rate effect, we used USD/GEL exchange rate of 2.3949 as of
31 December 2015. The USD/GEL exchange rate as of 31 December 2016 equaled 2.6468. For P&L items growth calculations without currency
effect, we used the average USD/GEL exchange rate for the following periods: FY 2016 of 2.3667, FY 2015 of 2.2702, 4Q 2016 of 2.4958, 3Q 2016
of 2.3224, 4Q 2015 of 2.3979.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 87
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ GOVERNANCE STATEMENT
CHAIRMAN’S GOVERNANCE OVERVIEW
Dear Shareholders,
In August 2016, the Company was listed on the premium segment of
the London Stock Exchange (the “LSE“). As a listed company, we are
committed to the highest standard of corporate governance. The
Board aims to promote the Company’s long-term success and is
responsible to the shareholders for creating and delivering high
shareholder value by establishing and overseeing the strategic
direction of the Company and its business as a whole.
We have implemented a strong corporate governance framework
with an experienced Board and full committee structure. We have
also adopted terms of references for each of the Board committees
(the “Committees”) that are compliant with the Code requirements,
including the composition of the Committees. All Directors are fully
aware of their duties and responsibilities under the Code, Listing
Rules and the Disclosure Guidance and Transparency Rules.
In our short time as a premium-listed Company, we have achieved
the highest standards of corporate governance. We understand
that the Board requires the right balance of skills, expertise,
independence and country-specific knowledge to achieve maximum
effectiveness. Our Board is comprised of nine members, of which
five (namely, Nikoloz Enukidze, Stefano Marsaglia, Nicholas Haag,
Eric Rajendra and Stephan Wilcke) are considered independent
non-executive Directors. The Board views each of these non-
executive Directors to be independent of management judgment
and character, and free from any business or other relationship
that could materially interfere with their exercise of independent
judgment. Nikoloz Enukidze has been appointed as the Company’s
senior independent non-executive Director. In accordance with the UK
Corporate Governance Code (the “Code”), we intend to comply with
the annual re-election of all the Directors.
We understand that sound corporate governance structure and
strong oversight by the Board of the Company’s business are key to
the Company’s overall success and to increasing shareholder value.
We are committed to further develop and strengthen our governance
structure to achieve the highest level of effectiveness.
Mamuka Khazaradze
Chairman
31 March 2017
88 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Corporate governance framework
The corporate governance framework provides shareholders with
an explanation of how the Company has applied the main principles
of the Code as relevant to the Company in 2016.
Compliance statement
As a premium-listed company on the LSE, the Company complies
with the Code. At the date of this report, the Company has applied
the principles and complied with the provisions of the Code except
as disclosed below:
Provision A.3.1 requires that the Chairman on appointment should be
independent. Mamuka Khazaradze, who is the Chairman, is, for the
purposes of the Code, not considered to have been independent on
his appointment as the Chairman due to his role as founder of the
Group. The Board is unanimously of the opinion that Mr Khazaradze
is an extremely valuable asset to the Company, bringing a wealth
of experience in Georgia’s banking sector, and that it is, therefore,
in the Company’s best interests that he should continue as the
Chairman of the Company.
The Code and associated guidance is published by the Financial
Reporting Council and is available at www.frc.org.uk.
The role of the Board
The Board has collective responsibility to shareholders for creating
and delivering high shareholder value by establishing and overseeing
the strategic direction of the Company and its business. The Board is
led by the Chairman and provides challenge, oversight and advice to
ensure the Company’s success. The Board is the decision-making
body in relation to all matters that are significant to the Group. There
is a formal schedule of matters reserved for the Board’s approval in
place to ensure that the Board retains control over key decisions.
The matters exclusively reserved for the Board’s approval include,
among other things, approval of the Group’s strategy, long-term
objectives, risk appetite, the annual, operating and capital
expenditure budgets, changes to the Group’s capital, share buy-
backs, major acquisitions and/or mergers, annual reports and
accounts. The full document is available on our website at
www.tbcbankgroup.com.
As envisaged by the Code, the Board has established three principal
Committees: (i) the Audit Committee; (ii) the Corporate Governance
and Nomination Committee; and (iii) the Remuneration Committee.
The Board has also established the Risks, Ethics and Compliance
Committee. The members of these Committees are appointed
by the Board. These Committees have been delegated specific
responsibilities and each Committee has its own terms of reference
approved by the Board.
Division of responsibilities
There is a clear division of responsibilities between the Chairman,
the Chief Executive Officer and the senior independent non-executive
Director. As Chairman, Mamuka Khazaradze is responsible for
leading the Board to ensure that the Board as a whole performs a
full and constructive role in the development and determination of
the Group’s strategy and overall commercial objectives. He also
oversees the Board’s decision-making processes. The Chief
Executive Officer, Vakhtang Butskhrikidze, is responsible for the
Company’s day-to-day management and has the principal
responsibility for running the Group’s business. He is responsible for
proposing, developing and implementing the Group’s strategy and
overall commercial objectives, which is done in close consultation
with the Chairman and the Board. In addition, the Board has
appointed, in line with the requirements of the Code, Nikoloz
Enukidze as the senior independent non-executive Director, who
provides a sounding board for the Chairman. He serves as an
intermediary for the other Directors where necessary and meets
with investors to discuss Group’s corporate governance matters.
This separation of responsibilities between the Chairman, the Chief
Executive Officer and the senior independent non-Executive Director
ensures that no one individual has unfettered powers of decision-
making. The full document detailing the division of responsibilities
between the Chairman, the Chief Executive Officer and the senior
independent non-executive Director are available on our website at
www.tbcbankgroup.com.
Board composition
The Board currently comprises a Chairman, Deputy Chairman, five
non-executive Directors and two executive Directors. In accordance
with the Code, majority of the Board are independent non-executive
Directors. Non-executive Directors constructively challenge and
scrutinise the performance of management and help develop
proposals on strategy.
The Board has considered the independence of the Company’s
non-executive Directors as against the factors described in the Code
and has determined, as mentioned previously, that all non-executive
Directors are independent, except for Mamuka Khazaradze and
Badri Japaridze.
Mamuka Khazaradze is the Company’s Chairman and he is, for the
purposes of the Code, not considered to have been independent on his
appointment as the Chairman due to his role as founder of the Group.
Each non-executive Director has an ongoing obligation to inform the
Board of any circumstances that could impair his independence.
Details of the individual Directors and their biographies are set out
on pages 97 to 99.
Board Committees
To assist the Board in carrying out its functions and to ensure
independent oversight of financial, audit, internal control and risk
issues, review of remuneration, as well as oversight and review of
Board and executive succession planning, the Board has delegated
certain responsibilities to the Committees. Currently, the Board
has four Committees: (i) the Audit Committee; (ii) the Remuneration
Committee; (iii) the Corporate Governance and Nomination
Committee; and (iv) the Risks, Ethics and Compliance Committee.
Each Committee has agreed Terms of Reference, which are approved
by the Board and reviewed annually. Each Committee’s Terms of
Reference can be found on our website at www.tbcbankgroup.com.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 89
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ GOVERNANCE STATEMENT continued
Audit Committee
Remuneration
Committee
Corporate Governance
and Nomination
Committee
Risks, Ethics
and Compliance
Committee
Committee membership
Badri Japaridze
Eric J. Rajendra
Nikoloz Enukidze
Nicholas Dominic Haag
Stefano Marsaglia
Stephan Wilcke
Chairperson
Member
Time commitment
Non-executive Directors commit sufficient time to their role at the Company. This includes attendance at the Board meetings and respective
Committee meetings of which they are members, as well as scheduled away days, site visits, conference calls and email communication.
Non-executive Directors consider all relevant materials prior to each meeting and commit additional time to the Company when it is
undergoing a period of particularly increased activity.
Board and Committee meeting attendance
Following its listing on the premium segment of the LSE, the Company has held one scheduled meeting with the Directors attending in
person. Matters that require decisions outside the scheduled meetings are dealt with through additional meetings and conference calls.
The company has held 10 additional meetings. Also, the Chairman and the Chief Executive Officer maintain frequent contact (in person or
otherwise) with each other and the other Board members throughout the year outside of the formal meetings.
In addition, the affairs of the Company’s main subsidiary, JSC TBC Bank (the “Bank”), are supervised by a supervisory board (the
“Supervisory Board”) with the same composition as the Board and equivalent committees of the Supervisory Board to the Committees with
the same composition. There are, therefore, in practice two equivalent supervisory bodies within the Group represented by the Board and the
Supervisory Board, which are separate but interconnected together with committees that have common membership. However, we carefully
balance the work of the Board, the Supervisory Board and their respective committees, dividing functions according to whether they are
supervising the topics that impact the Company or solely the Bank.
Attendance of meetings of the Board and its Committees in 2016 are set out below:
Board meetings
eligible to
attend/attended
Audit Committee
meetings eligible
to attend/attended
Remuneration
Committee
meetings eligible
to attend/attended
Corporate
Governance
and Nomination
Committee
meetings eligible
to attend/attended
Risks, Ethics and
Compliance
Committee
meetings eligible
to attend/attended
Vakhtang Butskhrikidze (Chief Executive Officer)
Giorgi Shagidze (Chief Financial Officer)
Non-Executive Directors
Mamuka Khazaradze (Chairman)1
Badri Japaridze
Eric J. Rajendra
Nikoloz Enukidze
Nicholas Dominic Haag
Stefano Marsaglia
Stephan Wilcke2
11/11
11/10
11/8
11/8
11/7
11/11
11/10
11/5
11/6
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
5/5
5/5
5/5
5/3
1/1
1/1
1/1
1/1
1/1
1 When Mr. Khazaradze was unable to attend the meetings, he discussed all matters on the agenda with the senior independent non-executive Director and the CEO and
provided feedback on materials, as required, in advance of the meetings.
2 Although Mr. Stephan Wilcke was unable to attend a number of Board and Committee meetings, including three (3) Board and respective Committee meetings held on
29 December 2016, he discussed all matters on the agenda with the Board and Committee members via teleconference calls and has also expressed his opinion by
email correspondence for each non attended Board and Committee meeting.
90 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Attendance of meetings of the Supervisory Board and its committees (including scheduled and additional meetings) in 2016 is set out below:
Supervisory Board
meetings eligible
to attend/attended
Audit Committee
meetings eligible
to attend/attended
Remuneration
Committee
meetings eligible
to attend/attended
Corporate
Governance and
Nomination
Committee
meetings eligible
to attend/attended
Risks, Ethics and
Compliance
Committee
meetings eligible
to attend/attended
Mamuka Khazaradze (Chairman)
Vakhtang Butskhrikidze1 (Chief Executive Officer)
Giorgi Shagidze2 (Chief Financial Officer)
Badri Japaridze3
Eric J. Rajendra4
Nikoloz Enukidze
Nicholas Dominic Haag
Stefano Marsaglia5
Stephan Wilcke6
73/73
33/33
33/33
72/72
96/96
94/94
96/96
96/94
33/32
14/13
14/14
14/14
14/12
4/3
17/17
17/17
17/17
8/8
9/9
9/9
9/9
5/4
18/18
19/17
30/30
30/30
12/11
12/11
1 Vakhtang Butskhrikidze joined the Supervisory Board in September 2016.
2 Giorgi Shagidze joined the Supervisory Board in September 2016.
3 Badri Japaridze was a member of Risks, Ethics and Compliance Committee until September 2016.
4 Eric J.Rajendra was appointed as a member of the Risks, Ethics and Compliance Committee in June 2016.
5 Stefano Marsaglia was appointed as a member of Risks, Ethics and Compliance Committee in September 2016.
6 Stephan Wilcke joined the Supervisory Board and respective Committees in September 2016.
Diversity policy
We value diversity and the Group takes account of diversity when
recruiting, including when considering Board appointments. We
see significant benefit to our business in having a Board drawn
from a diverse range of backgrounds, since this brings the required
expertise, cultural diversity and different perspectives to the Board
discussions. However, we do not believe this is achieved through
simple quotas, whether it be gender or otherwise. Accordingly,
the Group will continue to appoint candidates based on merit and
relevant experience in accordance with the requirements of the Code.
Evaluation of Board and Committees’ performance
The Board together with the Committees continually strive to improve
their effectiveness and recognise that their annual evaluation process
is an important tool in reaching that goal. The performance evaluation
of the Board, the Committees and the individual Directors has been
conducted by the company secretary and the Company in January 2017.
The evaluation was based around the following key areas:
• Board composition, role, skills, diversity, balance and experience;
• Board decision-making and leadership;
• Risk management and role of the Board with respect to the Group’s
Induction
As set out in the Code, the Chairman takes responsibility to ensure
that the Board is updated in a timely manner about the Company’s
performance to enable it to make proper decisions. The Chairman
ensures information exchange between the Board, the Committees
and executives. If there is a need for independent advice, the Board
can seek it directly at the Company’s expense.
Prior to the Company’s listing on the premium segment of the LSE,
all Directors received a comprehensive induction and guidance as to
their duties, responsibilities and liabilities as a Director of a public
limited company.
Members of the Board are required to complete a self-assessment
process at the end of the year, where the members of the Board
identify a relevant development programme.
strategy; and
• Monitoring Company performance.
The review process involved the company secretary attending
meetings of the Board and the Committees in November 2016 in
London as an observer and company secretary. In addition, each
Director was requested to fill out questionnaires on the effectiveness
of the Board and Committees.
The company secretary subsequently produced a report on the review
process findings that was shared with all members of the Board.
Having assessed the findings of the effectiveness review, the Directors
were satisfied that the Board and each of its Committees operated
effectively during 2016. Nevertheless, the Board defined several actions
to help maintain and improve its effectiveness in the following areas:
• Enhancing the strategic planning by setting up a strategy
committee;
• Focusing on audit-related peer analysis;
• Refining the quality of meetings by increasing the length of
meetings to provide sufficient debating time to ensure depth of
discussions; and
• Further refining the Board succession planning aligned with the
Company’s priorities.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 91
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ GOVERNANCE STATEMENT continued
The Board are provided with shareholder feedback at Board
meetings. The Chief Executive Officer, the Chairman and the senior
independent non-executive Director are available to discuss the
concerns of shareholders at any point during the year.
All announcements issued to the LSE are available on the Group’s
website at www.tbcbankgroup.com.
Annual General Meeting
The Company, since its short time as a premium-listed company, has
not yet held an Annual General Meeting. The 2017 Annual General
Meeting is scheduled for 5 June 2017 in London. The Notice of Annual
General Meeting will be circulated to all the shareholders at least
21 working days before the Annual General Meeting and it will also be
made available on our IR website www.tbcbankgroup.com. The voting
on the resolutions will be announced via the Regulatory News Service
and made available on our IR website www.tbcbankgroup.com.
Directors’ commitments
The Directors are required to disclose to the Board their external
appointment or other significant commitments prior to their
appointment. Our non-executive Directors hold external directorships
or other external positions, but the Board believes they still have
sufficient time to devote to their duties as a Director of the Company
and believe that the other external directorships/positions held
provide the Directors with valuable expertise that enhances their
ability to act as a non-executive Director of the Company.
No significant changes to the commitments of the Chairman
or non-executive Directors were identified.
Re-election of Directors
As mentioned above, we intend to comply with the annual re-election
of all Directors in accordance with the Code. Biographical details of
the Directors are included on pages 97 to 99.
Remuneration Committee
Information on the Remuneration Committee is included in the
Directors’ Remuneration Report on pages 108 to 123.
Engagement with shareholders
The Board understands the importance of and is committed to
promoting communication with all its shareholders. The Chief
Executive Officer and the Chief Financial Officer, together with the
Deputy Chairman and/or the Chairman, are in very close engagement
with institutional investors. They have participated in deal and non-deal
roadshows across numerous geographic locations to promote the
awareness and understanding of the Company’s business. In addition
to roadshows, the Bank’s senior executive team and Directors were
involved in hosting the capital markets day in London, where they,
together with the Georgian government, promoted the awareness of
Georgian business and economic environment. The Bank was engaged
in discussions with existing and potential investors to promote better
understanding of the Bank’s operational business, corporate
governance and other areas of interest to investors in light of its listing
on the premium segment of the LSE.
In addition, the Company is committed to its investor relations (the
“IR”) activities and has a permanent representative in London, who is
always available for investor meetings and updates. Our IR website
offers transparent and timely information to the investors.
92 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
DIRECTORS’ REPORT
Directors’ report
The Directors present their Annual Report together with the audited
consolidated accounts for the year ended 31 December 2016, which
can be found on pages 133 to 223.
Political donations
The Group did not make any political donations or incur any political
expenditure during 2016.
The Strategic Report on pages 2 to 87 was approved by the Board,
and signed on behalf of the Board by Vakhtang Butskhrikidze, the
Company’s Chief Executive Officer, on 31 March 2017.
The Management Report together with the Strategic Report on
pages 2 to 87 form the Management Report for the purposes of
DTR 4.1.5. R.
Other information that is relevant to the Directors’ Report and
incorporated by reference into this report can be located as follows:
Contents
Directors’ governance statement
Corporate Governance and Nomination Committee report
Risks, Ethics and Compliance Committee report
Audit Committee report
Remuneration Committee report
Going concern statement
Viability statement
Greenhouse gas emissions
Risk management
Principal risks and uncertainties
Board of Directors
Employee matters
Environmental matters
Share capital
Information on the Group’s financial risk management
and its exposure to credit risk, liquidity risk, interest rate
risk and foreign currency risk
Page
88
104
106
124
108
94
95
64
46
42
96
56
64
182
193
Directors’ conflicts of interests
The Company, in accordance with the requirements of the Companies
Act 2006 and the Company’s articles of association (the “Articles of
Association”), requires the Directors to declare actual or potential
conflicts of interest that could interfere with the interests of the
Company. The Directors are required, prior to the Board meetings,
to declare any conflict of interest they may have in relation to the
matters under consideration and if so, abstain from voting and
decision-making in relation to the matter in question. The Directors
have a continuing duty to update any changes to these conflicts.
Directors’ indemnities and insurance
The Group maintains directors’ and officers’ liability insurance,
which gives appropriate cover for legal action brought against its
Directors. The Company has also granted indemnities to each of its
Directors and the company secretary to the extent permitted by law.
Neither the indemnity nor insurance cover provides cover in the
event that a Director, officer or company secretary is proved to have
acted fraudulently or dishonestly.
Relationship Agreement
On 31 May 2016, the Company entered into a relationship agreement
(the “Relationship Agreement”) with Mamuka Khazaradze, Badri
Japaridze, Vakhtang Butskhrikidze, Temur Japaridze, Bob Meijer and
David Khazaradze (together the “Presumed Concerted Party Group”)
to regulate the degree of control that the members of the Presumed
Concerted Party Group and their associates may exercise over the
Group’s management and business. The principal purpose of the
Relationship Agreement is to ensure that the Company and its
subsidiaries are capable at all times of carrying on their business
independently of members of the Presumed Concerted Party Group
and their associates.
Under the Relationship Agreement, for as long as it remains in force,
the members of the Presumed Concerted Party Group shall, and
have agreed that each of their associates shall, when acting in a
capacity (which could include as a shareholder or director) with any
member of the Group, amongst other things:
• conduct all transactions and arrangements entered into between
any member of the Group (on the one hand) and that member of
the Presumed Concert Party Group and/or his associates (on the
other) on an arm’s length basis and on normal commercial terms
and in accordance with the related-party transaction rules set out
in the Listing Rules;
• not take any action that would have the effect of preventing the
Company from complying with its obligations under the Listing
Rules; and/or
• not propose or procure the proposal of any resolution of the
shareholders which is intended, or appears to be intended, to
circumvent the proper application of the Listing Rules.
Share capital
As of 31 March 2017, the Company had issued ordinary share capital
comprised of 52,682,843 ordinary shares with a nominal amount of
£0.01 each and carrying one vote per ordinary share at general
meetings of the Company. There were no shares held in treasury.
The Company has in issue one class of ordinary shares, all of which
are fully paid up, and it does not have preference shares in issue.
The rights and obligations attaching to the Company’s ordinary
shares are set out in the Articles of Association. There are no voting
restrictions on the issued ordinary shares and each ordinary share
carries one vote.
Details of the movements in share capital during the year are
provided in Note 25 to the consolidated financial statements on page
182 of this Annual Report.
Profit and dividends
The profit for the financial year ending 31 December 2016 attributable
to the Company’s shareholders, after taxation, amounts to GEL
299,145,866. The Board intends to recommend 25% of this figure (i.e.
GEL 74,786,467) to be distributed to the Company’s shareholders as
dividend, (which represents GEL 1.42 per share), payable in British
Pounds Sterling at an official exchange rate of the National Bank of
Georgia for 15 June 2017. If approved, the final dividend will be paid on
14 July 2017 to shareholders on the Register of Members at the close
of business in the UK (i.e. 6pm London time) on 9 June 2017. Subject to
shareholder approval at the AGM, shareholders will also be offered a
scrip dividend alternative.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 93
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REPORT continued
Powers of Directors
The Directors may exercise all powers of the Company subject to
applicable laws and regulations and the Articles of Association.
Special rights and transfer restrictions
None of the ordinary shares in the capital of the Company carry
special rights with regard to the control of the Company. There are
no specific restrictions on transfers of shares in the Company, which
is governed by its Articles of Association and prevailing legislation,
other than:
• certain restrictions which may from time to time be imposed by
laws or regulations such as those relating to insider dealing;
• pursuant to the Group’s Share Dealing Code, whereby the
Directors and designated employees require approval to deal in
the Company’s shares;
• where a person with an interest in the Company’s shares has been
served with a disclosure notice and has failed to provide the
Company with information concerning interests in those shares; and
• pursuant to the Group’s Senior Management Compensation
System, whereby Participants (as defined therein) may be
granted restricted share awards which vest subject to continuous
employment and malus and clawback provisions over three years
from the award date.
All employees (including Directors) that are deemed by the Company
to be insiders have complied with the Group’s Share Dealing Code.
There are no restrictions on exercising voting rights save in
situations where the Company is legally entitled to impose such a
restriction (for example under the Articles of Association where
amounts remain unpaid in the shares after request, or the holder is
otherwise in default of an obligation to the Company). The Company
is not aware of any arrangements between shareholders that may
result in restrictions on the transfer of securities or voting rights.
Major shareholders
As at 31 December 2016, the Company had been notified under Rule 5
of the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority (the “DTRs”) of the following interests in its total
voting rights of 3% or more.
As of 31 December 2016
Shareholder
Mamuka Khazaradze
Badri Japaridze
European Bank for Reconstruction and
Development
Schroder Investment Management
JPMorgan Asset Management
Dunross &Co
Societe Generale SA
% of voting
rights
# of voting
rights
14.08% 7,343,936
7.03% 3,669,878
12.15% 6,336,406
7.44% 3,879,075
7.07% 3,687,656
5.75% 3,000,441
5.38% 2,807,734
Nederlandse Financierings-Maatschappij
voor Ontwikkelingslanden
4.16% 2,171,000
Source: RD:IR research
During the period 31 December 2016 to 31 March 2017 the Group
did not receive any notifications under Rule 5 of the DTRs.
Any future regulatory filings by shareholders will be available on
the Group’s website at www.tbcbankgroup.com and the LSE website
at www.londonstockexchange.com.
94 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Powers of Directors to issue and/or buy back Company shares
The Companies Act 2006 and the Articles of Association determine
the powers of Directors in relation to share issues and buy backs of
shares in the Company. The Directors are authorised to issue and
allot shares subject to approval at a General Meeting of Shareholders.
Such authorities were granted to the Directors by shareholders at the
general meeting of the Company held on 12 May 2016 authorising the
Directors to allot ordinary shares in the capital of the Company up to
an aggregate nominal value of £163,702.40. The Company did not
repurchase any of its ordinary shares during 2016.
This authority will apply until the conclusion of the 2017 AGM.
Shareholders will be requested to renew these authorities at the
2017 AGM.
Appointment/replacement of Directors and amendment of
Articles of Association
The appointment and retirement of Directors is governed by the
Company’s Articles of Association, the Code and the Companies Act
2006 and related legislation.
Shareholders are authorised to appoint/replace the Directors and
make amendments to the Articles of Association by resolution at a
general meeting of the Company with the latter being required to be
passed as a special resolution.
All of the Directors will stand for annual re-election at the AGM.
Vakhtang Butskhrikidze and Giorgi Shagidze have service contracts with
the Company, which have come into effect on 10 August 2016 and will
continue until terminated by either party to such contracts giving the
other not less than seven month’s written notice. Further details on the
Directors’ service contracts are available in the Remunaration Report
on pages 122 to 123. Biographical details of the Directors are included
on pages 97 to 99.
Change of control
There are no significant agreements to which the Company is a party
that take effect, alter or terminate upon a change of control of the
Company. In addition, there are no agreements between the
Company and its employees and the Directors that contain
compensation clauses for loss of office or employment that occurs
because of a takeover bid resulting in case of change of control.
Employee disclosures
The Company’s disclosures relating to the employee engagement
and policies, as well as human rights, are included in the
Employee matters section of the Strategic Report on pages 56-59
of this Annual Report.
Disclosure information to the auditor
The Directors, who held office at the date of approval of this Annual
Report, confirm that, so far as they are aware, there is no relevant
audit information of which the Group’s auditors are unaware, and
that each Director has taken all steps that he reasonably should have
taken as a Director in order to make him aware of any relevant audit
information and to establish that the Company’s statutory auditors
are aware of such information. This confirmation is given and should
be interpreted in accordance with the provisions of section 418 of the
Companies Act 2006.
Going Concern statement
The Board has fully reviewed the available information pertaining to
the principal risks, strategy, financial health, liquidity and solvency of
the Group, and determined that the Group’s business remains a going
concern. The Directors have not identified any material uncertainties
that could threaten the going concern assumption and have a
reasonable expectation that the Company and the Group have
adequate resources to remain operational and solvent for the
foreseeable future (which is for this purpose a period of 12 months
from the date of approval of these financial statements). Accordingly,
the Group’s consolidated financial statements are prepared in line
with the going concern basis of accounting.
Viability statement
In compliance with the Code, the Directors have assessed the
viability of the Group over a three-year period beginning on
1 January 2017. In considering the longer-term viability of the
Group and its operations, the Directors have carried out a robust
and thorough assessment of the following:
• Principal risks and uncertainties of the Group, and the risks
that the senior management believe could cause the Group’s
actual financial condition, operations and prospects to differ
materially from current expectations.
• The effectiveness of current and proposed mitigating actions
that address the principal risks and uncertainties.
• Current financial and operational condition of the Group,
including capital, funding and liquidity profile of the Bank .
• Current business position and future prospects of the Group.
• Strategic plans of the Group.
• Macroeconomic stress tests to determine external shock
tolerance of the Group.
• Consideration of the regional economic and political stability
and prospects.
• The effectiveness of the Group’s risk management framework,
practice and internal control mechanisms.
• The Board’s risk appetite and the Group’s adherence to the
RA metrics and risk budget.
The Directors have determined the three-year period ending on
1 January 2020 to be appropriate, as it is consistent with the Group’s
planning cycle, covering, financial forecasts and strategic
considerations of the Group.
The Board closely scrutinises the risk management practices of the
Group, sets risk objectives and culture from the top and consistently
monitors the performance of the risk function and its adherence to
international standards. The Directors have determined that the
Group’s risk management framework is adequate for managing the
principal risks and uncertainties set out in the Annual Report and
reducing their likelihood and impact wherever possible.
The use of various quantitative models, including the Enterprise
Wide Stress Test, ensures that the Group maintains adequate
buffers to withstand a combination of various quantifiable risks
if they materialise.
The review and analysis of the information presented in this
Annual Report has enabled the directors to confirm that they have
a reasonable expectation of the Group’s viability over the next three
years up to 1 January 2020 and that the Group will be able to continue
its operations and meet its liabilities as they fall due over the
three-year period from 1 January 2017 to 1 January 2020.
The Directors are required to prepare the Company’s and the Group’s
financial statements for each financial year. Under the Act, the
Group’s financial statements shall be prepared in accordance with
the International Financial Reporting Standards (the “IFRS”) as
adopted by the European Union, and the Directors have elected to
prepare the Company’s financial statements on the same basis.
The financial statements are required by the Act and the IFRS to
present fairly the financial position and performance of the Company
and the Group for that period. The Directors must not approve the
financial statements unless they are satisfied that they give a true
and fair view of the state of affairs and the profit or loss of the
Company and the Group for that period.
The Directors consider that in preparing the financial statements
they have used appropriate accounting policies, supported by
reasonable judgments and estimates, and that all accounting
standards which they consider to be applicable have been followed.
The Directors also believe that the financial statements have been
prepared on the going concern basis. Please see further the “Going
concern statement” on page 94 of this Annual Report.
The Directors have a responsibility that the Company and the Group
keep accounting records which disclose with reasonable accuracy
the financial position of the Company and the Group and enable the
Directors to ensure that the accounts comply with the Act.
The Directors are also responsible for safeguarding the assets of
the Company and the Group and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
In addition, the Directors are responsible for the maintenance and
integrity of the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors’ responsibility statement
Each of the Directors, whose names and functions are listed on pages
97-99 of this Annual Report, confirms that to the best of their
knowledge:
• the Group’s financial statements, which have been prepared in
accordance with the IFRS standards as adopted by EU, give a true
and fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole;
• the Strategic Report and Director’s report contained in this
Annual Report include a fair review of the development and
performance of the business and the position of the Company and
the Group, together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable, and provide the
information necessary for the shareholders to assess the
Company’s performance, business and strategy.
This responsibility statement was approved by the Board and is
signed on its behalf by:
Directors’ responsibilities
The following statement, which should be read together with the
Auditor’s report set out on pages 133 to 223, is required by the
Companies Act 2006 (the “Act”).
Mamuka Khazaradze
Chairman
31 March 2017
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 95
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
BOARD OF
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96 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
BOARD BIOGRAPHIES
Mamuka Khazaradze
Chairman
Mamuka Khazaradze graduated from the Technical University of Georgia in 1988 and
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 TBC Bank’s
Supervisory Board since its incorporation in 1992 and was appointed as a chairman of
the Board in May 2016.
Badri Japaridze
Deputy Chairman
Badri Japaridze graduated from the faculty of psychology of Tbilisi State University in
1982 and 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 the Bank’s Supervisory Board and has held
the position of vice chairman of the Bank’s 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. Mr.Japaridze was appointed as a
deputy chairman of the Board in May 2016.
Nikoloz Enukidze
Senior independent non-executive Director
Nikoloz 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
LSE, 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 Bank’s Supervisory Board as an independent member in 2013 and to the Board
as a senior independent non-executive Director in May 2016.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 97
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
BOARD BIOGRAPHIES continued
98 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Stefano Marsaglia
Non-executive Director
Stefano 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 Marsaglia 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 Marsaglia currently serves as executive chairman of corporate and investment
banking at Mediobanca, London. In 2015, Mr Marsaglia was named Cavaliere del
Lavoro by the President of the Italian Republic for his long-standing contribution to
the financial services industry. Mr Marsaglia was appointed to the Bank’s Supervisory
Board in 2014 and to the Board as an independent non-executive Director in May 2016.
Nicholas Haag
Non-executive Director
Nicholas Haag earned an M.A. 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 from 2013 until November 2016 as a member of the Supervisory Board of Credit
Bank of Moscow and a financial consultant specializing in capital raisings and stock
exchange flotations. He also serves as an independent non-executive director of Bayport
Management Limited and since 2016 as a director of AS Citadele Banka in Riga. Since 2012,
he has acted as sole director of his own consulting company, Nicdom Limited. Mr Haag
was appointed to the Bank’s Supervisory Board in 2013 and to the Board as an
independent non-executive Director in May 2016.
Eric Rajendra
Non-executive Director
Eric Rajendra graduated from Brandeis University, earned his M.A. 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 was 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 Bank’s Supervisory Board in 2010 and to the
Board as an independent non-executive Director in May 2016.
Stephan Wilcke
Non-executive Director
Stephan Wilcke graduated from UWC Atlantic in 1990 and holds a Master’s Degree from
Oxford University. From 1993 to 2000, he worked at Oliver, Wyman & Co. as a strategy
consultant, becoming a partner in 1998. From 2000 to 2007, he worked at Apax Partners
as an investment professional, becoming a partner in 2005. From 2008 to 2009, he acted
as advisor to the European Central Bank, the Bundesbank and the Luxembourg Central
Bank in connection with the collapse of Lehman Brothers and the subsequent failures
of Landsbanki and Glitnir. Thereafter, he served as CEO of the UK Government Asset
Protection Agency from 2009 to 2011. In 2011, Mr Wilcke joined the board of OneSavings
Bank as a non-executive director, stepping up to become executive chairman in early
2012 and stepping back into a non-executive director role after taking the bank through
its initial public offering in 2014. He has been a commissioner of the Jersey Financial
Services Commission since 2012, served as Supervisory Board vice chairman of the
Nova Ljubljanska Banka from 2012 to 2013, and was a council member of the Hellenic
Financial Stability Fund from 2013 to 2015. Mr Wilcke became chairman of the Audit &
Risk Committee of BIMA/Milvik S.A. in 2014 and non-executive chairman of Amigo
Loans in 2015. He has served as non-executive director and Investment Committee
member of the investment firm EMF Capital Partners Ltd. since 2012, and in 2015
Mr Wilcke co-founded his own investment firm, Rozes Invest Ltd. Mr.Wilcke was
appointed to the Board as an independent non-executive Director in May 2016 and
as a member of the Supervisory Board in September 2016.
Vakhtang Butskhrikidze
Chief Executive Officer
Vakhtang Butskhrikidze joined TBC Bank as a senior manager of the credit department
in 1993 and was elected deputy chairman of the Bank’s Management Board in 1994.
He became chairman of the Bank’s 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.
Mr Butskhrikidze is also a member of the Supervisory Board 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, Mr Butskhrikidze joined
the Visa Central & Eastern Europe, Middle East and Africa (CEMEA) Business Council.
In his earlier career, he 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, Mr Butskhrikidze 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. Mr Butskhrikidze was also named as the CEO of
the Year 2014 in Central and Eastern Europe and the CIS by EMEA Finance magazine.
Mr Butskhrikidze 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 postgraduate qualifications from the Institute of Economics, Academy of
Sciences of Georgia. Mr.Butskhrikidze was appointed as a Chief Executive Officer of the
Company in May 2016 and as a member of the Supervisory Board in September 2016.
Giorgi Shagidze
Deputy CEO and Chief Financial Officer
Giorgi Shagidze became deputy CEO and chief financial officer of TBC Bank and
was appointed to the Bank’s 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. Mr Shagidze also is a Board member of the Georgian Stock Exchange.
Prior to joining TBC Bank, he acted as a global operations executive for Barclays Bank
Plc between 2008 and 2010. In his earlier career, Mr Shagidze 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, 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. Mr Shagidze obtained an MBA from the University of
Cambridge Judge Business School in 2008. He graduated from Tbilisi State University
in 1997 with a degree in economics. Mr Shagidze was appointed as a Chief Financial
Officer of the Company in May 2016 and as a member of the Supervisory Board in
September 2016.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 99
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
THE BANK’S
MANAGEMENT
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100 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
THE BANK’S MANAGEMENT BOARD BIOGRAPHIES
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. Mr
Butskhrikidze was appointed as a Chief Executive Officer of the company in May 2016
and as a member of Supervisory Board in September 2016.
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, Chief Financial Officer
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. Mr Shagidze was appointed as a Chief Financial Officer of the
Company in May 2016 and as a member of the Supervisory Board in September 2016
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 101
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THE BANK’S MANAGEMENT BOARD BIOGRAPHIES continued
Vano Baliashvili
Deputy CEO, Chief Operating Officer
Vano joined TBC Bank 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.
David Chkonia
Deputy CEO, Chief Risk Officer
David joined TBC Bank in 2017 as Chief Risk Officer and Deputy CEO following 15
years of international banking and risk management experience. Prior to joining TBC,
David was a Director at BlackRock in the BlackRock Solutions group advising financial
institutions and regulators on topics related to enterprise risk management, balance
sheet strategy and regulation. Prior to that, he served as Senior Vice President
at PIMCO responsible for the risk advisory practice focusing on origination and
execution across European credit and capital markets. In 2009-2011, David worked
at European Resolution Capital helping Western European banks with NPL
management and set-up of internal restructuring units in Central and Eastern
European subsidiaries. In 2006, David joined Goldman Sachs in the EMEA Structured
and Principal Finance team where he completed a number of innovative financing
transactions in the infrastructure and real estate sectors as well as focusing on
restructuring mandates. In 2002-2004, David worked at the EBRD executing debt
and equity investment transactions in CEE as well as working in the bank’s Credit
Department. David holds a BSc from San Jose State University and an MBA from The
Wharton School at the University of Pennsylvania.
George Tkhelidze
Deputy CEO, Corporate and Investment Banking
George joined TBC Bank in 2014 as Deputy CEO in charge of Risk Management.
After the creation of a Corporate and Investment Banking (CIB) unit at the Bank in
November 2016, George changed position and overtook the responsibility for the
newly formed unit. George has more than 15 years of experience in financial services.
Prior to joining TBC, George worked for Barclays Investment Bank, where he held the
position of Vice President in the Financial Institutions Group (FIG), EMEA since June
2011. 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 during 2000-2007, 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).
102 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Nino Masurashvili
Deputy CEO, Retail Banking
Nino joined TBC Bank 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, SME and 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 103
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT
CHAIRMAN’S OVERVIEW
Dear Shareholders,
I am pleased to present the Corporate Governance and Nomination
Committee (the “Committee”) report for the Group. The Committee
is responsible for developing corporate governance principles
and guidelines applicable to the Group, assessing the Group’s
governance practice in light of international standards of best
practice. The Committee continually seeks to ensure that the
Board’s composition is diverse and aligned to the Group’s
strategic objectives. In addition, the Committee’s role extends to
recommendations of appointments to the Management Board
of its main subsidiary JSC TBC Bank (the “Bank”).
As such, a key role of this Committee is to keep the Board’s and
the Management Board’s composition, skills experience, knowledge,
independence and succession arrangements under review. The
Committee’s primary purpose is to ensure that the Group has the
best calibre of individuals and a clear plan for both executive and
non-executive succession.
Eric J. Rajendra
Chairman of the Corporate Governance and Nomination Committee
31 March 2017
104 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Committee members
As at 31 March 2017, the Committee is composed of three
independent non-executive Directors, including Eric Rajendra
(chairman), Nikoloz Enukidze and Stephan Wilcke, as well as Badri
Japaridze, who is not considered to be independent under the UK
Corporate Governance Code requirements. As such, the Board
considers that the Group complies with the UK Corporate
Governance Code as the majority of the Committee members are
free from any relationship or circumstances which may, could or
would be likely to, or appear to affect their judgment.
Attendance at Committee meetings
Only members of the Committee have the right to attend its
meetings, but the Committee may invite others, including the
Chief Executive Officer, the Head of Human Resources and external
advisors, to attend all or part of any meeting if it thinks it is
appropriate or necessary. The Committee members meet on a
quarterly basis and schedule additional meetings when appropriate.
The attendance of members at the Committee meetings during the
year at the Company and the Bank levels are set out in the Directors’
Governance statement on pages 90 to 91.
Committee role and responsibilities
The Committee role and responsibilities are set out in its terms of
reference, available on the Group’s website: www.tbcbankgroup.com.
The Committee is responsible for establishing corporate governance
guidelines and overseeing compliance with them, as well as for making
recommendations to the Board for changes or additional actions as it
deems necessary. The Committee is also responsible for leading the
appointment process for the Board and the Management Board, as well
as for identifying and nominating candidates with the right skills and
experience for approval by the Board.
The main responsibilities of the Committee in relation to the
development and functioning of corporate governance within
the Group are:
• advising the Board periodically with respect to significant
developments in the law and practice of corporate governance;
• reviewing the independence standards for Board members;
• monitoring and evaluating the process for assessing the
performance and effectiveness of the Board and its committees
(including a self-assessment of this Committee); and
• reviewing the structures and procedures of the Board and its
relationship with the management to ensure it can function
independently.
The main responsibilities of the Committee in relation to
nomination are:
• evaluating the current balance of skills, experience, independence
and knowledge on the Board and within the senior management
team and, in light of this evaluation, preparing a description of the
role and capabilities required for a particular appointment;
• ensuring that non-executive Directors are appointed for specified
terms subject to re-election and to statutory provisions relating to
the removal of a director;
• considering and making recommendations to the Board on the
composition of the senior management team;
• overseeing the orientation program for new members of the Board
with respect to their Board responsibilities and roles, as well as the
contribution individual members are expected to make; and
• making recommendations to the Board on succession planning for
the Board and the senior management team over the longer term in
order to maintain an appropriate balance of skills and experience
and to ensure progressive refreshing.
Appointment and re-election of directors
The Committee reviews the composition of the Board and Board’s
Committees, and monitors the skills and experience the Group
needs to be able to deliver its strategic aims, to govern the Group
appropriately, and to comply with the Group’s corporate culture
and values. In accordance with the UK Corporate Governance Code,
all Directors will stand for re-election on an annual basis. The
Committee has carried out performance evaluations and is of the
view that each Director demonstrated the level of commitment
required in connection with their role on the Board and the needs
of the business.
In addition, in 2016, the Committee took an active role in the
recruitment process of the Bank’s new Chief Risk Officer (“CRO”)
and, following a comprehensive interview process held with number
of high calibre individuals, Mr. David Chkonia was recommended
by the Committee and appointed by the Board and the Supervisory
Board to the position of Bank’s CRO. Biographical details of Mr.
Chkonia are set out on page 102.
Assessment of the work completed
In 2016, the Committee worked on the following items in line with its
responsibilities and obligations:
Diversity
The Committee ensures that the selection of new Board members
reflects diversity in the broadest sense. The combination of
personalities provides a good range of skills and improves the
quality of the Board’s decision-making. The Committee’s objectives
for implementing the policy include ensuring that:
• there is an appropriate mix of skills and experience to ensure an
effective Board; and
• the Board comprises a majority of Directors who are independent
in character and judgement.
We have a good degree of diversity on the Board with a wide range of
skills, background, experiences and outlooks, which ensures that the
Directors’ decision-making process derives the benefits of this diversity.
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.
Key members of the Management Board and Middle Management have
been identified for succession planning at the chief executive officer and
deputy chief executive officer 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.
Board recruitment and appointment process
The Board has formal, thorough and transparent procedures in
place for Board recruitment and appointment. In identifying suitable
candidates, the Committee typically seeks recommendations from
trusted advisors but may also use external search services to
facilitate the recruitment.
The Committee carefully assesses each candidate for Board
membership against our criteria for Board appointments and
ensures that appointees have enough time available to devote to the
position. We then decide whether to recommend an appointment to
the Board and the Board decides whether to make the appointment.
In 2016 search for a new non-executive member to the Board
commenced. Korn Ferry (UK Office – CEO & Board Services) was
appointed to support non-executive search on the basis of their
strength and overall market reputation. Korn Ferry has no other
connection with the Group.
The specification for the role and profile of the candidate was agreed
by the Committee in conjunction with the Chief Executive Officer and
the Chairman. Korn Ferry analysed the market for possible candidates
with a breadth of diversity, experience and background. A short list
was produced and potential candidates were interviewed by the
Chief Executive Officer, the Chairman and the Committee chairman.
Following this comprehensive search process overseen by the
Committee, Mr. Stephan Wilcke was recommended by the Committee
and approved and appointed by the Board as an independent non-
executive Director. Biographical details of Mr. Wilcke are set out on
page 99.
Training
New Directors receive induction training shortly after appointment.
Further professional development opportunities are provided based
on the work Directors carry out on different Board committees.
Members of the Board are required to complete a self-assessment
process at the end of the year, where the members of the Board
identify a relevant development programme.
Further details on the induction and training of new Directors is set
out in the Directors’ Governance statement on page 91.
Assessment of effectiveness
The Committee effectiveness review is conducted every year to
assess the Committee’s performance. This assessment is carried
out by the Committee members themselves and by the Board
as a whole, in line with international standards of best practice
in corporate governance. The 2016 Corporate Governance and
Nomination Committee review has found that the Committee
effectively fulfilled all its responsibilities and obligations.
Looking ahead to 2017
In the coming year, the Committee will focus on longer-term Board
succession planning, continue to strengthen senior management
skills development via specialised training, examine corporate
governance practices in each major division to ensure compliance
with international best practices, and make recommendations to the
Board where appropriate.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 105
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
RISK, ETHICS AND COMPLIANCE COMMITTEE REPORT
CHAIRMAN’S LETTER
Dear Shareholders,
I am pleased to present the report of the Company’s Risks, Ethics
and Compliance Committee (the “RECC”).
In August 2016, the Company listed in the premium segment of the
LSE. The listing was preceded by the Group’s legal restructuring,
which involved the Company’s establishment as a UK holding
company for the Group. As a result, our corporate governance was
adjusted accordingly, including through the creation of the RECC and
other committees. The RECC has a dual function as a committee of
the Company and Supervisory Board committee of TBC Bank.
Although our main responsibilities have remained the same, we had
to make important changes to our constitutional documents,
composition and processes. We made these changes during the first
half of the year as part of the Group’s preparation for the Company’s
premium listing, which took place in August 2016.
The report below summarises the RECC’s activities for the year.
Nikoloz Enukidze
Chairman of the Risk, Ethics and Compliance Committee
31 March 2017
Committee role
The key function of the RECC is to assist the Board in its oversight
of all matters related to the risk management and compliance
of the Company and the Group as a whole. The RECC is responsible
for recommending risk appetite to the Board and monitoring
performance against the agreed appetite. It is also responsible for
reviewing, assessing and recommending any actions to be taken
by the Board regarding the Group’s risk management strategy in
general, risk management system and risk policies. The RECC is
also responsible for overseeing the Group’s compliance activities,
ensuring that the Group complies with all applicable laws and
regulations and that it maintains the highest standards of ethical
behaviour. The RECC’s terms of reference are available on the
Company’s investor relations website: www.tbcbankgroup.com.
Committee members and meetings
The RECC consists of five independent non-executive Directors:
Nikoloz Enukidze (chairman), Stefano Marsaglia, Nicholas Haag,
Eric Rajendra and Stephan Wilcke.
The biographies of the RECC members are set out on pages 97-99.
The RECC meets in person on a quarterly basis and at each meeting
its members review a detailed report on risk management results
for the quarter, as well as updates on compliance and other areas
within the RECC’s remit. The RECC meetings are normally attended
by the Chief Executive Officer, the chief risk officer, the head of
compliance and key members of the Group’s risk and compliance
teams. Additional meetings are held via electronic communications.
The attendance of members at the RECC meetings during the year
at the Company and the Bank levels are set out in the Directors’
Governance statement on pages 90 to 91.
106 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Compliance
The RECC received a quarterly update from the head of the
Group’s compliance department. The RECC worked closely with
the compliance department on the changes that the Group made
to its compliance framework and policies in connection with the
Company’s premium listing. The RECC also approved and monitored
implementation of a whistleblowing policy.
IFRS 9 implementation
The Group started implementation of IFRS 9 to ensure a timely
quantitative impact assessment and implementation of the new
standard. In 2016, the RECC heard regular updates on the status of the
IFRS 9 project and plans to continue monitoring this closely in 2017.
Committee effectiveness review
The RECC effectiveness review is conducted every year by the Board
and the individual Committee members to assess the RECC's
performance, as per international standards of best practice in
corporate governance. During 2016, the RECC was effective in
overseeing the Group’s risk management, compliance activities
and ethical standards.
RECC activities during 2016
Overall, 2016 was a transformational year for the Company. The
Group’s decision to list the Company in the premium segment of
the LSE and the acquisition of Joint Stock Company Bank Republic
(“Bank Republic”) solidified our position as a leading financial
institution in the region. The RECC played an important role in both
transactions and, in particular, monitored the acquisition process
of Bank Republic, paying particular attention to the quality of Bank
Republic’s portfolio, risk management approach and processes, and
the integration plan.
The RECC maintained focus on its key responsibilities of monitoring
the Group’s risk management processes and facilitated progress in
terms of both risk management tools and techniques, as well as
mitigation actions against prevailing risks.
Risk management results
The RECC reviewed a detailed risk management results presentation
at each of its quarterly meetings. This presentation included:
• a review of Georgia’s macroeconomic environment and key
challenges that it presents to the Group, including monitoring and
mitigating the impact of GEL volatility, which was one of the most
important questions on the RECC’s agenda throughout the year;
• a detailed report on the structure and performance of the Group’s
loan portfolio, including segmentation by currency and business
segment, review of non-performing loans, provisioning and cost
of risk;
• an update on the Bank’s largest exposures;
• an update on market, liquidity and interest rate risks;
• an update on operating risk management; and
• a benchmarking of the Group’s loan portfolio performance
against its regional peers.
Risk appetite
The RECC is responsible for recommending to the Board risk
appetite limits and monitoring the Bank’s compliance with them.
The RECC received and reviewed risk appetite compliance reports
at each of its quarterly meetings. The RECC discussed areas of
potential concern with the management and ensured that the Group
had appropriate action plans in place to remedy them.
ICAAP
The RECC reviewed and commented on proposed changes to the
Internal Capital Adequacy Assessment Process (“ICAAP”), with a
focus on enterprise-wide stress testing. The RECC recommended to
update stress testing scenarios to make them more realistic and
consistent with experience in other markets.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 107
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT
CHAIRMAN’S STATEMENT
On behalf of the Board, I am pleased to introduce our Directors’
Remuneration Report for the Group. The report sets out the
Remuneration Policy (the ‘Policy’) for our executive and non-
executive Directors. The principles behind our Policy in relation
to executive members of the Board are applicable to our CEO,
Vakhtang Butskhrikidze and deputy CEO, Giorgi Shagidze as well
as to the key senior managers within the Group. In determining the
levels of compensation, the Remuneration Committee will continue
to ensure that the remuneration is aligned with the achievement
of the Group’s strategic and business objectives and expectations
of our shareholders as well as being competitive. The executive
members’ remuneration comprises of:
• Fixed compensation consisting of both cash-based and share-
based payments; and
• Variable compensation based on the level of achievement of key
performance indicators (KPIs).
The share-based compensation, both fixed and variable, is paid in
the form of deferred shares, out of which 80% of such compensation
has a three year vesting period, thus naturally aligning the interests
of Directors with that of the Group’s long term objectives and
shareholder interests.
There are certain circumstances in which deferred share salary
and discretionary share compensation will lapse and/ or is subject
to return to the Bank for example, if the director is dismissed,
resigns or does not accept a contract renewal. This promotes
loyalty amongst our Directors and motivates them to work towards
the long-term interests of the Group. However, the Remuneration
Committee may, in its discretion, permit an executive to retain such
compensation on such cessation of employment.
The Group’s non- executive members’ compensation is in the form
of monthly fixed salary payments. In determining the non-executive
pay levels, the committee takes into consideration the unique
individual roles the chairman and deputy chairman play with the
Group, best practice and specifically FTSE 250 financial companies
board membership payments.
108 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
The key components of remuneration are set out in detail within
the Policy and the 2016 Annual Remuneration Report.
The Remuneration Committee will keep the Policy under review to
ensure that it continues to promote the long-term success of the
Group by giving the Group its best opportunity of delivering on its
business strategy.
Following the Company’s premium listing, the Remuneration
Committee will put the Policy for shareholders’ approval at the first
2017 Annual General Meeting for Companies Act 2006 purposes and,
if approved, the Policy will be effective from 1 January 2018.
The Group aims to provide sufficient flexibility in the Policy for
unanticipated changes in compensation practices and business
conditions to ensure the Remuneration Committee has appropriate
discretion to retain and incentivise its directors and manage its
business. Maximum caps are provided to comply with the required
legislation and should not be taken to indicate a present intention to
make payments at that level. All monetary amounts are shown in
US dollars, unless indicated otherwise.
Stefano Marsaglia
Chairman of the Remuneration Committee
31 March 2017
1. Remuneration Committee
The Group’s Remuneration Committee is responsible for: establishing and overseeing the Group’s remuneration policy principles;
considering and approving remuneration arrangements of the executives; and exercising oversight for remuneration. Full details of the
Committee’s responsibilities are set out in the Committee terms of reference, which are available on our website at www.tbcbankgroup.com.
The Remuneration Committee membership is comprised of solely independent non-executive Directors from a wide variety of skills and
backgrounds to provide the best input. The members are: Stefano Marsaglia (chairman), Nikoloz Enukidze, Eric Rajendra and Nicholas Haag.
The attendance of members at the Committee meetings during the year at the Company and the Bank levels are set out in the Directors’
Governance statement on pages 90 to 91.
1.1 Advisers to the Remuneration Committee
Members of the Remuneration Committee provide valuable input in updating the Remuneration Committee on the recent developments in
the area of remuneration. However when there is a need, the Remuneration Committee receives external advisory services. In 2016, EY was
engaged by the Remuneration Committee to provide advice to the Remuneration Committee on the remuneration policy for the non-executive
members of the board and to assess the existing executive compensation system against the requirements of UK Corporate Governance
Code. EY was selected for this purpose because EY had assisted the Company in developing its senior executive compensation system in 2015
following a selection process. Fees for advice provided to the Remuneration Committee for the year 2016 were USD 65,000 net of taxes. Fees
were charged on a time and materials basis which was capped at the amount mentioned above.
The Remuneration Committee is satisfied that EY’s advice was objective and independent. The Remuneration Committee is comfortable that the EY
team that provides the Remuneration Committee with advice does not have any connections with the Company that may impair its independence.
The Remuneration Committee reviewed the potential for conflicts of interest and decided that EY had appropriate safeguards in place.
1.2 Statement of voting at Annual General Meeting
The Company became Premium Listed on 10 August 2016 and has not yet held its first Annual General Meeting.
2. Single total figure of remuneration
The tables below summarize the total remuneration earned by each Director of the TBC Bank Group PLC (hereinafter referred as “the Company”),
in respect of their employment with the Company’s Group (defined as TBC Bank Group PLC and JSC TBC Bank, “TBCG”) for the financial years
ended 31 December 2016 and 31 December 2015.
2.1 Single total figure for executive Directors (audited)
Salary including:
Cash salary1
Deferred share salary 2, 8
Taxable benefits3, 6
Pension4
Deferred share bonus award5, 7, 8
Total remuneration
Vakhtang Butskhrikidze
Giorgi Shagidze
20169
US$’000
20159
US$’000
20169
US$’000
20159
US$’000
872
452
420
17
–
2,128
3,017
646
426
220
17
–
1,146
1,809
435
226
209
1
–
1,078
1,513
305
195
110
1
–
577
882
1 Base salary paid in year to executive Directors. No additional fees were paid to executive Directors.
2 Deferred share salary comprises of TBCG shares granted in respect of service in the relevant year. The number of shares awarded as deferred share salary is linked to
the Base salary and its current level is fixed at an annual grant of 17,622 TBCG shares for Mr. Vakhtang Butskhrikidze and 8,811 TBCG shares for Mr. Giorgi Shagidze.
Deferred shares in relation to 2015 were awarded on 17 March 2016 and deferred shares in relation to 2016 were awarded on 28 March 2017. Deferred share salaries are
subject to a condition of continuous employment and malus and clawback provisions. Subject to these conditions, 10% of the award vests on the first anniversary from
the award date, a further 10% vests on the second anniversary from award date and the final 80% of the award vests on the third anniversary from the award date. For
the purposes of this table, the 2015 award has been valued using the closing market value of the shares on 17 March 2016 (US$10) and grossed up for the directors’
income tax on share awards paid by the Company. The 2016 award has been valued using the closing market value of the shares on 28 March 2017 (GBP15 converted into
US$ using the cross rate of the official exchange rates published by the NBG of 2.4455 for GEL/ US$ and 3.0794 for GEL/GBP on the same date) and grossed up for the
directors’ income tax on share awards paid by the Company.
3 Taxable benefits comprise medical insurance, company car allowances, and in the case of our CEO, security allowances.
4 The Company does not pay pension contributions to the executive directors. None of the executive directors has a prospective entitlement to a defined benefit pension.
5 A deferred share bonus award is granted as a result of the achievement of performance measures for the relevant financial year. The award is 100% deferred and is
subject to continuous employment and malus and clawback provisions. Subject to these conditions, 10% of the award vests on the first anniversary from the award date,
a further 10% vests on the second anniversary from the award date and the final 80% of the award vests on the third anniversary from the award date. Deferred shares
in relation to 2015 were awarded on 17 March 2016 and deferred shares in relation to 2016 were awarded on 28 March 2017. For the purposes of this table, the 2015
award has been valued using the closing market value of the shares on 17 March 2016 (US$10) and grossed up for the directors’ income tax on share awards paid by the
Company. The 2016 award has been valued using the closing market value of the shares on 28 March 2017 (GBP15 converted into US$ using the cross rate of the official
exchange rates published by the NBG of 2.4455 for GEL/ US$ and 3.0794 for GEL/GBP on the same date) and grossed up for the directors’ income tax on share awards
paid by the Company. The value of the award is determined in line with the achievement of performance measures, as explained in detail in section 2.2 below.
6 Mr. Butskhrikidze and Mr. Shagidze were reimbursed for reasonable business expenses in accordance with the internal policy in force at the time. Such reimbursements
have not been included in the single figure table.
7 No money or other assets are received or receivable by the executive directors in respect of a period of more than one financial year where final vesting is determined by
reference to the achievement of the performance measures or targets relating to a period ending in 2015 or 2016 (as applicable).
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 109
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
2. Single total figure of remuneration continued
8 The increase of deferred share salary and deferred share bonus in 2016 as compared to 2015, is largely due to the increase in share price. The number of shares
awarded to executive directors in the same period in aggregate decreased by 2%. A full explanation of the basis of the 2016 deferred share bonus awards is given at
section 2.2 which highlights the link between strong company and executive performance for 2016.
9 The Company was incorporated under the Companies Act 2006 in February 2016 and was listed on the London Stock Exchange in August 2016. To provide a comparison
for investors, the figures included in this table include remuneration received or receivable from both TBC PLC and TBC JSC for the whole of 2016 and the whole of 2015.
2.2 Basis for determining executive Directors’ deferred share bonus awards (audited)
The 2016 deferred share bonus awards made to executive Directors reflect the Remuneration Committee’s assessment of the extent to which
corporate and personal objectives were achieved. Such objectives were agreed by the Board at the beginning of the year.
The below table illustrates the performance measures set for Mr. Butskhrikidze in respect of 2016, as well as his performance against them:
Performance Measure
Financial measures2
ROE
Cost: income ratio3
Total Loan Market Share
Cost of Risk
Non-financial4 measures
Discretionary KPI5
Total
Weighting
%
Minimum
(60%)
Target
(100%)
Maximum
(140%)
Performance
KPI Evaluation1
15% 16.7 – 18.6% 18.6 - 20.5%
15% 44.4 – 43.1%
43.1- 41.8%
15% 28.1 – 28.4% 28.4 - 29.0%
1.6 – 1.3%
1.3 - 1.2%
> 20.5%
< 41.8%
> 29.0%
< 1.2%
21.6%
42.0%
31.1%
0.8%
As explained below
A-
A
A+
A+
15%
30%
10%
100%
140%
100%
140%
140%
88%
140%
118.3%
1 Each KPI is evaluated at: 60% where achievement falls into the minimum range, 100% where achievement falls into the target range and 140% where achievement falls
into the maximum range.
2 All financial KPIs were assessed without regard to the Bank Republic acquisition, although this would not have altered the evaluation.
3 Cost: income ratio excludes costs related to the premium listing and costs related to the Bank Republic acquisition.
4 Non-financial measures for the CEO and CFO have a different weighting: 30% and 26% respectively. The outcome of the evaluation is derived by multiplying the weight of
each measure by the evaluation score. Non-financial measures include:
(i) TBCG share price performance after completion of the premium listing. The share price has increased from GBP 10.85 to GBP 14.52. Average share price multiple
appreciation (based on quarter end numbers) was used since the premium listing which increased by 46.7% based on September 2016 results. The performance was
assessed at maximum and was evaluated at 140%.
(ii) Customer experience compared with experience development as well as gap with peer groups. Two indexes were evaluated, index of “CSAT in Mass Retail – ACT”
was accomplished at target level, however the second index “NPS in Mass Retail – IPM + ACT” was accomplished at below target. Due to these reasons the overall
achievement of this KPI was evaluated at 84%.
(iii) During the year, due to various stretched workstreams related to the premium listing and the acquisition of Bank Republic (amongst other things), the Net
Promoters Score among the employees did not improve and the KPI was not achieved, hence KPI evaluation was 0%.
5 Discretionary KPI: the board assessed the discretionary KPI as “A+” based on the successful premium listing, acquisition of the Bank Republic as well as strong
financial performance.
The below table illustrates the performance measures set for Mr. Shagidze in respect of 2016, as well as his performance against them:
Performance Measure
Financial measures2
ROE
Cost: income ratio3
Total Loan Market Share
Cost of Risk
Non-financial measures4
Personal KPI5
Discretionary KPI6
Total/final score
Weighting
%
Minimum
(60%)
Target
(100%)
Maximum
(140%)
Performance
KPI Evaluation1
10% 16.7 – 18.6% 18.6 - 20.5%
10% 44.4 – 43.1%
43.1- 41.8%
8% 28.1 – 28.4% 28.4 - 29.0%
1.6 – 1.3%
1.3 - 1.2%
> 20.5%
< 41.8%
> 29.0%
< 1.2%
21.6%
42.0%
31.1%
0.8%
As explained below
As explained below
A-
A
A+
A+
8%
26%
30%
8%
100%
140%
100%
140%
140%
80%
140%
140%
120.3%
1 Each KPI is evaluated at: 60% where achievement falls into the minimum range, 100% where achievement falls into the target range and 140% where achievement falls
into the maximum range.
2 All financial KPIs were assessed without regard to the Bank Republic acquisition, although this would not have altered the evaluation.
3 Cost: income ratio excludes costs related to the premium listing and costs related to the Bank Republic acquisition.
4 Non-financial measures for the CEO and CFO have a different weighting: 30% and 26% respectively. The outcome of the evaluation is derived by multiplying the weight of
each measure by the evaluation score. Non-financial measures include:
(i) TBCG share price performance after completion of the premium listing. The share price has increased from GBP 10.85 to GBP 14.52. Average share price multiple
appreciation (based on quarter end numbers) was used since the premium listing which increased by 46.7% based on September 2016 results. The performance was
assessed at maximum and was evaluated at 140%.
110 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2. Single total figure of remuneration continued
(ii) Customer experience compared with experience development as well as gap with peer groups. Two indexes were evaluated, index of “CSAT in Mass Retail – ACT”
was accomplished at target level, however the second index “NPS in Mass Retail - IPM + ACT” was accomplished at below target. Due to these reasons the overall
achievement of this KPI was evaluated at 84%.
(iii) During the year, due to various stretched workstreams related to the premium listing and the acquisition of Bank Republic (amongst other things), the Net
Promoters Score among the employees did not improve and the KPI was not achieved, hence KPI evaluation was 0%.
5 Personal KPIs include:
(i) Delivery of strong results in the treasury operations resulted in assessment of the performance measure at “maximum” and evaluated at 140%.
(ii) Execution of the listing on the Premium segment of the London Stock Exchange. The listing was successfully completed in a timely manner. As such, the
Remuneration Committee has assessed this KPI at 140%.
(iii) The TBC Share price performance after completion of the premium listing was also a personal KPI, which was assessed at maximum and evaluated at 140%
(as per the evaluation of the non-financial measure above).
6 Discretionary KPI: the board assessed the discretionary KPI as “A+” based on the successful premium listing, the acquisition of Bank Republic as well as strong
financial performance.
As a result, during 2016, the Remuneration Committee therefore considered Mr. Butskhrikidze’s performance as excellent and determined
the overall value of the deferred share bonus award of US$ 2,127,955 (being the net value awarded of US$ 1,687,857 grossed up for the
director’s income tax on deferred bonus share awards).
The Remuneration Committee also considered Mr. Shagidze’s performance as excellent and determined the overall value of the deferred share
bonus award of US 1,077,532 (being the net value awarded of US$ 858,194 grossed up for the director’s income tax on deferred bonus share awards).
2.3 Further details of fixed and discretionary deferred share compensation granted during 2016 (audited)
The following table sets out further details of the share awards granted to Mr Butskhrikidze and Mr. Shagidze in 2016 in respect of the year
ended 31 December 2015.
Deferred share salary
Deferred share bonus
Type of interest
Direct share award subject to restrictions.
Direct share award subject to restrictions.
Basis on which award was made
As described in note 2 to the table at 2.1 above. As described in the table and notes at section
Face value1 of awards made to Mr. Butskhrikidze US$ 220,275
Face value1 of awards made to Mr. Shagidze
US$ 110,138
2.2 above.
US$ 1,146,084
US$ 576,629
Percentage of award receivable if minimum
performance achieved
Vesting period
Legal title to 100% of the shares are registered
in the name of participant on the date the award
is made. The participant has the right to receive
dividends and to vote. The deferred shares,
however, are subject to restrictions until they
vest. 100% of the award will vest after the end
of the three year vesting period, since the
award is part of the executive's salary set out
in his service contract and is not subject to
performance measures or conditions.
Legal title to 100% of the shares are
registered in the name of participant on the
date the award is made. The participant has
the right to receive dividends and to vote.
The bonus shares, however, are subject
to restrictions until they vest. 100% of the
award will vest after the end of the three year
vesting period as the performance period is
only one calendar year and so has already
been assessed.
Three years, with full vesting on 17 March 2019
subject to continuous employment and malus
and clawback requirement.
Three years, with full vesting on 17 March 2019
subject to continuous employment and malus
and clawback requirement.
Performance measures
None.
See section 2.2 above and section 9.5(b) of
the Policy below.
1 Figures calculated as described in Notes 2 and 5 to the single total figure table at 2.1 above.
2.4 Change in remuneration of the CEO compared with the wider employee population
The table below sets out the increase in salary, benefits and bonus of the CEO compared with that of the wider employee population between
2015 and 2016:
Chief
Executive
All
employees
Salary1
Cash bonus
Taxable benefits
Pension-related benefits
Deferred share bonus award4
Total remuneration
34.8%2
-100%
4.7%
–
85.7%
66.8%
4.1%3
-9.9%
10.0%
5.3%
81.8%
7.8%
1 This includes cash and deferred share salary. The CEO’s cash salary increase is calculated in US dollars, the currency which is fixed for his cash salary.
2 The increase in deferred share salary reflects the increase in the share price. The number of deferred shares awarded as salary has not changed between 2015 and 2016.
3 For the employee cash salary calculation, the increase in GEL is used, as this is the currency in which cash salary payments are fixed. The average US$/GEL rate increased
by 4.3% as compared with 2015. Employees generally do not receive part of their salary in deferred shares and so deferred shares are not included in this calculation.
4 The actual number of shares awarded to CEO as part of deferred shares bonus was decreased from 91,687 shares in 2015 to 89,361 shares in 2016. The increase shown
in the table reflects the increase in the share price.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 111
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
2. Single total figure of remuneration continued
2.5 Single total figure for non-executive Directors (audited)
The table below sets out the remuneration received by each non-executive Director for the years ended 31 December 2015 and 31 December 2016.
Director
Mamuka Khazaradze
Badri Japaridze
Nikoloz Enukidze
Nicholas Haag
Eric Rajendra
Stefano Marsaglia
Stephan Wilcke
Irina Schmidt3
Year4
Fees US$’000
Cash bonus1
US$’000
Taxable benefits2
US$’000
Total
remuneration
US$’000
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
1,152
855
1,119
839
140
107
125
100
133
88
109
75
62
–
82
99
–
180
–
158
–
–
–
–
–
–
–
–
–
–
–
–
34
25
15
16
–
–
–
–
–
–
–
–
–
–
–
–
1,186
1,060
1,134
1,013
140
107
125
100
133
88
109
75
62
–
82
99
1
In June 2015, JSC TBC Bank introduced a new compensation system based on EY’s recommendation to ensure that the compensation system met the best practices
applied by the premium listed companies. The new system eliminated the old practice of paying cash bonuses to the non-executive directors. The amount presented in
the table was paid in accordance with the system operating before June 2015.
Irina Schmidt resigned from the Board in June 2016 after the expiration of her appointment and was replaced by Stephan Wilcke.
2 Taxable benefits comprise medical insurance, car, and security allowance.
3
4 The Company was incorporated under the Companies Act 2006 in February 2016 and was listed on the London Stock Exchange in August 2016. To provide a comparison
for investors, the figures included in this table include remuneration received or receivable from both TBC PLC and TBC JSC for the whole of 2016 and the whole of 2015.
3. Remuneration of the top management of JSC TBC Bank
The table below summarizes the total remuneration earned by the top managers of the JSC TBC Bank for the financial years ended 31 December 2016
and 31 December 2015, except for the CEO and CFO (as their remuneration information is disclosed in section 1 of this report).
Director
Total for the top managers excluding
CEO and CFO
Per Top manager excluding CEO and CFO
(average per 6 members)
Base salary1
$’000
Deferred share
salary2
$’000
Taxable benefits3
$’000
Deferred share
bonus award4
$’000
Total
remuneration
$’000
1,385
1,116
231
186
1,278
785
213
131
7
4
1
1
4,523
3,028
754
505
7,193
4,933
1,199
823
Year5
2016
2015
2016
2015
1 Base salary paid in year for executive Directors. No fees were paid to executive Directors.
2 Deferred share salary comprises of TBCG shares granted in respect of service in the relevant year. The number of shares awarded as deferred share salary is linked to
the Base salary. Deferred shares in relation to 2015 were awarded on 17 March 2016 and deferred shares in relation to 2016 were awarded on 28 March 2017. Deferred
share salaries are subject to a condition of continuous employment and malus and clawback provisions. Subject to these conditions, 10% of the award vests on the first
anniversary from the award date, a further 10% vests on the second anniversary from award date and the final 80% of the award vests on the third anniversary from the
award date. For the purposes of this table, the 2015 award has been valued using the market value of the shares on 17 March 2016 (US$10) and grossed up for directors’
income tax on share awards paid by the Company. The 2016 award has been valued using the market value of the shares on 28 March 2017 (GBP15 converted into
USD using the cross rate of the official exchange rates published by the NBG of 2.4455 for GEL/USD and 3.0794 for GEL/GBP on the same date) and grossed up for the
directors’ income tax on share awards paid by the Company.
3. Taxable benefits comprise medical insurance and company car allowances.
4. A deferred share bonus award is granted as a result of the achievement of performance measures for the relevant financial year. The award is 100% deferred and is
subject to continuous employment and malus and clawback provisions. Subject to these conditions, 10% of the award vests on the first anniversary from the award date,
a further 10% vests on the second anniversary from the award date and the final 80% of the award vests on the third anniversary from the award date. Deferred shares in
relation to 2015 were awarded on 17 March 2016 and deferred shares in relation to 2016 were awarded on 28 March 2017. For the purposes of this table, the 2015 award
has been valued using the market value of the shares on 17 March 2016 (US$10) and grossed up for directors’ income tax on share awards paid by the Company. The 2016
award has been valued using the market value of the shares on 28 March 2017 (GBP15 converted into USD using the cross rate of the official exchange rates published by
the NBG of 2.4455 for GEL/USD and 3.0794 for GEL/GBP on the same date) and grossed up for the directors’ income tax on share awards paid by the Company.
5 The Company was incorporated under the Companies Act 2006 in February 2016 and was listed on the London Stock Exchange in August 2016. To provide a comparison
for investors, the figures included in this table include remuneration received or receivable from both TBC PLC and TBC JSC for the whole of 2016 and the whole of 2015.
112 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
4. Payments to past directors (audited)
There were no payments made to past directors relating to 2016.
5. Payments for loss of office (audited)
As mentioned above, Irina Schmidt’s term as a non-executive Director of the Company ended in June 2016. Ms. Schmidt was paid her accrued
fees up until her term expired but no payment for loss of office was made.
David Tsiklauri ceased to be a head of corporate banking of JSC TBC Bank, on 1 January 2017. As part of the arrangement on leaving the
Bank, no payment was released to Mr. Tsiklauri.
6. Statement of Directors’ shareholdings and share interests (audited)
While Directors are not required to hold a minimum number of shares, the Policy naturally results in our executive Directors holding a
significant number of unvested shares and achieves a delay between performance and vesting which we believe is consistent with the
principles of the Corporate Governance Code. Unvested shares are subject to continuous employment and malus and clawback requirements
but are not subject to specific performance conditions.
The following table sets out a summary of each Director’s shareholdings and share interests in the company. Although not a Company
requirement, some non-executive Directors have chosen to become shareholders.
Mamuka Khazaradze
Badri Japaridze
Vakhtang Butskhrikidze
Giorgi Shagidze
Nikoloz Enukidze
Stephan Wilcke
Entity
Shares held
directly1
TBC Bank Group PLC
7,343,936
JSC TBC Bank
–
Total
7,343,936
TBC Bank Group PLC
3,669,878
JSC TBC Bank
–
Total
3,669,878
TBC Bank Group PLC
JSC TBC Bank4
Total
TBC Bank Group PLC
JSC TBC Bank4
Total
TBC Bank Group PLC
JSC TBC Bank
Total
TBC Bank Group PLC
JSC TBC Bank
514,616
7,755
522,371
60,472
3,148
63,620
10,000
–
10,000
61,075
–
Total
61,075
Number of
unvested shares
held2
Total interests in
shares3
7,912,234
–
7,912,234
4,238,176
–
4,238,176
586,016
186,857
772,873
89,872
86,431
176,303
10,000
–
10,000
61,075
–
61,075
–
–
–
–
–
–
71,400
179,102
250,502
29,400
83,283
112,683
–
–
–
–
–
–
1 This figure includes all shares held which are no longer subject to any vesting conditions or transfer restrictions and includes shares held by connected persons. The
figure excludes the shares that are registered in the name of the director but are still subject to vesting conditions in accordance with the discretionary deferred share
compensation scheme.
2 This figure includes shares that are still subject to conditions, including transfer restrictions, a continuous employment condition and malus and clawback provisions.
The figure includes shares granted as discretionary deferred share compensation each year as a result of the achievement of performance measures for the relevant
financial year and deferred share salary. Details of these interests are described at section 2.1, 2.2 and in the policy table at section 10.1.
3 Total interests in shares includes:
(a) Vested and unvested interests held directly and indirectly; and
(b) For the chairman and deputy chairman, an additional interest of 2.18% of the Company as of February 2017, as a result of a derivative instrument entered into with
Malone LLC, the affiliated company of Georgian Co-Investment Fund. The instruments have been allocated to the chairman and deputy chairman equally.
4 The shares held in the JSC TBC Bank were awarded to each of executive directors before the premium listing under the applicable compensation policy. Those shares
were not exchanged for TBC Bank Group PLC shares due to temporary Georgian tax obligations. Executives intend to exchange those shares for Company shares
following the expiration of associated tax obligations.
5 On 28 March 2017, the Company has granted share awards to Mr Butskhrikidze and Mr. Shagidze, under the share based payment scheme, in respect of the year ended
31 December 2016. Mr Butskhrikidze has been granted 106,983 shares and Mr. Shagidze has been granted 54,247 shares. These shares have a three year vesting period,
with full vesting on 28 March 2020 subject to continuous employment and malus and clawback requirement. As at 31 March 2017, Mr Butskhrikidze held 267,400 unvested
shares and Mr. Shagidze held 128,886 unvested shares. These have not been included in the above table. All figures in the table reflect the position as at 31 December 2016.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 113
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
7. Performance: total shareholder return (TSR)
The following graph compares the total shareholder return (TSR) of the Company for the period from the date when shares were listed on the
premium segment of the London Stock Exchange (10 August 2016) to 31 December 2016, with the performance of the FTSE All-Share Index
and FTSE 250 Index over the same time period. These market indexes were selected because they are most comparable to the Company in
terms of listing and relevant governance and transparency standards. Further, the Company is already included in the FTSE All-Share Index
and is expected to be included in the FTSE 250 Index in the near future.
TBCG
FTSE 250
FTSE All-Share
16
15
14
13
12
11
10
10/08/16
10/09/16
10/10/16
10/11/16
10/12/16
10/01/17
Set out below is a table that contains details of Company CEO, Vakhtang Butskhrikidze’s, remuneration for each financial year in the relevant period:
Financial year
2016
2015
Single total figure of
remuneration (US$’000)1
Deferred share bonus as a
percentage of maximum
opportunity (%)2
3,017
1,809
85%
87%
1 Total remuneration includes base salary, deferred share salary and taxable benefits as described in the single total figure table and notes at section 2.1 above.
2 For further details of the deferred share bonus please refer to section 2.2 above.
8. Relative importance of spend on pay
The following table illustrates the difference in spend on pay for all employees of the Group and the difference in dividends paid to the
shareholders between 2016 and 2015. There has been a relatively large increase in dividends paid to shareholders because profit attributable
to the shareholders of the Bank for the year ended 31 December 2015 has increased by 45% as compared to 2014.
Total spend on pay1 (US$’000)
Dividends paid to shareholders2 (US$’000)
Year ended
31 December
20163
Year ended
31 December
20153
72,768
24,659
62,892
16,937
% change
16%
46%
1 Total spend on pay includes total staff costs and is converted into US$ using average US$/GEL exchange rate for 2016 and 2015 respectively.
2 Dividend paid to shareholders are gross amounts converted into US$ using official exchange rate prevailing at the date of payment of the dividends, GEL 2.2126 and
GEL 2.3102 for 2016 and 2015 respectively.
3 The Company was incorporated under the Companies Act 2006 in February 2016 and was listed on the London Stock Exchange in August 2016. To provide a comparison
for investors, the figures included in this table include remuneration received or receivable from both TBC PLC and TBC JSC for the whole of 2016 and the whole of 2015.
114 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
9. Policy Implementation in 2018
Remuneration scheme for executive Directors
The existing remuneration scheme for the executive Directors was developed with the support of external consultants and was implemented
on 17 June 2015 covering the period of 2015 until the end of 2018. The Group worked with EY to review the existing remuneration scheme for
executive Directors. The existing remuneration scheme will expire at the end of 2018 and the Company intends to prepare a new policy for the
2018 AGM, which, subject to shareholder approval, will be applicable from 1 January 2019.
Non-executive Director compensation
EY have also advised the Group on the non-executive Directors’ compensation. Subject to shareholder approval, the Policy will take effect
from 1 January 2018.
After considering the shareholders’ feedback and best practice, the Remuneration Committee have decided to decrease aggregate
compensation of the Chairman and Deputy Chairman by about 25%. The Remuneration Committee will continue to seek out shareholder
feedback and undertake a benchmarking review of compensation practices when the current policy expires.
Introduction of the Policy for Companies Act 2006 purposes
Due to requirements associated with the Group’s premium listing and to comply with Companies Act 2006 requirements, shareholders will be
asked to specifically approve the Policy at the upcoming 2017 Annual General Meeting (with the new Policy coming into effect for Companies
Act 2006 purposes from January 2018).
It is the Remuneration Committee’s intention that the Policy remains unchanged for three years, except to the extent that it relates to the
executive Directors’ remuneration scheme which we intend to amend with effect from 2019. A revised Policy will be put to shareholder vote
at the 2018 AGM.
For the avoidance of doubt, it is intended that any new remuneration scheme approved at the 2018 AGM will allow the existing remuneration
scheme for the executive Directors to continue until 1 January 2019 with the new remuneration scheme for executive directors, as will be
disclosed in the policy at the 2018 AGM, to take effect from then.
Pre- existing obligations
It is a provision of this Policy that the Group will uphold all pre-existing obligations and commitments that were agreed prior to this Policy
taking effect. The terms of those pre-existing obligations and commitments may differ from the terms of the Policy and may include (without
limitation) obligations and commitments under service contracts, deferred share compensation schemes and pension and benefit plans.
Statement of implementation
In 2018, the Remuneration Committee intends to continue to provide remuneration in accordance with the policy tables set forth below.
Fees and salaries may be adjusted but in all cases will not exceed the maximums stated in the policy tables. New targets will be set for the
deferred share bonuses. The appropriate level of awards to be granted in 2018 is assessed by the Remuneration Committee but in all cases
will remain within the maximums stated in the policy tables.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 115
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
9. Policy Implementation in 2018 continued
From January 2018, the following will apply:
Executive Directors
Base salary (cash and deferred shares)
Deferred share bonus
Non-Executive Directors
Fees
The cash and deferred share salaries are set out in the executive
Directors' service contracts. The Remuneration Committee reserves
the right to agree changes to Base salary with the executive Directors
but no change will exceed the maximum stated in the policy table
below. The Remuneration Committee's discretion will be exercised
fairly and reasonably and with regard to appropriate comparable
market practice and business strategy.
Performance measures and weightings:
The specific performance measures and weightings have not yet been
set for the 2018 performance year. These will be set at the start of
2018 and will include:
• Corporate KPIs (likely to be weighted 62%); and
•
Individual and discretionary KPIs (likely to be weighted 38%).
Performance targets:
Specific performance targets are considered commercially sensitive
as they will give our competitors information about our budget and
strategy. The targets will be accurately disclosed in the Company’s
2019 annual report.
The fees paid to the non-executive Directors will be within the policy
set out below. The Remuneration Committee reserves the right to
agree changes to fees with the non-executive Directors but no change
will exceed the maximum stated in the policy table below. The
Remuneration Committee's discretion will be exercised fairly and
reasonably and with regard to appropriate comparable market
practice and business strategy.
116 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
10. Directors’ Remuneration Policy
10.1 Remuneration policy for Chief Executive Director and Chief Financial Director:
Component
Salary – in the
form of cash
and deferred
shares
Purpose and Link to
Strategy of the Group
Salaries are determined
based on market practice
and to provide each
executive director with a
competitive fixed income
to efficiently retain and
reward the director, based
upon each director’s roles
and responsibilities within
the Group and relative
skills and experience.
Cash salary
The cash part of the salary
is aimed to address and
provide for executives’
day-to-day living
expenses.
Deferred share salary
The deferred part of the
salary is vested
10%/10%/80% over the
period of three years
respectively and is
intended to promote the
long-term success of the
Group by closely aligning
executive Directors’ and
shareholders’ interests.
Further, before vesting,
the deferred shares are
registered in the name of
the participant and the
participant has the right to
receive dividends and to
vote. The deferred shares,
however, are subject to
restrictions until they vest.
Operation
Maximum Opportunity
Performance Measures
Both the Cash and deferred
share salaries are paid in part
under the executive Director’s
service contract with TBC JSC
and in part under his service
contract with TBC PLC, to
reflect the executive Director’s
duties to each.
Deferred share salary is paid
under the executive Director’s
service contract with TBC JSC.
Initial salaries are set by the
Remuneration Committee
based on responsibilities and
market data and are set out in
an executive Director’s service
contract with the Group.
An executive director may be
paid separate salaries for
roles and responsibilities at
different entities within the
TBC Group as set out in a
separate service contract with
any relevant entity.
By a decision of the
Remuneration Committee,
malus and clawback may be
applied to all amounts of
unvested deferred
compensation, which would
include the deferred share
portion of salary.
Cash salary
The maximum annual cash salary for
Chief Executive Director is $453,994.
Not performance
based.
The maximum annual cash salary for
Chief Financial Director is $227,004.
Deferred Share Salary
The maximum number of shares for
the Chief Executive Director under the
deferred shares salary to be awarded
per year is 17,622.
The maximum number of shares for
the Chief Financial Director under the
deferred shares salary to be awarded
per year is 8,811.
These numbers include the salaries
received from both JSC TBC Bank and
TBC Bank Group PLC. The executives
do not receive any additional salary
from other Group entities.
The maximum amount of base salary
(including cash and deferred salary) is
fixed in accordance with the service
contracts of the current Directors.
Salaries are reviewed annually by
the Remuneration Committee based
on the available market data on
compensation among a peer group
sample selected by the Remuneration
Committee. The Remuneration
Committee must ensure that the total
reward potentially available is not
excessive from the standpoint of
relevant employment data. Any
changes to salaries must be
recommended by the Remuneration
Committee and approved by the Board.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 117
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
10. Directors’ Remuneration Policy continued
Component
Deferred
share bonuses
Purpose and Link to
Strategy of the Group
To provide a strong
motivational tool to
achieve KPIs and to
provide rewards to
the extent those KPIs
are achieved.
KPIs are chosen to align
our executive Directors’
interests with the
strategic objectives of
the Group.
In addition, the awards will
vest 10% at the end of the
first year/10% at the end
of the second year/ 80% at
the end of the third year
from the award date and
are intended to promote
the long-term success
of the Group by closely
aligning executive
Directors’ and
shareholders’ interests.
Further, before vesting,
shares are registered in
the name of the participant
and the participant has the
right to receive dividends
and to vote. The deferred
shares, however, are
subject to restrictions
until they vest.
Operation
Maximum Opportunity
Performance Measures
The maximum number of shares for
the Chief Executive Director under
the deferred shares bonuses to be
awarded per year is 105,734.
The maximum number of shares for
the Chief Financial Director under the
deferred shares bonus to be awarded
per year is 52,867.
In any case, the upper limit for the
net variable compensation is 140%
of net annual salary calculated with
reference to the share price at the
grant date, being the date when the
current compensation system was
introduced and grant date fair value
was determined for accounting
purposes.
In addition, the bank pays income tax
and other employee-related taxes
related to the award.
The KPIs consist of
corporate and in case
of CFO individual
performance measures
such as underlying
return on equity, profit
before tax, cost of risk,
IR activities, total loan
market share, and
non-financial long
term focus measures
such as customer
experience and
Human Resources
eNPS.
Individual performance
measures may include
individual strategic
objectives which vary
per person, and might
include treasury
operations results,
cost management,
non-performing loans
ratio, metrics
regarding brand,
culture and control
measures as well as
fulfilment of strategic
initiatives.
For CFO, these
measures are
generally weighted
62% (corporate KPIs)
and 38% (individual
KPIs).
The performance
period is one year.
The Remuneration
Committee may
decide to make no
discretionary awards
where KPIs have not
been met.
KPIs are set by the
Remuneration Committee each
year (see more detail below
at 10.3(b)). To the extent that
the KPIs are achieved, the
Remuneration Committee may
decide in its full discretion
whether an award may be made
and the amount of such award.
The awards are discretionary
in nature and the Group does
not pay guaranteed bonuses to
executive Directors.
The KPIs are commercially
sensitive and will be disclosed
retrospectively in the annual
report in the year following the
award date.
The Remuneration Committee
may also adjust KPIs during
the year to take account of
material events, such as
(without limitation): material
corporate events, changes in
responsibilities of an individual
and/or currency exchange rates.
Further, if at any time after
making a discretionary award
there is a material
misstatement in the financial
results for the year in respect
of which the award was
formally granted, the
Remuneration Committee has
the right to cause some or all
of the award for that year or
any subsequent financial year
that is unvested (or unpaid) to
lapse (or not be paid).
The awards may be satisfied
using either shares, cash or nil
cost options.
Vesting of the awards are
subject to a continuous
employment condition and the
Group’s malus and clawback
policies and vest over a period
of three years after the date of
the award.
118 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
10. Directors’ Remuneration Policy continued
Component
Pension
Purpose and Link to
Strategy of the Group
To assist our employees
in providing for their
retirement and to maintain
a market competitive
benefits package to
attract and retain
executive Directors.
Benefits
Benefits are in line with
Georgian market practice
and are designed to be
sufficient to attract and
retain high calibre talent.
Operation
Maximum Opportunity
Performance Measures
The maximum employer contribution
will not exceed 3% of annual salary.
Not performance
based.
Not performance
based.
The policy is framed by the nature of
the benefits that the Remuneration
Committee is willing to provide to
executive Directors. The maximum
amount payable depends on the cost of
providing such benefits to an employee
in the location at which the executive
Director is based.
Shareholders should note that the cost
of providing comparable benefits in
different jurisdictions may vary widely.
Disclosure of amounts paid will be
provided in the implementation report
and will be explained where the cost of
benefits is significant.
The Group may introduce a
defined contribution pension
scheme taking into account any
pension reform or practice in
Georgia. The operation of the
pension would be considered
by the Remuneration
Committee fairly and
reasonably and with regard to
best market practice.
If introduced, there will be no
provision for the clawback or
withholding of pension
payments.
Benefits available to executive
Directors consist of insurance
(such as medical, life and
disability insurance), physical
examinations, tax gross ups,
Directors’ and officers’ liability
insurance, a car service,
personal security
arrangements and assistance
with filling out tax returns,
where required.
Executive Directors are
reimbursed for reasonable
business expenses incurred
in the course of carrying out
duties under their service
contracts, on provision of
valid receipts.
A tax equalisation payment
may be paid to an executive
Director if any part of his
remuneration becomes subject
to double taxation.
10.2 Individual arrangements
There are no individual arrangements other than those disclosed in this report.
10.3 Performance measures and targets
(a) Salary – deferred shares
Paying part of the executive Director’s salary in shares is an important element of remuneration as it helps to align each individual’s efforts
with Company performance. As the executive Directors’ shareholding will increase each year, we believe this is an effective tool to incentivise
executive Directors to think about long term performance. There are no performance measures or conditions associated with salary – the
salary is fixed at the outset in the executive Directors’ service contracts.
(b) Deferred share bonus
Discretionary deferred share bonuses are awarded to reward past performance over the year and so there are no performance conditions
between the grant of the award and vesting (or pay out). The awards vest over three years subject to a continuous employment condition.
The KPIs are set at the start of the financial year and reflect the executive Directors’ required contribution to the Group’s overall key strategic
and financial objectives for that financial year. The Remuneration Committee’s goal for each KPI is to establish a level of performance that is
not certain to be attained, so that achieving or exceeding the targets requires diligent efforts by our executive Directors.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 119
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
10. Directors’ Remuneration Policy continued
10.3 Performance measures and targets continued
There are corporate and individual KPIs with corporate KPIs contributing most to determine executive compensation.
Each KPI has a threshold, target and maximum level and conditions to meet these levels. Targets for each corporate KPI are determined by the
Remuneration Committee and are approved by the Board. Individual KPIs are approved by the Remuneration Committee based on the
recommendations of the CEO.
11. Remuneration throughout the Group
Remuneration of other top management members of JSC TBC Bank is similar to that of the executive members of the Company Other senior and
middle management across the Group receive their entire salary in cash and are also eligible to bonus compensation. However, JSC TBC Bank aims
to pay 15-20% of their annual compensation in shares with the same vesting conditions as those of the executive members. All other employees
within the Group receive cash salaries and may be eligible to receive cash bonuses. Executive Director and employee pay is studied and determined
through the use of appropriate market data usually with input from a compensation consultant.
All employees receive a competitive benefit package in line with Georgian market practice and are entitled to participate in the pension scheme on
a voluntary basis.
12. Policy table: non-executive Directors
In the same way as the executives , the non-executive Directors receive their compensation both from the Company and the main subsidiary, JSC
TBC Bank, proportionate to the time spent working on the respective entity’s Boards and committees.
Component
Purpose and Link to Strategy
Operation
Fees
To provide appropriate
compensation for a
non-executive Director
of the Group, sufficient
to attract, retain and
motivate high-calibre
individuals with the
relevant skills,
knowledge and
experience to further
the Group’s strategy.
In addition, for the
chairman and deputy
chairman, the Group’s
remuneration policy
reflects the importance
and unique role each
of them has within
the Group.
The Group pays fees to non-executive Directors. The fees are
determined by the Remuneration Committee and may include
the following:
• The annual fees for the chairman are US$950,000
• The annual fees for the deputy chairman are US$800,000
• The annual fees for acting as a non-executive Director (other
than for chairman and deputy chairman) range between
US$84,375 - US$94,553
• The annual fees for acting as Senior Independent Director,
in addition to the fees received for acting as a non-executive
Director are US$20,000
• The annual fees for relevant committee memberships range
between US$10,882 - US$11,250
• The annual fees for committee chairman positions range
between US$27,206 - US$28,125
The ranges depend on tax residency status where the Company
aims to ensure that the net compensation per each of the items
above paid to the non-executive Directors are the same.
Maximum Opportunity
The maximum annual fees that
may be paid to the chairman and
deputy chairman are US$950,000
and US$800,000 respectively.
The maximum annual fee paid to
the Senior Independent Director
is US$175,000.
The maximum annual fee paid for
acting as a non-executive
Director (other than for chairman,
deputy chairman and Senior
Independent Director) is
US$165,000.
The Remuneration Committee reserves the right to structure the
non-executive Directors’ fees differently in its absolute discretion.
The Remuneration Committee’s discretion will be exercised fairly
and reasonably and with regard to appropriate comparable market
practice and business strategy.
Fees are generally paid monthly in cash. However, the
Remuneration Committee reserves the right to pay the fees on a
different basis.
Fees are periodically reviewed by the Remuneration Committee,
having regard to external comparators such as the Group’s peer
group, the chair or committee roles and responsibilities and other
market factors.
120 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
12. Policy table: non-executive Directors continued
Component
Purpose and Link to Strategy
Operation
Expenses
To compensate non-
executive Directors for
expenses incurred in
connection with the
performance of their
non-executive Director
duties and to ensure the
Group has the appropriate
non-executive Director
input as and when
required.
The Group may reimburse non-executive Directors for their
expenses incurred in connection with the performance of their
duties including attending Board and committee meetings (such
as, for example, travel, accommodation and other subsistence
expenses), Board/committee dinners and functions, Board training
sessions, advice in respect of professional duties and corporate
hospitality events (or the Group may pay such expenses directly).
For the Chairman and Deputy Chairman, JSC TBC Bank provides
insurance, company car service, pension and a security service for
the Chairman only.
Maximum Opportunity
The policy is framed by the
nature of the expenses that the
Remuneration Committee is
willing to provide to non-executive
Directors. The maximum amount
payable depends on the cost of
providing such expenses in the
location at which the non-
executive Director is based.
Shareholders should note that
the cost of providing comparable
expenses in different jurisdictions
may vary widely.
12.1 Non-executive Directors
Since non-executive Directors are not employees, they do not receive compensation or benefits reserved only for employees such as
company paid/subsidised insurance or paid holiday. The non-executive Directors are not eligible for performance-based share awards.
They do not currently receive pension or other equivalent benefits except for the chairman and deputy chairman who are compensated for
and provided with car service expenses and pension. Awards with performance conditions are not part of the non-executive remuneration
package as we do not wish the non-executive Directors to be driven by short-term Group performance so as to maintain their independence
as advisors to the Group.
The non-executive Directors are entitled to broad indemnification by the Group pursuant to a deed of indemnity entered into with each
Director and are covered by the Group’s Directors & Officers’ Liability Insurance Policy.
13. Illustration of application of the Remuneration Policy
The following graphs illustrate the levels of remuneration that each executive Director could earn in 2018 under the Policy.
Chief Executive Officer
Chief Financial Officer
$870,062
$1,958,196
$2,683,343
$3,408,490
$435,038
$977,612
$1,341,679
$1,704,252
48%
55%
67%
74%
48%
55%
67%
74%
21%
52%
23%
16%
17%
12%
13%
21%
52%
23%
16%
17%
12%
13%
Below
Bonus
Threshold
Minimum
Bonuses
Target
Bonuses
Maximum
Bonuses
Below
Bonus
Threshold
Minimum
Bonuses
Target
Bonuses
Maximum
Bonuses
Cash Salary Deferred Shares Salary Deferred Shares Bonus
1 Directors’ compensation consists of cash salary, deferred share salary, benefits and deferred share bonus. Cash salary and deferred share salary are the same in each
performance scenario. Projected deferred share salary has been valued using the market value of the shares on 28 March 2017 (GBP15 converted into USD using the
cross rate of the official exchange rates published by the NBG of 2.4455 for GEL/USD and 3.0794 for GEL/GBP on the same date). For the purpose of these charts, save
for the tax gross up in relation to deferred share bonus awards which reflects the value of the award in each scenario, we have used the value of benefits for 2016 as we
assume that benefits will be substantially the same. No pension contributions have been included in the performance scenarios as we assume no pension contributions
will be paid.
If KPIs are fulfilled at minimum, on target or maximum ranges the evaluation and subsequent bonus award will be 60%, 100% and 140% respectively.
2 The “below bonus threshold” chart reflects a scenario where KPI achievement falls below 60% and so no deferred share bonus would be awarded.
3
4 Projected deferred share bonus awards have been valued using the market value of the shares on 28 March 2017 (GBP15 converted into USD using the cross rate of the
official exchange rates published by the NBG of 2.4455 for GEL/USD and 3.0794 for GEL/GBP on the same date). The value of deferred shares does not take into account
any increase or decrease in share price over the vesting period.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 121
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
DIRECTORS’ REMUNERATION REPORT continued
14. Recruitment policy
The Remuneration Committee intends that the components of
remuneration set out in the above policy tables, and the approach to
those components as set out in the policy tables, will (subject to the
remainder of this recruitment policy) be equally applicable to the
annual package provided to new recruits, i.e. for executive Directors,
salary (with cash and share components), discretionary deferred
share bonuses, pension and employee benefits; for non-executive
Directors, fees and relevant expenses.
The Remuneration Committee will take all relevant factors into account
when considering leaving arrangements for an executive Director and
exercising any discretion it has in this regard with the aim to ensure they
are fair and reasonable, including (but not limited to) individual and
business performance during the executive Director’s office, the reason
for leaving, any other relevant circumstances (for example, ill health,
disability, death and retirement) and the local context. The Remuneration
Committee will exercise its absolute discretion to determine whether
such terms should be included in any new service contract.
For an internal appointment of an executive or non-executive
Director, any pay element awarded in respect of the prior role may
either continue on its original terms or be adjusted to reflect the new
appointment, as appropriate. In the year of promotion for an internal
appointment, additional awards may be made to the individual within
the maximums set out in the policy tables above.
Where it is necessary to make a recruitment-related award to an
external candidate, the Group will not pay more than the Remuneration
Committee considers necessary and will deliver any such awards
in line with the existing Group policies (including maximum
opportunities), except to the extent that the Remuneration Committee
determines that it is appropriate to provide a “buy out” arrangement
and/or to establish additional or particular arrangements specifically
to facilitate the recruitment of the individual, in all the circumstances.
Details of any recruitment-related awards will be appropriately
disclosed and any arrangements would be made within the context
of minimising the cost to the Group.
All such awards for external appointments will take account of the
nature, timing and performance requirements for any remuneration
relinquished by the individual when leaving a previous position, and
will be appropriately discounted to ensure that the Group does not, in
the view of the Remuneration Committee, over-pay. The
Remuneration Committee will also consider the application of
performance conditions and/or clawback provisions, as appropriate.
For the avoidance of doubt, where recruitment-related awards are
intended to replace existing awards granted by a previous employer,
the maximum amounts for incentive pay as stated in the policy table
above will not apply to such awards. The Remuneration Committee
has not placed a maximum limit on any such awards which it may be
necessary to make as it is not considered to be in shareholders’
interests to set any expectations for prospective candidates
regarding such awards.
The Group may make a contribution towards legal fees in connection
with agreeing employment terms. The Group may also agree to pay
certain expenses and taxes should an executive Director be asked to
relocate to a different country, such that the executive Director pays
no more than would have been required in the home location.
15. Policy on payments for loss of office
The following paragraphs describe the Group’s general policy on
payments for loss of office. Section 15.2 sets out the policy for
payments on termination of Mr Butskhrikidze’s and Mr Shagidze’s
service contracts.
Any compensation payable in the event that the employment of an
executive Director is terminated will be determined in accordance
with the terms of any service contract between the Group and the
executive, as well as the relevant rules governing outstanding
deferred share awards and this Policy.
122 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
In addition to any payment that the Remuneration Committee may
decide to make, the Remuneration Committee reserves discretion as
it considers appropriate to:
• Continue benefits beyond the date of termination;
• Pay for relocation to previous location, where applicable;
• Make payments in lieu of notice;
• Accelerate the vesting of equity awards;
• Make a severance payment; and/or
• Pay for out placement services and/or legal fees.
Generally, the Group would require a non-compete and
confidentiality agreement from the departing executive Director to
protect the interests of the Group.
15.1 Notice periods
Notice periods are set out in the executive Director’s service
contracts. Generally speaking, either party may terminate the service
contract by giving the other party not less than seven months’ notice
and the Group will reserve the right to terminate without notice in
certain circumstances. Notice periods will be reviewed by the Board
and the Remuneration Committee when contracts are due for renewal
with consideration given to business continuity and potential
candidates in the market, amongst other factors.
15.2 Service contracts – executive Directors
The service contracts of executive Directors may contain tailored
terms which allow for termination payments to be paid if the
executive Director’s employment is terminated under certain
circumstances, such as following a corporate change, a change in
control, involuntary termination, termination without cause, for
“good leaver” reasons (including) death or disability, each as defined
in the applicable executive Director’s service contract. Details of
such terms contained in the current executive Directors’ service
contracts are described below1:
(a) Service contracts of the Group’s current executive Directors
Service contracts with TBC PLC
On 12 May 2016, TBC PLC entered into a service agreement with
Vakhtang Butskhrikidze. The service agreement can be terminated
by either party giving to the other party not less than seven months’
written notice. In addition, TBC PLC may terminate the service
agreement without notice or pay in lieu of notice for cause (as defined
in the service contract). The service contract contains non-compete
and confidentiality provisions and is governed by English law.
On 12 May 2016, TBC PLC entered into a service agreement with Giorgi
Shagidze. TBC PLC will also reimburse the CFO for all reasonable
business expenses properly incurred and paid by him. The service
agreement can be terminated by either party giving to the other party
not less than seven months’ written notice. In addition, TBC PLC may
1 The executive Directors’ service contracts and non-executive Directors’ letters
of appointment are also available for inspection at TBC PLC’s registered office.
terminate the service agreement without notice or pay in lieu of
notice for cause. The service agreement contains non-compete and
confidentiality provisions and is governed by English law.
Service contracts with TBC JSC
Vakhtang Butskhrikidze and Giorgi Shagidze also serve as CEO and
deputy CEO (CFO) of TBC JSC, respectively. Although it is not strictly
required under UK law, we have described the service contracts that the
Group’s executive Directors have with TBC JSC below for completeness.
In 1995, TBC JSC entered into a service agreement with
Vakhtang Butskhrikidze. The current service agreement provides for
Mr. Butskhrikidze to act as CEO of TBC JSC. The service agreement
contains non-compete and confidentiality provisions and is governed
by Georgian law.
In 2010, TBC JSC entered into a service agreement with Giorgi Shagidze.
The current service agreement provides for Mr. Shagidze to act as
deputy CEO (CFO) of TBC JSC. The service agreement contains non-
compete and confidentiality provisions and is governed by Georgian law.
In September 2016, Vakhtang Butskhrikidze and Giorgi Shagidze
were appointed to the Supervisory Board of TBC JSC.
Vesting and lapse of awards
The following table sets out the details of the shareholdings for the
chief executive Director and chief financial Director of the Group.
Number of Shares Held
TBC Bank
Group PLC
JSC TBC
Bank1
Total
Unvested
Vested
Holder
Vakhtang
Butskhrikidze
586,016
186,857
772,873
250,502
522,371
Giorgi Shagidze
89,872
86,431
176,303
112,683
63,621
1 The shares held in JSC TBC Bank were awarded to each executive Director
before the premium listing under the applicable compensation policy. Those
shares were not exchanged for Company shares due to temporary Georgian tax
obligations. The executive Directors intend to exchange those shares with
Company shares following the expiration of the tax obligations.
If an executive Director ceases to be employed by any Group company
at his/her sole decision before the service contract expires or if the
executive Director leaves for a bad leaver reason, the executive
Director must return all bonus shares awarded for which the
continuous employment condition has not been met (or as directed
by the Company) and/or any nil cost options awarded will lapse.
Depending on the circumstances, the Remuneration Committee may,
at its sole discretion and with regard to any recommendation made
by the CEO of the Company (as applicable), allow the executive
Director to partially or fully retain such bonus shares.
If the executive Director is determined by the Remuneration
Committee to be a good leaver, the executive Director is entitled to
receive any award of deferred salary and deferred bonus shares on
its initial terms notwithstanding the partial fulfilment of any KPIs due
to the dismissal, time pro rated for the amount of the performance
period elapsed. All other bonus and salary shares and/or nil cost
options will continue to vest on their initial terms.
If, during the three years after the dismissal of the executive Director
as a good leaver, it is established that the executive Director was a
bad leaver, the provisions applicable to bad leavers will apply.
(b) Letters of appointment – non-executive Directors
Each non-executive Director is required to submit himself or herself
for annual re-election at the Annual General Meeting. The letters
of appointment with the Group for each non-executive Director
are effective from 2016. The letters of appointment provide for
a one month notice period although the Group may terminate the
appointment with immediate effect without notice or pay in lieu
of notice if the non-executive Director has committed any serious
breach or non-observance of his or her obligations to the Group,
is guilty of fraud or dishonesty, brings the Group or him/herself
into disrepute or is disqualified as acting as a non-executive
Director, among other circumstances. Upon termination, the only
remuneration a non-executive Director is entitled to is accrued fees
as at the date of termination, together with reimbursement of
properly incurred expenses incurred prior to the termination date.
16. Legacy arrangements
The Remuneration Committee reserves the right to make any
remuneration payments and payments for loss of office
notwithstanding that they are not in line with the Policy set out above,
where the terms of that payment were agreed before the Policy came
into effect (including, without limitation, pursuant to awards granted
before the Policy came into effect), or before the individual became a
director of the Group (provided the payment was not in consideration
for the individual becoming a director). In addition, the policy tables
shall not have the effect of limiting any payment to a new recruit
made under the recruitment policy set out in section 14 above.
17. Consideration of shareholder views
The current policy takes into account shareholder feedback
regarding the remuneration of the Board. Shareholder input has
been key to designing the remuneration policy as described above.
We have established a practice to meet with the shareholders on this
matter and request their feedback, which will continue in the future.
The Remuneration Committee remains mindful of shareholder views
when evaluating and setting ongoing remuneration strategy.
18. Consideration of employment conditions within the Group
In accordance with prevailing commercial practice, the Remuneration
Committee evaluates the compensation and conditions of employees
of the Group in determining the Policy with respect to executive
Directors. The Remuneration Committee may engage external
advisors to assist in analysing remuneration in the Group. Each year
the Remuneration Committee approves the overall percentage pay
out for compensation and material changes to employee benefit plans.
Consistent with practice in the industry in which the Group operates, it
is not the Group’s policy to consult with staff on the pay of its Directors.
19. Minor changes
The Remuneration Committee may make, without the need for
shareholder approval, minor amendments to the Policy for
regulatory, exchange control, tax or administrative purposes or to
take account of changes in legislation.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 123
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
AUDIT COMMITTEE REPORT
CHAIRMAN’S LETTER
Dear Shareholders,
I am pleased to present the Company’s first Audit Committee report.
This Committee was established as part of our process of creating
a holding company and listing our shares on the premium segment
of the London Stock Exchange. It continues the work undertaken in
past years by the Audit Committee of the Bank, and its composition
and terms of reference (available on the Group’s website at
www.tbcbankgroup.com) remain largely unchanged albeit marginally
expanded and enhanced. I welcome the addition of Mr Stephan
Wilcke to the Committee. He brings valuable experience from his
work as the CEO of the Asset Protection Agency of Her Majesty’s
Treasury and executive chairman of a large stock market listed UK
specialist bank.
The exciting acquisition of Bank Republic and other assets in 2016
have created important commercial opportunities for us but also
need ‘bedding down’ within the Company’s financial reporting and
control infrastructure. We believe that all appropriate steps have
been taken by management to help to mitigate key risks arising,
and to facilitate seamless integration.
I invite you to read about the results of these and the other main
activities of the Committee in the report below.
Our activities focus on the scrutiny and integrity of the Group’s
financial reporting and processes. The Audit Committee also
provides a forum for discussion with the Group’s external auditors
and internal assurance functions.
Nicholas Haag
Chairman of the Audit Committee
31 March 2017
The Committee, and myself as a chairman, are acutely conscious of
the extra responsibility that we now bear as a company subject to the
highest standards of governance and disclosure, requirements as
both a UK public limited company and a premium listed company on
the London Stock Exchange, as well as being the biggest bank in
Georgia by assets.
Whilst economic conditions in Georgia remained broadly favourable
during 2016 despite some internal and external volatility, as a
Committee we have paid even more attention than previously to
calibrating the appropriate level of caution and realism in terms of
assessing any provisions and impairments of the Bank’s loan
portfolio, as well as optimising control functions and oversight within
the fast-expanding Bank. We have also devoted considerable
attention to preparing the Company for the adoption of IFRS9 from
2018 and anticipating the accounting implications of evolving
Georgian regulations (for example, in relation to deferred taxation).
We continue to focus on IT issues that potentially impact reporting
risk and might also create operational risk hazards. We are doing
everything we can to monitor and counter these evolving risks,
particularly in the cyber security domain.
124 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Committee structure and role
Since the incorporation of TBC Bank Group PLC (the “Company”), the
Audit Committee of JSC TBC Bank (the “Bank”) is now constituted
within the Audit Committee of the Company and continues to perform
its important pre-existing function within the Bank. There are,
therefore, in practice two separate but connected Audit Committees
for both the Company and the Bank with common membership.
We have sought to balance the work of the two committees, dividing
functions according to whether they are supervising topics that
impact (e.g. by regulation) the Company or solely the Bank. In
practice, we regard both Audit Committees as complementary and
somewhat fungible and both are focused on optimising governance of
the Company and the Group as a whole. Nevertheless, we will ensure
that particular resolutions are passed by the appropriate Committee
and that there is as little duplication as possible and no gaps in
overall scrutiny.
The Audit Committees of the Company and the Bank hold delegated
authority from the Board and the Supervisory Board of the Bank,
respectively, and together have multiple areas of responsibility
and focus. Their first priority is to review the implementation of
the Group’s key accounting and reporting policies and procedures,
ensuring the integrity, accuracy and full disclosure of the Group’s
financial reporting, concentrating on the areas of reporting risk and
supervising the proper interpretation of accounting rules. Secondly,
they oversee the Bank’s systems of internal control in relation to
financial reporting, fraud and compliance with prevailing laws and
regulations, and evaluate management’s competence in this task.
The Committees place significant reliance on Internal Audit (see
below) to provide an objective and professionally sceptical view of
how the Bank is handling a number of key reporting and record-
keeping tasks. The Committees also make recommendations on
the appointment and remuneration of external auditors and seek
to maximise the value of the external audit relationship.
In relation to the risk assessment function, the Group has a separate
Board-level Risk, Ethics and Compliance Committee, which is
chaired by Nikoloz Enukidze. We have analysed the merits and
de-merits of combining the Audit Committee and the Risk, Ethics and
Compliance Committee, which together assess the Group’s internal
controls, risk management, compliance and governance functions.
Please see pages 46 to 55 for a description of the Company’s risk
management framework and pages 106 to 107 for the Risk, Ethics
and Compliance Committee Report.
Whilst there are synergies between the work of both Committees,
which is directed towards the mitigation of risk in its many forms,
and they share many of the same complex issues of judgement and
policy, we have concluded that, as a substantial financial institution,
there is a clear benefit in preserving a separate independent Audit
Committee, and a strong Risk, Ethics and Compliance Committee.
Alongside their complementary responsibilities the Audit Committee
is more attuned to systems of internal control and financial
reporting, and the Risk, Ethics and Compliance Committee to
ongoing credit and other market risks.
There are certain areas of overlap (e.g. in relation to operational risk
and compliance) but we ensure that both Committees have defined
responsibilities, there is minimal duplication and that nothing ‘falls
between stools’ due to an overlap in membership for the majority of
members of both Committees, including their respective chairmen.
For example, in the past year, both the Audit Committee and the Risk,
Ethics and Compliance Committee collaborated closely and
seamlessly on preparation for implementation of the new IFRS9
accounting standard with the latter (alongside the chief risk officer)
leading the project, but with Audit Committee being satisfied at every
stage with the implicit integrity of the financial reporting process and
with the head of Internal Audit also being closely involved.
As described above, the Group now differentiates between respective
Committee meetings for the Company and the Bank. Given the
importance of the Board staying ‘close to the business’ and the
logistics of meeting with a range of middle management personnel
based in Tbilisi, Georgia, who are involved in financial reporting and
controls, we will ensure that the Bank’s Audit Committee holds
quarterly meetings in Tbilisi in addition to the rota of meetings of the
Company’s Audit Committee which will take place in London. Thus,
the Audit Committee of the Company and the Bank will, in aggregate,
meet more frequently than in the past. Whilst adding to the workload
of the Audit Committees, we believe that this will help to ensure an
appropriate level and frequency of supervision.
The Audit Committee has adequate administrative resources from
the Group’s and Board Secretariat and receives sufficient and timely
materials from management both proactively and where we make
additional information requests. The lines of communication with
management are open with candid and continual dialogue taking
place in between the Board meetings.
Committee composition, expertise and independence
At the end of 2016, The Audit Committee of the Company comprised
five non-executive Directors: Nicolas Dominic Haag (chairman), Eric
J.Rajendra, Stephan Wilcke, Nikoloz Enukidze and Stefano Marsaglia.
All have been deemed as independent under the UK Corporate
Governance Code, which is applicable to companies listed on the
premium segment of the LSE. During the course of 2016, and with the
recommendation of the Corporate Governance and Nominations
Committee, we are pleased to have added Mr Stephan Wilcke as a
fifth member of our team. Mr Wilcke brings a wealth of experience
to the Audit Committee, having served on the boards of other UK and
foreign financial institutions and having been chief executive of the
Asset Protection Agency, an executive arm of the UK Treasury.
Mr Nikoloz Enukidze continues to serve on the Audit Committee
alongside his new role as the senior independent Director of the
Company, lending further weight to the Audit Committee. We believe
that the Audit Committee and its members continue to exercise fully
independent judgment in all matters related to its functions. We
continue to review, in collaboration with the Corporate Governance
and Nominations Committee, suitable medium-term succession
plans for the Audit Committee, as for all Committees of the Board.
All current members of the Audit Committee (see biographies
on pages 97-99 of the Annual Report) are financially literate and
possess a detailed understanding of the financial sector and
corporate finance matters, with backgrounds primarily in banking.
Most have served on (or chaired) other banks’ audit and risk
committees. The Audit Committee, therefore, has sufficient recent
and relevant expertise, in particular of the financial services industry,
to operate effectively and it calls upon other expert internal and
external resources as and when required. Appropriate training
is available to members of the Audit Committee and has recently
included professional updates by external specialists on both
applicable or prospective accounting regulations (for example, IFRS9)
and on relevant developments in corporate reporting and regulation.
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
In 2016, there were no significant or enduring areas of difference of
opinion between the Audit Committees of the Company and the Bank
and senior management, or between the Audit Committees and the
full board of the Company or the Bank, respectively. Feedback from
external and internal auditors confirms the Audit Committee’s own
judgment of the quality of management’s ongoing contribution and of
the materials with which we are provided in our supervisory capacity.
Audit Committee effectiveness
The terms of reference for the Audit Committee of the Company
were approved by the Board in May 2016. The documents is available
on TBC Bank’s website at www.tbcbankgroup.com. The Audit
Committee Policy of the Bank was updated in March 2017 and
approved by the Supervisory Board of the Bank in the same month.
In January 2017, the Audit Committee of the Company conducted
an Effectiveness Self-Review using an extensive and customised
questionnaire, drawing on international best practice
recommendations from an external adviser. In addition, the Board
included in its wider self-assessment certain questions relating to
the efficacy of the Audit Committee. Both the Committee and the
Board concluded that the former is constituted properly, operates
effectively and carries out all its responsibilities as laid out in its
policy and terms of reference. Our objective is not only to oversee
relevant functions in the Group but also to establish an appropriate
‘tone at the top’ for the organisation.
AUDIT COMMITTEE REPORT continued
The Audit Committee is acutely aware of the highest standards
expected of disclosure, record-keeping and controls associated with
the Company’s listing on the premium segment of the LSE and recent
acquisition of JSC Bank Republic, which led the Bank to become the
biggest bank in Georgia by assets1. We will continue to work to
ensure these standards are fully met and maintained.
Committee meetings
The Audit Committee of the Bank met formally in person in each
quarter of 2016 (March, June, September and December), in
accordance with the Bank’s quarterly financial reporting cycle and
the cycle of Supervisory Board meetings. In October, we held the first
meeting of our newly constituted Audit Committee of the Company.
There were regular interim meetings, mostly around planned
releases of financial data, as well as ad hoc meetings (normally
minuted) and other communications between members, often with
Internal Audit, external auditors and management involved.
The attendance of members at the Committee meetings during the
year at the Company and the Bank levels are set out in the Directors’
Governance statement on pages 90 to 91. Minuted Committee
meetings generally took place on the day prior to Supervisory Board
meetings of the Bank. The Audit Committee of the Bank always
delivers a formal report as a major agenda item at appropriate
meetings of the Bank’s Board, this also being minuted and typically
followed by a constructive discussion with the Bank’s Chief Executive
Officer on topics raised in our verbal report with sometimes specific
follow-up action points endorsed by the Chairman of the Bank’s Board.
The Audit Committee of the Bank frequently met without attendance
from the management. In addition, the Bank’s Chief Executive
Officer, Chief Financial Officer, chief risk officer, chief information
officer, deputy Chief Executive Officers of retail, SME and micro
business, and other Management Board members were often invited
to participate in relevant parts of our Audit Committee meetings
of the Bank together routinely with the head of Internal Audit. In
general, the Audit Committee of the Company seeks to have formal
meetings every quarter with at least one member of the Board
responsible for a particular line of business so as to seek feedback,
for example, on any control or other issues that may have been
highlighted by a recent Internal Audit report. This also allows
the Audit Committee of the Company to impress upon senior
management the importance of minimising deficiencies and
remedying any that do occur, thus raising the visibility of control
issues and the accountability of senior executives.
1 According to the NBG data as of 31 December 2016
126 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Economic environment
As mentioned above, the Bank is now the biggest bank in Georgia
by assets1. Our business is overwhelmingly tied to the performance
of the Georgian economy which, in turn, depends to a significant
extent on the economic health of the country’s international trading
partners, some of whom have suffered economic weakness in
recent times triggered by falling commodity prices and geopolitical
turbulence. The Audit Committee, similarly to the Risk, Ethics and
Compliance Committee, tracks closely on a weekly basis relevant
economic data. Currently, the Georgian economy remains in a
relatively solid pattern in relation to GDP, the International Monetary
Fund predicting growth to be in the range of 4% over 2017; its
performance in 2016 demonstrated 2.7% growth, despite temporary
uncertainty caused by the October parliamentary elections and
volatility in the region. There is a wider encouragement in the recent
recovery of many global commodity prices, benefiting some of
Georgia’s trading relations. In Russia, for example, the economy
appears to be slowly stabilising. The Audit Committee will seek to
ensure that any unexpected deterioration in the Georgian economy
will lead to extra attention on our part in relation to financial controls
and reporting risk. Any challenging economic context potentially
raises the financial and operational risks within the Bank and these
are being closely monitored.
Release of financial statements
The Audit Committee remains more vigilant than ever in seeking,
with the help of external and internal auditors as well as
management, to ensure the accuracy of our financial releases
and internal records. Since the Bank’s listing of Global Depository
Receipts (“GDRs”) on the LSE in 2014, the Audit Committee of the
Bank has assumed the role of comprehensively pre-vetting all
audited and auditor-reviewed financial releases. Accordingly,
the Audit Committee of the Bank reviewed during 2016 the
releases of half-year and full-year financial statements, making
recommendations to the Board of the Bank 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 of the Company has now assumed this role on
behalf of the Company. We have reviewed all data and narrative
comment and concluded that the Annual Report and full-year
financial statements are complete, clear, fair, balanced,
understandable and consistent with the Audit Committee’s
understanding of the facts, and provide the information necessary
for shareholders to assess the Group’s performance, business
model and strategy. Likewise, we have considered and are satisfied
with transparency on the Bank’s liquidity and capital adequacy
statements. We have extended the remit of Internal Audit, which now
undertakes its own assessment of financial and regulatory reporting
to give the Audit Committee (and management) further assurance on
the integrity of our reported numbers.
External audit planning and areas of Committee focus
The Audit Committee of the Bank held multiple audit planning
meetings with PricewaterhouseCoopers LLP (“PwC”) in 2016,
commencing this process in the middle of the year. The Audit
Committee of the Bank had the opportunity (without involvement of
management) to highlight areas it wished the external audit to focus
on, flagging relevant concerns and trends. The Audit Committee of
the Bank has evolved towards a policy of regular quarterly face-to-
face status discussions with PwC as part of its formal Committee
meeting agendas, proactively and mutually addressing any material
audit or control issues. PwC has started to attend (in part) not only
the Audit Committee meetings of the Bank but also meetings of the
Supervisory Board of the Bank, and will now participate in meetings
of the Board of the Company. In addition, as chairman of the Audit
Committee of the Bank, Nicholas Haag also has regular, candid and
free-form private communications with PwC between Audit
Committee and Board meetings. Given the new corporate structure
with the Company as the holding company of the Bank, the Audit
Committee of the Bank now benefits from both the London and Tbilisi
practices of PwC being fully involved in the audit process. We enjoy
ready access to the Company’s audit engagement partner, who is
based in London where several members of the Audit Committee
of the Bank and of the Company, including Nicholas Haag, are also
based. We consider that this ‘double coverage’ by PwC brings an
extra level of review to the Group’s financial and risk-management
status, as did the scrutiny involved by multiple advisers during the
recent process for the Company’s listing on the premium segment
of the LSE and prospectus disclosure.
In addition to agreeing the 2016 financial statements, we have
received from PwC their year-end report highlighting key judgments
made by management and a notification of any uncorrected
misstatements. Given the expansion of the Group in 2016, we agreed
with PwC an overall group audit materiality sum of GEL 15.8 million
or 5% of actual profit before tax, which we regard as appropriate.
In planning meetings held between the Audit Committee of the
Company and PwC, the focus was on a number of important topics,
including the implications of the Company being incorporated into
the corporate structure; the significant audit risks on the Group
year-end audit process, and the timing and optimal means of
completing the 2016 year-end audit of Bank Republic. We have also
discussed with PwC the business combination, fair value and
purchase price accounting issues around Bank Republic, and to a
lesser extent in relation to the much smaller acquisitions of selected
assets and liabilities of JSC Progress Bank, and of JSC Insurance
Company Kopenbur that we announced in September and October
2016, respectively. We have scrutinised the review of key
assumptions used in the valuation of assets, including intangible
assets; the key judgment has been in the determination of the
estimated recoverable amount and suitability of impairment models.
We commissioned an external professional adviser to assist us in
this analysis for Bank Republic and shared their findings with PwC.
We are, therefore, confident that our financial statements comply
with all relevant disclosure requirements, including IFRS.
1 According to the NBG data as of 31 December 2016
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 127
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
The Audit Committee is satisfied based on its own review and
questions posed to the finance and risk teams and conversations
with external auditors, that our published financial statements
present an accurate picture of the credit status of the Bank’s
loan portfolio.
In 2017, the Committee’s focus will shift towards the implementation
of IFRS9 from January 1, 2018. This is a complex project, launched
by the Group in the middle of 2016, given the new standard moving to
an expected loss model and widening the scope of assets which are
subject to potential impairment. The Group has commissioned an
external firm of specialists to assist us. We have already completed
a comprehensive diagnostic phase including gap analysis and have a
clear roadmap for this project, including the use of specific IT tools.
The Audit Committee is confident that the Group will have in place
an appropriate new methodology and systems, including for Bank
Republic’s existing assets, and during the course of the second half
of 2017 will make a parallel run (i.e. IFRS9 as against IAS39) with
suitable back-testing of new models and close dialogue with the
National Bank of Georgia. The models will be validated by an
additional external technical consultant as well as reviewed by the
Audit Committee and Internal Audit. We hope to be 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 Group’s
financial outlook. We anticipate that the Bank’s provisioning policies
described above will enhance the already robust approach to credit
risk for our business model.
Deferred tax
Another particular focus area of the Audit Committee has been the
derecognition of deferred tax balances under Georgian changes in
tax regulation. In June 2016, the Georgian parliament passed a new
law fiscally to incentivise the reinvestment of corporate profits.
Whist this law will come into effect for the banking sector from
January 2019, it has a more immediate impact on deferred tax
calculations. In the Group’s results for Q2 2016 we recognised
one-off income of GEL 17.9 million and one additional increase of
equity of GEL 10.5 million. In addition, this potentially tax-free
reinvestment of profits is likely to have a positive effect on lowering
the Group’s future effective tax rate by several percentage points
starting from 2019.
AUDIT COMMITTEE REPORT continued
Other areas of Audit Committee focus
As usual we have assessed the reasonableness and appropriateness
of all critical accounting estimates and judgements in applying
accounting policies. Aside from the impact of the various acquisitions
noted above, the main area of accounting judgement involved the
valuation of loans and guarantees issued, and related provisions
for impairment see also below. The valuation of premises and
investment properties and net realisable value of other repossessed
collateral remains a focus area.
Provisions and impairments
In terms of loan provisions, we have communicated with PwC during
their audit of the current provisioning methodology used by the Bank,
challenging these assumptions and examining individual (mostly
corporate loan exposures) on the non-performing and ‘watch’ lists.
Together, we have confirmed the completeness of this watch list. We
note this tends to be stable in composition without frequent additions
that would indicate a deteriorating book or poor ‘capture’ of problem
loans. We have also sought to use our judgement to back-test the
reliability of the Bank’s previous impairment assumptions, which we
have found to be generally conservative versus observed reality,
partly because the Georgian economic climate has proven to be more
resilient than earlier Bank assumptions. The Audit Committee,
benefiting from work streams led by the Risk, Ethics and Compliance
Committee, continues to monitor on a regular basis individually
assessed loans on the Bank’s watch list but also collectively
assessed loans 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. Given the very challenging
macro situation in Azerbaijan, the Committee has paid close
attention to the portfolio quality of TBC Kredit, our Azeri subsidiary.
As previously reported, there was a technical breach throughout
2016 by TBC Kredit of certain borrowing covenants due to the
extreme depreciation of the Azeri manat. This breach was cured by
subsequent covenant waivers.
Clearly, one of the biggest factors impacting and also reflecting the
Georgian economy is the stability of the local currency. We have seen
material depreciation in the currency versus the US Dollar over the
course of 2016, although GEL has performed better in comparison
with the nominal effective exchange rate (“NEER”) of a basket of
currencies for the country’s main trading partners. A total of 66.2%
of the Bank’s loan book is denominated in US Dollars.
Readiness for IFRS9
As part of its continuous monitoring of the Group’s credit risk, in
2015, the Audit Committee was involved in review of the update of the
Bank’s provisioning policy and definition of non-performing loans
under IAS39. The Audit Committee is confident that the updated
policy is more granular in assessing impairments of the loan
portfolio than the previous version, benefiting from closer analysis of
the characteristics of different loan segments, the introduction of
new risk parameters (calculated over three years of historic default,
recovery and survival data) and more detailed interpretation
of historic risk-migration patterns for different overdue loan
maturities. The Bank also moved to a revised and more market-
typical definition of non-performing loans as loans 90 days+ past due
or with well-defined weaknesses. The Audit Committee believes that
this definition is more meaningful and also slightly more
conservative than the one the Bank previously used.
128 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
External audit tender assessment and reappointment
The Audit Committee of the Company 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 reappointment 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.
PwC has been the Group’s external auditor since 2008, and 2016
has been the ninth year in which PwC has audited the Bank and now
the Company. Consequently, the Audit Committee had extensive
discussions in 2016 regarding the merits of conducting an external
audit tender under the UK implementation of the EU Audit
Regulations for Public Interest Entities (the “EU Regulation”). Given
the Group’s recent incorporation of the Company and its premium
listing, the audit rotation rules permit the ten-year “audit clock” for
the mandatory tendering of the Group audit to be re-set to start in
2016, obviating any requirement for a mandatory audit tender in
the foreseeable future. However, taking into account the realities
of the Group’s structure prior to the incorporation of the Company
and the duration of our relationship with PwC, the Audit Committee
evaluated whether there would be a case nonetheless to initiate an
audit tender. The Audit Committee considered that it would be
potentially distracting to change auditor so soon after the Company’s
listing on the premium segment of the LSE and given the extra
workload created by the ongoing merger with Bank Republic.
Consequently, we have resolved to defer any decision whether to hold
an audit tender. Therefore, we expect that, subject to the finalisation
of suitable contract terms, PwC will remain the Group’s auditor for
the time being. In addition, we have the safeguard of a newly
appointed lead engagement partner for the year end 2016, who is
new to the Company’s audit and a senior audit partner based in
PwC’s UK practice. Furthermore, the previous lead engagement
partner under the Group’s structure prior to the incorporation of the
Company, having been in this capacity since 2011, is rotating out after
2016. We thank him for his work over many years. The new Group
partner for the Bank audit is an experienced financial services audit
partner based in Warsaw, Poland, with the wider engagement team
being located in Tbilisi, Georgia. The existing Quality Review Partner
for the audit of the Bank will remain in place, providing good
familiarity with the Bank, which will help to smooth the transition.
We would, however, note that in the event of the Group’s achieving
FTSE 350 status, the Company might be bound, under the UK
Competition and Markets Authority (“CMA”) rules on statutory audits
for large companies, to put its audit out to tender, in spite of the new
Group structure following listing of the Company having re-set the
ten-year audit clock. The Audit Committee will take this eventuality,
or the probability of its occurring, into consideration and seek CMA
guidance when deciding whether and when to launch an audit tender.
We have agreed the fee quote from PwC for the 2016 year-end audit
with which the Audit Committee is comfortable. It is a higher figure
than for 2015 reflecting the expanded Group size and audit scope,
the new Group structure after incorporation of the Company, and
also the impact of the steep fall in the local Azeri manat currency in
relation to the audit cost for TBC Kredit.
External audit independence and provision of non-
audit services
The Audit Committee is rigorous in ensuring that we vet all non-audit
assignments to PwC to ensure the proper independence of
judgement of our external auditor. The Audit Committee and
management are in agreement that we should look to other
providers for non-audit services where they offer an economically
and professionally equivalent alternative. We will typically use our
external auditor only where such non-audit services are required by
legislation to be undertaken by the incumbent auditor or where the
service is a ‘by-product’ of the audit process. The Policy for Provision
of Non-Audit Services by the External Auditor of the Bank adopted by
the Board in 2015 formally introduced new rules on the engagement
and remuneration of the Bank’s external auditor in relation to the
provision of non-audit services. This policy has been refreshed
and replicated in 2016 for the Company. Essentially, all such
engagements are first recommended by the Chief Financial Officer
and must be pre-cleared with the Audit Committee. We will only use
PwC for non-audit services where there is either a clear synergy
with PwC’s audit role, or where PwC offers superior competence or
materially better commercial terms. We have removed any allowable
derogation from this rule.
However, 2016 was a rather exceptional year in terms of the provision
of professional services, including accounting fees, due to the
Company’s listing on the premium segment of the LSE and the
acquisition events. Approximately US$2.9 million of fees were paid
out to several accountancy firms of which only about 25% related
directly to audit work. As regarding the 75% of non-audit services,
approximately 79% of this sum was mandated to PwC. These fees
related primarily to consulting services around the Company’s listing
on the premium segment of the LSE and the acquisition of Bank
Republic. The vast majority of the former were Reporting
Accountants fees and Long Form report fees for the Company’s
listing on the LSE including a working capital report. Less than
10% of non-audit services arose in connection with Bank Republic,
in particular financial and tax due diligence. In the case of the
Company’s listing at the LSE and Bank Republic, the Audit
Committee held full-scale tenders but, ultimately, took the view, with
management’s recommendation, that there were natural synergies
with the audit and work in connection with previous listing of the
Bank’s GDRs in 2014 and we were comfortable to agree to the
appointment of PwC in both cases. The Audit Committee will remain
mindful of the allowable cap on non-audit fees earned by an external
auditor, which is being introduced by the UK legislation implementing
the EU Regulation.
Where the Audit Committee and management felt that there were
no such synergies with PwC or, indeed, a potential conflict, we
appointed other providers. For example, as mentioned above, PwC
were not appointed in relation to IFRS9 and acquisition of the assets
of Progress Bank. Equally, we appointed other firms to provide
advice to the Remuneration Committee and the board on board
compensation analysis and on certain tax services. In the vast
majority of cases for procurement of professional services, a tender
was held. No non-audit services were provided by PwC that will be
“prohibited” in future by the UK implementation of the EU Regulation.
In all cases where PwC was used for non-audit services, a separate
team was involved to that responsible for the statutory audit. We
have a system in place for precisely tracking procurement and
tendering for all non-audit fees, however small.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 129
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
AUDIT COMMITTEE REPORT continued
In the case of the year-end audit of Bank Republic, post its
acquisition by the Bank, we chose to use PwC after a tender process,
because of natural synergies with the consolidated Group audit, the
benefit of a smooth transition from Societe Generale’s group auditor
to our own, and the merits of saving time by communicating with a
single auditor as well as because PwC’s fee quote was competitive.
PwC have formally confirmed in writing their independence. We
remain satisfied, taking account also of the views of Internal Audit
and management, that PwC have a robust process for maintaining
independence and monitoring such compliance in accordance with
the UK Financial Reporting Council (“FRC”)’s Ethical Standard
and IESBA Code of Ethics. In our view, they continue to offer an
independent, professional and cost-effective service that is capable
of detecting any audit irregularities. Any potential threats to auditor
objectivity (overfamiliarity, self-review etc) are, we believe,
contained by existing safeguards. In particular, we are convinced
that the objectivity of the senior audit engagement partner and audit
staff is not impaired. We reached this decision on the basis of PwC’s
openness to challenge our perception of their proper independence
from management and absence of any material prior-year financial
restatements. We also note PwC’s proven continuing ability to meet
our tight reporting deadlines now in the context of a larger Group and
the Company’s listing at the premium segment of the LSE.
External audit quality validation
The Audit Committee has its own quality control process in place
for review of effectiveness of the external audit on an annual basis,
reporting its findings to the Board as part of its recommendation.
In addition, in late 2016, the FRC undertook a formal Audit Quality
Review of PwC’s audit of the Bank for the year ended December 2015.
This is a routine but occasional (i.e. not annual) process by which the
FRC monitors the quality of audit work of UK firms that audit Public
Interest Entities and certain other entities, including those based
overseas but with listings at the LSE. The overall objective of the AQR
team is to monitor and promote continuous improvements in audit
quality in the UK. All UK audit firms that undertake larger audits are
subject to AQR inspection.
This review was essentially an assessment of PwC’s audit quality
of the Bank and the Audit Committee was not contacted by the
AQR inspectors except to share their report. However, it is very
reassuring to us that the AQR had no significant findings.
Internal Audit
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 Audit
Committee, Nicholas Haag is in at least monthly contact with the
Head of Internal Audit who functionally reports unambiguously to
him. The Audit Committee routinely reviews Internal Audit’s remit,
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. Internal
Audit makes a formal submission to the Audit Committee each
quarter as well as to the Group as a whole. The Audit Committee
solely determines Internal Audit’s budget and compensation. We
are satisfied that Internal Audit has sufficient human and financial
resources to perform its role and the Audit Committee has where
necessary requested additional funds for them to purchase the
training and tools required for them to function effectively. We
believe that Internal Audit has established its independence from
management and its value is recognised by management, which has
requested (with sign off from the Audit Committee) their involvement
in various projects and investigations.
We 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. As noted above, we will involve Internal Audit in the IFRS9
implementation process. We also requested Internal Audit to
investigate the Bank’s data and document retention arrangements as
this was an area that concerned the Audit Committee, given that the
Bank has entered into an outsourcing arrangement for these vital
services; the audit confirmed that satisfactory processes were in
place. In 2017, we will inter alia also ask Internal Audit to re-validate
processes around capturing and disclosing related-party lending
within the Group.
Internal Audit played an important role in 2016 in the investigation of
a small number of financially non-material internal fraud cases,
which in aggregate resulted in likely losses to the Group of less than
GEL 1 million. On each occasion, the Audit Committee was promptly
notified in accordance with escalation procedures and the frauds
thoroughly investigated, typically down to the level of every loan in
a suspicious portfolio often with site visits to affected customers,
and processes reinforced to avoid any future repeat events. The Audit
Committee has discussed all these frauds with senior management
and is confident that the Chief Executive Officer and his deputies have
taken full ownership of the issues and rectified procedures.
130 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
The Audit Committee has increasingly organised Internal Audit’s
plan to be risk-weighted (ie investigate the higher-risk priorities
more frequently and in greater depth) and also more flexible,
allowing it to conduct one-off projects where the Board or
management wish it to undertake special investigations arising from
situations where the Bank may have heightened vulnerability or has
been the victim of fraud. Internal Audit is in the process of investing
in specialist software, with a selected vendor, which will enable it to
speed up some of its more routine tasks, allowing it to concentrate
on its most added-value missions.
We have discussed with Internal Audit the implications of the
acquisition of Bank Republic. The resource base of Internal Audit
in the combined entity will be expanded commensurately, with
additional staffing coming from Bank Republic’s pre-existing team.
Internal Audit’s Charter was reviewed and approved in March 2017.
In February 2017, the Audit Committee conducted an assessment of
the Internal Audit function. It also had the opportunity to input into
and review the personal performance appraisal of the head of Internal
Audit, which in turn drew on input from peers, direct reports and
senior management, including the Chief Executive Officer and Chief
Financial Officer. Both sets of assessments were satisfactory with the
conclusion that the department is suitably structured and proactively
meets its objectives as an assurance function and third line of defence.
We had planned to conduct an External Quality Assessment (“EQA”) of
Internal Audit in 2017 but have decided to delay this until 2018 in order
to allow time for the merger of Bank Republic to be bedded down so
that a valid assessment of the combined department can then be
meaningfully undertaken.
The Audit Committee requires all Internal Audit executives to attend
training and to take relevant international (Certified Internal Auditor)
exams. Recently, the senior team attended training in London at the
Chartered Institute of Internal Auditors.
Viability
Following the changes to UK Corporate Governance Code, the Board
has assessed the viability of the Group over a longer period than
the 12 months. The Committee, in conjunction with the Risk, Ethics and
Compliance Committee and the Board, closely considered the Group’s
current financial position and the underlying period of coverage ending
on 1 January 2020, which is relevant to the financial forecasts and
strategic considerations of the Group. This longer term assessment
process supports the Board’s statements on viability, as set out in the
Directors’ Report on page 95.
Control environment
In accordance with our mandate, we have reviewed the robustness
of the Bank’s system of internal controls, working with external
auditors and also with Internal Audit to track closely any identified
shortcomings and scrutinising remediation follow-up with historic
analyses being carefully maintained. The Key Performance
Indicators (“KPIs”) in respect of the reduction of identified
audit deficiencies continue to be cascaded down to branch and
departmental level and also included as KPIs for members of the
Board of the Bank. The emphasis is on minimising and mitigating
high-priority process failings that may lead to real financial and
reputational risk for the Bank.
The Audit Committee regularly reviews progress in this vital discipline
and alerts the Chief Executive Officer, divisional heads and the full
Board where it occasionally sees intractable problems and insufficient
effort at continuous process improvement. The Audit Committee was
pleased to note that in 2016 there was a definite improvement in the
rate and speed of remediation of identified internal audit deficiencies.
Units of the Bank which showed weaknesses are routinely re-
inspected to confirm if improvement has been made and the Audit
Committee updated on the results of these repeat audits.
Financial control
In the opinion of the Audit Committee, there is a proper system and
allocation of responsibilities for day-to-day monitoring of financial
controls within the Group. We have also considered the risk of
executive override of controls, and discussed with PwC their
assessment of this mandatory significant audit risk. We ensure that
the remuneration of senior and middle management is calibrated and
assessed in a way that comforts us that the latter are not incentivised
to take unhealthy short-term risks to generate personal rewards.
The Audit Committee has had sight of the “management (internal
control) letter” submitted by our external auditors and has reviewed
management’s response to it and discussed it directly with PwC.
We also note that no non-standard representations have been
requested from or provided to PwC in respect of the “management
representation letter” signed by the Group’s Chief Executive Officer
and Chief Financial Officer.
In 2016, the Bank’s ‘whistle blowing’ or anonymous hotline for staff
and external entities went live, alerting the Bank to any potentially
unsatisfactory practices. A full escalation protocol is in place for
when any such alert is received.
Together with the Risk, Ethics and Compliance Committee, we have
received regular updates from the chief compliance officer on the
implementation of the Bank’s compliance programme, which we
consider to be sufficiently robust.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 131
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
AUDIT COMMITTEE REPORT continued
Controls in subsidiaries
As a Committee, we are following closely the integration of Bank
Republic in terms of financial controls to ensure that a consistent
high standard across the Group is maintained, recognising that
the integration of this substantial acquisition increases potential
operational and reporting risk within the organisation. We take some
comfort from the speed and precision with which the Bank integrated
its earlier acquisition of Bank Constanta. The Audit Committee of
the Bank in 2015 asked management to ensure that the operational
standards of previous Bank Constanta branches should be brought
up to the high level existing in the rest of the Bank and progress in
this regard was made in 2016. We have also asked questions about
the integration of the finance department of Bank Republic with the
Group and received comfort that there is a coherent plan for this
with the former’s chief financial officer moving into a deputy chief
financial officer position within the Group. Internal Audit will
review progress in this respect over the course of 2017. The Audit
Committee has also reviewed some of the control issues around the
IT infrastructure of Bank Republic, in particular the compatibility of
IT systems with the Group’s own systems. Given that the Bank and
Bank Republic use many of the same systems, we do not foresee
major technology risk arising from the integration and the IT merger
plan appears to be realistic.
We have also asked Internal Audit to monitor more regularly the
control standards in all geographic and product (e.g. leasing,
insurance) subsidiaries of the Group, in particular at TBC Kredit
in Azerbaijan given the challenging economic environment in this
country. As a matter of policy, the Audit Committee have sought
this year to elevate the oversight of all the Bank’s subsidiaries with
additional reporting to central functions, whilst not diminishing the
authority of subsidiary executives. We have, for example, started an
initiative to ensure that all best practice policies are rolled out
across the subsidiaries.
IT controls
In 2015, the Bank commenced a thorough review of the information
security resilience of the Bank with the help of a specialist external
adviser. This brought to light a number of areas for improvement.
A special internal task force was assembled including the Bank’s
chief operating officer and chief information officer, reporting
regularly to the Audit Committee. We noted last year that a dedicated
internal IT auditor had been hired who has a specialist background
in IT security. Significant progress was made in 2016 in terms of
bolstering access control restrictions, enhancing security policies
and raising risk awareness within the organisation with the majority
of employees passing an IT security awareness test. Focus remains
on business continuity, data leakage prevention, the security of our
interface with the SWIFT system and intrusion prevention with
further penetration testing being conducted by external experts. The
Audit Committee is investigating the availability of cyber insurance
for the Bank, a product not readily available in the Georgian market.
The Audit Committee has also recommended a review in 2017 of IT
Governance to assure us about the management of the Bank’s IT
operations and IT projects to ensure alignment with business needs
and cost efficiency. This will be conducted by Internal Audit with, if
necessary, an expert third-party consultant involved.
132 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC
Report on the financial statements
Our opinion
In our opinion:
• TBC Bank Group Plc’s Group financial statements and parent company financial statements (the “financial statements”) give a true and
fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2016 and of the Group’s profit and the Group’s
and the parent company’s cash flows for the period then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as
adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), comprise:
• the consolidated and separate statements of financial position as at 31 December 2016;
• the consolidated statement of profit or loss and other comprehensive income for the period then ended;
• the consolidated and separate statements of changes in equity for the period then ended;
• the consolidated and separate statements of cash flows for the period then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European
Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006, and
applicable law.
Our audit approach
Overview
Materiality
Audit scope
• Overall Group materiality: GEL 15.8 million which represents 5% of profit before tax.
• Our scoping was driven by legal entity contribution to profit and also by geographical location.
This approach also ensures that we align our resources with the location of the key financial reporting
functions and material operations of the Group. We also considered overall coverage in assessing the
appropriateness of our scoping.
Areas
of focus
The areas of focus for our audit which involved the greatest allocation of our resources and effort were:
• Loan impairment provisions.
• Business combinations.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to
provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this
context. This is not a complete list of all risks identified by our audit.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 133
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC continued
Area of focus
How our audit addressed the area of focus
Loan impairment provisions
Impairment provisions are a key judgement area
representing management’s best estimate of the credit
losses in the underlying loan portfolios. Determination
of the appropriate provisions involves complex
calculations and the effect of misstatement on the
financial statements could be material.
Loss provisions are calculated on a collective basis for
loan portfolios with similar characteristics, and this is
done mainly using statistical models driven by both
observable and management determined key inputs
such as probabilities of default (“PD”) and the loss given
default (“LGD”).
Individual impairment assessment is performed where
individually significant loans have unique characteristics
that require significant judgement at a loan level to
determine the present value of expected future cash
flows and any resulting shortfall.
We have identified the following key areas:
• Completeness of observed impaired loans and
appropriateness of the assumptions used to estimate
impairment events which have been incurred but not
observed; and
• Calculation of the required impairment provisions
based on estimated future cash flows, including the
use of models and the critical assumptions and
inputs used in those models.
Business combinations
TBC Bank Group Plc acquired JSC Bank Republic which
was the third largest bank in Georgia by net assets. Due
to the scale and complexity of the acquisition, a number
of significant judgements were made related to fair
value accounting and cost allocation as part of business
combination accounting. The key areas for us were:
• Appropriateness of key assumptions taken on
purchase price allocation to observable assets and
liabilities, in particular where there was limited
market information on the fair value resulting in the
use of models or accounting estimates to derive an
appropriate fair value; and
• Completeness of separately identifiable intangible
assets recorded as part of the business combination
and appropriateness of recorded goodwill assets.
We understood and tested the key controls which included:
• governance over the impairment provisioning process including models review
•
and approval, and key model drivers review and approval; and
identification of impairment events and all relevant loans showing indicators of
impairment including other indicators such as forbearance.
The key controls we tested were designed and implemented appropriately, and
found to be operating effectively, therefore we relied on these for the purposes of
our audit.
We performed the following substantive procedures in response to the key areas:
• tested management’s assessment and documentation of the consideration of
impairment triggers for key lending portfolios in accordance with the
accounting rules. We also assessed the procedures related to loan reviews and
tested the completeness of watchlist cases;
• tested individually significant exposures on a risk basis to assess the
appropriateness of incurred but not observed loan provisions for the Corporate
and SME portfolios;
• understood and tested the appropriateness of the loan provisioning
methodologies and their consistent application across the Group’s portfolios;
• tested key assumptions including the PDs and LGDs used in the calculations of
loan impairment provisions including performing sensitivity analysis to identify
higher risk assumptions where additional procedures were performed; and
• compared provisions against the historical performance and market data so as
to assess the estimation accuracy of the key models and consider completeness
of post model adjustments.
We understood and corroborated any material differences identified from our
procedures detailed above, and based on the evidence obtained we were satisfied
that the impairment model assumptions, data used within the models and overlays
to modelled outputs were reasonable.
We performed the following detailed substantive procedures in response to the key
areas identified:
• analysed the transaction in detail including verifying the change of control date,
reviewing underlying agreements and challenging whether it met the criteria
for a business combination under accounting rules;
• we made use of our internal valuation experts to critically assess the
methodologies and judgements made by the management expert to ensure
these were appropriate, correctly applied and in line with best industry
practice;
• we recalculated the fair values of certain assets and liabilities using bespoke
PwC models to gain comfort that the models and assumptions used by the
management expert were appropriate.
• our testing of management expert’s work covered their procedures performed
with respect to unrecorded intangible assets other than goodwill and we were
satisfied that the approach adopted and related assumptions were reasonable;
independently assessed the competence and objectivity of the management
expert. We were satisfied that management used a competent and objective
expert, and we also benchmarked the results of their work using reperformed
procedures done by our internal experts; and
•
• tested the final business combination accounting to ensure it was consistent
with the reviewed and approved expert’s report and in accordance with the
accounting rules.
Based on the evidence obtained we were satisfied that the key judgements applied
related to fair value accounting and purchase price allocation were reasonable.
134 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
TBC Bank Group operates banking and insurance activities in Eastern Europe, with operations in four countries with the significant
operations being based in Georgia. The Group comprises of 5 segments for which it manages and reports its operating results and financial
position, namely Retail Banking, Corporate Banking, Small and Medium Enterprises, Micro Entities and the Corporate Centre. JSC TBC Bank
is the largest subsidiary of the London listed Group. Its main operations are Retail and Commercial banking, with a small general leasing and
insurance business based in Georgia. Accounting functions and management of the Group are primarily in Georgia which represents 98% of
the Group assets and profit before tax.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the fact that trading activities are based outside of the UK with the Group accounting function being based in Georgia.
Our approach and team was also designed to reflect the structure of the Group and we used component auditors in PwC Georgia and
Azerbaijan who are familiar with the relevant businesses in their geographical locations to audit relevant components that were in scope for
the Group audit. As part of the planning and execution of the audit the UK audit team visited the most significant component, Georgia, to
ensure that the procedures performed to support the Group audit were sufficient for our purposes.
Specific audit procedures were also performed at the UK parent company mainly related to the presentation of the Group financial
statements, the consolidation process, taxation and elements of laws and regulation specific to the UK. Based on the procedures we
performed over the reporting units our audit scoping/coverage accounted for 95% of revenue and 96% of net assets of the Group.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
GEL 15.8 million
How we determined it
5% of profit before tax of the Group as reported, which reflects full year results including the period
prior to reorganisation.
Rationale for benchmark applied
We believe that profit before tax is the primary measure used by the shareholders in assessing the
performance of the Group, and is a generally accepted auditing benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above GEL 790,000 as well as
misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 94, in relation to going concern. We have nothing
to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors’
statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing
material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the Group
and parent financial statements. The going concern basis presumes that the Group and parent company have adequate resources to remain in
operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our
audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions
can be predicted, these statements are not a guarantee as to the Group’s and parent company’s ability to continue as a going concern.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 135
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC continued
Other required reporting
Consistency of other information and compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group, the parent company and their environment obtained in the course of the
audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have
nothing to report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
•
information in the Annual Report is:
– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group
and parent company acquired in the course of performing our audit; or
We have no exceptions
to report.
– otherwise misleading.
• the statement given by the directors on page 95, in accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced
and understandable and provides the information necessary for members to assess the Group’s and parent
company’s position and performance, business model and strategy is materially inconsistent with our
knowledge of the Group and parent company acquired in the course of performing our audit.
We have no exceptions
to report.
• the section of the Annual Report on page 127, as required by provision C.3.8 of the Code, describing the work
of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
We have no exceptions
to report.
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
• the directors’ confirmation in the Annual Report, in accordance with provision C.2.1 of the Code, that they have
carried out a robust assessment of the principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity.
We have nothing
material to add or to
draw attention to.
• the disclosures in the Annual Report that describe those risks and explain how they are being managed
or mitigated.
• the directors’ explanation on page 95 of the Annual Report, in accordance with provision C.2.2 of the Code, as to
how they have assessed the prospects of the Group, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing
material to add or to
draw attention to.
We have nothing
material to add or to
draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that
the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the
knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
136 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Directors’ remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by
law are not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the
Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 95, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 137
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC continued
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements,
and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable
basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a
combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we consider whether those reports
include the disclosures required by applicable legal requirements.
Jeremy Foster (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
31 March 2017
138 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
SEPARATE STATEMENT OF FINANCIAL POSITION
In thousands of GEL
ASSETS
Cash and cash equivalents
Investment in Subsidiaries
Due from other banks
Loans and advances to customers
Other financial assets
Other assets
TOTAL ASSETS
LIABILITIES
Other financial liabilities
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Retained earnings
Loss for the period
Other reserves
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
31 December
2016
Notes
399
1,424,066
2,320
2,000
303
4
1,429,092
165
165
25
25
1,581
677,211
745,638
(385)
4,882
1,428,927
1,429,092
The financial statements on pages 139 to 223 were approved by the Board, and signed on behalf of the Board on 31 March 2017 by:
Vakhtang Butskhrikidze
Chief Executive Officer
Giorgi Shagidze
Chief Financial Officer
The notes set out on pages 146 to 223 form an integral part of these financial statements.
Registered No. 10029943.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 139
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
SEPARATE STATEMENT OF CHANGES IN EQUITY
In thousands of GEL
Balance as of 26 February 2016
Loss for the period
Other comprehensive income
Total comprehensive income for 2016
Merger relief and capital reduction
Share issue
Share based payment accrual
Balance as of 31 December 2016
Note
Share
capital
Share
premium
Other
reserves
Retained
earnings
Total equity
–
–
–
–
–
–
–
–
–
–
–
–
–
(385)
–
(385)
–
(385)
–
(385)
25
25
26
1,494
87
–
565,030
112,181
–
–
–
4,882
745,638 1,312,162
112,268
4,882
–
–
1,581
677,211
4,882
745,253 1,428,927
The notes set out on pages 146 to 223 form an integral part of these financial statements.
140 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
SEPARATE STATEMENT OF CASH FLOWS
In thousands of GEL
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Fees and commissions paid
Salaries and other employee benefits paid
Administrative and other operating expenses paid
Cash flows from operating activities before changes in operating assets and liabilities
Net change in operating assets
Other financial assets
Other assets
Net change in operating liabilities
Other financial liabilities
Net cash used in operating activities
Cash flows from investing activities
Acquisition of subsidiaries
Proceeds from disposal of associate*
Net cash used in investing activities
Cash flows from financing activities
Capital contributions to subsidiaries other than through issuance of shares
Issue of loans to subsidiary
Placement of deposit
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at incorporation
Cash and cash equivalents at the end of the year
* The amount of proceeds from disposal of associate is attributable to sale of minority share of JSC Bank Republic by TBCG to JSC TBC Bank.
The notes set out on pages 146 to 223 form an integral part of these financial statements.
Note
2016
1,149
(32)
–
(1)
(631)
(890)
(405)
(167)
(4)
165
(411)
(3,423)
112,269
108,846
(103,600)
(2,000)
(2,320)
(107,920)
(116)
399
–
399
44
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 141
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CONSOLIDATED STATEMENT 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 amortized 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
Group reorganisation reserve
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
Notes
31 December
2016
31 December
2015
31 December
2014
6
7
8
9
10
11
13
16
34
12
14
15
15
17
18
19
22
20
34
21
23
24
25
25
25
26
38
945,180
24,725
990,642
7,133,702
430,703
372,956
95,031
95,615
7,430
3,511
94,627
171,263
314,032
60,957
28,658
720,347
11,042
471,490
4,444,886
307,310
372,092
75,760
57,600
9,856
1,546
64,317
103,912
247,767
44,344
2,726
532,118
33,704
336,075
3,556,496
466,510
–
50,907
76,216
251
383
43,857
77,775
208,692
37,756
2,726
10,769,032
6,934,995
5,423,466
2,197,577
6,454,949
50,998
2,577
23,508
5,646
16,026
66,739
368,381
1,113,574
4,177,931
39,435
912
21,714
29,244
9,461
40,627
283,648
749,285
3,322,428
41,346
12,433
20,423
23,187
11,898
34,975
188,015
9,186,401
5,716,546
4,403,990
1,581
677,211
955,173
(162,166)
23,327
70,460
(3,681)
(7,538)
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
1,554,367
28,264
1,211,260
7,189
1,012,105
7,371
1,582,631
1,218,449
1,019,476
10,769,032
6,934,995
5,423,466
The financial statements on pages 139 to 223 were approved by the Board, and signed on behalf of the Board on 31 March 2017 by:
Vakhtang Butskhrikidze
Chief Executive Officer
Giorgi Shagidze
Chief Financial Officer
The notes set out on pages 146 to 223 form an integral part of these financial statements.
142 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
CONSOLIDATED STATEMENT 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
Net insurance premiums earned
Net insurance claims incurred
Insurance Profit
Net gains from trading in foreign currencies
Net gain/(losses) from foreign exchange translation
Net losses from derivative financial instruments
Net gains from disposal of available for sale investment securities
Other operating income
Other operating non-interest income
Provision for loan impairment
Provision for impairment of investments in finance lease
(Provision for)/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
Gains less losses recycled to profit or loss upon disposal
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
The notes set out on pages 146 to 223 form an integral part of these financial statements.
Notes
2016
2015
2014
29
29
30
30
31
9
13
21
12
766,426
(275,973)
649,059
(236,885)
512,357
(173,709)
490,453
412,174
338,648
142,800
(52,532)
113,837
(41,546)
88,203
(29,523)
90,268
72,291
58,680
1,222
(966)
256
70,269
(2,507)
(206)
9,293
23,236
–
–
–
–
–
–
64,642
2,579
(575)
–
25,883
39,730
2,359
(683)
–
19,600
100,085
92,529
61,006
(49,202)
(558)
(771)
(2,853)
(11)
(72,791)
(967)
1,117
(3,351)
–
(48,672)
(77)
902
(1,236)
(22)
627,667
501,002
409,229
32
15,16
21
33
(172,221)
(28,082)
(2,210)
(109,475)
(142,777)
(26,286)
(1,102)
(82,964)
(122,835)
(24,427)
(5,500)
(73,548)
(311,988)
(253,129)
(226,310)
315,679
247,873
182,919
34
(17,421)
(29,176)
(24,468)
298,258
218,697
158,451
10
34
34
522
(11,611)
(948)
1,649
(2,436)
–
(12,075)
(479)
(1,849)
–
2,095
(192)
–
10,928
28,755
(4,319)
540
9,446
–
–
54
298,798
228,143
158,505
299,145
(887)
218,879
(182)
157,451
1,000
298,258
218,697
158,451
299,685
(887)
228,325
(182)
157,505
1,000
298,798
228,143
158,505
27
27
6.0
5.9
4.4
4.4
3.4
3.4
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 143
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
In thousands of GEL
Note
Net assets Attributable to owners
Group
reorganisation
reserve
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
Share
capital
Share
premium
16,499 242,624
–
–
–
–
–
–
3,077 172,493
–
–
–
–
–
–
(9,459)
–
–
–
19,576 405,658
–
–
–
–
–
–
–
–
–
1,419
12
–
(1)
416
–
(19)
19,587 407,474
–
–
–
–
–
–
25
26
26
Balance as of
1 January 2014
Profit for the year
Other comprehensive
income
Total comprehensive
income for 2014
Share issue
Share based payment
accrual
Transaction costs
recognized directly in
equity
Purchase of additional
interest from
minority shareholders
Dividends declared
Transfer of revaluation
surplus to retained
earnings
Balance as of
31 December 2014
Profit for the year
Other comprehensive
income
Total comprehensive
income for 2015
Share based payment
accrual
Transaction costs
recognized
directly in equity
Increase in share
capital arising from
share based payment
Dividends declared
Treasury shares returned
Balance as of
31 December 2015
Profit for the year
Other comprehensive
income
Total comprehensive
income for 2016
Share issue
Share based payment
accrual
Change of parent
company to TBCG
Increase in share
capital arising from
share based payment
Dividends declared
Purchase and
cancellation of
subsidiary shares
Balance as of
31 December 2016
87 112,182
26
–
–
25
(18,129) 156,380
(162,166)
–
36
–
–
1,175
–
–
–
–
–
(1,211)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,032
36,735
10,716
3,389 402,627
714,622
14,667
729,289
–
–
–
–
2,592
–
–
–
–
–
–
–
–
–
–
89
–
(1,728)
–
–
157,451
157,451
1,000
158,451
(2,041)
2,095
–
54
–
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
4,624
35,096
8,675
5,484 532,992
1,012,105
7,371
1,019,476
–
–
–
8,559
–
(428)
–
–
–
–
– 218,879
218,879
(182)
218,697
24,436
(2,916)
(12,074)
–
9,446
–
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)
12,755
59,532
5,759
(6,590) 712,743
1,211,260
7,189 1,218,449
–
–
–
–
11,783
–
–
–
299,145
299,145
(887)
298,258
10,928
(9,440)
(948)
–
540
–
540
10,928
(9,440)
(948) 299,145
299,685
(887)
298,798
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
112,269
11,783
–
–
112,269
11,783
(23,915)
23,915
–
–
(55,162)
–
(55,162)
–
–
–
(55,162)
(1,553)
(1,553)
(1,953)
(3,506)
1,581 677,211
(162,166)
23,327
70,460
(3,681)
(7,538) 955,173 1,554,367
28,264 1,582,631
The notes set out on pages 146 to 223 form an integral part of these financial statements.
144 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands of GEL
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Fees and commissions paid
Insurance premium received
Insurance claims 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
2016
2015
2014
735,705
(273,795)
144,247
(52,154)
1,591
(703)
70,411
8,411
(148,656)
(104,077)
(34,279)
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)
Cash flows from operating activities before changes in operating assets and liabilities
346,701
289,236
233,092
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment in finance lease
Other financial assets
Other assets
Net change in operating liabilities
Due to other banks
Customer accounts
Other financial liabilities
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 subsidiaries, net of cash acquired
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
Acquisition of non-controlling interest in subsidiary
Issue of ordinary shares
Transaction costs recognized directly in equity
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase 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
The notes set out on pages 146 to 223 form an integral part of these financial statements.
(448,582)
(1,219,501)
(11,687)
(22,965)
(843)
(72,453)
(364,896)
(12,994)
(13,198)
7,159
(61,192)
(686,746)
(11,889)
593
11,056
265,679
1,150,146
5,724
332
(17,351)
249,598
(415)
1,341
39,539
336,631
10,919
(5,187)
65,004
66,027
(133,184)
10
10
10
44
15
(143,980)
11,868
166,871
(91,404)
(304,109)
314,231
(50,689)
1,273
7,822
(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
(88,117)
(224,321)
17,345
903,502
(666,156)
136,817
(90,416)
4,354
(4,636)
(54,560)
(3,495)
–
–
582,198
(310,267)
60,510
(16,763)
–
–
(39,128)
–
–
–
370,124
(252,693)
6,000
–
19,334
(4,474)
(26,492)
(10,923)
175,570
(9,458)
225,410
276,550
266,988
22,536
69,973
(9,496)
224,833
720,347
188,229
532,118
141,653
390,465
945,180
720,347
532,118
6
6
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 145
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2016
1 Introduction
Principal activity. JSC TBC Bank (hereafter 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.
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 been operating since 20 January 1993 under a general banking license issued by the
National Bank of the Georgia (“NBG”). The Bank’s registered address and place of business is 7 Marjanishvili Street, 0102 Tbilisi, Georgia.
The Bank has 120 (2015: 128; 2014: 59) branches within Georgia. In 2015,the significant increase in the number of branches is due to the
merger of the Bank with its subsidiary, JSC Bank Constanta. The merger was concluded in January 2015. During 2016 the Group acquired
JSC Bank Republic, which has 41 branches as of 31 December 2016 not included in number of branches above.
On 1 June 2016, TBC Bank Group PLC (“TBCG”), a public limited liability company, incorporated in England and Wales on 26 February 2016,
launched the Tender Offer (the “Tender Offer”) to exchange its entire ordinary share capital for an equivalent number of the Bank’s ordinary
shares and thus to acquire the entire issued share capital, including those shares represented by Global Depositary Receipts (“GDRs”), of the
Bank. Following the successful completion of the Tender Offer on 4 August 2016, as of 31 December 2016 TBCG holds 98.48% of the share
capital of the Bank, thus representing the Bank’s ultimate parent company. Together with the Bank and subsidiaries, TBCG makes up a group
of companies (hereafter the “Group”). The Bank is a parent of a group of companies incorporated in Georgia and Azerbaijan, their primary
business activities include providing banking, leasing, brokerage and card processing services to corporate and individual customers.
The Group’s list of companies is provided in Note 2.
The shares of TBCG (“TBCG Shares”) were admitted to the Premium Listing segment of the Official List of the UK Listing Authority and
admitted to trading on the London Stock Exchange PLC’s Main Market for listed securities effective on 10 August 2016 (the “Admission”,
Note 25). The Bank is the Group’s main operating unit and it accounts for most of the Group’s activities.
TBC Bank Group PLC’s registered legal address is St. Andrew 6, London, United Kingdom EC4A3AE. Registered number of TBC Group PLC
is 10029943.
As of 31 December 2016, 31 December 2015 and 31 December 2014, the following shareholders directly owned more than 5% of the total
outstanding shares of the Group. Other shareholders individually owned less than 5% of the outstanding shares. As of 31 December 2016,
31 December 2015 and 31 December 2014 the Group had no ultimate controlling party.
Shareholders
Bank of New York (Nominees), Limited*
TBC Holdings LTD
European Bank for Reconstruction and Development
JPMorgan Asset Management
Schroder Investment Management
Dunross & Co.
Liquid Crystal International N.V. LLC
Societe Generale SA
Other**
Total
Note
25
% of ownership interest held as of
31 December
2016
–
15%
12%
7%
7%
6%
5%
5%
43%
2015
71%
16%
–
–
–
–
5%
–
8%
2014
71%
16%
–
–
–
–
5%
–
8%
100%
100%
100%
In 2015 and 2014 all GDR holders’ interests were held through Bank of New York (Nominees), Limited (the custodian).
*
** Other includes individual as well as corporate shareholders
As a result of the conversion of the Bank’s shares into TBCG shares as described above and following the cancellation of GDR Programme in
October 2016, the Group has no GDRs outstanding as of 31 December 2016.
Presentation currency. These consolidated financial statements are presented in thousands of Georgian Lari (“GEL thousands”), unless
otherwise indicated.
146 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2 Summary of Significant Accounting Policies
Basis of preparation. The separate financial statements have been prepared from the date of incorporation of TBC Bank Group PLC to
31 December 2016. In accordance with the exemption permitted under section 408 of the Companies Act 2006, the standalone statement
of comprehensive income of TBCG is not presented as part of these accounts. These consolidated financial statements are prepared as
if the Group is a continuation of the pre-existing group of companies with the Bank as its ultimate parent. Comparative financial statements
as of 31 December 2015 and 31 December 2014 are those of the group of companies consolidated, with the Bank as its ultimate parent.
The consolidated financial statements of the Group and the separate financial statements of TBC Bank Group PLC, have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and the Companies Act 2006
applicable to companies reporting under IFRS. The consolidated and separate financial statements have been prepared 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 the consolidated and separate financial statements are set out below. These policies have been consistently applied to all the
periods presented, unless otherwise stated (refer to Note 3).
Going Concern. The Board of Directors of TBC Bank Group PLC has prepared these financial statements on a going concern basis. In making
this judgement the management considered the Group’s financial position, current intentions, profitability of operations and access to
financial resources, and it analysed the impact of the recent financial crisis on future operations of the Group. The management is not aware
of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern.
Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls because it (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 the majority of voting power in it. 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 TBC Bank Group PLC holds 98.48% of the Bank as of 31 December 2016. The consolidated financial statements include the following
principal subsidiaries:
Company Name
JSC TBC Bank
Bank Republic Group
Ltd Merckhali Pirveli
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
JSC TBC Insurance
Proportion of voting rights and ordinary share
capital held as of 31 December
2016
2015
2014
Principal place of
business or
incorporation
Year of
incorporation
Industry
98.48%
100%
100%
98.67%
100%
99.61%
75%
100%
100%
100%
100%
–
100%
100%
–
–
–
98.67%
100%
99.57%
75%
100%
100%
100%
100%
–
100%
–
–
–
–
98.67%
100%
99.48%
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
75% Baku, Azerbaijan
Tbilisi, Georgia
100%
Tbilisi, Georgia
100%
100%
Tbilisi, Georgia
100% Ramat Gan, Israel
Tbilisi, Georgia
100%
Tbilisi, Georgia
100%
Tbilisi, Georgia
–
Banking
1992
Banking
1992
Operating leasing
2009
Card processing
1997
Brokerage
1999
2003
Leasing
2008 Non-banking credit institution
2009
2009
2010
2011
2011
2011
2014
Information services
Processing
Real estate management
PR and marketing
Financial institution
Real estate management
Insurance
The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries. On 21 January 2015 the
Group completed the legal and operational process of merging JSC Bank Constanta with TBC Bank.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 147
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
2 Summary of Significant Accounting Policies continued
The Group’s corporate structure consists of a number of related undertakings, comprising subsidiaries and associates, which are not
consolidated due to immateriality. A full list of these undertakings, the country of incorporation and the ownership of each share class is set
out below.
Company Name
UFC International Ltd
TBC Capital B.V.
TBC Invest International Ltd
University Development Fund
Ltd Georgian Mill Company
Proportion of voting rights and ordinary share
capital held as of 31 December
2016
2015
2014
Principal place of
business or incorporation
Year of
incorporation
80%
90%
100%
33.33%
100%
80%
90%
–
33.33%
–
80%
British Virgin Islands
90% Amsterdam, Netherlands
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
–
33.33%
–
2001
2007
2016
2007
2010
Industry
Investment Vehicle
Investment Vehicle
Investment Vehicle
Education
Manufacturing
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the
consideration, including contingent consideration, given at the date of exchange. Acquisition-related costs are recognised as an expense in
the income statement in the period in which they are incurred. 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 interest1.
The Group measures the non-controlling interest that represents the current ownership’s 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 acquired entity. Non-controlling interests that are not present ownership interests are measured at
fair value.
Goodwill is measured by deducting the acquiree’s net assets 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 the 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 acquiree 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 the 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 that 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 the price in an active market. An active market is one in which
transactions for the asset or the liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
The 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 owned 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.
148 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2 Summary of Significant Accounting Policies continued
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 (ie an asset) for
a particular risk exposure or paid to transfer a net short position (ie 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 in case 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 the 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 solely based on 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 41.
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 the 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 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 the 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 the transaction costs. Fair value at
initial recognition is best evidenced by the transaction price. A gain or a loss on initial recognition is only recorded if there is a difference
between the fair value and the 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 set 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.
Derecognition 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.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 149
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
2 Summary of Significant Accounting Policies continued
Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and 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 the Group’s transfers of cash and cash equivalents, 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.
Mandatory cash balances with the National Bank of Georgia. Mandatory cash balances with the National Bank of Georgia (NBG) are carried
at amortised cost and represent mandatory reserve deposits that are not available to finance the Group’s day to day operations. Hence they
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 recognized 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”) arising 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 the 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. The lender provides funds to the 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, by contract, the right 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 amortized cost reclassified to repurchase receivables
continue to be carried at fair value or amortized cost respectively in accordance with the 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 financial assets are renegotiated and the renegotiated terms and conditions differ substantially from the previous terms, financial
asset is derecognised and the new asset is initially recognised at its fair value.
150 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2 Summary of Significant Accounting Policies continued
Bonds carried at amortized cost. Investment securities that the Group intends to hold for an indefinite period and that 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 loans and receivables rather than held to maturity
investments. These securities are presented in the balance sheet under caption bonds carried at amortised cost.
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 happened 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 Group
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.
If there is evidence that an impairment loss event on significant credit exposures has been incurred, the Bank assesses the borrowers 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 to assess 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 there is no objective evidence that an individually assessed financial asset incurred in impairment 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 the following risk parameters:
probability of default, cure rate, recovery rate, survival rate and loss give default, based on historical experience. In case of a change in either
the internal or external environment and historical data no longer reflect the current situation, the Bank adjusts risk parameters on the basis
of current observable data to reflect the effects of present conditions that did not affect past periods, and to remove the effects of past
conditions that do no longer exist.
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.
The Bank reverses previously recognised impairment loss if, once identified, 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 to settle 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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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 151
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
2 Summary of Significant Accounting Policies continued
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 commitments, except for those 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 sheet at initiation. Fee income is recognized 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. This is 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 a 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 this case the increase is recognized in profit
or loss to the extent of the decrease previously charged. A revaluation deficit is recognized in profit or loss, except that a deficit directly
offsetting a previous surplus on the same asset is recognized 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. Costs 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.
152 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2 Summary of Significant Accounting Policies continued
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
The term of the underlying lease or if not defined, not more than 7 years
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 was 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 that the Groups owns to earn rental income or for capital appreciation, or both, and
that it does not occupy.
Investment property is stated at cost less accumulated depreciation and provision for impairment, where required. It is amortised on a
straight line basis over an expected useful life of 30 to 50 years. In case of any indication that the 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 licenses.
Acquired computer software licenses 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 2 to 15 years.
Finance lease receivables (Investment in finance lease). Where the Group is a lessor in a lease that substantially transfers all 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 early 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.
Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that took place 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 recognizes receivables from terminated contracts at the moment of lease contract
termination. These receivables are recognized 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.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 153
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
2 Summary of Significant Accounting Policies continued
Prepayment for purchase of leasing assets. Prepayment for purchase of leasing assets comprises of interest bearing advance payments
made to purchase assets for transfer into leases. Such advances are accounted for at amortized cost less impairment. On commencement of
the leases, advances towards lease contracts are transferred into net investment in finance lease.
Insurance and reinsurance receivables. Insurance and reinsurance receivables are recognised based on insurance policy terms and measured
at cost. The carrying value of insurance and reinsurance receivables is reviewed for impairment whenever events or circumstances indicate that
the carrying amount may not be recoverable, with any impairment loss recorded in the consolidated statement of income. Reinsurance receivables
primarily include balances due from both insurance and reinsurance companies for ceded insurance liabilities. Insurance premiums are recognised
as revenue (earned premiums) proportionally over the period of coverage of respective insurance contracts. Premiums are shown before deduction
of commission and are gross of any taxes or duties levied on premiums. Amounts due to reinsurers are estimated in a manner consistent with the
associated reinsured policies and in accordance with the reinsurance contract. Premiums ceded and claims reimbursed are presented on a gross
basis.
An impairment review is performed on all reinsurance assets when an indication of impairment occurs. Reinsurance receivables are
impaired only if there is objective evidence that the Group may not receive all amounts due to it under the terms of the contract that this can
be measured reliably.
Liability adequacy test. Liability adequacy tests are performed at each balance sheet date to ensure the adequacy of recognised insurance
liabilities net of related deferred acquisition costs. In performing the tests, current best estimates of future contractual cash flows, claims
handling and administration costs in respect of claims, as well as investment income from assets backing such liabilities, are used. Where
tests highlight a deficiency, insurance liabilities are increased with any deficiency being recognised in the consolidated statement of
comprehensive income.
Due to credit institutions. Amount due to credit institutions are recorded when counterparty banks advance money or other assets to the
Group. 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 the Bank’s “tier 2 capital.
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 are provided 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 of 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 tax 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.
154 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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 that is not
deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of reporting period
that are expected to apply to the extent of time 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 the management at the end of each reporting period.
Liabilities are recorded for income tax positions that are determined by the 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 the 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. As part of interest income or expense this method defers,, 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 that 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.
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, that 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.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 155
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
2 Summary of Significant Accounting Policies continued
Foreign currency translation. The Group’s presentation currency is the Georgian Lari. TBCG’s and the Bank’s functional currency is the
Georgian Lari. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in
which the entity operates. Transactions in foreign currencies are initially recorded in the functional currency, converted at the rate of
exchange ruling at the date of the transaction.
Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the territories where 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.
The 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.
After losing control over a foreign operation, 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 2016 the closing rate of exchange used for translating foreign currency balances was GBP 1 =
3.2579 (2015: GBP 1 = GEL 3.5492; 2014: GBP 1 = GEL 2.8932); USD 1 = 2.6468 (2015: USD 1 = GEL 2.3949; 2014: USD 1 = GEL 1.8636); EUR 1 =
2.7940 (2015: EUR 1 = GEL 2.6169; 2014: EUR 1 = GEL 2.2656).
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 Group’s employees.
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.
Share based payments. A 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 the share-based compensation plan the Group receives
services from the 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 the 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 the 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 scheme 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.
156 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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 the management’s experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The 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:
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 conclude whether there is, or not, any observable data indicating 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. When scheduling future cash flows the
management uses estimates based on historical loss experience for assets with similar credit risk characteristics. 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 11,251 thousand (2015: GEL 9,707 thousand; 2014: GEL 7,488 thousand) and additional
charge for impairment of finance lease receivables of GEL 57 thousand (2015: GEL 37 thousand; 2014: GEL 10 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 2,701 thousand
(2015: GEL 3,677 thousand; 2014: GEL 2,081 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 9 thousand (2015: GEL 2 thousand ; 2014: GEL 2 thousand), respectively.
Fair value of financial instruments. Where the fair values of financial assets and financial liabilities recorded in the consolidated statement
of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use
of mathematical models. The inputs to these models employ observable market data. However, certain financial instruments are valued on
the basis of valuation techniques featuring one or more significant market inputs that are unobservable, and for them the measurement of
fair value is more judgemental.
Tax legislation. The Group is subject to corporate income taxes in several jurisdictions and the calculation of the Group’s tax charge and
provisions for corporate income taxes necessarily involves a degree of estimation and judgement. Refer to Note 34.
Deferred and current income tax. On 13 May 2016 the Government of Georgia enacted the changes in the Tax Code of Georgia effective from
1 January 2019, for commercial banks, credit unions, insurance organizations, microfinance organizations and pawnshops and from
1 January 2017 for other entities. The new code impacts the recognition and measurement principles of the Group’s income tax and it also
affects the Group’s deferred income tax assets/liabilities. Companies do not have to pay income tax on their profit before tax (earned since
1 January 2017 or 1 January 2019 for commercial banks, credit unions, insurance organizations, microfinance organizations and pawnshops)
until that profit is distributed in a form of dividend or other forms of profit distributions. Once dividend is paid, 15% income tax is payable at
the moment of the dividend payment, regardless of whether in monetary or non-monetary form, to the foreign non-resident legal entities and
foreign and domestic individuals. The dividends paid out to the resident legal entities are tax exempted. Apart from dividends’ distribution,
the tax is still payable on expenses or other payments incurred not related to economic activities, free delivery of goods/services and/or
transfer of funds and representation costs that exceed the maximum amount determined by the Income Tax Code of Georgia, in the same
month they are incurred.
As of 31 December 2016, deferred tax assets/liabilities are re-measured to the amounts that are estimated to be utilized in the period from
1 January 2017 to 31 December 2018.
4 Adoption of New or Revised Standards and Interpretations
The adopted accounting policies are consistent with those of the previous financial year. There were no new or amended standards or
interpretations that resulted in a change of the accounting policy.
5 New Accounting Pronouncements
Minor amendments to IFRSs
The IASB has published a number of minor amendments some of which has not yet been endorsed for use in the EU. The Group has not early
adopted any of the amendments effective after 31 December 2016 and it expects they will have an insignificant effect, when adopted, on the
consolidated financial statements of the Group and the separate financial statements of TBC Bank Group PLC.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 157
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
5 New Accounting Pronouncements continued
Major new IFRSs
The IASB has published IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’. IFRS 9 and
IFRS 15 have been endorsed for use in the EU and IFRS 16 has not yet been endorsed.
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: (i) those to be measured subsequently at amortised
cost, (ii) those to be measured subsequently at fair value through other comprehensive income (FVOCI) and (iii) those to be measured
subsequently at fair value through profit or loss (FVPL).
• The 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 in line with 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.
Investments in equity instruments are always measured at fair value. However, the 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 difference 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). In case of 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 more closely the accounting with the 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 recognized 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 recognized, 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 recognized if they
are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalized and amortized 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.
IFRS 16, Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets
out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to
use an asset at the start of the lease and, if lease payments are made over time, also to access financing. Accordingly, IFRS 16 eliminates the
classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting
model. Lessees will be required to recognize: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying
asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16
substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating
leases or finance leases, and to account for those two types of leases differently. The Group is currently assessing the impact of the new
standard on its financial statements.
158 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
6 Cash and Cash Equivalents
In thousands of GEL
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
Total cash and cash equivalents
2016
2015
2014
402,532
135,557
406,319
772
320,363
121,494
219,275
59,215
202,384
138,396
100,305
91,033
945,180
720,347
532,118
96% of the correspondent accounts and overnight placements with other banks are placed with OECD banking institutions
(31 December 2015: 91%; 31 December 2014: 92%).
As of 31 December 2016 GEL 773 thousand was placed on interbank term deposits with one OECD bank (31 December 2015: GEL 59,215 thousand
with four non-OECD banks; 31 December 2014: GEL 91,033 thousand with eight non-OECD banks).
Interest rate analysis of cash and cash equivalents is disclosed in Note 35.
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
Not rated
Total
2016
2015
2014
78,324
258,025
27,997
–
23,174
464
1,147
3,039
2,288
11,861
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
406,319
219,275
100,305
Credit rating of placements with and receivables from other banks with original maturities of less than three months stands as follows:
In thousands of GEL
A
BB
BB-
B
Not rated
Total
2016
2015
2014
772
–
–
–
–
772
–
–
–
23,769
35,446
–
89,165
1,868
–
–
59,215
91,033
The table illustrates the ratings by international agencies Standard & Poor’s and Fitch Ratings. When different credit ratings are designated
by the agencies, the highest designated rating for this asset is used.
As of 31 December 2016 there were no investment securities held as collateral against placements with other banks under the reverse repo
agreements (31 December 2015: GEL 50,200 thousand, 2014: GEL nil).
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
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I
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A
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 159
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
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 2016, 2015 and 2014.
Credit ratings of placements with other banks with original maturities of more than three months were as follows:
In thousands of GEL
A
BBB+
BBB
BB+
BB-
B
Not rated
Total
2016
2015
2014
13,210
79
5,541
–
801
5,073
21
7,975
72
–
–
1,507
1,268
220
3,839
56
–
15,924
–
5,970
7,915
24,725
11,042
33,704
As of 31 December 2016 the Group did not have placements with any bank, with original maturities of more than three months and with
aggregated amounts above GEL 5,000 thousand (2015: nil; 2014: 3). The total aggregated amount of these placements was GEL 29,179
thousand as of 31 December 2014.
As of 31 December 2016 GEL 19,511 thousand, (2015: GEL 8,711 thousand; 2014: GEL 4,525 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 41 for the estimated fair
value of amounts due from other banks. Interest rate analysis of due from other banks is disclosed in Note 35.
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 0.5% annual interest on the mandatory reserve with the NBG in 2016. The Group did not earn annual
interest on the mandatory reserve with the NBG for year ended 31 December 2015 and 31 December 2014.
In September 2016 Fitch Ratings re-affirmed Georgia’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BB-’ with Stable
Outlooks. The issue ratings on Georgia’s senior unsecured foreign- and local-currency bonds are also affirmed at ‘BB-’. The Country Ceiling
is affirmed at ‘BB’ and the Short-term foreign-currency IDR at ‘B’.
2016
2015
2014
2,060,172
1,663,550
1,811,695
857,552
677,746
288,010
1,231,729
1,500,104
781,043
871,996
716,868
905,274
533,919
625,628
273,699
493,328
169,002
242,699
7,358,725 4,639,029 3,706,260
(149,764)
(225,023)
(194,143)
7,133,702 4,444,886 3,556,496
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
Total loans and advances to customers
Consumer loans include as well card loans, overdrafts, express, fast loans and other consumer loans.
160 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
9 Loans and Advances to Customers continued
As of 31 December 2016 loans and advances to customers carried at GEL 120,093 thousand have been pledged to local banks or other
financial institutions as collateral with respect to other borrowed funds (2015: GEL 34,012 thousand; 2014: GEL 46,182).
Movements in the provision for loan impairment during 2016 are as follows:
In thousands of GEL
Corporate
loans
Consumer
loans
Mortgage
loans
Small and
medium
enterprises
Micro loans
Other
Total
Provision for loan impairment as of 1 January 2016
Total provision for impairment during the year:
108,050
(12,440)
40,408
52,472
13,135
15,108
12,506
18,792
18,019
32,942
2,025
(1,102)
194,143
105,772
Provision for impairment (credited)/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
(49,548)
37,108
(6,109)
–
45,365
7,107
(33,537)
(43)
12,572
2,536
(4,580)
(60)
15,774
3,018
(7,896)
(224)
26,141
6,801
(22,443)
–
(1,102)
–
–
–
49,202
56,570
(74,565)
(327)
Provision for loan impairment as of 31 December 2016
89,501
59,300
23,603
23,178
28,518
923
225,023
Loans and advances to customers written off in 2016 included loans to customers in the gross amount of GEL 9,830 thousand issued in 2016,
a previously issued performance guarantee of GEL 0.14 thousand which was transformed into loan in 2016 and GEL 64,735 thousand issued in
previous years.
At year-end 2016 the Bank updated its methodology for loan loss provisioning purposes to include impairment assessment of acquired
portfolios. As per the upgraded methodology, an impairment allowance is not created on the initial recognition of purchased portfolio
considering that expected losses are reflected in fair value of the portfolio. For the next reporting periods, the impairment allowance is
recognised if the incurred losses at the reporting date have increased compared to the level of incurred losses at the moment of acquisition.
Movements in the provision for loan impairment during 2015 were as follows:
In thousands of GEL
Provision for loan impairment as of 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 as of 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 in 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 previous years.
The Bank applies updated provisioning methodology since year-end 2015. The updated methodology enables the Bank to assess impairment
allowances in an accurate manner, given granular segmentation of the portfolio and the various risk parameters applied.
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 GEL2 million or more are regarded as
significant and assessed individually for impairment. In order to calculate the impairment allowance for collectively assessed loan pools,
the certain risk parameters are estimated, based on various statistical models.
Following the merger of Constanta Bank with TBC Bank, the Group has reassessed the segment definition as disclosed in Note 28. A few
clients were reallocated to different segments. Relevant changes in the provision groups are highlighted in the table above under “Post-
merger classification effect”.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
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A
L
I
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F
O
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A
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 161
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
9 Loans and Advances to Customers continued
Movements in the provision for loan impairment during 2014 are as follows:
In thousands of GEL
Provision for loan impairment as of 1 January 2014
Total provision for/(recovery of) impairment during the
Corporate
loans
Consumer
loans
Mortgage
loans
Small and
medium
enterprises
Micro loans
Other
Total
107,666
31,704
8,292
4,315
4,892
–
156,869
year:
29,461
26,886
3,323
4,173
8,263
36
72,142
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
18,995
10,466
(45,901)
20,362
6,524
(21,837)
Provision for loan impairment as of 31 December 2014
91,226
36,753
1,666
1,657
(2,726)
8,889
1,625
2,548
(3,200)
6,006
2,257
(5,547)
18
18
(36)
48,672
23,470
(79,247)
5,288
7,608
–
149,764
Loans and advances to customers written off in 2014 included loans to customers in the gross amount of GEL 7,142 thousand issued in 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.
For terms of loans and advances to related parties, impairment provisions made against those loans and amounts written off in course of the
year refer to Note 43.
Economic sector risk concentrations within the customer loan portfolio are as follows:
In thousands of GEL
Individual
Energy & Utilities
Trade
Hospitality & Leisure
Pawn Shops
Food Industry
Real Estate
Agriculture
Construction
Financial Services
Healthcare
Automotive
Services
Transportation
Metals and Mining
Communication
Other
31 December 2016
31 December 2015
31 December 2014
Amount
%
Amount
%
Amount
3,721,450
540,116
447,541
319,497
305,031
301,290
252,112
212,148
210,888
188,646
182,131
144,157
109,187
89,467
62,464
45,864
226,736
51% 2,039,612
333,172
7%
232,599
6%
266,917
4%
260,373
4%
255,795
4%
222,235
3%
157,193
3%
100,680
3%
85,926
3%
131,276
3%
109,556
2%
60,340
1%
61,432
1%
75,785
1%
114,401
1%
131,737
3%
44% 1,497,911
318,911
117,703
110,153
169,002
209,358
166,733
197,487
92,683
77,297
146,452
96,413
189,762
64,720
62,875
94,991
93,809
7%
5%
6%
6%
6%
5%
3%
2%
2%
3%
2%
1%
1%
2%
2%
3%
%
40%
9%
3%
3%
4%
6%
3%
5%
3%
2%
4%
3%
5%
2%
2%
3%
3%
Total loans and advances to customers (before impairment)
7,358,725
100% 4,639,029
100% 3,706,260
100%
In 2016, the Group re-assessed the allocation of loans into the economic sectors. The Group has revised the sector split for 2015 and 2014 in
order to make it consistent with 2016.
As of 31 December 2016 the Group had 112 borrowers (2015: 84 borrower; 2014: 71 borrowers) with aggregated gross loan amounts
above GEL 5,000 thousand. The total aggregated amount of these loans was GEL 1,900,916 thousand (2015: GEL 1,378,892 thousand;
2014: GEL 1,031,720 thousand) or 25.8% of the gross loan portfolio (2015: 29.7%; 2014: 27.8%).
162 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
9 Loans and Advances to Customers continued
Analysis by credit quality of loans outstanding as of 31 December 2016 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
1,275,565
652,570
951,416 1,203,461
561,039
626,396
450,548
345,655
256,387
376,145
213,060 4,350,437
70,946 2,632,751
Total neither past due nor impaired
1,928,135 1,577,812 1,764,500
796,203
632,532
284,006 6,983,188
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
10,297
1,714
–
–
2,630
31,344
16,383
–
2
6
7,564
8,241
–
–
–
22,380
5,878
228
–
233
15,604
12,701
104
61
3
863
512
41
28
20
88,052
45,429
373
91
2,892
Total past due but not impaired
14,641
47,735
15,805
28,719
28,473
1,464
136,837
Individually assessed impaired loans
– 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
– 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
101,273
1,059
7,966
–
1,760
2,419
114,477
778
–
908
–
1,233
–
2,919
–
–
–
–
–
–
–
5,112
1,305
1,876
16,863
7,723
5,124
195
–
–
–
34
167
396
7,129
2,316
2,443
6,569
8,371
4,166
2,832
–
–
88
1,131
1,581
5,632
5,144
942
4,393
4,960
6,544
5,015
–
–
–
–
–
–
–
536
557
1,576
9,305
3,866
901
–
–
–
–
–
–
–
–
–
–
725
818
997
104,300
1,059
7,966
88
2,925
4,167
120,505
18,699
5,120
11,196
38,422
28,555
16,203
38,003
30,994
26,998
16,741
2,540
118,195
2,060,172 1,663,550 1,811,695
(23,603)
(59,300)
(89,501)
857,552
(23,178)
677,746
(28,518)
288,010 7,358,725
(225,023)
(923)
Total loans and advances to customers
1,970,671 1,604,250 1,788,092
834,374
649,228
287,087 7,133,702
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 163
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
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I
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
9 Loans and Advances to Customers continued
Analysis by credit quality of loans outstanding as of 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
– 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
– 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
164 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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
9 Loans and Advances to Customers continued
Analysis by credit quality of loans outstanding as of 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
– 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
– 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
The retail segment in Note 28 includes the following classes from the 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 it
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 provide an analysis of the 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 that are not overdue and are not classified as
impaired. ‘Past due but not impaired’ loans include overdue performing loans but with no objective evidence of impairment identified. The
classification includes as well triggered loans that are not impaired because the current value of the expected cash and collateral recoveries
are sufficient for full repayment. ‘Individually assessed impaired loans’ include exposures which were assessed for impairment on an
individual basis, and an ad-hoc impairment allowance was created. ‘Collectively assessed impaired loans’ include exposures for which
objective evidence of impairment was identified and the 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.
The amount and type of collateral required depend on an assessment of the credit risk of the counterparty. There are three key types of collateral:
• Real estate
• Movable property including fixed assets, inventory and precious metals
• Financial assets including deposits, stocks, and third party guarantees
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 165
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
9 Loans and Advances to Customers continued
The financial effect of collateral is presented by disclosing the collateral values separately for (i) those assets where collateral and other
credit enhancements are equal to or exceed the assets’ carrying value (“over-collateralised assets”) and (ii) those assets where collateral
and other credit enhancements are less than the assets’ carrying value (“under-collateralised assets”).
The effect of collateral as of 31 December 2016:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to small and medium enterprises
Micro loans
Others
Total
The effect of collateral as of 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 as of 31 December 2014:
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
1,847,145
871,215
1,783,814
844,604
643,528
159,293
5,877,714
2,725,814
4,700,091
2,841,623
1,743,105
210,462
213,027
792,335
27,881
12,948
34,218
128,717
Value of
collateral
109,076
11,066
16,360
9,120
11,957
127,926
6,149,599 18,098,809
1,209,126
285,505
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
891,639
2,241,109
620,094 1,773,481
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
Value of
collateral
44,528
15,505
3,789
1,036
1,307
29,351
3,291,643 7,489,249
414,617
95,516
The effect of collateral is determined by comparing the fair value of collateral to outstanding gross loans and advances in the reporting date.
At the central level a specific unit manages collateral to ensure that they serve as an adequate mitigation for credit risk management purposes.
In line with the Group’s internal policies, collateral provided to loans are evaluated by the Internal Appraisal Group (external reviewers are
used in case of loans to related parties or specific cases when complex objects are appraised). The Internal Appraisal Group is part of the
collateral management unit and, in order to ensure adequate and objective appraisal procedures, it is independent from the loan granting
process. 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.
166 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
9 Loans and Advances to Customers continued
Collateral values include the contractual price of third-party guarantees, which, due to their nature, are capped at the loan’s carrying value.
The values of third-party guarantees in the tables above amounted to GEL 608,058 thousand, GEL 358,907 thousand and GEL 307,491
thousand as of 31 December 2016, 2015 and 2014 respectively. These third-party guarantees are not taken into consideration when assessing
the impairment allowance. Refer to Note 41 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 35. Information on related party balances is disclosed in Note 43.
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
2016
2015
2014
150,073
36,002
241,810
1,016
174,916
84,849
33,445
998
25,034
198,233
476
232,934
428,901
294,208
456,677
–
1,802
9,335
3,767
6,140
3,693
430,703
307,310
466,510
All debt securities except for corporate bonds are issued by the Government of Georgia and National Bank of Georgia. Country rating for
Georgia stands at BB- with stable outlook (as assigned by international rating agencies in September 2016). 99.5% of corporate bonds are
issued by triple A rated international financial institutions, whereas 0.5% is issued by a non-rated corporation. The 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 1,802 thousand (2015: GEL 3,767 thousand; 2014: GEL 3,693 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.
As of 31 December 2016 investment securities available for sale carried at GEL 205,216 thousand have been pledged to local banks or financial
institutions as collateral with respect to other borrowed funds (2015: GEL 208,467 thousand; 2014: GEL 173,239 thousand). Refer to Note 18.
None of the debt securities available for sale are overdue or impaired.
As of 31 December 2016 the principal equity investment securities available for sale are as follows:
Name
In thousands of GEL
Visa Inc.
LTD Caucasus Online
JSC GRDC
Georgian Stock Exchange
Other
Total
Nature of business
Country of registration
Card Processing
Telecommunication
Property development
Stock exchange
USA
Georgia
Netherlands Antilles
Georgia
The movements in investment securities available for sale are as follows:
In thousands of GEL
Carrying amount as of 1 January
Business Combination
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
Effect of translation to presentation currency
Carrying amount as of 31 December
Carrying value as of 31 December
2016
–
–
365
1,004
433
1,802
2015
9,335
3,014
365
–
388
13,102
2014
6,140
3,014
365
–
314
9,833
Note
2016
2015
2014
44
29
307,310
153,004
143,783
(14,679)
–
(167,115)
522
25,707
(17,900)
(11)
82
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)
–
430,703
307,310
466,510
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 167
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
11 Bonds Carried at Amortized 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 amortized cost
2016
2015
2014
323,478
43,408
6,070
316,822
39,870
15,400
372,956
372,092
–
–
–
–
All debt securities except for corporate bonds are issued by the Government of Georgia and National Bank of Georgia. Country rating for
Georgia stands at BB- with stable outlook (as per international rating agencies in September 2016).
The movements in bonds carried at amortised cost are as follows:
In thousands of GEL
Gross amount as of 1 January
Reclassified from available-for-sale securities
Purchases
Redemption at maturity
Interest income accrual
Interest income received
Effect of translation to presentation currency
Gross amount as of 31 December
Note
2016
2015
2014
10
372,092
–
304,109
(314,231)
30,714
(19,740)
12
–
372,063
183,084
(193,416)
22,950
(12,589)
–
372,956
372,092
–
–
–
–
–
–
–
–
For the disclosure of bonds’ fair value carried at amortised cost refer to Note 41. An analysis on interest rate for bonds carried at amortised
cost is disclosed in Note 35.
As of 31 December 2016 bonds carried at amortised cost of GEL 273,311 thousand have been pledged to local banks or financial institutions as
collateral with respect to other borrowed funds (2015: GEL 136,472 thousand; 2014: GEL nil). Refer to Note 18.
None of the bonds carried at amortised cost as of 31 December 2016 and 31 December 2015 were either overdue or impaired.
During 2015 the Group reclassified investment securities available for sale to bonds carried at amortised cost with carrying amount of GEL
372,063 thousand.
At the end of the reporting period, the carrying amounts and fair values of all financial assets that have been reclassified from trading
securities and which were not yet sold or otherwise derecognised, were as follows:
In thousands of GEL
Certificates of Deposit of National Bank of Georgia
Ministry of Finance Treasury Bills
Government notes
Total
31 December 2016
31 December 2015
Carrying
value
–
160,619
6,070
Fair value
–
164,313
6,094
Carrying
value
–
219,271
12,330
Fair value
–
203,086
12,050
166,689
170,407
231,601
215,137
The income or loss recognised after reclassification, and fair value gain or loss that would have been recognised if the assets had not been
reclassified, were as follows:
In thousands of GEL
Year
2015
2016
Certificates of Deposit of National
Bank of Georgia
Ministry of Finance
Treasury Bills
Government notes
Income after
reclassification
Gain/ (loss)
without
reclassification
Income after
reclassification
Gain/ (loss)
without
reclassification
Income after
reclassification
Gain/ (loss)
without
reclassification
13
–
–
–
10,319
17,575
–
–
641
797
–
–
168 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
11 Bonds Carried at Amortized Cost continued
In addition, for assets reclassified from available for sale category, income or loss recognised in other comprehensive income after
reclassification would have been as follows:
In thousands of GEL
Year
2015
2016
12 Other Financial Assets
In thousands of GEL
Receivables on credit card services and money transfers
Receivables on guarantees
Prepayments for purchase of leasing assets
Receivables on repossessed assets disposed
Receivables on POS terminal services
Receivable on terminated leases
Bank assurance income receivable
Rental income receivables
Insurance and Reinsurance Receivables
Factored receivables
Other
Less: Provision for impairment
Total other financial assets
Movements in the provision for impairment of other financial assets during 2016 were as follows:
In thousands of GEL
Provision for impairment as of 1 January 2016
Business Combination
Provision for impairment during the year
Amounts written off during the year as uncollectible
Recovery of amounts previously written off
Provision for impairment as of 31 December 2016
Certificates
of Deposit of
National
Bank of
Georgia
Ministry of
Finance
Treasury
Bills
Government
notes
–
–
(16,185)
3,694
(280)
24
2016
2015
2014
24,801
18,215
10,628
10,603
9,506
7,832
4,549
3,816
2,249
900
8,188
(6,660)
15,072
16,435
9,390
672
5,854
4,404
4,450
4,309
–
2,859
6,764
(5,892)
9,440
11,728
13,032
937
2,300
3,323
1,548
2,056
–
–
3,723
(4,230)
94,627
64,317
43,857
Receivables
on terminated
leases
3,561
–
1,105
–
–
4,666
Other
Total
2,331
72
1,748
(2,370)
213
5,892
72
2,853
(2,370)
213
1,994
6,660
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 169
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
12 Other Financial Assets continued
Movements in the provision for impairment of other financial assets during 2015 were as follows:
In thousands of GEL
Provision for impairment as of 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 as of 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 as of 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 as of 31 December 2014
The table below illustrates the credit quality of other financial receivables:
In thousands of GEL
Neither past due nor impairment
– Receivables on credit card services and money transfers
– Prepayments for purchase of leasing assets
– Receivables on POS terminal services
– Receivables on repossessed assets disposed
– Bank assurance income receivable
– Rental income receivables
– Insurance and Reinsurance Receivables
– Receivables on guarantees
– Factored 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
– Receivables on repossessed assets disposed
– 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
170 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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
2016
2015
2014
24,801
10,628
9,506
5,700
4,549
3,816
2,249
1,089
900
2,222
65,460
15,072
9,390
5,854
534
4,450
4,309
-
939
2,859
4,435
47,842
9,440
13,032
2,300
937
1,548
2,056
-
836
–
1,922
32,071
17,126
17,126
15,496
15,496
10,892
10,892
7,832
–
7,832
4,903
–
4,903
5,966
–
5,966
18,701
4,404
–
4,404
138
–
138
2,329
–
2,329
6,871
3,323
–
3,323
–
–
–
1,801
–
1,801
5,124
(6,660)
(5,892)
(4,230)
94,627
64,317
43,857
12 Other Financial Assets continued
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
2016
2015
2014
2,508
14,086
845
1,007
2,645
44,369
65,460
2,018
8,700
286
322
2,281
34,235
47,842
483
5,910
400
59
897
24,322
32,071
Impaired receivables include receivables on terminated leases and other receivables for which impairment provision was assessed individually.
A receivable’s overdue status is a primary factor for the Group to consider a receivable as impaired. Receivables on terminated leases
individually determined to be impaired are under-collateralised and their estimated fair value of collateral amounts to GEL 2,039 thousand
(2015: GEL 1,253 thousand, 2014: GEL 808 thousand). The remaining assets are not collateralised.
13 Investments in Finance Lease
As of 31 December 2016 investments in finance lease of GEL 95,031 thousand (2015: GEL 75,760 thousand; 2014: GEL 50,907 thousand) are
represented by leases of fixed assets excluding land and buildings.
Finance lease payments receivable (gross investment in the leases) and their present values are as follows:
In thousands of GEL
Finance lease payments receivable as of 31 December 2016
Unearned finance income
Impairment loss provision
Present value of lease payments receivable as of 31 December 2016
Finance lease payments receivable as of 31 December 2015
Unearned finance income
Impairment loss provision
Present value of lease payments receivable as of 31 December 2015
Finance lease payments receivable as of 31 December 2014
Unearned finance income
Impairment loss provision
Present value of lease payments receivable at 31 December 2014
For fair values refer to Note 41.
Due in 1 year
Due between
2 and 5 years
65,265
(15,302)
(678)
56,672
(10,462)
(464)
Total
121,937
(25,764)
(1,142)
49,285
45,746
95,031
54,546
(13,147)
(459)
43,091
(7,992)
(279)
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
The table below illustrates the movements in the provision for impairment of net investment in finance lease:
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
2016
31 December
2015
31 December
2014
738
558
(154)
1,142
195
967
(424)
738
177
77
(59)
195
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 171
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
13 Investments in Finance Lease continued
Credit quality of net investment in finance lease is analysed below:
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
Impaired leases
– 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
Total impaired gross*
Total investment in finance lease
Impairment loss provision
Total net investment in finance lease
31 December
2016
31 December
2015
31 December
2014
28,084
45,404
73,488
15,357
5,101
–
–
20,458
–
–
–
1,079
966
182
2,227
20,612
46,431
67,043
9,570
30,442
40,012
4,285
1,694
–
–
5,979
1,639
332
33
950
522
–
3,476
6,213
1,479
424
67
8,183
1,926
568
75
197
–
141
2,907
96,173
76,498
51,102
(1,142)
(738)
(195)
95,031
75,760
50,907
* Total impaired leases include both collectively and individually impaired leases
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 taken into account to consider whether or not a lease is impaired are the deterioration of the
lessee’s financial position, its overdue status, and liquidity 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
the 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:
• Leased assets (inventory and equipment)
• Down payment
• Real estate properties,
• Third party guarantees.
The financial effect of collateral is presented by disclosing the collateral values separately for (i) those assets where collateral and other
credit enhancements are equal to or exceed the assets’ carrying value(“over-collateralised assets”) and (ii) those assets where collateral
and other credit enhancements are less than the assets’ carrying value (“under-collateralised assets”).
172 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
13 Investments in Finance Lease continued
The effect of collateral as of 31 December 2016:
In thousands of GEL
Investment in leases
Total
The effect of collateral as of 31 December 2015:
In thousands of GEL
Investment in leases
Total
The effect of collateral as of 31 December 2014:
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
Other debtor
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
75,364
112,917
20,809
75,364
112,917
20,809
16,817
16,817
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
2016
2015
2014
90,873
3,973
28,660
3,326
35,497
162,329
2,673
2,445
286
937
2,593
8,934
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
171,263
103,912
77,775
Included in Other Debtors is receivable from one corporate client, in respect of settlement of previously written-off loan.
Inventories of repossessed collateral represent 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 these 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 2016, collateral repossessed for settlement of impaired loans amounted to GEL 39 million (2015: GEL 34 million, 2014: GEL 26 million).
With regards to certain inventories of repossessed collaterals, the Group has granted 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
18 months from the date of repossession, during this time the Group is obliged not to dispose of the repossessed collateral to third parties.
As of 31 December 2016, the carrying value of the inventories of repossessed collateral subjected to the repurchase agreement was
GEL 20,342 thousand (2015: GEL 23,639 thousand, 2014: GEL 33,283 thousand).
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 173
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
15 Premises, Equipment and Intangible Assets
In thousands of GEL
Cost or valuation as of 1 January 2014
Accumulated depreciation/amortisation Including accumulated
Land,
Premises and
leasehold
improvements
Note
Office and
Other
equipment*
Construction
in progress
Total
premises
and
equipment
Intangible
Assets
Total
142,683
113,273
35,619
291,575
35,681
327,256
impairment loss
(23,678)
(68,229)
–
(91,907)
(12,190)
(104,097)
Carrying amount as of 1 January 2014
119,005
45,044
35,619
199,668
23,491
223,159
Additions
Transfers within premises and equipment
Transfers to Investment Property, net
Disposals
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)
270
26,684
161
–
(9,355)
(220)
(14,267)
9,276
1,383
(1,557)
–
(178)
–
–
–
28,867
–
(646)
(11,042)
(220)
(17,481)
9,546
19,884
–
–
(334)
–
(5,493)
208
48,751
–
(646)
(11,376)
(220)
(22,974)
9,754
Carrying amount as of 31 December 2014
116,102
57,323
35,267
208,692
37,756
246,448
Cost or valuation as of 31 December 2014
Accumulated depreciation/amortisation including accumulated
142,724
130,543
35,267
308,534
55,231
363,765
impairment loss
(26,622)
(73,220)
–
(99,842)
(17,475)
(117,317)
Carrying amount as of 31 December 2014
116,102
57,323
35,267
208,692
37,756
246,448
Additions
Transfers within premises and equipment
Transfers from Investment Property, net
Disposals
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
16
2,470
1,717
646
(324)
15,249
(374)
18
(3,502)
217
24,167
(0)
–
(1,201)
–
(536)
(311)
(15,632)
952
3,841
(1,717)
–
(864)
13,506
–
–
–
–
30,478
(0)
646
(2,389)
28,755
(910)
(293)
(19,134)
1,169
17,337
–
–
(199)
–
(43)
(4,982)
(5,758)
197
47,815
(0)
646
(2,588)
28,755
(953)
(5,275)
(24,892)
1,366
depreciation
362
391
–
753
36
789
Carrying amount as of 31 December 2015
132,581
65,153
50,033
247,767
44,344
292,111
Cost or valuation as of 31 December 2015
Accumulated depreciation/amortisation including accumulated
162,126
152,662
50,033
364,821
67,344
432,165
impairment loss
(29,545)
(87,509)
–
(117,054)
(23,000)
(140,054)
Carrying amount as of 31 December 2015
132,581
65,153
50,033
247,767
44,344
292,111
Additions
Business combination
Transfers within premises and equipment
Transfers to Repossessed assets
Disposals
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
44
5,555
50,049
3,042
(298)
(2,571)
(31)
(574)
(3,269)
2,439
19,369
8,260
–
–
(3,836)
(45)
(675)
(16,895)
2,555
6,206
36
(3,042)
–
(69)
–
–
–
–
31,130
58,345
–
(298)
(6,476)
(76)
(1,249)
(20,164)
4,994
18,904
6,761
–
–
(4)
(12)
(2,043)
(6,981)
–
50,034
65,106
–
(298)
(6,480)
(88)
(3,292)
(27,145)
4,994
depreciation
27
32
–
59
(12)
47
Carrying amount as of 31 December 2016
186,950
73,918
53,164
314,032
60,957
374,989
Cost or valuation as of 31 December 2016
Accumulated depreciation/amortisation including accumulated
217,299
175,636
53,164
446,099
90,950
537,049
impairment loss
(30,349)
(101,718)
–
(132,067)
(29,993)
(162,060)
Carrying amount as of 31 December 2016
186,950
73,918
53,164
314,032
60,957
374,989
* Office and other equipment include furniture and fixtures, computer and office equipment, motor vehicles as well as other equipment.
174 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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 the Bank’s new headquarters. Upon completion,
assets are to be 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. At acquisition date valuation of Bank Republic’s assets has been performed. Fair value of respective assets is disclosure below.
The management considers that the fair value has not changed significantly between 30 September 2015 and 31 December 2016.
In thousands of GEL
(except for range of inputs)
Fair value as of
20 October 2016
(acquisition date)
Fair value as of
30 September 2015
(valuation date)
Valuation
technique
Other key
information
Unobservable
inputs
Range of unobservable
inputs (weighted average)
Office buildings
Branches
30,753
51,115
18,645
124,069
Sales
comparison
approach
Sales
comparison
approach
Land
Buildings
Land
Buildings
Price per
square meter
Price per
square meter
472 – 3,432 (797)
601 – 6,598 (1,781)
2 – 3,427 (280)
452 – 11,514 (2,360)
As of 31 December 2016 the carrying amount of premises would have been GEL 134,352 thousand (2015: GEL 79,952 thousand; 2014: GEL
86,039 thousand) had the assets been carried at cost less depreciation and impairment losses. At 31 December 2016 the carrying amount of
construction in progress would have been GEL 30,394 thousand (2015: GEL 27,284 thousand; 2014: GEL 20,000 thousand) had the assets been
carried at cost less impairment losses.
16 Investment Properties
In thousands of GEL
Gross book value as of 1 January
Accumulated depreciation as of 1 January
Carrying amount as of 1 January
Transfer from/to premises and equipment
Transfer from inventories of repossessed collateral
Addition from foreclosure
Disposals at cost
Elimination of depreciation on disposal
Depreciation charge
Acquisition through business combination
Effect of translation to presentation currency
Gross book value as of 1 January
Accumulated depreciation as of 1 January
Carrying amount as of 31 December
Note
2016
2015
2014
15
44
60,648
(3,048)
57,600
–
15,935
6,820
(6,892)
253
(937)
22,836
–
99,347
(3,732)
78,699
(2,483)
76,216
(646)
778
–
(18,101)
829
(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)
95,615
57,600
76,216
As of 31 December 2016, investment properties comprised of 62 lots (2015: 8 lots; 2014: 9 lots) of land and 141 buildings (2015: 59 buildings;
2014: 57 buildings) located in Tbilisi and other regions of Georgia with the fair value amounting to GEL 123,852 thousand (2015: GEL 105,972
thousand; 2014: GEL 79,056 thousand).
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 175
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
16 Investment Properties continued
For disclosure purposes a fair valuation exercise was carried out for Investment Properties as of 31 December 2016. The valuation was
carried out by internal valuers who hold 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, particularly based on a sufficient number of
registered sales and proposals by the date of valuation.
In thousands of GEL
(except for range of inputs)
Fair value as of
20 October 2016
(acquisition date)
Fair value as of
31 December 2016
(valuation date)
Valuation technique
Unobservable inputs
Range of unobservable
inputs (weighted average)
Land
Buildings
3,398
19,438
33,618
Sales comparison approach Price per square meter
2 – 2,303 (131)
67,398
Sales comparison approach Price per square meter
15 – 5,827 (825)
Where the Group is the lessor, the future minimum lease payments receivable under non-cancellable operating leases, were 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 Goodwill
Movements in goodwill arising on the acquisition of subsidiaries are:
Carrying amount as of 1 January
Acquisition of subsidiaries
Carrying amount as of 31 December
2016
463
805
1,268
2015
186
–
186
2014
107
1,008
1,115
2016
2,726
25,932
28,658
2015
2,726
–
2,726
2014
2,726
–
2,726
Goodwill Impairment Test
Goodwill is allocated to cash-generating units (CGUs, which represent the lowest level within the Group at which the goodwill is monitored by
Management and which are not larger than a segment) as follows:
In thousands of GEL
JSC Bank Republic
CGU Micro/JSC Bank Constanta
JSC United Financial Corporation
LLC TBC Kredit
JSC TBC Insurance
Total carrying amount of goodwill
2016
24,166
769
695
1,262
1,766
28,658
2015
–
769
695
1,262
–
2,726
2014
–
769
695
1,262
–
2,726
The recoverable amount of each CGU was determined based on value-in-use calculations. These calculations use cash flow projections
based on financial budgets approved by the management covering a five-year period. Cash flows beyond the five-year period are extrapolated
using the estimated growth rates stated below.
176 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
17 Goodwill continued
Assumptions used for value-in-use calculations to which the recoverable amount is most sensitive were:
JSC Bank Republic
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
CGU SME/JSC Bank Constanta
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
JSC United Financial Corporation
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
LLC TBC Kredit
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
JSC TBC Insurance
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
2016
2015
2014
4.00% p.a.
21.72% p.a.
–
–
–
–
–
–
4.00% p.a.
14.39% p.a.
5.00% p.a.
24.74% p.a.
6.00% p.a.
18.82% p.a.
4.00% p.a.
19.18% p.a.
5.00% p.a.
29.73% p.a.
6.00% p.a.
22.36% p.a.
4.00% p.a.
28.10% p.a.
4.00% p.a.
19.50% p.a.
5.00% p.a.
27.05% p.a.
–
–
–
4.00% p.a.
17.05% p.a.
–
–
–
The management determined the budgeted gross margin based on past performance and its market expectations. The weighted average
growth rates used are consistent with the forecasts included in the industry reports. The discount rates reflect specific risks related to the
relevant CGUs.
If the revised estimated pre-tax discount rate applied to the discounted cash flows of JSC Bank Republic had been 10 percentage points
higher than the management’s estimates, the Group would not need to reduce the carrying value of either goodwill or carrying value of net
assets of the CGU (2015: nil; 2014: nil). Recoverable amount of JSC Bank Republic CGU exceeds its carrying amount by GEL1,295,196 thousand
(2015: nil; 2014: nil). The CGU’s carrying amount would equal its value in use at a discount rate of 71.58% p.a. (2015: nil; 2014: nil).
If the revised estimated pre-tax discount rate applied to the discounted cash flows of CGU Micro/JSC Bank Constanta had been 10 percentage
points higher than the management’s estimates, the Group would not need to reduce the carrying value of either goodwill or carrying value
of net assets of the CGU (2015: nil; 2014: nil). Recoverable amount of CGU Micro/JSC Bank Constanta CGU exceeds its carrying amount by
GEL 284,402 thousand (2015: GEL 156,283 thousand; 2014: GEL 71,384 thousand). The CGU’s carrying amount would equal its value in use at a
discount rate of 30.74% p.a. (2015: 49.35% p.a.; 2014: 29.36% p.a.).
If the revised estimated pre-tax discount rate applied to the discounted cash flows of JSC United Financial Corporation had been 10
percentage points higher than the management’s estimates, the Group would not need to reduce the carrying value of either goodwill or
carrying value of net assets of the CGU (2015: nil and nil; 2014: GEL 695 thousand and GEL 2,915 thousand). Recoverable amount of JSC United
Financial Corporation CGU exceeds its carrying amount by GEL 13,073 thousand (2015: GEL 6,856 thousand; 2014: GEL 801 thousand). The
CGUs’ carrying amount would equal its value in use at a discount rate of 46.36% p.a. (2015: 119.58% p.a.; 2014: 22.45% p.a.)
If the revised estimated pre-tax discount rate applied to the discounted cash flows of LLC TBC Kredit had been 10 percentage points higher
than the management’s estimates, the Group would not need to reduce the carrying value of goodwill (2015:nil; 2014: nil). Recoverable
amount of LLC TBC Kredit CGU exceeds its carrying amount by GEL 20,505 thousand (2015: GEL 61,268 thousand; 2014: GEL 57,348 thousand).
The CGUs’ carrying amount would equal its value in use at a discount rate 68.64% of p.a.(2015: 165.08% p.a.; 2014: 47.60% p.a.).
If the revised estimated pre-tax discount rate applied to the discounted cash flows of JSC TBC Insurance had been 10 percentage points
higher than the management’s estimates, the Group would not need to reduce the carrying value of either goodwill or carrying value of net
assets of the CGU (2015: nil; 2014: nil). Recoverable amount of JSC TBC Insurance CGU exceeds its carrying amount by GEL 58,588 thousand
(2015: nil; 2014: nil). The CGU’s carrying amount would equal its value in use at a discount rate of 62.29% p.a. (2015: nil; 2014: nil).
G
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 177
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
18 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
Borrowings from other financial institutions
Total other borrowed funds
Total amounts due to credit institutions
2016
2015
2014
22,872
176,443
117,592
316,907
47,342
25,936
–
73,278
1,412,095
439,234
4,203
25,138
678,946
355,664
5,686
–
1,880,670 1,040,296
37,247
47,802
934
85,983
452,469
204,475
6,358
–
663,302
2,197,577
1,113,574
749,285
As of 31 December 2016, TBC Kredit had breached certain covenants under the loan agreement with OPIC. The carrying amount of the
affected loan as of 31 December 2016 was GEL 14,816 thousands. As of 31 December 2016, TBC Kredit was in the process of obtaining a
waiver. Expected to be granted by 30 April 2017, the waiver would cover the period between 31 December 2016 and September 2019.
As of 31 December 2016 for the purposes of maturity analysis of financial liabilities (Note 35) the above-mentioned loans are included within
the amounts for which repayment is expected within 3 months.
19 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
State and public organisations include government owned profit orientated businesses.
Economic sector concentrations within customer accounts are as follows:
2016
2015
2014
240,743
78,990
152,438
86,828
130,008
47,084
2,143,483
243,582
1,276,141 1,042,559
125,605
126,042
684,521
944,215
1,618,434
2,129,717 1,592,267 1,292,651
6,454,949 4,177,931 3,322,428
In thousands of GEL
Individual
Financial Services
Trade
Energy and Utilities
Services
Construction
Transportation
Government Sector
Hotels and Leisure
Food Industry
Real Estate
Healthcare
Communication
Automotive
Agriculture
Metals and Mining
Other
31 December 2016
31 December 2015
31 December 2014
Amount
%
Amount
%
Amount
3,748,151
501,591
305,022
283,497
269,824
222,372
188,388
140,852
104,066
82,983
82,893
64,493
56,787
53,865
37,850
22,817
289,498
58% 2,536,482
219,888
161,417
152,636
115,563
118,035
135,356
172,185
73,071
52,363
66,773
95,280
48,669
40,058
10,906
16,537
162,712
8%
5%
4%
4%
4%
3%
2%
2%
1%
1%
1%
1%
1%
1%
0%
4%
61% 1,977,173
210,448
5%
98,750
4%
123,656
4%
114,829
3%
126,463
3%
101,939
3%
116,076
4%
52,610
2%
73,443
1%
73,028
2%
30,317
2%
67,255
1%
22,018
1%
6,461
0%
15,329
0%
112,633
4%
%
60%
6%
3%
4%
4%
4%
3%
3%
2%
2%
2%
1%
2%
1%
0%
0%
3%
Total customer accounts
6,454,949
100% 4,177,931
100% 3,322,428
100%
178 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
19 Customer Accounts continued
In 2016, the Group re-assessed the allocation of customer accounts per economic sectors; the classification for 2014 and 2015 was revised to
make it consistent with 2016.
As of 31 December 2016 the Group had 222 customers (2015: 140 customers; 2014: 125 customers) with balances above GEL 3,000 thousand.
Their aggregate balance was GEL 2,539,513 thousand (2015: GEL 1,432,724 thousand; 2014: GEL 1,111,385 thousand) or 39% of total customer
accounts (2015: 34%; 2014: 33%).
As of 31 December 2016 included in customer accounts are deposits of GEL 13,355 thousand and GEL 119,146 thousand (2015: GEL 999 thousand
and GEL 77,304 thousand; 2014: GEL 636 thousand and GEL 71,902 thousand) held as collateral for irrevocable commitments under letters of
credit and guarantees issued, respectively. Refer to Note 37. As of 31 December 2016, deposits held as collateral for loans to customers
amounted to GEL 342,365 thousand (2015: GEL 241,782 thousand, 2014: 151,357 thousand).
Refer to Note 41 for the disclosure of the fair value of each class of customer accounts. Information on related party balances is disclosed in Note 43.
20 Debt Securities in Issue
In thousands of GEL
Bonds issued on Georgian market
Bonds issued on Georgian market
Bonds issued on Georgian market
Bonds issued on Georgian market
Total 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
Currency
USD
USD
USD
USD
Currency
USD
USD
AZN
Currency
USD
AZN
USD
Carrying amount
in GEL as of
31 December 2016
Maturity Date
Coupon rate
Effective
interest rate
3-Sep-17
15-Aug-18
16-May-19
22-Jul-19
5,312
5,237
5,198
7,761
23,508
8.4%
7.8%
8.0%
7.3%
9.2%
8.6%
8.7%
8.1%
Carrying amount
in GEL as of
31 December 2015
12,220
4,798
4,696
21,714
Carrying amount
in GEL as of
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%
Refer to Note 41 for the disclosure of the fair value of debt securities in issue.
21 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 as of 1 January 2014
Charges less releases recorded in profit or loss
Utilisation of provision
Carrying amount as of 31 December 2014
Charges less releases recorded in profit or loss
Utilisation of provision
Carrying amount as of 31 December 2015
Charges less releases recorded in profit or loss
Assuming guarantees following asset purchase
Additions through Business Combinations
Carrying amount as of 31 December 2016
Performance
guarantees
Credit related
commitments
4,153
759
–
4,912
(3,440)
–
4,927
(1,661)
–
3,266
2,323
–
Other
Total
3,300
5,500
(5,080)
12,380
4,598
(5,080)
3,720
11,898
1,102
(2,422)
(15)
(2,422)
1,472
5,589
2,400
9,461
(452)
909
706
2,635
1,223
–
1,237
8,049
2,528
–
414
5,342
3,299
909
2,357
16,026
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 179
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
21 Provisions for Performance Guarantees, Credit Related Commitments and Liabilities and Charges continued
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.
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.
Additions less releases recorded in profit and loss for “Other” provisions does not include gross change in total reserves for insurance claims
in amount of GEL 318 thousands that are included in net claims incurred.
22 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
Insurance Contracts Liabilities
Other accrued liabilities
Total other financial liabilities
Refer to Note 41 for disclosure of the fair value of other financial liabilities.
23 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
All of the above liabilities are expected to be settled within twelve months after the year-end.
Note
2016
2015
2014
40
12,066
16,612
8,241
1,298
486
12,295
50,998
12,478
10,264
6,022
2,411
–
8,260
8,710
9,835
6,915
5,639
–
10,247
39,435
41,346
2016
2015
2014
38,317
16,723
6,284
5,415
66,739
22,385
11,584
4,764
1,894
40,627
21,502
10,232
977
2,264
34,975
180 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
24 Subordinated Debt
As of 31 December 2016, subordinated debt comprised of:
In thousands of GEL
Grant Date
Maturity Date Currency
Deutsche Investitions und Entwicklungsgesellschaft MBH
Deutsche Investitions und Entwicklungsgesellschaft MBH
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
Kreditanstalt für Wiederaufbau Bankengruppe
Kreditanstalt für Wiederaufbau Bankengruppe
Green for Growth Fund
European Fund for Southeast Europe
European Fund for Southeast Europe
Asian Development Bank (ADB)
19-Feb-08
26-Jun-13
19-Dec-13
10-Jun-14
4-May-15
18-Dec-15
18-Dec-15
15-Mar-16
18-Oct-16
15-Jul-18
USD
15-Jun-20 USD
15-Apr-23 USD
GEL
8-May-21
GEL
8-May-21
18-Dec-25 USD
18-Dec-25 USD
15-Mar-26 USD
USD
18-Oct-26
Total subordinated debt
As of 31 December 2015, subordinated debt comprised of:
In thousands of GEL
Grant Date
Maturity Date Currency
Deutsche Investitions und Entwicklungsgesellschaft MBH
European Bank for Reconstruction and Development
International Financial Corporation
Deutsche Investitions und Entwicklungsgesellschaft MBH
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
Kreditanstalt für Wiederaufbau Bankengruppe
Kreditanstalt für Wiederaufbau Bankengruppe
Green for Growth Fund
European Fund for Southeast Europe
19-Feb-08
23-Apr-09
23-Apr-09
26-Jun-13
19-Dec-13
10-Jun-14
4-May-15
18-Dec-15
18-Dec-15
USD
15-Jul-18
USD
12-Nov-18
USD
12-Nov-18
USD
15-Jun-20
USD
15-Apr-23
GEL
8-May-21
8-May-21
GEL
18-Dec-25 USD
18-Dec-25 USD
Total subordinated debt
As of 31 December 2014, subordinated debt comprised of:
In thousands of GEL
Grant Date
Maturity Date Currency
Deutsche Investitions und Entwicklungsgesellschaft MBH
European Bank for Reconstruction and Development
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
International Financial Corporation
Deutsche Investitions und Entwicklungsgesellschaft MBH
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
Kreditanstalt für Wiederaufbau Bankengruppe
19-Feb-08
23-Apr-09
23-Apr-09
23-Apr-09
26-Jun-13
19-Dec-13
10-Jun-14
15-Jul-18
12-Nov-18
12-Nov-18
12-Nov-18
15-Jun-20
15-Apr-23
8-May-21
USD
USD
USD
USD
USD
USD
GEL
Total subordinated debt
The debt ranks after all other creditors in case of liquidation.
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
10,446
7,480
35,474
6,162
6,737
15,239
7,631
7,629
50,407
27,649
19,799
93,891
6,162
6,737
40,335
20,197
20,194
133,417
368,381
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
10,427
18,729
18,716
7,466
35,373
6,162
6,739
14,892
7,448
24,971
44,855
44,823
17,880
84,715
6,162
6,739
35,666
17,837
283,648
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
10,410
18,676
7,067
18,655
7,453
35,299
6,204
19,400
34,804
13,169
34,766
13,890
65,782
6,204
188,015
Refer to Note 41 for the disclosure of the fair value of subordinated debt. Information on related party balances is disclosed in Note 43.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 181
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
25 Share Capital
In thousands of GEL except for number of shares
As of 1 January 2014
Share split
Shares issued
Increase in share capital arising from share based payment
As of 31 December 2014
Increase in share capital arising from share based payment
Treasury shares returned
As of 31 December 2015
Increase in share capital arising from share based payment
Conversion of shares following the Tender Offer*
Share capital adjustment for new nominal value**
Shares issued
As of 31 December 2016
Number of
ordinary
shares Share capital
164,987
41,387,784
7,692,308
1,229
49,246,308
284,560
(1,405)
49,529,463
525,456
(895,039)
–
3,006,823
16,499
123
3,077
–
19,699
113
(1)
19,811
210
(358)
(18,169)
87
52,166,703
1,581
* 895,039 is the number of JSC TBC Bank shares that were not converted into the TBC Bank Group PLC shares
** Negative GEL 18,169 thousand is effect of nominal value adjustment whereby the nominal value of 49,159,880 TBC Bank Group PLC shares was changed from
GEL 0.4 to one British Penny translated in GEL with the official exchange rate on share conversion date
On 4 March 2014, Shareholders of the Bank approved the spilt of the ordinary shares 250-for-1 and authorised the issue of additional
10,445,387 shares.
In June 2014, 19,684,322 shares of the Bank were sold in the form of Global Depositary Receipts (“GDRs”) on the 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”) acted as a depositary of these shares. Each GDR represented
1 ordinary share of the Bank.
On 4 August 2016, the Group completed the Tender Offer under which 49,159,880 of the Bank’s shares then outstanding or 98.21%, were
converted into 49,159,880 shares of TBC Bank Group PLC (note 1)
As of 31 December 2016 the total authorised number of ordinary shares was 52,166,703 shares (31 December 2015: 49,529,463 shares;
31 December 2014: 49,246,308 shares). Each share has a nominal value of one British Penny (31 December 2015: GEL 0.4 per share;
31 December 2014: GEL 0.4 per share). All issued ordinary shares are fully paid and entitled to dividends.
Following the Admission (Note 1), TBCG’s Directors undertook a reduction of capital in order to create distributable reserves for TBCG. The original
difference between the fair value of the Bank’s shares and the nominal value of TBCG’s shares was credited to the merger reserve created in
connection with the Tender Offer. Each TBCG share had an original (Tender Offer) nominal value of GBP 5.00 and the minimum premium amount
required by the Company Act 2006 of GEL 565,030 thousand was transferred to share premium. Following the capital cut the nominal value of TBCG
shares was reduced to GBP 0.01. The capital cut created a new reserve on the statement of TBCG’s financial position (comprising of the reduction
of the original nominal value from GBP 5.00 to GBP 0.01 per share) amounting to GEL 745,637 thousand. The reduction represents a legal and
accounting adjustment and did not, in itself, have any direct impact on TBCG shares’ market value. As a result of the reduction, the Group’s total
additional paid-in capital outstanding at the time became distributable to the shareholders and was fully reclassified to retained earnings.
These transactions were treated as a reorganisation of an existing entity that has not changed the substance of the reporting entity. The
consolidated financial statements of TBCG are presented using the values from the consolidated financial statements of JSC TBC Bank. On the
date that TBCG became the new parent of the Group, the statutory amounts of share capital and share premium of the Company have been
recognised through an adjustment in the Statement of Changes in Equity under the heading ‘Change of parent company to TBCG’. The resulting
difference has been recognised as a component of equity under the heading ‘‘Group reorganisation reserve’’.
On 25 April 2016, at the annual general meeting JSC TBC Bank’s shareholders agreed on a dividend of GEL 1.09 per share, based on the 2015
audited financial statements. The dividend was recorded on 3 May 2016 and on 11 May 2016 shareholders received the payment of the total
GEL 54,560 dividends. On 19 May 2015, at the annual general meeting JSC TBC Bank’s shareholders agreed on a dividend of GEL 0.79 per
share, based on the 2014 audited financial statements. The dividend was recorded on 26 May 2015 and on 2 June 2015 shareholders received
the payment of the total GEL 39,128 dividends.
On 4 March 2014, at the annual general meeting JSC TBC Bank’s shareholders agreed on a dividend of GEL 0.64 per share, based on the 2013
audited financial statements. The dividend was recorded on 4 March 2014 and on 4 March 2014 shareholders received the payment of the total
GEL 26,492 dividends.
182 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
26 Share Based Payments
June 2013 arrangement:
In June 2013, the Bank’s Supervisory Board approved a new management compensation scheme for the years 2013 – 2015 and authorised a
maximum of 4,150 new shares to be issued in accordance with the scheme. The authorized number of new shares has increased to 1,037,500 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) a certain number of shares will be awarded to the top management and some of the middle managers of the Group.
The performance evaluation is divided into (i) team goals and (ii) individual performance indicators. The total number of the shares to be
awarded (legally transferred) 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 award date. The team goals primarily focus on meeting the target for 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 achieving the team goals. Individual performance indicators are defined on an individual basis
and are used to calculate the number of shares to be awarded to each employee out of the total bonus pool. Once awarded, these shares
carry service conditions and, before those conditions are met, are eligible to dividends. However, they do not carry voting rights and cannot
be sold or transferred to third parties. Service conditions foresee continuous employment until the gradual transfer of the full title to the
scheme participants is complete. Shares for each of the 2013, 2014 and 2015 tranche gradually ran over on the second, third, and fourth year
following the performance appraisal. Eighty percent of the shares were vested in the fourth year after being awarded. Under this
compensation system the total vesting period extends to June 2019.
Under the new management compensation scheme, both shareholders and Supervisory Board hold put options on the shares to be awarded.
In addition, they both hold put options on all bonus shares awarded under the previous share-based payment arrangements. All the put-
options became null and void upon the listing on the 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 recognized for the put-options.
In 2013 the Group considered 20 June as the grant date. Based on the management’s expectation of performance and service conditions,
732,000 shares have been granted and will be gradually awarded to the members of the described scheme. An external evaluator assessed
the fair value per share at the grant date at GEL 13.93 adjusted for the effect of 250-for-1 share split Income and market approaches were
applied for the evaluation. The market approach involved an estimate of the market capitalization 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 lenders operating in
the Black Sea region and Central and Eastern Europe with a portfolio mix and growth priorities similar to TBC Bank. The income approach
involved discounting free cash flows to equity estimated over a 10-year horizon. When developing the projections, the following major
assumptions were made:
• Over the 2013-2023 periods, 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 an estimated 10.2% in 2013 to stabilize at 5.8% by 2021.
• Over 2013-2023 period, non-interest income was forecast to average 1.8% of customer volume (i.e. gross loans and deposits).
• YoY growth in various components of employee’s 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. YoY growth in administrative expenses was assumed at 38.3% in 2014, 10.4% in 2015
and to gradually decline to 3.3% in 2023.
• The Bank’s terminal value was estimated using the 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%.
The final valuation was based on the income approach and the market one was used to check the results obtained by the former. The
calculated value of Bank’s equity was then divided by the number of ordinary shares issued as of date and further reduced with the discount
for lack of control.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 183
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
26 Share Based Payments continued
June 2015 arrangement:
In June 2015, the Bank’s Supervisory Board approved new management compensation scheme for the top and middle management and it
accordingly authorised the issue of a maximum 3,115,890 new shares. The new system will be enforced from 2015 through 2018, replacing the
system introduced in June 2013 -- the performance evaluation as well as the 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, a certain number of shares will be
awarded to the Group’s top managers and most of the middle ones. The performance features key performance indicators (KPIs) divided into
(i) corporate and (ii) individual. 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 with regards to customers’ experience and employees’ engagement. The individual
performance indicators are set on an individual basis and are used to calculate the number of shares to be awarded to each employee.
According to the scheme, members of top management will also receive the fixed number of shares. Once awarded, all shares carry service
conditions and, before those conditions are met, are eligible to dividends; however they do not carry voting rights and cannot be sold or
transferred to third parties.
Service conditions foresee continuous employment until the gradual transfer of the full title to the scheme participants is complete. Shares
for each of the 2015, 2016, 2017 and 2018 tranche gradually ran over on the second, third and fourth year following the performance appraisal.
Eighty percent of the shares were vested in the fourth year after being awarded. Under this compensation system the total vesting period
extends to March 2022.
In 2015 the Group considered 17 June as the grant date. Based on the management’s estimate of reached targets, as of 31 December 2015
1,908,960 shares were granted. The shares will be gradually awarded to the members as per the described scheme. At the grant date the fair
value amounted to GEL 24.64 per share, as quoted on the London Stock Exchange.
Following the listing on the Premium segment of the London Stock Exchange, the share-based payment scheme was updated, and TBC Bank
Group PLC distributes its shares to the scheme’s participants. The shares’ value is recharged to the JSC TBC Bank. As a result, the
accounting of the scheme did not change in the consolidated financial statements.
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
Forfeited during the period
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)
Decrease in equity due to utilisation of cash compensation alternative (GEL thousand)
Expense on cash-settled part (GEL thousand)
Expense recognised as staff cost during the period (GEL thousand)
31 December
2016
31 December
2015
31 December
2014
2,756,605
803,336
– 1,908,963
–
–
75,016
(11,904)
–
(35,146)
(30,710)
(86,848)
2,622,707 2,756,605
13.93
24.64
13.93
24.64
12,599
(817)
10,271
8,559
–
5,967
22,053
14,526
2,797
–
696,453
104,086
–
–
803,336
13.93
–
2,592
–
1,710
4,302
Liability in respect of the cash-settled part of the award amounted to GEL 13,725 thousand as of 31 December 2016 (2015: GEL 6,560
thousand; 2014: GEL 1,710 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 2016 based on level of achievement of key performance indicators the management has reassessed the number of shares
that will have to be issued to the participants of the share based payment system and decreased estimated number of shares to vest by 11,904
(31 December 2015: 75,016, 31 December 2014: 104,086).
184 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
27 Earnings per Share
Basic earnings per share are calculated by dividing the profit or loss attributable to the 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
2016
2015
2014
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
Weighted average number of ordinary shares in issue
Basic earnings per ordinary share attributable to the owners of the Bank (expressed in
GEL per share)
298,130
216,400
156,469
49,592,658 48,962,112 45,524,938
6.0
4.4
3.4
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
2016
2015
2014
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 –
299,037
218,227
157,071
Weighted average number of ordinary shares in issue adjusted for the effects of all dilutive potential
ordinary shares during the period
50,946,636 49,607,204 45,968,817
Diluted earnings per ordinary share attributable to the owners of the Bank (expressed in
GEL per share)
5.9
4.4
3.4
28 Segment Analysis
The Management Board (the “Board) is the chief operating decision maker and it reviews the Group’s internal reporting in order to assess the
performance and to allocate resources. In 2014, the Board changed its analysis’ process in order to enhance the control and monitoring of
the Group’s performance. This has resulted in creating a new segment – the ‘Corporate Centre and Other Operations’ – and in changing the
presentation of segment information. In 2015, following the merger of Bank Constanta, the Board revised the composition of “segment” in
order to further enhance the control and monitoring of the Group’s performance. The result was the transfer of certain customers to different
segments. Comparative information as of 31 December 2014 has not been updated due to impracticability.
The operating segments were determined as of 31 December 2014 as follows:
• Corporate – business customers with an annual revenue of GEL 8.0 million or more or who have been granted a loan in an amount
equivalent to US$1.5 million or more. Some other significant legal entity customers may also be assigned to the corporate segment
on a discretionary basis; for example clients that the Group assessed as having strong growth potential.
• SME – business customers that are not included either in the corporate or micro segments.
• Micro – all of Bank Constanta’s business customers, that have been granted loans by and/or have deposits with Bank Constanta,
the amount of which in neither case exceeds US$150 thousand.
• Retail – all individual customers of the Group as well as customers that have been granted gold-pawn loans.
• Corporate Centre and Other Operations – comprises of 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 with an annual revenue of GEL 8.0 million or more or who have been granted a loan in an amount equivalent
to US$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 who 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 up to US$70 thousand, as well as pawn loans, credit cards and cash cover loans granted in
TBC Bank Constanta branches, and/or clients of TBC Bank Constanta branches with deposits up to US$20 thousand in urban areas and
up to US$100 thousand in rural areas. Some other customers may also be assigned to the Micro segment on a discretionary basis;
• Retail – all individual customers not included in the other categories.
• Corporate Centre and Other Operations – comprises of 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.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group’s total revenue in 2016,
2015 or 2014.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
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L
S
T
A
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M
E
N
T
S
A
D
D
I
T
I
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N
A
L
I
N
F
O
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M
A
T
I
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N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 185
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
28 Segment Analysis continued
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 35.
A summary of the Group’s reportable segments for the years ended 31 December 2016, 2015 and 2014 is provided below:
In thousands of GEL
Corporate
Retail
SME
Micro
Corporate
centre and
other
operations
Total
31 December 2016
– Interest income
– interest expense
– Inter-segment interest income/(expense)
– Net interest income
– Fee and commission income
– Fee and commission expense
162,277
(45,586)
(22,186)
341,577
(99,664)
(29,236)
68,693
(7,796)
(2,480)
116,177
(1,794)
(39,092)
77,702
(121,133)
92,994
766,426
(275,973)
–
94,505
212,677
58,417
75,291
49,563
490,453
23,050
(3,395)
92,989
(40,467)
15,506
(3,908)
7,263
(3,763)
3,992
(999)
142,800
(52,532)
– Net Fee and commission income
19,655
52,522
11,598
3,500
2,993
90,268
– Insurance Profit
– Net gains from trading in foreign currencies
– Net losses from foreign exchange translation
– Net losses from derivative financial instruments
– Net gains from disposal of available for sale investment securities
– Other operating income
–
23,945
–
–
–
9,837
–
16,367
–
–
–
5,714
–
25,845
–
–
–
783
–
1,876
–
–
–
351
256
2,236
(2,507)
(206)
9,293
6,551
256
70,269
(2,507)
(206)
9,293
23,236
– Other operating non-interest income
33,782
22,081
26,628
2,227
15,623
100,341
– 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
49,548
(56,835)
(15,774)
(26,141)
–
(49,202)
(388)
–
(863)
–
(834)
–
(91)
–
456
–
(92)
–
(5)
–
(62)
–
–
(558)
(1,745)
(11)
(771)
(558)
(2,853)
(11)
– Profit before administrative and other expenses and income taxes
196,239
229,520
81,233
54,810
65,865
627,667
– 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
(23,995)
(1,066)
–
(6,763)
(31,824)
164,415
(25,010)
139,405
(87,918)
(16,941)
–
(54,329)
(159,188)
70,332
(8,561)
61,771
(17,591)
(2,126)
–
(8,673)
(28,390)
52,843
(8,707)
44,136
(30,116)
(6,053)
–
(15,977)
(52,146)
2,664
(459)
2,205
(12,601)
(1,896)
(2,210)
(23,733)
(40,440)
25,425
25,316
50,741
(172,221)
(28,082)
(2,210)
(109,475)
(311,988)
315,679
(17,422)
298,258
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
2,060,172 3,763,255
1,795,503 3,666,385
189,604
724,402
857,552
888,475
221,975
677,746
104,586
10,839
– 7,358,725
– 6,454,949
– 1,146,820
186 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
28 Segment Analysis continued
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
– Net gains from trading in foreign currencies
– Net gains from foreign exchange translation
– Net losses 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
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
37,455
15,038
–
–
2,299
11,739
(3,917)
7,822
21,488
–
–
1,089
17,337
22,577
6,880
(1,242)
4,579
(825)
113,837
(41,546)
5,638
1,787
–
–
95
1,882
3,754
72,291
2,682
2,579
(575)
8,592
64,642
2,579
(575)
25,883
13,278
92,529
(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)
– Profit before administrative and other expenses and income 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
2,019,969
1,001,341 2,469,878
130,402
446,380
(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
–
G
O
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A
N
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I
F
N
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N
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 187
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
28 Segment Analysis continued
In thousands of GEL
Corporate
Retail
SME
Micro
Corporate
centre and
other
operations
Total
31 December 2014
– 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
– Net gains from trading in foreign currencies
– Net gains from foreign exchange translation
– Net losses 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)
16,781
12,456
–
–
–
12,456
46,368
(26,230)
20,138
9,932
–
–
–
9,932
9,268
(906)
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
(10,755)
(1,915)
–
(4,981)
(17,651)
45,292
(6,059)
39,233
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
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
–
188 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
28 Segment Analysis continued
Reportable segments’ assets were 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 amortized 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
29 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
Other
Total interest income
Interest expense
Customer accounts
Due to credit institutions
Subordinated debt
Debt securities in issue
Other
Total interest expense
Net interest income
31 December
2016
31 December
2015
31 December
2014
7,358,725 4,639,029 3,706,260
(149,764)
(225,023)
532,118
945,180
336,075
990,642
33,704
24,725
466,510
430,703
–
372,956
251
7,430
383
3,511
43,857
94,627
50,907
95,031
77,775
171,263
208,692
314,032
37,756
60,957
76,216
95,615
2,726
28,658
(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
10,769,032 6,934,995 5,423,466
31 December
2016
31 December
2015
31 December
2014
6,454,949
2,197,577
23,508
2,577
5,646
16,026
50,998
66,739
368,381
4,177,931 3,322,428
749,285
1,113,574
20,423
21,714
12,433
912
23,187
29,244
11,898
9,461
41,346
39,435
34,975
40,627
188,015
283,648
9,186,401 5,716,546 4,403,990
2016
2015
2014
688,724
30,714
25,707
16,566
4,550
165
582,327
22,950
20,927
15,217
7,638
–
465,520
–
30,361
10,265
6,211
–
766,426
649,059
512,357
154,840
85,030
34,325
1,778
–
137,489
70,834
26,363
2,105
94
110,041
43,384
19,069
928
287
275,973
236,885
173,709
490,453
412,174
338,648
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
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S
A
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A
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I
N
F
O
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M
A
T
I
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N
In the year ended 31 December 2016 the interest accrued on impaired loans amounted to GEL 23,825 thousand (2015: 25,756 thousand,
2014: 18,134 thousand).
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 189
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
30 Fee and Commission Income and Expense
In thousands of GEL
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
– Self-service and POS terminal transactions
– Other
Total fee and commission expense
Net fee and commission income
31 Other Operating Income
In thousands of GEL
Revenues from operational leasing
Recovery from repayment of purchased impaired loans
Gain from sale of investment properties
Gain from sale of inventories of repossessed collateral
Revenues from sale of cash-in terminals
Revenues from non-credit related fines
Administrative fee income from international financial institutions
Gain on disposal of premises and equipment
Gain on sale of financial asset
Other
2016
2015
2014
61,115
43,434
13,013
11,699
6,215
1,277
6,047
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
142,800
113,837
88,203
34,906
5,795
2,420
2,633
4,692
2,086
52,532
90,268
2016
5,772
4,995
2,623
2,382
1,100
658
644
208
–
4,854
27,169
3,904
3,165
2,707
3,556
1,045
41,546
16,053
2,594
4,161
2,592
3,532
591
29,523
72,291
58,680
2015
8,539
–
4,896
1,836
777
286
708
118
4,692
4,031
2014
6,997
–
5,795
1,644
852
236
982
126
–
2,968
Total other operating income
23,236
25,883
19,600
Revenue from operational leasing is wholly attributable to investment properties. The carrying value of the inventories of repossessed
collateral disposed in the year ended 31 December 2016 was GEL 26,972 thousand (2015: GEL 9,777 thousand; 2014: GEL 13,721 thousand).
32 Staff Costs
In thousands of GEL
Salaries and bonuses
Share based compensation
Other compensation cost
Salaries and other employee benefits
2016
2015
2014
146,840
22,053
3,328
124,676
14,526
3,575
116,302
4,302
2,231
172,221
142,777
122,835
190 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
32 Staff Costs continued
In 2016 the average total number of persons employed by the Group was 5,537 people (2015:5,241; 2014:4,728). Breakdown of average
employees by categories is as follows:
Headquarters*
Branches*
Other administrative staff **
2016
2,243
2,902
392
2015
2,084
2,827
330
2014
1,885
2,600
243
* Under average number of employees in headquarters and branches employees in JSC TBC Bank, JSC Bank Republic, JSC TBC Insurance, Bank Constanta JSC and LLC
TBC Kredit’s are considered.
** Employees from other subsidiaries are considered under other administrative staff.
33 Administrative and Other Operating Expenses
In thousands of GEL
Professional services
Rent
Advertising and marketing services
Intangible asset enhancement
Utility services
Taxes other than on income
Communications and supply
Premises and equipment maintenance
Stationery and other office expenses
Insurance
Impairment of intangible assets
Security services
Business trip expenses
Loss on disposal of inventories
Transportation and vehicle maintenance
Personnel training and recruitment
Charity
Loss on disposal of premises and equipment
Reversal of previously written-down current assets to fair value less costs to sell
Other
2016
2015
2014
29,926
18,294
13,796
7,446
5,108
4,699
4,183
3,889
3,448
2,687
2,043
1,883
1,880
1,690
1,386
1,272
884
423
(4,424)
8,962
8,418
16,468
11,451
6,062
4,501
4,598
3,433
2,959
3,471
2,301
4,982
1,622
1,589
86
1,328
1,230
928
34
(178)
7,678
11,969
11,943
14,121
4,371
3,681
3,900
3,455
1,893
2,632
1,899
–
1,578
1,610
208
1,216
919
898
18
190
7,047
Total administrative and other operating expenses
109,475
82,964
73,548
Included in professional services, in the year ended 31 December 2016, are transaction costs related to the acquisition of Bank Republic,
comprising GEL 8,000 thousands.
Auditors’ remuneration is included within professional services expenses above and comprises:
In thousands of GEL
Audit Audit Related
2016
Audit of TBC Bank Group and subsidiaries annual financial statements
Review of TBC Bank Group and subsidiaries interim financial statements
Other assurance services
Total auditor’s remuneration
2015
Audit of TBC Bank Group and subsidiaries annual financial statements
Review of TBC Bank Group and subsidiaries interim financial statements
Other assurance services
Total auditor’s remuneration
2014
Audit of TBC Bank Group and subsidiaries annual financial statements
Review of TBC Bank Group and subsidiaries interim financial statements
Other assurance services
Total auditor’s remuneration
1,588
–
–
1,588
1,104
–
–
1,104
501
–
–
501
–
360
5
365
–
163
102
265
–
270
19
289
Other
Services
–
–
5,432
5,432
–
–
231
231
–
–
892
892
Total
1,588
360
5,437
7,385
1,104
163
333
1,600
501
270
911
1,682
Included in Other assurance services as of 31 December 2016, GEL3,797 thousands is attributable to reporting accountant fees related to
listing of TBCG shared on LSE.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 191
G
O
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E
R
N
A
N
C
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I
F
N
A
N
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E
N
T
S
A
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I
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I
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A
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
34 Income Taxes
Income tax expenses comprises of the following:
In thousands of GEL
Current tax charge
Deferred tax (credit)/charge
Income tax expense for the year
2016
2015
2014
36,601
(19,180)
29,697
(521)
29,365
(4,897)
17,421
29,176
24,468
The income tax rate applicable to the majority of the Group’s income was 15% (2015: 15%; 2014: 15%). The income tax rate applicable to the
majority of subsidiaries income ranged from 15% to 20% (2015: 15% – 20%; 2014: 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 (2016: 15%; 2015: 15%; 2014: 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
– Effect of change in tax legislation
– Recognition of previously unrecognized deferred tax assets
Other differences
Income tax expense for the year
2016
2015
2014
315,679
247,873
182,919
46,703
37,181
27,438
(9,638)
3,706
(24,204)
–
854
(7,281)
(724)
–
–
–
(4,678)
1,708
–
–
–
17,421
29,176
24,468
Differences between IFRS as adopted by the EU 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% (2015: 15%; 2014: 15%) for Georgia and 20%
for Azerbaijan and United Kingdom (2015: 20%; 2014: 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
Tax loss carry forwards
Net deferred tax asset/(liability)
Recognised deferred tax asset
Recognised deferred tax liability
Net deferred tax asset/(liability)
31 December
2015
(Charged)/
credited to
profit or loss
Credited directly
to other
comprehensive
income
Changes due
to the
business
combination
31 December
2016
(25,802)
(9,167)
(1,595)
5,952
6,407
(556)
(4,247)
(475)
(327)
60
1,311
741
–
11,112
11,729
461
(3,830)
(5,734)
556
4,275
(820)
242
137
1,146
(65)
(29)
11,011
–
1,565
–
–
–
–
–
–
–
–
–
–
(1,644)
(2,574)
(267)
246
(634)
–
(1,010)
–
–
–
(232)
–
–
(5,323)
(92)
165
2,368
39
–
(982)
(1,295)
(85)
197
2,226
676
(29)
(27,698)
19,180
12,576
(6,115)
(2,135)
1,546
(29,244)
1,719
17,461
(27,698)
19,180
12,576
12,576
246
(6,361)
3,511
(5,646)
(6,115)
(2,135)
192 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
34 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
Net deferred tax asset/(liability)
Recognised deferred tax asset
Recognised deferred tax liability
Net deferred tax asset/(liability)
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 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)
1 January
2014
(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
(27,814)
–
(27,814)
(27,814)
(2,039)
948
(475)
4,292
2,423
42
576
(756)
30
790
(681)
(253)
4,897
383
4,514
4,897
305
–
(192)
–
–
–
–
–
–
–
–
–
113
–
113
113
(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)
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.
35 Financial and Other Risk Management
TBC Bank Group’s strong risk governance reflects the importance placed by the Board and the Group’s Risks, Ethics and Compliance Committee on
shaping the risk strategy and managing credit, financial and non-financial risks. All components necessary for comprehensive risk governance are
embedded into risk organization 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 Group’s competitive advantage and strategic enabler.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 193
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
35 Financial and Other Risk Management continued
The TBC Bank Group’s governance structure ensures adequate oversight and accountabilities as well as clear segregation of duties.
The Risks, Ethics and Compliance Committee is responsible for taking all the day-to-day decisions relating to the Group apart from those that
are reserved for the Board. Namely, the committee carries out following duties: 1) Review and assessment of the Group’s risk management
strategy, risk appetite and tolerance, risk management system and risk policies; 2) Review and monitoring of the processes for compliance
with laws, regulations and ethical codes of practice; 3) monitoring of the remediation of internal control deficiencies identified by internal and
external auditors around compliance, ethics and risk management functions; 4) Annual self-assessment of the committee’s performance and
reporting of the results to the Board; 5) Review of the key risk management framework and other policy documents and make
recommendations to the Board for their approval.
On the Bank level, risk management is the duty of the Supervisory Board, which 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’ daily activities.
Both the Supervisory Board and the management Board have established dedicated risk committees. Risk, Ethics and Compliance
Committee of Supervisory Board approves Bank’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.
The Board, the Supervisory Board and Senior Management govern risk objectives through Risk Appetite Statement (“RAS”) which sets
desired risk profile and respective 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 the Group’s day-to-day operations, the 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 the clarity
regarding risk objectives, intense monitoring of risk profile against risk appetite, prompt escalation of risk-related concerns and
establishment of remediation actions.
The daily management of individual risks is based on the principle of the three lines of defense. While business lines are primary risk owners, risk
teams assume the function of the second line defense. This role is performed through sanctioning transactions as well as tools and techniques for
risk identification, analysis, measurement, monitoring and reporting. The committees are established at operational levels in charge of making
transaction-level decisions that comprise of component of clear and sophisticated delegations of the authority framework based on “four-eye
principle”. All new products/projects go through the risk teams to assure risks are analyzed comprehensively. Such control arrangements
guarantee that the Bank takes informed risk-taking decisions that are adequately priced, avoiding taking risks that are beyond the Group’s
established threshold. Within the Risk Organization the below teams manage the credit, liquidity, market, operational and other non-financial risks:
• Enterprise Risk Management (ERM);
• Credit Risk Management;
• Underwriting (Credit sanctioning);
• Restructuring and Collections;
• Financial Risk Management;
• Operational Risk Management;
The strong and independent structure enables fulfilment of all the required risk management functions within the second line of defense by
highly skilled professionals with a balanced mix of credentials in banking and real sectors both on the local and international markets.
In addition to the above-mentioned risk teams, the Compliance Department (reporting directly to CEO) is specifically in charge of AML and
compliance risk management. As the third line of defense, the Internal Audit Department provides an independent and objective assurance
and recommendations to Group that facilitates further improvement of operations and risk management.
For the management of each significant risk, the Bank puts in place specific 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, the Supervisory Board and
the Board that enables intense oversight over risk developments and taking early remedial actions upon necessity.
Beyond the described risk governance components, compensation system features one of the most significant tools for introducing incentives for
staff, aligned with the Bank’s long term interests to generate sustainable risk-adjusted returns. The risk Key Performance Indicators (“KPIs”)
are incorporated into both the business line and the risk staff remunerations. The 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.
194 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
35 Financial and Other Risk Management continued
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 equals their carrying values.
For maximum exposure on off-balance sheet commitments refer to note 37.
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 are 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 a 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.
Credit Approval: The Group 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 a clear segregation of duties among the parties involved in the credit assessment process.
The credit assessment process differs across segments, being further differentiated across various product types reflecting the 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 the loan approval. Lending guidelines for business borrowers have been tailored to individual
economic sectors, outlining key lending criteria and target ratios within each industry.
The Loan Approval Committees are responsible to review the credit applications and approve the 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 the proposed credit exposure risks are thoroughly analysed. A loan to the Bank’s top 20 borrowers
or exceeding 5% of the Bank’s regulatory capital requires the review and the approval of the Supervisory Board’s Risk, Ethics and Compliance
Committee. This committee also approves transactions with related parties resulting in exposures to individuals and legal entities exceeding
GEL 150 and 200 thousand, respectively.
Credit Risk Monitoring: The Group’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. The Group dedicates considerable resources to gain a
clear and accurate understanding of the credit risk faced across various business segments. The Group 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, as well as they 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.
Reports relating to the credit quality of the credit portfolio are presented to the Board’s Risk, Ethics and Compliance Committees on a
quarterly basis. By comparing current data with historical figures and analysing forecasts, the management believes that it is capable
identifying risks and responding to them by amending its policies in a timely manner.
Credit Risk Mitigation: Credit decisions are based primarily on the borrower’s repayment capacity and creditworthiness; in addition, the
Group 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.
A centralised unit for collateral management governs the Group’s view and strategy in relation to collateral management and ensures that
collateral serves as an adequate mitigating factor for credit risk management purposes. The collateral management framework consists
of a sound independent appraisal process, haircut system throughout the underwriting process, monitoring and revaluations.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 195
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
35 Financial and Other Risk Management continued
Credit Risk Restructuring and Collection: A comprehensive portfolio supervision system is in place to identify weakened or problem credit
exposures in a timely manner and to take prompt remedial actions. Dedicated restructuring units manage weakened borrowers across all
business segments. The primary goal of the 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.
A centralised monitoring team monitors retail borrowers in delinquency, which coupled with branches’ efforts, are aimed at maximizing
collection. The specialised software is applied for early collection processes management. Specific strategies are tailored to different
sub-groups of customers, reflecting respective risk levels, so that greater effort is dedicated to customers with a higher risk profile.
Dedicated recovery units manage loans with higher risk profile. Corporate and SME borrowers are transferred to a recovery unit in case of 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. Retail and micro loans are generally transferred to the recovery unit or external collection agencies (in the case of unsecured
loans) at 90 days overdue, although they may be transferred earlier if it is evident that the borrower is unable to repay the loan.
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 as of 31 December 2016 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
549,279
5,874
990,642
6,923,037
429,985
372,956
95,031
94,398
389,223
18,851
–
88,616
–
–
–
229
6,678
–
–
945,180
24,725
990,642
122,049 7,133,702
430,703
372,956
95,031
94,627
718
–
–
–
9,461,202
496,919
129,445 10,087,566
676,665
29
4,772
681,466
10,137,867
496,948
134,217 10,769,032
718,699 1,408,693
530,370
–
1,286
233,657
5,421,782
13,261
49,092
–
70,185 2,197,577
502,797 6,454,949
23,508
50,998
368,381
10,247
620
134,724
6,202,834 2,174,006
718,573 9,095,413
89,298
1,098
592
90,988
6,292,132 2,175,104
719,165 9,186,401
3,845,735 (1,678,156)
(584,948) 1,582,631
274,614
706,646
56,406
10,175
95,588
3,391
426,608
720,212
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
196 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
35 Financial and Other Risk Management continued
The geographical concentration of the Group’s assets and liabilities as of 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
–
–
–
–
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
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
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 197
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
35 Financial and Other Risk Management continued
The geographical concentration of the Group’s assets and liabilities as of 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
58,235
749,285
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
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 of 31 December 2016, the Bank maintained an aggregate open currency
position of 3.2%of regulatory capital (2015: 1.6%; 2014: 3.1%). 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.
198 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
35 Financial and Other Risk Management continued
Currency risk management framework is governed through the Market Risk Management Policy, market risk management procedure and
relevant methodologies. In 2016 within the ICAAP framework the Bank developed methodology for allocating capital charges for FX risk
following Basel guidelines. 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
As of 31 December 2016
Monetary
financial
assets
Monetary
financial
liabilities
3,484,840
5,821,734
690,728
90,264
2,478,715
5,848,266
697,568
70,864
Derivatives
Net balance
sheet position
9,394
(8,905)
(13)
(288)
1,015,519
(35,437)
(6,853)
19,112
10,087,566
9,095,413
188
992,341
As of 31 December 2015
As of 31 December 2014
Monetary
financial
assets
Monetary
financial
liabilities
Derivatives
Net balance
sheet position
Monetary
financial
assets
Monetary
financial
liabilities
2,442,850
3,507,494
466,450
50,436
1,646,864
3,428,146
499,702
61,531
3,430
(71,933)
32,715
36,285
799,416
7,415
(537)
25,190
1,979,583
2,704,810
262,113
72,543
1,336,626
2,573,475
376,934
34,414
Derivatives
55,335
(193,200)
117,668
18,313
Net balance
sheet position
698,292
(61,865)
2,847
56,442
6,467,230
5,636,243
497
831,484
5,019,049
4,321,449
(1,884)
695,716
To assess the currency risk the Bank performs a value-at-risk (“VAR”) sensitivity analysis on a quarterly basis. The analysis calculates the
effect on the Group’s income determined by possible worst movement of currency rates against the Georgian Lari, with all other variables
held constant. To identify the maximum expected losses resulting from currency fluctuations, a 99% confidence level is defined based on the
monthly variations in exchange rates over 3 year look-back period. During the years ended 31 December 2016, 2015 and 2014, the 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 of 31
December
2016
As of 31
December
2015
(1,184)
(868)
(449)
(285)
As of 31
December
2014
(2,572)
(1,886)
Interest rate risk. Interest rate risk arises from potential changes in the 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 Bank’s deposits and the most loans are at fixed interest rates, while a portion of the Bank’s borrowings is at a floating interest rate.
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. The management also believes that the Bank’s interest rate margins
provide a reasonable buffer to mitigate the effect of possible adverse interest rate movements.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 199
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
35 Financial and Other Risk Management continued
The table below summarises the Group’s exposure to interest rate risks. It illustrates the aggregated amounts of the Group’s financial assets
and liabilities at the amounts monitored by the management and 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 Group’s net interest income in case of both upward and downward shift of interest rates.
In thousands of GEL
31 December 2016
Total financial assets
Total financial liabilities
Net interest sensitivity gap as of 31 December 2016
31 December 2015
Total financial assets
Total financial liabilities
Net interest sensitivity gap as of 31 December 2015
31 December 2014
Total financial assets
Total financial liabilities
Net interest sensitivity gap as of 31 December 2014
Less than 1
year
More than
1 year
Total
5,519,746
6,633,005
4,606,991
2,501,580
10,126,737
9,134,585
(1,113,259)
2,105,411
992,153
3,634,967
3,747,595
2,847,165
1,903,627
6,482,132
5,651,222
(112,628)
943,538
830,910
2,566,552
2,763,543
2,480,230
1,584,484
5,046,782
4,348,027
(196,991)
895,746
698,755
As of 31 December 2016, if interest rates had been 100 basis points lower with all other variables held constant, profit for the year would have been
GEL 9.5 million higher (2015: GEL 6,748 thousand; 2014 GEL 4,932 thousand;), mainly as a result of lower interest expense on variable interest
liabilities. Other comprehensive income would have been GEL 1,516 thousand higher (2015: GEL 927 thousand, 2014: GEL 5,482 thousand),
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 9.5 million lower
(2015: GEL 777 thousand 2014: GEL 1,329 thousand), mainly as a result of higher interest expense on variable interest liabilities. Other
comprehensive income would have been GEL 2,118 thousand lower (2015: GEL 911 thousand, 2014: GEL 5,278 thousand), as a result of
decrease in the fair value of fixed rate financial assets classified as available for sale.
With the assistance of Ernst & Young LLC the Bank has developed an advanced model to manage the interest rate risk on a standalone basis.
The interest rate risk analysis is performed monthly by the Financial Risk Management Department.
The Bank calculates the 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. 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.
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 the Board’s Risk, Ethics and Compliance Committee.
Liquidity Risk. The liquidity risk is the risk that TBC Bank 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. The 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.
The liquidity risk is categorised into two risk types: the funding liquidity risk and the market liquidity risk.
200 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
35 Financial and Other Risk Management continued
Funding liquidity risk is the risk that the Group 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 the
Liquidity Coverage ratio and the 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. Internal liquidity coverage ratio and stress tests are carried out 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 Bank to rely on more stable sources of funding on a continuous basis. The 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 NBG’s accounting rules.
The management believes that a strong and diversified funding structure is one of TBC Bank’s differentiators. The Bank relies on relatively
stable deposits from Georgia as the main source of funding. In order to maintain and further enhance the liability structure TBC Bank sets
the targets for retail deposits in its strategy and sets the loan to deposit ratio limits.
The loan to deposit ratio (defined as total value of net loans divided by total value of deposits) stood at 110.5%, 106.4% and 107.1%, at the
31 December 2016, 2015 and 2014 respectively.
Market liquidity risk is the risk that the Bank cannot easily offset or eliminate a position at the then-current market price because of
inadequate market depth or market disruption. To manage it, TBC Bank follows Basel III guidelines on high-quality liquidity asset eligibility in
order 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 is part of the Bank’s overall prudential liquidity policy and is designed to ensure
that TBC Bank 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 Bank calculates its liquidity ratio on a daily basis in accordance with the NBG’s requirements. The limit is set 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 of 31 December the ratios were
well above the prudential limit set by the NBG as follows:
Average Liquidity Ratio
2016
2015
30.8%
34.4%
2014
31.1%
According to daily cash flow forecasts and the surplus in liquidity standing, the 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 summarizes the maturity analysis of the Group’s financial liabilities, based on remaining undiscounted
contractual obligations as of 31 December 2016’ Subject-to-notice repayments 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.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
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M
A
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 201
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
35 Financial and Other Risk Management continued
The maturity analysis of financial liabilities as of 31 December 2016 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
837,188
2,147,015
2,287,043
46,971
4,853
616
16,084
60,552
117,994
449,110
310,447
1,284,067
238,551
2,883
29,510
6,584
3,641
154,616
102,311
–
From
12 months to
5 years
1,103,959
360,609
134,293
1,144
238,224
22,745
369
210,595
50,657
–
Over 5 years
Total
168,271
39,578
74,180
–
360,551
–
–
845
140
–
2,419,865
3,831,269
2,734,067
50,998
633,138
29,945
20,094
426,608
271,102
449,110
Total potential future payments for financial obligations
5,967,426
2,132,610
2,122,595
643,565 10,866,196
The maturity analysis of financial liabilities as of 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
–
24,181
23,859
23,739
–
132,636
–
–
550
131
–
1,212,149
2,608,439
1,662,100
39,435
404,196
23,537
96,335
243,183
168,633
247,159
Total potential future payments for financial obligations
3,757,019
1,387,872
1,355,179
205,096
6,705,166
The maturity analysis of financial liabilities as of 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
–
44,602
24,333
35,865
–
70,795
–
–
517
–
–
811,695
2,040,909
1,362,593
41,346
269,607
22,322
250,857
195,815
239,251
284,284
Total potential future payments for financial obligations
3,093,150
1,164,813
1,084,604
176,112
5,518,679
The undiscounted financial liability analysis gap does not reflect the historical stability of the current accounts. Their liquidation has
historically taken place over a longer period than the one indicated in the tables above. These balances are included in amounts due in less
than three months in the tables above.
202 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
35 Financial and Other Risk Management continued
Term Deposits included in the customer accounts are classified based on remaining contractual maturities, according to the Georgian Civil
Code, however, individuals have the 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 the depositor’s demand. Based on the 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 the 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 the liquidity gap analysis based
on the expected maturities. In particular, the customers’ deposits are distributed in the given maturity gaps following their behavioural analysis.
As of 31 December 2016 the analysis by expected maturities may be as follows:
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 as of 31 December 2016
Cumulative gap as of 31 December 2016
Less than 3
months
From 3 to
12 months
From 1 to 5
Years
Over 5 years
Total
945,180
4,417
990,642
1,119,128
430,703
123,763
18,770
64,328
–
5,210
–
1,481,095
–
94,250
30,600
10,595
–
5,544
–
2,949,227
–
128,201
45,661
19,704
–
9,554
–
1,584,252
–
26,742
–
–
945,180
24,725
990,642
7,133,702
430,703
372,956
95,031
94,627
3,696,931
1,621,750
3,148,337
1,620,548 10,087,566
796,148
723,340
145
46,971
3,333
260,046
154,513
5,277
2,883
4,893
986,857
–
18,086
1,144
125,174
154,526
5,577,096
–
234,981
2,197,577
6,454,949
23,508
50,998
368,381
1,569,937
427,612
1,131,261
5,966,603
9,095,413
2,635
8,049
45,854
56,538
–
–
–
–
–
–
–
–
–
–
–
–
2,635
8,049
45,854
56,538
2,070,456
1,194,138
2,017,076
(4,346,055)
935,615
2,070,456
3,264,594
5,281,670
935,615
The management believes that the Group has sufficient liquidity to meet its current on- and off-balance sheet obligations.
G
O
V
E
R
N
A
N
C
E
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 203
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
35 Financial and Other Risk Management continued
As of 31 December 2015 the analysis by expected maturities may be as follows::
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 as of 31 December 2015
Cumulative gap as of 31 December 2015
As of 31 December 2014 the analysis by expected maturities may be as follows::
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 as of 31 December 2014
Cumulative gap as of 31 December 2014
204 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
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
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
35 Financial and Other Risk Management continued
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: (0-1 months), (0-3 months), (0-6 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 estimate is based on statistical methods applied to historic information on the fluctuations of customer account balances.
Operating environment. Most of the Group’s business is based in Georgia. Emerging economies, such as Georgia’s, are subject to rapid
change and are vulnerable to global market conditions and economic downturns. 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 embarked in a number of civil, criminal, tax, administrative and commercial reforms that have positively affected the overall
investment climate of the country. Today Georgia has an international reputation as a country with a favourable investment environment.
Georgia continued to progress in the report “Doing Business 2016: Understanding Regulations for Small and Medium-Size Enterprises” by
the World Bank (WB) and International Financing Corporation (IFC), ranking as the 16th easiest country in the world to do business (out of
190), up by 7 steps compared to the previous year rankings. The country improved its ranking in almost all categories, confirming its position
as regional leader and outperforming most of the EU economies. Georgia also boasts low corruption levels, a low tax burden, and high
transparency of its institutions according to the number of surveys by international institutions. The Parliamentary elections in October, 2016
were ruled free and just by all of international observers. The vote marked the continuation of economic reforms and country’s pro-western
orientation as affirmed by the ruling party. Peaceful elections positively influence the business confidence and further strengthen the image
of Georgia as the country of democratic values and institutions.
In 2016 Georgian economy grew moderately by 2.4%, per initial estimates, below the initial growth target around 3-3.5% indicated by most
of the international financial institutions. The growth has been negatively affected by a YoY decline in the transport sector, reflecting the
slowdown in regional trade volumes. The construction sector, which has been the primary driver of growth in last 2 years, also decelerated.
The manufacturing sector, the economy’s second largest, showed improvements along with the recovery of exports.
By the end of 2016 the Georgian Lari depreciated against the US Dollar by 10.5% YoY, mostly driven by the depreciation of the Turkish Lira.
Over the same period the GEL lost 7% of its value against the EUR. Following the contraction over the last 2 years, exports and remittances
started to recover in the second half of 2016, supported by the expanding geographic area for the Georgian exports as well as relatively stable
economic conditions in Russia and Ukraine. On the other hand, the economic situation continued to deteriorate in Azerbaijan, Turkey and
Armenia, thus negatively affecting Georgian exports to these countries. Despite the continued challenges in the region, tourism revenues
posted solid growth with the number of visitors reaching 6.4 million, up by 8% YoY.
After the close to zero inflation (+0.6% YoY) in Q4 2016, inflation picked up in January to 3.9% YoY. Reversal in inflation was driven by increased
excise taxes on tobacco, petroleum and cars, core inflation stood at 2.8% YoY. Higher excise taxes fed into higher inflation expectations in
the economy. To respond to unexpected shift in inflation expectations NBG raised policy rate by 0.25pps from 6.5% to 6.75% by the end of
January 2016 and promised additional 0.25pp rate hike in the coming quarter. Given the inflation is primarily driven by one-off factors;
NBG is not expected to over-react even if inflation goes temporarily above its target of 4% in 2017.
The fiscal policy remained pro-growth in 2016, with the fiscal deficit around 4%, financed mostly by the external liabilities. Despite this being
over 3%, public debt levels remain, at around 45% of GDP, below the ceiling of 60% set out in the constitution. In line with the government’s
debt management strategy, the share of domestic debt in total public debt is gradually increasing – it stood at 21% at the end of 2016 –
which reduces exchange rate risk and strengthens the sustainability profile of public debt.
In 2017, fiscal deficit is projected at 4.2% of GDP. Despite remaining high, this is mostly driven by increased capital expenditures. The
government’s long-term reform agenda centres on infrastructure development in the country, which should support long-term economic
growth by reducing transportation costs and better harnessing the potential of Georgia’s regions. In addition, better transport infrastructure
should strengthen the country’s position as the region’s transport and logistics hub.
36 Management of Capital
The Group’s objectives in terms of capital management are to maintain appropriate levels of capital to support the business strategy, meet
regulatory and stress testing-related requirements and safeguard the Group’s ability to continue as a going concern. Additionally, the Group’s
capital management objectives entail ensuring that the Bank complies with the capital requirements set by the Basel Capital Accord 1988
capital adequacy ratios as stipulated by borrowing agreements. The compliance with capital adequacy ratios set by the NBG is monitored
monthly with the reports outlining their calculation and are reviewed and signed by the Bank’s CFO and Deputy CFO.
The Bank and the Group complied with all its internally and externally imposed capital requirements throughout 2014, 2015 and 2016.
G
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N
A
N
C
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I
F
N
A
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I
A
L
S
T
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E
M
E
N
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S
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D
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A
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 205
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
36 Management of Capital continued
NBG Basel I Capital adequacy ratio
Under the current capital requirements set by the NBG in 2016 banks have to maintain a ratio of regulatory capital to risk weighted assets
(“statutory capital ratio”) above the minimum level of 10.8% and a ratio of Tier 1 capital to risk weighted assets above the minimum level of
7.2%. No additional add-ons are in place. In mid-2015, the NBG removed previously established 3% capital add-on. The 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
Less Investments in the capital of the resident 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
2016
2015
2014
567,089
770,345
115,559
(53,074)
(61,855)
(351,040)
342,653
443,987
568,604
87,037
(41,080)
(50,840)
–
173,652
433,521
402,793
64,627
(26,123)
(117,962)
–
116,068
1,329,677
1,181,360
872,924
6,750,917 5,304,184
4,125,740
2,855,296 2,056,062 1,525,435
(205,131)
(155,192)
7,155,115 5,495,983
12.2%
15.9%
(205,968)
9,400,245
10.9%
14.1%
11.0%
16.5%
The breakdown of the Bank’s assets into the carrying amounts based on the NBG accounting rules and relevant risk-weighted exposures as
of the end of 2016, 2015, 2014 are given in the tables below:
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 sheet
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 sheet
minus general and special reserves
Total Amount
206 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2016
Carrying Value
RW amount
2,372,263
5,979,125
46,441
328,184
620,428
9,346,441
875,585
(205,968)
163,294
8,427,081
46,441
275,110
278,394
9,190,320
415,893
(205,968)
10,016,058
9,400,245
2015
Carrying Value
RW amount
1,794,873
4,671,693
44,253
306,368
177,111
6,994,298
696,260
(205,131)
85,733
6,445,027
44,253
265,288
151,073
6,991,374
368,872
(205,131)
7,485,427
7,155,115
36 Management of Capital continued
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 sheet
minus general and special reserves
Total Amount
2014
Carrying Value
RW amount
1,426,453
3,353,985
67,381
201,721
198,146
5,247,686
868,270
(155,192)
257,522
4,668,750
67,381
175,598
112,829
5,282,080
369,095
(155,192)
5,960,764
5,495,983
NBG Basel II Capital adequacy ratio
After adopting the 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. The NBG provides detailed instructions of Pillar 1 calculations. The reporting started at 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
2016
2015
2014
1,041,270
380,751
953,403
245,705
783,360
163,505
1,422,021 1,199,108
946,865
9,399,140 7,005,711
18,651
452,089
45,689
576,628
5,879,120
27,186
390,378
10,021,457
7,476,451 6,296,684
8.5%
10.4%
10.5%
14.2%
8.5%
12.8%
10.5%
16.0%
8.5%
12.4%
10.5%
15.0%
The breakdown of the Bank’s assets into the carrying amounts based on NBG accounting rules and relevant risk-weighted exposures as of
31 December 2016, 2015 and 2014 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
2016
Carrying Value
RW amount
2,397,259
5,771,369
46,441
328,184
647,261
(45,534)
9,144,980
978,221
45,689
403,640
1,086,262
7,149,145
46,441
273,176
536,747
(45,534)
9,046,237
352,903
45,689
576,628
10,572,530 10,021,457
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N
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A
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 207
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
36 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
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
Total Amount
2015
Carrying Value
RW amount
1,857,283
4,442,340
44,253
306,368
179,535
(36,630)
6,793,149
789,224
18,651
316,462
570,748
5,555,538
44,253
334,472
219,572
(36,630)
6,687,953
317,758
18,651
452,089
7,917,486
7,476,451
2014
Carrying Value
RW amount
1,524,235
3,254,912
67,381
201,721
199,439
(48,030)
5,199,658
934,174
27,186
273,265
682,162
4,330,991
67,381
187,918
307,609
(48,030)
5,528,031
351,089
27,186
390,378
6,434,283
6,296,684
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. These
requirements include 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
208 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
2016
2015
2014
524,778
983,387
(26,892)
4,383
1,485,656
427,061
725,498
(2,726)
7,189
1,157,022
59,240
88,300
323,087
470,627
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
1,956,283
1,449,145
1,188,187
(136,721)
46,484
7,064,035 4,781,605
(134,373)
32,605
6,973,798 4,679,837
4.0%
24.7%
8.0%
4.0%
21.3%
8.0%
3,949,360
(100,397)
61,864
3,910,827
4.0%
24.7%
8.0%
28.1%
31.0%
30.4%
36 Management of Capital continued
Following the Basel I guidelines the 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)
The breakdown of the Group’s assets into the carrying amounts and relevant risk-weighted exposures as of the end of 2016, 2015,
2014 is provided in the tables below:
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
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
2016
Carrying Value
RW amount
2,762,892
7,358,725
90,873
401,174
373,118
10,986,782
1,290,813
(136,721)
46,484
133,527
5,609,312
90,873
374,282
373,118
6,581,112
482,923
(136,721)
46,484
12,187,358
6,973,798
2015
Carrying Value
RW amount
1,882,281
4,639,029
85,216
294,837
227,775
7,129,138
849,295
(134,373)
32,605
103,406
3,757,464
85,216
292,111
227,775
4,465,972
315,633
(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
5,573,230
1,028,774
(100,397)
61,864
63,462
3,035,718
60,480
246,448
188,909
3,595,017
354,343
(100,397)
61,864
6,563,471
3,910,827
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A
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 209
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
37 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 with regards to
such claims, the management seeks 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. The management’s interpretation of the legislation as applied to the Group’s transactions and activity 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 review
period. To respond to the risks, the Group has engaged external tax specialists to carry out 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 of 31 December 2016, 2015 and 2014 no provision for potential tax liabilities has been recorded.
Operating lease commitments. Where the Group is the lessee, as of 31 December 2016, the future minimum lease payments
under non-cancellable operating leases over the next year amounted to GEL 5,016 thousand (31 December 2015: 4,891 thousand,
31 December 2014: 4,766 thousand).
Compliance with covenants. The Group is subject to certain covenants primarily related 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 18, as of 31 December 2016, 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 of 31 December 2016 and with all covenants as of 31 December 2015 and 31 December 2014.
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 the 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, that 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 prolong 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 a loss in an amount equal to the total
unused commitments. However, the likely amount of loss is lower 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 ones.
Performance guarantees. Performance guarantees are contracts that provide compensation in case of another party fails to perform a
contractual obligation. Such contracts do not transfer credit risk. The risk under the performance guarantee contracts is the possibility that
the insured event occurs (i.e.: the failure to perform the contractual obligation by another party). 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 issued
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
2016
2015
2014
426,608
116,260
449,110
154,842
1,146,820
(2,635)
(8,049)
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)
1,136,136
651,914
697,274
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 of
31 December 2016 were GEL 169,831 thousand (2015: GEL 136,867 thousand; 2014: GEL 138,296 thousand).
210 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
37 Contingencies and Commitments continued
Fair value of credit related commitments and financial guarantees were GEL 8,049 thousand as of 31 December 2016
(2015: GEL 5,589 thousand; 2014: GEL 3,266 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
2016
2015
2014
409,498
545,621
101,892
89,809
259,749
319,941
44,874
34,411
254,554
377,964
46,057
26,877
1,146,820
658,975
705,452
Capital expenditure commitments. As of 31 December 2016, the Group has contractual capital expenditure commitments amounting to
GEL 5,665 thousand (2015: 6,771 thousand; 2014: 511).
38 Non-Controlling Interest
The following table provides information about each subsidiary with non-controlling interest as of 31 December 2016:
In thousands of GEL
TBC Bank JSC including:
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Proportion of
non-
controlling
interest’s
voting rights
held
Profit
attributable
to non-
controlling
interest
Accumulated
non-
controlling
interest in
the
subsidiary
1.52%
0.39%
25%
1.34%
(887)
9
(2,865)
50
28,264
56
3,890
436
Dividends
paid
to non-
controlling
interest
during the
year
–
–
–
–
The summarised financial information of these subsidiaries was as follows as of 31 December 2016:
In thousands of GEL
TBC Bank JSC
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Revenue
Profit
Total
compre-
hensive
income
Cash
flows
5,492,825 5,268,934 7,105,314 2,084,656
51,283
17,867
45
54,930
16,034
9,114
71,484
20,649
9,271
49,140
19,458
5,800
679,912
11,566
8,367
11,979
302,491
2,316
(11,461)
3,737
303,031
2,316
(11,461)
3,737
224,421
(5,425)
(4,291)
(1,243)
The following table provides information about each subsidiary with a non-controlling interest as of 31 December 2015:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Proportion
of non-
controlling
interest’s
voting rights
held
Profit
attributable
to non-
controlling
interest
Accumulated
non-
controlling
interest in
the
subsidiary
0.43%
25%
1.33%
8
(250)
60
47
6,756
386
Dividends
paid
to non-
controlling
interest
during the
year
–
–
–
The summarised financial information of these subsidiaries was as follows as of 31 December 2015:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
69,642
41,703
5,453
36,323
36,053
6,470
29,607
57,773
675
65,378
1,509
73
Revenue
9,511
15,319
12,512
Profit
1,960
(1,002)
4,476
Total
compre-
hensive
income
1,960
(1,002)
4,476
Cash
flows
8,769
7,290
1,908
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 211
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N
C
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I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
38 Non-Controlling Interest continued
The following table provides information about each subsidiary with non-controlling interest as of 31 December 2014:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Proportion
of non-
controlling
interest’s
voting rights
held
Profit
attributable
to non-
controlling
interest
Accumulated
non-
controlling
interest in
the
subsidiary
0.52%
25%
1.33%
6
970
24
38
7,006
327
Dividends
paid to
non-
controlling
interest
during the
year
–
–
–
The summarised financial information of these subsidiaries was as follows as of 31 December 2014:
In thousands of GEL
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
43,541
45,238
2,846
29,236
45,927
4,772
20,625
11,949
431
44,710
47,743
487
Revenue
6,130
12,881
9,212
Profit
1,204
3,880
1,792
Total
compre-
hensive
income
1,204
3,880
1,792
Cash
flows
(2,745)
590
432
39 Offsetting Financial Assets and Financial Liabilities
As of 31 December 2016, financial instruments subject to offsetting, enforceable master netting and similar arrangements were as follows:
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)
–
–
–
–
–
–
–
–
24,801
24,801
12,405
12,405
In thousands of GEL
ASSETS
Other financial assets:
– Receivables on credit card services and money transfers
26,959
2,158
24,801
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
26,959
2,158
24,801
LIABILITIES
Other financial liabilities:
– Payables on credit card services and money transfers
14,563
2,158
12,405
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
14,563
2,158
12,405
212 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
39 Offsetting Financial Assets and Financial Liabilities continued
As of 31 December 2015, financial instruments subject to offsetting, enforceable master netting and similar arrangements were as follows:
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
15,300
2,749
12,551
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
15,300
2,749
12,551
–
–
–
–
–
–
–
–
15,072
15,072
12,551
12,551
As of 31 December 2014, financial instruments subject to offsetting, enforceable master netting and similar arrangements were as follows:
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
11,399
1,959
9,440
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
11,399
1,959
9,440
LIABILITIES
Other financial liabilities:
– Payables on credit card services and money transfers
10,781
1,959
8,822
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
10,781
1,959
8,822
–
–
–
–
–
–
–
–
9,440
9,440
8,822
8,822
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 arrangements have been
netted-off in these financial statements and the instrument has been presented as either asset or liability at a 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 213
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
40 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
2016
508
2015
605
2014
618
(320)
(1,055)
(108)
(2,303)
(2,502)
(3,137)
(867)
(1,806)
(5,021)
Foreign Exchange Forwards and gross settled currency swaps. Foreign exchange derivative financial instruments the Group entered
are generally traded in an over-the-counter market with professional 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 the Group entered. 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 by their nature.
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 (+)
2016
2015
2014
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
–
4,220
–
10,998
–
3,201
–
1,862
(13,125)
–
(1,604)
–
(3,214)
–
(2,150)
–
–
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)
–
Fair value of foreign exchange forwards and gross settled currency
swaps
20,281
(20,093)
99,950
(99,453)
248,960
(250,844)
Net fair value of foreign exchange forwards and gross settled
currency swaps
188
497
(1,884)
Interest rate swaps. In March 2010 TBC Bank entered into an interest rate swap agreement, to hedge floating interest rate on its
subordinated debt. The hedge covers the 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 the fair value of interest rate swaps was estimated to be negative GEL 1,055 thousand
(2015: negative GEL 2,303 thousand; 2014: negative GEL 3,137 thousand).
Information on related party balances is disclosed in Note 43.
214 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
41 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 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 2016
31 December 2015
31 December 2014
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
–
–
–
476
6,140
618
–
1,016
–
1,016
–
998
–
998
– 232,934
– 232,934
–
36,002
– 150,073
– 241,810
–
–
–
36,002
– 150,073
–
84,849
– 174,916
–
84,849
– 174,916
– 198,233
25,034
–
– 198,233
25,034
–
– 241,810
–
–
9,335
33,445
–
–
–
33,445
9,335
–
6,140
476
–
–
–
508
–
508
– 229,549 229,549
–
–
604
–
604
– 175,184 175,184
–
–
618
– 132,346 132,346
– 429,409 229,549 658,958
9,335 294,812 175,184 479,331
6,140 457,295 132,346 595,781
–
1,055
–
1,055
–
2,303
–
2,303
–
3,137
–
3,137
–
320
–
320
–
1,375
–
1,375
–
–
108
2,411
–
–
108
2,411
–
–
2,502
5,639
–
–
2,502
5,639
There were no transfers between levels 1 and 2 during the year ended 31 December 2016 (2015: none, 2014: none).
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 215
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
41 Fair Value Disclosures continued
The description of the valuation technique and the description of inputs used in the fair value measurement for level 2 measurements:
In thousands of GEL
2016
2015
2014
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
MEASUREMENTS
LIABILITIES CARRIED AT FAIR VALUE
FINANCIAL LIABILITIES
Other financial liabilities
Discounted cash flows
(“DCF”)
Government bonds yield
curve
Forward pricing using
present value
calculations
Official exchange rate,
risk-free rate
428,901
294,208
456,677
508
604
618
429,409
294,812
457,295
– Interest rate swaps included in other financial
liabilities
1,055
2,303
3,137
– Foreign exchange forwards included in other
financial liabilities
320
108
2,502
TOTAL RECURRING FAIR VALUE MEASUREMENTS
AT LEVEL 2
1,375
2,411
5,639
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 the valuation technique for the level 2 and level 3 recurring fair value measurements during the year ended
31 December 2016 (2015: none; 2014: none).
For details 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 meter:
the higher the price per square meter, the higher the fair value.
216 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
41 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
Level 1
Level 2
Level 3
Carrying
Value
Level 1
Level 2
Level 3
Carrying
Value
Level 1
Level 2
Level 3
Carrying
Value
31 December 2016
31 December 2015
31 December 2014
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
945,180
–
–
24,725
–
990,642
–
–
–
945,180
720,347
24,725
11,042
–
–
990,642
471,490
–
–
–
720,347
532,118
11,042
33,704
–
–
471,490
–
336,075
–
–
–
532,118
33,704
336,075
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,086,791
1,668,124
1,844,243
–
1,970,671
1,604,250
1,788,092
845,388
682,785
286,438
834,374
649,228
287,087
377,749
–
372,956
–
–
95,907
95,031
94,119
94,119
–
123,852
95,615
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,504,360
870,285
906,240
1,392,054
831,588
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
780,259
729,013
1,140,503
744,290
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
TOTAL ASSETS
945,180 1,393,116
7,727,646
9,751,970
731,389
821,657
4,882,249
6,216,930
565,822
336,075
3,869,691
4,628,755
FINANCIAL
LIABILITIES
Due to credit
institutions
Customer
accounts
Debt securities in
issue
Other financial
liabilities
Subordinated debt
TOTAL
– 2,197,016
–
2,197,577
– 4,002,659
2,463,392
6,454,949
–
–
–
23,508
49,623
369,320
–
–
–
23,508
49,623
368,381
–
–
–
–
–
1,113,666
–
1,113,574
–
749,285
–
749,285
2,372,794
1,812,575
4,177,931
– 1,857,089
1,483,891 3,322,428
21,714
37,024
284,985
–
–
–
21,714
37,024
283,648
–
–
–
20,423
35,707
188,015
–
–
–
20,423
35,707
188,015
LIABILITIES
– 6,642,126
2,463,392
9,094,038
–
3,830,183
1,812,575 5,633,891
– 2,850,519
1,483,891
4,315,858
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 217
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
41 Fair Value Disclosures continued
The fair values in the 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 calculated 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 Group could be required to pay the amount.
There were no changes in the valuation technique for the level 2 and level 3 measurements of assets and liabilities not measured at fair
values in the year ended 31 December 2016 (2015: none; 2014: none).
42 Presentation of Financial Instruments by Measurement Category
For the measurement purposes, 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. In addition, finance lease receivables form a separate category. The
following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2016:
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 held
for trading
Total
945,180
24,725
990,642
7,133,702
–
372,956
–
–
–
–
430,703
–
–
–
–
–
–
–
95,031
945,180
24,725
–
–
990,642
– 7,133,702
430,703
–
372,956
–
95,031
–
94,119
–
–
508
94,627
9,561,324
430,703
95,031
508 10,087,566
–
–
–
–
–
–
–
681,466
– 10,769,032
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 held
for trading
Total
720,347
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
–
63,712
–
–
605
64,317
6,083,569
307,310
75,760
605 6,467,244
–
–
–
–
–
–
–
467,751
– 6,934,995
218 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
42 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 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 held
for trading
Total
532,118
33,704
336,075
3,556,496
–
–
–
–
–
–
466,510
–
–
–
–
–
–
50,907
43,239
–
–
4,501,632
466,510
50,907
–
–
–
–
–
–
532,118
–
33,704
–
–
336,075
– 3,556,496
466,510
–
50,907
–
618
618
43,857
5,019,667
–
403,799
– 5,423,466
As of 31 December 2016, 2015 and 2014, all of the Group’s financial liabilities except for derivatives are carried at amortised cost. Derivatives
belong to the assets held for trading measurement category.
43 Related Party Transactions
Pursuant to IAS 24 “Related Party Disclosures”, parties are generally considered to be related if the parties are under common control or
one party has the ability to control the other or it can exercise significant influence over the other party in taking 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 with more than 10% of ownership stake in the TBCG or with representatives in the Board of Directors are considered as
Significant Shareholders. The key management personnel include members of TBCG’s Board of Directors, the Management Board of the
Bank and their close family members.
Transactions between TBC Bank Group PLC and its subsidiaries also meet the definition of related party transactions. Where these are
eliminated on consolidation, they are not disclosed in the Group Financial Statements.
As of 31 December 2016, the outstanding balances with related parties were as follows:
In thousands of GEL
Gross amount of loans and advances to customers (contractual interest rate: 6.3 – 20%)
Impairment provisions for loans and advances to customers
Derivative financial liability
Due to credit institutions (contractual interest rate: 5.7 – 9.7%)
Customer accounts (contractual interest rate: 0 – 13.5%)
Guarantees
Provision on guarantees
Significant
shareholders
Note
Key
management
personnel
40
900
2
1,055
257,403
38,982
28,509
192
7,612
26
–
–
14,548
–
–
The income and expense items with related parties except from key management compensation for the year 2016 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
161
17,435
115
170
69
580
1
206
40
399
503
18
465
13
–
155
–
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 219
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
43 Related Party Transactions continued
The aggregate loan amounts advanced to, and repaid, by related parties during 2016 were as follows:
In thousands of GEL
Amounts advanced to related parties during the year
Amounts repaid by related parties during the year
As of 31 December 2016, transactions and balances of TBC Bank Group PLC with subsidiary company were as follows:
In thousands of GEL
Gross amount of loans and advances granted to subsidiary
Customer accounts placed in subsidiary
Placement of cash in subsidiary
Investment in subsidiary
Significant
shareholders
Key
management
personnel
3,713
(5,994)
10,568
(5,722)
Balance as of
31 December
2016
2,000
2,320
399
1,417,043
The income and expense items for TBC Bank Group PLC with subsidiary except from key management compensation for the year 2016 were
as follows:
In thousands of GEL
Interest income
Interest expense
Fee and commission expense
2016
1,149
32
1
Included in Investment in subsidiary GEL 7,023 thousands relates to investment in JSC TBC Insurance and GEL 4,882 thousands to accrual of
share based compensation.
As of 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
40
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
40
139
537
40
28
16
–
288
–
220 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
43 Related Party Transactions continued
The aggregate loan amounts advanced to, and repaid, by related parties during 2015 were as follows:
In thousands of GEL
Amounts advanced to related parties during the year
Amounts repaid by related parties during the year
As of 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%)
Significant
shareholders
Key
management
personnel
1,684
(5,486)
2,972
(2,492)
Significant
shareholders
Note
Key
management
personnel
40
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
As of 31 December 2014, other rights and obligations with related parties were as follows:
In thousands of GEL
Amounts advanced to related parties during the year
Amounts repaid by related parties during the year
Significant
shareholders
Note
Key
management
personnel
551
15,408
56
331
9
926
70
(683)
40
114
350
26
51
10
–
164
–
Significant
shareholders
Key
management
personnel
2,074
(7,501)
3,042
(3,204)
The compensation of the TBCG Board of Directors and the Bank’s Management Board is presented below:
In thousands of GEL
Salaries and bonuses
Cash settled bonuses related to share-based compensation
Equity-settled share-based compensation
Total
2016
2015
2014
Expense
12,323
7,336
9,923
29,582
Accrued
liability
–
10,715
–
10,715
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
Included in salaries and bonuses for year 2016, GEL 247 thousands relates to compensation for directors of TBCG paid by TBC Bank Group PLC.
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TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 221
STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 DECEMBER 2016
44 Business Combination
Acquisition of JSC Bank Republic
On 20 October 2016, the Bank acquired 100% of the share capital of JSC Republic Bank, one of the leading universal banks operating in
Georgia, from Société Générale and EBRD, and consequently obtained control through its ability to cast a majority of votes in the general
meeting of shareholders. The acquisition was financed by cash consideration of US$100,858,342 and 2,998,305 newly issued shares of TBC
Bank Group PLC. The Transaction represents a key milestone in the consolidation of the Georgian banking sector. The acquired subsidiary
is focused on the consumer and mortgage lending markets and is highly complementary to the Group’s existing operations, providing an
opportunity for significant synergies.
The acquisition-date fair value of the total purchase consideration and its components are as follows:
In thousands of GEL
Cash consideration paid
Shares issued
Total purchase consideration
238,772
112,269
351,041
Acquisition related transaction costs were expensed as general and administrative expenses.
The consideration paid by the Group was based on results of an appraisal by an internationally recognised investment bank, of the acquiree’s
business taken as a whole. However, in accordance with IFRS 3 “Business Combinations”, the Group must account for acquisitions based on fair
values of the identifiable assets acquired and liabilities and contingent liabilities assumed. These two different approaches can lead to differences;
and, as set out in the table below, recognition of goodwill. Details of the assets and liabilities acquired and goodwill arising is as follows:
In thousands of GEL
Cash and cash equivalents
Mandatory cash balance with the National Bank of Georgia
Due from financial institutions
Loans to customers
Investment securities
Property and equipment
Investment property
Intangible assets
Other assets
Deposits by banks
Deposits by customers
Provisions
Deferred income tax liabilities
Current income tax liabilities
Borrowed funds
Other liabilities
Subordinated debt
Fair value of acquired interest in net assets of subsidiary
Goodwill arising from the acquisition
Total purchase consideration
Less: Non-cash consideration
Less: cash and cash equivalents of subsidiary acquired
Outflow of cash and cash equivalents on acquisition
Note
Attributed
fair value
150,341
133,006
20,686
1,210,957
153,004
57,939
22,836
6,534
11,025
(118,640)
(739,645)
(1,942)
(6,362)
(1,506)
(562,565)
(8,793)
–
326,875
24,166
351,041
(112,269)
(150,341)
88,431
17
The goodwill is primarily attributable to the profitability of the acquired business, the significant synergies and combined costs savings
expected to arise.
The acquired subsidiary contributed net revenues of GEL 38,053 thousand and profit of GEL 10,677 thousand to the Group for the period from
the date of acquisition to 31 December 2016. If the acquisition had occurred on 1 January 2016, the contribution to the Group’s net revenues
for the year ended 31 December 2016 would have been of GEL 151,454 thousand and to profit would have been of GEL 57,810 thousand.
The gross amount of loans to customers and finance lease receivables was GEL 1,252 million of which GEL 40,808 thousand is not expected to
be collected.
222 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
44 Business Combination continued
Acquisition of JSC Insurance Company Kopenbur
On 2 November 2016, the Bank acquired 100% of the share capital of JSC Insurance Company Kopenbur, for US$1,422,500. Following the
acquisition the company was renamed to “TBC Insurance”. The Transaction is in line with TBC Bank Group PLC’s strategy to enhance its
product offering to its customers. JSC Insurance Company Kopenbur is focused on the retail segment in Georgia, with particular strength
in motor insurance, and complements the traditional Bank assurance products and services offered to TBC Bank customers.
The acquisition-date fair value of the total purchase consideration and its components are as follows:
In thousands of GEL
Cash consideration paid
Total purchase consideration
Acquisition-related transaction costs were expensed as general and administrative expenses.
In thousands of GEL
Cash and cash equivalents
Placements with banks
Insurance and other receivables
Deferred tax asset
Property and equipment
Intangible assets
Other assets
Insurance Contracts Liabilities
Provisions for liabilities and charges
Other Liabilities
Fair value of acquired interest in net assets of subsidiary
Goodwill arising from the acquisition
Total purchase consideration
Less: cash and cash equivalents of subsidiary acquired
Outflow of cash and cash equivalents on acquisition
3,423
3,423
Note
Attributed
fair value
491
1,408
5,310
246
406
228
627
(2,887)
(414)
(3,758)
1,657
1,766
3,423
(491)
2,932
17
The goodwill is primarily attributable to the profitability of the acquired business and the significant synergies expected to arise.
The acquired subsidiary contributed net revenues of GEL 15 thousand and loss of GEL 1,042 thousand to the Group for the period from the
date of acquisition to 31 December 2016. If the acquisition had occurred on 1 January 2016, the contribution to the Group’s net revenues for
the year ended 31 December 2016 would have been of GEL 2,661 thousand and to profit would have been negative of GEL 1,554 thousand.
1 A full list of related undertakings and the country of incorporation is set out below.
Company Name
Country of incorporation
7 Marjanishvili Street, 0102, Tbilisi, Georgia
2 Grigol Abashidze Street, 0179, Tbilisi Georgia
27 Kostava street, 0179, Tbilisi Georgia
154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia
11 Chavchavadze Avenue, 0179, Tbilisi, Georgia
8 Bulachauri Street, 0160, Tbilisi, Georgia
71-77, 28 May Street, AZ1010, Baku, Azerbaijan
JSC TBC Bank
Bank Republic Group
Ltd Merckhali Pirveli
United Financial Corporation JSC
TBC Capital LLC
TBC Leasing JSC
TBC Kredit LLC
Banking System Service Company LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Pay LLC
7 Marjanishvili Street, 0102, Tbilisi, Georgia
Real Estate Management Fund JSC
7 Jabonitsky street, 52520, Tel Aviv, Israel
TBC Invest LLC
23 Chkheidze Street, 0102, Tbilisi, Georgia
Mali LLC
24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
JSC TBC Insurance
Harneys Fiduciary, Craigmuir Chambers, Po Box 71, Road Town, Tortola Vg1110, British Virgin Islands
UFC International Ltd
202 Oudegracht, 1811, CR Alkmaar Netherlands
TBC Capital B.V
7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Invest International Ltd
1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
University Development Fund
2 Abashidze street, 0179, Tbilisi Georgia
Ltd Georgian Mill Company
TBC BANK ANNUAL REPORT AND ACCOUNTS 2016 / 223
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STRATEGIC REPORT OVERVIEWSTRATEGIC REPORT STRATEGY & PERFORMANCE
GLOSSARY
Bank
Bankassurance
Bank Constanta
Bank Republic
Board
Chairman
Joint Stock Company TBC Bank
An arrangement in which a bank and an insurance company form a partnership, so that the
insurance company can sell its products to the bank’s client base
Joint Stock Company Bank Constanta
Joint Stock Company Bank Republic
Board of Directors of TBC Bank Group PLC
Chairman of Board of Directors of the Company
Chief Executive Officer (or CEO)
Chief Executive Officer of TBC Bank Group PLC
Chief Financial Officer (or CFO)
Chief Financial Officer of TBC Bank Group PLC
Code
Company
Corporate segment
The UK Corporate Governance Code
TBC Bank Group PLC
Corporate segment comprises business customers that have annual revenues of GEL8 million or
more, or have been granted loans equivalent to US$1.5 million or more. Some other business
customers may also be included on a discretionary basis
Deputy Chairman
Deputy chairman of Board of Directors of the Company
Director(s)
Group
Members of the Board of TBC Bank Group PLC
The UK-incorporated parent company of Joint Stock Company TBC Bank (the Bank) and its subsidiaries
Internet banking penetration ratio
Number of active internet banking users divided by total number of active retail customers
Kopenbur Insurance Company
Joint Stock Company Insurance Company Kopenbur
Management Board
Micro segment
Management Board of Joint Stock Company TBC Bank
Micro segment comprises business customers with loans below US$70,000, as well as pawnshops,
credit cards and cash cover loans granted in TBC Bank Constanta branches, and deposits up to
US$20,000 in urban areas and up to US$100,000 in rural areas of customers of TBC Bank Constanta
branches. Some other business customers may also be included on a discretionary basis
Mobile banking penetration ratio
Number of active mobile banking users divided by total number of active retail clients
Offloading ratio
Number of transactions conducted in remote channels divided by total number of transactions,
based on JSC TBC Bank standalone data
Product per customer ratio
Number of active products divided by number of active customers
Retail segment
SME segment
Supervisory Board
TBC Bank
TBC Status clients
Retail segment comprises individuals not included in other segments
SME segment comprises business customers that are not in the corporate or micro segments.
Some other business customers may also be included on a discretionary basis
Supervisory Board of Joint Stock Company TBC Bank
The UK-incorporated parent company of Joint Stock Company TBC Bank (the Bank) and its subsidiaries
Clients with minimum monthly income of GEL2,000 or a loan of GEL20,000 or more, or deposit of
GEL20,000 or more
TBC Bank Group PLC
The UK-incorporated parent company of Joint Stock Company TBC Bank (the Bank)
TBCG
TBC Bank Group PLC (except for Remuneration Report, where it means TBC Bank Group PLC and
JSC TBC Bank together)
TBC Insurance
Joint Stock Company TBC Insurance, formerly Joint Stock Company Insurance Company Kopenbur
TBC JSC
TBC PLC
VIP
Wealth management for
non-resident clients
Joint Stock Company TBC Bank
TBC Bank Group PLC
Clients with a minimum deposit of US$100,000 as well as on a discretionary basis
Non-resident clients with a minimum deposit of US$100,000 as well on a discretionary basis
224 / TBC BANK ANNUAL REPORT AND ACCOUNTS 2016
ABBREVIATIONS
ACCA Association of Chartered Certified
FDI
Foreign direct investment
MB Mobile banking
Accountants
FMO Financierings-Maatschappij voor
MBA Master of Business Administration
ADB Asian Development Bank
ontwikkelin
AFS Available for sale
FTSE Financial Times Stock Exchange
MBO Management-by-objectives
MSME Micro, small and medium-sized
ALCO Asset-liability management
FVOCI Fair value through other
enterprises
committee
comprehensive income
ATM Automated teller machine
FVPL Fair value through profit or loss
BNY Bank of New York
CAGR Compounded annual growth rate
CAR Capital adequacy ratio
CEO Chief executive officer
CFA Chartered Financial Analyst
CFO Chief financial officer
CGU Cash generating unit
CIB
Corporate investment banking
CRM Customer relationship management
CRO Chief risk officer
CSR Corporate social responsibility
CVP Cost volume profit
DCF Discounted cash flows
DCM Debt capital markets
DEG Deutsche investitions- und
entwicklungsgesellschaft
EBRD European Bank of Reconstruction
and Development
ECL Expected credit losses
EECG Energy Efficiency Center Georgia
EMEA Europe, Middle East and Africa
EPS Earnings per share
ERM Enterprise risk management
ESRM Environmental and social risk
management
EU
European Union
EUR Euro
GBP Great British pound, national
currency of the UK
GDP Gross domestic product
GDR Global depositary receipt
GEL Georgian lari, national currency of
Georgia
GHG Greenhouse gas
HR
IAS
IASB
IB
IDR
IFC
IFI
Human resources
International Accounting Standards
International Accounting Standards
Board
Internet banking
Issuer default rating
International Finance Corporation
International financial institution
IFRIC International Financial Reporting
Interpretations Committee
IFRS
International Financial Reporting
Standards
IMF
International Monetary Fund
IPCC
Intergovernmental Panel on Climate
Change
IPO
Initial public offering
IT
Information technology
JSC
Joint stock company
KPI
Key performance indicators
LED Light-emitting diode
LSE
London Stock Exchange
NBG National Bank of Georgia
NCI Non-controlling interest
NIM Net interest margin
NPL Non-performing loans
NPS Net promoter score
OCI
Other comprehensive income
OECD Organization for Economic
Cooperation and Development
PLC Public limited company
POS Point of sale
PPP Purchasing power parity
ROAA Return on average assets
ROAE Return on average equity
SME Small and medium-sized enterprises
SPPI Solely payments of principal and
interest
STEM Science, technology, engineering and
mathematics
UK
United Kingdom of Great Britain and
Northern Ireland
USD The US dollar, national currency of
the United States
VIP
Very important person
VAR
Value-at-risk
WB World Bank
WM Wealth management
WRI World Resources Institute
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